Ideas & Debate

Well-run counties key to resilient economy

Manish Patel (left), salesman at a hardware store in Eldoret town,  and another worker, Hosea Kosom, wait for customers in the week to last month’s repeat presidential poll. PHOTO | Jared nyataya | NMG
Manish Patel (left), salesman at a hardware store in Eldoret town, and another worker, Hosea Kosom, wait for customers in the week to last month’s repeat presidential poll. PHOTO | Jared nyataya | NMG 

A few weeks ago, the Kenya Private Sector Alliance said the business community had lost more than Sh700 billion in just four months of electioneering.

This estimate was arrived at by costing not only business lost due to disruptions linked to protest and general unrest, but deferred investment decisions.  The economy’s performance this year is weaker than last year.

It expanded 4.7 per cent in Q1, down from 5.9 per cent in 2016, with Q2 at five per cent, down from 6.3 per cent last year. Previous analysis indicates that the economy tends to slow down in an election year by about 1.2-1.4 per cent.

Of the 10 elections the country has held, seven have been associated with slower economic growth; and it takes about 26 months for the economy to fully recover from an election.

While there is warranted concern about the extent to which the economy is tethered to politics and elections, other dynamics have negatively informed growth this year. They include drought, which led to a contraction in agriculture that constitutes about 30 per cent of the economy.

Additionally the interest rate cap negatively affected the financial sector, which constitutes about 10 per cent of the economy with knock-on effects of contraction in access to credit particularly to small- and medium-sized enterprises. Thus even without the effects of the election, at least 40 per cent of the economy was struggling this year.

That said, we must examine election years. Clearly key investment decisions by private sector tend to be deferred while any decisive action in policy is delayed. The question now becomes: what can be done to make the economy more resilient to politics and elections, buffer Kenyans from related uncertainties?

Leveraging devolution with a focus on county governments and county private sector is key to achieving this.

The first step in building resilience is encouraging a fundamental shift in the mind set of counties. At the moment counties seem to view themselves primarily as expenditure units, not development units.

Rather than obsessing over what allocations have or have not been made to them, they have to enter a mind-set where every penny is targeted at ensuring they drive economic development.

Secondly, they ought to listen to concerns of the private sector in the counties. The sector is dominated by informal businesses as 90 per cent of Kenyans are employed here and rely on it for income.

Yet the informal sector does not truly feature in county development documents; this needs to change.

County governments, perhaps with the support of the Ministry of Trade, should create a robust informal sector strategy that works to address structural weaknesses that compromise the sector’s robustness.

These could include piloting formalisation schemes, improving technical and business management skills and creating financial structures that provide patient capital to informal businesses.

The aim should be to stabilise informal businesses so that they continue to perform even during difficult political times.

Finally, county fiscal policy must be deliberately development-oriented. Dockets such as agriculture, health and devolved education functions ought to feature prominently in county allocations.

By investing in food security through agriculture and human capital, investing in education and health, counties can play a powerful role in building a healthy and educated population. That way they can better identify and exploit economic opportunities that build income.