Contractor-negotiated loans bad

Proposed law on loan  guarantors is overdue
Proposed law on loan guarantors is overdue. FILE PHOTO | NMG 

The revelation by the National Treasury this week that projects worth Sh366 billion across the country have stalled is a damning indictment on the capacity of the government to deliver them on time.

It is Francis Fukuyama — perhaps the most famous economic philosopher of our time — who recently came up with new and fresh insights on the subject of state capacity. Countries can be divided into high and low capacity states.

Fukuyama has argued that the dogma that Bretton Woods pushed governments in developing countries to roll back the frontiers of the state by reducing the size of the civil service bureaucracy no longer made sense.

I once read an illuminating commentary by him in the Guardian newspaper that the editors aptly headlined as the ‘‘Return of big government.’’

The statement on stalled projects that was tabled in Parliament this week is something that should prick the conscience of our leaders.

In a sense, it is a vote on the performance of the experiment President Uhuru Kenyatta has been trying by introducing a Cabinet full of technocrats.

Which begs the big question: Is a Cabinet composed of an enclave of unelected technocrats parachuted into the public sector ostensibly to inject private sector discipline likely to be more efficient than one composed of politicians?

When you look at the present Cabinet — in terms of the ability to deliver projects on time, are you likely to reach the conclusion that the technocrats are better performers?

Within this region, the government of Ethiopia is regarded as having a better record at delivering projects on time and within budget. Indeed, the Ethiopian government has been rolling out big infrastructure projects in record time and at a rapid rate.

Which is why it comes as no surprise that we have contracted the Ethiopians to sell to us a lot of electricity from its dams.

It is indeed a statement of high state capacity in Ethiopia that despite the fact that its electricity, even after travelling long distances to reach Kenya, will still be hitting our national grid at prices lower than the power we produce locally.

When a government has high state capacity, it can deliver big infrastructure projects at low cost. I will be the first to question the democratic credentials of the ruling elite in Ethiopia.

Indeed, the government in Addis Ababa holds the world record in terms of jailing journalists. Yet in terms of state capacity, it is way ahead of the rest in the region.

Rwanda, in the early years of President Paul Kagame’s administration, would also have qualified as a country with high state capacity. Clearly, the experiment of a Cabinet of technocrats has failed dismally. The central government is just too weak to deliver projects on time.

Worse, you have county governments that are even weaker and that are accumulating stalled projects at a rapid rate.

It is surprising indeed that even as the list of stalled projects keeps growing longer, the appetite for new projects remains insatiable.

Cabinet secretaries, principal secretaries and CEOs of parastatals have been busy committing the country to projects, signing memoranda of understanding and commercial agreements with Chinese contractors - all without the consent of the Treasury.

Today, the Treasury is the last to be consulted when a ministry or state department decides to undertake a project with a Chinese contractor.

It is like we have outsourced the critical role of planning for projects to the Chinese.

In my view, the practice often referred to as contractor-negotiated loans where we allow Chinese firms to perform the dual roles of arranging for you the financing while at the same time building the projects has been grossly unfair to us.

And, these new projects which we contract even as the list of stalled projects accumulate are the main reason why we have accumulated too many expensive Chinese loans on our debt register.