Involve private sector in mega State projects

Over the years debate has swung back and forth on whether the public sector or the private sector is best placed to progress a nation beyond poverty and truncated life expectancy.

Yet, as new indirect taxes bite this weekend, the expansion in Kenya’s public sector activity is now taking an indisputably heavy toll on the private sector economy and consumers’ interests.

As it is, tax is a particularly thorny issue when one third of GDP is produced by the untaxed or hidden economy. That makes the load heavier on the rest of us. And it makes indirect tax a necessary tool to raise public funds.

Indirect taxes are also designed to fall more heavily on the shoulders of the wealthy.

Thus, this weekend, we shall see the return of the 16 per cent of VAT on fuel.

At 16 per cent, VAT in Kenya is lower than in many economies. In the UK, it sits at 20 per cent. In some nations it is higher still – Croatia boasts VAT at 25 per cent.

But while Kenyan taxes are often lower than elsewhere, they are drawn from a poorer nation with a greater growth imperative, and are thus far more painful and damaging in our race out of the poverty space.

And this is where our public - private debate deserves far more attention in serving citizens and consumers.

For, as the government strives to cover its latest Sh273bn bill for infrastructure, the pace and scale of that build is straining government finances to the limit and creating an ever heavier load on consumers and the private sector.

Indeed, the ‘dash’ is so great, that the fear is we move into an unsolvable debt cycle, as ailing companies pay less tax still, and citizens consume less, thus undermining the government’s cash flow further.

It’s an outcome that will deny us all the ‘pot of gold’ at the end of the infrastructure journey, as we collapse, instead, into a disarray of sovereign debt default.

And here is the elephant in the room in our own equation for reaching nirvana: economically, structurally and in policy, Kenya is in the midst of its greatest gamble since Independence.

Can it pull off this great leap in infrastructure or will it keel over financially in the effort to do so?

Yet, as we all stare at the rising deficits, the deteriorating government cash flow, the lengthening public sector payment timelines, the consumption of domestic debt, and rising public sector debt servicing charges – it’s hard not to wonder why our ports, highways and train lines are all now sat within the public purse.

All over the world, there are private roads, built by private sector investors as businesses that charge for their use.

But, in Kenya, the public is paying for all of it. It’s paying for cargo service upgrades, for train line upgrades, for road extensions, for tourism advertising and for lending to hoteliers.

READ: Use of pension cash for mega State projects gets backing

And the further we go down that path, the more the consequent financial fragility of our State acts as a deterrent to further private sector investment.

That creates its own downwards spiral in deterring private facilities, while, as well, leaving us with individuals’ pay packets eroded and ever more businesses struggling.

And be clear that this fuel tax will hit everything. Every good that is moved, all logistics, all matatu fares, all production and consumption.

And the underlying cause is that our government, which has without doubt pursued a monumental array of transformatory initiatives, has proven woefully slap-happy in signing up ever more public spending to infrastructure projects, versus courting and clinching private sector investors to do that job instead.

And that’s a short cut we will all feel once again, as we all pay more at the fuel pumps from this weekend.

So let us keep on with the gamble, and see how many more businesses fold now, and how much less consumers can afford, and how much more our tax base gets hit, and whether we can make it on the massive spend.

Or maybe its time to get smarter, and go a big step more private in our building.