The recent announcement by Government to merge six institutions into a development bank is a timely reminder that the October 2013 Report on the Presidential Task Force on Parastatal Reforms remains largely unimplemented.
The State House statement informed us that the Kenya Industrial Estates (KIE), Development Bank of Kenya (DBK), Industrial Development Bank of Kenya (IDB), Uwezo Fund, Youth Enterprise Development Fund (YEDF) and Women Enterprise Development Fund (WEDF) will be merged to form the mega development finance institution.
The argument put forth is that this will eliminate parallel and overlapping roles, while improving efficiencies by exploiting economies of scale.
But is a mega-development bank the answer to the policy challenge around limited SME access to credit? That’s a question for a national conversation.
One thing is clear, the interest rate caps, the populist solution adopted in 2016 has had the opposite effect on SME access to credit to that which was originally intended.
The mega-development bank announcement has a history in the Parastatal Reforms Task Force report.
At a time Kenya faces immense fiscal pressures, a growing debt mountain and serious fiscal transparency questions, let’s recall the “reorganisation logic” in the report.
Out of 262 government owned enterprises (GoEs), as the Task Force named them, the essential recommendation was to drop 21 based on the GOE definition, return 22 to parent ministries, eliminate 18 whose functions are now devolved, merge 28 whose functions were similar and create 14 new entities, bringing the new total to 187.
Using a new set of definitions, these 187 GOEs were categorised into 34 commercial state corporations (for example, Kenya Meat ComMission), 21 commercial State corporations with strategic functions (say, National Cereals and Produce Board), 62 executive agencies (Kenya Revenue Authority, for example), 25 independent regulatory agencies (Energy Regulatory Commission among them) and 45 research institutions, public universities and tertiary education and training institutions.
It is fair to say that the report failed to factor in the small matters of parastatals as tools of political patronage, while ignoring our newly emerging devolution context. Further questions were raised on the burning platform that necessitated these reform proposals at that particular time.
However, I think it’s worth revisiting this report from a different perspective.
Specifically, the various “one-stop shop” proposals in the report. Better to have a “one-stop shop” that can be devolved than individual devolved agencies all over the place, right?
How many people know that KIE has offices in 37 counties? Who benefits from their services?
Let’s revisit a couple of these “one-stop shop” ideas.
To begin, the current mega-development bank idea is essentially a hybrid of two from the report.
First, the formation of Biashara Kenya to merge and consolidate the Micro and Small Enterprises Authority (MSEA), YEDF, WEF, the SME Fund and the Uwezo Fund.
Second, the establishment of the Kenya Development Bank (KDB) as a consolidation of five existing development finance institutions (DFIs) — KIE, IDB, ICDC, Agricultural Finance Corporation (AFC) and the Tourism Finance Corporation (TFC). Of course, it’s different now.
The report also proposed formation of a single investment promotion agency with the scope and scale to market the country, promote DDI and FDI and provide seamless “one-stop shop” services.
Hence, Kenya Investment Corporation (KIC) as a merger of the Export Promotion Council (EPC), Kenya Investment Authority (KenInvest), Kenya Tourism Board (KTB), and Brand Kenya Board (BKB).
Think further about an unnamed body that would combine the functions of the Kenya Copyright Board (Kecobo), Kenya Industrial Property Institute (Kipi) and Anti-Counterfeit Agency (ACA), as is best international practice.
Today, these are three “silos” where each body is represented on the other’s Board.
Finally, recall that in April 2017 Cabinet approved the formation of the Financial Services Council to bring together financial services regulators (other than CBK) CMA, RBA, IRA and Sasra – to deal with the demands of a liberalised sector. What happened next?
Kenya has not had a serious discussion on parastatal reform since the privatisation era of the 1990s, where we got rid of the “crown jewels” and left everything else untouched.
While it makes sense for government to continually assess the returns it achieves on its investment in commercial enterprises, the bigger discussion today must revolve around a “one-stop shop” approach to rationalise the “institutional inflation” that our non-commercial public enterprises represent. Food for thought.