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Ideas & Debate

When do firms deserve support from taxpayers?

 JKIA
A section of the JKIA in Nairobi. FILE PHOTO | NMG 

The proposed Kenya Airports Authority (KAA) merger with cash-strapped Kenya Airways eyes public assets to be extracted from taxpayers. The answer to the Privately Initiated Investment Proposal (PIIP) is that it can succeed and profit Kenya. The devil is in technical details of the methods used.

Forget about concise measurements. Some economic concepts are grasped intuitively even by Wanjiku. The term positive externalities in public subsidies tests the use of public resources to drive private activities on mainly three considerations: Who foots the bill of the subsidy (e.g. tax rebates, land grants, worker-friendly infrastructure like minimum wages, mass transit and housing); where do beneficial spillovers accrue; and, how does the subsidy address inefficiencies in the assistance.

KQ uses misinformation, skips public participation and stares down on the owner, Wanjiku, to convince government to dip into Treasury support for a private entity. Publicly listed on the Nairobi Securities Exchange(NSE), the Government of Kenya (GOK) is only one of its shareholders. Yet it has over-played its script as if Jomo Kenyatta International Airport (JKIA) was a cake for friends to share, ignoring redistribution of income from taxpayers as a whole to KQ, with no guarantees to Wanjiku on positive externalities.

Issues simmer: on leasing and purchase of aircraft at inflated costs and the unseen hand of disguised entities. Unresolved, these could defeat attempts to end inefficiencies in KQ.

To avoid value judgements, recent forays with Wanjiku’s money into maize subsidies, fertiliser subsidies, misfiring dam projects and other scandals in abuse of taxpayer assets should raise the alarm over KAA/KQ merger.

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It’s also a turning point for public assistance. Why? Public funds based on rules already support women, unemployed youth, small businesses, the aged etc. They are universally justified with social objectives in income distribution, employment, environment, etc. Not so the KAA/KQ merger. It introduces a multimillion corporate mega-deal, an innovation wrapped as entitlement, rubberstamped as a giveaway to a listed entity (no less) to dig itself out of a hole largely self-dug.

Government is not blameless as the custodian of Wanjiku. The mega-deal is a parade of loose cannons with a tendency to stray in with cronies, even within KQ itself. It trusts them with tasks that require dispassionate due diligence and use of applicable technical and leadership capacity. This capacity is often available in plain sight among Kenyans. It is ignored by vested interests that would rather pay foreign consultants with substandard domain knowledge.

And now we hear— from the worries of the investigative agencies who tracked official travel in the dams’ scandals — that this conceals airborne corruption. Objectively, this is a work for technocrats with matching skills for targeted results and strategic communication lest the corporate deal parades yet again the endemic inability of African governments to deliver on their mandates even with good intentions.

For starters, the KAA as a public body to manage Kenya’s airports and airstrips, was reportedly not involved (except in ceding records) in the PIIP. Even the Board of Directors of KAA seems set to hearsay mode. If true, this is bad for transparency and fiscal discipline. The good news is: No one quibbles with KQ/KAA or government on the possibilities of public assistance to revive essentially private entities, even with loss-making KQ. A model of assistance can be justified in a technically informed policy framework.

This is the missing link exposed in the Auditor-General’s report to the National Assembly on Thursday March 21,2019, doubting competences and advice availed to decision makers by line ministries and departments (MDAs). Proof exists of top-notch leadership, skills and effective public assistance using taxpayers’ assets to support corporate private entities in crisis. Take the threats of the 2009 financial crisis. The US government supported the private sector on a massive scale ($ 204.9 billion to bail out banks, for example) matched with appropriate competences, and an overriding macroeconomic policy mix framework. It eased both fiscal and monetary policies. Banks that could have gone bust instead benefited directly when the Federal Reserve (central bank) unleashed quantitative easing (increased liquidity to banks) to lower interest rates, increase lending and spur economic growth. Government on the fiscal side raised strategic spending.

This revived lending, stopped a bank credit panic and stimulated consumer and investor spending. All this despite heated debates that stoked anger, just as in the KQ/KAA debates in Kenya. Many feared the banks would fatten executive bonuses. Yet, impending bankruptcies were averted under the policy mix. Interestingly for the rambling KAA/KQ debate, Kenya at the time (CBK and Budget of 2008-2009) used a similar policy mix to grow GDP from 3.3 percent in 2009 to 8.4 percent in 2010, the highest achievement since.

Once US economic growth gained traction, banks repaid taxpayers through the Troubled Asset Relief Programme (TARP). The government even profited taxpayers (with a repayment of $ 211.5 billion).

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