Kenya’s public debt is fast approaching the Sh5 trillion mark. The fast growth of borrowing and the rise in debt-to-DGP ratio above 50 per cent is increasingly becoming a point of concern.
In his second term, the President faces a herculean task of financing mega projects such as the completion of the SGR railway, Lappset, roads free secondary and primary education and an expanded social welfare programme.
Experts say that the service of debt is the main concern, especially external debt which eats into valuable foreign reserves.
In Jubilee’s second term, syndicated loans will become due, as will the $500 million five-year tranche of the Eurobond the country issued in 2014.
“While the total debt stock is not the main problem, the rise in external debt service is the main concern and in order to ensure that Kenya’s debt remains on sustainable path, it is imperative that a journey towards fiscal consolidation is thought about in the medium term,” says Stanbic regional economist Jibran Qureishi.
As such, the President will be under pressure to bring down the spiralling recurrent expenditure in government, and may thus have to make painful and politically unpopular decisions in the next five years.
He faces a fine balancing act given the promises made and agitation for higher wages by nearly all sectors of public service.
Creation of one million jobs a year was one of the Jubilee administration’s key promies in 2013.
Kenya has suffered high unemployment, especially among the youth, with the problem now threatening to spill over and become a social nightmare manifested through higher crime levels and other anti-social acts.
In its 2017 manifesto, the Jubilee party said it intended to create 1.3 million jobs every year in the next five years, and also work with devolved governments to set up at least one manufacturing industry in every county.
Experts say it is important to direct investments to sectors that create employment.
“It’s high time that public investment in infrastructure is recalibrated towards priority areas such as irrigation and power transmission to provide the much needed support to the job creating sectors such as agriculture and manufacturing,” says Stanbic East Africa region economist Jibran Qureishi.
The 2017 Economic Survey report shows that last year, the economy generated a total of 832,900 new jobs of which 85,600 were in the formal sector while 747,300 were in the informal sector.
In order for an economy to generate new jobs, key sectors have to be growing, key among them in being the SME segment which is estimated to account for about 80 per cent of the jobs in Kenya and 45 per cent of the country’s GDP.
This sector has suffered the most in the current slowdown of credit to the private sector, meaning that the government must find ways of tackling this problem that has been amplified by the rate cap.
“Creating jobs and opportunities for our young population is also a top priority. In this regard, we will target manufacturing,” said the president yesterday.
Interest Rate cap
One of the most popular pieces of legislation passed by Parliament in recent years, the rate cap law has shaken the banking industry.
The banking sector has blamed the rate cap for the low annualised growth in private sector credit, which as at October stood at two per cent. This stance has been backed by Central Bank, which has called for a review of the law, and a number of other financial sector experts.
Stanbic East Africa regional economist Jibran Qureishi adds that it will be important for the Kenyatta administration to reassess its stance on the interest rate capping law, given that it has limited access to credit by Small and Medium Enterprises, which are the engines for economic growth in Kenya.
The decision to cap rates was a political one, coming after years of complaints against the pricing of credit by banks.
The President, in his final term, can however now approach the issue unencumbered by political considerations, and he is therefore in a strong position to lobby parliament to revise the law.
CBK governor Patrick Njoroge said last week that banks have also to do their part, and convince the public that they will not slip back to their bad ways should the law be reviewed.
As he takes office for his second term, President Kenyatta will look back on the huge growth in access to electricity during his first term in office and nod with some degree of satisfaction. The connectivity rate has risen to 70 per cent from 28 per cent in 2013, according to official data.
He must, however, remain alive to the fact that the cost of electricity remains too high for many businesses and households, despite repeated promises to cut power bills. His directive on this matter, which has a significant bearing on the competitiveness of locally-produced goods is worth noting.
“I have directed that with effect from December 1 2017, power tariffs charged to manufacturers will fall 50 per cent between the hours of 10 p.m. and 6 a.m. This in line with our policy of a 24-hour economy,” Mr Kenyatta said after he was sworn-in yesterday.
Official data shows that homes that consume 200 kWh a month paid Sh3,751 in bills last month, up from Sh3,665 in September. In June 2014, that charge stood at Sh4,712.50.
The task at hand going forward is how to bring down the cost of power – an achievement that would significantly boost household budgets.
Businesses also incur huge costs on power, and provision of cheap electricity remains a key demand if the country is to industrialise. Cheap renewable energy remains key on the agenda.
Kenya’s total power capacity rose marginally to 2,370 megawatts in the year ending June, from 2,341 megawatts a year earlier and 1,885 megawatts in 2014.
New projects such as the Lake Turkana Wind Power have been hampered by delays in building transmission lines.
Such issues must be ironed out of the government is to achieve its goal of universal access to power by 2020.
Health equipment plan
The health sector has had more disturbances in the past two years than at any other time in the recent past.
A lot of investment has gone into the sector, mainly through the Sh38 billion county health equipment plan, which was meant to help devolve first class health facilities that were previously only found in Nairobi, to the countryside.
Health has however been one of the most troubled dockets during Mr Kenyatta’s first term in power.The Afya House corruption scam dominated headlines, while labour disputes including the 100-day doctor’s strike caused untold suffering to Kenyans.
Cleaning up this sector will be one of the key tasks facing the President, keeping in mind the promise of free primary healthcare for very Kenyan.The government has also promised to establish 10 new referral hospitals, set up a cancer centre and scale up the equipment programme in the counties.
This is one of the dockets that will require a higher allocation in the budget in the next five years, and is likely to be the most watched in light of the mismanagement seen in the first term.
Mr Kenyatta appears to have his mind in the right place with the declaration that his administration will target 100 per cent Universal Healthcare coverage in the next five years. “Within five years, my Administration will ensure that 13 million Kenyans and their dependents are beneficiaries of this scheme,” he said.
Kenya’s economy slowed down to a five-year low in the second quarter of 2017, as a biting drought took a toll on key sectors and left about 2.7 million people in need of food aid.
Agriculture is a major source of employment and the country’s largest sector, accounting for 25 per cent of the gross domestic product (GDP) and roughly 50 per cent of export revenue.
Human life is sacred and all measures must be taken to ensure that Kenyans do not perish for want of food.
This year’s drought, the government confessed albeit late, had been predicted from late 2016, but the interventions were late in coming.
The government intervened by offering maize subsidies to millers and seeing the common man purchase a two-kilo packet of flour at Sh90, down from the average of Sh120 before the subsidies kicked off.
On the face of it, this is something worth celebrating—for consumers, bureaucrats and perhaps millers—but a deeper look tells you this could pose future problems, especially for maize production.
The subsidy cost taxpayers over Sh8 billion, following numerous extensions by Treasury. This programme is not sustainable.
It was also worthwhile to hear Mr Kenyatta yesterday state that the government had indeed learned a painful and expensive lesson through the past drought.
His government must get serious on large-scale irrigation to sort out the maize supply shortages; the Ministry of Agriculture must make strategically sound decisions that will end the cycle of expensive maize subsidies.
“The recent prolonged drought has taught us some painful and expensive lessons. We must completely re-engineer our agricultural sector in order to be food secure. Never again should we allow the vagaries of weather to hold us hostage,” said Mr Kenyatta.
By 2022, the construction of the standard gauge railway (SGR) to the Uganda border should be complete, going by current plans for the railway.
The railway has been the flagship project of the Jubilee administration, which has identified it as the vehicle towards industrialising the country and making it easier to do business in Kenya.
Cost questions have, however, dogged the new railway since the deal to finance the first phase from Nairobi to Mombasa was agreed in 2013.
The Mombasa - Nairobi leg of the railway has cost Sh327 billion, with the second phase to Naivasha expected take up another Sh155 billion and the third to Kisumu Sh370 billion.
Kenya will start remitting the principal sums borrowed from China from August 2023 in a repayment period that is spread up to 40 years.
Onus is therefore on the government to ensure that by this time the railway is generating enough revenue to pay for itself.
Kenya is locked in a race with Tanzania for the transport business from landlocked neighbours, with facilities such as the SGR key to gaining an edge over rivals.
Getting Uganda to build their leg of the SGR from Malaba is also important to ensure its viability, and key in protecting the business coming through the port of Mombasa.
Official data from the 2017 Economic Survey shows that up to the end of last year, the Kenyatta administration had built about 3,200 kilometres of bitumen roads between 2013 and end of last year. The total length of tarmacked roads stood at 14,500 kilometres by end of 2016, up from 11,300 kilometres in 2013.
The new roads added onto the network fell short of the promised 10,000 kilometres in five years, even though there are a number of ongoing road projects across the country.
The new roads were to be built under the annuity programme, which met some headwinds due to inflated costs and slow pace of project approvals.
In their second term, Mr Kenyatta and his deputy, William Ruto, have promised to complete some 7,000 kilometres of roads currently under construction, perhaps indicating that the government is eyeing a more realistic target for new roads in such a short period, under tougher economic times than was the case five years ago.
“We have also embarked on building … thousands of kilometres of access roads to connect producers to markets,” said the President.
More than just building roads, coming up with urban transport plans that decongest key cities such as Nairobi and Mombasa, where traffic snarl-ups are costing the economy billions every year will be key.
It is barely a week after the results of this year’s Kenya Certificate of Primary Education (KCPE) examination, with the government promising an ambitious 100 per cent transition rate.
Come January, the Jubilee government intends to roll out its Sh56 billion free secondary school education programme that will on paper see all 998,718 pupils who sat the KCPE exam advance to the next stage.
The Kenyatta administration will draw from the lessons learned from the free primary education programme by his predecessor Mwai Kibaki.
The failure to finance public primary schools appropriately led to deterioration of infrastructure.
This fiscal bungle, coupled with inadequate deployment of teachers, has seen the quality of education in public primary schools – as evidenced by national exam performance – dip.
Mr Kenyatta’s inauguration also comes days after university lecturers snubbed an apparent Sh5.2 billion disbursement promise by the Treasury meant to entice them to call off their third strike this year.
A solution to these seemingly perennial strikes, including those by primary and secondary school teachers, needs to be developed and adhered to by all the parties.
Kenya is at the cusp of a new education system. The new 2-6-3-3 curriculum is set to replace the over three-decade-old 8-4-4 system next year, with rollout planned for 470 primary schools.
“We have reformed our education system. We have restored the credibility of our exams. We have made education the great equalizer by removing exam fees; by providing digital learning devices; and by reviving our technical and vocational training,” said the President.