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September 26, 2018

Is Devolution Providing Value For Money?

It’s the Tibetan prayer mill of Africa’s new oil countries: Of course we’ve studied the case of Nigeria’s Niger Delta carefully, and of course we’re going to avoid this. Because, you see, we’ve studied this, and we say so because we’re serious. And credible, too. That is what any government would tell you, and just as obviously you will take government statements at face value at your own peril.

Economist David Ndii didn’t look towards the often-referenced Niger Delta to sound a warning to Kenya. Instead, he looked at Ghana: A country that discovered oil at roughly the same time as Uganda, but has already been producing oil since 2010 while Uganda, with its assorted shenanigans, now mostly invites rolled eyes whenever it announces a new production date. With oil money within reach, Ghana issued a first sovereign bond in 2007, and then, for good measure another one last year, taking on a total of $1.5 billion in debt here. Add to that another $3 billion from China in return for oil revenues. Sounds familiar, right?

And Ndii points out that many ordinary Ghanaians now wonder what happened to all that money because they can’t quite see where it went. Well, some of that money did trickle ‘down’ in some form: ‘Government expenditure has ballooned from 20 per cent to 27 per cent of GDP in the last two years, against revenues of 20 per cent of GDP’, writes Ndii. Now government spending as such doesn’t necessarily make a tangible difference in people’s lives – a lot of cash appears to have been spent on questionable contracts being paid unchallenged (AngloLeasing anyone?), by the president’s own admission the equivalent of Sh28 billion. Money seems to just generally have gone up in a puff of smoke.

In the meantime, the current account deficit widened from eight percent before oil production to 13 per cent in 2013, the currency tanked, government can’t pay bills, and is now talking to the IMF about a help. Public debt has risen to more than 50 per cent of GDP, and the fiscal deficit had reached 10.3 per cent in 2013.

True, no Niger Delta type violence, but it seems that before we even get to managing the so-called ‘Dutch disease’, i.e. the impact that large new foreign currency inflows have on the economy, we should be more concerned with overspending way beyond what future oil revenues would realistically suggest, and then, as usual, the quality of spending, too: that hasn’t improved, but the more money is available to spend, the more is lost.

Ndii does a great job at tracing Kenya’s government borrowing and the development of the budget deficit. There’s the recent Eurobond, and of course the promised $3 billion from China for the standard-gauge railway that has no underlying business case. According to his data, ‘In relative terms, the budget deficit averaged 3.5 per cent of government expenditure during the first Kibaki administration, rising to an average of 19 per cent during the Grand Coalition administration. It has averaged 29 per cent during Jubilee’s first year, and it’s still rising. What is the Jubilee Government doing with money? I have no idea.’

And on debt: ‘The Grand Coalition increased our debt by Sh1,000 billion (one trillion) in five years. The Jubilee Government has done three quarters of that in one year.’ He concludes: ‘Whatever the case, we cannot afford to continue on the fiscal path that we are on. It is reckless. This mega-infrastructure madness has to stop.’ The mega projects are certainly a concern: whether they make sense in the first place, and just as importantly how they will be implemented. But I also no longer feel a niggling unease when I look at the process of devolution – these days, I have massive, raging unease: Of what benefit to the tax payers exactly are the senators? The presidential spending habits of governors? The unashamed thuggery of the MCAs? Tourism, a sector that generates widespread employment, is crashing while nobody pays attention. In a few years, yes, oil revenues can perhaps make up for that in terms of revenues, but most certainly not in terms of employment, which will have serious implications. And not only do all these three layers gobble up ever more money (allowances for MCA spouses? Puleeze!), but they also spend the bulk of their time fighting with each other rather than working. Value for money?

PS: The Economist wrote about Ghana’s negotiations with the IMF: ‘The IMF will probably demand a cap on borrowing, a public-sector pay freeze, a more consistent policy on subsidies and perhaps some privatisation of power and water companies.’ Which sounds so very back to the future – IMF bailouts and austerity programmes in 2014? Again? What next – a new and expensive Eurobond, and then how many years to a debt rescheduling/relief programme?

 

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