President William Ruto’s Kenya Kwanza administration ran into troubles immediately it took over power in September 2022.
The cost of living had hit the roof. Surprisingly, the administration introduced new taxes, making the situation worse for many Kenyans.
Now, after more than one and a half years in office, the price of unga has significantly reduced. This is the case with other basic commodities.
The Kenya shilling had hit historic lows, but has now made dramatic gains against the dollar.
What is the magic?
Political reporter Julius Otieno spoke to the National Assembly Budget and Appropriations Committee chairman Ndindi Nyoro, one of Ruto’s closest allies, on the government’s interventions that have reduced the cost of living.
One of Kenya Kwanza’s key promises was economic transformation. Is the government realising this promise?
I can gladly say that we have achieved most of it. The President, in the last one and a half years, has been dealing with matters economy.
The economy has not been doing very well. But we are also not saying that it is doing very well now.
But there are things that we have done. When we got elected, the President summoned the National Treasury. I used to attend those meetings.
There was a meeting we started in midmorning and left the following morning. I remember David Ndii asking the President whether if given a chance he would run again.
We realised there were many things we did not know about the status of our economy.
What did you realise?
We realised our debt was too high.
The (budget) deficit, which then fits into that debt, was also growing immensely.
We also realised Kenya had overcommitted in terms of infrastructural projects. We had started so many things.
We borrowed from banks. Now these banks are saying, please bring back the money, or your grace period is over, please start paying.
When we realised the situation we were in, we decided to make some very far-reaching decisions.
What were these decisions?
First, in terms of making Kenya to move towards matching our expenditure and our revenues.
That is why the President had to bite the bullet and do what he did in terms of revenue-raising measures around taxation.
Secondly, we had to be inward-looking and be factual about infrastructure that we can do. We decided to put a freeze on the new ones for a start so that we at least stabilise the micros.
In short, things are very good from where I sit.
What makes you say so?
In economy, there are three parameters that are very critical: economic growth, inflation and currency.
Our economy grew by an average of 5.5 to 5.6 per cent, depending on where you get the figures, last year. Kenya was the 29th fastest-growing economy in the world last year. This was despite all the hardships we had.
In terms of inflation, we were almost at double digits when we took over. We were almost hitting 10 per cent.
Currently, the inflation figures for the month of March were 5.7 per cent. Kenya benchmark in terms of inflation goal is five per cent, with a margin of + or – 2.5 per cent.
The currency has gained. For the last one or two months, we have been the best gainers in the world.
These are things that people can see. When the dollar weakens against the Kenya Shilling, it is something that is not done in a closed door.
Therefore, on that front – macros – we have done quite something.
Do you think Kenyans are feeling this economic growth in their pockets?
The headache for us now is to stop saying the GDP grew, but for Kenyans to feel the GDP in their pockets.
That is why we are channeling our budget to the labour-intensive and the pro-people areas. Pro-people means where there are many people.
We are pushing money into agriculture because it is employing 70 per cent of our population.
We are pushing money into the low-level manufacturing, basically to take care of the produce we are getting from agriculture.
We are pushing money into redistribution, like the cash transfer.
When the economy grows, even those who are not able to partake in the growth, the Kenyan government shares the cake with them.
This is the same reason why we have heavily invested in our education because there is no family in Kenya that does not benefit from the education budget.
Very impressive figures on the economic parameters. What exactly has the government done to stabilise these numbers?
It is a mix of good policies and opportunity meeting preparedness.
When we were being sworn in, a packet of unga was in the region of Sh220.
The worst nightmare of a leader is leading hungry and, therefore, angry people.
Therefore, the urgency of the moment would easily have led us to do a very populist decision of either giving unga for free or subsidising.
But on the other side, Kenya was basically on a cliff.
We had to make a deliberate decision.
We had made a deliberate decision on whether we needed to subsidise unga. We did a feasibility and realised that even the subsidy that was there; one, it was not paid, and two, it was not effective.
So we looked at several parameters.
One is the stomach. The economy of the stomach is very important because that is the human being, basically unga.
What is it that had made the cost of unga go up?
The vagaries of weather, under-investment in the agriculture sector and, lastly, disruption of supply chains. Ukraine and Russia account for over 27 per cent of the world's wheat.
We decided to attack the economy of the stomach using input and production.
Immediately we made our first supplementary budget, and we put money for fertiliser — around Sh10 billion or so — we were able to order fertiliser very fast. Then, we got rain.
When you lower the cost of inputs, farmers are able to take lower prices for their produce, and therefore, unga prices came down.
The Kenyan currency has gained against the major world currencies. What was the magic?
Our currency was deteriorating because of two main factors.
One, our net exports are a negative, and, therefore, we run a deficit in terms of balance of payment. This continues to be the case.
That affects the currency because we pay whatever we import through the hard currency, which is the USD. Therefore, pushing up the demand and the strength [of the dollar].
Kenya’s number one import is fuel followed by edible oils. We import close to Sh150 billion worth of edible oil every year — sunflower and the rest.
That is why you see even in our policies, we are giving seeds for even sunflower.
But we are targeting import substitution using that so that we grow what is required to make edible oil and, therefore, we substitute with our local production. That’s already working.
Secondly, when you have seen the CBK raise the benchmark rate to the current, which is quite high, it is because of many things.
One is inflation, which we have been able to settle. We have three types of inflation: food, fuel and co-inflation.
Food inflation is attacked using fiscal tools. It’s basically food. If you grow food, the prices come down. That’s why we are subsidising production.
Fuel inflation is usually dependent on global trends because Kenya is not an oil producer. But fortunately, it’s also managed using currency. We buy fuel using foreign currency. If the Kenyan currency strengthens, inflation comes down.
Fortunately, oil prices have been coming down globally, that is why fuel inflation has come down.
Co-inflation are now the other things: TV, car, shoe, etc. This inflation, we attack it using money policy. We mop up from the pockets of people so they stop demanding too much. When they demand too much is when the prices go up.
The policies we have put in place to tame inflation have also assisted us to tame the weakening of the domestic currency.
Lastly, the fact that we got a formula for repaying the Eurobond. The whole world was waiting for us to go over the cliff, but we got a formula, which other countries are coming to borrow.
The whole world was waiting for us to go over the cliff with the Eurobond, but we got a formula for repaying it, which other countries are coming to borrow
The elephant in the room has remained the high level of public debt. Are we out of the woods?
Settling debt is a gradual process. We cannot be off the hook within one or two years.
Why?
For the last 10 years before we took over, Kenya accumulated about Sh8 trillion in debt. When the late former President Mwai Kibaki left, the public debt was around Sh1.6 trillion or thereabouts. When we took over, it was just about Sh10 trillion.
So, it is an issue that you cannot do at a go. It’s gradual.
When you see a deficit when we are making the budget, it is the accumulation of deficit that becomes public debt.
What we are doing now is to lessen this deficit to make it smaller and smaller so that we don’t continue adding more debt.
Deficit-to-GDP ratio in Kenya was almost seven per cent when we took over. The budget we are implementing has a deficit of 5.5 per cent. And the budget we are making the deficit is 4.4 per cent. We are targeting less.
We are also postponing some expenditures so that we don’t spiral too much. Currency had also levelled a dent on the debt, but with the strengthening of the Kenyan currency, we no longer have that problem.
There is a feeling among Kenyans that taxes are too high.
I appreciate the Kenyan people because pushing a leader is their right. A leader must always do better.
During Kibaki’s time, our revenue as a share of GDP was 20 to 22 per cent. It only came to 18 per cent after our economy was rebased in around 2010.
When we took over, it was below 14 per cent.
Kenya is largely an informal economy, but to say informal doesn’t mean people are not paying taxes. Even the informal people pay taxes.
Most Kenyans are not in the radar of paying taxes. For instance, Kenyans pay PAYE from a certain level. Many people are below that level, and therefore, do not legally pay taxes.
That is why our focus has been on raising incomes of the people so that they come to a bracket that is taxable.
As the chairman of the Budget Committee, are you certain that a time will come when Kenyans will say they are okay economically?
I really want us to reach there.
Currently, our GDP per capita is below $3,000 (Sh390,150). For us to reach the level of South Korea, which we used to be at par with, we need like 10 per cent for about 100 years.
We will do our best, but we must keep pushing ourselves. What Kenyans do by pushing us as leaders is very welcome. We are going to do our best, but we must never be satisfied.
For us to reach where the US are, at the current pace we are growing, it will take us like 200 years, and I don’t think we have the luxury of that. That is why we must grow double digits consistently.
There is a serious concern about wastage in government.
In our first supplementary budget, our target was to cut down on wastages. We cut a lot of hospitality.
However, there is a net to everything. After you cut hospitality, there is still a problem. Therefore, the main challenge is how to raise more revenue and also look for ways to manage our expenditures wholesomely.
The biggest problem we have as a country is recurrent expenditure. When we are budgeting development expenditure of Sh800 billion, we are budgeting recurrent expenditure of more than Sh1.6 trillion.
I have a prediction, myself, that Kenya will be among the fastest-growing economies in the world, most likely top 20 or 25.Our Nairobi Security Exchange is likely to be the best performing in Africa
Is there anything the government is doing to turn around the economy that Kenyans need to know?
There are many things the President has been doing.
The President has been very deliberate on job creation, both in public sector and private sector.
In the public sector, we have employed a lot of teachers, rangers and other people who are at the core of our strategic focus.
Secondly, the President has been very deliberate in looking for jobs outside.
I have a prediction, myself, that Kenya will be among the fastest-growing economies in the world, most likely top 20 or 25.
Our Nairobi Security Exchange is likely to be the best performing in Africa.
Lastly, the government has more than 270 parastatals. Out of those, how many make money? Very few. The government should be lean. A lean government is efficient.
That is why the government is privatising its companies to take off the burden.
What does privatisation mean? Is the government selling these parastatals?
There are several things.
The government can sell some. It can lease some. It can also partner with strategic partners to run some.