Constitutional review should feature in Kenya’s Economic Stimulus Package

In Summary

• Business sentiment is deteriorating at an alarming pace.

• Most entrepreneurs, investors and managers I know feel cornered by circumstances beyond their control. 

The KRA headquarters at Times Towers.
The KRA headquarters at Times Towers.
Image: FILE

There is no shortage of authoritative reports that paint a rosy picture of Kenya’s economic prospects. Besides the highly cited World Bank Ease of Doing Business Report, which captures Kenya’s steady rise from position 113 out of 190 economies in 2015 to position 61 in 2018, there is also a recent bullish report by Standard Chartered Plc.

According to the new report, Kenya is ranked third out of 66 economies in terms of potential for future trade growth. The bank cites enablers such as improvements to physical and digital infrastructure, e-commerce and ease of doing business.

The cruel irony is that, despite all these upbeat reports, the reality on the ground is markedly different. Business sentiment is deteriorating at an alarming pace. Most entrepreneurs, investors and managers I know feel cornered by circumstances beyond their control. To the front, there is an overzealous taxman making outrageous tax demands. At the rear, aggressive auctioneers are closing in on businesses that have failed to service their loan obligations due to delayed payments from government and corporates.

On the flanks, demotivated employees are living in morbid fear of losing their jobs in view of the recent wave of layoffs affecting nearly every sector. Access to credit and an unpredictable regulatory environment are also other key challenges businesses are grappling with. Whichever direction business leaders look to, there is uncertainty and turbulence.

Amidst this potent mix of challenges and headwinds, business confidence in Kenya is rapidly plunging. This is reflected in the NSE, which has been steeped in a prolonged bear run that has seen dozens of listed companies lose billions in market capitalization this year.During a recent interaction with a leading fund manager who covers Africa, I was shocked when he informed me that foreign investors are now taking a wait-and-see approach, despite attractive valuations in the stock market and good opportunities in private equity. The fundamental question foreign investors are asking is: “If locals are not investing, why should we?”

An elaborate stimulus package is urgently needed to get Kenya’s economy back on track and restore business confidence. The contents of this package should be subject to an open dialogue between the private sector and the government. However, some basic minimums need to be included in this package. Otherwise, Kenya risks slipping into the realm of uncompetitive nations.

The first basic minimum is the introduction of checks and balances to ensure the Kenya Revenue Authority (KRA) does not kill enterprises in the name of tax collection. What is the use of cutting down a tree to eat its fruit?Second, all pending payments need to be released and legislation needs to be subsequently enacted to penalize offenders and cushion victims of delayed payments, who are currently in a cat-and-mouse game with auctioneers. Third, and perhaps most important, a constitutional review is needed to address the elephant in the room that is largely to blame for this whole mess – overrepresentation in the legislature.

As a country, we moved from having one legislative body to having 49 (Senate, National Assembly and 47 county assemblies) without critically interrogating the cost. The cost of running a bloated legislature explains why recurrent expenditures are spiraling out of control. This naturally puts pressure on KRA to collect more and more taxes each year, despite the fact that the tax base is not expanding commensurately with tax collection targets. This explains why businesses have been hit with unreasonable tax demands.

The high recurrent expenditure has also widened the budget deficit, leading to increased uptake of debt. Lawmakers recently approved the government’s plan to significantly increase the country’s debt ceiling from the current Sh6 trillion to Sh9 trillion, which is roughly the size of our current GDP. As the government borrows more, banks will continue shunning local businesses in favor of “risk free” government paper, aggravating the painful liquidity crunch currently facing many companies.

Lastly, the outsized legislature leads to overlapping regulations, misaligned policies and continuous litigation, keeping investors at bay due to chronic unpredictability. Indeed, the proliferation of legislative assemblies under the current constitutional order has validated the timeless English adage – too many cooks spoil the broth.

A stimulus package without a constitutional review won’t do the economy justice. Admittedly, constitutional amendments won’t be easy to implement politically, but it will be for the greater good of every hardworking Kenyan who wakes up every day with the noble desire to provide for their family.

Meanwhile, in order to alleviate the pressure currently facing business, the Presidential Directive on June 1st for the payment of pending bills for suppliers and contractors should be fast-tracked.

An amnesty should also be granted to all debt defaulters to clean up their credit if they can demonstrate that they defaulted as a result of delayed payments. This should extend to the end of 2020 so many who have fallen off and can no longer secure credit or seek employment due to bad credit are given a second chance. We cannot move Kenya forward if half of us fall by the wayside. The economy needs a stimulus package, the business community needs space to breathe.

Mr. Kittony is a business leader, Vice Chairman World Chambers Federation

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