16 June 2019

Kenya: Uhuru Legacy Projects Get $4.3b Despite Slow Progress

The Kenya government's pet projects under the Big Four Agenda -- critical to President Uhuru Kenyatta's legacy -- were allocated $4.3 billion from the $28 billion 2019/2020 budget.

In his speech in parliament this past week on Thursday, National Treasury Cabinet Secretary Henry Rotich said this year's budget "lays a strong foundation for achieving the president's Big Four agenda." The allocation represents less than 14 per cent of the total budget.

The projects are supposed to ensure universal health coverage, affordable and decent housing, to increase the manufacturing contribution to the economy from 9.8 per cent to 15 per cent and guarantee food and nutrition security by 2022. However, the majority of these projects are behind schedule.

Universal health coverage got $906 million; manufacturing $40.8 million; affordable housing $183 million; and food and nutrition security $177 million.

Despite the increase in allocation, analysts say the amount substantially falls short of the resources required for successful implementation.

In a statement, Layla Liebetrau of the Route to Food Initiative project lead, said Mr Rotich's budget was not responsive to the needs of Kenya's smallholder farmers, who despite consistently producing over 70 per cent of its food, are worst affected by poverty.

MORE TAX

The government introduced tax measures projected to generate an additional $360 million for the exchequer, but with far-reaching ramifications for poor Kenyans.

These include increasing corporate gains tax from five per cent to 12.5 per cent, expansion of the withholding tax scope targeting people like security guards and those offering cleaning and fumigation services, catering and sales promotion.

The government also once again imposed punitive sin taxes, such as excise duty on betting activities at the rate of 10 per cent of the amount staked and 15 per cent on cigarettes, wines and spirits.

However, in efforts to ease the burden on manufacturers and enable the country to regain some competitiveness, Mr Rotich reduced the rate of value added tax withholding from six per cent to two per cent to help reduce the build-up of VAT refunds, which have badly affected cash flow in businesses.

"The large accumulation of VAT refunds has impacted negatively on the cash flow and liquidity of our manufacturers and the business community at large," said the minister.

Other notable measures include the retention of Customs duty for metal products at 25 per cent to protect local companies; extending the 25 per cent duty on paper and paper board products for another year; reducing import duty on raw timber from 10 per cent to zero and retaining import duty for finished timber products at 25 per cent.

BIG FOUR

Small businesses and traders got an assurance that Treasury would settle verified pending bills of $97.3 million owed by the national government within a fortnight, that inspections of imports will only be done at the point of export and suppliers of goods and services will be paid within a maximum of 60 days.

It was clear that the government is keen to accelerate the implementation of the Big Four projects.

Being critical enablers of the Big Four, the Cabinet Secretary allocated a whopping $3.2 billion to infrastructure projects like roads, railway, ports and energy and $3.1 billion to security agencies.

A major challenge for Kenya will be raising the required funds given its ballooning recurrent expenditure, shortfalls in revenue collections, a huge deficit and widespread corruption.

Mr Rotich said the government will effect austerity measures including rooting out ghost workers, standardised fleet management and renegotiating office leasing contracts.

In the coming financial year, the government projects revenues to the tune of $20.4 billion and expenditures of $27.2 billion, leaving a deficit of $5.9 billion, which it anticipates to finance through external and domestic borrowing.

Kenya

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