Long-term growth trajectory needed – Business Daily
Kenya goes through an election cycle every five years. This provides the citizenry with an opportunity to extend the term of the existing leaders or elect new ones.
The Constitution, however, limits the tenure of the President and governors to two five-year terms. This implies that the economic development plans of any administration at the national or county level are limited to 10 years. While this is a good measure from a public governance perspective it also poses challenges related to the continuity of the long-term development plans.
Every new leader lays out elaborate plans in a manifesto. These are normally limited to five years in line with the election cycle. The long-term development trajectory of any country, however, requires sustained investment in critical sectors of the economy.
According to the World Bank, Korea has achieved remarkable success in combining rapid economic growth with significant poverty reduction. Korea’s policies resulted in real gross domestic product (GDP) growth averaging 5.45 percent annually between 1988-2019. The country’s gross national income (GNI) per capita increased from $67 in the early 1950s to $33,790 in 2019.
As Kenya goes through leadership changes every five years there should be continuity in existing positive development initiatives. This increases the probability of uplifting the standard of living and the long-term well-being of the citizenry.
The Uhuru administration rolled out the Big Four agenda, which targeted critical sectors with the potential of changing the long-term fortunes of the country. This is through the creation of jobs in the manufacturing sector, access to affordable and quality healthcare, food security and housing.
The investment in infrastructure is also notable with many areas that were hitherto inaccessible having all-weather roads. At the county level, governors initiated long-term projects to spur growth and development in the counties.
However, the outgoing administration has come under sharp criticism due to the high cost of living affecting the most vulnerable. There have also been numerous cases of purported misappropriation of public resources.
Even as the incoming government lays out its legacy projects, should take into account projects and other long-term strategies laid out by previous administrations, which have the potential of improving the welfare of the common mwananchi. This will ensure the momentum is sustained and the citizenry feels the impact of these projects.
The government should also prioritise the payment of all valid pending supplier bills. The Treasury puts outstanding national government pending bills at Sh504.7 billion, and the counties have their fair share of unpaid bills.
The government should also focus on managing our debt levels to ensure it is sustainable and the benefits felt across the entire economic spectrum.
Heavy investment in infrastructure has led to rapid accumulation of public debt which is estimated to have been KES 8.2 trillion as at December 2021 according to the Central Bank of Kenya.
It is important that the incoming government focuses on realizing the long-term benefits that are associated with infrastructure development. These include ease of accessing markets, ease of movement of goods and people and a reduction in the cost of doing business.
Additionally, fiscal consolidation through reduction of government deficit and further accumulation of debt must remain a priority for the government. Focusing on growth in revenue collection and prudent spending is the only way to achieve sustainable fiscal consolidation.
Infrastructure development is generally expected to increase economic output through opening of areas that were hitherto unexplored and unproductive, and reduction of losses associated with an infrastructural deficit.
This results in the creation of employment and investment opportunities. Economic expansion is expected to generate additional tax revenues that can be used to service the debt that is amassed in the development of the infrastructure.
In some instances, infrastructure development which leads to economic expansion may not translate in increased tax collections where most of the new businesses are informal or in case the tax authority does not possess the capacity or resources to collect taxes from the large informal sector.
The Kenya Revenue Authority (KRA) has in the past devised various methods of bringing the informal sector into the tax net and encouraging businesses to formalize their operations.
For instance, the building and construction sector experience substantial expansion following the development of critical infrastructure networks and links. This generates rental income which was previously largely untaxed but the introduction of a simplified residential rental income tax increased compliance levels in the sub-sector.
By and large, the government must thus devise ways of maximising the benefits that are derived from investments made by the outgoing and previous administrations while implementing their development agenda.
The writer is a senior tax manager at Ernst & Young LLP (EY). The views expressed herein are not necessarily those of EY