Economic Models? Welfare Programmes? Where’s The Money To Fund Them?

In 1983, during Daniel Moi’s regime, the government adopted A District Development Focus strategy to enhance rural development and address the disparities betweem urban and rural area.It was among the initial attempts at decentralisation. After his election in 2002, Former President Mwai Kibaki founded the Youth Enterprise Fund in May, 2007 and the Women Enterprise Fund in August,2007. Both programmes were meant to avail funds to youth and women led businesses. The programmes were founded 4 years after the birth of the Constituency Development Fund.With the new constitution, wards became the smallest electoral units. The Constitution Amendment Bill 2020 created a Ward Development Fund to enable the counties to finance projects at the ward level; another attempt to sort out class inequalities.With the 2022 election being shaped by the economic revival agenda, the political class is busy trying to woo public from boda boda riders to mama mbogas to the youth in general with incentives,economic models and strategies which they will use to improve the living standards of Kenyans when elected. Will their economic models and strategies stand the test of time? Or will history repeat itself?

William Samoei Ruto introduced the Bottom- Up Economic model in which the national and county governments will give incentives that include soft loans for start ups or business expansions or even tax exemptions to the “hustlers”- the ones at the bottom of the pyramid. In the model, The DP has promised, when elected, a Sh30 billion kitty to help the youth, mama mboga, boda boda and other “hustlers” to kickstart or expand their businesses or even improve their agricultural productivity. Recently, the DP tweeted, “Bottom-up is anchored on deliberately promoting investments and financial investments and financial instruments targeting the millions who are unemployed, hustler enterprises/farmer groups.” He also went further to state that his government will ensure prosperity of small scale traders through the National Government Constituency Development Fund; In which every constituency get will ksh 100million for loans to help micro enterprises and boost revenue generation by the common mwananchi “hustler.” The minds behind the DP’s Bottom-Up economic model blueprint include former Central Bank Governor Njuguna Ndung’u, Economist David Ndii, former CS Davis Chirchir- an ICT expert and former Raila Odinga’s allies, Eliud Owalo and Larry Gumbe

The Bottom – Up Approach Weaknesses

The DP’s economic model, Bottom-Up approach of injecting money through soft loans to the low income businesses might experience obstacles that will facilitate it’s slow death.

For instance, Do the “hustlers” have innovative ideas needed in entrepreneurship to facilitate the growth needed for their start-ups?

As of Thursday 28th, January 2021, the value of loans defaulted hit Sh423 billion which makes 14.1 per cent of the total Sh3 trillion loan book. This represents a sharp rise from Sh351.73 billion that was in default by the end of March 2020. “Credit risk remains elevated and that is expected given where the economy is. We have done some analyses and assuming that the economy remains flat and the benefits of reopening the economy do not come through,the gross non-performing loans will rise to 16 or 17 percent of gross loans,” the CBK governor,Dr Njoroge said. With such projections, the pecentage of loan defaulters is set to rise thus chances of the beneficiaries of the soft loans defaulting are high and if the “hustlers” fail to pay the loans, will the programme survive?

Raila Odinga on the other hand promised that if elected, his government will employ the the trickle-down economic model which assumes that big businesses and huge corporations be funded and incentives like tax reductions on businesses and transactions carried by the huge firms and businesses. The businesses would then expand and receive huge profit margins. The wealth created by the big companies will trickle down to Wanjiku who is lowest in the pyramid facilitating improved living standards of Wanjiku. Recently, Mr Odinga told Kenyans that he would be paying atleast 2 million families with no income ksh 6,000 every month; A social welfare programme that is part of the Trickle-Down economics.Mr Odinga says that his government would ensure ministries slash down their budgets by a quarter and the savings channelled to the social welfare programme. He further states that fighting corruption would free up more resources needed for his economic model

Trickle – Down Economics

The social welfare programme of ksh 6,000 per month for 2 million families will require approximately Ksh 144 billion every year to be up and running. This amount is 12 times the funds set aside for free primary education in one financial year. Is money available to fund the programme?

Furthermore, With more than 70 per cent of Kenya’s economy being in the informal sector, is Mr Odinga’s social welfare programmes and trickle-down economics achievable?

Where Are The Funds?

Donor financing to Kenya has been a blend of both grants and loans and in the surge of the pandemic, study shows that the grants have declined while the loans have been increasing.The Country’s increased demand for loans has been driven by increased budget deficit as a result of Covid-19 as more money was allocated to cushion the effects of the pandemic.

Data published through IATI shows that, between 2018 and 2021, the Government of Kenya borrowed US $7.3 billion from the World Bank, IMF and AFDB with IMF providing 42.6% of the total US $ 7.3 billion with World Bank lending 38.2% while AFDB contributed 19.3% . The budget for the FY 2021/2022 indicates that Kenya’s public debt related expenses would consume Sh1.16 trillion, an increase of 21 per cent from the Sh958 billion allocation in the previous financial year. This means,Kenya’s debt carrying capacity has declined.

With the reduced debt carrying capacity and the Ksh 929.7 billion(7.5 per cent of Gross Domestic Product) deficit on the FY 2021/2022 budget, it is seemingly impossible for those economic goodies to be sustained for a long time.