Smart tricks Treasury mandarins are using to scuttle economic reforms

What are President Uhuru Kenyatta’s chances of success with the game-changing reforms he has proposed for the parastatal sector?

Welcome to a lesson in the political economy of economic reforms in Kenya — how interests who want to protect the status quo come up with clever manoeuvres to stall, stop, reverse or put off track new ideas and plans, even where the reforms at stake have the full support of the most powerful man on the land.

The latest to join the opposition to the reforms is the International Monetary Fund (IMF).

Staffers from IMF’s legal and fiscal affairs division recently put out an opinion scathingly attacking the Government-Owned Entities Bill, the legislation meant to anchor and put to effect the reforms the President has endorsed.

The IMF’s main concern is that the proposed arrangement will remove too many powers from the National Treasury.

In the opinion, the fund argues that a proposed authority to oversee operations should sit at the National Treasury instead of the presidency.

THERE HAS BEEN GRUMBLING

Thirdly, it argues that the proposed Government Investments Corporation (GIC) should report to the Treasury, not the President’s Office, and fourthly, that the Bill has eaten into the powers of the Public Financial Management Bill.

Put simply, this is IMF’s position: that Kenya must go back to the days of the imperial Treasury. But where is the evidence to show that the Treasury has done a good job of overseeing and managing parastatals?

The entry into the fray by the IMF into this matter is not without context. Lately, there has been grumbling in some circles that too many former IMF staffers hold very influential positions in President Kenyatta’s administration.

Chief of Staff and Head of Public Service Joseph Kinyua is an ex-employee of the IMF. Treasury Cabinet Secretary Henry Rotich also worked with the fund. The Principal Secretary, Dr Kamau Thugge, served in many countries as a resident representative of the IMF. Talk of policy capture, soft power and influence.

Right now, it makes tactical sense for the anti-change forces to reduce the debate to legal soundness or none of the Government-Owned Enterprises Bill. Doing so makes it is easy and possible to conceal the true intentions and motives.

(READ: 2,000 to land plum jobs in Jubilee parastatal reforms)

(READ: Koskei axes two more board bosses of meat firm)

(READ: The relative value of Housing Finance buyout by Britam)

THE ELEPHANT IN THE ROOM

The truth of the matter is that this is not a dispute of a technical or legal nature. The dynamic at play here is clear: elite groups and institutions with vested interests in maintaining the status quo are ganging up and enlisting the support of allies to block changes that threaten to disrupt their comfort zones.

Self-preservation has caused these types to enlist the support of the IMF. When the IMF reduces it all to legal arguments, it totally ignores the political dimensions of the matter.

Some of the questions they should be asking themselves are: What motivates political actors to introduce broad-based economic reforms? What do these proposals and changes mean in terms of effort to disperse power and authority?

Also enlisted into the fight to oppose the Bill  is the Kenya Law Reform Commission.

In a recent memorandum to the Constitutional Implementation Commission, it argued that the Bill had not been subjected to public discussion and participation as required by the law.

The commission also argued that the Bill was a mere re-enactment of the existing State Corporations Act. It has argued that legislations that are more urgent and need to be speeded up are the recently revised Companies Bill  and Insolvencies Bill, which were published in 2012.

Truth be told, President Kenyatta’s project to reform the governance of parastatals has far-reaching political implications.

For instance, it seeks to move the power to appoint chief executives from Cabinet Secretaries and Principal Secretaries to completely new entities that would operate directly under the President.

The key reforms and proposals are the following: First, have parastatals categorised into two: state corporations and state agencies.

Secondly, move power and oversight over non-commercial state corporations to a new entity, the National and County Agencies Oversight Office.

Perhaps the biggest point of departure is creation of a new body to be known as the Government Investment Corporation.

It will not just exercise the powers as the “owner” of commercially-oriented state corporations, but will operate more or less like a portfolio management company with powers to move in and out of shareholding of companies; buying stocks in some and exiting positions when it deems fit.

THEY WILL HAVE LITTLE SAY

If the reforms take off, the arrangement hitherto known as “parent ministry” that gives Cabinet secretaries direct control over management of parastatals will be scrapped.

Regulatory authorities, public universities and research institutions will be classified as state agencies, while all commercially-oriented institutions where the government controls more than 50 per cent share-holding will be categorised  separately.

Companies where the government is a minority shareholder will be designated as government-linked corporations.

Clearly, power over parastatals is going to shift from Cabinet and principal secretaries to totally new entities where they will have little say.

The National Treasury stands to lose many powers. It will no longer have powers to approve budgets of parastatals. It will also not have powers to approve business plans and set financial or performance targets.

This is the most ambitious plan to reform and modernise the parastatal sector in Kenya’s history.

President Kenyatta must stand his ground and modernise the governance of this critical sector. His  credentials and legacy as an economic reformer is at stake here.

Mr Kisero is the Nation’s managing editor for economic affairs. ([email protected])