To save economy, we must increase productivity and create employment

Teachers celebrate inside the Court of Appeal on July 23, 2015 after the court upheld a ruling made by an industrial court that the Teachers Service Commission (TSC) implement the 50-60% salary increase. Debate has been going on for some time about teachers’ salaries in particular and public sector pay in general. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP

What you need to know:

  • Several unions are at various stages of formalising their demands with their members’ employers.
  • The public wage bill and recurrent expenditure take up about Sh600 billion. That is the single biggest expenditure.
  • That is the real time bomb that we are sitting on. The only way I know any country can deal with this is to channel its resources to increasing productivity.

Debate has been going on for some time about teachers’ salaries in particular and public sector pay in general.

Several unions are at various stages of formalising their demands with their members’ employers.

This is an example of the dividends of the democracy that Kenyans fought for in the 1980s and 1990s. It is a conversation that cannot happen in quite a number of countries in Africa, so Kenyans deserve credit for the progress we have made.

The quest for democracy was inspired by our conviction that a free, unhindered people ultimately achieves more in terms of development.

BIGGEST EXPENDITURE

It is against this background that I want to make a few observations to add to the quality of the ongoing discussions.

The Kenya Revenue Authority plans to raise Sh1.2 trillion from taxes this financial year. This is a huge jump from the average Sh200 billion that was being raised before the Narc administration came to power in 2002. So, clearly we have money.

The expenditure side, however, paints a different picture and it is important that Kenyans consider this as the country charts a way forward, not just for teachers but for all workers.

The public wage bill and recurrent expenditure take up about Sh600 billion. That is the single biggest expenditure.

SERVICING DEBTS

Then comes devolution, a great idea that Kenyans passed with the new Constitution and one which could see this country move fast in raising the standard of living of its people if well managed.

Devolution takes the second highest amount at about Sh300 billion.

The government has been borrowing quite a bit since independence, sometimes for good and sometimes not-so-good causes.

(Admittedly, recent borrowing to finance infrastructure projects has been beneficial to the country). This means that we are servicing loans to both external parties such as the World Bank and other multilateral lenders and also internally from open market operations.

The servicing of these debts comes third in expenditure, at about Sh250 billion a year.

INCREASE PRODUCTIVITY
So, out of the Sh1.2 trillion that is likely to be raised — and it is likely that KRA could fall slightly short — recurrent expenditure mainly on wages, counties, and servicing of debt consumes up to Sh1.150 trillion.

This equation is not good for a country that is already grappling with a high rate of unemployment — over 30 per cent. This means that for every two employed people, there is one person looking for a job.

That is the real time bomb that we are sitting on. The only way I know any country can deal with this is to channel its resources to increasing productivity.

Increased productivity leads to more employment. Investing in productivity-enabling factors in the macro environment such as energy, infrastructure, health, and education is the surest way of achieving this goal.

CREATING INITIATIVES
So, where will the money to do this come from? The government needs to do more to reduce wastage in the public service on corruption and other unnecessary expenditure.

Ultimately, though, we need to push a lot more money to employment-creating initiatives rather than making those of us who already have jobs a little more comfortable.

This would give those young men and women more dignity than sitting at home waiting for handouts.

The bottom line is that it is all about sharing the Sh1.2 trillion. The choice really is how much to put in job-creating productivity and how much to keep for massaging the ego of our bloated civil service.

If we think in those terms, the conversation will change to where else do we need to reduce spending to put more money in development.

CAPITAL FLIGHT

Let us not forget that if all the demands for more pay — now even by former councillors — are honoured, the end result will be to raise taxes for everyone.

This will, among other things, cause capital flight to more friendly financial markets, making our unemployment situation even worse.

Further borrowing is not an option as we have almost exhausted our capacity for credit. And while at it, let us take time to understand what went wrong in Ghana.

After being a darling of the World Bank for the first 12 years of this century and yielding to every demand for higher wages, things seem to be falling apart.

The centre is having trouble holding as inflation whirlwinds make nonsense of the wages that were finally achieved.

Mr Gitahi is the chairman of the Federation of Kenya Employers. [email protected]