Entrepreneurship key to County growth

Everywhere you go, everyone is talking about devolution, the county governments and the immense opportunities that are now available in terms of investment and wealth creation.

Despite the ongoing challenges and supremacy battles at the national level, the optimism that devolution has brought is not about to be flicked out by anything.

One of the objects and principles of a devolved government in accordance to the Constitution of Kenya 2010 in Article 174 is to recognize the right of communities to manage their own affairs and further their development.

This will give the people a sense of identity and self empowerment. With this system of government, communities will feel recognized in their contribution to the growth of their own county and the country at large.

The other principle is to promote protection and promotion of the interests and rights of minorities and marginalized communities.

Hence the minorities will not feel side-lined. This will promote a sense of unity as they will not feel as though their needs have been ignored.

But the biggest opportunity is to ensure a sustainable economic aspect to many areas that have felt ignored and marginalized.

The defining feature of devolution is the transfer of political and economic powers and the autonomy to sub-national units which are in turn politically accountable to the local communities as opposed to the centre. This is key especially in being able to define the economic futures of these counties.

According to the Kenya Association of Manufacturers’ the new two-tier system of government introduces a new threshold for investment through counties and consequently enhances economic growth and service delivery to the citizens.

Counties will be entitled to a minimum of 15 per cent of national revenue and the Division of Revenue Act, which has been a bone of contention for supremacy between the Senate and National Assembly, will establish a “Chinese wall” between county and national government finances.

While this is greatly expected, it goes without saying that the success of the devolved system will strongly depend on positive collaboration between the county governments and the central government, the proper and incorruptible use of allocated revenue, proper internal checks and balances within counties.

The skills of the respective county leaders and most important of all, how each and every county pushes the agenda of the entrepreneurial spirit as this is the only way all these counties are going to create wealth, employ the numerous jobless youth and be able to raise the needed revenue through specific taxation for development and investment.

If all terms and conditions are held constant and that the Central government does support the devolution process, then entrepreneurship is the key to the success of devolution in terms of enabling county governments to raise the much needed revenue for development and expansion of key projects as its clear that the Central government will not have sufficient funds to share to all the 47 county governments.

This will also lead to the creation of jobs that are to the stability of any region hence reducing insecurity that has been rampant across the country.

Proper implementation of the county government framework in accordance with the broad principles in the constitution will enhance accountability, and intergovernmental relations between the county units and central government should be seen for the strength they have and not the weaknesses.

The county governments must reach deep within their human resources to ensure that they are not dependent on the Central government for anything but their legally given resource share.

Fundamentally, the success of devolution will require huge resources, whether from the Central government or self-generated from investments and taxation as allowed in the law, public awareness, capacity building initiatives and highly committed personnel, institutions and organizations, founded on the national values as enshrined in the Constitution.

The essence of devolution is that at the local level the people are allowed a certain flexibility within which they can make decisions that are unique to themselves and their locality to be able to ensure that they economically grow and become independent.

They are allowed a measure of self-governance at this level but at the national level, decision-making is shared.

Revenue

One major administrative problem that many counties will face is their inability to realize fully the revenue that shall be due to them, either from the Central government or self generation from the county.

As provided for in Chapter 12 of the Constitution on Public Finance, Article 201(b); ‘provides that the public finance system to be put in place should actually promote an equitable society, and that the burden of taxation shall be shared fairly.’

Many are yet to understand how taxation will be done, in fact many are saying that counties do not have the capacity to collect the outlined taxes to be collected in the Public Finance Act and hence the Kenya Revenue Authority should collect on their behalf.

This in its own sense defeats the essence of what devolution is and how the people of each county can govern themselves. This takes away the opportunity for the counties to develop their own capacity for this.

Thus, the ratio between what will be reported and projected revenues shall potentially and significantly differ both between counties and between areas within the counties. The following factors provide some explanations for this wedge:

(1) Poor administrative capacity of the county governments to enforce the taxes that they are allowed to enforce;

(2) Explicit and intentional tax evasion and resistance from taxpayers due to poor business environments and lack of incentives from the relevant authorities;

(3) Corruption, including embezzlement of revenues, poor management, lack of foresight and laziness;

The Constitution does not make it clear how counties will generate their wealth to ensure sustainability of their operations. Article 209(3) states that county governments only have powers to impose property taxes, entertainment taxes and any other tax that parliament may authorize them to impose.

Given this provision, one would say that the spirit in the establishment of Counties appear more focused on distribution rather than creation of wealth.

Hence this presents a huge opportunity for the county governments to embrace entrepreneurship and ensure that they lay down the right framework to ensure that counties can attract businesses and investments to enable them become sufficient and less reliant on the central government.

Entrepreneurship is the engine that all these counties need to be able to raise the needed revenue for growth, create jobs hence sustainable wealth and hence a secure environment.

FDI

But this won’t happen simply by flicking a magical wand. Governors must sit down and develop strategies that will ensure that they attract FDI’s into their county’s.

Machakos County seems to be leading the way in terms of setting the much needed environment to attract the needed investments.

As of June 2013, the County has attracted investments worth over Sh7bn that were initially earmarked for Nairobi just because the Governor is savvy enough to know what is needed to support entrepreneurship and create jobs for his people.

The table below shows the top 12 counties to watch in terms of investments as per the population in their region. Population equals markets for products and services.

Which county will lead the way? Which county will embrace entrepreneurship? Which county will attract the most FDI?

COUNTY POPULATION
Nairobi --------3,138,369
Kiambu -------1,623,282
Nakuru -------1,603,325
Bungoma ----1,375,063
Meru --------1,356,301
Kisii ---------1,152,282
Kilifi --------1,109,735
Machakos ---1,098,584
Mandera -----1,025,756
Kitui ---------1,012,709
Mombasa ----939,370
Uasin Gishu ----894,179

The aforementioned counties are the top 12 counties to watch in terms of investments, job creation, attracting investors, revenue generation and strategy development.

I have purposely omitted Turkana, despite the oil find as we are yet to develop capacity to drill, process and sell the oil to the markets and have the relevant legal and financial frame works to share the national resource equitably.

The success of the above counties will not depend on how much they receive from the Central government but how much they will generate on their own and how many jobs, both formal and informal will be created and how the governors will work with the Central government.

The lack of effective and stringent controls may also by default facilitate embezzlement of county funds. In principle, financial controls through internal and external audits and stiffer penalties for culprits of corruption may functionally help to reduce the major risk factors.

As it has been reflected by the Institute of Economic Affairs, the efficiency of a devolved system of government is great when the intergovernmental fiscal framework is well enhanced,

incorporates incentives to encourage prudent fiscal/financial management at the government levels and responsibilities to tax and spend at the sub-national levels is accompanied by effective political authority. Governors have no option but to play the political wand effectively with the merchants of economy if their counties are to succeed.

These are exciting times for Kenya and it’s clear that entrepreneurship will be the flag ship that will ensure the survival of counties or failure of the same depending on how they embrace the concept.