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Saitoti was no reformist but he did have an impact on economic policy

Tuesday June 12 2012



When economic historians get down to write about the evolution of economic policy-making in Kenya, there will be a chapter on Prof George Saitoti’s years at the Treasury.

A seasoned policy-maker, he was at the helm of economic policy during Kenya’s momentous times. He midwifed the transition from a command economy to a market economy.

In those days, the Finance minister’s powers were immense. Manufacturers had to go to him cap-in-hand every year for permission to adjust prices.

And, the list of goods on the price control list was very long – maize, maize-flour, bread and even mundane things like razor-blades, chalk and needles.

The minister was also the chairman of the immensely powerful Foreign Exchange Allocation Committee. All foreign exchange belonged to the State and you had to apply to be allocated money to buy even an air ticket.

Manufacturers would throng the minister’s office to seek allocations to allow them to import inputs. If you were a prospective foreign investor, you had to seek a “certificate of approved enterprise” from the minister before starting operations here.

Any procurement by the government with a value above Sh5 million had to go to the Central Tender Board under the ministry. Private companies were encouraged to “go public”. But the Capital Issues Committee dictated the issue price.

Businesses suffered crushing rates of taxation, and tax evasion became a national sport, thriving because the system continued to breathe through huge loopholes and exemption regimes.

Literally, all aspects of private enterprise was festooned by crippling controls and prohibitions.

Was Prof Saitoti an economic reformer? Did he leave a personal imprint on economic policy-making? We will leave that to economic historians.

Hate him or love him, he clearly made a major contribution by midwifing the transition from the ancient economic regime.

He came to the scene as an outsider, plucked from academia by the political elite of the Moi regime and thrown into the very deep end of an elaborate patronage machine oiled by rent-seeking activity.

If there is an enduring lesson from the policy regime that Prof Saitoti found at the Treasury, it is the following: When you create too many toll stations, whether they be foreign exchange allocation committees, price control departments or departments issuing “certificates of approved enterprise” and “no objection certificates”, they will invariably evolve into bribery extraction points.

The spoils system of this period is what gave us our first generation of indigenous millionaires. In those days, it was an open secret that you became a millionaire if you worked at the foreign exchange department of the Central Bank.

The biggest blot on Saitoti’s tenure was the Goldenberg scandal. He gave the approval to the original plan to compensate Goldenberg International for exporting gold. The exports turned out to be fictitious. And, the money was paid from the Consolidated Fund without the approval of Parliament.

Truth be told, the billions we hear about today came from transactions which happened long after Saitoti had left the Treasury and when export compensation scheme he authored had officially been scrapped.

For instance, the infamous $210 million forex transactions in which the Central Bank lost billions of shillings happened long after Saitoti had left the scene.

Those complex cheque-kiting transactions between the infamous group of political banks which allowed politically-influential rent-seekers to siphon off billions of shillings from the Central Bank had nothing to do with the original gold export compensation scheme approved by Saitoti.

Then there was the so- called “pre-export finance facility” which the same clique of influential rent-seekers used to steal billions of shillings from Central Bank.

In retrospect, the most abused facility was the “forex certificate”. Just as it was being discontinued, eight sacks filled with already redeemed certificates were stolen from the Central Bank, resold in the market, and proceeds used to buy Treasury bills. We wanted to blame everything on Prof Saitoti.