How to finance Uhuru's Big Four agenda without raising taxes

Monday April 30 2018

By BITANGE NDEMO
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Whether you are running an engineering or finance company, it is important to remember that all companies depend on ideas and ingenuity.
To paraphrase Sir Kenneth Robinson, a British author, speaker and international adviser on education, the principles of creative leadership apply everywhere, whether in an advertising company or a hospital.

As we look forward to actualising President Kenyatta’s Big Four legacy agenda, we must be driven more by creativity and leadership as Sir Robinson opined than by looking for money from all manner of sources.

In my view, all of the four sectors can be financed without increasing a coin in the current tax base. Here is how.

In entrepreneurship, it is generally accepted that with a great idea, and a good effort to advance the idea and passion, you can literally attract funding for anything.

Let us look into manufacturing first. This is one sector that, with great ideas, we do not need much from the State other than goodwill and policy support.

Kenya is home to great resources that are underutilised and which can be leveraged to raise local funding.

CREATING LOCAL WEALTH

Take, for example, Tana River County, where mangoes grow wild and more of the harvest goes to waste than what is sold to markets.
Yet, mango juice has increasingly become a popular drink. With a public-private partnership, citizens can have enough confidence to invest in such a project that could clearly create wealth if we distanced our greed from a collaborative investment.

Technologies such as blockchain have made it possible for small investors to put their money into an investment with minimal cost.
This means that even the poor can invest Sh500 towards a project that guarantees wealth creation.

Further, the many chamas that in most cases put their investments in land could now shift their resources into manufacturing.

This kind of business modelling will eventually reduce foreign borrowing and create local wealth that can help lower poverty.

The thinking that small and medium enterprises (SMEs) could grow in five years to create the desired impact is false.

My reading of the President’s agenda is that we must disrupt current thinking and fast-track these agenda items.

In parallel, therefore, we must encourage State-led development where the government precipitates the opportunities and the private sector piggybacks on such projects to scale.

LOCAL MONEY APLENTY

There is nothing new that we will be doing that has not been tested elsewhere.

Some of the Chinese conglomerates were started with the blessing of the state and actively supported to scale.

Low-hanging fruits like fishing in the Indian Ocean and building manufacturing plants for value addition is an attractive investment if it is packaged well for local as well as other private sector investors.

I emphasise local because there is a lot of money in cooperative societies, pension funds and chamas that literally have no investment opportunities.

We have resources that can be leveraged to create global conglomerates. Yes, as Schumacher noted, small is beautiful but big also is handsome in a small country that is looking to create jobs for a growing population.

When the World Bank pushed Kenya to privatise State-owned enterprises, Australia and Canada chose a different model —corporatisation (a process of transforming state assets, government agencies, or municipal organisations into corporations) — enabling citizens of those countries to build large enterprises that greatly contribute towards the country’s development.

Corporatisation of health and educational institutions has been successful and research confirms it is a viable option for privatising and successfully running formerly government-owned institutions.

MEDIOCRE LEADERSHIP

A 2012 study by Nelson and Nikolakis, How Does Corporatization Improve the Performance of Government Agencies? Lessons From the Restructuring of State-Owned Forest Agencies in Australia, shows that:

Corporatization leads to enhanced commercial performance through improving clarity around business decisions and increasing the autonomy of managers. A key feature is the establishment of new governance arrangements and how they are implemented. The results suggest that mechanisms such as the creation of an “independent” board of directors are important to create an “arm's length” relationship between the government and the new entity, thereby improving clarity in business decisions.

The failure of our State institutions, especially in healthcare and education, is largely due to mediocre leadership often appointed by the State and constant interference from state bureaucrats.

It does not matter how much money is poured into these institutions. The result will be the same — less than average. The only solution is to completely disrupt these institutions through drastic policy changes.

We should pilot this theoretical proposition on how corporatisation should improve performance in, for example, Kenyatta National Hospital.
The demand for the hospital services outstrips supply so much that some patients sleep on the floor. It defeats any logic how such an institution could need exchequer support.

HEALTHCARE

On healthcare, more can be achieved if the government implements biometric identification. Identity is one of the biggest problems in managing any sector.

Medicines are stolen through false prescriptions, and proper use of technology can effectively reduce the level of theft in the sector.

It is not uncommon to find a prescription for a six-month-old child purporting to be ailing from breast cancer. In some cases, men have had prescriptions for pregnancy medication.

These cases of negligence can be minimised through application of appropriate technology.

A change in approach to healthcare will lower the cost and significantly lower the insurance premiums.

This is what can attract investor money to eventually reduce government involvement while at the same time improving performance.

FOOD SECURITY

In food security, we have the greatest opportunity to demonstrate that the scarcity of food is not the absence of food but our failure to streamline the supply chain and make food affordable to Kenyans.

There are too many people handling or mishandling food throughout the supply chain, which adds to the cost of food in an increasingly urbanising Kenya.

To make it worthwhile for producers, we need only three players: the producer, logistics, and the retailer.

The current practice is that the broker buys from the producer and sells to a regional aggregator.

From the aggregators, the brokers buy and sell to a national distributor, who then sells to the wholesaler before it gets to the retailer.
With current technologies, most of the middlemen can be pushed into production and streamline the supply chain such that the farmer as well as the customers get value out of the product.

A recent study tracked a simple product through the chaotic supply chain and established that whilst the farmer was paid Sh50, the eventual customer gets the product at Sh450.

If the middlemen are removed, farmers could double their income and the customer could buy the same product at less than half the current price with 100 per cent margins.

Some of the middlemen could very easily become producers or add value to some of the products.

For example, they could add value to tomatoes that get wasted throughout the supply chain because of inefficiencies.

HOUSING

In housing, the government just needs to play a facilitator’s role where they can guarantee the construction company to purchase surplus housing if any and also ensure that the mortgages are affordable.

Once more, identity will play a key role in the success of this project. I have no doubt that crooks are looking for windows to exploit the system and eventually sell some of the houses for a premium.

This is an area that is ripe for investment and once more, we need to allow local people to play a major role in order to stem the outflow of resources to foreign companies.

Other opportunities in this space include enticing the diaspora with tax breaks to raise investment resources as a strategy to lower the appetite for foreign debt. Ethiopia successfully used this model to build the 6,000MW Grand Ethiopian Renaissance Dam, raising their electricity production capacity to four times higher than that of Kenya.

The role of government is to stimulate industrial production. Affordable energy production (which lowers the investment resources) may be the Achilles heel in the President’s agenda. It is patently clear that the energy sector is headed into the intensive care unit unless its management is overhauled to save not just the Big Four agenda but the pride of the country.

The writer is an associate professor at the University of Nairobi’s School of Business. Twitter: @bantigito