On Sunday, President Uhuru Kenyatta will be in the White House to hold discussions with United States President Donald Trump.
I think that collaboration on regional security will dominate the agenda. But I see the future of relations between the two countries being defined more and more by trade and investment than aid.
It does not surprise that, ahead of the visit, Nairobi’s pundits are speculating that President Trump will take the opportunity to lobby President Kenyatta to give the contract for building the proposed 473 kilometre Mombasa-Nairobi expressway to Betchel, the American construction conglomerate that has been gunning for the job.
Bechtel signed a G2G deal way back in July 2015 and a commercial agreement with the Kenya National Highways Authority (Kenha) last August.
Environmental assessment studies and public engagement sessions have been concluded.
The snag is, the National Treasury and the company are yet to agree on the financing proposal which the Americans have put on the table.
Treasury wants Betchel to build the road using its money and recover it by charging toll fees to users. But the Americans are proposing that we go the conventional way of financing large infrastructure projects: Guarantees from export-import banks and borrowings from international capital markets against government books.
But Treasury does not want to hear about any arrangement that includes any more borrowing of dollar loans.
Mark you, it is estimated that the construction cost will come to $3.5 billion. Acquiring the land alone is estimated to cost a whopping $300 million.
The Americans want us to borrow mainly from from US and United Kingdom export credit agencies, including US Exim, US Opic, and UKEF. And, the loans they want us to take don’t come cheap.
Indeed, the terms are more or less the same as the Chinese loans, especially when you bring to the picture what is called an ‘exposure’ fee of 18.6 per cent.
But why should we pay for loans at rates much higher than what we got recently, when we borrowed directly from international markets either through a Eurobond or a syndicated loan?
The lobbying by the Americans has been intense. The other day, anxiety swept through the company’s boardrooms when President Kenyatta, at a State House meeting with principal secretaries and CEOs of parastatals, suspended the launch of any other project.
“Don’t come here to tell us that you have signed commercial agreements and MoU’s,” President Kenyatta said, ordering that any new project will first have to be approved by Treasury.
The Americans were right to make frantic inquiries whether their project would be affected by the moratorium. The only relevant documents they have in their hands is an MoU and a commercial agreement signed with the Kenya National Highways Authority (Kenha).
Will President Kenyatta capitulate under pressure from President Trump?
If I were him, I would not hold the begging bowl and ask President Trump for money. I would negotiate an urgent technical assistance deal and seek support in the area of public financial management. After all, the US is the home of accounting standards.
Although we rarely acknowledge it, the poor state of public financial management — especially with the advent of county governments — is the biggest albatross around our neck.
Indeed, our public financial management standards have collapsed. At county and national levels, public procurement laws and regulations are neither expected nor followed.
Internal audit systems, especially at the county level, are in a shambles. Yes, we have the National Treasury-based Directorate of Internal Audit, but does the system work at the county level?
PUBLIC FINANCIAL MANAGEMENT ACT
The 2010 Constitution introduced a system that made most economic and financial management decisions the responsibility of the executive office of the President.
The new system was only half-implemented. In the early stages of the Jubilee administration, there was muted talk of creation of the office of the management of the Budget at State House. But the idea was dropped.
That is how we ended up with a presidential system running largely on the public financial management infrastructure of a parliamentary system of government.
Yes, we have a Public Financial Management Act that is executed by the Treasury. But due to the political power and clout of governors and county assemblies, the Treasury cannot implement the Act at the county government level.
We have a dead procurement system. We operate antiquated cash-based accounting systems. Ifmis, our attempt at computerising and integrating public finance systems, is in a shambles.