Guests during a panel discussion on public participation in key
development issues in counties at a Nairobi hotel in February. PHOTO |
SALATON NJAU
The government seems intent on implementing a course consolidations that will put Kenya on a more sustainable fiscal path.
While consolidation is welcome and should be supported, it raises new challenges with which the country has to grapple.
The intent of government is to ramp down spending, reduce borrowing, bring down the fiscal deficit and raise revenues.
The
combination of these factors translates to the reality that the
government will not be able to finance its new agenda, particularly the
Big Four, as robustly as perhaps was initially intended.
As a result, it has already began calls for the private sector
to actively engage in the Big Four. The Budget Policy Statement has made
it clear that Public Private Partnerships (PPPs) will be fast-tracked
to fully leverage private sector engagement.
However, there are realities of which we ought to be aware of in the call to help realise and frankly, co-finance, the Big Four.
Firstly,
over 90 per cent of the Kenyan private sector consists of Micro, Small
and Medium Enterprise (MSMEs). While the presence of the large companies
is dominant and well publicised, the reality is that the engine of the
economy is run by smaller businesses that sprawl across the formal and
informal economy.
MSMEs are thought to contribute at
least 30 per cent to the gross domestic product (GDP) and employ large
per cent of employed Kenyans.
However, MSMEs work in
an environment, and have internal firm dynamics, that negatively inform
their productivity and economic strength.
The fact
that they constitute over 90 per cent of businesses in the country, yet
only contribute about 30 per cent to GDP signals serious productivity
problems.
Thus, while government intends to pull in
the private sector to work on its agenda, it ought to be cognisant of
the -composition of the target group.
I am of the view
that MSMEs can be engaged to deliver on government projects, but the
nature of the engagement will likely be more involving than the
government initially envisioned.
Linked to the point
above is the issue of the capacity and experience of indigenous firms.
Given that foreign firms are angling for Big Four projects, the question
of the competitiveness of domestic private sector becomes important.
Will
the government deliberately reserve a portion of projects for
indigenous private sector to ensure local participation? If not, does
Kenya risk outsourcing the bulk of government projects to foreign
companies, and what would be the implications?
Connected
to competitiveness is the issue of PPPs, where it has been widely noted
that domestic firms do not have the financing, experience and enablers
that foreign firms do. For example, domestic firms get credit at 14 per
cent while this figure can be as low as two per cent for foreign firms;
this reduces the former’s competitiveness.
The
government seeks efficiency in the context of limited funds thus the
question becomes how domestic private sector can secure contracts and
competitively deliver on them in the context of international
competition.
In truth, fiscal consolidation will shine a
spotlight on the domestic private sector and the factors that inform
their ability and competitiveness.
Government and
private sector ought to use this opportunity to address key issues
decisively, such that the process strengthens the domestic private
sector.
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