Even as the political transition in Kenya continues to unfold, East Africa’s largest economy in the past week started the process of remodelling its system of government and public administration in what is perhaps the most ambitious experiment in devolution in the region’s history.
Last week, 47 governors were sworn in in ceremonies throughout the country to run the newly created county governments with autonomous executive and legislative arms.
Under the arrangement, Kenya now has two levels of political authority — the national and county government — to operate as distinct and interdependent entities engaging on the basis of consultation and co-operation.
The swearing in of the governors and members of the county assemblies this week was the easy part.
The actual setting up of the county governments is going to force the national government to commit massive resources with adverse effects to the macro economy and consequently the budget deficit and interest and exchange rates.
ALSO READ: Magic bullet? Kenya under a devolved system
Kenya being the only country in the region with a substantial domestic financial market, its bond market is still struggling to assess the fiscal risks the country is likely to face as it navigates implementation of the devolved system of government.
In a nutshell, there are two aspects of the new system with financial implications:
First, the mandatory county share of national revenues is set at 15 per cent. The money is to be shared between counties according to criteria developed by the independent office of the Commission of Revenue Allocations. In addition, another 0.5 per cent of national revenues will go into setting up an Equalisation Fund to be shared by very poor counties.
Second, the system introduces A division of functions between the national and county governments — with the centre having an exclusive mandate over security, foreign affairs and water services and the remaining services being shared between the two levels of political authority.
Thus, the overall cost of functions to be devolved to the counties will be significantly more than the constitutionally guaranteed share of 15 per cent of audited national revenues.
Clearly, the pressure on government finances will be immense. The Treasury has estimated that the total cost of devolving functions — based on the existing level of services, including allocations for the Constituency Development Fund (CDF) — at Ksh154 billion ($1.8 billion) for the current financial year.
Additional expenditures related to the new administrative structures such as wages for county executives and county assembly members are estimated at Ksh6 billion ($70.58 million) bringing the total cost to Ksh160 billion ($1.88 billion) — the cumulative figure coming to 26 per cent of audited revenues.
This does not include one-off expenditures for setting up necessary infrastructure in counties in preparation for the rolling out of the new county system.
Thus, in nominal terms, the projected revenues to counties are estimated at Ksh166 billion ($1.95 billion) and expected to rise to Ksh221 billion ($2.6 billion) in 2014.
From a public expenditure management standpoint, the new dispensation is proving to be complex and difficult to implement.
For instance, under the new system, county executives have the power to formulate their own budgets — with county assemblies having the mandate to approve the budgets — and the public service has the responsibility to implement and report on the budget.
Under the Constitution, both parliament and the judiciary have powers to formulate their own budgets without reference to the National Treasury under an arrangement referred to as “fiscal autonomy.”
The institutions that enjoy fiscal autonomy have all been resisting the National Treasury’s involvement in the planning of their budgets — insisting they be allowed to plan for their own finances.
No smooth ride
This constant wrangling has emerged as another impediment to the smooth implementation of devolution.
Last month, Treasury Permanent Secretary Joseph Kinyua, was forced to seek a legal opinion from Attorney General Githu Muigai to give direction after the judiciary refused to participate in this year’s budget hearings that are held annually under the so called Medium Term Expenditure Framework System.
The Attorney General opined that the National Treasury retains the power to play an over-arching role when it comes to setting macroeconomic targets for the whole country.
With the county governors and assembly members coming into office at a time when preparation for the next budget is well under way; the earliest county governments can take full charge of formulation and implementation of their budgets will be the next financial year.
In theory this means that, in the interim, the national government must continue performing functions that have been assigned to the counties until such a time when counties will be able to take over assigned functions.
The transfer of functions can be delayed until a maximum of three years — with the Transitional Authority granted powers to spell out the procedure for phased transfer of functions.
Thus, some counties may take over their assigned functions earlier than others depending on their capacity to absorb and manage funds.
What is clear, however, in view of the high public expectations over devolution, is that the idea of delaying the release of resources for counties that will have been identified to have no capacity to absorb them will be politically difficult to implement.
With politics in Kenya mainly defined by competition between elites of ethnic communities jostling for national power and control of national resources, devolution is bound to introduce a new breed of politics characterised by the emergence of ethnic and regional leaders championing county interests and grievances.
Already, the coming onto the scene of governors has spawned tensions and turf wars between them and Nairobi-based bureaucrats.
For instance, the influential Office of the President, which runs and supervises the Provincial Administration, would appear to have decided that it will remodel itself to share executive functions with the governors and the county assemblies.
All over the country, the newly elected governors have been forced to engage in sterile disputes with the Office of the President over official residences and offices.
Last week, the Office of the President put out a statement putting the newly elected governors on notice that it will not cede assets of the national government to the county authority.
Clearly, the Nairobi-based bureaucracy is still in the old mindset — fighting to retain functions, power and resources that the Constitution has transferred to the grassroots.
A few months ago, the Nairobi-based headquarters of the Ministry of Health announced that it would upgrade provincial hospitals into national referral hospitals.
Although the intention was ostensibly aimed at improving services to the people, the reality is that the central government is in effect fighting to retain power over certain resources.
Under the Constitution, the Nairobi-based headquarters of the ministry has only two responsibilities — policy and national referral hospitals.
Thus, by seeking to create new national referral hospitals, the headquarters is clearly trying to circumvent the division of functions stipulated in the Constitution.
But one of the most blatant attempts by the central government to defeat the spirit of devolution has come from the Nairobi-based headquarters of the Ministry of Agriculture.
Just as parliament was about to close business early this year, the ministry hurriedly put together two critical Bills to make it possible for Nairobi to claw back power and take way functions which which under the new Constitution should rightly sit at the county level.
The Crops Act and the Agriculture, Fisheries and Food Authority Act were sneaked into parliament as among the last minute Bills which were passed by a handful of MPs just before the legislators dispersed for the general election.
The key feature the two pieces of legislation was the intention to introduce a huge Nairobi-based bureaucratic monolith with powers to make policy and oversee the operations of all parastatals under the ministry.
Depending on how this phenomenon plays out, and if Nairobi continues to cling on to powers and functions that it does not have in the schedule of functions stipulated in the Constitution, it whole thing could open a flood of litigation between county governors and the national government.