Kenyans have started on the hard part of living with the most far-reaching administrative reforms in the country’s post-Independence history, as power shifts from the central government to the 47 counties, following the March 4 General Election.

The radical changes are likely to be more tangible to the man on the street, but raise questions on whether the country is prepared to navigate this brave new world.

The new dispensation is particularly distinct in the way it distributes power among the various arms of government and in the establishment of an elaborate system of checks and balances to curb abuses by senior public officials.

On March 4, the country’s governance structure transformed overnight, as significant control and executive decision-making was devolved to local administrations.

All eyes, economists said, will be on the ability of the devolved structure to stem the country’s widening inequalities — in the provision of education, health, infrastructure, water and other crucial services — across the counties as well as to fight poverty.

A May 2012 report by the World Bank showed that Kenya’s poverty levels have oscillated between 44 and 46 per cent over the past six years. However, this represents an improvement from 12 years ago when the poverty level stood at 56 per cent before falling to 46 per cent in 2005.

Experts warned it will take time for Kenyans to understand how the new government will work, and without skilful management both at national and county levels, the central promise of the country’s new Constitution could end up being stillborn.

Kenya’s devolution project is particularly ambitious as it is one of few in the world that shifts power from the centre to entirely new local administrations set up from scratch.

Previously, the country was divided into eight provinces and over 100 districts, but executive power was largely vested in the central government headquartered in Nairobi.

Now, 47 governors with their respective county assemblies will be in charge of the new local administrations to oversee functions such as agriculture, health facilities, sanitation, transport and trade licences, as well as the responsibility to generate revenue for the county — likely to be in the form of various taxes. The national government remains in charge of education, security, foreign policy, and national economic policy and planning.

According to a report by the World Bank, although devolution is seen by many as the “magic bullet” that will allow the country to correct historical patterns of neglect, it is by no means certain that it can radically alter these imbalances by itself.

“In fact [devolution] could even result in entrenching disparities if the right policies are not implemented,” the report says. “A rushed transition could set up counties to fail by giving them responsibilities before they have the capacity to carry them out.”

How should the redistribution be implemented? Kenya’s counties start from very different positions, but experts at the World Bank say the immediate priority should be preserving existing service delivery — any drastic move to redistribute resources away from affluent towards destitute counties could result at best in severe fiscal stress, or even the collapse of essential service delivery.

The Commission on Revenue Allocation (CRA) has drafted a formula of sharing funds under the Equalisation Fund provided for in the Constitution to boost development in marginalised areas.

A schedule CRA released on February 29 showed less than a third of the 47 counties will benefit from the Ksh3 billion ($35.29 million) Equalisation Fund with Turkana taking the largest share in the next three years.

CRA said it considered its own internal survey of how counties were marginalised, came up with a County Development Index and analysed historical injustices to arrive at the 14 counties that would draw from the fund.

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The Index, a composite measure constructed from health, education, infrastructure and poverty indicators in a county, would account for half of the allocations with the rest being shared equally. Although about 20 counties were found to be in need of catch-up funds, CRA said it selected the 14 because the resources would have been spread too thinly to have the desired impact.

Concerns are also emerging on the efficiency of the new governance structures with critics questioning the thinking behind devolving at least 15 per cent of national revenues to counties, while leaving much of the expenditure on the shoulders of the national Government.

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The devolved governments are likely to worsen Kenya’s budgetary constraints, analysts said.

A research note by Kestrel Capital, a Kenyan investment bank released last week, showed county governments are also likely to place an even greater strain on Kenya’s budget deficit and debt to GDP ratios, which currently stands at 5.0 per cent and 47.2 per cent respectively.

“This position is expected to worsen once the new government structure is in place as we don’t expect the revenue collection in the counties for the first few years to be substantial enough to cover expenditure,” the analysts say in a recent report in which they interrogate the election’s likely impact on the economy.

Kenya’s total public debt already stands at a whopping Ksh1.8 trillion ($21.2 billion) or 50 per cent of the GDP, leaving the government at a tight corner.

Shortfalls in revenues and donor commitments have continued to pile pressure on the exchequer, undermining the government’s ability to meet some of its most pressing obligations, including the servicing of debt.

The latest report by the Controller of Budget shows while Kenya’s development partners committed to finance the current budget to the tune of Ksh226 billion ($2.65 billion), they had disbursed only Ksh26.6 billion ($305.8 million) or 11.8 per cent of total commitments by the end of December.

The World Bank said Kenya’s devolution is taking place in a tight fiscal environment, making it critical that intergovernmental transfers be well planned and costed together rather than executed in the present balkanised form, to enable them to have an impact on delivery of essential services.

The new government structure is also expected to put pressure on the country’s wage bill, which is currently at 30 per cent of the Ksh1.5 trillion ($17.6 billion) budget and at 12 per cent of GDP. An increase in taxes is the most probable solution that the central government will adopt to bridge the budget gap.

CRA recommends that Ksh231 billion ($2.6 million) should be allocated to the county governments in the 2013/2014 fiscal year which begins in July while counties should create other avenues to raise revenues.

Equity Bank CEO James Mwangi is optimistic that the economy will continue on an upward trajectory under the new governance structure.

“For the first time the country had delinked economics and politics. In the past, macroeconomic indicators — inflation, interest rates and exchange rates — have tended to worsen in election years, but this time they are getting better,” he said.

His views are supported by a new survey by Ipsos Synovate which shows that the country’s business community remains positive, with at least 71 per cent of executives interviewed saying the political landscape in Kenya is conducive. In September last year, 70 per cent were positive, an indication that the business community continues to be resilient regardless of the current political climate.

Regional players are worried that Kenya’s devolution project could deter the free movement of goods and services across East Africa, as the new county governors will have the power to levy various taxes on goods transiting through their counties.

A fortnight ago, EAC Integration Secretary Barak Ndegwa urged county governments in Kenya not to impose unnecessary trade barriers once they take over office after the March 4 elections.

READ: EAC cautions Kenyan counties against trade barriers

Mr Ndegwa said more barriers by county governments would negatively affect EAC’s mission to achieve free movement of goods and services.

Experts said the county and national governments in Kenya’s new devolution system should work together to ensure that regional trade is not affected especially on new tax developments as counties seek to develop revenue. 
“The two [levels of government]  should work together to eliminate chances of inhibiting free movement of goods, labour and services across the region. The same applies to movement across counties because they will be treated as a source of trade for each other,” said Pius Nduati, the vice chair, at the Institute of Certified Public Secretaries of Kenya (ICPSK).

According to CRA, counties through which vehicles to neighbouring countries pass — such as Busia on the Kenya-Uganda border, and Kajiado on the Kenya-Tanzania border—will have a hand in determining how trade management between Kenya and its neighbours is run, but it will be the mandate of the national government to ensure that such interests do not deter regional trade.

“Governors have powers to impose taxes on any trade mechanisms in their counties but national governments can always protect regional trade by proving that regional trade interests outweigh such proposed taxes,” said Stephen Masha, the director in charge of County Fiscal Affairs at CRA.

Uganda, Tanzania, Rwanda and Burundi use the Mombasa port as a link between them and the outside world, with vehicles traversing through many counties to get to Kenya’s borders with Uganda and Tanzania before linking with Rwanda and Burundi.

Trade among the five member states also depend on the Kenyan roads, implying decisions made by the counties will affect the flow of trade across the region.
Additional reporting by Scola Kamau and Christabel Ligami