Kenya’s strength lies in its resilient private sector. And it has long had an uneasy relationship with government: partly pushing for improved service provision, partly embroiled in corruption and ethnic alliances. Rachel Keeler investigates the reform dynamics since Mwai Kibaki took power in 2002 – and clung on to it with dramatic consequences in 2007.
Mugo Kibati was in Geneva when he got the call. It was June 2009 at the International Labor Organisation’s annual conference where he was representing the Federation of Kenyan Employers. Kibati is one of Kenya’s leading businessmen, a young Harvard and MIT-educated engineer turned successful CEO. The phone call was to inform Kibati that his hard work had not gone unnoticed: the Kenyan government wanted to appoint him director general of its ambitious Vision 2030 development master plan. Kibati would be in charge of engaging the private sector, turning rhetoric into results, and rounding up the money to pay for everything.
“I outright told them: ‘No, not interested. I don’t think it’s doable’,” Kibati says. “I would need to be convinced of the seriousness of the Kenyan government at the very top levels.”
That is a tall order in a country where politicians are best known for mind-boggling heights of corruption, waste and deceit. After decades of autocracy under former President Daniel arap Moi that pummeled Kenya’s strong economy and doubled its poverty rate, the country seemed to make a comeback in 2003 with the arrival of Mwai Kibaki’s pro-reform government. But prosperity had barely begun flowing again when Kenyans were hit with the mammoth Anglo Leasing scandal – a scam initiated under Moi, but seamlessly taken over by members of Kibaki’s administration.
A hotly disputed election followed in December 2007. The bloody post-election violence of early 2008 delivered a blow to Kenya’s economy and tarnished its international image. With help from the global crisis and seasonal drought, GDP growth that had gone from 1% in 2002 to an impressive 7% in 2007, slumped to just 1.7% in 2008. Perhaps worst of all, the government has doubled in size since the formation of the Grand Coalition in 2008. The deal that forced Kibaki to share power with his rival, now Prime Minister Raila Odinga, has seen ministries multiply to accommodate cohorts from both camps. The Kenyan taxpayer must now spend twice as much to receive half the benefit from a bloated and politically paralysed state.
“We are now into our 47th year as an independent nation,” Kibati says ruefully, “and we haven’t dealt with what Jomo Kenyatta [Kenya’s first president] said were the major issues – poverty, disease, ignorance.” Not to mention other basic necessities like roads, water, power, justice, security and health care. That is everything Vision 2030 promises to address in the next 20 years, and it does take quite a stretch of imagination to think this government could be up to the task. And yet, in the end, Kibati took the job.
By doing so, he has put his reputation on the line for the government. The obvious question is, why? After a fair amount of cajoling, Kibati says he now believes top officials are serious about working with the private sector to modernise the economy. But in many ways, his decision was a leap of frustration and faith. It was a question from the head of public service, Francis Muthuara, that pushed him over the edge. Kibati recalls: “He said, ‘Mugo, if you don’t do this, and the country fails, what reason will you give yourself for having turned down this job? At least you should try.’ And you know what? I got convinced. I said you know, I may keep saying I’m a private sector guy, I don’t trust government, there’s reputational risk, but at the end of the day I might as well get in there and try to get the things I’ve been lobbying for done from a position of power and influence.”
Still, for many who have seen the destructive power of Kenyan politics, it is hard not to ask, has the government really changed? Or is Kibati destined to become the next John Githongo – the dedicated former anti-corruption chief who bet everything on Kibaki’s original reform promise, only to find that Africa’s notorious Big Men had struck again.
Political Desert
It is easy to dismiss Kenyan politicians when they promise to make life easier for the private sector. Amidst talk of reform, new scandals seem to pop up in the press every day: from dirty maize and multi-million-dollar typos at the Treasury to missing primary education funds. Kenya has been operating on costly emergency power for the last three years. Mombasa port is inefficient and mismanaged. The country is in desperate need of judicial reform and a new constitution. Organised crime is as lively as ever and Nairobi traffic has become unnavigable.
Kenya’s greatest strength has long been the ability of its private sector to persist and flourish independently of government’s failures. As one prominent businessman put it recently: “Kenya’s economy is surviving if not thriving against a background of a political desert.” Safaricom CEO Michael Joseph says the best thing the first Kibaki administration did for the economy was to mostly leave it alone – no help, but no harm, either. Joseph has managed to make Safaricom the most profitable company in East Africa in part by building most of his own infrastructure. In spite of political turbulence, Kenya has grown over time to become one of sub-Saharan Africa’s three economic pillars, on relative par with Nigeria and South Africa.
But that of course has not stopped business leaders from demanding that the government do a better job. As a result, Kenya is not the same country it was in 2002. Notable progress has been made since the end of Moi’s destructive reign, on infrastructure, regulation, finance, taxes and trade. The political transition brought a wave of real reforms. The government now faces a public that grows more educated and demanding by the day. Associations and roundtables have been established to increase communication between government and the private sector. Their efficacy varies, but the message is clear: at least a few Kenyan politicians are interested in rebuilding the country, and they know working with business is the best chance they’ve got.
Lobbying the Big Men
In February 2003, Manu Chandaria was called to Mombasa by Kibaki’s young government to join a meeting of Kenya’s top politicians, businessmen, academics and civil society leaders. There were eight ministers in particular who wanted to consult the country’s best minds on how to revive the economy. Chandaria was skeptical, and for good reason. His family has spent the last century building a global industrial empire that began in Kenya, with little support from government along the way.
The ministers said they wanted help from the private sector, but that dealing with Kenya’s 200 business organisations was too confusing. They asked Chandaria to create an umbrella body. “I laughed at them, we all laughed at them, as this was very difficult to achieve,” Chandaria says. But four months later, he founded the Kenya Private Sector Alliance (KEPSA) with the help of other private sector organisations and went to work on influencing policy. They set up private sector forums at the ministries and created the National Economic and Social Council (NESC), a hybrid body meant to bring expert economic advice from the private sector into government. NESC is now headed by Julius Muia, a businessman with a background in finance and a reputation for pragmatism.
Steven G. Smith, former chairman of KEPSA and the Kenya Association of Manufacturers (KAM), says KEPSA has shaped important policies: the body has had a hand in Kenya’s new anti-counterfeiting bill, worked on power generation, helped Kenya align its tariffs and duties with regional integration, and influenced the land reform debate, the procurement bill and environmental reform.
KEPSA’s members have become Kenya’s version of lobbyists in parliament and the government. Much of the time, the formal structures break down and the real work gets done through personal relationships. Given Kenya’s relative democratic deficit, the strategy in either case is somewhat desperate. Chandaria pleads for a sense of national duty, but often resorts to less patriotic persuasions: “You can only put fear of problems ahead for them in their minds,” he says. “I go and talk to the prime minister, vice president and ministers and say, ‘Listen, there are six million Kenyan youth pacing the streets every day – there is no hope for them. What are you going to do about it?” And, “If you’re making people poorer and poorer, what are you getting out of them?” Or “I’ll ask a bureaucrat, ‘Please listen, what happens to your children? You’re in power and still they’re sitting at home.’”
The work is obviously tedious, and the aging industrialist sounds frustrated on many counts. Other businesspeople say KEPSA and NESC are too timid in the face of political obstinacy to make a real difference. Initially high hopes for the business roundtables set up by the ever proactive Prime Minister Odinga have also fizzled out. The coalition agreement officially gives Odinga the task of directing work in the ministries. But in practice it’s clear he does not have the power to tell ministers what to do.
At the same time, open communication between the two sides has produced tangible results. On the wall of Betty Maina’s office in Nairobi is a sign that reads: “What have I done TODAY to improve the business environment in Kenya?” Maina has done a lot as the head of KAM. Growth in Kenya’s manufacturing sector contributes 10% of GDP and has been an important source of economic diversification and job creation here. KAM has had a good rapport with the government over its 50 years of existence, although Maina says times were tough under Moi. Today, she gives the relationship between industry and government a seven out of 10.
Maina laments disappointing government delivery on quality control and standards – most people dismiss the new Kenya Bureau of Standards (KEBS) stamp plastered on every object in Kenya as meaningless at best and a bottleneck for rent-seeking at worst. But in the last five years, KAM has won important concessions on tax relief, and seen infrastructure and market access improve. “We don’t like that electricity prices are high, but we’re quite happy that there’s no rationing,” Maina says. “Looking back over the last 10 years, we’re lots happier than we were in 2003. There are road works going on. The cost of clearing goods through the ports and the cost of transport is high, but it used to be higher. Port clearance now takes seven days – it used to be 14.”
Infrastructure: Promises and Reality
But even after seven years in power, Kibaki’s government is still playing catch-up. “We’re not getting proactive actions from government – they’re all reactive,” says Vimal Shah, KAM chairman and CEO of Bidco, one of East Africa’s largest manufacturing companies. The frustration in Shah’s voice is palpable when he talks about the price of electricity.
Kibati promises to pick up the pace, and make significant progress by 2012: He wants to finish Nairobi’s infamous bypasses – projects the government has been promising to complete for years (first plans circa 1960) to relieve congestion in the city. He also promises three functioning broadband cables, a terrestrial fibre network to connect every district in Kenya and government services delivered more efficiently online. More secondary schools are on the list, as well as police reform and environmental conservation. Judicial reforms will depend on constitutional reform, which looks like it will finally happen this year.
But despite Kibati’s optimism, the forces that perennially stall Nairobi’s bypasses have not gone away. Major public projects like roads depend on input from multiple ministries, all run by politicians who see a chance to snatch the credit for progress as well as the loot from lucrative tenders. The split by the Grand Coalition of many ministries into two has exacerbated this process. The newly created Nairobi Metropolitan Ministry for example has done nothing to improve the city’s messy management. A major toll road concession given to a joint venture between an Israeli company and its Austrian-German partner received good press recently. But the deal has actually been in the works for years, showing again how a lack of capacity and coordination keeps complex projects from moving forward.
Vested interests in transport continue to prevent progress on railways, as have the myriad political problems incurred by the Rift Valley Railways concession. Rather than go the way of full and potentially effective privatisation, the expansion of Kenya’s international airport has been kept in government hands that hope to siphon money out of it. The private sector has given up trying to overhaul management of the Mombasa port. Moi tried to privatise the whole thing a decade ago and was beaten out by strong unions that continue to co-opt the inefficient operation as a coastal – not national – asset. If the proposed Lamu port project is built with China’s help, it will be laden with political pay-offs and environmental destruction, not to mention insecurity posed by its swashbuckling neighbor, Somalia.
Promises from the Ministry of Energy to double Kenya’s power capacity and lower costs by 2014 will not be met. The ever optimistic Muia just shakes his head in frustration when asked about the sector. Odinga has backed an ambitious renewables campaign. But geothermal power – the country’s greatest energy asset – is extremely difficult and costly to exploit. Wind power is years away from commercialisation on a mass scale. Solar is even further out. Ethiopia may have plenty of power to sell soon. But that would come with national security risks and the draining of Kenya’s Lake Turkana by an Ethiopian hydropower dam upstream. Continued dependence on diesel-fired plants will keep costs high.
Mwalimu Mati, founder of the activist Mars Group, argues the government could finance a lot more development and a lot less debt if it cut the waste out of its own budget: “What’s happened over time is our government has started to spend money on its overhead instead of spending money on things that would jumpstart the economy and create employment.” Recurrent spending engulfs 70% of the budget. And Mati says at least a third of public procurement funds go missing every year.
Progress in Pockets
Most everything in Kenya that requires government direction still presents a pretty dismal outlook. But again, there has been progress in pockets: Previously state-owned businesses like Safaricom, Kenya Airways and KenGen have been privatised to great and profitable effect. Most observers are happy with the pace of road works now. Odinga has taken an interest in water catchment and delivery that could help both city dwellers and farmers survive future droughts. This is cheap and important and easy to do, so it may actually happen (Muia thinks so) by 2012. Shah is quite happy with progress on regional integration. The launch of the East African Community’s (EAC) common market this year offers increased market access and regional growth prospects for eager companies like Bidco. The EAC is often recognised as Africa’s most advanced regional trading block, and cross border trade, both formal and informal, has been vibrant.
Infrastructure projects are progressing with the help of two recently oversubscribed infrastructure bonds backed by the NESC. John Ngumi, director of investment banking for Africa at Standard Bank in Nairobi, sees this as major progress in the way government approaches development. Ngumi lobbied hard to get Kenyan politicians to consider the private sector as a source of financing. Even though the bonds themselves have been criticized for a lack of ring-fencing control over how they will be spent, this working relationship between Kenya’s strong finance sector and the Central Bank of Kenya (CBK) as well as the Finance Ministry is significant. Other bankers say the liaison work provided by the CBK to the government has done more for their business than industry lobbies like KEPSA ever could.
Political Transition
Things are changing, even if ever so slowly. Safaricom’s Joseph tells a story from when he first arrived in Kenya. It was 2000 and Moi was still very much in power. Joseph gave a speech exhorting the government to drop import duties on mobile phones. After the speech, Moi came up to him and said, “It will happen”, and then next day it happened. Moi’s style was opportunistic and intrusive. He did favors, but expected them in return. Joseph says Safaricom has refused to patronize government from the beginning. But most business under Moi was different: “In the Moi era, if a business was successful, you knew there had to be the hand of government in that business,” Joseph recalls.
Kibaki’s first administration represented a real departure from this – a chance to escape government as well as work with it. “If you look at the Kibaki era, when the new ministers came in, they generally helped a lot. They really wanted to build Kenya – not to say that they’re not corrupt; some of them were and are,” Joseph says. “But I think there’s definitely a new view, from the cabinet and the ministers, that they will need to help build the country, and they will try.” Smith says many of the new permanent secretaries that came in under Kibaki are “dedicated individuals” who have pushed for reform.
A colonial legacy of good infrastructure that bore strong private institutions – well-defined regulations, a decent legal system and active professional associations that outlive political ups and downs – has inspired big companies to set up in Kenya. Even more businesses opened and grew under Kibaki’s liberalisation. And these companies now tend to counterbalance government by demanding higher standards. But Kenya is still a difficult place for investors to navigate, plagued by opaque networks and political risk.
When Nik Nesbitt came home to Kenya in 2003 to start KenCall, the region’s first outsourcing call centre, he knew there would be hurdles. At the top of the list was convincing the government to give him a satellite operating license that would break the state-owned Telkom Kenya’s monopoly. Barclays had already tried to do the same thing and been rejected. Nesbitt was hoping an early partnership with one of Kenya’s influential families would drive things along, but in the end he was left to fend for himself. He spent the next several months hunkered down with constitutional lawyers and built a case that showed Telkom Kenya was breaking the country’s Telecoms Act, which prohibited a monopolistic environment. He got his license. “We did it by the book and we won,” Nesbitt says. And yet, Nesbitt admits: “It would have been very difficult for someone foreign to Kenya to pull that off, or someone without influential friends.” The entrepreneur recalls finding friends along the way, people who said things like “your dad used to be my doctor” – happy to help.
Kibati puts it like this: “The government of Kenya 2010 is doing things that the government of Kenya 1999 would never have dreamt or even thought or contemplated. In 1999, what the government of the day would be doing is basically saying, ‘Ooh, that’s free land, who do we give it out to?’ It’s a significant journey from that to where we are today. But where we are today is not where we want to be.”
Many businesses are now able to steer clear of political snares. But other notable players still rely on patronage networks wrapped up in old alliances like the so-called ‘Mount Kenya Mafia’, Kibaki’s inner circle of age mates and other close allies. Local financial heavyweights like Trans-Century and Equity Bank have turned political connections into economic opportunities.
The reform impetus from the early Kibaki years has also slowed, and the effective relationship between government and business has broken down considerably under the Grand Coalition. Politicians may still listen, but structural infighting keeps them from acting. And with not even the weak and divided opposition of the first Kibaki administration to keep the engorged government in check, everyone is busy positioning themselves for the next election in 2012. The underlying mood is an intent to finish unfinished business, while original responsibilities suffer. While the coalition awarded itself a 90% score on implementing reforms since 2008, the private sector says the government only deserves a 10% grade.
Constitutional reform and the upcoming 2012 election pose flashpoints for more conflict, but also the chance at reinstituting a workable government. Just cutting the government back to normal size and instituting some form of opposition would help. National consensus on a new form of constitutional governance and an undisputed presidential victory will make things even more functional. Neither is certain. A parliament select committee recently reached agreement on a draft constitution that would mimic America’s system by limiting presidential powers and defining a line between the executive and parliament. But it is unclear whether the separation of power will stick.
Forces for Change
It will likely take generational change for true governance reform to take hold in Kenya. And the impetus will not come from politicians. The greatest force for progress here continues to be demands from the private sector and the Kenyan public. The Kenyan media and a growing gaggle of impertinent bloggers have made it clear that bad behavior will not go unreported. Even though the media retain biases of their own, they have forced politicians from all sides to explain indiscretions to their constituents. Those who remember living under Moi see this as an astonishing change. Observers hope it will not be diminished by the draconian controls proposed by new media regulations.
Kenya’s middle class has also been on a steady upswing since 2003. Kenyan professionals in the diaspora have come home, inspired by evidence of change they can work with. Middle to upper class households measured by expenditure grew from 20 to 28% of Nairobi’s population between 1993/94 and 2005/06. Increasingly educated and modern Kenyans care more for living a good life than atavistic divisions or predatory politics.
Some insiders say business may have an even louder voice now following the post-election violence. The private sector lost big during the fallout, and executives are keen to make sure it doesn’t happen again. That’s no guarantee that they will succeed. Many powerful businesspeople still depend on government support. In upcoming battles, dirty politicians will depend on them to remain silent. But a combination of pressure from citizens and civil society empowered by education, and a vibrant private sector hungry to reach its full potential will ensure improvements happen over time. Other African countries, as well as development aid policymakers, should recognise the importance of this dynamic.
Perspectives
Undeterred by past government failures, Kibati argues that now is the time for real work to begin. He says, “Look at 2002: we ostensibly reformed. We ostensibly had a second liberation. But what happened? We were judged in 2003 to be the happiest, most optimistic people in the world. But it was all superficial and fake. It was too easy. Today it’s much more difficult, because now we are delving into the fundamental issues. Now when you talk about impunity, it’s about the real stuff. And therefore it’s really trying to deal with the most vested of interests.”
Kibati is gearing up for quite a fight. But he maintains that he wouldn’t have taken the job if he didn’t think at least a few powerful people would help him. Head of public service, Francis Muthuara, is at the top of Kibati’s most-supportive list. Business leaders point to a few others: Kenneth Marende has won admiration for his work as the bridge-building speaker of parliament. Tourism Minister Najib Balala has brought Kenya’s tourism revenues back from the abyss. MP Peter Kenneth actually pays taxes and has been described as pragmatic and inspired. The Central Bank Governor Njuguna Ndungu has been praised for encouraging competition, approving Safaricom’s innovate M-Pesa mobile money transfer system, and for his global crisis mitigation policies.
Kibati spent the week before last in Singapore with Odinga, Chandaria and others on a quest to exchange ideas about seaport and airport management, mass transit, affordable housing and special economic zones (SEZs). Kibati notes that in 1978, the new reformist Chinese government taking over from Mao Zedong took a similar trip to Singapore before setting up the first of its own SEZs. Kenya will not be the next China. Kibati envisions a messier path plagued by democratic decision making, akin to India. He prefers this. And truthfully, his hard-baked hopefulness is contagious.
But Chandaria remains torn. When asked about his apparent mix of optimism and pessimism about Kenya and its government, he paused to look out the large window in his sitting room. It frames a lush tropical garden backed by the stunning Karura Forest. He swept his hand across the vista and said: “It gives me pain that while we have such a beautiful country – best of climate, best of people, we don’t have oil, we don’t have gold, we don’t have diamonds, but in spite of that we have so much – and yet we can’t utilize it [because of the government]. That hurts. That’s my pessimism. Otherwise, optimism to me could grow like nobody’s business. We could be leaders in this part of the world after South Africa. There’s no doubt about that.”
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