NAIROBI (HAN) June 11.2016. Public Diplomacy & Regional Security News. Kenya will increase spending on key economic sectors in the next financial year in a bid to jumpstart a lagging economy whose lacklustre performance has threatened the country’s dream of attaining middle-income status by 2030.
The economy has grown at an average of four per cent in eight years against a planned rate of 10 per cent partly due to poor performance of key economic sectors such as agriculture, manufacturing and tourism.
The government had initially projected that the economy would grow at a rate of about 6.1 per cent in 2013; 7.2 per cent in 2014; 8.7 per cent in 2015; 9.1 per cent in 2016 and 10.1 per cent in 2017.
This has left the nation’s ambitions of becoming a middle-income economy — with per capita income of between $1,045 and $12,736 — in limbo as the government struggles to meet key growth targets under its long-term development plan, Vision 2030.
National Treasury Cabinet Secretary Henry Rotich, delivering the 2016/2017 budget speech, said the government’s focus is on reviving agriculture, industrial and service sectors through increased allocations and removal of taxes perceived as barriers to growth.
Mr Rotich allocated Ksh4.9 billion ($49 million) to subsidise fertiliser and seeds in order to improve yield and output for farmers and removed the Sugar Development Levy of four per cent and the one per cent ad valorem levy on tea.
The ex-factory price of sugar paid by wholesalers includes government levies such as four per cent Sugar Development Levy and 16 per cent value added tax.
Mr Rotich set aside Ksh2.4 billion ($24 million) for the Coffee Debt Waiver and Price Stabilisation Fund and allocated Ksh8.4 billion ($84 million) for acquisition of offshore patrol vessels for the fisheries sub-sector, modernisation of the Kenya Meat Commission, revival of the pyrethrum sector, the livestock and crop insurance scheme and mechanisation of agriculture.
The Jubilee government also moved to boost the completion of some of its flagship projects ahead of the next General Election expected in August 2017.
These include the Konza Techno City, which aims to position the country as a sustainable worldclass ICT hub; the Kenya National Electronic Single Window System; digital migration; the Digital Literacy Programme (School Laptop Project) and the one-stop-shop Service centres (popularly known as Huduma Centres), which aim to enhance access to and delivery of government services to all citizens.
The government allocated Ksh13.4 billion ($134 million) for the Digital Literacy Programme and Ksh6.1 billion ($61 million) for the Single Window Support Project, Research Development Fund, roll out of the Integrated Financial Management Information and System (IFMIS), development of Konza Technopolis, and digital migration (Kenya Broadcasting Corporation).
To ensure universal access to safe water and sanitation for all by 2030, the government in collaboration with the government of Sweden came up with the Kenya Innovative Financing Facility for water, which will establish a Kenya Pooled Water Fund.
The fund will facilitate financing of the water sector infrastructure by issuing long-term bonds in the local capital market. The funds will be loaned to creditworthy water service providers to build water and sanitation infrastructure.
Mr Rotich said the programme will leverage on the existing Ministry of Water and Irrigation budget by raising a minimum of Ksh3 billion ($30 million) in infrastructure bonds on an annual basis.
Other initiatives include the revival of a programme to expand technical training institutes and universities in the country.
Mr Rotich also proposed key interventions to revive and support companies that have the potential of making significant contributions to the growth of the economy and spurring job creation.
These include Mumias Sugar Company, Rivatex, PanPaper Mills, New Kenya Co-operative Creameries and national carrier Kenya Airways.
The Mumias Sugar Company received a Ksh2 billion ($19.44 million) government bailout package to ease its financial constraints while loss-making Kenya Airways got a Ksh4.2 billion ($42 million) loan from the state to shore up its finances.
“The manufacturing sector is a key driver of economic growth, particularly in the agricultural sector through growth of exports and job creation. The government is also focused on stimulating local inputs to spur the development of SMEs in Kenya,” said Mr Rotich.
Kenya has moved to support the export processing zones to make products more competitive in the local market by exempting locally made garments, clothes and shoes from VAT.
Mr Rotich allocated Ksh4.5 billion ($45 million) to revamp tourism promotion activities in the country and exempted entry fees charged at national parks from VAT.
He also exempted commissions earned by tour operators from VAT while increasing air passenger service charges for external travel from $40 to $50 and for internal travel from Ksh500 ($5) to Ksh600 ($6).
Kenya’s Vision 2030, which was officially launched in July 2008 aims to transform the country into a newly industrialising, globally competitive and middle-income country providing a high quality of life to all its citizens.
Flagship projects under the plan include paving of 10,000 kilometres of roads by 2017 and generation of over 5,000MW of power in 40 months.
However, implementation of the projects has fallen behind schedule largely due to inadequate funding, lengthy procurement processes and ligation over tender awards, land acquisition and compensation issues and high transaction costs.
For instance, in September 2013, the Jubilee government launched an ambitious programme to deliver an addition 5,000MW of power in 40 months but to date only 615MW have been added to the national grid.
Other flagship projects include the Lamu Port Southern Sudan-Ethiopia Transport (Lapsset) Corridor project, the Konza Techno City, modernisation of Jomo Kenyatta International Airport (greenfield terminal and second runway), expansion of the port of Mombasa, and the standard gauge railway (SGR).
The government has already abandoned the greenfield terminal project citing inflated costs.
Currently there are 164,000km of road network in the country of which only 13,000km is paved.
An additional 10,000km had been earmarked to be paved by 2017 — of which 80 per cent will be rural roads and 20 per cent urban roads.