There is no magic wand as President William Ruto takes over a stuggling country, with the headache of sky-high fuel prices, a public debt of Sh8.7 trillion and high cost of doing business welcoming him into office. What is the way forward for the new government?
BY PETER WANYONYI
“Après moi,” the French King Louis XV is said to have quipped to his favourite mistress, Madame de Pompadour, “le déluge.” After me, the flood. His terse aphorism has been given many interpretations, but the most sensational is that of an uncaring, indifferent monarch who gleefully predicted disaster after his own rule – and he was clearly unbothered. “Let it all go to ruin after I’m dead and gone” is one popular rendition.
Louis XV might as well have been a preincarnation of President Uhuru Kenyatta, who was born just over 250 years after the pompous French King. Uhuru leaves behind a struggling country beset with problems and challenges that William Ruto’s presidency will battle to contend with – and then fail.
Mr Kenyatta’s first gift to his successor is inflation – which, at 8.3% in July, is at its highest in over five years. Transport prices are up an average 7%, housing and utilities are up an average 5.6%, and the month-on-month consumer price index is 0.7%. The prices of groceries are through the roof, with average food and non-alcoholic beverage prices up 15.3%.
The high and rising prices are understandably making investors nervous, and the effect is beginning to be felt in the bond markets, as investors stare at the gloomy macro-economic outlook.
Raila Odinga, having lost to William Ruto in the presidential elections, rejected the results and went to court to challenge the decision – as he has done at every election since 1997, bar 2002 when he was not on the ballot. This was probably his last realistic stab at the presidency – at the next election in 2027 he will be 82 years old, a year older than his father, Jaramogi Oginga, was in the 1992 election.
The supreme court upheld Ruto’s win – the petition was long on claims and short on evidence, particularly digital forensic evidence to back the claims made about Independent Electoral and Boundaries Commission (IEBC) servers having been hacked by “foreign nationals” to inflate Ruto’s vote count, the court said. The good thing is, this time, the court process did not create uncertainty and anxiety.
Historically, Kenya’s tightly-contested elections are always mere inches away from sparking civil chaos and violent aftermaths, because Kenyans do not believe that elections can be won fairly especially when the losing candidate is Raila Odinga. This attitude probably goes back to basal superstitions: for Africans do not believe that there is such a thing as a normal ending to anything, or a normal death.
In African culture, death is always presumed to be the result of some malevolent force, maybe the evil eye, maybe the dreaded chiira of the lakeside, maybe a spell cast by a jealous jajuok – something, some super natural power, just not any natural death. And so the death of Raila’s perennial presidential dream cannot be a natural occurrence – someone must have cooked the elections!
Concerned by the prospect of instability after the petition, investors were either holding back their money or demanding more for it: during the August Treasury bond sale, the Central Bank of Kenya (CBK) targeted raising Sh50 billion but ended up raising only Sh38.5 billion.
In the short-term three year security component of the bond, the CBK offered a return of 11.8%, but investors wanted a return of 12.45%. In the end, of the Sh38.5 billion raised, the CBK went home with just Sh8.9 billion net borrowing, with maturing bonds gobbling up the other Sh29.6 billion.
These rather dry numbers disguise a desperate economic situation that is getting worse and will continue to. High inflation is not new to Kenya, as our money management has never been good even at the best of times. Now, though, a significant external factor is pouring geopolitical fuel onto the inflation fire: Vladimir Putin’s war in Ukraine.
Kenya’s economy was already reeling from the battering it received at the hands of Covid-19 and the nationwide lockdowns that President Uhuru imposed on the country. The lockdowns achieved exactly nothing in slowing the spread of the virus, which was always going to be the case for an airborne pathogen. Economic activity ground to a halt, the shilling accelerated its long-term devaluation against hard currencies, and Kenya’s precarious position as a net importer of food and fuel became even more calamitous than usual.
Fuel subsidy
As if the high cost of living is not enough, Kenya faces another crisis around the corner: for three consecutive cycles, the government has defaulted on compensating oil marketing companies under the state-funded fuel subsidy scheme. This is Uhuru’s second gift to his successor. Since April 2021, Kenya has spent an average of Sh7.65 billion a month on subsidies for petrol, diesel, and kerosene.
The scheme is designed to protect the economy against oil price spikes on the international markets, but is an expensive undertaking that the economy cannot afford – made worse by Kenya’s corruption, which has seen the subsidised fuel smuggled across borders to be sold in neighbouring countries at full prices.
For the last three months, the Treasury has been forced to divert money from the fuel subsidy fund to pay for other government obligations, with oil marketers being forced to wait for their money after shouldering the costs of the subsidy. They have had enough and are demanding payment – but the Treasury is broke and has had to go cap in hand to the International Monetary Fund (IMF) for budgetary support.
The IMF has, in response, demanded that Kenya drops the fuel subsidy scheme before any support discussions can be held. Beggars cannot be choosers, and so the fuel subsidy scheme will have to go. That is probably why president Ruto will be off to a rocky start, with the headache of sky-high fuel prices welcoming him into office.
The IMF is not the only lender that the new president will need to placate. Indeed, the IMF is the lesser of Kenya’s twin lender evils, the other being, China. The Red Dragon of Asia is Kenya’s largest import partner and is the main funder of our shiny new large-scale infrastructure projects. China has long been in bed with president Kenyatta, who gladly accepted “unaffordable loan” from the Chinese, digging Kenya ever deeper into a debt hole that we will not be able to climb out of anytime soon.
Kenyatta’s liking of China meant that Ruto automatically fell into the opposing camp, and Ruto has been unwavering in his criticism of Chinese loans. In this he is right: the Beijing Debt Trap is a real geopolitical tactic by China, which is looking to lock up non-Western supplies of everything that the world needs. Legend has it that dragons covet wealth and will destroy anything that gets in the way of their quest for gold, and Africa’s resource wealth is an irresistible attraction to the Asian Dragon.
To control the entire processing chain of those resources, China needs to own the mines that extract the wealth, the roads that cart it to processing centres, the railways that haul the processed wealth to the coast, and the ports at which it is loaded onto Chinese ships to be transported to China. It is therefore no coincidence that China’s investments in Africa are in mines, roads, railway lines, and ports.
While a President Raila would have continued Uhuru’s sweet deals with the Chinese and sunk us ever more into Chinese debt, Ruto’s is expected to bring a halt to Kenya’s “mbekho mbekho” relationship with China, cancelling new loans and looking to quickly repay existing ones. This will stall future infrastructure projects in the country and invite China’s wrath.
In the short term, this means more economic pain, as China will demand unfailing repayment of existing loans. But the pain will be worth it in the long term, as Kenya looks to extricate itself from the Beijing’s deadly debt embrace.
Kenya, therefore, looks at a painful near-term future – the court threw the petition out, thus Ruto’s hard-line stance towards China will result in significant pain over the next couple of years as we chafe under Beijing’s unyielding repayment conditions.
Nature also has it in for us. A punishing drought has been underway in Northern Kenya for some time now, in the region where Kenya hosts millions of refugees from Somalia, South Sudan, Ethiopia, Eritrea, Congo, and a whole host of other war-torn neighbours.
Although the World Food Programme helps feed these wretched souls, it frequently falls on Kenya to plug shortfalls in food and services provision, including education and security at the refugee camps. As the drought persists and imported food becomes more expensive thanks to inflation and the Ukraine war, these refugees will be the first to be dumped by a Kenyan government fighting for survival.
In most cases, the refugees are armed – and the camps are heavily infiltrated by criminal gangs. It is easy to predict how things will pun out.
Small businesses in the country will also suffer because of the change of guard. The shilling is on a non-stop losing streak against the US Dollar, while Kenya’s debt as a percentage share of GDP is at 79% and heading one way: up. 40% of Kenyans under the age of 35 are jobless, and any instability would see this number grow to unsustainable levels.
There are positives, though. Kenya remains the economic engine of East Africa, and its excellent transport infrastructure means that exporters of raw materials from countries such as Uganda and Congo in the interior of Africa have to go through the East African nation.
Kenya’s population is young and highly literate, with significant entrepreneurial talent, and a significant and growing Kenyan diaspora is sending back ever-growing remittances that have helped shore up the Shilling despite the rough economic waters it has had to sail through.
Looking ahead, the almost even split in the election means that the new president will not have an overwhelming mandate, and will be forced to govern from the centre – theoretically, that should ensure stability in the medium to long term, even if a few uncooperative Kenyans on both sides of the electoral divide are expected to go nuts for a brief while.
Not that it matters to Kenyatta now. His innings is done, and a cosseted life of indolence and leisure lies ahead of him. He will look on as the new administration inherits the doom and gloom of an economy caught between the Scylla of high inflation and a weakening shilling, and the Charybdis of high fuel prices, food shortages and a drought in Northern Kenya.
The author is an information systems professional.
