Tuesday, March 18, 2014

LESSONS FROM ACROSS THE BORDER



Recognising that Kenya’s public service wage bill had ballooned out of control last week Kenyan president Uhuru Kenyatta and his deputy William Ruto volunteered to forgo a fifth of their salary and urged other top executives in government to do the same.

The cabinet secretaries—the equivalent of ministers seem to have grudgingly passed on 10 percent of their salaries by the time of writing this.

According to official figures about 55 percent of the budget goes to paying public servants’ salaries. 

According to the record there are 700,000 public servants, a figure some say is half full of ghost workers, who cost their economy Kshs1.8b or sh54b a year in our money.

This is a pressing issue because years of mismanagement of the economy means that Kenya has fallen behind in building infrastructure to service its growing population. As it is now our eastern neighbour should be spending $2.1b a year for the ten years to just be current with the currents needs.

So that is why Kenyatta and his team have taken the unprecedented step of taking a pay cut. In effect leading by example.

In order to find resources to keep up with the country’s obligations they know, and Uhuru made it an election pledge that they are going to go at the public service wage bill with machetes, maybe chainsaws.

One suspects that this ballooning payroll has its roots in euphoria following the ejection of KANU – the party that had ruled Kenya since independence in 1963. For every KANU sympathiser who was shown the door at least two people were hired into the public service.

In addition the new constitution created new layers of government, with the two houses and the devolution of power to the counties. Not to mention the affirmative action stipulations to guarantee that public service positions show at least a one-to-two ratio of the sexes.

From a political standpoint Kenyatta has to move quickly to fulfil this pledge, do it early enough that it might does not cause problems at the next elections and also because the sooner they get working on expanding key infrastructure the sooner they can get the economy growing and reduce the disgruntlement at the current state of affairs.

Last year economic growth fell short of the targeted 5.7 percent, coming in at 5.1 percent.
The two places where politicians seek to reward supporters is in government jobs and public contracts.

More government jobs just lowers efficiency and this added injection into the economy often goes towards consumption rather than production, which has relatively small effect on the economy. If the public contracts involve infrastructure development however and they are carried out well enough the benefits to the economy can be massive.

So the Uhuru’s have their brains in the right place. If they can only shift more and more resources to infrastructure development they can go back to a bigger public sector and everybody will be happy.

President Yoweri Museveni said as much during a recent EAC meeting where he alluded to how the east Asian countries held the wage bill down while pumping massive resources into infrastructure and social services.

In the short term it can be a politically unpopular trade off but not to do it now will only increase social tensions that will threaten Kenya’s stability. While it is the largest economy in the region it has the widest wealth disparities in the region too. A formula for chaos if it persists.

Great wealth disparities in an economy are an indictment on the government of the day. It often means while they may be generating economic growth they are not spreading around the love by taxing the producers to fund public goods like physical and social infrastructure adequately to allow more people to climb the social ladder.

You can actually have a big economy, even  have mouth-watering GDP per capita figures while the largest proportion of your people are living in abject poverty. Ask the people of Equatorial Guinea.
In Uganda official figures show that we have been more prudent with our public wage bill, with it accounting for under 30 percent of the total budget. We should maintain our vigilance on this number, regardless of the political pressure and focus on uplifting our physical and social infrastructure for long term sustainable development.

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