parliamentary service commission parliamentary budget … · 2017-03-16 · back to the basics:...

Back to the Basics: Budget Options for 2017/18 and the Medium Term Page i

PARLIAMENTARY SERVICE COMMISSION

Parliamentary Budget Office

Budget Options for 2017/18 and the Medium Term

February 2017(Edition No. 8)

Turudi mashambani: kuna nafasi


Back to the Basics: Budget Options for 2017/18 and the Medium Term Page ii

© Parliamentary Budget Office, 2017

For more information, contact:

The Director,


Parliament of the Republic of Kenya

Protection House, 10th Floor

P.O. Box 41842 – 00100 GPO

NAIROBI, KENYA

Tel: +254-20-284-8810

Email: [email protected]

The document can be downloaded from www.parliament.go.ke

Disclaimer

Parliamentary Budget Office (PBO) is a non-partisan professional office of

Parliament of the Republic of Kenya. The primary function of the Office is to

provide professional non-partisan advice in respect of budget, finance and

economic information to committees of Parliament.

mailto:[email protected]

http://www.parliament.go.ke/


Back to the Basics: Budget Options for 2017/18 and the Medium Term Page iii

Preamble Immediately after independence, Poverty, Disease and Ignorance were identified as the three key

challenges facing the country. The Sessional Paper No. 10 on “African Socialism and its application

to planning in Kenya”, was geared towards addressing these three key challenges by working

progressively towards the establishment of an educated and skilled manpower as well as

attainment of welfare goals such as quality medical and hospital services, old age and disability

benefits, free universal primary education and unemployment benefits – all to be achieved in the

context of African Socialism. This set the tone for development planning and the country’s strategic

policy direction in the first decade after Kenya attained independence.

In order to achieve high economic growth, Kenya was driven by a need to rapidly industrialize

which was seen as a panacea to low economic growth and underdevelopment. As such, primary

industries such as agriculture were relegated to providing raw materials as the country pursued

import substitution strategy to development.

In the 1990s, the Structural Adjustment Programmes and sought to reduce the government’s role

in the economy, pushing mostly for reduction in public spending and for private sector and free

market development. This incidentally hampered infrastructure development in the post-

independence period. The peak of economic recovery in 2007 set the stage for Vision 2030 and

related policies of fast growth, ambitious infrastructure development, revamping of industry and

trade sectors. Gradually, the government’s focus shifted to improving the road and rail

infrastructure at least since 2010 and recently marked by large investment in railway and roads.

The huge investment in infrastructure has fuelled major increase in overall public spending.

However, despite the country having attained a middle level income country, drought and

importantly poverty remains as much a concern as it was fifty years ago. What is going on?

The theme for this eighth edition of the Budget Options is a clarion call, “Turudi Mashambani

kuna nafasi” – let’s go back to the rural areas there are opportunities. This essentially means

reviving Kenya’s agriculture to support domestic industries and to create employment

opportunities. Poverty persists because of stagnation in the ‘labour intensive’ agriculture sector

which the masses subsist on. The contribution of the manufacturing sector to GDP has been

declining, including informal sector manufacturing that accounts for bulk of informal sector

unemployment. The country appears to be experiencing a “jobless growth”, which means that

economic expansion is not broad based and is mostly driven by massive government spending in

infrastructure projects.

This Budget Options analyses the prevailing structural weaknesses in the economy and argues that

the way forward for an all-inclusive, sustainable growth is to enhance the productive capacity of

the agriculture and manufacturing sectors. It also acknowledges the increasing contribution of the

services sector to GDP growth and the benefits that can be reaped from this sector. Importantly it

recognizes that there exists a hard budget constraint coupled with an increased public spending on

account of administrative structures brought about by the 2010 constitutional changes.


Back to the Basics: Budget Options for 2017/18 and the Medium Term Page iv

Acknowledgements This edition of the Budget Options was prepared by a core team under the overall guidance of the

Director, Phyllis Makau; and close supervision from Martin Masinde (Senior Deputy Director and

Head of Macroeconomic Analysis Division), Robert Nyaga (Chief Fiscal Analyst & Head of Tax

Analysis Division) and Lucy Makara (Chief Fiscal Analyst & Head of Budget Analysis Division). The

core team comprised of Millicent Ojiambo- Makina and Benjamin Ng’imor.

Chapter One on the resilience of Kenya’s economy was prepared by the Macroeconomic Analysis

and Statistics Division led by Millicent Ojiambo with insightful contributions from Chacha

Machage.

Chapter Two on Medium Term Economic Growth Prospects and Reprioritizing Public Sector

Spending was prepared by the Budget Analysis and Sectoral Expenditure review Division led by

Lucy Makara. The Medium Term economic growth prospects were prepared by Benjamin Ng’imor

and Danson Kachumbo.

Chapter Three on Expenditure Pressures and Tax Revenue Financing was prepared by the Tax

Analysis and Inter-Fiscal Relations Division led by Robert Nyaga and Josephat Motonu.

Chapter Four on strengthening devolution while firming up priorities was prepared by

Abdirahman H. Gorod and Benjamin Ng’imor.


Back to the Basics: Budget Options for 2017/18 and the Medium Term Page v

List of Acronyms and Abbreviations AIA Appropriation In Aid ASAL Arid and Semi-Arid Lands ASDS Agricultural Sector Development Strategy BPS Budget Policy Statement CARA County Allocation of Revenue Act CoB Controller of Budget COFOG Classification of Functions of Government FAO Food and Agriculture Organization FDI Foreign Direct Investments GDP Gross Development Product ICT Information Communication Technology JICA Japan International Cooperation Agency KIPPRA Kenya Institute of Public Policy Research and Analysis KNBS Kenya National Bureau of Statistics MTEF Medium Term Expenditure Framework NIIP Net International Investment Position PAYE Pay As You Earn PBO Parliamentary Budget Office PBOM Parliamentary Budget Office Model QEBR Quarterly Economic and Budgetary Review REER Real Effective Exchange Rate SAGA Semi Autonomous Government Agency SEZ Special Economic Zones TFP Total Factor Productivity KMC Kenya Meat Commission VAT Value Added Tax


Back to the Basics: Budget Options for 2017/18 and the Medium Term Page vi

Table of Contents Preamble ...................................................................................................................................................... iii

Acknowledgements ...................................................................................................................................... iv

List of Acronyms and Abbreviations ............................................................................................................. v

List of Tables ............................................................................................................................................... vii

List of Figures ............................................................................................................................................. viii

Still Standing: what makes Kenya’s economy resilient? .............................................................................. 1

A. Introduction ...................................................................................................................................... 2

B. Sources of Macroeconomic imbalances ........................................................................................... 5

C. The macroeconomics of Agriculture, Manufacturing and Services .............................................. 15

Medium Term Economic Growth Prospects and reprioritizing public sector spending........................... 25

A. Sectoral Contribution to Economic Growth in Kenya ....................... Error! Bookmark not defined.

B. Economic Outlook in the medium term ......................................................................................... 26

C. Aligning Operational Efficiency in Public Spending ..................................................................... 28

D. Resource allocation under Agriculture and Industry Sectors ........................................................ 29

Expenditure Pressures and Tax Revenue Financing .................................................................................. 34

A. Expenditure Flexibility and fiscal deficits ...................................................................................... 35

B. Review of Revenue Performance .................................................................................................... 36

C. Revised Revenue Estimates .............................................................................................................. 37

D. Revenue Forecasts and Policy Options ........................................................................................... 39

E. Revenue Enhancement Measures ................................................................................................... 41

Strengthening Devolution while firming up Priorities .............................................................................. 45

A. Introduction .................................................................................................................................... 46

B. Revenue Performance ..................................................................................................................... 47

C. Expenditure Performance ............................................................................................................... 48

D. County Policy Options .................................................................................................................... 50

ANNEXTURE ............................................................................................................................................... 52

Annex 1: County Revenue Performance ................................................................................................ 52

Annex 2: Budgets Allocations for SAGAs Identified for Re-Organization ............................................. 53


Back to the Basics: Budget Options for 2017/18 and the Medium Term Page vii

List of Tables

Table 1: Contribution to Inflation (Jan. 15 - Jan.16) ................................................................................... 6

Table 2: Contributions to Average GDP Growth, 2000-2015..................................................................... 7

Table 3: Analysis of Fiscal Deficit (2010/11-2016/17) ............................................................................. 8

Table 4: REER Statistics ............................................................................................................................... 11

Table 5: Analysis of Net International Investment Position (2004 – 2015) .............................................. 13

Table 6: Agricultural exports and imports 2011 – 2015 (KSh. Million) .................................................. 15

Table 7: Contribution to Growth by Activity for 2003-2015 (% growth) ... Error! Bookmark not defined.

Table 8: Contribution to GDP (percentage) .................................................. Error! Bookmark not defined.

Table 9: Sectoral Resource Envelope for 2017/18 and the Medium Term (Kshs Mlns) .......................... 28

Table 11: Growth rate of Expenditure Components .................................................................................. 35

Table 12: Growth rate of revenue .............................................................................................................. 37

Table 13: Growth rates of revenue, 2016/17 approved budget and 2017 BPS revision ......................... 38

Table 14: Medium Term Revenue Forecasts .............................................................................................. 40

Table 15: Classification of County Expenditure by Economic Classification ............................................ 48

Table 16: Classification of County Expenditure by COFOG ...................................................................... 49


Back to the Basics: Budget Options for 2017/18 and the Medium Term Page viii

List of Figures

Figure 1: Contribution to Growth by Activity (2003-2015) ....................................................................... 4

Figure 2: GDP growth (Actual and potential, % change) ............................................................................ 5

Figure 3: Analysis of Fiscal Deficit (2010/11-2016/17) ............................................................................ 8

Figure 4: Current account balance and underlying current account balance ............................................ 9

Figure 5: Components of the current account balance ............................................................................... 9

Figure 6: current account balance and S-I balance (%GDP) ..................................................................... 10

Figure 7: Kenya’s export market share in sub-Saharan Africa .................................................................. 12

Figure 8: Growth in Manufacturing Industry 2011-2015 ....................................................................... 21

Figure 9: Value Addition in Manufacturing Sector 2005 - 2015 ............................................................. 23

Figure 10: GDP Growth Projections ........................................................................................................... 27

Figure 11: Resources allocation and expenditure in the sector ................................................................. 29

Figure 12: Resource Requirement vs Allocations .......................................... Error! Bookmark not defined.

Figure 13: Analysis of cash disbursement for 2015/2016........................................................................ 47

Back to the Basics: Budget Options for 2017/18 and the Medium Term Page 1

Chapter One

Still Standing: what makes Kenya’s economy resilient?



A. Introduction

1. Kenya’s economy is remarkably resilient. Available literature and reports speak of a

country that has the capacity to continue to thrive against all odds. Over the past

five years, Kenya’s economy has grown by approximately 5.3 percent - adverse

domestic and external shocks notwithstanding. Domestic challenges to the economy

mainly emanate from poor weather conditions resulting in food shortage and

inflation as well as terrorism and political challenges which have a negative effect

on the country’s business environment. Sluggish global economy as well as a decline

in commodity prices represents critical drawbacks to the economy in recent years.

Other external challenges include uncertainties following Britain’s exit from the

European Union and its spiral effects on other economies as well as global terrorism

and continued instability in various regions.

2. Though Kenya’s economic performance is still way off the Vision 2030 target, when

the negative dynamics of the domestic and global environment are considered, the

significance of the sustained 5.3 percent average economic growth from 2005 to

2015 becomes apparent.

3. It is worth noting however, that Kenya’s economic growth is slower than that of

other countries within the East African Community. Although on average the East

African region accounts for the highest growth in sub-Saharan Africa. Kenya’s

growth lags that of Rwanda, Tanzania and Uganda. However, based on its level of

economic development, the country is still viewed as a success story among

emerging African economies.

4. Stable macroeconomic environment and public infrastructure investment are

critical for Kenya’s growth performance but agriculture and manufacturing is

slowing down the pace of growth. Kenya’s economic growth is associated with

stable macroeconomic policies and increase public sector spending, particularly on

infrastructure. However, it is worth noting that stagnation and inherent challenges

in agriculture and manufacturing could be undermining broad based economic

growth and job creation. Indeed according to the World Bank report1, reliance on

services and failure to boost agriculture and manufacturing has negatively affected

the country’s economic performance.

5. It appears therefore that any meaningful economic performance in the country will

not only depend on the ability of the economy to navigate both internal and external

macroeconomic imbalances, but also on how agriculture and manufacturing sectors

1 Kenya Country Economic Memorandum: From Economic Growth to Jobs and shared prosperity March 2016



can rise again. Certainly to make Kenya’s economy even more resilient will require

a further deepening of these sectors.

6. The evaluation of Kenya’s economic resilience takes a two pronged approach;

reviewing the macroeconomic imbalances inherent in the Kenyan economy and

how the economy can navigate through the challenges as well as assessing the

competitiveness and productivity of the sectors in the economy –which could boost

economic growth.

B. Sectoral Contribution to Economic Growth in Kenya

7. The service sector has been Kenya’s main contributor of economic growth since

2003. Key activities in the services sector include wholesale & retail trade, transport

& communication, and financial & insurance services. During the economic boom

periods of 2003-2007 and 2009-2010, the social sector contribution to GDP rose

substantially (see figure 1. Similarly, during the economic downturn of 2008, the

contribution of the services sector reduced. During the 2003-2007 economic boom,

key services that contributed to the high growth include wholesale & retail and

transport and communication.

8. The agriculture sector contributes the second largest portion of growth. However,

Kenyan agriculture sector is highly dependent on climatic changes: droughts of

2004, 2008 2011, and 2014 all coincide with instances of lower contribution of

agriculture to economic growth. The post-election in 2008 further aggravated the

sector’s recession making it to contribute to the negative growth of the economy.

Despite this, it helped the economy to rebound between 2009 and 2010.

9. The industrial sector incorporates manufacturing, construction & mining, and

electricity & water. Its contribution increased gradually during the periods of

economic boom; manufacturing played a leading role in the increased growth in

2003-2007 and 2008-2010 while construction played a key role in 2008-2010

(see table 1 below). The industrial sector contribution has continued to increase

gradually since 2012 owing to increased construction activity but manufacturing

has progressively reduced.

10. Growth of manufacturing sector is always time lagged thus benefits of its

investments are seen after a number of years. A quick recovery of the sector as

witnessed in 2003-2007 and 2009-2010 indicates that the economy was utilizing

idle manufacturing capacity created in previous recession periods. However, the

lack of a sustained economic boom indicates that no new manufacturing industries



have been created since 2003. Further, the reduced contribution by manufacturing

since 2012 indicates a reduction in the manufacturing capacity of the country; this

is evident from the exit of some major manufacturing companies from Kenya.

11. Construction activities in the country witnessed a huge boom after the 2008

economic downturn. This coincided with the implementation of the first Vision

2030 mega projects and the roll out of the economic stimulus programme. Since

then its contribution to GDP has substantially increased.

12. The growth of service sector demands for an increase in the produces from the

agriculture and industrial sector. Similarly, the growth of the industrial sector is

interrelated to the growth of the agricultural sector since the latter provides some of

the raw materials for the industrial sector. Therefore, if the productions in the

agricultural and industrial sectors are not sufficient, this necessitates an increase in

imports which has negative effects on the country’s growth.

Figure 1: Contribution to Growth by Activity (2003-2015)

Source: PBO

Table 1: Contribution to Growth by Activity for 2003-2015 (% growth)

Sector 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP Growth 2.93 5.09 5.93 6.32 6.85 0.23 3.31 8.40 6.11 4.56 5.69 5.33 5.65

Agriculture 0.65 0.47 1.78 1.16 1.35 (1.30) (0.57) 2.35 0.56 0.67 1.23 0.78 1.24

Industry 0.95 0.65 0.70 0.80 1.16 (0.01) 0.69 1.63 1.36 0.79 1.01 1.22 1.31

o/w Manufact. 0.58 0.45 0.46 0.62 0.55 0.14 (0.13) 0.54 0.84 (0.06) 0.62 0.35 0.38

o/w Constr.& Mining

0.05 0.13 0.24 0.21 0.39 (0.06) 0.67 0.95 0.32 0.64 0.23 0.72 0.76

o/w Electricity & Water

0.32 0.08 (0.00) (0.03) 0.21 (0.09) 0.15 0.14 0.21 0.22 0.16 0.15 0.17

Services 1.18 2.37 2.15 2.99 3.13 1.23 2.86 3.45 2.85 2.21 2.51 2.69 2.59

o/w Wholesale and retail trade

0.14 0.75 0.51 1.04 0.53 0.11 0.39 0.67 0.59 0.51 0.58 0.57 0.46

o/w Transport & Commun.

0.35 0.70 0.91 1.19 0.88 0.41 0.73 0.80 1.11 0.27 0.50 0.79 0.73

o/w Financial & Insurance

0.06 0.06 0.21 0.18 0.25 0.25 0.13 0.93 0.26 0.34 0.47 0.48 0.52

(2.00)

-

2.00

4.00

6.00

8.00

10.00

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP Growth Agriculture Industry Services



o/w Accom.& food services

(0.25) 0.36 0.17 0.20 0.28 (0.64) 0.43 (0.01) 0.07 0.05 (0.07) (0.24) (0.01)

o/w real estate 0.14 0.18 0.19 0.22 0.39 0.39 0.41 0.43 0.42 0.33 0.34 0.45 0.50

o/w other services

0.75 0.33 0.17 0.16 0.80 0.72 0.76 0.63 0.39 0.72 0.71 0.64 0.38

Taxes 0.15 1.60 1.29 1.38 1.21 0.31 0.32 0.97 1.35 0.88 0.95 0.64 0.51 Source: PBO

C. Sources of Macroeconomic imbalances

13. Macroeconomic imbalances refer to distortions in the macroeconomic environment

for one or more variables, which are likely to adversely affect the entire economy.

These distortions can be either internal or external.

o Internal imbalances:

14. Internal imbalances are associated with excess capacity. As illustrated in Figure 2,

the economy has been operating moderately below potential2 for the past six years.

This is further demonstrated by the expanding negative output gap, implying that

the economy has been producing far less than its potential which is associated with

high unemployment and sluggish growth. This contrasts with 2003 to 2007 when

the economy was operating way above potential output and those are the years that

this country attained substantial economic growth.

Figure 2: GDP growth (Actual and potential, % change)

Source: PBO

2Potential output implies that there is optimal use of resources under the prevailing conditions. It measures the

optimal output that can be produced if all factors are fully employed without giving rise to inflationary pressures.

Operating below potential causes periods of sluggish growth and high unemployment. On the other hand, when

output is above potential, it exerts inflationary pressures on the economy and can lead to overheating.

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

output gap

Potential output

Actual



15. Equally, the negative output gap indicates spare capacity and a weakening demand

and potentially low non-food inflation. However, analysis of the relationship

between inflation and output gap shows some negative relationship in some years.

Thus, food prices and supply constraints seem to drive inflation. Supply side

constraints, linked to higher cost of say fuel and food products as opposed to

increased demand, appear to drive recent inflationary pressure. As such, Kenya’s

rising inflation can better be addressed through growth of the country’s supply side

productive potential.

Table 2: Contribution to Inflation (Jan. 15 - Jan.16)

Jan 16

Feb 16

Mar 16

Apr 16

May 16

June16

Jul 16

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Food & Nonalcoholic Beverages

62.79 61.81 57.27 50.39 52.00 61.54 68.25 78.58 70.11 70.67 65.15 74.50 77.05

Alcoholic Beverages, Tobacco & Narcotics

4.22 4.54 5.11 6.00 6.51 5.56 5.15 5.93 5.26 5.17 4.67 1.04 1.01

Clothing & Footwear 4.97 5.49 5.91 7.11 6.60 5.20 4.53 5.49 4.98 5.51 5.61 6.00 5.12

Housing, Water, Electricity, Gas and other Fuels

11.44 8.13 10.66 12.61 8.59 6.47 2.96 0.92 1.56 -0.13 0.59 0.20 0.22

Furnishings, Household Equipment and Routine Household Maintenance

4.18 4.54 4.95 5.67 5.69 4.53 3.82 4.64 4.01 3.54 3.37 3.70 3.10

Health 2.38 2.69 2.73 3.37 2.62 2.18 1.97 2.18 1.92 1.86 1.61 1.78 1.21

Transport -0.28 -0.43 -0.45 -1.31 2.20 1.05 1.25 -12.18 -0.59 0.55 1.81 0.46 2.73

Communication 0.72 1.62 1.71 2.11 2.12 1.30 1.21 1.38 1.22 1.23 1.12 1.08 0.95

Recreation & Culture 1.27 1.44 1.53 1.92 2.03 1.90 1.67 1.98 1.72 1.74 1.63 1.83 0.86

Education 1.77 2.16 2.24 2.72 2.92 2.57 2.33 2.62 2.29 2.27 2.05 2.33 1.58

Restaurants & Hotels 3.50 4.28 4.43 4.99 5.12 4.78 4.05 4.93 4.30 4.46 4.20 4.11 3.44

Miscellaneous Goods & Services

3.04 3.72 3.91 4.43 3.61 2.93 2.82 3.52 3.21 3.13 8.17 2.97 2.74

Total 100 100 100 100 100 100 100 100 100 100 100 100 100

Source: KNBS, PBO

16. Cost push inflation, or ‘the wrong kind of inflation’, tends cause a fall in living

standards. Ideally, inflation should be a sign that the economy is approaching full

employment characterized by strong economic growth and low unemployment

levels. However, this is not the case for Kenya whose economy appears to be

running inefficiently.

17. Options for addressing the ‘wrong kind of inflation’ will require addressing supply

side constraints. Not much can be done for oil commodity prices as this is

determined externally. However, a lot can be done towards addressing food

shortage in terms of improving food production in the country. Options to address

food production are discussed further in part B of this chapter.



18. The development strategy of the government has put significant emphasis on

physical capital accumulation as a major source of economic growth. As such,

development spending has continued to gain prominence in budget documents with

expenditure geared towards infrastructure particularly roads, rail and energy. As

indicated in Table 3, capital has therefore been the main driver of economic growth

and the gross investment rate has increased over the last decade. However, Total

Factor Productivity has contracted over the years.

Table 3: Contributions to Average GDP Growth, 2000-2015

2000-2013 1999-2009 2000-2015 2005-2015

Average Growth 4.2 3.5 4.3 5.2

Total Factor Productivity -3.4 -3.7 -3.1 -3.9

Capital 6.5 6.3 6.5 8.1

Employment 1.0 1.0 0.9 1.0

Memo items:

Gross Investment Rate 14.0 11.3 14.9 18.1

Source: KNBS data, PBO

19. Typically, a negative Total Factor Productivity (TFP) is indicative of weak

technological progress and innovation; and implies that there are existing

significant inefficiencies in use of capital and labour. The inefficiencies could be

attributed to misallocation of resources to less productive sectors of the economy.

For instance, a review of development spending by government indicates that a

significant portion of it is geared towards purchase, construction or refurbishment

of buildings including operational costs for such projects. These are investments that

may give very little economic returns if any. Furthermore, the ongoing huge

infrastructure investments may not yield the high dividends envisaged, primarily

due to existing inefficiencies in the implementation of the budget, procurement

challenges, delays in completion and inflated costs. A negative TFP can also be

attributed to inefficiencies in the private sector as well as lack of innovation with

low investment in research and development. Increase in productivity is key to

sustainable economic growth.

20. Despite allusions towards pursuing fiscal consolidation through rationalization,

realignment and reprioritization of programs and resources, the government’s fiscal

strategy appears to be expansionary with most of the expenditure geared towards

infrastructure investment. This is denoted by an expanding budget deficit which has

necessitated accrual of debt in order to meet the increasing expenditure needs.



Figure 3: Analysis of Fiscal Deficit (2010/11-2016/17)

Source: PBO

21. The continuous upward adjustment of the fiscal deficit despite government

commitment to reduce it in the medium term is indicative of the difficulties of

containing expenditure within the hard budget constraint. Taking financial year

2015/16 as an example, table 3 indicates that the deficit for that year has been

continuously revised upwards despite indications to bring it down in various budget

policy documents. In the year 2009/2010, the government undertook a major

fiscal stimulus to jumpstart the economy following a period of subdued growth in

2008 as a result of the post-election violence. It was expected that the stimulus

would ease-off over the medium term and subsequent budget documents pointed to

a decreasing fiscal deficit over the medium term. However, this has not been the

case as illustrated.

Table 4: Analysis of Fiscal Deficit (2010/11-2016/17)

Financial Years(%GDP)

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

BPS 2012

Balance(Commitment basis excl grants)

-5.2% -6.3% -5.6% -4.9% -4.6%

Balance(Cash basis incl grants)

-4.5% -4.8% -4.3% -3.8% -3.5%

BPS 2013


-5.5% -6.1% -7.0% -5.5% -4.9% -4.8%


-4.8% -5.6% -4.9% -4.3% -3.7% -3.6%

BPS 2014


-6.2% -7.4% -10.8% -7.9% -7.2%


-5.5% -6.8% -8.9% -6.3% -5.4%

BPS 2015


-5.8% -6.5% -8.8% -8.2% -6.2% -4.8%


-5.3% -5.9% -8.0% -7.4% -5.4% -4.0%

MTEF (2015/16 Budget)

Fiscal Deficit -8.7% -5.3% -4.0%

Data Source: BPS various issues/ Budget Summary April 2015

-15

-10

-5

0

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Deficit excl grants (commitment basis)

Linear (Deficit excl grants (commitment basis))



o External Imbalances:

22. External imbalances entail imbalances of the country’s accounts with the rest of the

world. One of the most significant external imbalances stems from the current

account balance. As figure 4 and 5 indicate, the country has been operating an ever

widening current account deficit which is largely driven by a trade deficit. Indeed,

the slight improvement in the current account balance from 2014 to 2015 was

actually due to a decrease in the country’s trade deficit as illustrated in figure 5. The

improvement in the trade balance was attributed to a decrease in expenditure on

petroleum products due to a decline in international oil prices.

Figure 4: Current account balance and underlying current account balance

Source: PBO

Figure 5: Components of the current account balance

Source: PBO

-10.00

-9.00

-8.00

-7.00

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Current account balance Underlying current account balance

-1000000.00

-800000.00

-600000.00

-400000.00

-200000.00

0.00

200000.00

400000.00

600000.00

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Balance on Goods and Services Balance on Net Income Current Transfers



23. Potential risks from a persistent current account deficit stem from its rendering the

country vulnerable to economic shocks. That the country’s export base is narrow

and underdeveloped increases the vulnerability of the country to economic shocks.

24. The underlying current account deficit is the prevailing deficit when the country is

operating at full employment. Figure 4 indicates that at full employment, the

country would still be operating a current account deficit but to a lesser extent than

the one being operated currently.

25. Kenya’s budget policy documents such as the Budget Policy Statement (BPS),

Quarterly Economic and Budgetary Review (QEBR) often report that the current

account deficit is more than offset by a surplus in the capital and financial account

leading to an overall positive balance of payments position. However, a review of

the components of the country’s capital and financial account shows that these

accounts are mostly driven by official medium to long term loans as well as short

term ‘hot money’ flows. Any improvement in the capital and financial account is

therefore not so much due to increased investment levels but rather, an increase in

borrowings. This presents a real risk to the overall balance of payments position if

the financial flows dry up. Foreign Direct Investment flows provide a safer

financing of current account deficits as opposed to borrowings. The policy aim

should therefore be to ensure that current account deficit should be financed by

earnings and not borrowings.

Figure 6: current account balance and S-I balance (%GDP)

Source: PBO

26. Current account deficit reflect a disparity between savings and investment. As such,

any improvement in the current account balance will require an adjustment in

either savings or investment levels. High current account deficits are offset by either

higher national savings or lower investment levels. Even though foreign inflows

(14.00)

(12.00)

(10.00)

(8.00)

(6.00)

(4.00)

(2.00)

-

CAB in % of GDP S-I Balance in % of GDP



have been financing the country’s current account, in the long run, the level of

national savings will ultimately determine the level of investment with implications

on how the current account is financed. This also has effects on the standards of

living in the country.

27. The policy direction should therefore be geared towards obtaining higher national

savings in order to boost investment and therefore growth levels in the country.

✓ Real effective exchange rate

28. Real effective exchange rate (REER) measures the trade weighted average exchange

rate of a currency against a basket of currencies after adjusting for inflation

differentials. This variable looks at medium term developments in relative prices.

Table 5 shows continued depreciation of the REER over the review period with the

exception of 2011. The three year percentage change shows the developments in

relative prices over the medium term. This depreciation implies that Kenya’s exports

are continuously cheaper in the global arena, indicating improvement in price and

cost competitiveness. However, this does not take into account structural

competitiveness, that is, the quality of products or even how well they are marketed

abroad.

Table 5: REER Statistics

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

REER CPI 96.0 85.9 79.2 75.7 70.5 71.0 72.9 75.9 66.0 63.9 61.6

3 yr % Change of REER -5.2 -17.6 -22.0 -26.8 -21.9 -11.6 -3.8 7.1 -7.6 -14.0 -23.1

29. Thus, the improvement in price and cost competitiveness as indicated by the REER

seems to be offset by the country’s declining export market share or structural

competitiveness. Due to declining export volumes, even after accounting for unit

price changes, Kenya’s export market share in Sub-Saharan Africa is declining. In

sum, if the REER remains competitive, then Kenya should explore policies to improve

export volumes. Such policies are already espoused in Vision 2030 and may include

accelerating Special Economic Zones (SEZs), improving the business environment.



Figure 7: Kenya’s export market share in sub-Saharan Africa

Data source: IMF, KNBS

✓ Net international investment position

30. The net international investment position (NIIP) looks at the financial position of a

country’s domestic sector vis-à-vis the rest of the world, in net terms. Basically, it

denotes a change in net foreign reserves of a country. Net International Investment

Position was positive between 2012 and 2014 but declined in 2015 due to an

increase in external principal loan repayments despite improvements in FDI and

portfolio flows (Table 6). Even with stable FDI flows, loan repayments and volatile

portfolio flows could increase Kenya’s external vulnerability. However, it is

important to look at the composition of the assets and liabilities in order to better

determine the vulnerability of the country’s external position. Net other investments

seem to account for most of the movement in the country’s international investment

position. This mostly comprises of bank loans (principal). The negative sign

indicates that the country’s liabilities in terms of other investments are greater than

its assets.

31. It is worth noting however, that the data also indicates that the country’s net foreign

direct investment is favourable. FDI is considered less risky, and a safe form of

financing. However, it accounts for only a small portion of the country’s NIIP.

-

0.002

0.004

0.006

0.008

0.010

0.012

0.014

0.016

2004 2006 2008 2010 2012 2014

Export market shares

Linear (Export marketshares)



Table 6: Analysis of Net International Investment Position (2004 – 2015)

AS A PERCENTAGE OF GDP

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

International Investment Position

-0.24 -1.49 -2.39 -2.94 1.34 -2.63 -0.39 -2.14 2.43 0.67 2.37 -0.40

Net Foreign Direct Investment

0.26 0.06 0.10 2.17 0.14 0.19 0.44 3.25 2.27 1.67 1.70 1.72

Net Portfolio Investment -0.41 -0.16 -0.08 -0.08 -0.07 -0.06 -0.07 0.00 -0.43 -0.49 -6.05 0.25

o/w Gross External Debt (d)

0.03 0.08 0.01 0.00 0.03 0.01 0.06 -0.11 0.03 0.03 -4.51 0.25

Net Other Investment 0.73 3.63 2.75 4.39 3.02 5.82 4.90 -4.91 -8.33 -7.24 -3.66 -6.53



Summary of options to rebalance the economy: Resilience of the Kenyan economy should mean something. It

should be premised on actual interventions and strategic

responses to crises. This will further boost the country’s

seemingly ‘inherent’ ability to weather shocks and continue on

a positive growth path.

✓ Inflation – address supply side constraints, primarily

food production which is a significant factor

contributing to rising inflation

✓ Total Factor Productivity – address inefficiencies in use

of capital and labour; invest in research and

development to enhance innovation

✓ Fiscal Policy – pursue fiscal consolidation as a strategy

towards reducing the overall deficit

✓ Current account balance –boost exports to reduce the

current account deficit and further ensure that the

current account deficit is financed by earnings and

long-term flows such as Foreign Direct Investment and

through borrowings

✓ Structural Competitiveness - Explore policies to improve

export volumes. Such policies as accelerating Special

Economic Zones (SEZs), improving the business

environment

✓ Net International Investment Position - put in place

measures to attract more Foreign Direct Investment



D. Agriculture, Manufacturing and Services

1) Agricultural Sector

32. Agriculture plays a vital role in Kenya’s economy; contributing significantly in terms

food, employment, foreign exchange earnings and as a source of raw materials. In

2015, statistics from KNBS indicate that 22 percent of total GDP for that year was

attributable to agriculture. Significant and reliable agricultural production also

contributes to the health and wellbeing of the labour force in terms of good

nutrition and enhanced capacity to be productive. This implies a high correlation

between performance of the agriculture sector and the country’s overall economic

growth performance.

33. The sector is also the largest employer in the country accounting for an estimated

75 percent of the labour force (KIPPRA, 2016).It also plays a significant role as a

revenue earner as well as a source of raw materials for the manufacturing industry.

However, the country’s agro based industries have recorded poor performance over

time and productivity in the sector has stagnated in the last decade due to frequent

droughts and poor farming practices. This then explains the high incidence of

poverty among the masses who subsist in these sectors.

34. In terms of the current account balance and foreign exchange earnings, insufficient

food production has increased a need for food importation thereby contributing to a

worsening of the current account balance. As at 2015, statistics indicate that a total

of Ksh. 8.7 billion worth of maize was imported. On the other hand, export value

for maize decreased from Ksh. 324 million to Ksh. 312 million.

Table 7: Agricultural exports and imports 2011 – 2015 (KSh. Million)

Item \ Year 2011 2012 2013 2014 2015

Agricultural Exports Fish & Fish Preparations 4,955 5,392 3,362 4,266 3,287 Maize (Un-Milled, Excluding Sweet Corn) 169 57 192 324 312 Meals & Flours of Wheat 159 290 145 87 138 Horticulture 83,331 81,129 89,339 97,105 100,963 Coffee Unroasted 20,863 22,271 16,328 19,913 20,580 Tea 102,236 101,441 104,648 93,996 123,025 Tobacco & Tobacco Manufacturers 18,633 16,615 13,709 16,827 15,757 Hides & Skins (Undressed) 108 504 134 126 124 Sisal 1,212 1,184 1,020 1,325 1,517 Animal & Vegetable Oils 14,166 12,727 8,156 6,003 4,650 Leather 7,208 7,036 8,491 7,597 6,222 Total Agricultural Exports 253,040 248,646 245,524 247,569 276,575 Agricultural Imports Wheat Un-Milled 31,371 29,743 30,189 33,831 35,663 Rice 12,548 14,520 14,111 15,305 13,370



Item \ Year 2011 2012 2013 2014 2015

Maize Un-Milled, Excluding Sweet Corn 11,479 6,451 2,291 9,308 8,378 Wheat Flour 2,517 2,120 1,964 1,712 902 Sugars, Molasses & Honey 11,088 17,030 16,770 12,009 15,503 Animal / Vegetable Fats & Oils 56,733 54,876 48,371 50,044 47,038 Total Agricultural Exports 125,736 124,740 113,696 122,209 120,854 Net Exports 127,304 123,906 131,828 125,360 155,721

35. Currently, the country is facing an ongoing drought the effects of which would have

been minimized had there been effective water conservation, adequate food

production supported by irrigation, efficient expenditure of resources, proper

government agency coordination and urgent application of long term policy plans

such as the Agricultural Sector Development Strategy (ASDS) 2010 - 2020.

How then do we boost agriculture to drive inclusive and sustainable economic growth?

36. Despite its clear economic significance, the performance of the sector has been

declining for the past decade. Given the number of livelihoods that are dependent

on agriculture, declining performance in the sector is a major determinant of

poverty in the country. In terms of government expenditure classified by functions

of government (COFOG) 3 , over the last five financial years, expenditure on

economic affairs under which infrastructure spending, agriculture and

manufacturing are domiciled accounted for approximately 20 to 25 percent of the

total expenditure outlays. Of this, approximately 20 percent is infrastructure related

spending. Expenditure on agriculture accounts for less than 5 percent of the total

budget.

37. To address poverty and improve the welfare and livelihood of Kenyans will require

concerted efforts towards enhancing agricultural productivity. Simulations from

PBOM4 indicate that a 1 percent increase in agricultural productivity is likely to

lead to a 0.1 percent increase in GDP growth but more importantly, will increase

incomes in agriculture households with subsequent increases in total revenue

collection – an outcome that portends great benefits for the country’s debt situation.

The increased agricultural productivity is also likely to reduce the number of

households under the informal sector as the agricultural sector becomes a more

lucrative area for employment.

38. Enhanced agricultural productivity will require increasing spending in agriculture

that is targeted towards those specific areas in this sector that are likely to yield the

3 Data from Economic Survey, 2016 4 Parliamentary Budget Office Macro Model for Policy Analysis and Forecasting



most returns. This will require concerted efforts towards the following facets of

agriculture:

a) Production

39. Why is agricultural production in the country not significant enough to support

food security despite concerted efforts by the government? One of the most

significant challenges facing agriculture is the limited availability of agriculturally

productive land. Given that approximately 89 percent of the country is classified as

Arid and Semi-Arid (ASAL), arable land as a factor of production is already a scarce

commodity. The situation is worsened by subdivision of inherited land among

siblings, which has rendered most land units unviable for large scale agricultural

production. Those who wish to farm on a commercial scale face high cost of land as

an inhibiting factor. As such, most Kenyan farmers are predominantly small scale.

40. Of particular concern is the emergence of real estate as an investment that yields

high economic returns which has led to large tracts of the already limited arable

land being converted into concrete buildings. In a large scale cash crop plantation

in the past, workers were typically allowed to grow their own food crops alongside

the cash crops. Dams were present in almost every plantation to harvest water that

would later be used for irrigation. As a result, most of the plantation workers were

food sufficient and could even afford to grow some food crops for commercial

purposes. The conversion of large scale farms into real estate is therefore a risk not

only to cash crop earnings but also the overall level of food production in the

country.

41. Enhancing production will therefore require first and foremost, the protection of

land as a factor of production. This may require passing of laws among other

measures for agricultural land zoning so as to protect the limited land that is

available for farming from turning into a concrete jungle at the expense of food

production. Farmers should also be encouraged to pursue leasing of land for

farming as a viable avenue towards more production without necessarily owning

the land. For instance in Western Kenya, some farmers lease land for sugarcane

farming and are able to earn a living from agriculture without necessarily owning a

piece of land.

42. Another policy is investing in dry land research to convert the 89 percent of land

that is not arable into productive land through irrigation and other technological

methods.

43. Other factors that inhibit adequate food production include the use of traditional

farming practices as well as limited access to certified seeds, fertilizer and other



inputs including the technical expertise of agricultural extension officers. Certified

seeds are costly and are not readily available in the market. This has necessitated the

government to provide certified seeds to farmers at a subsidized cost. However,

measures to ensure the quality of these seeds are not very stringent hence some

certified seeds may not be of good quality. Furthermore, the mechanisms of

distribution is not straightforward and distribution is typically delayed; a factor that

disadvantages the farmer because the planting season is affected. Many farmers find

it difficult to access the subsidized inputs. Distribution mechanisms for seeds and

fertilizers should therefore be reviewed to ensure that these are released in a timely

manner and any farmer is in a position to access the inputs.

44. According to the Food and Agriculture Organization (FAO), the recommended ratio

of extension officer to farmer is 1:400. However, for Kenya, this ratio stands at

1:10005 or higher. Extension services are crucial in order to improve the technical

know-how of farmers. Given that agriculture is a devolved function, the County

governments should work towards hiring more agricultural extension officers who

can impart knowledge on appropriate farming practices and to the farmers. This

includes carrying out soil testing to determine the condition of the soil which will

also inform farmers which nutrients to apply for the crops which they want to

grow. It may be necessary to give a conditional grant to counties to enable them

meet the ratio of extension officers to farmers.

45. Employing the use of technology can also be useful in information dissemination.

However, this will require a significant knowledge base among the farmers before

they can benefit from information disseminated through ICT platform.

b) Storage and distribution: Can we eliminate the middleman?

46. For many smallholder farmers, once the produce has been harvested, they do not

have the means or knowledge of getting the product to the market or even how they

themselves can sell the produce. More often than not, they lack the proper storage

facilities and the market may not be easily accessible for them to quickly offload the

produce. To bridge this gap, the middleman has emerged as a key participant in the

agricultural value chain. The role of the middleman is to provide a link between the

farmer and the market; buying produce from the farmers and selling them to large

scale traders, processors, retailers and even exporters. Since the middleman has

access to the requisite post-harvest facilities and also has the privilege of knowledge,

he fetches a good price for the commodity thereby making significant profit.

5 Manfre, C and Nordehn, C (2013), Exploring the Promise of Information and Communication Technologies for Women Farmers in Kenya



47. The middleman has therefore been vilified as an exploiter in the value chain; quite

literally reaping where he has not sown. But is the middleman really the exploiter

he is perceived to be? Middlemen tackle the problem of information asymmetry as

well as lack of access to facilities and do seem to form an integral part of the value

chain process. The focus should therefore be not so much towards eliminating the

middleman but rather, addressing the bottlenecks which have necessitated the

existence of the middleman.

48. Most small scale farmers are ill-equipped for post-harvest handling. They lack

storage facilities and useful equipment such as dryers and therefore need to dispose

their produce urgently otherwise they risk incurring losses. To address this problem,

a key issue which the National and County Governments are currently addressing is

to improve the road network in order to reduce transportation costs for the farmer.

Furthermore, it should be noted that though the government has an impressive

storage network for grains through the National Cereals and Produce Board, it lacks

cold storage facilities for other perishable produce. Focus should therefore also be

on setting up such facilities for the benefit of non-grain farmers.

49. A curious concern however is that during periods of bumper harvest, there seems to

be a crisis on how to dispose maize stocks and some farmers end up with their hard

earned produce rotting in the farms for lack of a market outlet. A contributing

factor to this scenario is the often reported lack of consensus between the farmer

and the government on the best price for their produce. It should be noted that the

low profit margins in agriculture is the key reason as to why arable land is being

converted to other seemingly more profitable ventures such as real estate.

50. Payment to farmers should also be done promptly to enable farmers to meet their

costs and continue with operations. The mechanism of food distribution also has to

be reviewed to eliminate instances of ‘starvation amidst plenty’ whereby people in

arid and semi-arid areas have limited access to food even as produce rots in farms in

other areas. The price factor also comes into play. In times of food crisis, it is

unlikely that people with higher incomes and mostly in the agriculturally

productive counties will go without food since they spend only a small portion of

their incomes on food. However, in ASAL areas where poverty is rife, most families

will spend a significant amount of their income on food

51. Mechanisms on importation of food forces farmers to reduce their prices, sometimes

below production costs – a factor that renders agriculture unattractive as an income

generating activity. There is need for a policy limiting any agricultural related

imports so as to protect and indeed enhance local production.



Through the Value Chain: Odyssey of a small scale maize farmer in Kenya

In a good year with favorable weather, Kipkemei, a small scale farmer in Trans Nzoia County

farming on 5 acres of land, will on average harvest an estimated 17 bags of maize per acre. The

production could be much higher - George Kili from Uasin Gishu County reportedly harvests as

much as 40 bags of maize per acre (Daily Nation, 28 February 2014) - but unlike Kili who is a large

scale farmer with an assortment of farm machinery and equipment as well as significant technical

know-how and can sort and inoculate seeds for himself, Kipkemei has limited equipment and

cannot even afford to buy certified seeds from the many seed companies. He is not even sure of

the best seeds to buy and has to rely on the government which supplies the seeds as well as

fertilizer at a subsidized cost. Supply is however limited and is typically delayed; a factor that

delays onset of planting even as the rainy season begins and subsequently affects production.

Due to a high extension officer to farmer ratio, Kipkemei is unable to reap maximum benefit from

extension services and has limited awareness of improved farming practices as well as technical

know-how. He would like to buy modern machinery and equipment for his farm but the high

interest rates on credit facilities and the fact that he hasn’t earned much from his farming makes

it difficult if not impossible for him to do so.

Once Kipkemei has harvested his 85 bags of maize, he needs to ensure that the moisture content

is an ideal 13 percent. However, Kipkemei does not own a maize dryer and if the moisture content

is high, he has to rely on natural sunlight which can be erratic and a lengthy process. Furthermore,

he does not own silos and renting storage facilities is too expensive for him. It is therefore in

Kipkemei’s best interest to offload the grain urgently so that he does not lose his harvest. He has

the option of selling the grain to millers or the National Cereals and Produce Board (NCPB) but

transportation costs are too high and a poor road network makes transportation that much more

expensive.

At this point, the middleman emerges as Kipkemei’s solution. He sorts the mess promptly by

offloading the maize from Kipkemei though at a lower price than what Kipkemei would have

fetched from the market had he sold the maize himself. Using his facilities and connections, the

middleman is able to handle the post-harvest, later selling the maize for a good price and raking in

substantial profit. Kipkemei is therefore able to sell his product but at a much lower profit margin.

He is not better off; indeed the middleman has indirectly passed the post-harvest costs to him by

paying him a lot less than Kip would’ve earned from the market. Kipkemei feels exploited, but he

has limited information and lacks facilities for post-harvest handling. Should he plant maize again

this year? This year, the rains have failed.

Through the Value Chain: odyssey of a small scale maize farmer in Kenya

In a good year with favorable weather, Kipkemei, a small scale farmer in Trans Nzoia

County farming on 5 acres of land, will on average harvest an estimated 17 bags of maize

per acre. The production could be much higher - George Kili from Uasin Gishu County



c) Access to credit

52. Limited access to credit is a key impediment to farmers in their quest to acquire

modern agricultural inputs. The capping of interest rates to make credit readily

available has not really opened up this sector as banks have become cautious

lenders. Stringent credit requirements, some land holders don’t have proof of

ownership of the land they use especially if it is inherited land. According to the

FinAccess household survey for February 2016, those who rely on Agriculture have

markedly low levels of formal access to financial services. Indeed, the Central Bank

of Kenya Quarterly Review Report for July – September 2016 indicates that the

agricultural sector accounts for a significantly small portion of the credit extended

to the private sector. Options to improve access of credit to farmers should therefore

entail addressing financial literacy among farmers, facilitating registration and

obtaining of title deeds (lease certificates?) for farmers to have good collateral; bring

credit facilities closer to farmers

2) Manufacturing Industry

53. The Manufacturing sector has been termed as the ‘engine of economic growth’ for

Kenya. Indeed, the ultimate aim of the Vision 2030 blueprint is to transform Kenya

into a newly industrializing, middle income country providing a high quality of life

by 2030. This includes achieving a 10 percent annual manufacturing sector

growth.

54. However, growth in this sector as well as its share in GDP has been on the decline

over the past five years. This is illustrated in figure 8 below.

Figure 8: Growth in Manufacturing Industry 2011-2015

Data Source: KNBS

55. In terms of employment, though manufacturing sector employment has increased in

absolute terms, its share in formal employment has declined marginally over the

-5

0

5

10

15

2011 2012 2013 2014 2015

pe

ren

tage

(%

)

share in GDP sector growth



past years (KIPPRA, 2016). The decline in employment growth is on account of the

slow growth of the sector especially compared to the services sector.

56. It is worth noting however, that majority of manufacturing sector employment,

approximately, 89.6 percent, is accounted for by the informal sector. This presents a

challenge in terms of improving the sector due to the underground nature of the

informal sector. Counterfeit goods in the country are primarily manufactured in the

informal sector. Since the manufacturing activity in the informal sector is largely

unregulated, cheaper but poor quality goods, especially those mimicking formal

sector goods find their way in circulation, reducing the profit of the formal

manufacturing firms.6

57. Addressing the challenges in manufacturing will therefore require policies that are

purposely geared towards ‘formalizing’ of the informal sector. Some pertinent

measures include mapping the informal sector to establish presence and scope,

reducing the complexity of the licensing and registration process as well as carrying

out supply chain analysis of the informal sector to better meet the demands of the

informal market consumers. Informal sector workers will also benefit from skills

improvement through various trainings as well as ease of access to finance as a

means of expanding their businesses as a starting point towards formalization.

58. Most industries in Kenya are agro based - approximately 40 percent of total

manufacturing output is from food, beverages and tobacco7 - and therein lies the

problem. If Kenya’s agriculture is failing, then the (predominantly agro based)

manufacturing industry cannot thrive. To improve manufacturing therefore, will

also require significant effort towards improving performance in the agriculture

sector. However, there is need for strategic direction in reviving or setting up new

agro processing industries. Given that agriculture is a devolved function, focus

should be on setting up some of these industries at county level where the services

will be closer to the people. For instance, instead of reviving the Kenya Meat

Commission, modern abattoirs can be set up instead in the counties. This will cut

costs for the livestock farmers by making it easier for them to access these services.

It will also boost employment at county level in addition to opening up the counties

to more value addition activities.

59. Value addition in the manufacturing sector has stagnated at less than 35 percent

over the last decade. A significant portion of manufacturing output is accounted for

by intermediate inputs. When value added is little, productivity cannot be enhanced.

This has also contributed to a narrow export market as Kenya’s products are unable 6 Were, Anzetse (2016), Manufacturing in Kenya: A scoping exercise 7 Farole, Thomas and Mukim Megha (2013) Policy Note: NLTA on Revitalizing and Diversifying Kenya’s Manufacturing Sector, December 4, 2013



to compete effectively in international markets. Low value addition can be attributed

to lack of requisite skills, knowledge and expertise in addition to limited access to

finance which has prevented some of these enterprises, both formal and informal,

from expanding.

Figure 9: Value Addition in Manufacturing Sector 2005 - 2015

Data Source: KNBS

60. High production costs due to high unit labour costs, unreliable electricity as well as

infrastructural deficiencies have also adversely affected growth of the

manufacturing sector. Electricity supply is reportedly unreliable with frequent

power outages and this can significantly hamper operations. In terms of labour

costs, the average cost of workers per month in the manufacturing industry is Ksh

16,448. 8 Manufacturing wages in sub Saharan Africa are reportedly very high

relative to per capita GDP.9However, other countries such as Ethiopia and Tanzania

reportedly have lower unit labour costs than Kenya and are in this sense better off in

terms of price competitiveness.

61. For manufacturing to take up its position as an engine for growth, it will require

restructuring of the sector by firstly, addressing the high cost of production which

stifles competitiveness of this sector. This entails addressing energy and labour costs

as well as improving reliability and skills set of workers. Measures are already

underway to reduce cost of energy through investment in other renewable sources

8 World Bank (2016b), Kenya Informal Enterprises 9 Mbaye, A, Golub,S and Ceglowski, J (2015), Can Africa Compete with China in Manufacturing? The Role of Relative Unit Labor Costs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

intermediate consumption value added



of energy such as wind, solar and geothermal energy. Energy produced from

renewable energy should also be given a favourable taxation regime.

62. Since downward rigidity of Kenyan wages is enshrined by law and the minimum

wage is not readily adjustable, high labour costs can be offset by improving the

productivity of workers through enhancing their skills set for the manufacturing

industry. This will make the Kenyan workers more competitive. However, as long as

value added per worker is stagnating or even declining, labour remains an

unattractive factor in the Kenyan manufacturing industry.



Chapter Two

Medium Term Economic Growth Prospects and reprioritizing

public sector spending



A. Economic Outlook in the medium term

63. Kenya’s growth in the first 3 quarters of 2016 improved slightly to 5.9% compared

to 5.6% in the same period in 2015. This improved growth was bolstered by better

performance of agriculture sector due to improved rains in the second quarter. The

growth in the services sector also improved slightly compared to 2015 period while

that of the industrial sector reduced. The reduction in the industrial sector was

mainly on manufacturing activities which have been decelerating gradually over

the last few years.

64. The forecast growth for the 4th quarter is projected to be slow at 5.4% due to poor

short rain season which adversely affected the agriculture sector and early effects of

the interest rate cap. Similarly, the manufacturing sector is still performing poorly

and this will affect the contribution of industrial sector. Ultimately, this brings the

total growth forecast for 2016 to 5.8%.

65. The 2017 general elections will impact adversely on the country’s economic growth.

Increase election spending which will positively impact on both private and

government consumption expenditure will spur up the service sector and contribute

largely to economic growth. However, the wait-and-see attitude by private investors

will dampen the industrial sector. In addition the effect of the drought experienced

in the first quarter of 2017 and which will have negative impact on agriculture is

likely to dampen the growth prospects of 2017.

66. Ultimately, high contribution from service sector will be subdued by a lower

contribution from the industrial and agriculture sectors. Thus the 2017 forecast

may ultimately be lower than that of 2016. Inflation rates are expected to increase

to 7% due to pressures from election expenditure, higher fuels prices and higher

food prices.

67. In the medium term, management of a successful 2017 elections will play a key role

the direction of the economy. To achieve higher growth targets, and to offset

negative effects of political uncertainty, improvement of the agricultural and

industrial sectors will be required.

68. Thus the critical issue in 2017 is ensuring the election mood doesn’t lead to

unnecessary conflicts and the same time fostering transparency and accountability

in the use of available public resources. In the medium term, the growth will be

supported by increased contribution by the service sector. The industrial sector will

recover from the election fever but its growth may be subdued should the operative



environment remain the same. The agriculture and investment sectors will offer the

key opportunities for a better growth.

69. Thus the medium term has an opportunity for the government to adopt policies to

enhance investments to agriculture and manufacturing, for the economy to achieve

higher growth prospects in the medium term. The effects of such policies would be

felt in 2018 if introduced in the fiscal year 2017/2018. The 2018 growth is

projected to increase to 6.1% then ultimately improve to 6.6% in 2019. This is

illustrated in figure 10 below.

70. The target should be to boost private investments in the agriculture and industrial

sectors. Increased production from these sectors will ensure additional Kenyans are

employed and products consumed by the service sector are produced locally. This

will subsequently reduce the import bill and increase the available products for

export thereby improving Kenya’s trade balance. The country’s inflation rate will

also reduce slightly due to improved food production and reduced import bill. The

full benefits of increased private investment in the agriculture and industrial sector

will however be felt in later years when the industrial capacity of the country will

be fully employed.

Figure 10: GDP Growth Projections

Source: PBO

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Actual Growth

Baseline Scenario

Alternative Scenario



B. Aligning Operational Efficiency in Public Spending

71. It is argued that if everything is a priority then nothing is really a priority. By the

clarion call Turudi mashambani: kuna nafasi means that we have to return to the

basics and prioritize those sectors that would make everyone survive huko

mashambani. Importantly it means Government needs to move with speed to

address some fundamental policy concerns to provide the necessary impetus for a

higher growth in the agriculture and productive sectors. Hard times requires

difficult decisions and as has been stated elsewhere in this document budget is about

making decisions that are costly and delaying making the decisions is even more

costly. It means that the resource envelope outlined in the Budget Policy statement

for 2017/18 and the medium term should be the basis for prioritization and for

tradeoffs to be made.

Table 8: Sectoral Resource Envelope for 2017/18 and the Medium Term (Kshs Mlns)

SECTORS 2017/18 2018/19 2019/20

Rec Dev Total % Share



Energy, Infrastructure & ICT

66,466 360,491 426,957 26.7 70,077 421,264 491,341 28.4 70,556 437,377 507,932 28.4

Education Sector

350,251 22,302 372,553 23.3 363,937 25,012 388,949 22.5 373,033 25,365 398,398 22.3

Public Administration & International Relations

144,044 103,397 247,441 15.5 140,013 119,984 259,997 15.1 141,890 127,193 269,083 15.0

Governance, Justice, Law & Order

172,220 21,377 193,597 12.1 162,318 26,974 189,292 11.0 166,482 28,652 195,134 10.9

National Security

130,160 45 130,205 8.1 134,456 45 134,501 7.8 138,909 45 138,954 7.8

Environmental Protection, Water & Natural Resources

21,739 48,184 69,923 4.4 21,832 59,710 81,542 4.7 22,009 71,552 93,561 5.2

Health 29,609 25,297 54,906 3.4 30,108 31,862 61,970 3.6 30,383 32,369 62,752 3.5

Social Protection, Culture & Recreation

18,783 24,585 43,368 2.7 20,219 28,111 48,331 2.8 20,904 28,672 49,577 2.8

Agricultural, Rural and Urban Development

17,018 25,041 42,059 2.6 17,429 33,796 51,225 3.0 17,853 34,777 52,630 2.9

General Economic and Commercial Affairs

9,617 9,354 18,971 1.2 9,800 10,191 19,991 1.2 9,948 10,839 20,787 1.2

TOTAL 959,907 640,072 1,599,979 970,188 756,948 1,727,137 991,967 796,841 1,788,808

Source: BPS 2017



C. Resource allocation under Agriculture and Industry Sectors

72. Budgetary spending for agriculture and industrial investment sector has been below

the sectors requirement with fluctuation over the years as shown in figure 12.

Partly, this has led to reduced productivity in these sectors with adverse effects on

economic growth. For instance for financial year 2017/18, there is a resource gap

of approximately, Kshs. 67 billion from the sectors requirements vis-à-vis the

proposed allocation (Figure 12).

Figure 11: Resources allocation and expenditure in the sector

73. The Key enablers of the agriculture and manufacturing sectors include re-

engineering of ICT as well as promotion of security. The use of ICT in agriculture by

individual farmers and organized associations can promote knowledge sharing and

access to information such as on market prices of commodities, increase efficiency

and profitability of crop production

74. As illustrated in Figure 12, the Irrigation sub-sector which has great potential to

boost food security has a significant resource gap. As a result, it may not be able to

meet the requirements of on-going projects some of which have donor

commitments with conditionalities that are pegged on full funding by the

government.

0

10,000

20,000

30,000

40,000

50,000

60,000

2011/12 2012/13 2013/14 2014/15 2015/16

Agriculture Fisheries Livestock Investment and industry



Figure 12: Resource Requirement vs Allocations

75. To illustrate, the Mwea Irrigation Development Project (Thiba Dam and Irrigation

Area) whose objectives are to stabilize irrigation water supply for Mwea irrigation

scheme, increase areas with irrigation infrastructure from 15,000 acres to 22,500

acres and support irrigated agriculture for an additional 7,000 acres under out

growers is a joint project of JICA and GoK.10 JICA is expected to finance 50.1 percent

of the project whereas the government of Kenya will finance 49.9 percent deficit

amounting to Ksh. 6.08 billion. JICA will however, only fund the project subject to

the GoK meeting the deficit in full. However, the government has been unable to

fully fund this project which has delayed the release of funding by JICA. Yet this is a

project that if fully implemented, will go a long way in reducing reliance on rain fed

agriculture and boosting food security.

Re-engineering of ICT in irrigation

76. Irrigation in Kenya is mainly done without adequate application of ICT due to

limited access to advanced technologies. However, with the current availability of

personal devices such as mobile phones and computers, sharing of information such

as weather conditions and market prices for commodities can be done by

individuals and groups to improve efficiency.

Further, re-engineering of ICT in agriculture can promote use of good irrigation

techniques that can increase efficiency and profitability of crop production.

Irrigation technology can be used to reduce water consumption significantly

therefore enhance quality and productivity of land and increase farmer’s income.

This will enhance efficiency in water use and lead to larger tracts of land being put

10 Sector Report, Environment ….

-10000

0

10000

20000

30000

40000

50000

60000

Agriculture Fisheries Livestock irrigation Investmentand

industry

2017/18 Resource Requirement 2017/18 Allocation 2017/18 gap



under irrigation. For instance in Egypt, production using irrigation techniques has

increased production a hundredfold through provision of consistent moisture

supply. Leveraging technology can also benefit farmers by saving time and physical

effort which can be used in other economic activities.

Research and Development

77. Research and development activities will only succeed with the dissemination and

adoption of research findings by extension officers to increase production and

efficiency. Agriculture is a devolved function and agriculture extension officers are

currently working under county governments. However, county governments have

been unable to fully meet the demands of the agriculture sector, possible due to

limited funding. To ensure sufficient resources are allocated in support of the

extension services the national government can allocate conditional grants for

specific agriculture related activities in the counties that are likely to improve yields.

78. Most of the agriculture programmes offer software projects to farmers. However,

the success of these programmes depends on the acceptability of the projects by the

farmers. Community ownership of projects has been an issue whereby projects last

as long as there is sustained funding of the same by government or donors.

Agriculture extension officers as frontline officers will handle the issue of

sustainability by having communities own the projects as demonstrations are

carried out in their farms.

Agriculture capital development projects

79. The main objective of government's public investment in projects is to improve the

living standards of the people. Increased interventions through capital projects is

important for sustained growth by improving productivity of human and private

capital as well as providing multiplier effects of lowering operation costs such as

transport costs. This however, depends on how effective project planning and

management is. In Kenya, this is a weak area resulting in slowdown in economic

growth. The performance of some projects is often interfered by internal and

external factors that result to non-achievements of set objectives. The main issues

that affect project success include poor time management, inadequate financing,

leakage of resources, inadequate involvement of the relevant professionals and

inadequate capacity among others. These factors often contribute project.

80. Public investment in projects require a lot of effort by putting more emphasis on the

process of project cycle that ideally involves four stages namely; project appraisal;

project selection; project management and implementation and project evaluation



and audit. This requires effort to guide the process that include adequate capacity to

carry out technically sound project appraisal without political influence to select the

projects, develop mechanisms that are appropriate for implementation, oversight,

monitoring of on-going projects and carrying out evaluation of the completed

projects in an accountable and transparent manner.

81. Success in investment in agriculture projects is affected by inadequate or no project

appraisal and prioritization. The budget allocation to projects is more focused on

annual cost of the project instead of the total project cost. This has led to many

projects being implemented at different stages of completion and taking too long to

be completed.

82. In the livestock sector, there is modernization and rehabilitation of Kenya Meat

Commission (KMC) in Machakos County. The project was started in 2013 and is

expected to be completed in 2019 but was only six percent complete by end of

2015/16 Financial year. Project linkages with other necessary facilities have not

been well considered in that, the animal holding grounds have been converted to

other use. As such, the factory cannot be used to its full capacity even after

rehabilitation.

83. In Fisheries sub-sector, there are projects such as the fisheries quality laboratory

project which was started in 2012/13 and is expected to be completed by 2016/17.

However, only 10 percent of the work is complete and the project has missed

budgetary allocation in some years. Projects taking too long to complete especially

after they have been started typically lead to loss of resources due to funds already

used without any returns on investment. The completion of the laboratory would

promote fishing and fish farming as the country would be able to access more

markets with associated benefits of creating employment.



To increase resources to agriculture and manufacturing

sectors the following options can be considered:

✓ Give conditional grants to counties for support of

agriculture especially agriculture extension services

✓ Increase support to local abattoirs in livestock areas

by providing necessary infrastructure

✓ The on-going major development projects to be

subjected to technical and economic evaluation

before further funding and to draw a priority list and

timelines for the projects that are viable

✓ Limit approval of new projects to only those in

productive sector which includes agriculture and

manufacturing until at least 75% of on-going list of

projects are completed

✓ Review financial support to SAGAsby consolidating

related SAGAs for greater efficiency including

reducing total allocations.



Chapter Three

Expenditure Pressures and Tax Revenue Financing



A. Expenditure Flexibility and fiscal deficits

84. Tax revenue, debt and grants are the primary modes of financing Kenya’s budget.

The rapid rise in expenditure over the years has occasioned pressure on these

financing sources. Sources of significant expenditure pressure include accelerated

infrastructure investment, county government allocations, high wage bill for public

workers, and social sector investment. Further, a review of actual expenditure data

since 2010/11 shows a possible rise in non-discretionary expenditure components

such as interest payments, county allocations, and pension.

85. Typically, debt service, pension and certain wage payments for constitutional

holders are regarded as non-discretionary. However, in practice, the definition can

be extended to include “difficult-to-layoff” spending elements such as wages, social

welfare, appropriations earmarked through statutes, constitutionally mandated

transfers such as county transfers, appropriations to essential services such as

Defense and certain social transfers. Table 9 presents the relative growth rates of

various expenditure elements. A fast growth rate denotes potential change in

expenditure share (proportion of expenditure component to total spending).

86. Pension and interest payments rose more rapidly since 2012 driven by fast changes

in foreign interest payments. Interest payments on foreign debt service rose by 41%

in 2013/14 and 106% in 2014/15 (Table 9). On average, the foreign component of

interest rose fastest among the non-discretionary components, followed by domestic

debt interest and county transfers. The rise in interest payments reflects substantial

rise in debt stock during this period.

Table 9: Growth rate of Expenditure Components

2011/12 2012/13 2013/14* 2014/15 2015/16 Average

Total Expenditure 15% 20% 15% 26% 8% 17%

Non-Discretionary 7% 32% 56% 15% 14% 25%

Wages 11% 25% 2% 6% 3% 10%

Interest payment 4% 48% 11% 27% 25% 23%

domestic 0% 53% 8% 17% 24% 20%

foreign 44% 10% 41% 106% 32% 47%

Pension -2% 6% 9% 24% 42% 16%

County transfers >100% 19% 15% 17%

Others 14% 6% 10%

Discretionary 20% 13% -11% 38% 3% 13%

Operations/Maintenance 15% 22% -22% 15% 24% 11%

Development 26% 4% 4% 60% -12% 16%



87. The implication of rising non-discretionary expenditure, inflexible budgets, leaves

little room for revenue financed development, which puts pressure on borrowing to

implement needed development projects. Indeed, volatility of development spending

(and largely that of discretionary spending) highlights possible tradeoffs caused by

limited domestic tax revenue and borrowing to bridge the fiscal deficit.

88. Fiscal pressures are unlikely to fade soon as entitlements for public service workers

rise. The recent labour unrest together with the pressure exerted due to the need to

harmonize the remuneration of workers in the public sector, will place immense

pressure on the wage bill in the medium term. Increased infrastructure spending,

social sector spending, defence and county allocations will persist through 2017. It

seems unlikely that a sustainable reduction of the fiscal deficit will be achieved soon

given that infrastructure, social, wage and county spending demands are likely to

persist for long. For the country to reduce deficit and borrowing, and achieve

progress towards East African Community fiscal convergence criteria, then

measures to achieve expenditure efficiencies (value for money, rationalization) are

needed.

89. Tax revenue, which now stands at about 20% of GDP, and covers slightly more than

half of total expenditure every year, is at the center of any fiscal adjustments that

may be needed to reduce the deficit and public debt. The review below discusses

revenue trends in recent years and further provides some opportunities for

protecting and growing revenue without hurting economic growth.

B. Review of Revenue Performance

90. Since 2010/11 financial year to 2015/16, growth rate of nominal ordinary

revenues has averaged 14% on account of strong performance in 2012/13 and

2013/14 (Table 10). However, in the last two financial years, ordinary revenue

slackened to 12% for both years as import duty, Value Added Tax and income tax

slowed down. Income tax and VAT (after the repeal of the VAT legal regime) made

the largest contribution to revenue growth in 2013/14 but have since slowed down.

Value added tax for example grew by 26% in 2013/14 but decelerated to 12% and

11% in 2014/15 and 2015/16 respectively (Table 10). Similarly, income tax

decelerated from 21% in 2013/14 to 13%, and 10% in subsequent two years. Given

the modest size of excise duty tax as a proportion of total ordinary revenues, the

healthy rise in excise tax in 2015/16 was inadequate to reverse overall revenue

slowdown.



Table 10: Growth rate of revenue

2012/13 2013/14* 2014/15 2015/16 Average (6 years)

Total Revenue 13% 15% 14% 10% 13% Ordinary Revenue 14% 18% 12% 12% 14% Import Duty 11% 17% 10% 7% 11% Excise Duty 9% 19% 14% 21% 11% Value Added Tax 5% 26% 12% 11% 12% Income Tax 19% 21% 13% 10% 17% Other Taxes 19% -12% 9% 15% 7%

A-in-A 7% -22% 36% -12% 7% Source of data: QBER (various)

91. On account of slackened growth rates, ordinary revenue (which excludes AIA)

amounted to KSh. 1.031 trillion in 2014/15 and modestly rose to KSh. 1.158

trillion in 2015/16 and a projection of KSh. 1.377 trillion in 2016/17. According

to the approved budget, the revenue estimates would be driven by a major recovery

of VAT and income tax by 19.8%% and 18.6% respectively, relative to a sluggish

11% growth for the 2015/16 financial year (Table 11). Import duty would also

break its past trends to accelerate by 22% in 2016/17.

C. Revised Revenue Estimates

92. First quarter revenue collections were better than expectations for that period. Good

performance by excise duty tax, due to the effect of annual revision of inflation

indexing of specific duty rates, helped improve revenue collections compared to a

similar period in 2015. However the BPS has provided revised projections of

expected revenue performance marginally reducing the performance of VAT,

income tax, and import duties, but projects better performance for excise duties,

investment income (due to expected investment dividend flows), and AIA to boost

total revenues. Thus, the revised total revenue collections estimated for the full year

2016/17 will fall short by KSh. 3 billion to KSh. to KSh.1.374 trillion, below the

approved budget.

93. With this revision, value added tax, income tax, and import duty would rise at a

slower pace relative to the approved budget, but still outstrip their most recent

performance. Table 11 shows that Income tax, for example, was projected to rise by

16.6% relative to 12-13% average in recent years (2014/15 to 2015/16). Similarly,

VAT would rise by 17.1% relative to about 12% performance in 2015/16. Import

duty would rise by 14.1% compared to 7% in 2015/16. Excise duty was estimated

to rise by 27.9%. The largest revision changes relative to the approved budget



estimates are in the investment revenue that rises by 61% relative to the budget

estimate. Investment revenue is revised upwards by KSh. 11.7 billion to KSh. 31.4

billion while excise duty is revised upwards by additional KSh. 9.1 billion to KSh.

178.4 billion, probably reflecting the new Excise Duty Act which requires annual

indexing for specific duties. The BPS also substantially revises AIA collections by

KSh. 21.4 billion from KSh. 103.9 billion to KSh. 125.3 billion, nearly doubling

previous year’s performance.

Table 11: Growth rates of revenue, 2016/17 approved budget and 2017 BPS revision

Preliminary Actual Approved Budget BPS Revision Difference

2015/16 2016/17 2016/17

Total Revenue 11.8% 21.3% 22.7% 1.4%

Ordinary Revenue 12.3% 18.9% 18.7% -0.3%

Import Duty 7.0% 21.6% 14.1% -7.4%

Excise Duty 20.4% 21.4% 27.9% 6.5%

Value Added Tax 11.4% 19.8% 17.1% -2.7%

Income Tax 11.3% 18.6% 16.6% -2.0%

other taxes 14.5% 11.7% 27.3% 15.5%

investment income 37.9% 2.1% 62.7% 60.6%

Other 9.1% 14.6% 16.8% 2.2%

RDL -9.9% 16.8% 9.2% -7.5%

AIA 10.1% 66.5% 100.8% 34.3% Source of data: BPS 2017 and QBER 2016

94. The medium term projects the growth rate of ordinary revenue to dip sharply from

18.9% growth in 2016/17 to 12% in 2018/17, The revenue trends seem to recover

to “normal” trends, 12%-14% in 2017/18 to 2019/20 (See BPS, 2017). Ordinary

revenues, which excludes AIA is estimated to reach KSh. 1.549 trillion in 2017/18.

After steep rise in most revenue components in 2016/17, revenue growth appears

to revert to near normal growth, 13% for import duty, 11% for excise duty. Income

tax, however, rises by 16% in 2017/18 becoming the primary driver of revenue

growth in 2017/18. Excise tax appears more realistic in the forecasts for the outer

years. Irregular revenue components such as investment revenue and AIA collapse

in 2017/18. AIA growth rate declines from 101% in 2016/17 to 8% in 2017/18,

while investment revenue contracts by 44% in 2017/18.



D. Revenue Forecasts and Policy Options

95. These unstable forecasts have implications for revenue sharing, fiscal deficit and

debt sustainability. For instance, using recent revenue trends, if revenue grew by a

more conservative growth rates of 12-14%, then the 2016/17 revenues estimates

(including the revision in the BPS) would be overestimated by as much as KSh. 57

billion. This financing gap would only be bridged by accelerated revenue collections

(in second half of 2016/17), borrowing or expenditure reduction. Projections of

revenue, therefore, have significant implications on important fiscal decisions

including whether to increase borrowing or not, and whether to refinance maturing

debt. Since the mismatch between expenditure and revenue drives the deficit,

revenue projections need to be stable or reliable to contain expenditure expectations

and subsequent growth of the deficit itself.

96. Revenue forecasts below are therefore predicated by careful consideration of

buoyancy and elasticity reactions of key revenue heads. This means that, with

modest expected economic growth rates (5-6%), revenue growth may not

excessively outpace growth of nominal GDP or other bases without a major

administrative or legal measure. Tax rates have not changed significantly in the

recent past, though the changes in VAT in 2013 broadened the reach of 16% tax

charge to most products, while the excise duty Act enhanced collections from

sectors where tax under declaration is rampant including introducing annual price

indexing of the specific duty rates. Other recent and ongoing administrative

measures include enhanced i-tax systems, broadened reach of income taxes

including rental incomes, among others. Interventions to boost import duty such as

improved surveillance at the ports of entry are helping but, this tax head is blunted

by external factors such as exchange rate fluctuations, prices of oil, and consequent

demand factors.

97. The revenue targets for 2016/17 assume strong performance for all taxes, and

especially a remarkable recovery of VAT and income taxes. These growth rates

appear out of trend; hence the baseline forecast for 2016/17 is less remarkable for

all revenue heads with exception of excise duty. Due to changing economic climate

associated with upcoming elections and widespread crop failure, tax yield may be

hurt. Thus, ordinary revenue is assumed to grow at a still remarkable 14% growth

rate in 2016/17, reaching about KSh. 1.336 trillion which is KSh. 38 billion short

of the revised 2017 BPS revenue target (See Table 11). In this scenario, excise duty

rises by 15% from KSh. 139.5 billion in 2015/16 to KSh. 161 billion. Income tax

and VAT grow at a modest 13% and 14% respectively. Income tax adds KSh. 78

billion more in 2016/17 above the 2015/16 tax collection, while value added tax



adds nearly half of that. Import duty remains a weak performer, keeping with the

trends in the last 5 years. The more volatile “other taxes”, which include license

fees, investment revenue among other smaller revenue components, is expected to

grow by 14% at the baseline or higher.

98. Gross revenue, which includes AIA, could reach KSh. 1.399 trillion under the

optimistic forecast. Given that economic performance in 2017 could be held down

by election related negative effects and the emerging drought situation, the

estimates for 2017/18 are equally pessimistic. A stronger recovery is expected in

2018/19 to 2019/20 financial years. In the baseline, and incorporating persistence

of potential negative effects through part of 2017/18, ordinary revenue is expected

to increase by 13% in 2017/18 followed by a 15% recovery in 2018/19. All the tax

heads will partially slowdown in 2017/18 before rebounding thereafter. Ordinary

revenues are therefore expected to reach KSh. 1.503 trillion in 2017/18, driven by

estimated income tax collections amounting to KSh. 719 billion, value added tax

amounting to KSh. 372 billion, and KSh. 186 billion in excise duties. Import duties

are forecast to rise from about KSh. 87 billion to KSh. 95 billion in 2017/18.

Table 12: Medium Term Revenue Forecasts

Actuals Forecasts

Baseline

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

Total Revenue 974 1,106 1,238 1,399 1,567 1,790 2,047

Ordinary Revenue 919 1,031 1,176 1,336 1,503 1,726 1,982

Import Duty 68 74 79.2 87 95 106 117

Excise Duty 102 116 139.5 161 186 214 248

Value Added Tax 233 260 289.2 328 372 422 478

Income Tax 450 509 566 644 719 835 969

Other Taxes 67 73 101.6 116 131 149 170

AIA 55 75 62.4 63 64 64 65

Alternative Scenario

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

Total Revenue 974 1,106 1,238 1,355 1,485 1,686 1,917

Ordinary Revenue 919 1,031 1,176 1,292 1,421 1,622 1,853

Import Duty 68 74 79.2 85 92 102 113

Excise Duty 102 116 139.5 155 171 198 228

Value Added Tax 233 260 289.2 315 343 389 441

Income Tax 450 509 566 632 705 818 950



Other Taxes 67 73 101.6 106 110 115 120

AIA 55 75 62.4 63 64 64 65

Source: PBO forecasts

99. If the two primary downside effects are accompanied by extra external shocks, such

as exchange rate shocks, oil price shocks, and demand suppressing inflationary

pressures, then the effect on revenues could be less-than-bright. Under the more

negative forecasts presented in Table 13 revenue will broadly grow by 12% with

total ordinary revenues amounting to KSh. 1.292 trillion in 2016/17 and 1.421

trillion in 2017/18. The main drivers in this case would be income tax and excise

duties. A rebound is still expected in the outer years. Even though actual revenue

collections could vary from these estimates, the discussion should center on the

extent to which ordinary revenues finance the current budget and future budgets,

alongside the quite critical ratios of debt service to ordinary revenues. The NPV

ratios of debt service to revenue ratio, as reported in the most recent BPS, appear to

breach sustainability assessment thresholds in 2017/18 and 2018/19. The situation

could deteriorate if tax collections are not very robust. With limited major economic

factors to buoy revenue performance, then stricter revenue administration and base

expansion should be explored, if deep expenditure rationalization is unlikely during

this period.

E. Revenue Enhancement Measures

Review of Income Tax laws

100. Finance Act, 2016 made some changes to the pay as you earn (PAYE) tax first by

raising the personal relief from Ksh. 13,944 per year to Ksh. 15,360 and by raising

the lowest tax band from Ksh. 121,968 to Ksh. 134,164 annually. This translates to

about Ksh. 2,000 annual relief on an average Kenyan worker. This review appears

more subjective since it lacks essential broad effort to reduce effective tax rate or tax

burden on Kenyan workers. For example, there is no evidence that this token review

was informed by changes in cost of living over the years, equity, and tax

progression. Similarly, the tax burden from consumption taxes such as VAT, excise

duties, and price effects of customs duties need to inform any review. Anecdotal

review shows that at least 50% of personal monthly income of Kenyan worker is

paid to government as tax, severely squeezing personal disposal income. Taking into

account that tax revenue to GDP ratio is about 20%, then the burden of tax

disproportionately falls on wage earners.

101. Private consumption is associated with stable economic performance (relative to

government non-wage consumption). Even though, private consumption as



compared to private investment may not rank highly as a driver of rapid growth for

a developing country like Kenya, it is a critical part of domestic demand for goods

and services produced by domestic investors. Thus, a healthy amount of disposable

incomes will support aggregate demand and therefore fuel further investment in

production of goods and services and creation of jobs.

102. Corporate taxes contribute at least 20% of total ordinary revenue. But sadly

Kenya’s corporate tax regime is a labyrinth of provisions, year-on-year

amendments, counter-amendments, intractable schedules, waivers and exemptions

across various groups and sectors. A review, consolidation, and simplification of

income tax laws is long overdue. The proposed review should once for all make

income tax regime for companies as straight forward as possible. The repeal of the

law should have “improving the ease of doing business and tax compliance” as the

primary tenet. This further requires its modernization to reflect current and

anticipated economic and business realities.

103. In the wake of the Information Age, a new order of doing business is slowly

gathering pace, which is the e-commerce. There is no doubt that a large portion of

trades will soon be settled digitally or through various online and e-commerce

platforms. This requires urgent reconciliation of physical and online and digital

income generating activities. Digital platforms clearly breach geographical and tax

territorial borders, hence requiring new innovations to protect the tax base.

104. A review of the income tax regime should help redress present weaknesses so as

to support sustainable growth of private consumption and investment. Tax rates, tax

bands, reliefs, exemptions, waivers and tax incentives should be designed to achieve

lower tax burden for workers and ease of doing business for investors. With respect

to personal taxes and corporate taxes, following are broad proposals necessary to

strengthen the income tax regime:

• Progressive PAYE tax bands - Widen the PAYE tax bands so as to have the

minimum threshold for the upper tax rate (30%) at about Ksh. 80,000 and the

lower tax band at about Ksh. 18,000. Equally, introduce a new tax band for high

income earners, 32% for earnings above Ksh. 350,000 and 35% for earnings

above Ksh. 800,000. This tax design will increase disposable incomes for

majority middle level wage earners while protecting the lowest earners. Higher

disposable incomes will potentially boost consumption taxes such as VAT,

resulting in a major structural change of Kenya’s tax system that could equally

drive investment, employment creation and growth. High income earners will

equally contribute more to the government kitty reflecting their earning power

for provision of essential services to all Kenyans.



• Modern Corporate tax system- Consolidate corporate tax exemptions and

harmonize incentives. Tax waivers and exemption system should encourage

equity, whereby businesses with similar characteristics can benefit across

various target sectors. Reactionary tax measures such as “deemed interest”

should be reviewed to harness foreign investments. Measures to stop base

erosion and transfer pricing should equally allow multinationals to do business

effectively. Income tax provisions affecting cross border business should be

consolidated for ease of administration and compliance.

• Taxation of income from digital and online businesses: rising penetration of

smartphones and access to internet is fueling growth of e-commerce and e-

businesses with no physical addresses. If it hasn’t happened, gradual tax base

erosion due to migration to online transactions of physical goods and services

could particularly reduce income tax and VAT collections. E-commerce should

soon become a vital revenue source if the law and tax collectors find ways to

trace value and determine tax due by online and digital income generating

enterprises. This requires integration of information across other digital

platforms such as mobile money, internet banking and card transactions.

Equally, since digital platforms are not confined to Kenya’s tax territorial

borders, and given that many activities need not involve physical exchange of

goods, then new innovations are urgently required to protect the tax base.

Upscale the impetus in ICT leverage

105. Electronic tax system such as i-tax is the most promising tax administration

reform implemented by Kenya revenue authorities in recent years. Electronic

systems can therefore be deepened to achieve deeper tax compliance. As observed

above, tax systems should equally be responsive to changing trading and commerce

conditions in Kenya whereby mobile and online trades are rising rapidly. VAT,

excise duty and income tax systems should be aggressively deployed to rapidly

growing e-commerce platforms so as to both grow revenues and safeguard the

existing tax base.

Tapping the revenue potential from the gambling industry

106. In recent times, the gambling industry has experienced unrivalled growth,

exponentially so, and the sustenance of this trajectory is expected. Therefore, taping

the unexploited tax potential from the multi-billion shilling betting, lotteries and

gaming industry is long overdue. Currently, the industry is estimated to have a

potential gross turnover of KSh.200 billion annually and may grow more and more

rapidly in the coming years. Taxation of this industry should be in the class of other



sin taxes in design and rigor of collection. The Finance Act, 2016 made remarkable

changes to the taxation regime of gambling industry as follows

• The rate of betting tax chargeable to gross betting revenue was raised from 7.5%

to 15%

• The rate of tax chargeable to lottery turnover was raised from 5 % to 20 %.

• The gaming tax chargeable remained at 12% and price competition tax

remained at 15%.

107. The revised tax percentages could more than double the potential revenue

collectable from the industry but this requires greater monitoring of the industry

especially the revenue raised through online and mobile sports betting. In order to

tap more tax revenue, a higher rate may be charged for the betting revenue as

opposed to lottery turnover since the former has a higher potential tax base.



Chapter Four

Strengthening Devolution while firming up Priorities



A. Introduction

108. The fiscal year 2017/2018 will mark five years since devolution came into

effect. Its primary purpose of devolution was to enhance governance, improve

service delivery, ensure inclusive growth and shared prosperity. To achieve this, the

county governments are mandated to manage their own budget process with

resources being apportioned from both the National raised revenues and their own

source revenues.

109. The devolution process in Kenya adopted a big-bang approach where all

devolved functions were assigned to the county level of government at the

beginning. Due to lack of adequate capacity at the county level, the county

governments faced huge implementation challenges for the first years. The budget

performance has faced huge challenges with the necessary foundations like the

County Integrated Development Plans being unfeasible. However, progress is now

being witnessed in a number of counties thanks to continued capacity building of

county government employees.

110. Since the onset of devolution, the County Governments have approved and

implemented annual budgets for three full financial years: 2013/2014; 2014/2015

and 2015/2016. By the end of 2015/2016, the County Governments had already

been allocated cumulatively Kshs 765.9 billion as transfers from revenue collected

nationally while they had collected Kshs 95.2 billion in own local revenues. Since

bulk of the resources for county governments has been from the National

Government transfers, challenges in revenue performance at the National level have

been a major factor in budget performance for county governments. Similarly, the

local revenue albeit small, has also had huge performance challenges with the

annual collections always below 70% of the target.

111. These funds were to be utilized for programmes and projects approved by the

County Legislatures in accordance with the devolved functions as indicated in

Schedule 4 of the Constitution. By the end of 2015/2016, the county governments

had cumulatively spent Kshs 722.6 billion which is equivalent to 84% of the total

funds. Despite the relatively good performance, the counties still face

implementation challenges; part of the balance amounting to Kshs 37.4 billion is

pending bills while Kshs 101.1 billion is unspent and uncommitted funds (11.7% of

total available funds).11

11 Controller of Budget (2016), Annual County Budget Implementation Review Report for Financial Year 2015/16



B. Revenue Performance

112. A large proportion of the county revenues stem from the National Government

transfers that are provided for in the County Allocation of Revenue Act (CARA) each

fiscal year. These transfers consist of equitable share of revenue that is divided

among counties in accordance with the approved second generation formula, the

conditional transfers from national government revenue and the conditional

allocations from loans and grants. The National Government has strived to allocate

county governments almost 100% of their share of the revenue raised nationally as

provided for in the respective CARA.

113. The allocation of these funds is to be spread out evenly in the financial year in

accordance to the approved Cash Disbursement Schedule. However, over the years,

the disbursement of funds doesn’t follow this Schedule with bulk of the funding

being allocated towards the end of the financial year. This poses a huge risk to the

implementation of the budget since projects to be funded will either be delayed or

will not be implemented all together. Delayed start of projects largely also lead to

pending bills since a financial year lapses before full implementation of the projects.

Figure 13: Analysis of cash disbursement for 2015/2016

Source: Monthly exchequer issues, Approved Cash Disbursement Schedule 2015/16

114. The performance of local revenue collected by county governments has been

improving annually for the past three financial years but it is still relatively low;

below 70% of the annual target. The overall performance improved from 48.5% in

2013/2014 to 67.2% in 2014/15 and 69.3% in 2015/2016. Review of

performance for individual counties still indicate huge challenges in counties like

Garissa, Tana River, and Isiolo which have predominantly underperformed in the

0%

2%

4%

6%

8%

10%

12%

14%

16%

Actual Release of Cash

Approved Cash DisbursementSchedule



last three years. It is also seen that some counties have witnessed a substantial

decrease in their revenue performance over the last three years including Elgeyo

Marakwet, Nyamira and Samburu counties.(See Annex 1) This raises concern on the

capacity of the counties to either undertake revenue estimation or revenue

collection.

C. Expenditure Performance

115. A breakdown of the expenditures indicates that 65.5% is recurrent expenditure

while 34.5% is capital expenditure. The allocation for capital expenditure has been

increasing over the last three years indicating it has been prioritized. Under

recurrent expenditure, bulk of the funds are for compensation to employees (34.9%)

and it has been steadily reducing over first three years.

Table 13: Classification of County Expenditure by Economic Classification

2013/14 2014/15* 2015/16** Cumulative Expenditure (2013/14-2015/16)

Recurrent Expenditure 72.53% 65.01% 62.73% 65.50%

Compensation to employees 39.82% 35.46% 32.24% 34.88%

Use of Goods and Services 21.90% 20.44% 21.69% 21.31%

Other Recurrent Expenditures 10.81% 9.11% 8.80% 9.32%

Capital Expenditure 27.47% 34.99% 37.27% 34.50%

Acquisition of Non-financial Assets 26.29% 33.62% 35.35% 32.91%

Acquisition of Financial Assets 1.18% 1.36% 1.93% 1.58%

Total 100.00% 100.00% 100.00% 100.00%

Source: Economic Survey 2016 *Provisional *Printed Estimates

116. A review of the county expenditure by classification of functions of government

(COFOG) shows that bulk of resources is allocated for General Public Service

(51.5%). However, this has been reducing gradually over the first three years from a

high of 83.8% in 2013/14 to 38% in 2015/16. This has seen more resources being

allocated to the economic affairs, specifically increments for the transport (9%) and

agriculture (5.1%) sectors. It is also noted that the Health (15.9%) and education

(6.1%) sectors have also been allocated substantial resources.

117. With the County Governments having a huge role in management of agriculture

in the country, the slight increase in the allocations for agriculture is acknowledged

but there is still need for additional resource allocation. As noted in Chapter one,

most small scale farmers lack adequate and timely agricultural information and this



is largely because of the insufficient agricultural extension officers. Also, huge post-

harvest costs erode most of the incomes of these small scale farmers making many of

them shun away from agriculture.

118. It is noted that the education sector has been allocated more resources than the

agriculture sector. This is despite the limited role county governments have in the

education sector compared to the agricultural sector. A review of the education

sector budgets for most counties indicate huge allocations for secondary and tertiary

school bursaries which is a function of the national government and is also allocated

resources in the national government budget. This amounts to duplication of

functions.

119. Healthcare is also a key function for the county governments and has also been

allocated substantial resources in the budget. The county governments manage over

80% of the healthcare system in the country and most of the conditional grants

allocated to county governments are directed to the healthcare docket. However,

despite the substantial funding, there have been perennial delays in allocation of

resources to the respective health facilities. This is because all monies paid for the

health facilities are channeled through the County Revenue Fund from where

funding for all county functions are sourced. Since most of the funding for the

healthcare is in form of reimbursements for services already rendered, any delays in

the release of funds to the health facilities will impact negatively on their service

delivery.

Table 14: Classification of County Expenditure by COFOG

Classification of Expenditure 2013/14 2014/15* 2015/16** Cumulative Expenditure (2013/14-2015/16)

General Public Services 83.76% 50.21% 37.99% 51.47%

Economic Affairs 6.87% 14.80% 24.96% 17.81% General Economic Affairs 0.81% 2.32% 3.68% 2.63% Agriculture 1.78% 5.23% 6.40% 5.06% Transport 3.67% 6.95% 12.94% 9.01% Other economic Affairs 0.60% 0.30% 1.94% 1.11% Environmental Protection 0.54% 1.95% 4.59% 2.86%

Housing and Community Amenities 2.19% 2.58% 3.53% 2.93% Health 5.26% 20.15% 17.48% 15.91% Recreation, Culture and Religion 0.57% 2.89% 3.48% 2.69% Education 0.76% 7.35% 7.52% 6.09% Social Protection 0.04% 0.07% 0.46% 0.24% Total 100.00% 100.00% 100.00% 100.00%

Source: Economic Survey 2016 *Provisional **Printed Estimates 2015/16



D. County Policy Options

120. One County One product: each county has a comparative advantage in

production of a specific output. Currently, due to similarity of geographical

conditions and lack of innovativeness, most counties are producing numerous

products that are similar to those of their neighbors. Due to lack of specialization

and economies of scale, the production process is costly and inefficient making these

outputs less attractive. Each county government should identify a specific primary

product that the county has a comparative advantage in production and specialize

in it. The county can then invest in improving the product through targeted capital

allocation, provision of technical assistance, value addition and marketing. Both

levels of government may provide grants for the ‘one county one product’ initiative

through annual budgets.

121. Prioritizing Agriculture Support Activities: Agriculture is a backbone of the

country’s economy and the county governments play a huge role in the

management of agriculture. The sector is largely operated by the small-scale

farmers who have in-sufficient technical know-how on modern agriculture

technologies. Lack of adequate agricultural extension officers to assist the farmers

has been a major contributor for this. Further, the poor storage facilities especially

for perishable produces and inadequate agro-based industries to process these

produces also contribute to the decline of agricultural activities. County

governments should set aside funding for agricultural extension services and agro-

processing industries.

122. Ring-fencing funds for construction of abattoirs: the country is served by one

major government owned meat processing plant, Kenya Meat Commission (KMC)

situated in Athi River. The animals are sourced from far flanked regions across the

country making it costly for farmers to bear huge transportation costs. Long

distance transportation of livestock poses a big risk to the health of the animal and

also may contribute to transfer of diseases from one region to another. This is

further exacerbated by lack of animal holding grounds on the transportation routes

to KMC. Instead of allocating huge funds to the KMC annually, conditional

allocations could be given to livestock rich counties to develop modern county

abattoirs. Moreover, this initiative will go a long way in supporting development of

disease free zones and improve quantity and quality of meat products thereby

creating export opportunities for these counties.

123. Ring-fencing funding for healthcare: The management of county health

institutions is faced with financial challenges due to lack of prompt financing



despite substantial allocations to the healthcare through various conditional

allocations and the reimbursement from National Hospital Insurance Fund (NHIF).

This may be due to the funding for healthcare is paid directly into the County

Revenue Fund from which funding for all county functions are drawn. With

competing needs, the funding for health institutions may be delayed despite the

services already having been rendered. Counties should ring-fence the funding for

health institutions through setting up health funds with separate accounts for each

health institution through which funding is channeled.

124. Harmonize funding for education bursaries between levels of government:

Evidence points out to duplication of education functions between county and

national governments. The funding for bursaries of secondary and tertiary

education is being done by both levels of government raising concerns on lack of

coordination of funding for the education sector. This disintegrated allocation of

funds may not be effective in optimal linkage of beneficiaries to the available

resources. The national government should centralize the coordination of bursaries

for secondary and tertiary education. On the other hand, county governments

should restrict their allocations to their education functions: Early Childhood

Development and village polytechnics.

125. Partner with KRA on revenue administration: The county revenue collection is

still far below the target indicating either county government are unable to make

feasible revenue projections or that counties have poor revenue collection structures

with huge revenue leakages. The counties should foster partnerships with the Kenya

Revenue Authority (KRA) to improve their revenue administration.

126. Adherence to the cash disbursement schedule: The delay in disbursement of cash

by the National Treasury to County Governments drastically affects the budget

performance and service delivery of counties. The bulk release of funds towards the

end of the financial year makes it difficult to absorb monies and also may lead to

huge pending bills and un-utilized funds. The National Treasury should adhere to

the approved Cash Disbursement Schedule in transfer of funds to counties.



ANNEXTURE

Annex 1: County Revenue Performance County 2013/2014 2014/2015 2015/2016

1. Baringo 77.5% 97.6% 93.1%

2. Bomet 85.2% 86.4% 88.5%

3. Bungoma 6.6% 46.9% 78.5%

4. Busia 89.8% 97.0% 61.5%

5. Elgeyo/ Marakwet 71.8% 97.7% 43.4%

6. Embu 25.6% 53.6% 62.9%

7. Garissa 23.9% 18.7% 21.2%

8. Homa Bay 95.9% 102.7% 90.7%

9. Isiolo 34.8% 29.5% 30.6%

10. Kajiado 87.7% 81.9% 52.8%

11. Kakamega 11.6% 57.2% 50.4%

12. Kericho 109.7% 107.9% 98.7%

13. Kiambu 40.8% 64.7% 74.4%

14. Kilifi 62.5% 54.6% 36.9%

15. Kirinyaga 45.8% 73.8% 78.1%

16. Kisii 34.3% 47.1% 43.7%

17. Kisumu 35.8% 64.7% 52.4%

18. Kitui 35.7% 49.3% 68.4%

19. Kwale 32.5% 50.8% 82.9%

20. Laikipia 62.3% 100.1% 94.2%

21. Lamu 41.3% 93.9% 53.6%

22. Machakos 46.2% 47.6% 47.3%

23. Makueni 54.1% 93.6% 53.3%

24. Mandera 20.6% 34.9% 44.3%

25. Marsabit 104.5% 204.8% 86.1%

26. Meru 52.2% 91.7% 92.1%

27. Migori 30.0% 71.0% 84.9%

28. Mombasa 33.8% 48.7% 72.6%

29. Murang'a 52.5% 70.3% 72.6%

30. Nairobi 64.9% 86.3% 76.6%

31. Nakuru 59.0% 79.9% 99.3%

32. Nandi 30.9% 65.3% 66.2%

33. Narok 41.6% 48.7% 74.8%

34. Nyamira 94.0% 47.6% 44.4%

35. Nyandarua 79.5% 120.3% 71.2%

36. Nyeri 90.2% 50.7% 65.6%

37. Samburu 89.9% 48.1% 46.8%

38. Siaya 65.2% 47.5% 37.3%

39. Taita/Taveta 52.0% 41.5% 49.0%

40. Tana River 36.2% 27.5% 23.7%

41. Tharaka-Nithi 101.7% 46.3% 56.1%

42. Trans Nzoia 40.2% 78.3% 93.8%

43. Turkana 53.2% 115.0% 67.0%

44. UasinGishu 68.6% 90.0% 69.3%

45. Vihiga 60.4% 30.7% 39.4%

46. Wajir 51.3% 102.5% 54.5%

47. West Pokot 155.0% 108.0% 55.4%

Total 48.5% 67.2% 69.3% Source: CoB Annual Reports (2013/14, 2014/15, 2015/16)



Annex 2: Budgets Allocations for SAGAs Identified for Re-Organization

SECTOR SAGA Kshs (‘000’)

14/15 15/16 16/17

Agriculture Rural and Urban Development

Kenya Dairy Board 103,619.00 103,619.00 38,900.00

Kenya tsetse and trypanosomiasis 150,286.00 140,106.00 377,000.00

Kenya Plant Health Inspectorate Service

354,816.00 277,286.00 316,903.00

Kenya Veterinary Board 11,620.00 8,820.00 5,500.00

National Bio safety Authority 92,000.00 92,000.00 108,577.00

Total 712,341.00 621,831.00 846,880.00

Energy and ICT Kenya Urban Roads Authority 4,931,825.00 5,305,804.00 14,865,843.00

Kenya Rural Roads Authority - - 31,078,954.00

Rural Electrification Authority 504,000.00 504,000.00 8,781,335.00

Total 5,495,223.00 5,869,202.00 54,775,282.00

General Economic and Commercial Affairs

Kenya Anti Counterfeit Agency 158,600.00 246,600.00 225,402.00

Brand Kenya 79,100.00 109,100.00 123,000.00

Export Promotion Council 460,566.00 422,566.00 300,000.00

Industrial and commercial development Corporation

477,551.00 353,914.00 -

Industrial Development Bank - - -

Kenya Industrial Estates 130,600.00 80,900.00 76,900.00

Kenya Investment Authority 256,000.00 253,000.00 230,000.00

Kenya Industrial Property 15,000.00 4,000.00 2,850.00

micro and small enter 106,532.00 80,500.00 75,834.00

SASRA 128,102.00 70,600.00 53,200.00

Kenya Yearbook Editorial Board 59,398.00 59,398.00 49,150.00

KTB 577,000.00 560,000.00 2,061,000.00

Tourism Finance Corporation - - -

Total 2,448,449.00 2,240,578.00 3,197,336.00

Governance, Justice ,Law and Order

Kenya Copy Right Board 79,520.00 99,520.00 131,000.00

Total 79,520.00 99,520.00 131,000.00

Public Affairs and International Relations

Agricultural Finance Corporation - - -

Capital Markets Authority - - -

Privatization Commission of Kenya 220,000.00 220,000.00 220,000.00

Registration of certified Secretaries Board

871.00 1,210.00 -

RBA - - -

YEDF 233,539.00 291,489.00 1,096,825.00

Total 454,410.00 512,699.00 1,316,825.00

Social Kenya National Library Services 558,171.00 640,848.00 803,000.00

Total 558,171.00 640,848.00 803,000.00

Environment Coast Development Authority 57,942.00 57,942.00 233,942.00

Ewaso North Development Authority 58,879.00 58,879.00 118,879.00

Ewaso South Development Authority 56,012.00 56,012.00 624,291.00

Kenya Forest Service 2,169,000.00 1,637,000.00 2,539,309.00

Kenya Wildlife Service 3,190,945.00 2,309,827.00 1,420,827.00

Kerio Valley Development Authority 112,907.00 112,740.00 118,675.00



Lake Basin Development Authority - - -

Tana athi rivers Development Authority

136,808.00 136,808.00 516,808.00

Athi water services Board - - -

Coast water services Board - - -

Kenya Water towers agency 202,922.00 200,000.00 335,845.00

Lake Victoria 63,634.00 83,500.00 313,000.00

lake Victoria south 35,547.00 36,000.00 255,000.00

Northern water services board 62,532.00 62,532.00 111,532.00

Rift valley water Services board - - 540,000.00

Tana water services Board 24,678.00 12,699.00 353,240.00

Tanathi water services board 18,696.00 18,696.00 345,696.00

Water Trust Fund 27,000.00 27,000.00 449,000.00

Total 6,217,502.00 4,809,635.00 8,276,044.00

Education KUCCPS 37,405.00 55,760.00 30,000.00

Total 37,405.00 55,760.00 30,000.00

TOTAL 15,943,623.00 14,790,675.00 69,327,217.00 Source: National Treasury and Presidential Taskforce report on Parasatal Reforms

parliamentary service commission parliamentary budget … · 2017-03-16 · back to the basics:...

Documents