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SECTOR ANALYSIS REPORT: Ministry of devolution and planning.

Devolution background

Devolution came into play in the local domain following the 67% YES vote on 4th August 2010 constitutional referendum. Devolution is the statutory delegation of powers from the central government of a sovereign state to govern at a subnational level.

The idea of devolution was realized following the enacting of the new constitution in 2010 but the idea had been conceptualized since independence with subtle differences.

Before independence, Kenya Africa Democratic Union (KADU) was founded to defend the interest of minority tribes like Kalenjin, Maasai, Turkana and Samburu against the larger tribes like Kikuyu and Luo who comprised majority of Kenya African National Union (KANU) membership which was in favor of centralism.

The feud between the two parties led to the formation of a federalist government constituting the 8 provinces of Kenya before independence which was later removed from the constitution by KANU after independence creating a central government.

A federal state differs from a devolved state due to the nature of the powers at the subnational level. Whereas both are granted legislation powers, devolved authority may be temporary and reversible hence power resides with the central government – de jure unitary while federal authority is permanent and engrained in the constitution and the powers of the sub units cannot be withdrawn unilaterally by the central government.

Despite devolved governments having less power than federal ones, the first five-year term under the devolved government has been mired with disputes between the central government and the county governments in terms of policy and allocation of resources.

The ultimate goal of any devolved government is to create self-sustaining county governments that are independent of the national government.  The future may be so bright that at one point, a county government may be so well off that it may be able to fund other county governments or even the national government.

The bright future can only be achieved through equitable and beneficial distribution of national resources to spur economic growth that would create self-sustainability status of the devolved governments.

The current structure of dependence on national government would only increase budget spending and national debt to the detriment of the national economy and status.

Ministry SWOT analysis

Herein below is a SWOT analysis of the ministry of devolution and planning.

Strengths of the ministry

Devolution has increased the equitable distribution of the national financial cake throughout the country. Marginalized counties can now receive funding for development and financial control is not concentrated in the central government.

In earlier central governments like the Moi government, certain regions of the country were starved of financial support due to their political affiliations. Allocation of resources in the devolved system is engrained in the constitution hence irrespective of the national leader tribe or affiliations, there is more equitable distribution of resources in the country.

Devolution has also increased ease of access to government facilities and services. The Huduma Centre’s have increased quality of services from government institutions to the general public.

Weaknesses of the ministry

Although devolution is a great concept, the country was not ready for a full roll out of the devolved government. Structures and policies of fund management were not in place when devolution came into play. This caused massive misallocation and misappropriation of funds in the county governments. Devolved sectors like the health sector crumbled under devolution whereas the sector was fully functional while under the central government.

Recurring expenditure vs development expenditure

Devolution has also increased national expenditure without generating further income. The above graph indicates recurring expenditure versus development expenditure in the Kenya Budget starting from financial year 2009/2010 to financial year 2016/2017. You can notice how the recurrent expenditure shot up from 1 trillion shillings in 2015/2016 financial year to over 1.5 trillion shillings in 2016/2017 financial year. The increase in recurring expenditure arose from the increase in the wage bill of the country. Wage bill constituted up to 30.00% (600 billion shillings) of the total national budget during 2016/2017 financial year. In essence, devolution doubled the national wage expenditure without generating any more significant income.

Due to low accountability in the devolved government, devolution has also increased corruption cases hence increased losses to the tax payer. Overstating of contracts and outright mismanagement of funds has riddled many counties. Funds for development are usually the first to be misused because it is very difficult to misappropriate government workers wages.

Opportunities in the ministry

The devolution and planning ministry has an opportunity to empower the country to be financially stable through creating self-sustaining county governments. Devolution has the ability to tap every county unique resources and ability to generate income.

Success of devolved government would increase investment opportunities in the counties and better living standards of the population. This would be largely dependent on the current allocation of national resources to county governments in an effort to spur county economies.

There is a great opportunity of structuring the allocation of national resources to achieve sustainability by deploying scientific revenue allocation models which would be dependent on data rather than political affiliations.

Threats in the ministry

Unsustainability is the greatest threat to the ministry of devolution and planning. County government expenditures continue to increases whereas their revenue generating ability remains stagnant. Most of the funds allocated to counties continue to be used for covering recurring expenditure rather than development expenditure. Latest report by controller of budget indicated that counties spend 78% of allocated funds to cover salaries and wages instead of the recommended 35%.

Business ideas in the sector

Setting up policy and accountability structures

This will primarily focus upon technological systems which would be hard to manipulate therefore increased accountability of funds flowing through into the county governments. Adoption of IT would increase efficiency of services and ease the informal business conversion into a formal system.

Public education and awareness

Education would involve the ministry outsourcing education and awareness services to increase literacy levels. The services offered would include advisory and consultancy on behalf of the ministry. The general public would receive information that is related to the ministry focusing on reducing ignorance on matters such as who to hold accountable for their grievances – the national or the county government.

Scientific revenue allocation model

Allocation of national resources has been a crucial debatable issue since the inception of devolution. Increased allocation of national resources was one of the promises aired by presidential political aspirants during the recently concluded elections.

Despite the county governments being unable to efficiently use the currently allocate funds, governors are gunning to be allocated more of the national cake.

The current revenue allocation model is more of a political endeavor rather than a scientific one which will enable faster self-sustainability in the county governments.

This idea endeavors to develop a scientific revenue allocation model that would be able to stimulate economic growth in the county governments and continuously reduce dependency on national government until self-sustainability is achieved.

The current existing substitute to this model is the one which is currently used to allocate funds to counties. The formula is as below.

Current revenue allocation model

Combining some of the current parameters with the scientific revenue model would yield the following adjustments.

Proposed revenue allocation formula

The adjustment was necessary to incorporate one factor that may incentivize counties to generate more income. The contribution to GDP factor rewards counties that implement policies and structures that increases the wealth of the nation.

Now that we have determined allocation of resources, we now modify the allocated county funds to be distributed in a scientific way – based on data.

The economic county committee should rely on collected data to make decisions on socio- economic sectors. The current decision making process is extremely political in that a representative will build a hospital or school in an area to gun up votes for the next election rather than build where it is necessary.

Data based decision making would allow efficient allocation of resources hence the scientific allocation model detailed below would optimize fund allocation in the counties.

Scientific revenue allocation model

Further to this, minimum and maximum threshold should be established for socio-economic development. This would ensure investment in socio-economic sectors in a financial year. This model may be sufficient to spur county economies to self-sustainability.

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Posted by Timothy II Aperit

True believer in numbers. Statistics never lie. Bsc Financial Engineering MBA Finance ACCA