Thursday, 14 June 2012

Budget2012: - Is East Africa Spending where it matters?

This afternoon, finance ministers from across the East African region – Kenya, Uganda, Tanzania and Rwanda simultaneously tabled budget estimates for the fiscal year 2012/2013 to their respective legislative organs. As per usual, it has been almost routine that around this time of the year as citizens anticipate these budget pronouncements: retailers/traders horde their stock pending tax decisions that could affect their pricing; citizens look forward to price reductions, revellers hold their breath for cuts on booze etc ... Arguably for the ordinary citizen, that’s almost as far as it has always gone. What remains is always but the mundane phase of adapting to the system with the new fiscal indications and their implications on everyday life. Otherwise, the rest has always been largely dominated by government - the bits about how the budget is actualised into expenditure and further to tangible developmental returns to citizen from whom the revenue basket was obtained.

Citizens across the region received their budgets with mixed reactions: Tanzanians worried about the big proportion of their budget consumed by recurrent expenditure, escalating costs of living, inflation and taxation. Kenyans irked by an outrageous Ksh 179 billion budget deficit apparently to be financed by borrowing and ODA; Rwandese happy about the facts that for the first time about 54% of national budget financed not by aid but domestic resources notably tax. For me I took the liberty to highlight a few imperatives about the trends in allocation of public resources and their expenditure across East African states. By so doing I thought, this could stimulate your thinking around how these resources have been obtained in the past, what has been done with them and maybe to give some implicit indications on what things would look like in the future today’s pronouncements notwithstanding.  I selected three sectors I deemed most relevant owing to the challenges the region is facing and the collective aspirations of people around the region.

 I look at the Agriculture, Education and Health sectors basing my rationale on their relevance to poverty reduction and general individual well being. See how governments have been performing: make your own judgement based on what you hear from budget speeches year in year out and what you experience in a daily life.

Agriculture: There is the common notion across the region that 'Agriculture is the backbone of the economy' – employs over 90% of the workforce in Burundi, contributes approximately 51% of GDP in Kenya, a leading export facilitator and foreign exchange earner in Uganda, provides crucial raw materials for industrialisation in Tanzania and is the ultimate answer to food security. Logically, this can only mean then that the policy makers that yap about this put their money where their mouth is. However it does not look like that is the case. 

The agriculture sector has been largely underfunded despite its renowned relevance in dealing with both rural and urban poverty, creating employment and bolstering economic growth in many economies worldwide. On average none of the EAC countries (save for Rwanda lately) spends more than 5% of total government expenditure on the agriculture sector. I listened pensively to Kenya’s Finance minister eloquently indicating that agriculture will be one of the key sectors to drive economic growth in the country in FY 2012/2012 without allocating significant amounts of resources to the sector! What’s more astounding is how these leaders have gone to lengths of committing our countries to better allocation of resources for agriculture but resigned to business as usual. A case example is the Maputo Declaration on Agriculture and Food Security and the 10 percent national budget allocation to agriculture development. At an AU summit in 2003 African heads of state committed to increase public investment in agriculture by a minimum of 10 per cent of their national budgets and to raise agricultural productivity by at least 6 per cent. Well I leave the judgement to you; take a look at the status of affairs ten years down form Maputo:

Health: It is no news that East Africa is home to a large population of sick and poor people. Disease, hunger, and malnutrition is rife. There are about 76.37 million poor people in East Africa, nearly 53.86% of the regions entire population; and a huge constituency of people living with HIV/AIDS let alone other ailments. So again, logically you expect the honourable men and women on the policy making tables to be scratching their heads thinking of how to deal with this.  In fact they on record having committed themselves to increasing spending/allocations for the health sector. In 2001, African Heads of state congregated in Abuja Nigeria and ratified what came to be known as the Abuja Declaration: the communiqué – to increase spending on health care to at least 15% of total state spending. 

However in reality the average proportion of health expenditure between 2000 and 2010 has been well below the target 15% for all the EAC states. Furthermore, when measured against total population, per capita health sector spending in the EAC states has been below the 44 USD per individual World Heath Organization set standard for minimum resources required to strengthen healthcare systems and service provision in low income countries. Have a look at how folks in East Africa are doing; again the judgement is yours.

Education: When it comes to education, politicians in the region have amassed handsome points and political accolades in the international arena. Behold 'free primary education’. Give credit where its due, universal primary education has seen increased enrolment (90% in Burundi by 2010), enhanced adult literacy and furthered a very crucial social protection agenda for many children caught up in chronic poverty across the region. But then again, could this be done any better? is it enough? See how far East Africa has gone with regards to substantial investment in education:

Well I tried to follow up and see where funds get to then, having established that Education, Health and Agric are not the trendy things when it comes to the people who decide on what goes to what. Looks like we are spoiling ourselves with bloated bureaucracies, ‘fancy infrastructure’ and ‘top notch security’. May be its time to ask, where the infrastructure is, what the dividends of increased security spending are! 

A big thank you to E. Rukundo @lukusem and K. Rono @ronokaren for helping with the data and analyses

Tuesday, 5 June 2012

'Doom or Prosperity: What does the discovery of oil and gas in East Africa portend for public expenditure, governance?’


The recent discovery of oil and gas deposits in East Africa present new opportunities through access to energy and increased oil revenues that could be instrumental in charting a new sustainable growth path for the region. It presents East African states with strategic leverage to expand on public spending and to better control and determine the developmental trajectories of their economies and the livelihoods of their citizens.
These discoveries no doubt come as a relief not only for government but to citizens alike with rekindled hopes for fairer distribution of economic development and reduction of poverty. Governments perennially bedeviled with headaches of delicate budgeting, deficits, possible resistance and activism related to over-taxation and demands for accountability that comes with both taxation and conditionalities for aid delivery certainly look forward to such discoveries.  Within the psyche of the ordinary citizen, persuaded that such discoveries herald expansion of the state revenue basket, this means better funding for delivery of public goods and releases the burden on taxation. It could also mean increases in individual income and consumption that all translate into optimism for individual well being.  And arguably, this could also be a relief to donors and donor agencies mobilizing resources to deliver development assistance.

However, these discoveries also come amidst controversial discourse amongst policy makers, development partners and academia on their developmental prospects. This draws from disappointing developmental returns that have been generated in the past by emergent natural resource revenues in countries like Yemen, Nigeria and Zambia. These countries failed to leverage their natural resource wealth into strong states. It also draws from evidence indicating that properly managing resource windfalls remains a challenge for many developing countries and indeed portends harmful tendencies to their development. In fact these resources have become synonymous with high levels of inequality and poverty, poor governance, weak institutions, corruption, conflict and over-dependence on singular natural resources presenting barriers to economic diversification commonly referred to by many authors as the ‘resource curse’.  

Take a look at the world's newest nation - South Sudan: on average between 2005 and 2011 oil revenues contributed over 97.8% of government revenues. This is depressing news; it has left the economy vulnerable to external shocks. A case example is the decision to shut down its entire oil production from January 2012 in response to the dispute with Khartoum. This has brought about unprecedented inflation rates (upto 80% in May 2012) that citizens now have got to deal with. The acute dependence on oil revenues has also hamstrung serious investment in an effective and efficient tax system which obviously has had huge ramifications on state accountability besides the myriad of teething problems South Sudan has to attend to.

In sum, countries that depend on such natural resources for their livelihood eventually become among the most economically troubled, the most authoritarian, and the most conflict-ridden in the world. There is need therefore to begin having more open and honest dialogue around the emergence of East Africa’s new natural resource wealth within individual countries and across the states as in the East African Community. 

East Africa must begin to ask and provide answers to these fundamental questions:
  • What implications does this have on government revenues (in terms of tax, development assistance, and other non-tax revenues)?
  • How will this affect the character and psychology of government spending?
  • What impact would this have on donor psychology; trends in commitments and aid disbursements?
  • How will this change the attitudes of citizens in terms of taxation, initiative, and civil awareness (keeping government accountable?)
  • What does this portend for poverty and poverty reduction in East Africa?

There is need for intensive and extensive conversations not only within the realms of formal public policy making but encompassing informal street-wise discourse as well on the prospects and foreseen challenges for the region. Discussions on expectations and responsibilities of every stakeholder. East Africa must forecast the expectations of government on growth and public finance; expectations of citizens on expansion of public expenditure to reflect developmental needs, lesser taxation, effective delivery of public goods and overall individual/household well-being; expectations from citizen groups and civil society on more transparency, accountability and responsiveness to citizen demands.  

Such discussions inevitably must inform public policy, especially macroeconomic ones that determine expenditure on different sectors of the economy. Equally such discussions must function to dispel myths, manage citizens expectations and optimism and guide government psychology towards sustainable exploitation of such resources and efficient expenditure of revenues generated thereof.