ECONOMIC MANAGEMENT IN

KENYA: DIAGNOSIS AND

PROGNOSIS

by

John Thinguri Mukui

Paper prepared for the seminar on Kenyas Future Policy Options,

organized by the International Commission of Jurists (Kenya
Section), Aberdare Country Club
12-15 May 1993

ECONOMIC MANAGEMENT IN KENYA: DIAGNOSIS AND PROGNOSIS1

By their fruits you will know them (Matthew 7:20)

The study of money, above all other fields in economics, is the one in which complexity is
used to disguise truth or to evade truth, not to reveal it. Most things in life automobiles,
mistresses, cancer are important only to those who have them. Money, in contrast, is equally
important to those who have it and those who dont. Both, accordingly, have a concern for
understanding it. Both should proceed in the full confidence that they can. John Kenneth
Galbraith, Money: Whence It Came, Where It Went, Houghton Mifflin, Boston, 1975
INTRODUCTION
1.
Development planning has had its strongest roots in economic management of centrally
planned economies which were basically one-party, monolithic political structures. The manifesto
of the ruling party formed the basis of formulating the plan. After defining development targets, the
development plan laid out the framework through which these targets were to be achieved. The
implementation of the Plan was carried out by policy makers who were assumed to have adequate
understanding of the consequences of their economic choices, and have the interests of the
governed. The political and economic collapse of one-party states of Eastern Europe clearly showed
the drawbacks of centrally planned economic development.
2.
The economic and political changes taking place in Kenya do not rule out the role of
development planning entirely, but the approach has to change in order to make the planning
meaningful. To have meaningful planning, two conditions are necessary though not sufficient. First,
the development planning process has to be realistic and consider the constraints and opportunities
in the economy. Secondly, there has to be commitment by the political system since policy makers
decide on allocation of resources and how to mobilize those resources. Planning should mainly be
centred on creating the socioeconomic framework within which economic development takes
place, e.g. provision of well-maintained and reliable basic infrastructure, management of budget and
external account deficits, tariff policies, and fiscal and monetary policies. There is therefore a case
for a shift from medium-term planning in favour of strengthening capacities for policy analysis and
short-term macroeconomic management, geared towards achieving long-term economic and social
objectives.
DEVELOPMENT PLANNING EXPERIENCE IN KENYA
3.
The ritual of development planning in Kenya takes the form of sessional papers that set the
broad long-term development agenda. Only two sessional papers setting the long-term economic
agenda have been issued in Kenya since independence: Sessional Paper No. 10 of 1965 on African
Socialism and its Application to Planning in Kenya and No. 1 of 1986 on Economic Management for
Renewed Growth. The sessional papers are implemented through a five-year development plan,
which is traditionally supposed to be implemented during the lifetime of a Parliament. However,
the latest 1994-96 Development Plan, released in December 1993, has a reduced useful life of three
1

This is a slightly expanded version of my paper titled Kenya: Economic Performance and Future
Prospects, prepared for the Law Society of Kenya conference on The Rule of Law and Democracy in the
1990s and Beyond, Safari Park Hotel, Nairobi, 4-6 March 1992.

years. The development plan is given operational meaning through the annual budget speeches by
the Minister for Finance.
The Sessional Paper No. 10 of 1965 on African Socialism and its Application to Planning in
Kenya was the first attempt at a broad-based policy package by the independent Government, as it
4.

laid down the development path which Kenya has tried to follow since Independence i.e. a mixed
economy with growth as the major objective. The Sessional Paper emphasized that Governments
efforts at reduction of unemployment, increased Africanisation of the economy, and subsidization of
education should not compromise economic growth. Although Kenya had just acquired
independence and majority of the population did not have access to basic needs like education and
health, the Sessional Paper emphasized the need to put more Government resources into directly
productive activities than in provision of free or highly subsidized basic needs.
5.
Although the objective of development planning has remained the same (i.e. economic
growth with the aim of alleviating poverty, ignorance, disease and income inequalities), the
emphasis has changed over the years. The first Development Plan (1964-1970) after Kenya attained
independence was superseded by a thoroughly revised Plan covering the period 1966-1970, since
the time for the preparation of the first Plan was too short. The Development Plan 1966-1970,
which for all intents and purposes is considered as the first Development Plan in independent
Kenya, represented the first cycle in the implementation of Sessional Paper No 10 of 1965.
6.
The second development plan (1970-1974) emphasised balanced economic development
through rural development. This theme was later revisited in 1983 as the District Focus for Rural
Development (DFRD). However, the District Focus strategy was viewed by some people as a means
of allocating more resources to certain districts, while denying resources to others, as reward for
political support and punishment for dissent. This is hardly surprising: the more you focus, the
smaller is the field of view.
7.
Kenyas third development plan (1974-1978) was written during the time the world was
experiencing negative external shocks arising from international exchange rate instability (late 1971)
and the oil crisis (late 1973), although the preparation of the Plan was completed before the onset of
the oil crisis. Due to balance of payments difficulties and increased inflation, in late 1971, the
Government imposed import controls and direct price controls on domestic retail prices (Kenya,
1972; Vinnai, 1972), which were supposed to be short-term measures for maintaining price and
exchange rate stability, but became a long-term feature of Government interference in economic
activities. The Plan emphasised that the enhanced role of Government in directing the economy in
terms of price and import controls and other regulations would be relaxed or removed entirely
when the inflationary pressures eased.
8.
The 1979-1983 Development Plan was the first to be written when President Daniel arap
Moi came to power. During that time, the popular economic thinking was with regard to alleviation
of poverty and provision of basic needs. The experience of the decade of the 1960s, when the
economies of the emergent independent African countries were growing, had shown that the
trickle down development theories as embodied in Sessional Paper No. 10 of 1965 had failed to
alleviate poverty for the majority of the population. Therefore, the emphasis of the fourth
Development Plan shifted to alleviation of poverty without losing the objective of economic
growth.
9.
The 1980s saw a change in emphasis in international economic thinking from basic needs
approach to structural adjustment. Economists had started feeling that the inability of the less
developed countries to emerge from their economic deprivation was due to policy and structural

rigidities. In order to renew economic growth after the devastating 1984 drought, the Kenya
Government authored Sessional Paper No. 1 of 1986 on Economic Management for Renewed
Growth, which was to guide Governments development policy to the end of the century. However,
despite the Governments stated commitment to economic reform, it takes the muscle of donors to
make the Government implement changes already proposed in its official documents. The
suspension of donor balance of payments support in 1991 was aimed at pressurizing the
Government to institute macroeconomic reforms and parastatal and civil service reforms, in order to
facilitate resumption of economic growth, in spite of the existence of a similar reform package in the
Sessional Paper No. 1 of 1986. This basically confirms that these documents are not prepared out of
commitment to the stated policy objectives and framework, but are only meant to be shopping lists
for foreign aid.
STATEMENTS OF INTENT AND REALITY
10.
A person who is not familiar with Kenya but has read Kenyas policy documents would
conclude that Kenyans are in a state of Nirvana. There are, however, wide disparities between
statements of intent and reality due to (a) slow implementation of stated policies, (b) policy reversal
(backtracking), and (c) some occasional blackouts in information on actions being undertaken. The
lack of commitment to stated policies is illustrated by (a) the policy on foreign commercial
borrowing, (b) the liberalization of the grain marketing system, and (c) official reaction to recent
increases in money supply.
11.
The public debt incurred in the 1980s was mostly in the form of concessional balance of
payments support (in support of structural adjustment programs) from the International Monetary
Fund (IMF), the World Bank and other donors, and grants from a number of bilateral agencies.
However, there has also been borrowing on high-interest short-term maturities, mainly for the
Turkwel Gorge Hydroelectric Power project. Donors have also insisted on limitation of foreign
commercial borrowing because of its short-term effects on debt service (due to short maturities and
high interest rates), and because it reduces the net worth of concessional lending if the concessional
donor money will make it possible for the recipient country to repay debt from commercial sources.
In his Budget Speech for fiscal year 1991/92, the Minister for Finance stated that we have set
ourselves rigid annual ceilings on our non-concessional external borrowing with a view to
controlling such debt (Kenya, 1991a). Despite Governments stated commitment to limitation on
foreign commercial borrowing, there have been attempts by the government to borrow (or
guarantee) commercial debt, but this has sometimes failed due to local pressure groups and the
limitations on commercial borrowing in the donor-sponsored structural adjustment operations.
12.
To implement minimum producer prices and make the National Cereals and Produce
Board (NCPB) the sole buyer of the surplus scheduled crops, the Government established a
bureaucratic machinery to control grain movement and marketing. The market dominance has
been secured by statute by the NCPB and its predecessors since World War II. As early as 1942, the
maize marketing system was described as a misbegotten scheme and the most barefaced and
thorough-going attempt at exploitation that the people of Africa have ever known since Joseph
cornered all the corn in Egypt one of the most reprehensible incidents of Old Testament history2
2

Colony and Protectorate of Kenya, Legislative Council Debates, Second Series, Volume XIV: columns 302372, 21 August 1942; and column 373, 15 September 1942. The comments were in reaction to the system of
maize control that (a) grant a boosted price or make any direct discrimination in the price paid to
Europeans as against the native grower for the same quality of article, and (b) a producer price for the
nonnative which was higher than the price maize was sold to the public. A native grower was getting Shs
4.90 for a bag of K.2 maize compared with Shs 9 to a nonnative grower, while maize was sold to the public
at Shs 8.60.

(also cited in Mosley, 1983; and Mosley, 1986). In the maize industry, academic articles have been
written from as far back as 1959 (Miracle, 1959) and commissions of inquiry appointed from time to
time (in 1946, 1952, 1955, 1958, 1963, 1966 and 1972) but their recommendations are never
implemented, principally because political expediency takes precedence over careful economic
analysis. During the 1980s when every structural adjustment program mentioned the reform of the
grain marketing system, the staff of NCPB increased threefold, making it necessary to (a) raise the
margin between producer and consumer prices to compensate for inefficiency, and (b) subsidize its
operations from the Treasury.
13.
The case of the massive increase in money supply (defined as currency outside banks,
demand deposits, call and 7 days deposits, and savings and time deposits) in 1992, estimated at 35
percent, represents a case of blackout in official communication on the consequences of
Government actions. The increase in money supply put pressure on the external account through
(a) increased demand for imports and domestically produced goods with an import content, and (b)
capital outflows caused by increased preference for foreign assets as a result of downward pressure
on real domestic interest rates, which necessitated a massive devaluation to mop up excess pressure
on external reserves. However, the official version of the story was that the local currency lost value
due to donors conditionality to liberalize the exchange rate.
14.
The most devastating effects of inflation fomented by the increase in money supply were
mainly distributional. Real incomes were shifted from people with fixed incomes and provident
funds, and from savers to debtors since nominal interest rates did not adjust fully. In general,
inflation is a tax on those with fixed incomes and gives unwarranted claim on resources to the
recipients of the increased money supply (Government and/or private individuals). With or without
exchange rate liberalization, official devaluation (and its accompanying increase in imported
inflation) and the impact of increased money supply on domestic demand, would have caused a rise
in the general price level.
15.
The investment climate has two main elements: the set of economic policies in support of
the private sector, and the business confidence in the regime, especially the perceived probability of
policy reversal. This is mainly because a structural adjustment operation is a sequence of consistent
actions, known in advance. For example, the liberalization of the grain marketing system was
sequenced to begin with gradual relaxation of movement controls and end with abolition of
movement permits and conversion of the role of the grain marketing parastatal to a buyer and seller
of last resort, maintenance of strategic reserves, and stabilizing prices. In the case of liberalization of
the external account, the sequence of reforms was initiated in 1988 with the rationalization of the
import tariff structure coupled with prudent exchange rate management, to increase in categories of
imports with unrestricted licenses, in an effort to liberalize the current account of the balance of
payments. The final phase - the liberalization of the capital account - included the introduction of
foreign exchange bearer certificates (Forex-C) for capital inflows and deregulation of the exchange
rate in March 1993 which opened capital account outflows. A sequenced reform programme
requires a systematic implementation timetable, and policy backtracking is harmful to business
through (a) losses or windfalls made when policies are reversed, and (b) the poor response of the
private sector to economic incentives due to the perceived probability of policy reversal.
REASONS FOR POOR POLICY IMPLEMENTATION
16.
The factors outlined below include (a) deteriorating governance, mainly in assigning the
provincial administration developmental roles, the decline of institutions especially producer
cooperatives, and centralized decision-making; and (b) inadequate public sector management,
especially the impact of dilapidation of the infrastructure, the disproportionately large share of

personnel emoluments in the central Governments recurrent account, the effect of inefficiency in
the parastatal sector on private sector costs of doing business, and corruption.
THE FALL OF THE GOVERNANCE REALM
17.
The Provincial Administration:
At independence, Kenya inherited a
provincial administration which was designed by the British to facilitate control of the African and
his resources. Although the administrative setup has not changed, it has increasingly been assigned
developmental roles that it is ill-equipped to handle. The climax came up in 1983 when the District
Focus for Rural Development came into being, a strategy that was mooted in the second
Development Plan (1970-1974).
18.
The introduction of district focus saw the responsibilities of the provincial administration
enormously expanded. At the same time, there was rapid promotion of inexperienced and less
educated staff based on political considerations (the technical know-who rather than technical
knowhow or potential employees certificate of origin) rather than merit. With the district focus,
districts were turned into centres of power and control of Government resources. The District
Commissioner is in charge of most Government resources and personnel in his district. This gradual
politicisation of the administrative apparatus has led to deterioration in efficiency in formulation
and implementation of developmental programs.
19.
Decline of Institutions:
In June 1982, Kenya became a de jure one-party
state, which facilitated consolidation of power in the executive. This culminated into (a)
constitutional amendments that withdrew security of tenure of the Attorney General and Controller
and Auditor General (November 1986) and High Court and Court of Appeal Judges and members of
the Public Service Commission (August 1988), among other legislations and administrative fiat; and
(b) emasculation of organisations with grassroots support as they were viewed as potential ground to
groom opposition. This political interference caused management of such organisations to
deteriorate and some even collapsed, leading to decline in economic welfare for the communities
which benefitted from the organizations. The Government also became increasingly suspicious of
nongovernmental organisations (NGO) especially those operating at the grassroots. In order to curb
the activities of NGOs, legislation was introduced, namely, Non-Governmental Organizations Coordination Act, 1990 and Non-Governmental Organizations Regulations, 1992 such that the NGOs
could be controlled by the central Government.
20.
There has been a lot of interference with (or outright emasculation of) statutory boards
and cooperatives dealing with agricultural produce. In 1983, the farmers lobby group, the Kenya
Farmers Association (KFA), was forced to reorganize as the Kenya Grain Growers Cooperative
Union (KGGCU). The only one that has survived with some degree of autonomy is the Kenya Tea
Development Authority (KTDA), mainly because the statutes and operational autonomy in the
smallholder tea industry were designed to outlast political regimes (Lamb and Muller, 1982; Stern,
1972; Stern, 1991; Leonard, 1991, chapter 6). The tea factories are owned by farmers (hence the
difference in pay for green leaf by factory) while KTDA operates as a management consultant,
receiving fees from the tea factories for services rendered. According to Barkan (1992), the
Government sought to discredit the Kenya Tea Development Authority ...by authorizing the
establishment of the so-called Nyayo Tea Zones under separate administration. The organizational
structure and statutes governing the tea industry should be studied with a view to replicating to
other subsectors, to make it difficult for future political regimes to interfere with economic
(producer) associations and cooperatives.
21.

The move towards more authoritarian rule hostile to grassroots organizations, producer

cooperatives and NGOs has only succeeded in alienating the public from the Government. As a
result, the public increasingly saw the Government as a source of, rather than the remedy to, their
problems. The people therefore failed to identify themselves closely with developmental
programmes implemented by the Government. Developmental programmes originating from
politicians were taken with reservations since in most cases there was little or no accountability in
the use of resources. In addition, the widespread use of politically-appointed commissions to run
cooperatives, local authorities and producer organizations alienated the public and investors.
22.
Centralized Decision-Making:
It is important to democratize the
decision-making process and to view economic reform programs as a social contract between the
citizenry (through their elected representatives) and the Government. For example, the
Government in March 1993 backpedalled on its economic reform programme with the donor
community. While one may not support the Government in its standoff with the donor community,
the reform program that the Government had embarked on in the previous week, namely,
liberalization of the exchange rate, was illegal as the laws that govern exchange control and
remittance of profits by foreign companies located in Kenya (mainly the Exchange Control Act and
the Foreign Investment Protection Act) had not been amended by Parliament. The Foreign
Investment Protection Act allows for remittance of profits by foreign companies resident in Kenya
in the approved foreign currency and at the prevailing official exchange rate. The Government, by
reneging on the reform programme, was simply reminding the public and the donor community
that the laws had not changed. Although the Exchange Control Act gives the Minister power to give
exemptions in particular clauses, a sustainable reform programme should have been accompanied by
more fundamental amendments to the Act. If the exchange control regulations had been amended
by Parliament, a private individual who was adversely affected by the policy reversal would have
been able to defy the administrative fiat or sue the Government for any losses incurred as a result of
the policy reversal.
23.
Previous reforms, e.g. in repatriation of profits by foreign companies located in Kenya and
the partial grain marketing liberalization, had been accompanied by amendments to the Foreign
Investment Protection Act and the February 1991 legal notice on maximum quantities of maize
movements that did not require a permit. The current economic structure is founded on an array of
Government controls embodied in the statutes. If various aspects of economic reforms are effected
through Parliament by changing the laws that govern private sector behaviour, this would signal
Governments long-term commitment to the reform agenda, and reduce the scope for directly
unproductive activities (e.g. rent seeking). It is surprising that the donors allowed the Government
to flout its own laws by implementing a reform programme that was not accompanied by
amendments to the legal structures. That is one of the lessons that Kenyans and the donor
community should learn from the decision by the Kenya Government in March 1993 to suspend its
reform programme with donors.
24.
In addition, it is important to highlight the contradiction inherent in Structural
Adjustment Loans (SALs) in support of economic reform. The SALs, which have been the engine
behind Kenyas economic performance in the 1980s, have already been granted to support policy
initiatives in agriculture, industry, finance, health and education. Due to changes at the global scene,
balance of payments support is not likely to be a major source of financing in the years to come. In
any event, if a sectoral structural adjustment programme is fully implemented, further funding for
economic reform in the same sector becomes unnecessary; if they are not implemented, more
funding is unjustified. Structural adjustment is supposed to make the economy self-sustaining, but
not to create dependency on foreign financing.
25.

An illustration of unaccountable policy implementation process is the recent increase in

Central Banks direct advances to the Kenya Government through overdrawing of the Paymaster
Generals Account, which was in excess of the limits set by law. Section 48 of the Central Bank of
Kenya Act (Cap. 491 of the Laws of Kenya) states that the Central Banks direct advances to the
Government shall not at any time exceed twenty-five per centum of the gross recurrent revenue of
the Government as shown in the Appropriation Accounts for the latest year for which those
accounts have been audited by the Controller and Auditor-General. Gross recurrent revenue for
fiscal year 1990/91 was K 2,286.2 million, which implies that Central Banks direct lending to the
Government should not have exceeded K 571.5 million from May 1992 when the 1990/91
Appropriation Accounts were published until the audited reports for the following financial year,
i.e. 1991/92, were released. During the period 1990-93, the monetary authorities violated section 48
of the Central Bank of Kenya Act. The Governments overdrawing of the Paymaster Generals
Account led to increase in money supply.
26.
Another case of official breach of law was the illegal payment of 15 percent compensation
for diamond jewellery and gold, over and above the normal 20 percent export compensation
provided for in the Local Manufacturers (Export Compensation) Act (see 1990/91 Appropriation
Accounts, pp. 11-12). The 1991/92 Appropriation Accounts stated that no evidence has so far been
seen to confirm that the gold and diamond jewellery claimed to have been exported and for which
compensation was claimed and paid, originated and was processed in Kenya and that the import
content of the goods did not exceed 70% of the ex-factory value of the goods as required by Local
Manufacturers (Export Compensation) Act. The validity of the total payments of K 73,977,521
made to the firm as of March 1993 as export compensation cannot therefore be confirmed as due
and payable under the Local Manufacturers (Export Compensation) Act or any other law. The
Economic Survey 1992 mentioned that the 1991 export earnings increased by 31.0 percent over
1990 partly occasioned by a sharp rise in exports of gold and other related jewellery, but the 1991
export earnings were corrected in the Economic Survey 1993 to remove the statistical anomaly3.
Regardless of whether exportation did take place, the payment violated (a) the Restrictive Trade
Practices, Monopolies and Price Control Act (1988), for awarding one company the sole rights to
export diamond jewellery and gold, and (b) the Local Manufacturers (Export Compensation) Act for
paying a higher rate of export compensation than allowed by law.
27.
Another example is the enactment of the Petroleum Development Fund Act, 1991, which,
for the first time in the history of Kenya, gave a line Ministry the power to tax, to spend and to hold
any outstanding balances. It is curious that section 5(d) of the Act exempted the Fund from audit by
the Controller and Auditor-General unless if so directed by the Treasury. The Road Maintenance
Levy Fund (1993) purports to be payable in respect of any vehicle for use on any classified road,
while it is levied through purchase of petroleum fuel rather than in the process of using a classified
road. Automotive fuel is also used in running stationary machines (e.g. water pumps and maize
mills) and motor vehicles which do not usually use classified roads (e.g. farm tractors, boats and
trains). The Road Maintenance Levy shall therefore be payable by non-motorists, in addition to the
fact that the classification of roads is not within the control of Parliament. The Governments
overdrawing of the Paymaster Generals Account beyond the limits prescribed by law and the illegal
payment of 15 percent compensation for diamond jewellery and gold over and above the normal 20
percent export compensation provided for in the Local Manufacturers (Export Compensation) Act,
reflects on the lack of unambiguous sanctions and penalties to those who flout the laws they are
entrusted to implement and safeguard.

Another commendable feature of the Economic Survey 1993 was the admission that production in Rift
Valley and certain parts of Western province was hampered by tribal clashes leading to abandonment of
farm activities at critical periods of land preparation, weeding and harvesting. Consequently, the aggregate
output of all major commodities including tea, sisal, pyrethrum, cotton and sugar-cane registered a decline.

INADEQUATE PUBLIC SECTOR MANAGEMENT

28.
Infrastructural Development:
The major role of any Government is to
develop infrastructure e.g. roads, schools, hospitals, electricity generation and telecommunications,
so as to create an enabling environment for the private sector and households to operate. The
development of such infrastructure should respond to demand so as to ensure that scarce resources
are put where the rates of return on investment are high. The Kenyan economy has been
characterised by a strong public sector either directly (in terms of investment) or indirectly through
controls and regulations on the private sector. However, a strong public sector has had negative
impact on the overall efficiency in the use of resources. This has come about because inefficiency in
the public sector has made private sector costs of doing business very high. The road network, for
example, is dilapidated due to poor maintenance. This has increased private sector vehicle operating
costs; the increase is estimated to be about three times the additional expenditure necessary to
maintain the roads. The urban transport problems - poor road maintenance and congestion - also
increase private sector cost of doing business through increased costs of vehicle repairs, gas
consumption and time wasted in traffic jams (World Bank, 1990a). The decline in the standards of
education will also affect the productivity of students when they are finally absorbed in productive
employment, thus lowering labour productivity in the private sector.
29.
In Kenya, infrastructural development has in some cases not responded to demand but to
vested political interests, which have been sanctioned by both local interests and the donor
community. The Turkwel Gorge Hydroelectric Power project is a case in point. On the local level,
infrastructural development had tended to be undertaken as a form of political reward. The failure
to have any infrastructural development in an area has been taken as a political tool to damage the
grassroots support of a politician. Since Kenyans have been made to believe that individual
parliamentarians, rather than the government, bring development to their areas, there is always
pressure on members of parliament to initiate new infrastructure like roads, schools and health
centres in their constituencies despite existing infrastructure being incomplete or in a state of
disrepair. The multiparty parliament should therefore ensure that investments with high returns are
passed through the budgetary system. Furthermore, properly-managed development ensures that
other national objectives (e.g. containment of budget and external account deficits) are taken into
account while approving new projects.
30.
Personnel Costs:
There has been rapid growth in public sector employment,
which has partly been in response to increased demand for labour and partly due to other factors.
One of the factors behind the growth of government employment has been the proliferation of
ministries with overlapping functions, in order to increase the relative size of the front bench in
Parliament so as to facilitate passing of Government-sponsored bills. The Report of the Presidential
Committee on Employment chaired by Philip Ndegwa (Development and Employment in Kenya: A
Strategy for the Transformation of the Economy, 1991b) states that it is common to find a situation
whereby the same farmer is visited on different days by several extension officers from various
Ministries who may give either conflicting advice, or similar advice but with different emphasis.
Jurisdictional disputes between Ministries also occur from time to time. The splitting of ministries
and institutional fragmentation also affects coordination of donor-supported projects. For example,
the World Bank Project Completion Report for the Agricultural Sector Adjustment Operation
(ASAO) observed that the slackening in implementation was partly attributable to creation of new
ministries to handle the agricultural sector (World Bank, 1990b).
31.
One of the difficult policy areas is civil service reform, since it touches on retrenchment
(downsizing) of public service employment. In the public service it is not unusual to find an officer

with two or three secretaries, a messenger and tea-maker, which is completely uncharacteristic of
the private sector. This creates imbalance between various cadres of employment, with a thin layer
of professionals and overstaffing in the lower grades. The large expenditure on salaries reduces funds
allocated to nonwage Operations and Maintenance (O&M), which reduces efficiency in delivery of
public services. That gives the common scenario of doctors without syringes, teachers without
chalk, and veterinary officers without insemination equipment and transport. There is therefore
need to reduce the share of salaries in recurrent expenditure (now more than 70 percent) so as to
free resources for nonwage O&M. With such skewed allocations of the O&M and personnel
emoluments in the recurrent budget, it has been infeasible to implement development programmes
meaningfully.
32.
The disproportionate allocation of recurrent expenditure between personnel emoluments
and nonwage O&M has not escaped the attention of the Controller and Auditor-General. In the
Appropriation Accounts for financial year 1990/91, the Controller and Auditor-General stated that
very limited funding appears to have been made available for the procurement of the necessary
inputs and other essential supplies and services to enable the personnel to perform the duties for
which they are paid... This was particularly so during the last three or four months of the financial
year when the funds available were mostly used to pay the personnel costs with very little left for
operating and maintenance costs.
33.
During the early 1980s, the Government established a number of regional development
authorities (notably the Kerio Valley and Lake Basin Development Authorities), ostensibly to
coordinate development in their areas of jurisdiction. There is need for a detailed assessment of the
benefits of their costs, focusing on their achievements vis--vis sector ministries (e.g. agriculture,
energy) and the regulatory agencies handling agricultural produce and providing essential services
within the same areas (e.g. Kenya Sugar Authority, Cotton Lint and Seed Marketing Board, and
Kenya Power and Lighting Company Ltd). The initial conjecture is that regional authorities were
introduced to bring about equitable development between regions; but have only succeeded in
duplicating the roles of sector ministries, complicating licensing of private sector firms that intend to
engage in agro-industries, and expanding public sector employment.
34.
Parastatals:
The parastatals had their role in the takeover of the economy after
Independence, but their economic rationale had evaporated a decade or two after Independence4.
Over the years, parastatals have grown in number, size, and in their range of activities. Parastatals,
including state-owned banks, have also been used to frustrate and choke up domestic private
enterprise. However, their political role (mainly in the patronage system) is unquestionable. Since
Independence, individuals regarded as valuable to political regimes have been appointed to
regulatory agencies and state-owned corporations, which has even aided those who lose in elections
to renew their electoral mandate in future elections.
35.
Despite their political role, the Government has accepted the need to restructure and
divest its holdings in the industrial and agricultural sectors, and to lessen its grip on regulations on
the market. The rationale for privatization has been the parastatals recourse to the exchequer to bail
them out of their perennial financial difficulties, thereby putting pressure on an already precarious
budget deficit. However, the greatest harm of government investment in industry is that they crowd
out private sector development - by undertaking commercial activities which would otherwise be
(better) performed by the private sector.

A detailed and informative analysis of the performance of the state as entrepreneur and the state as
controller in an African setting is provided by Killick (1978).

36.
Cost recovery reform measures undertaken by parastatals increase their revenue base
without the necessary changes in efficiency-enhancement and prudential reporting requirements,
thereby making the parastatals afford a higher level of corruption and misappropriation of resources.
The Government has stated its commitment to parastatal sector reform, both in its policy documents
and the policy content of the structural adjustment policies agreed with the donor agencies. Despite
the policy pronouncements, progress in parastatal sector reform has been slow and discontinuous, as
illustrated by the cereals subsector.
37.
Besides the constraints which the parastatals have posed in economic development due to
misallocation of resources, they have affected the private sector by increasing its costs of doing
business. For example, the Kenya Posts and Telecommunications Corporation (KPTC) has been
incurring losses despite being a monopoly. In order to remain operational, such parastatals increase
the prices of their goods and services unnecessarily to finance their inefficiency. In addition, poor
telephone and postal services have made private firms to resort to the use of messenger motorcycles,
courier services, and radio transmitters. If the public postal and telecommunication services were
efficient, private firms would not start their own supply of such services. The starting of private
supply of such services raises the private sector costs of doing business.
38.
The water supply problem in major urban centres like Nairobi, Mombasa and Kisumu has
similar implications. Due to the poor reliability of the public water supply, especially during the
peak tourist seasons, some hotels in Nairobi and Mombasa have invested in private boreholes and
desalination equipments. Manufacturers have also done the same to ensure they have water supply
at all times. Such investments are unnecessary if the public authorities responsible for public water
supply were efficient.
39.
The electricity supply is a similar case. Due to frequent power rationing and blackouts,
firms have found it necessary to invest in standby diesel generators to avoid unwarranted
interruptions to their production schedules. Furthermore, such power interruptions lead to high
spoilage of machinery and equipment e.g. computers. The performance of the public sector has
therefore adversely affected the implementation of development programmes directly and
indirectly. This has come about due to inefficiency of resource use in the public sector which has
resulted into poor performance in the private sector, through reduction of output and increase in
the costs of doing business.
40.
Corruption:
Corruption poses special constraints on development, by raising the
costs of doing business and in muddling the process of prior estimation of private sector costs.
Official corruption comes through two major avenues: licensing and procurement of Government
supplies. An area that needs reform is the wide array of regulations that govern private sector
behaviour. Multiplicity of rules and licences create room for rent-seeking by the public officers who
issue the favours (licenses), as a license ensures one a place in the industry. Wherever there is an
official limitation of access to profitable opportunities (opportunities which may have been created
by government actions), there is potential for corruption since government officials have control
over the disposal of lucrative property rights (Ryan, 1979). Licensing procedures can also affect the
pattern and rate of economic growth by creating monopoly profits for the recipients of the licences
and the subsequent lowering of rewards for hard work. One cannot recommend scrapping of
licensing completely as it enables the Government to compile data on the structure and
performance of the economy; but the conditions for granting of such licenses should be transparent,
predictable, automatic (for those who fulfil the required conditions) and subject to appeal.
41.
The imputed value of Government services (e.g. education, health and infrastructural
development), corruption, and differential access to well-paying jobs for similar levels of educational

10

attainment, have implications for personal and regional income distribution. This is to suggest that
property rights theory, which encompasses any tangible and intangible assets that give a claim on
income (e.g. land, educational attainment, licenses, patents and copyrights) need to include the
degree of meritocracy in job placements and rent-seeking opportunities. The literature also suggests
that, in rent-seeking societies, women have less access to illegal transfers from the state and the
market.
42.
In the recent past, there has been much public debate about pricing of government stores
and government imports. In the case of some projects of dubious economic value, there are always a
series of appraisal reports which must have doubted the viability of the projects. The fact that the
projects are implemented (at a great deadweight loss to the economy5) is a sign of lack of enforceable
mechanisms in the process of project selection and implementation, and pricing of capital and other
inputs. In other instances, a feasibility study could be made to portray a positive picture if the
financier has commercial interests in funding the project.
43.
The mechanism of pricing government stores need to be reviewed. The Ndegwa report
(Kenya, 1991b) dwells on this issue to some length, but the Government has expressed reservations
about the recommendations on the procurement system (Kenya, 1991c). Other pricing issues relate
to procurement of petroleum products. If government-procured imports are overpriced, this could
provide a conduit for capital flight and conversion of government revenue to private bank deposits
abroad.
TOWARDS IMPROVING POLICY IMPLEMENTATION
44.
Kenya will need to raise its level of implementation of its developmental programmes if it
has to contend with the various challenges currently facing the economy. Some of the urgent
problems include high population growth rate and increasing unemployment, the budget and
external sector deficits, deterioration of the agricultural sector and subsequent food insecurity, and
the standoff with the donor community. In order to raise the level of implementation of
Governments development programmes and projects, the following are suggested:
DEMOCRATISATION OF DECISION MAKING
45.
As earlier noted, grassroots organisations have been emasculated with the result of
alienating the public from participating in making decisions that affect them. The result has been
lack of accountability within the public leadership. Democratization of policy-making, especially at
the grassroots level, through the use of rightfully elected leadership will raise transparency and
accountability in the use of public resources.
46.
One of the urgent agenda is the reform of institutions that make the government more
responsive and accountable to public demands. An example is the role of the Executive vis--vis
Parliament in policy making. The Cabinet, which is selected by the Executive, deliberates on
projects and major economic issues -- including the policy content of donor-funded projects and
programs. In future, such decision-making should be more transparent and open to Parliament and
a wider cross-section of Government and the civil society. The laws should also be amended to give
5

Deadweight loss is costs to society caused by inefficient allocation of resources e.g. monopoly pricing and
cartels, price controls, rent controls, price floors (e.g. minimum wages) and commodity taxation (Harberger,
1964; Tullock, 1967; Diewert, 1981; Daskin, 1991; Besley and Coate, 1991). For a nontechnical treatment of
the deadweight loss of rent controls, see Mishan (1971); and Murphy, Shleifer and Vishny (1991) on how
allocation of talent in university courses between, say, engineers and lawyers, affect economic growth as
lawyers are indeed bad, and engineers good, for growth.

11

less discretion to Ministers with a view to enabling Parliament to play its rightful watchdog role.
As argued by Kydland and Prescott (1977), policymakers should follow rules rather than have
discretion. The reason that they should not have discretion is not that they are stupid or evil but,
rather, that discretion implies selecting the decision which is best, given the current situation. Such
behavior either results in consistent but suboptimal planning or in economic instability.
47.
Policy formulation should not be the preserve of Government officials and the donor
community. For example, the Development Plan 1966-1970 stated that the University is expected
to play a part in planning activities largely through its research and advisory contributions. In
particular, the Institute of Development Studies ... is expected to contribute in an important way to
the analysis of data necessary to the planning operation and will advise... The close collaboration
between the Government and the University of Nairobi, external scholars and development
agencies led to continuous academic analysis of Government projects and programmes, the 1966
Kericho conference on Education, Employment and Rural Development (Sheffield, 1967) and the
subsequent creation of the Special Rural Development Programme (SRDP) 6, and the setting up of
the International Labour Office (ILO) research team that produced the seminal report on

Employment, Incomes and Equality: A Strategy for Increasing Productive Employment in Kenya
(1972). The 1972 ILO report led to the publication of Sessional Paper on Employment in 1973 as
Governments official policy response to the report. The collaborative efforts between the
Government and scholars led to advancement of knowledge that has earned Kenya an important
place in the academic literature, including the Harris-Todaro rural-urban migration model using
expected income hypothesis (Harris and Todaro, 1970), the concept of the informal sector (ILO,
1972), and the development of analytical tools for poverty analysis (Crawford and Thorbecke, 1980;
Foster, Greer and Thorbecke, 1984).
48.
In a chapter titled The Myths of Kericho: was SRDP Experimental? Professor Mutiso
(1975) argues that, although Kericho conference for a lot of Kenyans was sold as a local effort, in
Kericho, there were few locals. Mutiso (1975) stated that the myth of Kericho ought to be thrown
in the garbage heap of history so that we can develop meaningful rural development systems outside
the intellectual framework of the sixties. According to Mutiso, perhaps the real lasting
contribution of SRDP was to really bring back to the fore the question of the developmental role of
the Provincial Administration, an issue we are still debating on twenty years later. Despite the
shortcomings of Kericho and the subsequent SRDP, the intellectual linkages that were then in their
formative stage would have been nurtured on the basis of lessons of experience.
49.
The Governments past style of seeking sound intellectual basis for policy initiatives in
academic and policy research ought to be revived. In the immediate future, some of the
professionals might not be able to give independent professional judgements on many issues due to
their affiliation with party politics on both sides of the divide, i.e. ruling and opposition parties.
Some academics have also rewritten Kenyas history to berate the systems and institutions of the
Kenyatta regime in an endeavour to demonstrate that the Kenyatta era was a mere gap in Kenyas
political and economic history.
50.
Atieno-Odhiambo (1974) was right when he argued that (a) historians should not be
biased in favour of the African incumbent politicians, and that (b) if the accomplishments of the
incumbent politicians are overvalued, this would be at the expense of the real challenges which
remain. However, the context of the debate was an attempt by the historian to resist glorification of
resistance to colonial rule, arguing that, by 1947, Britain had already evolved a strategy for
decolonization on which it could bargain with an African group eager to agree to marriages of
6

See also, Institute for Development Studies, 1973; Leach, 1974; and Holtham and Hazlewood, 1976,
chapter 5.

12

convenience all along the line (Atieno-Odhiambo, 1974). As Donders (1974) argued, future
generations of historians will rewrite that history again and again. The recent experience in the
Soviet Union, where changes in the political system have turned some heroes into villains, is
probably relevant. Kenyans need to go back to the drawing board to discuss where they are going
and to rediscover where they are coming from.
51.
The Government has largely co-opted the intellectual giants through appointments to
senior positions and directorships in Government and the parastatal sector, thus compromising their
intellectual independence. It is, however, important for the link between the Government planning
machinery and the academia to be revived, so as to give the Government a forum to test its own
economic agenda as well as receive criticism, and to give the academic community feelers on the
status of economic reform and the state of the economy. The Ndegwa report (Kenya, 1991b, para
1.22), recommends the establishment of an institute for economic and social research, under an Act
of Parliament, to undertake long range strategic planning. The proposal was accepted by the
Government (Kenya, 1991c, para 1.2).
52.
Another formidable problem will be that of finding national consensus on developmental
issues and in sharing of resources due to heightened ethnic consciousness as manifested in the land
clashes7. Ethnicism is defined as the deliberate use of ethnic symbols and codes of conduct to rally
round, to defend or to attack others, in pursuit of what are perceived as the groups aims (Arizpe,
1992). Arizpe (1992) argues that, in situations where jobs and opportunities came to a standstill,
competition for them grew. Immediately, the comparative advantages of each ethnic group
began to be perceived as an unfair advantage over the others, and, more gravely, as a betrayal of the
democratic ideal of equal opportunity. In countries with incomparably fewer resources to go
around, the same kind of rivalry has easily led to violence, for example: against the Kikuyu in
Kenya. In simple-minded economic terms, ethnic strife is therefore seen as a symptom of
competition for property rights (e.g. land and employment opportunities) under conditions of
diminishing resource base (environmental stress), high population growth rate and economic
stagnation. The dynamics of competition for scarce resources, if not checked by ebbing ethnic
consciousness, might spill over into racial competition for resources i.e. racial strife.
53.
The politicians should divest themselves of the responsibility of creating the intellectual
linchpin to the planning process. For example, issues on the structure of the education system and
school curricula should be left to scholars and other professionals in Government and the private
sector. The Government should consider the professional advice and make any alterations it deems
necessary, and allow for continuous criticism of its performance. In this way, the systems would
evolve and mature based on lessons of experience. The Government would gain from the relatively
free professional advice, and manage to parcel out blame or compliment for failures and
achievements to the wider cross-section of the Kenyan society involved in the planning process.
54.
Considerations should also be given to the creation of a multidisciplinary Council of
Economic Advisors, consisting mainly of lawyers and economists, and with representatives from the
business and farming community. Since the wide array of economic controls are founded on the
legal structure, the initial agenda of the Council would be to deliberate on economic policy
formulation, assessment of performance, and advise on the necessary amendments to the legal
7

The economic rationale behind ethnicity was recognized long ago. For example, a World Bank Country
Economic Report on Kenya (1975) stated that most land is regarded as the exclusive domain of a particular
tribe; and a major impediment is tribal exclusiveness -- the unwillingness of one community, such as a
tribe or clan, to allow members of another community to establish rights in lands which they regard as their
exclusive domain. This unwillingness can and does lead to violence The probability of dispute over land
rights and usage is ever present, threatening social stability.

13

structure that may be impediments to privatization and economic reform. The author is aware of
two consultancy reports, one on the Kenyan laws that govern private sector economic activity, and
the other on the legal impediments to privatization.
55.
To reduce misuse of power and political patronage, senior parastatal and civil service
appointments should be based purely on merit. There should be full disclosure of operations of
every parastatal, with every parastatal head appearing before a parliamentary select committee to
explain the performance of the previous year. Currently, parastatal heads appear before a
parliamentary select committee to answer for returns which might be five years old, when there
might have been a different parastatal head, thus making the process meaningless. The public
accounts committee should refer to the Attorney General cases of mismanagement and
misappropriation of funds, for further investigation and possible prosecution. In addition, there may
be need to subject some key appointments e.g. parastatal heads and permanent secretaries to
confirmation by a parliamentary select committee.
56.
As earlier noted, the District Focus for Rural Development Strategy gave the provincial
administration a bigger role in development which they were ill-prepared for. There is an urgent
need to either abolish the provincial administration or divest it of affairs of economic management
at the local level. In future, the role of elected leadership in development should be very high.
57.
Is there a relationship between political and economic liberalization? In other words, is
transparency and accountability in Plan implementation possible under a single-party political
system? On one hand, it is possible for a benevolent dictator to prepare and implement development
programmes that uplift the welfare of the citizenry. However, there will be perpetual risk of policy
reversal, which leads to lagged response by the private sector to economic reforms. In addition, in
the event of change of guard, the country would not have put in place systems of checks and
balances to sustain transparency and accountability in its conduct of economic affairs.
58.
It is necessary to create a system where economic decision-making and implementation
are conducted in a transparent manner. The important ingredients are: an effective Parliament;
independent Attorney General, Judiciary, and Controller and Auditor General; and a system of
checks and balances to operationalize the concept of accountability. The role of Parliament is
mainly in making legal amendments to effect reform programmes, and to ensure that there is
transparency and accountability in implementation of policies and projects. The Judiciary (defined
in the economic sense as a caretaker of credible commitments as one of the solutions to the timeconsistency problem) is a critical component of governance due to its role in enforcing contracts, as
avoidance of contractual hazards arising out of discretionary powers and/or an imperfect judicial
system has important implications on investment decisions that rely on credible commitments
(Kydland and Prescott, 1977).
IMPROVED ECONOMIC DATABASE
59.
Kenya has, by African standards, a fairly developed statistical database on macroeconomic
accounts. However, there has been serious underfunding of Government institutions that generate
economic data. For example, the latest estimates of living standards pertain to the late 1970s, arising
from a series of surveys undertaken within the framework of the Integrated Rural Surveys. In the
1980s, the Central Bureau of Statistics (CBS) undertook major surveys on rural and urban household
incomes and consumption patterns. The results of these surveys have not been published although
some summary statistics have been provided in capsule form in past issues of the Economic Survey
(see, for example, Kenya, 1988, 1989a, 1993).

14

60.
The delay in releasing results has a number of undesirable consequences. First, it is a waste
of resources given that data collection takes a larger share of survey budget compared to data
processing. Second, the Government and other interested researchers and institutions lack
important parameters on economic welfare to guide in interpreting trends and designing
appropriate policy responses. It is also tempting to interpret survey results as pertaining to the period
of release rather than when the fieldwork was undertaken. The paper therefore recommends that
field data be gathered to allow a new generation of researchers and Government analysts to revisit
these issues. In the past, household survey data was considered sensitive, as it would have enabled
researchers to use the survey results to establish trends in poverty and income disparities between
persons and regions.
61.
Given the budgetary implications of implementing the remedial actions necessary to
improve the national economic database, the Government should reduce the budget devoted to
economic analysis in the Ministry of Planning and National Development headquarters and transfer
the resources (personnel and financial resources) to cater for the creation of a reliable and timely
database at the Central Bureau of Statistics. It is futile for the Ministrys staff to spend time and
resources in the construction of elegant economic models grounded on shaky economic data. In
addition, it is recommended that a closer link between CBS/Ministry of Planning and local and
foreign universities would reduce the analytical burden on the staff. It is important to note that the
gradual slippage in the quality of the national economic database is partly explained by declining
budgetary allocations for these activities. One solution towards long-term improvement of the
economic database is to make the Central Bureau of Statistics a semiautonomous institution with its
board of directors, and authority to incur expenditure and to source for funding directly from donor
agencies, without being required to answer to the parent Ministry on a daily basis.
62.
The scenario being created here is that of an up-to-date database on macroeconomic
variables and household/production data, and a stream of local and external scholars using the data
in writing academic and policy-oriented papers, and thesis. It should be recalled that research
papers written using Governments economic database provided the intellectual foundation of
economic planning in the 1960s and 1970s. The link between Government planning machinery and
scholars assisted the Government in the planning process and was also an intellectual boost to
university scholars. To recreate the scenario of the 1960s and 1970s, it is also important to focus on
the needs of the universities if they are to recover their past intellectual glory and face the
challenges outlined in this paper. However, the necessary reforms to the local university scholarship
are not the subject of this paper.
RECENT POLICY CHANGES
63.
Beginning 1993, the Government has made some far reaching policies aimed at reducing
the role of the state in production, enhancing efficiency, and reducing corruption. For example,
policy reforms in foreign exchange allocation and in the banking sector have reduced future scope
of corruption by reducing the supply of rent-seeking opportunities. Structural adjustment provides a
market-based channel for reducing monopolistic tendencies and rent-seeking opportunities, which
is far more efficient and impartial than anticorruption squads.
64.
In the banking sector, the Government in October 1993 merged the inter-bank and the
official exchange rates, thereby eliminating preferential benefits to those who could access foreign
currency at the official exchange rate, including the Government itself. In August 1993, the Central
Bank of Kenya transferred the responsibility of managing the clearing house to commercial banks,
thus closing the loophole that was used to pump liquidity and advance money to distressed political
banks. Under the new clearing house regime, commercial banks are expected to discipline their

15

delinquent members, and prevent kite-flying cheques and fraudulent overnight lending. The
management of the clearing house by commercial banks is an illustration of the potential of
producer and relevant participant organizations in the management of the economy.
65.
An outstanding agenda in the liberalization of external trade is the administration of laws
relating to customs duties, in order to increase revenue to the Exchequer and reduce the scope for
rent-seeking. Customs tariffs could be collected through commercial banks so as to reduce contact
between importers and customs officials, thereby consolidating the gains so far attained in the
liberalization of the current account of the balance of payments.
66.
Within a deregulated economic environment, the role of short-term macroeconomic
management has been elevated. In late 1993, the Government abolished maize marketing controls.
Since maize is a major staple, it will in future compete with Treasury bills and the dollar as an
alternative (financial) instrument that will react to changes in money supply, as well as a means of
payment in a futures contract. This implies that, if monetary policies are relaxed, the price of maize
would increase, thereby making the survival of the poor more dependent and directly linked to the
quality of short-term macroeconomic management than ever before. The economic fortunes and
the basic livelihoods of those on the margin of survival can now be wiped out within a day through
excess money supply. The close nexus between the Governments fiscal and monetary policies and
vulnerability of the poor makes it imperative to transform the Central Bank of Kenya into a
constitutional office subject to Parliament, and audit and censure by the Controller and AuditorGeneral. The Central Bank of Kenya would then have the muscle to resist Government overdrawing
of the Paymaster Generals Account, thereby controlling Government expenditure and money
supply.
67.
It is important to try to apportion the recent changes in the Kenyan economy between
economic reform and economic mismanagement, i.e. a distinction between the Social Dimensions of
Adjustment and the Social Dimensions of Mismanagement. For example, what would be the
counterfactual interest rates, domestic commodity prices, and exchange rates if Kenya liberalized
without printing money or engaging in directly unproductive activities (e.g. rent-seeking)? My
conjecture is that a big share of the blame for the bad state of the economy today is more due to the
process of economic mismanagement rather than the essence of the economic reform package.
68.
Unfortunately, many of the commendable reform efforts already undertaken by Treasury
and the Central Bank have not been ratified by Parliament through amendment of the statutes.
Ratification of the reform measures would send signals to the private sector of Governments longterm commitment to the policy reforms as well as reduce the probability of policy reversal and
further reduce rent-seeking. Since the exchange control regime that existed in 1992 is still intact in
the Kenyan statutes, the Government can reverse the entire reform package through a verbal
counter-decree. The recent economic reforms underscore (a) the role of structural adjustment in
reducing rent-seeking opportunities, and (b) the pivotal role of monetary policy and the
performance of the Central Bank of Kenya in a deregulated economic environment.
CONCLUSION
69.
The paper has briefly reviewed Kenyas experience in economic planning since
Independence, to highlight the route the country has taken and the lessons to be learnt. The paper
has emphasized the need to change the rules of conduct, for example, the role of the Executive arm
of Government vis--vis Parliament in economic decision-making, meritocracy in hiring of
parastatal heads and civil service employees, the array of licenses and interference that deny entry
(and exit, in case of labour redundancy laws) and increase the cost of doing business, transparency

16

in project selection, and government procurement system. The economic decision-making processes
should undergo changes in tandem with the social and political changes that are currently sweeping
across Kenya. However, a formidable problem will be that of finding national consensus on
developmental issues and in sharing of resources due to heightened ethnic consciousness as
manifested in the land clashes.
70.
The paper has attempted to demonstrate that the quality and consistency of Government
policies and efficiency of the public sector - including central Government, local authorities and
parastatals - have a profound impact on the performance of the private sector. Some of the factors
identified include the quality and pricing of amenities and infrastructure (e.g. water, electricity,
telecommunications services, and the road network) and the overall coefficient of governance. As
Paul Baran put it, though in a slightly different context, the question of whether there will be meat
in the kitchen is never decided in the kitchen (cited in Leys, 1975).
71.
Kenyas economic philosophy has always been pragmatic and oftentimes in line with the
conventional economic wisdom of the day: from the balanced budgets of the 1960s, through the
Keynesian expansionary policies of the 1970s, the populism of the 1980s, and the hard reality of
structural adjustment since the mid-1980s. It is sometimes difficult to relate reality with the wellwritten policy documents, and the paucity of economic data does not make the task easier. Due to
the big discrepancy between actions and official statements of intent, there is an urgent need to
examine the entire system of economic decision-making so as to make it responsive, transparent and
accountable. The domestic economic system seems to be observing the physical law of entropy
(defined as the tendency for order to degenerate to disorder), a term introduced by the German
physicist Rudolf Clausius (Clausius, 1867) and which is based on the Second Law of
Thermodynamics (Georgescu-Roegen, 1971). There is therefore an urgent need to reverse the
decline in order to avert an imminent collapse.
72.
In Kenya, the entropy process has been accelerated by a high coefficient of ignorance on
the interrelatedness of production processes. As Georgescu-Roegen (1971) argues, to keep a spade
in good working condition, a farming process needs, among other things, a file. The file... must also
be kept in good order and, hence, it calls in turn for another tool e.g. a wire brush; this tool calls for
another, and so forth. It forbids us from dealing with micro-processes, a plant or an industry. You
cannot wreck one sector of the economy or dismember some regions and expect the rest of the
economy to perform well, mainly due to regional comparative advantages especially with respect to
categories of agricultural crops.

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