10 Counties that Spent Zero on Development - Money Weekly News

It is that time of the week again when we look at the news headlines over the last seven days and dissect those that can affect your money. 

Welcome to yet another edition of Money Weekly, the last of 2024.

In the three months to September 2023, counties spent only 10.2 percent of their allocation on development with 10 counties failing to spend even a single shilling on development and three others spending less than one percent. 

Most of the expenditure by the counties was used to cover salaries and other recurrent costs in the counties.

On a positive note, the price of fuel has seen its highest drop in two years. The regulators, Epra, announced a Ksh 5 drop of the pump prices which came as a relief to many Kenyans. Nevertheless, transport services have increased their prices citing supply chain constraints which have led to fewer vehicles on the road.

Furthermore, Kenya plans to adopt a Zero-Based Budget system to help curb wasteful expenditure and curb recurrent costs. The government has been toying with this idea since 2019.

On to more good news, 110,000 farmers are set to get assistance in accessing livestock feeds and veterinary supplies through the Kenya Livestock Commercialisation Project (KeLCop)

However, a tough economy continues to hamper employment as more companies close down. Mastermind Tobacco (K) Ltd has been placed in administration and will let go of 1,000 employees. The Technical University of Kenya also laid off some of its staff because of a growing wage bill. 

In other news, the Kenyan Shilling might get some relief after the US Federal Reserve announced that it plans to cut its rates thrice in 2024. 

10 Counties Spend Nothing on Development

A new audit report by Auditor-General Nancy Gathungu shows ten counties spent nothing on development projects in the three months to September 2023. Three more countries spent less than one percent.

Salaries and recurrent spending took the bulk of the allocation. Mark you the Public Finance Management Act stipulates that development spending should at least be 35 percent of total spending.

Governors that failed to spend on development include Johnson Sakaja (Nairobi), Wavinya Ndeti (Machakos), Gladys Wanga (Homa Bay), Cecily Mbarire (Embu), Gideon Mung’aro (Kilifi) Ahmed Abdullahi (Wajir), Jonathan Lelelit (Samburu), Simon Kachapin (West Pokot), Jeremiah Lomorukai (Turkana) and Erick Mutai of Kericho.

Additionally, Susan Kihika (Nakuru), Mutula Kilonzo Jr (Makueni), and Ken Lusaka (Bungoma) committed less than one percent of their budget to development in the same period.

Most of the counties’ expenditure was committed to paying salaries and other recurrent costs. The counties only used Ksh6.9 billion of the total spend, Ksh67.47 billion, on development. This means only 10.2% was spent on development by counties in the three months to September.

Citizens of the 12 counties were starved of development initiatives through the three months as the county bosses focused on paying salaries, allowances and operational expenses.

However, the Council of Governors (CoG) has come out to defend the governors blaming the failure to spend on development on lengthy procurement processes, settlement of pending bills, and Parliament’s failure to allocate counties additional funds.

“County governments in good financial practice and the CoB’s (Controller of Budget) advisory, pay off pending bills before funds are released to counties for development expenditure. A majority of these pending bills are on development,” CoG chairperson Anne Waiguru said in a statement.

This is disputed in the report which indicates that, during the three months when the 10 counties did not allocate funds for development, only four of them - Embu, Kericho, Machakos, and Samburu - made partial payments on their pending bills. Meanwhile, the remaining six counties did not report any settlement of pending bills.

The Auditor General's report also revealed that spending without parliament by the government ministries and agencies has shot up 134% over the last eight years.

Government ministries, departments, and agencies (MDAs) spent Ksh147.39 billion in the financial year 2022/23 without authorisation by Parliament.

Ms Nancy Gathungu highlighted the Consolidated Fund Service (CFS) as the loophole that government entities are exploiting to withdraw money without public participation.

The constitution allows for the withdrawal of money from the CFS without the approval of MPs but to a maximum of 10% of the approved budget of that financial year. But spending is limited to emergencies for which no money had been allocated in the normal budget-making process, subject to the approval of Parliament within two months after the money was first withdrawn.

However, the lack of guidelines to inform the emergency spending has also enabled the constitutional provision to be misused. As a result, the amount of withdrawals has increased from Ksh1.1 billion in the financial year 2014/15 to Ksh147.39 billion in the financial year 2022/23, representing a percentage increase of 13,299%.

Fuel Prices Drop But Not Reflected in Holiday Travelling Cost

The festive season has come with a relief at the pump with fuel prices having their largest drop in over two years with up to a Ksh5 decrease due to a decline in global crude prices. 

Super petrol is now retailing at Ksh212.36 in Nairobi, down from Ksh217, and diesel at Ksh201.47, reduced from Ksh203.47. The drop is expected to alleviate inflationary pressures, benefiting consumers during the holiday season. 

However, many families remain in limbo struggling to balance the cost of basic needs with the luxury of travelling to different parts of the country. Bus fares have risen by 50% - 200%.

Apart from fuel cost, the Matatu Owners Association attributes the fare hikes to supply and demand dynamics, as fewer vehicles are available.

While still at the cost of living, Government debts to maize millers have reached Ksh3.4 billion. This is money the government was to reimburse the maize millers in the subsidy program to curb high maize flour prices.

Unpaid invoices and lack of provision in the 2023/2024 budget are impacting millers, leading to closures for small and medium enterprises. 

Kenya's Plan to Adopt Zero-Based Budgeting

Budget experts have hailed the efforts to adopt Zero-Based Budgeting (ZBB), as it will curb excessive spending and borrowing. This shift from traditional budgeting requires a comprehensive evaluation and justification of every expense, ensuring alignment with strategic goals.

However, despite the optimism in the adoption of ZBB, there is still scepticism on Kenya’s preparedness. The plan to shift to ZBB has been floated since 2019. Nevertheless, experts suggest that ZBB could be a crucial tool to reduce recurrent spending and wasteful expenditures.

As the National Treasury mulls the ZBB idea, it also plans to increase spending in the 2024/25 financial year to Ksh4.1 trillion, aiming to stimulate economic growth and address social needs. 

On the other hand, Treasury Cabinet Secretary Njuguna Ndung’u defends the recent increase in Kenya's base-lending rate, asserting that it will enhance the country's microeconomic environment. He reiterates that the rate hike aims to protect against investor outflows caused by more attractive interest rates abroad. 

The Monetary Policy Committee's recent decision raised the Central Bank of Kenya rate to 12.5%, the highest since 2012, addressing inflation concerns. 

Nonetheless, the country’s cash crunch has led the Treasury to borrow an emergency loan of Ksh91.12 billion from the Central Bank of Kenya (CBK), a last-resort avenue for funding budget deficits.

Assistance to 110,000 Farmers

The Kenya Livestock Commercialisation Project (KeLCop) plans to support 110,000 impoverished households by helping them acquire livestock feeds and veterinary products. The assistance will be delivered through an e-voucher system enabling the families to access chicken mash, layers, mineral licks, and veterinary supplies.

The initiative, jointly funded by the Kenyan government, the International Fund for Agricultural Development, Heifer International, financial institutions, and beneficiary communities, aims to increase rural small-scale farmers' incomes, enhance food and nutrition security, and promote environmentally friendly practices.

On the other hand, in response to the growing demand for locally produced edible oils, Kakuzi, an agribusiness firm, has actively increased its macadamia oil production. This comes after a surge in macadamia production, reaching 59 tonnes in 2022 up from 492 tonnes.

In Kiambu, tea farmers from Ndarugu and Theta are decrying the infiltration of the sector by cartels and brokers, leading to reduced earnings. The farmers argue that, despite tea being sold in dollars, they have not been receiving payments based on current exchange rates.

A Tough Economy Continues to Impact Employment

Mastermind Tobacco (K) Ltd, plans to terminate about 1000 employees after being pushed into administration. The company has been grappling with financial challenges, including delayed salary payments. It stopped cigarette production six months ago and entered administration in December by I&M Bank

Similarly, the Technical University of Kenya (TUK) plans staff layoffs to address financial challenges amid an economic downturn. The move is aimed at mitigating the growing wage bill. TUK recently witnessed a leadership transition with Prof. Benedict Mutua taking over as vice chancellor. 

Moreover, jobs created by firms in Kenya's export processing zones (EPZs) sharply declined in the year ending June, dropping to 2,127 from 12,891 a year earlier. The apparel industry, a significant contributor to EPZ employment, faced disruptions due to insufficient orders in export markets, particularly the US. 

Additionally, Global firms, including Procter & Gamble (P&G) and GlaxoSmithKline (GSK), are scaling down operations or exiting Kenya due to a challenging business environment. GSK, after almost 60 years, is closing its manufacturing facility in Kenya due to low sales, competition from local producers, and affordable generic medications. P&G has also announced plans to exit, citing the high cost of doing business, dollar shortages, and declining sales. 

The Ripple Effects of Raising Base Lending Rate

Investors increased interest rate demands on short-term government debt to over 16% in the latest Treasury bills sale. This is a reaction to the Central Bank of Kenya's (CBK) two-percentage-point increase in the base lending rate. However, the CBK rejected expensive bids on the paper, with the average rate for accepted offers at 15.83%. 

On the other hand, Unit trusts in Kenya have raised their annual returns to compete with elevated rates on government treasuries and bank fixed deposits, aiming to maintain attractiveness for new investment flows. Analysis of shilling-denominated money market funds reveals returns between 11.6% and 15.96% as of December 15, compared to 8-9.5% a year ago. 

Additionally, the Nairobi Securities Exchange (NSE) anticipates better times ahead. This follows the US Federal Reserve's announcement that it expects to cut interest rates three times in 2024. The shilling and other global currencies may see potential gains against the dollar as the attractiveness of US assets falls. 

Elsewhere, public and private firms in Kenya released Ksh482.3 million ($4.32 million) to Savings and Credit Co-operative Organisations (Saccos) in the year ending June. Thus, surpassing the target of Ksh 475 million ($4.25 million). Sacco Societies Regulatory Authority (Sasra) data indicates that employer institutions owed deposit-taking Saccos Ksh 2.67 billion ($23.97 million) at the end of December 2022.

This is as data from the State Depart of Co-operatives shows Sacco savings have crossed the Ksh1 trillion mark for the first time despite the tough economic times that have forced some savers to withdraw their savings from Saccos. Sacco savings grew to Ksh1.047 trillion in the year to June 2023 as compared to Ksh906 in the previous period. 

Other News In a Snapshot

• Kenya has improved its visa ranking to 29th among African countries, rising two places, with Rwanda leading in the region. The report indicates that Kenya and Uganda still feature in the lower half of the  Africa Visa Openness Index’s (AVOI) country rankings. Kenya plans to remove visa requirements for all visitors in 2024, aiming to boost tourism and business.
• In the three months to September 2023, Airtel Kenya gained market share from Safaricom and Telkom, according to sector statistics. Airtel's mobile broadband subscriptions and overall market share increased, with subscribers rising from 18.1 million to 18.9 million. Safaricom's market share dipped from 66.1% to 65.7%, despite adding 200,000 subscribers. Telkom Kenya's market share dropped from 3.8% to 3.1%. Airtel's market share increased from 27.2% to 28.2%. 
• Jumia plans to shut down its food delivery business - Jumia Food - in seven African markets, including Kenya, by the end of December 2023, citing unfavourable conditions. The decision follows a strategic review. Jumia stated that its food delivery business accounted for 11% of its gross merchandise value (GMV) in the nine months to September 2023 but has never been profitable.

That’s it from Money Weekly this year. We hope you have enjoyed our weekly updates on the news that affect your pocket and also acted on it. See you in 2024.

Happy Holidays!