MPs should focus on high-impact sectors in budget

Parliament in session. FILE PHOTO | JEFF ANGOTE | NMG

With the official approval of the financial year 2023/24 budget estimates and the Finance Bill for transmittal to Parliament for approval, Kenyans will be waiting with bated breath on how the MPs interrogate the Executive on the plan to implement its ambitious targets as espoused in its Bottom-up Economic Transformation Agenda (Beta).

Although the economy has exhibited resilience, there are several risks such as the ongoing Ukraine-Russia — conflict, tightening global financial conditions, high cost of living, debt servicing obligations, political and climate-related challenges as well as the lingering effects of Covid-19 — the country is expected to strike a careful balance if it is to meet the expectations of Kenyans regarding socio-economic advancement.

The latest Africa’s Pulse, the World Bank’s April 2023 update indicates that economic growth in sub-Saharan Africa is set to slow from 3.6 percent in 2022 to 3.1 percent in 2023.

To avert a potential economic crisis, policymakers should redouble their efforts to curb inflation, boost domestic resource mobilisation, and enact pro-growth reforms — while continuing to help the poorest households cope with the rising costs of living.

Back home, a sectoral analysis of the Budget Policy Statement reveals a significant misalignment or less prioritisation of critical sectors that have the possibility of creating a high impact on the economy.

These sectors are agribusiness, affordable housing, and manufacturing which account for almost half of Kenya’s gross domestic product (GDP).

Kenya’s pathway to transformation also requires addressing the cross-cutting issues that challenge the overall competitiveness of the economy while also tackling sector-specific constraints that exist.

Enhancing the productivity of agriculture would support structural transformation, adding pressure on cities and the need for housing, particularly affordable housing.

The need for new building materials and skills in the housing sector could support manufacturing and boost enterprise and job creation, in addition to the extra local development capacity and labour, which will be needed to drive the affordable housing segment.

The agricultural sector employs more than 40 percent of the population.

Seventy percent of the rural population has seen a reduction of 12 percent in this year’s budget proposals, according to an analysis undertaken by the Institute of Public Finance, and this should have the parliamentary committees responsible for agriculture concerned.

The notable housing budget of 25.8 percent will enhance affordable housing production and contribute to positive externalities across the large and increasing small-scale housing construction sector.

The final sector that requires increased attention is the manufacturing sector.

Although Kenya has the largest manufacturing base in East Africa, regional neighbours are outpacing its growth by wide margins; the sector has been stagnant despite efforts to increase its share of Kenya’s GDP by at least 10 percent by 2030.

The latest budget allocation to the State Department of Industrialisation indicates a reduction of 44 percent in the sector.

This has a net effect of derailing the implementation of key programmes, including industrial development and investment, standardisation, and business incubation, and research.

While the 2023–24 Budget, the first under the Kenya Kwanza, is expected to support inclusive economic growth, the government needs to show its commitment to supporting the vulnerable in society through adequate budgetary allocations to the priority sectors.

The next step is for the government to progressively address issues around the high cost of land, streamlining the tax regime as well as putting in place the necessary regulations that will spur the housing boom.

The final sector that requires increased attention is the manufacturing sector. Although Kenya has the largest manufacturing base in East Africa, regional neighbours are outpacing its growth by wide margins — the sector has been stagnant despite efforts to increase its share of contribution to Kenya’s GDP by at least 10 per cent by 2030.

The latest budget allocation to the State Department of Industrialisation indicates a reduction of 44 percent in the sector.

This has a net effect of derailing the implementation of key programmes including industrial development and investment, standardisation, and business incubation and research.

There is also a notable omission of the funding for market linkages for MSMES (Domestic & Export Market) and Government Preferential Treatment for MSMEs.

It has to be noted that the implementation of these sub-programmes is essential in helping MSMEs access domestic and international markets after expanding their product portfolio.

One of the quick wins will be to restructure the Financial Inclusion Fund to enable it to respond to the needs of SMEs in the manufacturing sector as well as incentivize manufacturers to invest in employee training to build a skilled and competent workforce.

Doing this will not only position the country as a competitive economy but also offer equal opportunities for ordinary citizens to thrive. 

The writer is the CEO of the Institute of Public Finance.