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Kenya’s 2019 budget speech: do finance minister’s numbers add up?

18th June 2019 BY: Africa Check

On 13 June 2019 Kenya’s finance minister Henry Rotich announced his budget for the 2019/20 financial year, which starts on 1 July.

Rotich said the government plans to spend KSh2.8-trillion (about US$27.5-billion) over the year.

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His speech included claims on Kenya’s economic growth, public service wages, government tenders and e-commerce readiness.

But were the claims on the money? We checked.

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Claim: “In 2018, our economy grew by 6.3%, up from 4.9% in the previous year.”

Verdict: correct

Kenya’s economic data is recorded by the National Bureau of Statistics. The agency’s latest economic survey provisionally estimates that real GDP (which accounts for inflation) grew 6.3% in 2018.

The actual growth figure will be confirmed in the next economic survey, to be released in the second quarter of 2020. But an Africa Check analysis of GDP growth data since 2013 shows revised figures have been very close to the provisional figure.

Kenya’s parliamentary budget office estimates GDP growth for 2018 at 6%, while the International Monetary Fund puts it at 6.0%.

The survey estimates that the Kenyan economy grew 4.9% in 2017. The statistics office said this lower growth rate was due to “uncertainty associated with a prolonged electioneering period coupled with adverse effects of weather conditions”.

We therefore rate Rotich as correct. – Alphonce Shiundu

Claim: “This [6.3%] growth is the highest to have been recorded for the past 8 years.”

Verdict: correct

It’s not clear why Rotich chose eight years, although this puts back the clock to 2010, when Kenya formally proclaimed a new constitution. This was after political violence following a disputed election in 2007 crippled the economy.

Charting the country’s economic growth since then shows an upward trend.

The 2018 GDP growth of 6.3% is the highest in eight years, indeed in 10 years (In 2007 the economy grew by 7.1%.) Rotich’s claim is therefore accurate. – Alphonce Shiundu

Claim: “This growth is well above the sub-Saharan Africa region average growth of 3% and the global average of 3.6%.”

Verdict: correct

The International Monetary Fund has annual data on economic growth in 194 countries. Its latest World Economic Outlook, released in April 2019, estimates sub-Saharan Africa’s 2018 GDP growth at 3%.

The world’s economy grew an estimated 3.6% that year. (Note: The IMF estimated Kenya’s economic growth for 2018 at 6.0%.)

Only 21 countries achieved a growth rate of at least 6.3%.

But Kwame Owino, head of Kenya’s Institute of Economic Affairs, previously told Africa Check it would be better to compare Kenya’s growth to growth in countries with similar economic conditions, especially its regional peers. This is because more mature economies generally grow at a slower pace. There’s more actual growth in the US economy than in Kenya’s, for example, even though that country has a much lower GDP growth rate.

Kenya had the third fastest growing economy among the five members of the East African Community, according to the 2018 economic survey. It was behind Tanzania (6.6%) and Rwanda (8.6%), but ahead of Uganda (6.2%) and Burundi (0.1%). – Alphonce Shiundu

Claim: “The public sector wage bill continues to rise.”

Verdict: correct

Kenya’s statistics office has details of wages paid in the public and private sectors. These “relate to basic salary and other allowances which are paid regularly to employees”.

Public servants’ wages have risen by an average KSh46-billion a year in six years – from KSh374.9-billion in 2013 to KSh604.3-billion in 2018.  

Kenya public sector wage bill 2013-2018

Year                                      Total (KSh bn)                                   Increase (KSh bn)

2013                                      374.9                                                  –

2014                                      413.4                                                  38.5

2015                                      461.7                                                  48.3

2016                                      503.5                                                  41.8

2017                                      555.0                                                  351.53

2018                                      604.3                                                  49.27

Data from Kenya’s salaries and remuneration commission shows a similar pattern over 14 years, with the wage bill rising from KSh165.9-billion in 2003/04 to KSh698.5-billion in 2017/18.

Rising wages, Rotich said, left “fewer and fewer resources for development”. – Alphonce Shiundu

Claim: “Excise revenue has declined from approximately 3% of GDP in 2003/04 to about 2% in 2017/18.”

Verdict: correct

The numbers support Rotich’s claim.

Kenya’s excise duty as share of GDP in 2003/04 and 2017/18

Financial year              Excise duty (KSh billion)                GDP (KSh billion)*           Excise duty as % of GDP

2003/2004                     40.09                                                  1,141.78                            3.5%

2017/2018                     167.78                                                8,796.5                              1.91%

*Nominal GDP at market prices

Kenya’s tax agency defines excise as “a tax levied on goods manufactured in Kenya or imported into the country”. The European Commission says “excise duties are indirect taxes on the sale or use of specific products”.

They’re “indirect” because they’re paid by producers or traders, who then pass the excise cost on to consumers, in the final price.

According to Nikhil Hira, a tax expert at law firm Couslon Harney LLP, excise duty in Kenya has traditionally been used as a stop-gap in the budget when all else has failed.

But the reality is now different. “Because they’ve put up the rate on a number of products, it has affected consumption,” Hira told Africa Check. This has led to lower collections.

Hira gave the example of Senator Keg, a beer aimed at the lower income market to prevent the consumption of illicit alcohol. After excise tax was added to it, sales tanked.

“Traditionally, excise has been a sin tax. Now it’s extended to so many products that it’s not working.”

A ‘structural problem’ with excise

Michael Mburugu, a partner at PKF tax consultants, told Africa Check the drop in excise as a share of GDP might be due to higher economic growth.

“On the other hand, it is odd that excise may drop as a percentage of GDP when it is applied to goods and services that are not usually excisable, such as airtime, water, fruit juice, cash transfers and banking.”

Development economist Anzetse Were said the national treasury faces a structural problem. “From a macroeconomic perspective, the cabinet secretary is trying to get excise duty to generate the revenue it used to,” she told Africa Check.

“What he didn’t say is that tax revenue has been declining as a percentage of GDP for a while now.” – Vincent Nge’the

Claim: ”To date, 385 public entities have been registered in the portal, and 5,236 contracts published valued at Ksh 146.5-billion.”

Verdict: mostly-correct

Rotich said data on contracts made by public entities were published monthly on a dedicated portal.

The Public Procurement Regulatory Authority oversees purchasing by Kenya’s government entities.

Its tenders portal shows that as at 13 June 2019, a total of 5,311 contracts with a value of KSh147.57-billion had been awarded by 386 government entities. – Vincent Ng’ethe

Claim: ”Kenya has been ranked 85th globally in e-commerce uptake.”

Verdict" incorrect

Rotich said the ranking was in the 2018 UN Conference on Trade and Development (Unctad) Business-to-Consumer E-commerce Index.

Unctad works to “support developing countries to access the benefits of a globalised economy more fairly and effectively”.

The index measures how prepared an economy is to support online shopping.

It is calculated from four indicators, all with the same weight: account ownership at a financial institutions or mobile money service provider, the share of individuals using the internet, reliability of postal services and the number of secure internet servers per 1,000 people.

But the country isn’t ranked 85th globally. Ghana occupies that spot, while Kenya is ranked 89th of 151 countries.

But Rotich was on the right footing when he said the 2018 index puts Kenya at seventh in Africa.– Alphonce Shiundu

Researched by Africa Check, a non-partisan fact-checking organisation. View the original piece on their website 

EDITED BY: Africa Check
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