DP Gachagua's impeachment exposes soft belly of economic banditry in the country

 

As the political drama over the impeachment of the Deputy President unfolded at Parliament, the Kenya Association of Manufacturers released a report on the challenges local manufacturers face in accessing government procurement opportunities. While the two events may appear completely unrelated, key aspects of the impeachment motion open a lid to a relationship between the two based on the findings listed in the study.

The intent of this article is not to discuss the merits or demerits of the politics of the impeachment, but to explore the implied economic consequences. Within 10 days, the outcome of the political contest will be known to the citizenry.

Whichever way the impeachment may go; the alleged corruption cases offer snippets into the levels of economic banditry ravaging the economy. This is not to mean the DP is guilty of the accusations levelled against him at this point. I trust by the time the dust settles over the matter, a certain degree of truth will have come out.

Court rulings

However, the attempted rebuttal against the accusation during a joint media briefing on Monday night opens a can of worms on potentially mortal levels of rot in government. While the Kenya Kwanza administration has never pretended to fight the vice, the sheer numbers involved are mind-boggling. This column has consistently opined that there is something fundamentally wrong in an economy where public officers declare themselves worth millions or billions, yet they have no known businesses or entrepreneurial ventures.

If there is anything good that must come out of the impeachment proceedings, it is an amendment to the Public Ethics Act to demand full public disclosure of annual tax returns for all State officers. This is the surest way to collaborate their claimed wealth in the spirit of true accountability. Any wealth not collaborated by the corresponding tax payments must be treated as proceeds of graft and restituted to the Kenyan people. The government cannot be harassing poor households and struggling businesses with an obscene tax burden, while public officials vomit from unexplained wealth.

Local manufacturing

Let us go back to the KAM procurement study report and connect the small dots. According to the main findings of the study, the key challenges for the manufacturing sector to access government procurement are confusion on the meaning of local manufacturing, absence of a clear definition of locally manufactured products, local suppliers confused with citizen contractors, dominance of request for quotation and restricted tendering, and lack of a specified payment period for at least 31 per cent of the tenders.

In many other instances, procuring entities vary the payment period from the standard 30 days to 45, 60 or 90 days to avoid penalties for delays in paying at the expense of the suppliers. As per the report, in the 2023/24 financial year, the government entered into 23,367 contracts estimated to be worth Sh210 billion. Of this, four per cent (or Sh8.5 billion) were procured under the preference and reservation category for youth, women and persons living with disability. The Public Procurement and Asset Disposal Act reserves at least 30 per cent of total procurement to this category and at least 40 per cent for local suppliers.

KAM recommends that the government develops a clear policy to specify what constitutes local products, distinguish local suppliers from citizen contractors and inclusion of micro and small enterprises among the minority groups to benefit from the reserved procurement. However, for those familiar with insider dealings within government procurement, it is this reserved procurement that tenderpreneurs exploit to milk taxpayers.

It is thus not difficult to understand why the DP confirms having several registered businesses without any established or known lines of business. While it is true that there is nothing wrong with registering a business, it beats any basic logic why someone would want to keep so many registered businesses because as per the law, these companies still have to file tax returns. But looking at the KAM and Kenya Revenue Authority (KRA) data, there are no surprises on the DP’s multiple business registrations.

Several data sources project that there are about 1.5 million registered businesses and more than 7.4 million micro, small and medium in the country. However, from KRA’s tax returns, there were about 504,036 businesses registered for tax purposes, out of which only 84,428 (or 16.8 per cent) declared and paid actual taxes in the 2021/22 financial year. The rest file nil returns, meaning that while they comply with the tax laws, they do not pay a dime to the public coffers.

It is these businesses, registered under proxies, that become perfect vehicles to plunder public coffers. If anyone doubts this, the local associates/companies in the controversial Adani deals over the airport, the health insurance system and the energy sector are outfits registered under 12 months ago or even during the contractual process, yet they are heirs in multi-billion contracts. The Covid-19 billionaires, National Youth Service I and II, Kenya Medical Supplies Authority and all other scandals are perpetuated through similar phantom companies.

The KAM report indicates that there is no centralised register of local manufacturers in the country. Thus, the government procurement contemplated under the preference and reservation provisions in the procurement laws ends up in the hands of locally registered suppliers, who then import the products to supply the government.

Systemic problem

Based on this prognosis, it must surprise no one that the manufacturing sector has faded off from among the top contributors to the country’s Gross Domestic Product (GDP) value add. The contribution of manufacturing to the GDP has consistently declined from 13 per cent in 2013 to presently about 7.4 per cent, indicating a systemic problem for the sector.

Whether the gaps in the law as highlighted by the KAM procurement report 2024 were intended or unintended, it would appear those in power are happy with the status quo. This is because they can exploit the reservation clauses to enrich themselves through briefcase companies registered under proxies.

This represents a classical state capture where those in power, through proxy companies, turn themselves into billionaires by doing business with the government while producing and adding nothing to the national productive capacity. More tragically, the billions siphoned from state coffers end up being stashed into tax havens in foreign countries. All this is at the expense of legitimate businesses and job creation opportunities for the young populace.

Reflecting on the zeal with which the Kenya Kwanza administration has been pushing for menial jobs in foreign capitals for our young people, it would appear this is a well-orchestrated scheme to cover up for the employment void they have created with the Adani-style mega schemes to plunder.

Unfortunately, what these graft masters fail to realise or miss in their consuming greed is that no modern economy can withstand such sleaze for too long.

Soon everything will be caving in for them as the rest of us will become either its victims or the collateral damage.