Kenya’s beta blockers

President William Ruto made the “bottom-up economic transformation agenda” (BETA) a central tenet of the Kenya Kwanza coalition’s agenda for the country. Despite high levels of political commitment, efforts to implement manifesto principles have been complicated by unfavourable global macroeconomic conditions, as well as issues closer to home. 

Below we explore factors that have slowed Ruto’s ambitious economic transformation agenda, and outline steps which could be taken to enable Kenyans to rally and help deliver BETA’s promise of prosperity for all.

Empty coffers and rising costs

Above all else, the Kenya Kwanza administration’s ambitions remain hamstrung by the need for fiscal rectitude, which has forced policymakers to attempt to balance much-needed development spending with mounting debt servicing costs. 

Ruto inherited a weak hand from his predecessor, Uhuru Kenyatta, who borrowed extensively to fund infrastructure projects. Kenya’s external debt ballooned from USD 10.2 billion in 2013 (equivalent to 16.5% of GDP) to USD 34.8 billion in 2020 (35.4% of GDP), according to the Central Bank of Kenya (CBK). 

The increase was fueled by borrowing on commercial terms, including from Chinese lenders, which account for around 19% of the debt burden, and on international capital markets, with Eurobondholders accounting for a further 20%. It is these two categories of lenders which weigh most heavily on the exchequer, having driven up debt servicing costs. Interest payments now account for around 30% of Kenya’s tax revenues. Dues have risen in local currency terms in the wake of the devaluation of the shilling, which has lost over 22% of its value against the US dollar since Ruto’s inauguration in September 2022.

The Ruto administration is moving mountains to ensure that Kenya can repay its USD 2 billion debut Eurobond, which matures in June 2024. While the outgoing Kenyatta administration had initially planned to refinance the bond, this plan collapsed in the wake of Russia’s invasion of Ukraine. Mounting inflation and the resulting interest rate rises in the global north have effectively locked Africa out of international debt markets, heightening sovereign default risks. Since Ruto ruled out debt restructuring on the campaign trail, his government has been forced to tighten the purse strings instead.

Austerity measures have included rising taxes in a bid to bolster public coffers, with the government aiming for Kenya’s tax revenue-to-GDP ratio to grow from 13.5% to 20% by 2026/27. Although inflation is gradually subsiding, to 6.8% in September 2023 – down from a record high of 9.6% in October 2022 – Kenya Kwanza leaders have warned citizens that times will get harder before they get easier. 

Drought hangs over agricultural output 

Seeking to alleviate the high cost of living, on 29 September, President Ruto announced plans to import yellow maize duty-free. This variety is the most widely cultivated for human consumption and animal feed, and contains slightly more nutritional value than white maize – however, it is not as widely grown in Kenya. Despite being a food staple, Kenyan maize production has declined steadily, from 42.1 million bags in 2020 to 34.3 million bags in 2022. Consequently, the country has spent more this year importing food than capital goods such as machinery, which are needed to support the country’s development agenda. 

Although Kenya produces enough food to feed its population and export, the effect of the six missed rainy seasons, rising global prices due to the war in Ukraine, and a depreciating shilling have significantly increased the country’s food import bill. The strain on low and middle-income households has eroded purchasing power and reduced spending on luxury items and electronics, with citizens calling into question the feasibility and timing of the government’s enhanced focus on revenue collection – a view shared by ratings agency Moody’s and the IMF.

President Ruto’s response to food insecurity has been geared towards boosting agricultural yields by improving and expanding the fertiliser subsidy programme. Fertiliser reforms have proven popular – unsurprising considering more than 40% of Kenya’s population works in agriculture. While measures have supported a strong start to the harvest season, helping food inflation soften from July, rising commodity costs still see low-income households spend as much as 67% of their earnings on food. 

However, uncertainty looms on the horizon, with Kenya facing a forecasted El Niño season. This could tip the balance in favour of improved food production for domestic and export markets, or result in floods and widespread destruction of agricultural produce as it did in 1997, 2006 and 2015.

Infrastructure upgrades become urgent

Part of Kenya Kwanza’s promises for BETA hinge on positioning Kenya as a regional and continental leader in the global push for a climate-friendly, digital-centric future. A young, tech-savvy population and growing awareness of the imminent dangers of climate change will enable this; however, insufficient and out-of-date systems and infrastructure – from transport to electrification – pose key barriers to success.

The Africa Climate Summit, hosted in Nairobi from 4-6 September, concluded with a strong commitment from President Ruto to accelerate the uptake of electric vehicles. New tax incentives and pledges for support from international partners have generated partnerships with local assemblers and seen the government work to revive Kenya’s stalled bus rapid transit project with an expected completion date of December 2024. 

As intentions to increase the use of electric buses and two-wheelers as climate-friendly commuter options move forward, it remains unclear how the government will help the informal network of workers at the forefront, including matatu and bodaboda drivers, transition to green options. Additionally, creaking infrastructure calls into question the feasibility of mass adoption of electric options, especially outside of Nairobi. 

The deep-rooted inefficiencies of Kenya Power regained focus in popular debates following the longest power outage in recent history at the end of August. Lawmakers consequently pushed for citizens to be able to purchase electricity directly from independent power producers (IPPs), although this is unlikely to resolve transmission issues, which lie at the heart of the problem. Extensive parts of northern Kenya are still not connected to the national grid, while others are increasingly prone to system outage due to cumulative years of lacklustre investment. Intermittent power not only limits the potential of e-mobility, but also efforts to position Kenya as a gateway for business process outsourcing (BPO) and manufacturing. 

Harnessing people power

Moving into his second year, Ruto will need to find the same spark that fuelled his hustler-centric presidential campaign in order to rally Kenyans to make BETA a reality. This requires more than improved global recognition to mobilise international support, but also a clear way forward that enables all Kenyans to understand what comes next and what part they play. Despite calls to contribute to BETA, the lack of a clear written strategy makes adoption difficult, forcing Kenyans to try their best to align with their understanding of press releases and news soundbites. 

The Third Medium-Term Plan 2018-2022, responsible for enacting the national development agenda Vision 2030, has now expired, and the fourth edition remains to be finalised and published. Confusingly, the drafted Medium-Term Revenue Strategy is already open for public comments, compounding the sense of alienation of the wananchi (average citizens), who have been most acutely affected by tax rises and public spending cuts. A comprehensive up-to-date policy framework encompassing BETA could make Kenyans more amenable to the tough decisions government officials face, enabling them to understand how these dynamics play into the long-term vision for prosperity. 

About the authors

Elaine Omwango is an Analyst at Africa Practice where she conducts in-depth research and data analysis measuring policy and regulatory developments across East African markets. She can be reached at [email protected].

Jasmine Okorougo is an Associate Consultant at Africa Practice with a special focus on political economy and digital financial service developments across sub-Saharan Africa. She can be reached at [email protected].