In the lead-up to Kenyan presidential and parliamentary elections on August 9th last year, I wrote a piece that called for Odinga’s ascension on his 4th – and possibly final – attempt. It would have come at the expense of his younger opponent, William Ruto. Seen as the outsider he had very much been side-lined in Kenyan politics at the time. Having covered the election violence in Kenya in the past when Odinga was blatantly denied the Presidency in rigged elections in 2007 and lived in the country for a few years, I was acutely aware of the dangers of tribal divisions. Given that both were plugging similar, vague economic policies – that of “bottom-up economics” coupled with fertiliser subsidies for farmers – I felt that healing ethnic divisions and specifically empowering Kenya’s third largest tribe – the Luos – and whose political leader is Odinga, was more important in moving the country forward.
There were concerns too specifically with Ruto; His ability to unite the country I called into question, following his indictment in 2013 by the International Criminal Court for his tacit involvement (along with President Uhuru Kenyatta) in the election violence back in 2007/8, that was only quashed after witnesses either recanted or disappeared. There were questionable links to murky businessmen that might have come back to haunt Ruto in what could have been a Jacob-Zuma-lite presidency. And a belief that his Kenya Kwanza Alliance (or Kenya First) would be populist and withdraw from the international stage at a time when corporation – especially amongst African leaders in the face of an almighty economic and geopolitical storm in global affairs, was more urgent than ever.
But what a difference a year makes.
President Ruto has more than allayed pre-election concerns and has been mostly competent – certainly on the continent; He has dealt with Kenya’s economy which is a potentially lethal cocktail of rising debt, coupled with an exchange rate in freefall and dwindling foreign exchange reserves. As well as stemming rising inflation even while the country is battered by the worst drought in over forty years.
And he has competently navigated his way on the international stage to date, certainly from initial expectations, becoming a leader of note on the continent, pushing for better lending terms from multilateral institutions and a fairer global taxation system. He is also a prominent voice calling for more rights for Africa on the U.N. Security Council. And where many feared he would recoil into a nationalist cocoon, he has energetically pursued regional security crises in the face of an explosion of violence, in eastern DRC and Sudan more recently.
All the while Odinga has been rabble-rousing for what is certainly in part to further his own self-interests.
There are almost weekly protests now in Kenya organised by the Azimio la Umoja coalition (Resolution for Unity) he heads, against the rising cost of living and higher taxation, that while honourable on the surface and justified for Kenyans who have been hit hard in the current economic climate, the protests barely hide Odinga’s ulterior motives, and that is to use the power of the mob to call for an audit of last year’s election and force a government in a weak position to submit to another ballot. Like many a Kenyan politician before him, he is using his influence amongst those he claims to represent under the guise of bringing their genuine plight to public attention, but in the meantime displaying political power for his own goals.
Weekly protests, which were suspended in April but re-started in response to further tax increases end-July, have reportedly claimed fifty lives and according to Kenyan manufacturers, have cost the country around USD$18 million per protest day. Morgan Stanley, an investment bank, recently downgraded its bullish outlook for Kenya, turning its attention to Angola, solely based on the unrest and the impact it may have on the economy. This is all not to belittle the very real concerns and the plight of Kenyans themselves. The mood is dark with some 62% agreeing with the statement that Kenya is heading in the wrong direction. This according to an Infotrak opinion poll, a marketing research firm, in March this year.
In response to high debt, President Ruto has instigated a large tax revenue drive. This has included a doubling of VAT on fuel to 16%, 10% excise duty on mobile phone sales, a capital gains tax rise on bank transactions, from 5% to a whopping 15%, an extra 3% income tax set aside for a National Housing Development fund and an increase in mobile money transfer duty – so beloved to Kenyans – from 12% to 15%. Most of these taxes have hit Kenya’s relatively small tax base, about 13% of total registered voters in 2022, hard. But focus on VAT and excise duties has also disproportionately hit the poorest, those that Ruto claimed to champion in his election campaign. This has been compounded by a 3% turnover tax on small businesses with revenues between approximately USD$3,500 and just over USD$7000 per year that his government has claimed necessary claimed to widen the narrow tax base.
All this has come at a time of inflation, especially in food and energy, which consume a far larger share of average incomes in Kenya than it does in developed countries. Ruto’s government has tried to counteract the effects of his own policies and inflation with a 50% subsidy on fertiliser for farmers and duty-free imports of basic staples such as maize, rice, sugar and cooking oil. But the impact of tax rises and inflation has been overwhelming. To be sure, even the World Bank, Kenya’s largest lender that overtook China in 2019, called for caution in its most recent economic update for the country, suggesting that tax rises be re-assessed. The World Bank report suggested that they may prove counter-productive in the long run, dragging on economic growth and ultimately having the paradoxical effect of bringing lower tax revenue too.
The frustration is understandable. And there is a strong argument to be made for postponing tax rises. But Ruto’s government seems to have made the tough decision to impose hardship in the near term to bring stability quickly and put the country on a sustainable economic path as soon as possible before the situation got out of hand. Something that many governments even in the West are avoiding to do and will likely bring more short sharper pain within this decade.
And Ruto’s economic policies are already having a positive effect on that debt pile. According to a recent Economist Intelligence Unit report, although debt shot up during the pandemic to date, from 59% GDP-debt ratio to 67% currently, it is now forecast to stabilise at that level in the coming year. The annual government spending deficit is actually falling, from a high of 7.1% in 2020-2021 to 5.8% in 2022/23. And is projected to fall further this fiscal year.
The problem for Kenya though is its external debt, which although not particularly high in itself, making up about 35% of the total public debt load according to the Economist, might cause a serious problem soon because of the way it is frontloaded: There is an outstanding USD$2 billion 10-year Eurobond maturing next June 2024. If this cannot be paid down or re-financed in the current global economic climate that will be harder at higher rates, this could prove to be a serious stumbling block. It is made worse as the Kenyan shilling depreciates – from KSh 115 to the dollar in May 2022, to as low as KSh141 now, increasing the value of the debt for the country. Forewarning of the trouble ahead came last June when a USD$1 billion Eurobond issuance had to be cancelled, as yields jumped above that which would have allowed Kenya to be able to issue it ( at around 7%). And the current yield remains beyond Kenya’s reach at around 11% as of February 2023.
While any opposition figure, especially a populist one, can promise the moon when there is no reality check, it is on this issue of debt that Odinga has exposed a crucial difference in his economic policies to President Ruto’s that shows the two to have very different outlooks in the way they would handle the economy and that wasn’t apparent before the election. Odinga’s quick-fire solution would be to seek debt relief and a rescheduling of both local and international debt. Great on paper but this lacks any appreciation of the reality for African countries in the current economic climate.
African public debt is no longer dominated by multilateral loans from the likes of the IMF and World Bank. It is made up of a plethora of lenders that includes a sizeable chunk from private institutions and especially from China. Getting all of them together in the current geopolitical climate to agree on debt relief has become phenomenally hard. Just ask Ghana and Zambia. And compared to those two countries, Kenya has a relatively stable debt load at present. Succeeding in debt restructuring would have been nigh on impossible and certainly have taken years to achieve. Time the country simply does not have.
And not just that, debt restructuring would have led to restrictions in borrowing and certainly higher rates and tighter controls from the IMF in setting macro policy setting. One can only imagine how Odinga – given his recent actions – would have reacted to being told to impose an unpopular list of policies on Kenyans by outsiders. President Ruto’s prudent economic management – however bitter the medicine right now – has also somewhat guaranteed relative independence from the dreaded Washington-based multilateral institutions in setting Kenyan macro policy. In fact, both the World Bank and IMF have given their proverbial thumbs up and increased their lending to the country in the 2022/23 fiscal year.
And for all its debt woes, Kenya’s careful management of the economy has also reaped the benefits of relatively low-interest rates in borrowing from private lenders; International banks in 2023 have already issued Kenya loans to the tune of between USD$600-USD$900 million at around 7-8% interest rates with reasonable 3-5 year tranches. That is well below even the Eurobond yields right now.
Contrary to World Bank concerns, President Ruto’s tax increases have reaped higher government revenue too according to BMI Research (formerly Fitch Solutions), an economic intelligence research outfit, increasing by 17% year-on-year. This has given the Kenyan government the space to increase its capital expenditure by a noticeable 26.5% this fiscal year, and all this while bringing down the government deficit too. According to BMI Research, Kenya’s economy is likely to grow in 2024, rebounding to 5.3% from 4.9% in 2023, and is not likely to contract. And most of the increased economic activity will be from higher export receipts, especially in tourism which is expected to rebound to above pre-pandemic levels, rather than a rebound in domestic demand. This will also have the effect of reducing the current account deficit and help put downward pressure on headline inflation by also stabilising the Kenyan Shilling. The World Bank itself forecasts inflation to drop from 7.8% to 5.8% in 2024.
President Ruto has also instigated reasonable industrial policies to expand the narrow manufacturing base in the country – currently making up only 7.8% of GDP. He has sought to revive the Kenya Industrial Estate government agency and help small and medium manufacturers create development centres in every ward and industrial parks and business incubation centres in every technical and vocational education training (TVETs) institution. He has also partnered with Google to provide 25,000 free Wi-Fi hotspots around the country to increase internet access, especially in poor and rural communities. And has sought to expand the Wi-Fi roll-out for ninety government institutions including TVETs, hospitals and law courts.
International Stage
In his relatively short time in power, President Ruto’s energetic dealings and statements have helped elevate Kenya’s footprint on the international stage and one certainly contrary to how he was portrayed before the last election. As he jokingly tells it, his global Africa-centric outlook was largely informed by his “red London bus” experience (actually a coach) at Queen Elizabeth’s funeral in London in September last year, when he, his wife Rachel and a host of other African leaders and their partners were made to queue for 20 minutes and take a coach to the ceremony at Westminster Abbey.
Very much tongue-in-cheek, he compared their treatment to that of the U.S. President who was allowed to take his private vehicle to the abbey. He has repeatedly used this moment as a symbol of how African leaders are treated and side-lined on the world stage. While the wider point is true, his example completely disregards the fact that Justin Trudeau, Canada’s Prime Minister, as well as all of a host of Europe’s royal families, were made to do the same. And anyway, Biden’s “Beast” as the U.S. Presidential vehicle is called, got stuck outside a Pret-A-Manger in London traffic. I’m sure President Biden wished he was on that damn coach too! It does though give an interesting insight into his personable and comfortable approach, something that seems the polar opposite of Odinga’s more stolid one;
In line with this approach, President Ruto has eased back on the anti-Russian hard-line stance of his predecessor and taken a more pragmatic one that seems to have borne fruit for Kenya. He implemented a more ambivalent policy based on “strategic ambiguity” and economic necessity that to date has not ruffled Western feathers, as opposed say to the complete hash-up President Cyril Ramaphosa of South Africa has made of relations with the West. Even after a stopover visit by Russia’s Foreign Minister, Sergey Lavrov in May this year, following a donation from Russia of 34,000 tonnes of fertiliser (in response to Ukraine’s donation two months earlier of 25,000 tonnes of wheat) there was not much of a response from the West.
Indeed, this did not stop the E.U. from ratifying a long-negotiated Economic Partnership Agreement (EPA) with Kenya a month later in June this year. The deal that will come into force beginning 2024 will allow duty-free agricultural exports and encourage European companies to set up raw material processing plants, and with Kenya only reciprocating access at a far slower pace.
In regional affairs President Ruto has led by example, sending a 1000-strong peacekeeping force to the conflict in eastern DRC in November last year and has led a quartet of countries trying to push for peace in Sudan. Although in the case of the latter, his previously mentioned murky business dealings finally caught up with him. The Sudanese military has accused him of bias towards their sworn enemy in the spreading violence there, the Rapid Support Forces (RSF), due to perceived past dealings with its leader, General Mohamed Hamdan (colloquially known as “Hemeti”). This looks like it will increasingly cost him the role, in favour of South Sudan’s leader, Salva Kiir.
On balance though, it is fair to say that President Ruto has exceeded expectations in the year since his election. But that was from a very low base. There are worries as to his conduct, especially in the face of mounting protests in the country amongst human rights groups. They claim the police have already been draconian in their handling of the weekly protests, feeding into more general anger in the populace. President Ruto may yet take a turn for the authoritarian – just like his Kalenjin tribal predecessor, President Daniel Arap Moi did after a failed 1982 coup – and one which swept up Raila Odinga too who was reportedly tortured at the time.
But it seems unlikely for now. While it is hard to gauge a country from a distance, the mood on the ground being as important as the impersonal data and statistics to back up anecdotal evidence, President Ruto does appear to be on a path that, while difficult now, will bear fruit sooner than later, if the protests can be handled correctly.
In calling for an Odinga victory last August, I was more preoccupied with tribal divisions than with political and economic competence, although there was little to go on for both at the time. And while the marginalisation of the Luo community in western Kenya remains a divisive issue and one that is important to overcome sooner rather than later, the events that have unfolded since the election have shown Odinga is not the ideal person to heal those divisions.
I am more than happy to have been proved wrong (along with nearly everyone else). In the end, democracy in the country came out stronger. Many, especially in the majority Kikuyu population, defied then President Uhuru Kenyatta’s instructions en masse, who is also Kikuyu, to vote for William Ruto rather than Raila Odinga, with whom Kenyatta had formed an unexpected alliance from 2018 onwards. And in so doing, they seem to have not only chosen wisely but also taken one more step in breaking the tribal cycles of violence instigated by self-aggrandising politicians that have beset the country for too long.