ANALYZING T H E IMPACT O F D E V O L U T I O N ON E C O N O M I C D E V E L O P M E N T

P O T E N T I A L I T I E S IN K E N Y A

BY

G A T H U J O S E P H NDUNG'U

637855

SUPERVISOR

DR. V I C T O R I A MUINDI

A T H E S I S S U B M I T T E D IN P A R T I A L F U L F I L M E N T O F T H E R E Q U I R E M E N T F O R T H E AWARD O F M A S T E R S IN

I N T E R N A T I O N A L R E L A T I O N S T O T H E UNITED S T A T E S I N T E R N A T I O N A L U N I V E R S I T Y - A F R I C A

SUMMER 2014

STUDENT D E C L A R A T I O N

I hereby declare that this thesis is my own original work and that it has not been published or submitted in any institution other than the United States International University-Africa for academic credit.

Signature; fey=r..... Date .3..9.:OG:.2,g/ii.

GATHU .JOSEPH NDUNG'U (ID No. 637855)

This thesis has been presented with my approval as the appointed supervisor.

Signature: Date g6 .Ob - 0 0 1 ^

D R . V I C r O R I A M U I N D I

Signature: —

PROF. C U A C H A N Y A I G O T T I - C H A C H A

Dean, School of Humanities and Social Sciences

Signature: Date

PROF. MATHEW B U Y U

Deputy Vice Chancellor, Academic Affairs

A C K N O W L E D G E M E N T S

Primarily is to extend my heartfelt gratitude to the Almighty God for being my guide and

protector throughout the project. Most importantly towards the end of my Project when I was

overwhelmed to meet the deadline to finalise it, He steered me to work within the time plan

and finish within the set time. The accomplishment of this thesis would have been a mirage i f

it were not for His sufficient Grace.

Secondly, I wish to appreciate my fellow classmates, academicians and intellectuals whose

advice, comments as well as criticism produced this attention-grabbing project.

Finally, my appreciation to the United states International University-Africa and my very

committed Supervisor for her willingness to guidance, encouragement and positive criticism,

which steered me forward. Your shared information and intellectual guidance is unmatched. I

owe the refinement of these works to you.

GOD B L E S S Y O U A L L A B U N D A N T L Y .

Hi

D E D I C A T I O N

This Research project is dedicated to my Wonderful Parents Mr. and Mrs. Gregory Gathu

Njinaro and my loving siblings. God Bless you.

iv

WORDS: 37,666

A B S T R A C T

Kenya's 2010 constitution declares equity to be an underlying principle of governance, which

is constituent with its provision for devolution. While institutionalisation of equity is

acknowledged by the previously marginalized, this is often not the case with beneficiaries of

the old order. In order to efficaciously implement the letter and spirit of Kenya's constitution

devolution, it is important for Kenyans to understand that while nature vastly differentiated

their country, successive governments did little to exploit opportunities for providing the

scope for nationwide development. This failure inspired the demand for devolution during the

two - decade constitutional review saga. This study has attempted to analyse Kenya's

economic potentialities and challenges that come with a devolved government and has used

comparative case analysis studies from Brazil and China with lessons for Kenya as one of the

developing nations aiming to foster economic development via devolution. The study relied

on secondary data as a method of data collection from existing scholarly literature, including

books, journals, research papers, official government and Non - Governmental

Organisations' reports and gazetted articles.

Keywords: Constitution, Devolution, Economic Development and Fiscal Decentralisation

V

T A B L E O F CONTENTS

STUDENT D E C L A R A T I O N ii

ACKNOWLEDGEMENTS iii

DEDICATION iv

ABSTRACT v

TABLE OF CONTENTS vi

LIST OF T A B L E S ix

LIST OF F I G U R E S ix

UST OF ACRONYMS x

CHAPTER ONE 1

1.0 INTRODUCTION 1

L I Statement of Research Problem 1

1.2 Research Questions 2

1.3 Objectives of Study 2

1.4 Significance of Study 2

1.5.0 Literature Review 3

1.5.1 Background of the study 3

1.5.2 Definition of the concept of devolution 9

1.5.3 Historical perspective of devolution in Kenya 14

1.5.4 Concept of Economic Development 27

1.6 Theoretical Framework 33

1.7 Hypothesis 36

1.8 Methodology and Research Design 36

1.9 Chapter Outlines 36

r CHAPTER TWO 36

2.0 INTRODUCTION T O D E V O L U T I O N IN K E N Y A , H I S T O R Y , E C O N O M I C DEVELOPMENT AND REASONING BEHIND I T 37

2.1 Introduction 37

2.2 Repercussions of deconstructing devolution 1964 37

2.3 Kenya's 2010 constitutional devolution 40

vi

2.4.0 Discussing Kenyan Service Delivery since Independence 46

2.4.1 The presidencies and unequal development 47

2.4.2 Delivering development since independence 52

CHAPTER T H R E E 56

3.0 DEVOLUTION'S C O N T R I B U T I O N T O E C O N O M I C D E V E L O P M E N T : C A S E OVERVIEW O F B R A Z I L , CHINA AND LESSONS F O R K E N Y A 56

3.1 Introduction 56

3.2.0 Brazil 57

3.2.1 Introduction 57

3.2.2 Devolution and local economic development policies in Brazil 58

3.2.3 Devolution, Inter - territorial competition and efficiency concerns in Brazil 60

3.2.4 Devolution and spatial disparity concerns in Brazil 62

3.2.5 Conclusion: Lessons for other developing countries 64

3.3.0 China 65

3.3.1 Introduction 65

3.3.2 Devolution in China: A special case 65

3.3.3 Devolving responsibilities 66

3.3.4 Devolving Resources 69

3.3.5 Disparities 71

3.3.6 Devolution, economic efficiency and transparency 72

3.3.7 The Corruption Issue 75

3.3.8 Conclusion 76

3.4 Lessons for Kenya 76

CHAPTER FOUR 82

4.0 KENYA'S E C O N O M I C I N E Q U A L I T I E S , D E V O L U T I O N I M P A C T ON ECONOMIC D E V E L O P M E N T P O T E N T I A L I T I E S AND C H A L L E N G E S 82

4.1 Introduction 82

4.2 Kenyan Structures of Devolution 83

4.3 Division of Responsibilities 89

4.4 Securing Fiscal and Human Resources 91

4.5 Assessment of Impact of Fiscal Decentralisation and Government Grants for Local Development 95

4.6 Devolution and the Bil l of Rights 103

4.7 National Cohesion - The Threat of Devolution and Economic Development 104

vii

CHAPTER F I V E 108

5.0 CONCLUSION AND RECOMMENDATIONS T O A C H I E V E E C O N O M I C DEVELOPMENT P O T E N T I A L I T I E S IN K E N Y A 108

5.1 Conclusion 108

5.2.0 Recommendations 110

5.2.1 Civic education 110

5.2.2 Safeguarding integrity in the process 110

5.2.3 Capacity for implementation I l l

5.2.4 Financing I l l

5.2.5 Oversight framework 112

5.2.6 The regional integration process 112

5.3.0 Comprehensive decentralisation system 113

5.3.1 Expenditure responsibilities 113

5.3.2 Revenue assignment 114

5.3.3 Inter - governmental fiscal transfers 116

5.3.4 Sub - national government borrowing 116

5.3.5 National fiscal decentralisation institutional management framework 117

R E F E R E N C E S 119

viii

L I S T O F T A B L E S

Table 3.3.6: China: Fiscal and Economic Concentration in Rich£ and Poor£ Provinces (Sheng), Zizhiqu+ and Zhixiashi++ (%) 79

Table 4.3: Provincial welfare indicators (percentage), 2007 98

Table 4.5.1: Local Authority expenditure structure 105

Table 4.5.2: Relative expenditure pattern by Local Authority ( L A ) type, F Y 2007/08 (%) 106

Table 4.5.3: Actual capital expenditures distribution by project type F Y 2007/2008 107

Table 5.3.2: Fiscal autonomy in sub - national governments 125

L I S T O F F I G U R E S

Figure 1.6: The Complexity of Devolution 40

Figure 3.2.1: Devolution and Economic Growth in Brazil 1980-2000 65

Figure 3.3.2: Asymmetric decentralisation in China 73

Figure 3.3.3: China: Central and Sub - national government expenditure as percentage of total 74

Figure 3.3.4: China: Central and Sub - national government expenditure as percentage of total government expenditure 76

Figure 3.3.5: Share of Spending 77

Figure 3.3.6: China: Hierarchically Ordered Budget Levels 81

X

L I S T O F ACRONYMS

CKRC - Constitution of Kenya Review Commission

DFRD - District Focus for Rural Development

KADU - Kenya African Democratic Union

KANU - Kenya African National Union

PC - Provincial Commissioner

KLA - Kenya Local Authority

LAs - Local Authorities

KLGRP - Kenya Local Government Reform Programme

LATF - Local Authority Transfer Fund

LASDAP - Local Authority Service Delivery Action Plan

OPT - Graduated Personal Tax

IGFT - Intergovernmental Fiscal Transfer

IMF - International Monetary Fund

GBVs - Global Value Chains

CDF - Constituency Development Fund

xi

C H A P T E R O N E

1.0 INTRODUCTION

1.1 Statement of Research Problem

With the promulgation of 2010 Constitution, Kenya is expected to implement it especially in

improving economic development through devolved governments in the 47 counties. With

the new government elected under the current constitution in the year 2013, officially

devolution of fiscal resources from central government to county governments is in place

under the leadership of elected County Governors as enshrined in the constitution. However,

while devolution strives for efficiency, they also have their potential pitfalls. Among the

greater risks of devolution is determining the optimal level that resolves perceived problems

without providing an alternative threat to cost effective service delivery (Rodriguez - Pose

and Gill, 2003). This optimality refers both to which functions and resources to devolve, as

well as to which level/s to devolve (Gil l , 2003). The concern with optimality touches on:

ignorance and participation capacity, people power - control or participation, nonexistent or

weak sub - national institutions, transfer of inefficiencies, elite capture, incestuous socio -

economic enclaves and inequality deepening (Fjeldstad, 2004). These and other risks point to

the need for an eclectic design and implementation of devolution that considers the objective

initial circumstances of the prospective devolved units on economic development, rather than

employing a single national framework and timetable that are insensitive to variations in

circumstances. Thus, while devolution assumes greater involvement of and participation by

target communities in needs assessment, policy design, implementation and oversight; such

participation may remain merely symbolic (Nyanjom, 2011). Indeed, it behoves the designers

of the devolution framework to build in checks and balances against devolved abuse of

power. Thus, for Kenya to gain devolution benefits in fostering economic development, the

legal framework has to be adhered to and implemented and action taken to those who will

1

violate devolved legal framework. This research seeks to find out the impact of devolution on

economic development prospects in Kenya within the framework of year 2010 Constitution.

1.2 Research Questions

1. What is the reasoning behind devolution in Kenya, its history and economic

development?

2. What are the Kenya's economic development potentialities?

3. What are Kenya's economic challenges and what are the implications of a

devolved government?

1.3 Objectives of Study

1. To analyse the reasoning behind devolution in Kenya, its history and economic

development.

2. To analyse Kenya's economic development potentialities.

3. To analyse Kenya's economic challenges and the implications of devolved

government.

1.4 Significance of Study

Among the more prominent arguments for devolution - indeed, for decentralisation in

general - is the issue of efficiency: the expectation that decentralising functions to the lowest

feasible level of decision-making and implementation will optimize information fiows and

reduce transaction costs. Thus, a decision to devolve is often based on the failure of central

government to deliver, such as in revenue collection or in service delivery (Commonwealth

Secretariat and Commonweahh Local Government Forum, 2001). Devolution has further

been seen as an avenue to democratic deepening within an enterprise, with constitutional or

legal boundaries diminishing friction with the centre that could otherwise undermine the

enterprise (Nyanjom, 2011).

Besides concern with efficiency in service delivery, devolution can also resolve 'over -

centralized mis - governance' or defuse secessionist tendencies, its outcomes leading to

greater consensus in decisions (Mwenda, 2010). Indeed, while devolution - and federalism -

can respond to heightened ethnic differences, it is important to recognize its limitations as a

solution that contains, rather than eliminates, diversity'. Further, since the demands for

delivering the fiscal decentralisation require extraordinary outlays, devolved governments can

be superior to national ones in providing the means with which to secure more efficient fiscal

decentralisation for social minorities and marginalized groups^. The measure will offer a

sustainable means, even if only implicitly so, of providing affirmative action or positive

discrimination for equal economic development across the nation.

1.5.0 Literature Review

1.5.1 Background of the study

Since independence, Kenya has experienced episodes of political instability, which have had

adverse effect on the country's economic performance and social cohesion. For example, in

2008 Kenya witnessed violence following the disrupted national elections held in December

2007. Kenya also experiences other failures from time to time. Such failures include -

corruption, economic stagnation, inequalities and poverty. These failures and episodic

instability can be linked to the quality of governance (Kimenyi and Meagher, 2004). Quality

of governance is in turn dependent on institutions^. These institutions can in turn take

different forms ranging from the constitution, to local authority by-laws to self-regulation in

informal business setting. These institutions collectively determine the governance

framework in a country. Different governance frameworks will yield varying political,

http.www//DevolutioninKenya.doc Accessed 15 February 2011. ' Ibid. ^ Institutions have been defined as structures of rules, procedures and organisations, whether state - provided or otherwise (Kimenyi and Meagher, 2004).

3

economic and social outcomes. As Kimenyi and Meagher (2004) note, these differences

emanate from the differences in the rules, organizing capabilities, social and political

principles captured in the governance concept. Devolution, the focus of this topic on its

impact to economic development prospects is one such concept on governance.

Devolution has been a political response to the ills plaguing fragile and plural societies, such

as, conflicts, inequalities, rent seeking, economic stagnation, corruption and inefficient use of

public resources. Besides, devolution is also implemented as a reaction to external pressure

from organized groups (or separatists). For devolution to be effective, however, the criteria of

subsidiarity"* and consensus^ must be observed (Dent, 2004; Kimenyi and Meagher, 2004).

Devolution affects governance in several ways. First, by distributing authority over public

goods and revenues devolution makes it difficult for individuals or groups of official actors to

collude and engage in corrupt practices. Second, where devolution of authority takes place

along territorial and communal lines, it can foster effective cooperation within the devolved

units. As a result, local communities are able to mobilize social pressure against rent seeking

and corruption. Indeed, a growing number of countries have over the last three decades

further decentralized administrative, fiscal and political functions of central government to

sub - national governments. These countries include the United Kingdom, Italy and Spain. In

many cases, devolution has also been driven by the need to bring government closer to the

people.

Devolution, including other forms of decentralization, however, may not always lead to

improved governance and economic development performance. For example, devolution may

reduce the ability of the national government to redistribute resources and therefore the

" Subsidiarity is defined as tlic assignment of public functions to the lowest level of government that is competent to oversee their implementation. ' Consensus refers to a situation where policy actions of government units reflect the consent of the people that they represent.

4

ability to assist the less developed sub - national units. In addition, devolution may lead to

the capture of local governments by the political elites, especially i f devolution rules and

systems are not well designed, and hence allow the local politicians to use the local

politicians to use the local resources to consolidate their hold on to political power through

patronage.

There are various forms of decentralisation. Differences among the frameworks for

decentralisation of public functions are, however, not clear - cut. Instead, they comprise of a

continuum - ranging from a centralised framework to the federal system. Devolution is one

form of decentralisation framework that lies within the continuum. Devolution is generally

defined as a process of transfer of political, administrative and fiscal management powers

between central government and lower levels of government, primarily operating at city and

region levels (Potter, 2001). It is not just a linear process of power transfer from national to

sub - national level but also involves some degree of cooperation between the different levels

of government. Other frameworks that lie between are the de - concentration and delegation

frameworks. The level of decentralisation is determined by several factors. These include; (i)

the degree to which the sub - national unit can exercise administrative powers, in terms of

recruiting and controlling employees, responding to citizens' feedback and altering services

and budgets to match local preferences; (ii) Ability of the local government unit to exercise

political authority in terms of initiating policy and overseeing its implementation; and (iii) the

local government influence on revenue and expenditure decisions.

Scholars have advanced political and economic rationales in support of decentralisation of

delivery and financing of public goods. These arguments provide theoretical basis for

devolution and other frameworks of decentralisation. Political scientists present three major

rationales for decentralisation. First, they argue that decentralisation enhances democracy by

bringing government closer to the citizens. Second, by establishing different tiers of

5

government, decentralisation provides mechanisms for protecting democracy through vertical

checks and balances. Third, by distributing authority and responsibility for fiscal

management and public service delivery, minorities are given a stake in the system and this

helps in conflict management.

The key economic rationales for decentralisation are well articulated by Musgrave (1959) and

Gates (1972). They argue that decentralisation may improve governance in public service

provision by improving the efficiency of resource allocation. Further, they observe that sub -

national governments are closer to the people than the central government and as a result

have better knowledge about local preferences. Local governments are therefore better placed

to respond to the diverse needs of the local people. In addition, decentralisation narrows the

social diversity and subsequently the variation in local preferences. This reduces the

opportunities for conflicts among different communities. Tiebout (1956) notes that

decentralisation promotes competition among the sub - national governments and thus

enhances the chance that governments will respond to local needs. As a result, countries are

able to attain higher levels of efficiency in the allocation of public resources.

Musgrave (1959) further states that decentralisation can enhance productive efficiency by

promoting accountability, reducing corruption and improving cost recovery'*. First, by

reducing bureaucratic filters decentralisation minimizes the likelihood of conflicts between

elected officials and civil servants. Second, hard budget constraints, usually set at the sub -

national level, compel local governments to minimize the costs of delivering public goods

and to optimize on cost recovery. Third, decentralisation motivates social cohesion,

especially at the local level, which in turn fosters cooperation that is critical in sustaining

pressure against corruption. Fourth, sub - national governments are better positioned to

overcome information asymmetry and hence tailor policies and service provision according

to local preferences.

6

Empirical evidence on the impact of devolution depicts mixed results and in some cases, it is

inconclusive. For example, a study of the federal state of India suggests that decentralisation

promotes government responsiveness in service delivery, especially i f the media is very

active at the local level (Besley and Burgess, 2002). Another study of Italy indicates that

devolution may exacerbate regional disparities in public spending and economic outcomes

(Calamai, 2009). Azfar et al (2001) finds that local level is hampered by limited information.

As a result, devolution does not achieve the desired effects of allocative efficiency.

Scholars have identified several factors that may determine the efficiency of decentralisation

frameworks. First, the establishment of the constitution and a legal framework that spells out

the role of each level of government, including the rules governing fiscal arrangements and

public service delivery, and mechanism for conflict resolution (Azfar et al, 2004). Second,

the political framework governing the electoral process at the sub - national levels facilitates

the direct participation of the users of services in the elections of political leaders. As a result,

locally elected officials are compelled to pay keen attention to the demands of electorate at

the local level. The outcomes of devolution are also influenced by the electoral system. For

example, proportional representation systems, in a bid to reduce conflict, may opt to increase

the representation of the minorities and thus reduce the likelihood of unequal distribution of

public goods. As Lijphart (1999) finds, democratically elected officials, however, may not

always maximise the welfare of all citizens. For example, majoritarian governments may

choose to pursue programmes that maximise the welfare of their majorities at the expense of

the others. Third, the success of devolution or other decentralisation frameworks will depend

on the fiscal decentralisation framework, which stipulates how the authority to spend and tax

is shared among the various levels of government (Azfar et al, 2004). The efficiency of a

decentralisation framework is high when the inter - governmental fiscal framework is welfare

enhancing, incorporates incentives to encourage prudent fiscal management at all government

levels and responsibilities to tax and spend at the sub - national levels is accompanied by

adequate political authority. For example, Shah (2006) identifies matching grants and tax

revenue assignments as incentives that may motivate the enhancement of fiscal effort at the

sub - national levels of government. Fourth, to enhance the efficiency of decentralisation,

information (relating to the costs, beneficiaries, procurement and public service delivery)

should be shared with the media, public and among the different levels of government. Fifth,

the decentralisation framework must allow citizen participation in service delivery (Azfar et

al, 2004). The authors identify several mechanisms through which the citizens participate in

service delivery. These are (a) Regular local elections - through which citizens can vote out

errant local political leaders; (b) Surveys to solicit citizens' feedback on improving service

delivery (c) Public hearings and call - in lines - for soliciting feedback on local policies; (d)

Legal Recourse through which citizens can petition government; (e) Demonstrations (f)

'Exit' - where citizens discontinue the use of services that they are dissatisfied with; (g)

Ombudsman - by lodging complaints relating to public service delivery. Sixth, for efficient

outcomes of decentralisation to be achieved, there must be adequate capacity in the form of

human capital, essential equipment and technology, and incentives to motivate government

officials to produce the desired.

A review of Kenya's history reveals that the country has for the better part of its independent

life been a unitary state with a highly centralised government that has , had an overbearing

control over the sub - national governments and the other arms of government, namely the

legislature and the judiciary. The country has, therefore, not had any real experience with

devolution for two reasons. First, the introduction of regionalism, popularly known as

'Majimboism', in 1963 under the Kenya independent Constitution, did not last long. The first

government of the independent Kenya, under the leadership of Jomo Kenyatta, amended the

constitution soon after the independence in 1964, effectively scrapping the regional

8

governments and replacing them with the central - controlled Provincial Administration and

the local government system. Second, the governments established under the Local

Government Act cap 265 of the laws of Kenya were not granted significant political,

administrative and fiscal powers. Instead, central government retained control of the local

governments through the administration officers (hired by the same central government).

Many as the genesis of the country's governance and economic management problems see

this highly centralised Executive control of the country's public affairs. During the

constitutional conference in 2003, devolution was advocated by some groups as one way of

reducing the overly centralised power of the executive. There was, however, no consensus on

the forms of devolution that the country should adapt. For example, there was no agreement

on the levels of devolution that were appropriate for effective governance. In addition, there

were differences of opinion with regard to how the fiscal powers should be distributed

between the central government and the sub - national units.

1.5.2 Definition of the concept of devolution

A conceptual definition of devolution entails an understanding of the complex dynamics of

decentralisation from which devolution is premised. Scholars promulgate several definitions

of decentralisation but a central theme that characterises these is the dispersion of decision­

making governance closer to the people. Mula (2008a) asserts that decentralisation is one

way through which people's right to participate in governance is attainable. Further, he

highlights two central definitions of decentralisation to emphasize the importance of the

transfer of decision-making power and management of affairs to a subordinate entity. Citing

Ndegwa' (2002), Muia (2008a) argues that decentralisation refers to the transfer of public

authority and resources including personnel from national to sub - national jurisdictions.

Rondenelli's and Nellis' (1986) as cited in Muia (2008a) define decentralisation as the

transfer or delegation of legal or political authority to plan, make decisions and manage

9

public functions from central government and its agencies to a cross - section of

organisations. The organisations include subordinate units of government or non -

governmental organisations. Similarly, Oloo (2006) elucidates the linkage between

governance and decentralisation in defining the latter as the transfer of authority,

responsibility and accountability from central to local government.

There are three fundamental dimensions of decentralisation namely administrative, political

and fiscal decentralisation.

Administrative decentralisation is the transfer of responsibility for the planning, financing

and management of certain public functions from the central government and its agencies to

field units of government agencies, subordinate units or levels of government, semi -

autonomous public authorities or corporations or regional or functional authorities. The main

objective of administrative decentralisation is the strengthening of field administrative units

of the civil service in a country, including capacity-building efforts at national and local

levels (Oloo, 2006).

Political decentralisation entails a movement away from mono - centric to a poly - centric

structure of political power and takes two forms, horizontal, where institutions that promote

separation of powers and accountability of the executive for its actions such as legislature and

the courts are strengthened, and vertical decentralisation, involving assigning powers to local

government structures. The main objectives of political decentralisation are greater citizen

participation and higher levels of accountability to the citizens. This leads to institutional

responsiveness in service delivery and low levels of corruption in government.

Accountability to citizens increases in the face of reduced accountability to the central

government (Muia, 2008a; Oloo, 2006).

10

Fiscal decentralisation involves the transfer of financial resources from the central

government to autonomous local agencies. It may be done directly through assignment of tax

powers to facilitate the decentralised agencies to implement their responsibilities.

Alternatively, it may be done indirectly through financial deregulation where regulation of

financial institutions is shifted away from the major capitals. It is important to note that fiscal

decentralisation is rarely designed in isolation but accompanies both administrative and

political decentralisation (Oloo, 2006).

The types of decentralisation systems namely de - concentration, delegation and devolution

derive their identity from the three dimensions (i.e. political, administrative and fiscal

decentralisation).

De - concentration is administrative decentralisation where the central government disperses

responsibilities functions to regional branch offices that implement decisions made at the

centre. It also involves delegation of authority by central administration to public servants in

the field to make administrative decisions on behalf of central administration. The field

officers may be responsible in varying degrees for government policy within their territories

(CKRC, 2002A; Oloo, 2006). This means that at one extreme, de - concentration may take

the form of transfer of functions without concomitant transfer of authority to make decisions

on how the delegated functions will be undertaken. On the other extreme, it could involve the

vesting of decision making discretionary power to the staff The latter gives them the leeway

to plan, make decisions or adjust the implementation of central directives to local conditions

within guidelines specified by the centre. The C K R C (2002a), however, points out that there

are no legal guarantees for the exercise of transferred powers. Kenya has practised de -

concentration for the most part in the administration of government services. The District

Focus for Rural Development (DFRD) strategy is a good example of de - concentration.

11

In Delegation central government passes the responsibility for decision-making and service

delivery to semi - autonomous organisations not wholly owned by government. The

organisations can include local government, parastatals, the private sector and NGOs (Muia,

2008a).

Devolution is a political arrangement where political, administrative and fiscal power is

distributed to semi - autonomous territorial and sub - national units (Muia, 2008). In this

regard, devolution is broader than de - concentration as it encompasses more than just the

transfer of administrative powers. In addition, the authority to make public policy decisions

in the political, administrative and fiscal spheres is conferred on the sub - national entities by

law. The powers are, however, often determined by legislation rather than vested in the

constitution ( C K R C , 2002a). Thus, while de - concentration manifests low autonomy and

central accountability (Oloo, 2006). This implies that in devolution, the sub - national entities

are not directly accountable to central government although they have to work within statutes

and rules set by it (Muia, 2008a).

Since the powers and structures of devolution are provided in the ordinary law, they are more

easily amenable to modification or repeal than federal arrangements and herein lay one main

distinction between federalism and devolution. Federalism is the formal articulation of

decentralised governance within a nation's constitution (Barrett et al, 2007). The linkage

between decentralisation and federalism stems from determining to what extent and the type

of services for which central authorities should transfer responsibility and resources to local

levels in order to most effectively serve the nation. Both the notion of federalism and

decentralisation are based on the principle of subsidiarity, which holds that a central authority

should play a subsidiary role performing only those tasks that cannot be effectively

undertaken at a more local level. For instance, the economies of scale regarding the

production of military and defence services favour national provision and central

12

govemments are better placed to correct inequalities in resource endowments and capabilities

across regions (Barrett et al, 2007). Another distinction between devolution and federation is

that in devolution the local unit remains linked to the central government and other units in

the political system through arrangements of mutual support and reciprocity. Further, the

centre always grants the autonomy (Oloo, 2006). As the C K R C (2002a) elaborates, in a

federal system the central and regional governments are not subordinate to each other but

coordinate. In federalism, therefore there are two distinct governments in a country, a central

government and a state government at the periphery or local level. The constitutional and

legal sharing of power between the two ensures overlap of functions is avoided. Usually each

local unit is differentiated from others through a common history, culture, economic

organisation and viability, politics and linguistic characteristics. The local unit could be a

country in its own right with capacity for self - reliance or could favour union status with

others to reap an advantage of economies of scale (Kibwana, 2002).

The basic characteristics that devolved governments should embody are firstly, that the local

units should have autonomy and independence from the centre. Secondly, the units ought to

have clear and legally recognised geographical boundaries over which to exercise authority

and perform public functions. Thirdly, they should be accorded corporate status and the

power to raise sufficient resources to carry out functions. Lastly, the local governments

should be perceived by the people as belonging to them. This means that in their provision of

services, they satisfy the needs and remain subject to the control, direction and influence of

the locals (Oloo, 2006).

13

1.5.3 Historical perspective of devolution in Kenya

(a) The Majimbo System

The highly centralised bureaucracy, which Kenya inherited at independence from the colonial

administration, had chiefly been sustained through the institution of the provincial

administration. The administration was established to facilitate direct rule and govern

alongside the civil service (Kanyinga, 2006). The administration is singled out from the

outset because it has historically been a setback in the effective realization of devolution

powers. The provincial administration had three major functions in the colonial era namely

the control, coordination and mobilization of the public for development. In the exercise of

all three functions, it acted in an Executive capacity as the agent of the Governor. It thus

ensured the Governor had direct communication with and control over the districts (Gertzel,

1970). The colonial government used the administration to undermine the quest by African

political leaders to consolidate the nationalist movement. The leaders on their part were

vehemently opposed to the excessive authority, influence and power that the administration

wielded. Immediately after the independence, they sought to diminish its powers.

The Nationalist movement that propelled Kenya into independence was characterized by

internal tensions. These arose from fear among smaller ethnic groups of domination by the

numerically larger and more politically and economically developed ethnic groups.

Eventually, two main rival parties emerged, the Kenya African National Union (KANU) and

Kenya African Democratic Union ( K A D U ) . K A N U comprised the numerically larger Kikuyu

and Luo ethnic groups, whilst the smaller groups from Rift valley. Coast and North Eastern

coalesced around K A D U . The basis for the division was that K A N U favoured open

competition for resources, supremacy of parliament and a strong central government whilst

KADU favoured regional autonomy (Omolo and Barasa, 2008). The fears and tensions

persuaded the minority - based K A D U to demand a quasi - federal division of power that

14

would leave an African majority government less omnipotent than its colonial predecessor

(Gertzel, 1970).

The result was regionalism, which K A N U only acquiesced to as the price of independence.

The nature of regionalism or Majimbo as it was popularly termed was a political system in

which power was devolved to semi - autonomous regional units. The units were presided

over by weak governments, which in practical terms resembled local authorities' government

(Gertzel, 1970; Kibwana, 2002). Regional governments were entrenched in the Kenya

Independence Constitution of 1963, which elaborately defined the regional structure ( C K R C ,

2002a; Kibwana, 2002). The Independence Constitution provided for three structures. The

first was the devolution of certain tax and financial powers to seven newly created Regional

Authorities. The second vested control of Trust Land in the County (formerly African

District) councils. Thirdly, it set up a bicameral legislature with a House of Representatives

and a Senate. The Senate was to represent district interests (Gertzel, 1970; Oloo, 2006). A

regional assembly composed of elected members was established at regional level with the

responsibility to make laws. The legislation could be done either unilaterally or in

constitution with the central government. The Assembly elected a president from amongst

themselves and each region had a Civil Secretary, formerly Provincial Commissioner (PC).

The PC was appointed by the Public Service Commission and was in charge of civil servants.

Thus, the provincial administration formerly used as an instrument of penetration and control

of localities was made responsible to the Regional Authority ( C K R C , 2002a; Oloo, 2006).

Regionalism is often viewed as a halfway house between a centralised state and a federal

state. This is because it is adopted where fear and mistrust exist towards full-fledged

centralism by a minority group (Kibwana, 2002). At the same time, there lacks the political

will to realize full-blown federalism. The system of devolution Kenya inherited at

independence was referred to as semi - federalism largely because it lacked political will and

15

financial independence from the centre (Kibwana, 2002). The ruling party K A N U therefore

never operationalised regionalism after it won the elections. K A N U in fact took a series of

steps during the first year in office to undermine the success of its implementation.

Firstly, the central government retained a much closer control over the civil service at the

regional level than the Constitution allowed. It used the civil secretaries who were former

provincial commissioners to maintain a more direct line of communication with the regions.

Though KANU had demanded the abolition of the administration during the colonial period,

after independence, it became one of its most important assets for fighting regionalism.

Although the civil secretary was constitutionally responsible to the Authority, he remained in

practice the agent of central government. He enhanced central government control and

ensured acquiescence in the central government's decisions. The full decentralisation of the

administration was therefore avoided. When the former unitary state was restored in 1964,

the administration was also reinstated to its former position as agent of the Executive. It

became directly responsible to the president performing the functions for which it was

formerly responsible, control and development (Gertzel, 1970).

The provincial administration amassed enormous powers during the Kenyatta administration.

The unlimited authority granted to the administration made them virtually lords in their own

realms provided they administered their spheres efficiently on the regime's behalf As

(Barkan and Chege, 1989) point out, one measure of power of the PCs was in their length of

tenure. Indeed, some held office throughout the fifteen-year period of the Kenyatta

administration. While policy was determined at the centre, it was coordinated at the field led

by the PC. The PC not only maintained law and order but also facilitated the work of staff

posted to each province and district by the respective ministry.

16

Secondly, the government delayed the full implementation of the financial provisions laid

down in the constitution. It retained central control over regional finances beyond the date of

June 1964. This date had originally been set as the period when the regions would assume

foil responsibility for their own finances. Thirdly, the transfer of certain services from the

central government to the regions was never realized. The services were still in the hands of

the government when the Constitution was amended in 1964. Finally, the government sought

public support for their intended constitutional amendment to abolish regionalism and

introduce a unitary state through public allies held across the country. The government

concurrently wooed K A D U opposition members to cross the floor ultimately resulting in the

voluntary dissolution of the party. The government was thus able to garner the support

needed to make the amendment to dismantle Majimboism. This ultimately paved way for a

Republican system of government and one party state in December 1964.

There are several reasons that explain the failure of the Majimbo system to effectively take

root in the country. Firstly, there was no joint consensus amongst the political class as to why

the system needed to be put in place. K A N U accepted Majimboism for expendediency

purposes whilst K A D U advocated for the system due to self - interest. K A D U hoped that

they would retain power even if a majority took over hence allay their fears of oppression.

The system was thus an imposition of the colonial government in collaboration with K A D U

on a reluctant party that eventually secured power over the state.

Secondly, based on the foregoing, Majimboism was therefore not based on a principled stand,

sound philosophy or political theory (Kibwana, 2002: Oloo, 2006).

Thirdly, scholars have pointed to the socio - political and economic environment in which

the system was introduced as being a key factor to its failure. Majimbo was alien to the

Kenyan historical past which had previously been as a highly centralised unitary colonial

17

state. The shift to majimboism was therefore a radical change that would have perhaps

succeeded if introduced piecemeal. Added to this is the Fact that there were no success stories

from other former colonies from which the country could emulate. As Oloo (2006) Illustrates,

Nigeria, and to some extent Uganda and Congo who had attained independence before Kenya

were experiencing difficulties implementing the system. Their experiences contributed to the

negative attitude the ruling elite had towards the system.

Fourthly, on the outset it appeared that the failure of the government to operationalise the

system was based on financial implications or challenges of supporting a two - tier system. In

reality, however, K A N U was concerned about the restrictive provisions of the constitution on

its powers. The government had to share revenue with the regions by remitting a percentage

of tax revenues on an equitable basis. It also had to decentralise the role of the Public Service

Commission in employment, deployment and management of personnel matters. The

govemment saw these provisions as curtailing its role of having the only and final say in

economic management (Oloo, 2006).

Finally, there was broad - based belief that regionalism would fuel national disintegration

and it therefore lacked the support of majority of Kenyans. Indeed the controversy

surrounding the devolution to date has mainly revolved around the term Majimboism which

remains ambiguous and a source of tension to the public. They have not understood the kind

of system that politicians imply when they refer to majimbo, thus are suspicious of its

intended political goals. This is particularly in light of its historically divisive record and

failures. As Kagwanja and Mutunga (2001) point out, Majimboism has been associated with

conflict and bloodshed in the Kenya psyche. The perception stems from the occurrence of the

ethnic clashes of the 1990s in the Rift Valley and Coastal provinces.

18

After its official collapse in 1964, advocacy for Majimbo resurfaced in the run up to the 1992

multi - party general elections. Politicians in Rift Valley and allied to the ruling party K A N U

construed multi - party politics as a challenge to their domination of the political system in

the country. They urged their supporters to arm themselves and drive out from their midst,

members of tribes allied to the opposition. Their logic was that it would strengthen their

dominance in their ancestral land. The ensuing tribal clashes were partly attributed to these

inflammatory remarks made at the infamous Majimbo campaign rallies in the Rift Valley

province (Omollo and Barasa, 2008). The politically ignited land clashes are however a

manifestation of deep - rooted grievances which cannot be glossed over in a reform process

(KLA, 2004b).

Devolution as a system of governance has often been misrepresented in the country to mean

expulsion of persons from their areas of residence to their ancestral lands. This misconception

has greatly contributed to paranoia over its re - introduction. The Majimbo Constitution of

1963 prohibited discrimination and emphasized that Kenyans had a right to live anywhere in

the country. The fears of expulsion that are associated with Majimboism especially after the

occurrence of ethnic clashes, however, remain realities.

The reasons are that the history of Kenya is fundamentally one of land dispossession. The

plight of communities disinherited from their ancestral land due to colonial land policies

remains unresolved. Demands for redress have thus served as rallying points for political

agitation by affected communities ( K L A , 2004b). Consequently, individual and private

property holders who acquired land during the settlement process after independence and

who have settled in these areas over the years fear the expulsion. The fears and lack of trust

between communities is perhaps the greatest obstacle to the acceptance of devolution in the

country.

19

(b) The Local Government System

The country's most substantive experience with devolution is through the Local Authorities

(LAs). Local Authorities system in Kenya from the outset is an inadequate example of

devolution. This is because they have little autonomy vis - a - vis central authority. As Ndulo

(2006a) most observes most African independence constitution did not provide for elected

govemments that were accessible to the people at the local level. The local govemment

systems that were established were centrally controlled through the Ministry of Local

Government and power remained consolidated at central government. Las exercised only

powers delegated to them by central government. The local government system in Kenya

must be understood within this context.

The Las are established under the Local Government Act of the laws of Kenya to provide

certain service to the community within their areas of jurisdiction. However, legal provisions

alone are not a guarantee for the effective implementation of devolution. The same legalizing

authority can devise strategies that have the effect of weakening or negating the same powers

surrendered to a sub - national entity. This can be achieved by either counteracting clauses or

strengthening other arms of government in conflict with the local body.

The current local government system has evolved considerably through several distinct

phases after the colonial era. The first is the post - colonial period under the Majimbo

Constitution, immediately followed by the post independence period under the Kenya Local

Government Reform Programme ( K L G R P ) that ushered in the Local Authority Transfer

Fund (LATF) and the Local Authority Service Delivery Action Plan (LASDAP) .

The LAs were set up during the colonial period during which they were fairly independent

enjoying significant revenue sources such as the poll tax. Las carried out responsibilities for

the central government in the field including provision of primary education, health care,

20

roads, maintenance of markets and construction of slaughterhouses (Muia, 2008b; Oloo,

2006).

At independence, municipal and county councils were established under the jurisdiction of

the regional assemblies created by the Federal Constitution. This reduced central

government's influence over the Las particularly because the regions were mandated to

allocate them grants from revenue sources such as the Graduated Personal Tax (GPT) (Muia,

2008b). The autonomy, however, did not take root as the Majimbo system was short lived.

The enactment of the Republican Constitution in 1964 marked the beginning of the decline in

autonomy and performance of Las in service delivery. The powers previously exercised by

the regional assemblies were transferred to the minister for local government leading to

dominance and control of Las by central government. The minister acquired power to

upgrade existing authorities, create new ones, establish local government electoral areas, and

nominate members to the councils without consulting local residents. He could further

dissolve local government councils and call for fresh elections or unilaterally appoint a

commission to run the affairs of the authority. In 1969, the government further diminished the

importance of LAs by hiving off key functions namely the provision of primary education,

healthcare and roads. The responsibilities were transferred to central government ministries,

leaving provision of minor services like feeder roads, markets and slaughterhouses to the

county councils. This served to raise dependence of the local community upon the central

government (Oloo, 2006).

The central government further undermined the financial base of LAs by taking over sources

of revenue such as the GPT, which it abolished in 1974. It introduced a Service Charge in

1988 intended to benefit the LAs, but as the collecting agency did not remit the revenues to

21

the respective LAs. The deprivation of resources prompted poor management and service

delivery by the councils (Muia, 2008b; Oloo, 2006).

Through the provincial administration has ensured that the government is the actual dispenser

of patronage at the field level as opposed to LAs. Placing the superintendence of the LAs

under the central government has curtailed their growth as autonomous entities. The

provincial administration has continued to wield power and authority in the divisions through

offices of the Dos and chiefs, making the administration act as the local government (Muia,

2008b; Oloo, 2006).

The current Constitution does not provide for decentralisation in any form or make much

reference to the local government system except to vest Trust lands in county councils (Oloo,

2006). Nevertheless, the Local Government Act Cap 265 specifies the structure, power and

functions of LAs. There are various types of councils created by the Act including city,

municipal, town, county and urban councils. The Act does not specify the criteria th4e

minister for Local Government should use to declare a L A . The existence of the councils

based on the prerogative of the minister continues to be an issue of contention (Muia, 2008b).

In terms of administrative structure and functioning, the elected councillors who in turn elect

a mayor from amongst themselves govern the authorities. Management is undertaken by

administration officers who are mostly civil servants appointed by the central government's

Public Service Commission. This is another area of controversy as councillors feel they

should have operational control over the chief officers. Councillors are given the mandate by

the public through elections to run council affairs, nonetheless all significant decisions have

to be approved by the ministry of local government. Further conflict surrounds the issue of

whom between the mayor and town clerk should wield executive powers. Since the public

through councillors elect the mayor, councillors argue that the mayor should be held

22

accountable for decisions. Presently, the mayor plays a ceremonial role with no powers over

clerks. The Executive clerks are seen as not being directly answerable to the local leaders and

communities (Muia, 2008b).

Under the Act, the services that LAs are to provide are more diverse than they originally were

at independence. LAs are expected to provide facilities and services necessary for local and

national development. These include primary education, healthcare, water supply, sewerage

and drainage facilities, construction and maintenance of roads, markets, abattoirs, fire

protection, street cleaning and lighting, garbage collection and cemeteries (Oyugi and Kibua,

2006). Muia (2008c) assessing roles and responsibilities of central and local government,

provides a distinction between two types of functions that L A s should traditionally serve.

These are mandatory and permissive functions. The mandatory functions include provision of

primary education, healthcare, road maintenance and burial of the dead destitute. A l l the

other functions are permissive as the central government assists LAs in their provision. This

is because it makes it difficult to hold LAs accountable.

The persistent poor performance and rising debt burdens led to the constitution of a

commission of Inquiry (the Omamo Commission) into the affairs of LAs . Its findings were

that poor service delivery was due to a myriad of reasons. One major factor was lack of self -

determination and planning powers, which were centralized at government ministries.

Another debilitating problem was inadequate resources including lack of managerial and

technical expertise further compounded by bloated councils. Others were lack of supervisory

capacity of central government over the 175 authorities, erratic creation of councils and lack

of uniform application of the Act throughout the country. Finally, failure to protect local

government powers and finances in the Constitution exposed the system to manipulation,

high - level corruption and un - checked power by the minister of local government ( C K R C ,

2002a).

23

These shortcomings led to the introduction of the K L G R P in the early 1990s. Its objectives

were to restructure the local public sector, improve local public expenditure management and

strengthen local level accountability mechanisms (Oyugi and Kibua, 2006). It is under the

KLRGP that the L A T F was established in 1998 under the L A T F Act (No.8) and the

associated LASDAP. The fund constitutes 5% tax of all revenue collected under the Income

Tax Act. Its main objective is to enable LAs improve local service delivery, improve

financial management and accountability systems and reduce LAs outstanding debts. To

access the funds, LAs have to meet certain conditions under the L A S D A P . The L A S D A P is a

three-year rolling programme of activities setting out L A s priorities for improving provision

of local facilities and services. It requires LAs to follow planning procedures and adhere to

accountability mechanisms for using the L A T F (Cifuentes, 2008; Oyugi and Kibua, 2006).

The LATF and L A S D A P have had some impact in the generation of revenues by the

councils. They have also improved action planning as well as achieved a measure of

community involvement in the identification of projects. The L A T F has a performance-based

component where 40% of allocation is dependent on the resources L A s have mobilized and a

debt repayment plan. To receive the service allocation of 60% LSAs must meet some set

budget conditions. First, the local budget must allocate must allocate at least 50% of the

service delivery amount to capital projects and not more than 60% of the total budget for

personnel expenses. Second, LAs must submit budgets by set deadlines, failure to which they

are penalised. In this way, L A T F provides an incentive for L A s to improve their financial

management (Oyugi, 2008a; Muia, 2008b).

The LASDAP allows the authorities to plan the use of local resources in consultation with the

community. The process provides opportunities for promoting greater community

involvement in the local planning process. It also instils a sense of ownership of the projects

that is vital to the success of their implementation and sustainability. L A T F funds are often

24

published in the papers, which together with public availability of approved list of projects

enhances transparency and accountability. The LASDAP also encourages L A s to address the

needs of the poor (Muia, 2008b; Oyugi, 2008a).

The benefits of the L A system notwithstanding, several studies conducted to determine

whether the L A T F and L A S D A P process have achieved the intended objectives reveal that

there are outstanding problems that continue to hamper the operations of LAs. Some of the

findings are:

1. There are still low levels of financial management capacity as attested by their failure

to forecast revenues and inability to collect revenues. This has led to salary arrears

and inability to offset statutory payments, which has raised council debts. Moreover,

the presence of too many agents collecting tax gives the citizens the impression that

there is too much tax being demanded from them.

2. The councils spend more on personnel salary than on actual expenditure.

3. The L A T F Act stipulates a number of regulations that are based on planned

expenditure rather than actual expenditure. The practice on the ground, however,

shows that deviations are substantial which raise questions on the credibility of the

budgets.

4. The government has not put in place an adequate monitoring and evaluation system to

track resource utilization by the authorities. LAs therefore lack follow up and

sanctions or penalties to get them to improve their systems.

5. There is a dearth of technical and managerial staff to operate LAs leading to poor

performance. Remote areas continue to suffer negative effects of absorbing staff

transferred from other areas on disciplinary measures. The staff is generally poorly

motivated due to low remuneration.

6. A number of weaknesses have been identified in the L A S D A P process. They are:

25

(i) Lack of awareness amongst community members of their roles and

responsibilities;

(ii) Weak and selective involvement of the community for instance the community

is not privy to the tendering and procurement processes;

(iii) Community members lack the capacity and funds to manage the projects

handed over to them. The effect is poor maintenance of the completed projects,

resulting in their eventual deterioration;

(iv) Lack of funds to facilitate community outreach on project planning or

management;

(v) Lack of political will amongst councillors to facilitate empowerment of the

community as an informed public means lesser opportunities for corruption;

(vi) Ineffective planning and weak human resource capacity by LAs, which

impede the success of the LASDAP initiative.

7. Duplication of effort and lack of development integration. The provincial

administration and the local councils are yet to harmonize their roles and

relationships. Further, there is duplication of roles between some of the other

devolved funds introduced by the government such as the CDF, which undertakes

activities in health and education, areas that LAs also pursue. Provision of bursaries

by the Constituency Bursary Fund and the council has led to occasions where some

individuals have been recipients of both funds. The government has withdrawn the

provision of bursary from LAs stipulating councils wishing to provide bursaries

should raise their own revenues. Perhaps this is an attempt at streamlining the

activities of all decentralised funds system, which is a step in the right direction

(Oyugi, 2008a; Omolo, 2009; Muia, 2008b).

26

Inspite of the many challenges, LAs continue to occupy a critical space in the local arena.

Since they pose less threat to political sectarianism and ethnic strife while pursuing their

developmental goals, they are favoured as a more promising form of devolution. As Muia

(2008b) asserts, local governance units offer machinery for tapping local opinion and turning

it into appropriate development activities. In so doing, they offer legitimacy to people - led

governments as well as a suitable way of thinking a balance between local and Central

government interests. The areas of concern then are what reforms are necessary for the to

achieve an effective, efficient, responsive and democratic local government and secondly

what role will they play in a devolved governance structure?

1.5.4 Concept of Economic Development

Introduction

Economic development generally refers to the sustained, concerted actions of policy makers

and communities that promote the standard of living and economic health of a specific area.

Economic development can also be referred to as the quantitative and qualitative changes in

the economy. Such actions can involve multiple areas including development of human

capital, critical infrastructure, regional competitiveness, environmental sustainability, social

inclusion, health, safety, literacy, and other initiatives. Economic development differs from

economic growth. Whereas economic development is a policy intervention endeavour with

aims of economic and social well-being of people, economic growth is a phenomenon of

market productivity and rise in GDP. Consequently, as economist Amartya Sen points out:

"economic growth is one aspect of the process of economic development." Sen., A. (1983).

The scope of economic development includes the process and policies by which a nation

improves the economic, political, and social well-being of its people. A. and Sheffrin, S. M.

27

(2003). The University of Iowa's Centre for International Finance and Development states

that:

'Economic development' is a term that economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used while discussing economic development. Economic development has a direct relationship with the environment (Sheffrin, 2003).

Although nobody is certain when the concept originated, most people agree that development

is closely bound up with the evolution of capitalism and the demise of feudalism R. Conteras

(2005). Mansell and Wehn also state that economic development has been understood since

the World War I I to involve economic growth, namely the increases in per capita income, and

(if currently absent) the attainment of a standard of living equivalent to that of industrialized

countries Mansell, R & and Wehn, U. (1998). Economic development can also be considered

as a static theory that documents the state of an economy at a certain time. According to

Schumpeter (2003), the changes in this equilibrium state to document in economic theory can

only be caused by intervening factors coming from the outside Schumpeter, J . & Backhaus,

U., (2003).

History

Economic development originated in the post war 11 period of reconstruction initiated by the

US. In 1949, during his inaugural speech. President Harry Truman identified the development

of undeveloped areas as a priority for the west:

"More than half the people of the world are living in conditions approaching misery. Their food is inadequate, they are victims of disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to them and to areas that are more prosperous. For the first time in history humanity possesses the knowledge and the skill to relieve the suffering of these people ... I believe that we should make available to peace-loving peoples the benefits of our store of technical knowledge in order to help them realize their aspirations for a better life... What we envisage is a program of

28

development based on the concepts of democratic fair dealing ... Greater production is the key to prosperity and peace. And the key to greater production is a wider and more vigorous application of modem scientific and technical knowledge" (Truman, 1949).

There have been several major phases of development theory since 1945. From the 1940s to

the 1960s, the state played a large role in promoting industrialization in developing countries,

following the idea of modernization theory. This period was followed by a brief period of

basic needs development focusing on human capital development and redistribution in the

1970s. Neo-liberalism emerged in the 1980s pushing an agenda of free trade and Import

Substitution Industrialization.

In economics, the study of economic development was borne out of an extension to

traditional economics that focused entirely on national product, or the aggregate output of

goods and services. Economic development was concerned in the expansion of people's

entitlements and their corresponding capabilities, morbidity, nourishment, literacy, education,

and other socio-economic indicators Todaro and Smith (2011). Borne out of the backdrop

of Keynesian, advocating government intervention, and neoclassical economics, stressing

reduced intervention, with rise of high-growth countries (Singapore, South Korea, Hong

Kong) and planned governments (Argentina, Chile, Sudan, Uganda), economic development,

more generally development economics, emerged amidst these mid-20th century theoretical

interpretations of how economies prosper Sen., A. (1983). Also, economist Albert O.

Hirschman, a major contributor to development economics, asserted that economic

development grew to concentrate on the poor regions of the world, primarily in Africa, Asia

and Latin America yet on the outpouring of fundamental ideas and models Hirschman, A . O.

(1981).

It has also been argued, notably by Asian and European proponents of Infrastructure-based

development, that systematic, long term government investments in transportation, housing,

29

education and healthcare are necessary to ensure sustainable economic growth in emerging

countries.

Growth and development

According to Ranis et al. (2009), economic growth and development is a two-way

relationship. Moreover, the first chain consists of economic growth benefiting human

development with the rise in economic growth, families and individuals will likely increase

expenditures with heightened incomes, which in turn leads to growth in human development.

Further, with the increased consumption, health and education grow, also contributing to

economic growth. In addition to increasing private incomes, economic growth also generates

additional resources that can be used to improve social services (such as healthcare, safe

drinking water, etc.). By generating additional resources for social services, unequal income

distribution will be mitigated as such social services are distributed equally across each

community, thereby benefiting each individual. Concisely, the relationship between human

development and economic development can be explained in three ways. First, increase in

average income leads to improvement in health and nutrition (known as Capability Expansion

through Economic Growth). Second, it is believed that social outcomes can only be improved

by reducing income poverty (known as Capability Expansion through Poverty Reduction).

Lastly, social outcomes can also be improved with essential services such as education,

healthcare, and clean drinking water (known as Capability Expansion through Social

Services). John Joseph Puthenkalam's research aims at the process of economic growth

theories that lead to economic development. After analyzing the existing capitalistic growth-

development theoretical apparatus, he introduces the new model, which integrates the

variables of freedom, democracy and human rights into the existing models and argues that

any future economic growth-development of any nation depends on this emerging model as

we witness the third wave of unfolding demand for democracy in the Middle East. He

30

develops the knowledge sector in growth theories with two new concepts of 'micro

knowledge' and 'macro knowledge'. Micro knowledge is what an individual learns from

school or from various existing knowledge and macro knowledge is the core philosophical

thinking of a nation that all individuals inherently receive. How to combine both these

knowledge would determine further growth that leads to economic development of

developing nations.

Yet others believe that a number of basic building blocks need to be in place for growth and

development to take place. For instance, some economists believe that a fundamental first

step toward development and growth is to address property rights issues, otherwise only a

small part of the economic sector will be able to participate in growth. That is, without

inclusive property rights in the equation, the informal sector will remain outside the

mainstream economy, excluded and without the same opportunities for study.

Goals

In the United States, Project Socrates outlined competitiveness as the driving factor for

successful economic development in government and industry. By addressing technology

directly, to meet customer needs, competitiveness was fostered in the surrounding

environment and resulted in greater economic performance and sustained growth.

Economic development typically involves improvements in a variety of indicators such as

literacy rates, life expectancy, and poverty rates. GDP does not take into account other

aspects such as leisure time, environmental quality, freedom, or social justice; alternative

measures of economic well-being have been proposed (more). Essentially, a country's

economic development is related to its human development, which encompasses, among

other things, health and education. These factors are, however, closely related to economic

growlh so that development and growth often go together. Due to globalization growth and

31

development in those countries are interrelated to trends on international trade and

participation in Global Value Chains (GVCs) and international financial markets. The last

financial crisis had a huge effect on economies in developing countries. Economist Jayati

Ghosh states that it is necessary to make financial markets in developing countries more

resilient by providing a variety of financial institutions. This could also add to financial

security for small-scale producers Jayati (January 2013).

Regional policy

In its broadest sense, policies of economic development encompass three major areas:

1. Governments undertaking to meet broad economic objectives such as price stability,

high employment, and sustainable growth. Such efforts include monetary and fiscal

policies, regulation of financial institutions, trade, and tax policies.

2. Programs that provide infrastructure and services such as highways, parks, affordable

housing, crime prevention, and education.

3. Job creation and retention through specific efforts in business finance, marketing,

neighbourhood development, workforce development, small business development,

business retention and expansion, technology transfer, and real estate development.

This third category is a primary focus of economic development professionals.

One growing understanding in economic development is the promotion of regional clusters

and a thriving metropolitan economy. In today's global landscape, location is vitally

important and becomes a key in competitive advantage. International trade and exchange

rates are a key issue in economic development. Currencies are often either under-valued or

over-valued, resulting in trade surpluses or deficits.

32

Thus, from the literature, the underlying issue to find out is on how devolution in Kenya will

have a new impact on fostering economic development potentialities.

1.6 Theoretical Framework

Regional devolution is a complex and heterogeneous process. From the high level of

decentralisation of certain federal states, such as Germany, and of some Spanish regions, to

the more limited influence of regions in France, for example or, until recently, Mexico,

decentralisation processes across the world have adopted a wide variety of forms.

Consequently, conceptualising devolution is far from simple. Looking for a minimum

common denominator, Donahue (1997, p 7 - 15) characterises the process as being made up

of three separate factors: legitimacy, the decentralisation of resources and the decentralisation

of authority. Any form of devolution implies some degree of sub - national legitimacy and

some form of decentralisation of authority and resources; consequently, any analysis of

devolution should consider these three factors.

There is, however, a need for caution in examining evidence, because a simple list based

approach may overlook the interaction between the elements. The complexity of the

devolution process derives from the interest - conflicts of the various actors involved, and the

differences in legitimacy that they share. Most importantly, the interests of sub - national and

national governments tend to be at odds across the component factors of devolution. While

national governments would, ceteris paribus, devolve responsibilities (authority) to their

regional or state governments, with as few accompanying resources as possible, the sub -

national governments would prefer the opposite case. The balance between these two

extremes will depend upon the relative strength, or, in political terms, of the two tiers of

govemment Donahue (1997, p 12). The following figure depicts this approach.

33

Figure 1.6: The Complexity of Devolution

Positive popular

perception of

devolution

Negative popular

perception of

devolution

Decentralisation of

resources

Strong sub - national

(state) legitimacy

Decentralisation of

authority/responsibility

Strong central

legitimacy

Initial political

support for the

states

Initial political

support for the centre

Historic

factors

Source: Donahue (1997, p 12)

Beginning at the bottom of the diagram, the legitimacy of sub - national and national

governments is determined for the most part by the processes of history and respective

political support. Of the former, culture, language, and religion have traditionally been the

factors behind a strong regional identity and determine the legitimacy of sub - national

claims. Economic development has also recently been added to the list (Keating, 1998;

Allmendinger and Tewdwr - Jones, 2000). Of the latter, the inclusion of legitimacy into the

analysis brings into play a wealth of political factors that shape the power and margin of

manoeuvre of governmental tiers. An important caveat here, however, is that a reasonably

34

effective political and democratic system is in place to facilitate the influence of the

electorate. This being the case, and all other things equal, poor political support for the

regional cause would translate into a relatively weak regional legitimacy and therefore tend

'to promote a devolutionary process in which the central government holds the upper hand,

favouring progressive decentralisation of responsibilities and often forcing regional and local

governments to undertake increasing expenditure responsibilities on a static, and often

nan-owing, financial base' (Bennett, 1997, p 330). In contrast, a strong regional legitimacy,

underpinned by high political support for the regional lobby, would favour a more rapid

decentralisation of resources from the centre, since there would be strong demand for

transfers to sub - national tiers of government. In general, the combination of historical and

political factors in democratic countries shapes the legitimacy of governmental tiers, the

relative strength of their respective lobbies, and hence the forms which devolution initiatives

are likely to assume. In non - democratic systems, however, the influence of the electorate is

compromised, and the factors, which are less transparent, take on more importance in the

determination of the legitimacy of government tiers.

In general, an understanding of the interaction between legitimacy and the transfer of

resources and authority is imperative to the examination of devolutionary trends (Donahue,

1997). A case that depicts strong decentralisation of resources displays no more evidence for

devolution than one showing strong decentralisation of responsibilities. It merely indicates a

different type of devolution, driven by different levels of government and deriving,

ultimately, from a different allocation of legitimacy across governmental tiers. Moreover,

following from this, we should not necessarily expect cases to depict high levels of both

resource and responsibility devolution, since forces are often operative to promote their

mutual exclusivity. It is with this conceptualisation in mind that impact of devolution on

economic development prospects in Kenya will be approached through.

35

1.7 Hypothesis

Devolution will have a positive impact on economic development in Kenya. This will come

with proper implementation of the provisions provided for in the 2010 Constitution on

devolution in spearheading economic development at county levels with the effective and

efficient use of decentralised resources from central government to county government.

1.8 Methodology and Research Design

Research for this thesis is library based. It involves the analysis of different books, statutes,

magazines, journals, newspapers, respective documents and electronic sources on the impact

of devolution on economic development potentialities and challenges in Kenya with

comparative analysis from Brazil and China. The Lilian K . Beam Library at United States

International University - Africa (USIU) and the online scholarly materials on devolution's

economic development impact has been used for research.

1.9 Chapter Outlines

Chapter 2 - Introduction to Devolution in Kenya, History, Economic Development and

Reasoning behind it

Chapter 3 - Devolution's Contribution to Economic Development: Case Overview of Brazil,

China, and Lessons for Kenya

Chapter 4 - Kenya's Economic Inequalities, Devolution Impact on Economic Development

Potentialities and Challenges

Chapter 5 - Recommendation and Conclusion to Achieve Economic development

Potentialities in Kenya

36

C H A P T E R T W O

2.0 INTRODUCTION T O D E V O L U T I O N IN K E N Y A , H I S T O R Y , E C O N O M I C

DEVELOPMENT AND REASONING BEHIND I T

2.1 Introduction

Kenya transited into independence with a constitution arrived at through rounds of Lancaster

House talks between Kenyan nationalists and the British Colonial Office. That constitution

provided for devolved governance through a bicameral legislature and regional assemblies.

While the pre - eminent Kenyan nationalists in KANU had rooted for a unitary state, the

perception primarily within the settler class was that the party's base among the numerically

larger ethnic groups - notably the Kikuyu and the Luo - would enable it to ride roughshod

over the numerically smaller ethnic groups, among which the settler class included itself

Consequently, the settler class championed the formation of K A D U , an ostensible

counterweight to K A N U , but in reality the vehicle through which to further the anti -

nationalist settler agenda. During the resulting face - off over the structure of the

independence government, K A N U backed down to allow K A D U ' S demand for a region -

based Majimbo government. Within a year of independence, however, the victorious K A N U

party government instigated reviews to the constitution that by 1966 had fashioned a unitary

government into a de facto single party system. Kenya's original dalliance with devolution

therefore had no sound grounding in the fundamental values of either its K A D U proponents

or the KANU government whose onus it became to implement it.

2.2 Repercussions of deconstructing devolution 1964

In moving away from the Majimbo constitution, the independence government undertook

various constitutional changes that had the effect of creating an 'imperial presidency' in the

37

sense that they transferred powers away from the peripheral institutions across the country to

the centre in general, but specifically to the person rather than the office of the president.^

While most of the constitutional changes were made during founding president Jomo

Kenyatta's tenure, i.e., up until 1978, other significant changes took place during the tenure

of his successor, Daniel Arap Moi, which ended in 2002. Amongst Kenyatta's most notable

changes after the 1964, creation of the republic was the re- institution in 1966 of (political)

detention without trial. Later, following the coup attempt of 1982, Moi orchestrated the

constitutional transformation of Kenya into a de jure one - party state.

Opposition to the emerging imperial presidency dates back to the mid 1960s, when it resulted

in the 1966 resignation of founding Vice President Jaramogi Odinga over what he perceived

to be a failed commitment to the nationalist ideals of the independence struggle (Odinga,

1965). Subsequent intermittent demands for a rationalization of the emerging constitution for

national needs underlay the growing, but increasingly covert, 'dissidence' into the 1980s.'

Substantive nationwide rebellion against the K A N U government followed the infamous 1988

general elections, which saw the introduction of the short - lived Mlolongo (queue) voting

system to facilitate the screening of anti - government supporters who did not line up behind

the preferred K A N U candidate (Throup and Hornsby, 1998: 319). Then, after Moi acceded to

hosting the ground breaking (even if choreographed) The Kenya We Want conference of

1990, sustained domestic and international pressure led to the repeal in 1991 of section 2(A)

of the constitution which had provided for single - party rule since 1982, thereby returning

pluralist party politics. Other reforms limited the presidential tenure to two terms.^

'Besides being citizen No. 1 with the attendant statutory prestige, the president became Farmer No. 1, Chancellor of all public universities and the patron of a large number of national institutions.

'For further salient issues of the period of stilled disgruntlement, especially over the failed land reforms, see

Kaggia(1975). 'Despite his 13 years in office to 1991, Moi insisted the term limit could not be applie retrospectively, allowing him to contest the 1992 presidential election.

38

Persisting demands for a comprehensive constitutional review were, however, met by only

piecemeal reforms such as the 1997 Inter - Parties Parliamentary Group (IPPG) compromise

between Moi's conservatives and the radical reformists.^ In 2000, Moi relented to

establishing the Constitutional Review Commission of Kenya, which took control of a

comprehensive review process based at the Bomas of Kenya, the national cultural village.

The resulting 'Bomas Draft' constitution was largely ready by the close of Moi's second

(under the new rules) and final presidential term in 2002. In campaigning ahead of the

general election that year, the opposition National Alliance Rainbow Coalition (NARCO party

promised to deliver the Bomas Draft constitution to a national referendum within 100 days of

victory. Instead, a much - altered Bomas Draft - dubbed the Wako Draft - generated by the

Kibaki wing of a divided NARC government, was defeated during a national referendum in

November 2005 - over 900 days later than had been promised.'"

It would be against the backdrop of the unresolved constitution review process that Kenya

held the controversial 2007 general elections in which the disputed presidential results led to

intense localized outbreaks of violence killing about 1,100 people while displacing another

650,000 persons from their homes." A peace between the protagonists of the 2007

presidential election, Raila Odinga of the Orange Democratic Movement (ODM) party and

president Mwai Kibaki of the Party of National Unity (PNU), was brokered by an

international team of Eminent African Persons, resulting in the signing of the National Peace

' Amidst civil society - led demonstration that resembled the beginnings of a 'people power revolution; IPPG represented Moi's concession to a slate of minimum but significant reforms ahead of the impending 1997 general elections, such as the right of opposition parties to be represented in the hitherto exclusively Moi -appointed Electoral Commission of Kenya. See Murunga and Nasong'o (1998: 44). ' NARC was the first opposition union against KANU tyranny. During 2003, however, an emerging Kibaki kitchen cabinet successfully championed the violation of NARC'S election manifesto resulting in internal rifts that were manifest in the referendum defeat and the subsequent sacking of seven cabinet ministers. " Of the numerous analysis of Kenya's post 2007 election violence, two stand out: Kenya National Commission for Human Rights (2008), Kanyinga, and Okello (2010). The former offers a near contemporaneous documentation of the unfolding violence, while the laUer employs a multi - disciplinary analysis of the genesis and conduct of the violence.

39

"ccord on 28 February 2008. The accord provided tor a constitutional grana coaiiuuri

government made up of PNU and ODM. The significance of Accord for the current study is

tliat it mandated a strictly timetabled conclusion of the constitutional review process is

(amongst other reform imperatives in its 'Agenda Four').'^

So important was the (international) pressure imposed by the Agenda Four timetable that

finalisation of the proposed constitution, its submission to a national referendum and its

eventual promulgation were able to effectively escape he various stumbling blocks that anti -

reformist elements had managed to impose on the constitution review process since the early

1990s.'̂ Following much brinksmanship over 'contentious issues' in, and multiple litigations

against, the document, the new constitution was finally endorsed by 66 percent of the vote in

the 4"̂ August 2010 national referendum.'"*

2.3 Kenya's 2010 constitutional devolution

Kenya's short - lived devolution experience, provided for in the in 1963 Constitution had

lacked either a substantive founding in the philosophies of its sponsor K A D U or the

victorious KANU, which subsequently had the responsibility of implementing it. Conversely,

the 2010 Constitution including its chapter 11 on devolution was the product of an

extensively consultative, decade - long process. While support for the 2010 draft was

arguably partisan in certain respects, the fluidity of Kenyan political camps has meant that

'"The other elements of Agenda Four included: re - establishment of the electoral commission; establishment of a boundaries review commission; attention to youth unemployment; attention to national cohesion; establishment of an independent constitutional dispute resolution court; reforms to the police; and the establishment of a national truth, justice and reconciliation commission. " Indeed the last of a number of challenges to the promulgation of the new Constitution was resolved just two days before the (inter)national event!

Amongst the contentious issues threatening the passage of the proposed Constitution were its accommodation of the Islamic Kadhi Courts, abortion on professional advice, and the chapter on land management (the first two of these were long established in Kenya's legal code and thus were not new to the 2010 Constitution). For the winding road to the August 2010 document, see 'Final Report of the Committee of Experts on Constitutional review' at http//wvvw.coekenya.go.ke/images/stories/resources/CoE-final-report.pdf.Accessed 12 May 2011.

40

membership of the 'camps' was not cast in stone.Among the political class, a major cause

of shifts in attitudes during the development of the constitution was perceptions about the

impact of its devolution provisions on their political fortunes. For example, political

gerrymandering during successive presidencies had seen the number of administrative

districts grow from the constitutional 47 to 256 on the eve of the constitution's

promulgation.'^ Thus, one threat posed by devolution in the evolving draft constitution was

how to decide on the final slate of sub - national entities and their effect on regional power

politics. The eventual decision to settle on a mere 47 counties was heavily disputed by

politicians from more populous regions of the country. The proposed constitution of Kenya

carried the day at the referendum, however, amongst its most significant aspects being the

diminution of the powers of the president, and the provisions for substantive devolved

government.

Successful devolution requires an efficacious design for the context within which it is to be

undertaken, especially in a situation such as Kenya where core elite has mastered the art of

self- reinvention with changing times. This ability had enabled the elite to embed themselves

strategically to reap the fruits of a unitary government presiding over a weak political system

with similarly weakly performing governance institutions that often belie the existence of

relatively substantive governance frameworks. It is thus significant for devolution initiatives

that Kenya had addressed integrity in governance since the NARC government's 2003

accession to power on a reformist agenda.'^ Nevertheless, even though the NARC

For example, the politicians who had been the primary opponents of the Wako Draft (2005) formed ODM and became the primary supporters of the proposed Constitution of 2010. " While elements in Kibaki's then Democratic Party obtained a 1997 High Court decision that Moi's new districts were unconstitutional, Kibaki would create similarly unconstitutional di-stricts.

" Among NARC'S pertinent reforms were the enactment and implementation to varied levels of the Anti -Corruption and Economic Crimes Act (2003), the Public Audit Act (2003), Government Financial Management Act (2004). Public Procurement and Disposal Act (2005). Public Officers Ethics Act (2005) and Fiscal Management Act (2009), alongside various institutional reforms.

41

^^overnment was able to revive the economy," it perrormea l e s s n u i a u i y w i m

improved governance, its reluctance to act against the indiscretions of the previous regime

soon manifesting itself in strong, persistent attempts to cover up grand corruption within its

ranks."

Article 174's objectives of'devolution' include:

1. Promoting democratic and accountable exercise of power;

2. Fostering national unity amidst diversity;

3. Enabling self - governance of the people towards their interrogation of the state;

4. Recognising the right of communities to self -management and development;

5. Protecting and promoting the rights and interests of minorities and marginalized

groups;

6. Promoting socio - economic development;

7. Ensuring equitable sharing of national and local resources;

8. Rationalizing further decentralization of State organs; and

9. Enhancing checks and balances.

Consequent to the foregoing and other governance shortcomings, the 2010 Constitution

underscores the need for transparency in governance. Article 10 lists the national values and

principles of governance that should bind all state organs towards sustainable development.

Leadership and integrity in governance are also addressed in Chapter 6, and Chapter 4

includes a Bi l l of Rights identified as being integral to the Kenyan democratic state. The Bil l

" Between 2003 and 2007, economic growtin averaged above 4 percent, up from negative real growth in 2000/01.

For the revelations of NARC'S llrst and only Secretary of Ethics who resigned and tied into self - exile, sec Wrong (2009). The NARC government instituted a judicial inquiry into what is arguably Kenya's most notorious swindle, the Goldenberg scandal, but promptly dismissed its findings by exonerating a former vice president and finance minister alleged to be at the centre of the scandal. On the scandal, see 'Report of the Judicial Commission of Inquiry into the Goldenberg Affair',

at http//www.tikenya.org/documents/Goldenberg%20Report.pdf. Accessed 12 April 2011.

42

ights secures economic and social riglits, including health, housmg, Tood, social securiry,

education, language, culture, and family - amongst other interventions (Article 43). T i also

underscores attention to special groups, e.g. children, the disabled and the youth. These

provisions reflect the government's obligations as a stakeholder, but also implicitly touch on

individual's responsibilities and obligations. To these ends. Article 132 requires the president

to annually "report...to the nation, on all the measures taken and progress achieved in the

realization of the national values..."

Article 174 lists the nine objectives of the governance approach, while Article 175 lists

relevant principles, including democracy, separation of powers, reliable revenues and gender

sensitivity. Article 176 (read together with the First Schedule) establishes 47 county

governments that will each have a county assembly and county executive committee. Article

188 provides for subsequent alteration of county boundaries and the criteria for doing so.

County governments are to decentralize functions and service provision while heeding

efficiency and practicability.

Part 5 of Chapter 11 addresses the functional relationship between the national and county

govemments, while the Fourth Schedule elaborates the distribution of service delivery

responsibilities. With the exception of omitted functions, which are to remain the preserve of

the national government, functions may be duplicated across the levels of government.

Article 187 does permit the transfer of functions and requisite resources for their delivery

between government levels.

On the composition of the five - year county assembly. Article 177 provides for an ex officio

Speaker, an elected member for each ward (county constituency), special seat members to

ensure that no more two - thirds of members are from the same gender, and representatives

43

of marginalized groups (i.e., the youth and disabled). In the case of these two categories, the

members are to be identified to reflect party strength across the county.

The county assembly will legislate as necessary to facilitate delivery of its mandated

functions, review the county executive committee's development - planning proposals and

supervise the committee's implementation of priorities (Article 185). The county executive

committee will include a directly elected governor, a deputy and members appointed by the

governor - with the approval of the county assembly - from among persons not of county

assembly (Article 179). The governor and the entire governor's office will be removable on

the grounds of gross misconduct and/or abuse of office and/or lack of mental or physical

capacity (Article 181). The county executive committee shall act as advisor to its legislative

assembly, implement county and national legislation, originate legislation, and manage the

affairs of the county (Article 183). County governments will establish offices as necessary

and fill them, and will be responsible for the good conduct of such officers within the context

of a national framework legislated by the National Assembly (Article 235 - 236).

In the performance of its duties, and in concert with the provisions for the National

Assembly, the 2010 Constitution empowers a county assembly to summon persons to give

evidence, enforce such attendance under oath, compel production of documentary evidence

and even interview witnesses abroad (Article 195). On the other hand, the Constitution also

compels county assemblies to conduct their business transparently, including facilitating

public and media participation in their proceedings and publishing legal materials in the

Kenya Gazette.

While encouraging cooperation between the two levels of government (Article 189), the 2010

Constitution nonetheless recognizes the potential for conflict, especially with regard to

respective legislation over which the national government is superior (Article 191). The

44

Constitution requires Parliament to ensure that county governments are adequately resourced

for their effective service delivery, but it also mandates Parliament to ensure county

compliance with national financial management systems, failing which, the national

government may intervene as appropriate (Article 190) and suspend the county government

(Article 192).

Alongside the division of roles between the national and county governments, the 2010

Constitution also addresses the financing of the activities of the two levels of government

towards an equitable society based on openness, accountability and public finance

management (Article 201 and 202). The taxation burden (Article 209) and resulting revenues

are to be shared fairly across the two government levels for the attainment of inclusive

equitable development. Al l government revenues must first be paid into the Consolidated

Fund; before they are withdrawn through an Act of Parliament (Article 206).^° Article 203

provides the criteria for sharing out the annual government revenue ring - fenced for county

governments, currently set at a minimum of 15 percent. Article 204 also provides for an initial

20 - year Equalization Fund of 0.5 percent of annual national revenues, to be spent with

advice from the Commission on Revenue Allocation (CRA) , for redressing primary social

and physical infrastructure inequalities in marginalized areas (Articles 215 - 217).

The county level equivalent of the national Consolidated Fund will be the Revenue Fund into

which county revenues (Articles 209(3) - (5), 218, 219, and 224) and Treasury subventions

(Article 220) will be deposited. Withdrawals will only be possible with the Controller of

Budget's approval endorsed by an Act of Parliament (Article 207). County assemblies may

approve of borrowing by their counties, but such borrowing will require a guarantee by the

national government (Article 212). County funds and accounts will be subject to pertinent

Cf. Article 222 of the Constitution

45

national systems, such as statutes governing procurement of goods and services as well as the

mandatory annual audit of accounts (Articles 225 - 227).

2.4.0 Discussing Kenyan Service Delivery since Independence

The demand for devolution at the eve of Kenya's independence was tainted by an underlying

racist desire to restrain the hand of the incoming government from the affairs of the White

Highlands owned exclusively by White Settlers. Although K A D U championed the demand

for devolution at the Lancaster House Constitutional talks, by December 1964 its members

would cross the floor of Parliament to join the unitarist K A N U party. This set the stage for

the 1965 constitutional changes that included the abolition of Majimbo and the transfer of the

bulk of taxation and service delivery functions from the regional governments to the central

government.

Yet, in the context of a nascent statehood, whether a unitary or a devolved government is

ideal for the development of nationalism is ultimately an empirical question. Section 2 above

emphasized the need to determine the optimal levels of, and responsibility sharing for,

devolution based on obtaining circumstances. Thus, having previously rejected devolution,

and with a number of political actors from the 1960s still on the scene, Kenyans' sustained

demands for devolution since the early 1990s reflect widespread disillusionment with the

country's more than four decades of unitarist government.

The following discussion of successive Kenyan presidencies underscores their significant use

of the carrot - and - stick approach to regional development, and a manipulation of policy

and its implementation that exacerbated regional disparities. Kenyan technocrats have

regularly produced well - regarded, technically sound, five - year national and sub - national

development plans, accompanied by the attendant operational plans and budgets. At the

46

policy implementation level, however, these plans have not always been put to use as the

basis for development interventions, a major finding of the country's inaugural Public

Expenditure Review (GOK, 1997). Some analysts have ignored the realities of the disconnect

between planning and implementation, as well as the initial divergent agro - ecological

heritages, to explain regional inequalities in terms of comparative regional effort.

2.4.1 The presidencies and unequal development

Into the Kenyatta era (1963 - 1978), the country's broad development environment suffered a

double jeopardy. First, the independence development blueprint, sessional paper No. 10 of

1965, provided a strategy that involved concentrating the small national investment capacity

in the areas with the greatest absorptive capacity, with mere surpluses being directed to

marginalized areas (GOK, 1965). While the comparatively greater economies of scale

available to a unitary state would arguably be more cost - effective in delivering much

needed development in the immediate post - colonial period, analysts have suggested that

Kenyatta's ambivalence towards Majimbo had more to do with his neo - patrimonialist

approach, which centred benevolence on himself and K A N U (Windner, 1992). The second

jeopardy lay in Kenyatta's being from the central Kenya heartland of the Kikuyu, amongst

the most expropriated areas during colonial settlement and thus the logical consequent

epicentre of the violent Mau Mau uprising against British settlement. Ironically, this

disproportionate expropriation meant that at independence, the people and region inherited a

disproportionately large stock of the 'absorptive capacity' stressed by Sessional Paper No. 10

of 1965, as measured by the region's greater integration into the colonial/modern/market

economy and the concomitant greater heritage of physical infrastructure. At independence,

therefore, four critical factors in Kenya's subsequent unequal development lay in

juxtaposition: Kenyatta's Kikuyu ethnicity; his Kikuyu people's proximity to 'living

47

settlerism' and its beneficial heritage; the African tradition of'eating chiets'r ana sessional

Paper No. 10 of 1965's fundamentally inequitable development strategy. Together, these

factors gave a development head start to the Kikuyu and their ancestral central Kenya -

above all other Kenyans.Areas or districts that were 'ancestrally' Kikuyu, or those to which

the Kikuyu migrated before and into independence, would have an advantage, fuelling the

need for a more objective, and indeed affirmative, approach to sharing the national cake.

Sessional Paper No. 10 of 1965 appeared to have been purposely designed to justify the ethno

- centric (read Kikuyu) 'eating of the Kenyatta years.^^ This is not to say that no Kikuyu

people or areas that were marginalized, or indeed that no non - Kikuyus enjoyed favour. On

the contrary, there was a class element to the enterprise, but the Kikuyu dominated it.̂ "*

Another significant moment in the Kenyatta years was the release of the Public Service

Structure and Remuneration Commission report in 1971 - popularly known as the Ndegwa

Report (GOK, 1971) - , which sanctioned public officers' participation in private business,

potentially undermining integrity over their management of state resources. The report

implicitly permitted - or at least facilitated - the award of government contracts under

serving officer's stewardship to their own companies.

The dynamics of inequalities during the Moi years (1978 - 2002) were different from those

of the Kenyatta years in significant ways, even though the second president fundamentally

followed his predecessor's footsteps. While Moi showed no aversion to the underlying

philosophy of the Kenyatta dispensation, it could hardly be the basis of the disproportionate

'̂ In sub - Saharan Africa tenure of State House of a member of one's ethnic group is invariably an opportunity to 'eat' the national cake, through favoured employment, contracts, public investment and such. For an exposition on Kenyan eating, see Wrong (2009). '̂ For regional public spending disparities during the earlier Kenyatta years, see Bigsten (1980). " While such a conspiracy theory seems to question the claim that Seiisional Paper No. 10 of 1965 was co -authored by planning Minister Tom Mboya a non - Kikuyu. the policies are consistent with Mboya's faith in capitalist accumulation.

Among the earliest analysis of ethnic inequalities in Kenya is National Christian Council of Kenya (1968), which illustrates the early dominance of Kikuyu names among the listed directors of Kenya's emerging corporate sector.

48

opportunities for Moi's hitherto marginalized peoples and homeland. Thus, even as Moi

constrained further aggrandizement opportunities for Kenyatta's orphaned elite and their

regions, his failure to manage the economy undermined the generation of resources that could

have been employed for a 'Marshall Plan' - were that his intention - for those areas in his

arid and semi - arid Rift Valley homeland that had been untouched by colonial and Kenyatta

era investments.

Moi lacked the intellectual fortitude to appreciate and address regional inequalities. During

his years in office, poverty in Kenya reached its highest levels since independence. While his

mid - 1980s District Focus for Rural Development (DFRD) planning strategy^^ could have

focused the spotlight on grassroots development bottlenecks, its full implementation would

have taken attention away from a highly narcissistic individual whose exploits typically

accounted for more than half the news broadcasts on the monopoly national broadcaster. His

parochial ingratiation of the emerging Kalenjin elite^^ did not have the same impact on his

people that Kenyatta's parochialism had had, mainly because of the two peoples' disparate

socio - economic starting points. Indeed, Moi's mismanagement of the economy undermined

sustainable accumulation by his own ethnic elite. Persisting national inequalities fuelled

demands for far - reaching constitutional reforms that would reduce the political centre's

direct influence on the periphery, demands that also came from his own backyard.-^'

NARC's accession to the presidency in January 2003 was on a platform promising a new

constitution within a 100 days, amongst many other pledges. The admittedly tight three -

month deadline presumed a mere packaging for publication of the highly consulted Bomas

" See office of the president (1985). DFRD centred costed planning on an all sector District Development Committee. The approach failed, however, because the vagaries of individual ministry discretion over budget resources hampered implementation. It's GTZ - sponsored review concluded that it was structurally undemocratic, giving undue weight to central government, notably the Provincial Administration.

See for example, Adar and Munyae (2001). " As was manifest in the campaigns of the 2007 general elections and the ensuing violence, Rift Valley peasants harboured perceptions of their land expropriated literally with Moi's connivance.

49

Draft Constitution that had provided for a five - tier devolution framework. Instead, NARC

revised the Bomas Draft into the Wako Draft, which would be defeated during the November

2005 referendum. Just as Moi's accession had created the 'Kenyatta orphans' -

predominantly Kikuyu - so too, Kibaki's accession created a Moi orphanage, predominantly

Kalenjin, ushering the Kikuyu elite's second 'turn to eat' into the new millennium (Wrong,

2009). Meanwhile, Kibaki's tenure since 2003 has seen extensive economic revival, based on

growth in tourism, construction, roads and telecommunications sectors. However, this revival

has barely diminished poverty and regional inequalities, both of which have traditionally

driven demands for devolution.^^

Public spending reforms undertaken during the three regimes to improve scrutiny, as well as

various seemingly misconceived and mismanaged decentralized funds, seem to have failed to

address these regional inequalities. Halfway through his tenure in 1971, Kenyatta introduced

the Special Rural Development Programme (SRDP), which was launched in only 5 of the 15

arid and semi - arid districts originally targeted (Livingstone, 1976; Ergas, 1982). Weak

government support was evident in the poor implementation of an initiative characterised by

excessive donor dependence, which in turn undermined grassroots participation. Nonetheless,

valuable lessons were learnt (although not necessarily optimized) about integrating

agriculture strategies with rural development strategies (such as in the rural works

programmes).

Moi's DFRD was based on the District Development Committee (DDC) of all sector heads

and stakeholders, chaired by the District Commissioner. As the DDC faded into near

oblivion, the International Monetary Fund (IMF) championed the poverty reduction strategy

GDP growth rose from 2.9 percent (2007). and per - capita income declined to Kshs. 31,900 in the years to 2003, then rose to Kshs. 36,000 by 2007 (KIPPRA. 2009: 3 - 4). The GDP share of the main employer -agriculture, forestry and fishing - has been erratic, recording 22 percent, 9 percent, 30 percent, 18 percent and 8.6 percent between 2003 and 2007.

50

planning approach that Kenya adopted in 1999, even as it launched its 15 - year Poverty

Eradication Plan (GOK, 1999). Contemporaneously, Kenya responded to evidence from the

1997 Public Expenditure Review (PER) , which indicated persisting weak links among policy,

planning and budget execution, by adopting the World Bank's medium - term expenditure

framework (MTEF) for budgeting.

Despite these initiatives, successive PERs have continued to reveal fundamental weaknesses

in the focus of public spending. The government met only three expenditure management

benchmarks out of 15 in 2003, and just four out of 16 in 2004 (GOK, 2004). Critically, the

PERs revealed persistent weak spending of the development budget for investments that

could open up hitherto marginalized areas (averaging a modest 52.9 percent for the financial

years 1998/99 to 2002/03).

These expenditure reforms were accompanied by the introduction of various decentralized

fiinds, effectively inter - governmental transfers ( IGFTs), to shore up service delivery. For,

example, the Road Maintenance Levy Fund (RMLF) was introduced in 1994 and the Local

Authority Transfer Fund ( L A T F ) in 1998 to help local authorities (LAs) meet their service

delivery and debt alleviation obligations. L A T F required councillors to involve citizens in

their respective wards in democratically generating a Local Authority Service Delivery

Action Plan that it would fund. Since 2003, the Constituencies Development Fund (CDF) has

channelled a minimum of 2.5 percent of national revenue to the constituency level. Bigsten

(1980) had early flagged the regionally skewed nature of Kenya's public spending. An

analysis of public spending in the early years of the millennium showed that little had been

done to address Bigsten's concern: The central government's traditional incrementalist

budgeting approach had persisted (Kiringai, 2006). Data from the World Bank's Economic

Update of 2010 explain the failure of growth to have a more positive impact on poverty and

inequality: The agriculture and fisheries sector accounts for an average of 26 percent of GDP,

51

placing it eighth overall on average growth (PREM Unit for Africa Region, 201U). Yet, tne

sector accounts for nearly 60 percent of national employment. Such outcomes have

perpetuated perceptions among poorer Kenyans that their circumstances could be better i f

they had greater autonomy over the identification and implementation of own development

initiatives. In turn, this has led to demands to go beyond the ad hoc decentralized funds

towards the more structured decentralization framework offered by devolution.

2.4.2 Delivering development since independence

Arguably, Kenya's colonial heritage included a more holistic governance framework than

was the case with many other sub - Saharan African countries with which it gained

independence in the 1960s. The reason for this is likely that Kenya, like Rhodesia (later

Zimbabwe), was among the few (British) settler colonies for which the white settlers did not

envisage a transition into an African - led independence. Thus, notwithstanding the

disagreements between the colonial government and the white settlers over the future of the

colony, governance institutions were designed to perpetuate colonialism, or at worst, minority

rule as occurred in Zimbabwe. Unlike other European colonials, however, the British ruled

indirectly through an 'educated' domestic African class.^^

Thus, on the eve of independence, indigenous Kenyans slated to take over the reins of

government were well versed in the colonial style, having worked alongside British

administrators and settler politicians in a system literally transplanted out of London.^" On

acceding to independence, Kenya needed an intellectual rationalization of its colonial

heritage that would bring African interests to the fore. Yet, this was a task that founding

President Kenyatta simply did not desire to undertake, preferring to perpetuate colonial

While the British developed a local legislative council in the colony, for the French, parliament was in Paris where African Deputies like L .S . Senghor attended sessions.

For an example, Nyachae (2010) narrates a seamless, literally pre - ordained, progression from clerical officer to the top of the Kenyan public service, before venturing into politics.

52

fiindamentals that had been so effective against African resistance,

followed in Kenyatta's footsteps, undertaking reforms to increase his powers, rather than to

improve the context for more effective development to reduce poverty, disease and

ignorance.

Kenyatta substituted the Majimbo Constitution whose devolution could arguably have

brought development prioritization, implementation and benefits nearer the people, with an

omniscient, omnipotent centralist system that brooked no dissent. Kenyatta's years witnessed

various significant, related political and public financial (mis)management developments,

which are pertinent for Kenyans' toasting of the 2010 Constitution and its provision for

devolution. The first was the rise of political intolerance, which precipitated often-

unprocedural constitutional changes aimed at enabling the president to deal with perceived

dissidence. By 1969, the Preservation of Public Security Act of 1950, which allowed

detention without trial, would be used to proscribe oppositionist Oginga Odinga's Kenya

People's Union (KPU) party and inaccurate the party's entire leadership. I f the

constitutionality of such measures belied their inherent impunity, the same exemption could

not be made of the 1975 arrests of parliamentarians Martin Shikuku and J.M. Seroney in the

sanctified precincts of Parliament, and their subsequent detention without trial.^^ With such

acts, Kenyatta had set the standard that Moi would follow zealously.

A further significant event, as pointed out above, was the adoption of the 1971 Ndegwa

Report, which opened the way for the civil servants to profit from their positions through the

'̂ See Branch and Cheeseman (2006). Tanzania's Julius Nyerere illustrates a presidency and national leadership that struggled to rationalize the colonial heritage against their country's perceived needs for national development; his choice of Kiswahili as the official and national language arguably generated national cohesion. Nkrumah (1965) succinctly analyses the 'neo - colonialism' evident in the conduct of leaders like Kenya. -̂ Shikuku's crime was to aver that KANU was dead, while Deputy Speaker Scroney's was to rule in response

to a point that it was unnecessary for Shikuku to substantiate the obvious.

53

direct acquisition of procurement contracts and/or kickbacks. Related to the procurement

issues, the third area of significance was the creeping failure of the public audit function. It is

understandable that the impunity fostered by the Ndegwa Report would lead public officers

to hide their tracks by falsifying returns, or even failing to produce them, for audit purposes.

On the financial side, the recurrent failure to act on public audit queries encouraged further

indiscretions, undermining service delivery. Into the Moi era, these malpractices had spread

to such critical areas as revenue generation, undermining the timely flow of adequate

resources to district sector heads and their delivery of services. Contemporaneously, and in

the face of a highly muzzled parliament that could not effectively conduct its oversight

function over public finances, Harambee fund raising emerged as the basis for the generation

of investment resources for the social sector infrastructure.^'' Initially popularized by

Kenyatta, Harambee became an indispensable complement to public expenditure resources

and since these un - audited Harambee funds, the aggregate resources in the hands of public

officers were subjected to extensive malfeasance. Significant for the later demands for

devolution was the fact that the success of Harambee fund raising depended on the

extensively differentiated local resource potential for development; it was more favourable

for areas with better - off populations and political associations with government

potentates.̂ ^

In the early 1980s, widespread impunity over the management of public resources would

extensively undermine the government's capacity to both generate revenue and expend it

judiciously, thereby increasing reliance on donor budgetary and other support. This opened

the door to the World Bank and International Monetary Fund - designed structural

" The Ndegwa Report probably merely formalized a context of long -standing indiscretions. For example, Ndegwa (2006). reports Kenyatta's capricious eve of independence allocation to himself of a settlement Trust Fund plot in the 01 Kalou settlement scheme. For such indiscretions over land, see for example. Hunt (1985).

For an early analysis of the significance of Harambee, see Mbithi and Rasmusson (1977). " For an education sector case study, see Miguel (2000).

54

adjustment reforms, which included such unpopular measures as social sector cost

recovery/sharing characterized by marked differentials in vertical and regional abilities to

pay.̂ ^ It is within this context that sectorally ad hoc decentralized funding was developed,

such as the L A T F and R M L F . The legislative and institutional provisions for these funds,

however, suggested that the government had learnt from the failure of DFRD, an earlier

attempt at broad decentralization.

Failed budget resource flows induced the need for greater localized fund raising, providing

incumbent and aspiring politicians with platforms to market themselves to prospective

electors (Nyanjom, 2009). The non - availability or erratic flows of budgetary resources

rendered district departmental heads impotent to do their work, aggravating fragile relations

with sitting or aspiring politicians who assumed for themselves an oversight function over

civil servants. On the other hand, the growing demands for money placed on incumbent and

aspiring politicians increasingly transformed them into grassroots 'development officers', and

diverted parliamentarians away from their oversight role over public revenue generation and

spending, as well as lawmaking. Growing Harambee demands have caused unscrupulous

parliamentarians to develop a seemingly insatiable appetite for increased, untaxed

remuneration, as well as increased constituency - focused decentralized funds. Regrettably,

the systems under which these ad hoc decentralized funds have been administered have

contained loopholes allowing their manipulation, leading to sub - optional outcomes.

The 1989 introduction of health cost sharing was associated with an abrupt 40 percent reduction in public facility use rates, causing the immediate suspension of the reform. Sec Mbugua (1993).

55

C H A P T E R T H R E E

3.0 DEVOLUTION'S C O N T R I B U T I O N T O E C O N O M I C D E V E L O P M E N T : C A S E OVERVIEW O F B R A Z I L , CHINA AND LESSONS F O R K E N Y A

3.1 Introduction

An extensive form of decentralization involving the transfer of authority and resources to

sub-national governing structures has taken place in the past 30 years (Rodriguez - Pose and

Gill, 2004). Referred to as 'devolution', this trend has been noticed in both developed and

developing nations. In a devolved system, the central government transfers authority for

decision - making, finance, management and service delivery to quasi - autonomous units of

local government that elect their own councils, raise their own revenues, and have

independent authority to make investment decisions (Litvack et al., 1998). Many countries try

to use decentralisation as a tool to drive economic growth. However, a large number of

researches have concluded that devolution is a double blade sword - harmful effects may also

accompany the benefits brought by devolution.

Devolutionist and politicians believe that pursuing the "economic dividend" of devolution

could bring forward and contribute to economic development (Keating, 1998; Morgan, 2002,

2006). In addition, devolution could bring political proximity between government and

citizens widening the scope for greater transparency of political processes and greater

accountability of those who direct them (Azfar et al, 1999; Ebel and Yilmaz, 2002; Putman,

1993; Rodriguez - Pose and Bwire, 2004). However, some scholars point out the negative

effects of devolution and the variety of forms of processes implemented by different

countries (Birds and Smart 2002): "transfers on policy outcomes differ from country to

country, no simple, uniform pattern of transfers is universally appropriate". Moreover, the

economic development effects of devolution also depend on which force drive the devolution

process (Rodriguez - Pose and Gil l , 2004).

56

As prominent as tiie devolutionary trend itself is the change in rationale behind it.

Traditionally advanced on cultural, ethnic, and religious grounds, in the late 20* century

devolution has increasingly been promoted as a means to achieving sustainable economic

development (Rodriguez - Pose and Gil l , 2005). Despite being used as a rationale, however

the link between devolution and development is rarely examined as explicitly as it should be

(Morgan, 2002). This chapter aims to explore how the devolution process affects Brazilian

and Chinese economic development, especially by looking into the area of fiscal

decentralisation and its consequences.

3.2.0 Brazil

3.2.1 Introduction

Brazil has a long history of federalism going back to the nineteenth century, when a federal

republic was established in 1889. Since then, devolutionary trends in Brazil have largely

followed political cycles, with authoritarian spells favouring a greater centralization of power

and democratization being closely associated with devolution (Rodriguez - Pose and Arbix,

2001). Thus, the return to democracy with the Constitution of 1988 following a military

regime marked a great increase in the political influence and fiscal autonomy of state and

municipal governments (Rodriguez - Pose and Gil l , 2004). The trend was accompanied by a

high growth in the share of federal tax transfers to sub - national governments, which

climbed from 18 percent to 44 percent from 1980 to 1990 (Serra and Afonso 1999, p.5).

Brazil is one of the most decentralised democracies in the developing world, with sub -

national governments accounting for about half of public expenditure (Dillinger and Webb

1999; p. l ) . The country consists of 26 states and the Federal District of Brasilia, which are

represented in the Chamber of Deputies based on population and in the Senate on an equal

basis of three senators per state. Brazilian states are responsible for a wide and expanding

range of taxation, expenditure and investment functions, and are the only known sub -

57

national units along the Canadian provinces to administer their own value - added tax, called

the ICMS (Rodden, 2003).

The following plot rudimentarily indicates a slightly negative relationship between Brazil's

devolutionary trend and economic growth (Figure 3.2.1). However, due to the large number

of factors affecting both of these variables, no conclusion can be drawn from this simple

representation but in - depth case - study analysis of different ways in which devolution has

affected Brazil's economic development entails the following as part of this chapter to give

detailed overview.

Figure 3.2.1: Devolution and Economic Growth in Brazil 1980-2000

0. Q

ns

a u

a.

10

8

6

4

2

0

-2

-4

-6

-8

-10

•

• growth

10 20 30 • - • -

40 50

•

Sub national share of total government expenditure (%)

Sources: Growth of GDP per capital (%) from The Penn World Table Version 6.2; sub - national share of total government expenditure (%) from I M F Government Finance (own representation).

3.2.2 Devolution and local economic development policies in Brazil

One of the most prominent contributions of devolution to economic growth, as argued by its

advocates, is through policy innovation. Namely, a certain degree of autonomy for

58

investment and expenditure decisions allows sub - national units to pursue policies for

economic development tailored to their own local needs and endowments (Gill et al., 2004).

Hiving this freedom, and being responsible for their own welfare, the regions are more likely

to embark on creative attempts to raise their own revenues (Rodriguez - Pose and Gil l , 2005)

and supply public goods and services (Thiessen, 2003).

Devolution is thus expected to make public expenditure more efficient (Marinez - Vasquez

and McNab, 2005), create opportunities for local regimes to mobilize around sustainable

development (Benneworth and Roberts, 2002) and contribute to a better coordination

between various local actors (e.g. local government, businesses and civil society). Most,

importantly, devolution is expected to provide each territory the autonomy to pursue a

development strategy tailored to its own economic potential and competitive advantage

(Martinez - Vasquez and McNab, 2003a), thus contributing to greater national economic

development.

In Brazil, the pursuit of economic development strategies at the local level coincided with the

country's recent devolutionary trend. Sub - national governments' participation in the

promotion of local economic development has surged dramatically over the last decade. A

survey reveals that by 2001, 35 percent of the country's municipalities had implemented

some type of fiscal incentive program and 52 percent had implemented some type of

employment or income generation program (Biderman and Barberia, 2005, p.6). Most

importantly, studies have shown that this new trend of the growing presence of decentralised

development initiatives can largely be attributed to Brazil being one of the countries to give

the most autonomy to municipal governments (Biderman and Barberia, 2005).

Rodriguez - Pose et al. (2001) illustrates this trend of Brazilian municipalities' increasing

involvement in local economic development with the case of A B C region in the Sao Paolo

59

metropolitan area, where economic crisis and restructuring have led to inter - municipal

cooperation and the creation of a local economic development council involving civil society,

the public sector, local businesses and trade unions. The authors acknowledge that this

initiative has in part been driven by greater municipal autonomy, giving local governments

the capacity to take a more pro - active stance in implementing innovative initiatives for

endogenous development.

Thus, in the context of empowering local development strategies, development has, arguably,

made a positive contribution to economic development in Brazil. Yet, working against this

positive contribution are potential perverse effects of the devolutionary trend, whose

manifestations have been differently mitigated or exacerbated through the country's policy

environment.

3.2.3 Devolution, Inter - territorial competition and efficiency concerns in Brazil

On the negative side, through the contraction of the central government's role in attracting

and allocating industry (Rodriguez - Pose and Gil l , 2004) and the delegation to regions of the

responsibility for their own revenue generation and economic development, devolution can

push sub - national territories to competition for the attraction of foreign direct investment

(FDl). In a belief that FDl will spur innovative capacity and have a stimulating effect on the

local economy (Vazquez - Barquero, 1999), sub - national could increasingly engage in

competition for the attraction of firms. However, as FDl has become more footloose and less

constrained by traditional location factors in recent decades (Chesire and Gordon, 1998), this

competition is likely to take the form a "race - to - the - bottom" in general incentives (tax

breaks, grants, donations of land, etc.) offered by each region.

Such strategies can have a clearly detrimental effect on economic development. Firstly, the

incentives offered to firms will put a strain on fiscal budgets and may cause regional

60

governments to under - provide for public services and basic infrastructure (Serra and

Afonso, 1999). Secondly, when regions sell themselves out based on generic incentives,

instead of building upon what already exists in the local economy, the possibility of a synergy

between the attracted firms and local economic activity is greatly diminished (Biderman and

Barberia, 2005). Thirdly, engaging in race - to - the bottom causes most of the value of such

incentives to accrue to the investors themselves, who are able to exploit their monopolistic

power at the regions' expense (Cheshire and Gordon, 1998). Most importantly, the incentives

offered represent a deadweight loss and source of inefficiency to the nation as a whole, as

they are aimed at affecting the location decisions for firms that had the intention to locate

within the country in the first place (Rodriguez - Pose and Gil l , 2005).

In Brazil, the manifestation of this detrimental effect of devolution has been borne out in the

form of a "Guerra fiscal" between different states for the attraction of FDl , notably in the

automobile industry. Between 1995 and 1999, car manufacturers invested over US $12

billion in Brazil (Rodriguez - Pose and Arbix, 2001, p. 134). Far from being growth -

enhancing, however, this investment spurred a fierce and wasteful rivalry between Brazilian

states, in trying to influence companies' location decisions. In exchange for locating within a

region, firms were increasingly offered tax breaks, favourable loan agreements, donations of

land, grants, etc. The car companies encouraged such competition and played Brazilian states

off against each other in order to achieve the best possible deal. The final outcome of these

bidding wars was pure waste, since any possible increase in local welfare was neutralized by

the costs of attracting FDl , which would have been located in Brazil in any case, leading, in

the long - run "towards greater dependency, greater instability, greater disparities and

probably greater poverty" (Rodriguez - Pose and Arbix, 2001, p. 152).

Arguably, the detrimental effect of devolution on inter - territorial competition has been

induced, or at least exacerbated, by inadequate policy decisions and institutional framework.

61

Firstly, incentives and subsidies as a means of attracting companies were encouraged under

the New Automotive Regime - a federal government initiative for fostering FDl in the

automobile sector (Rodriguez - Pose and Arbix, 2001). Further, this practice was made

possible by state governments' right to levy their own value - added taxes (Biderman and

Barberia, 2005). Most importantly, when the bidding wars got out of hand, the federal

government failed to set up an adequate institution for the regulation of financial incentives

offered by the competing regions. Ideally, such an institution would discriminate against FDl

attracting policies which are diversionary (i.e. attract investment away from other regions)

and promote those that are capacity - enhancing (Cheshire and Gordon, 1998). The National

Fiscal Policy Council, which on paper should fulfil such a role, was ineffective as it operated

on a unanimity rule, where any state has the right to veto a decision (Rodriguez - Pose and

Arbix, 2001).

In sum, the negative effects of devolution on inter - territorial competition in Brazil have

been borne out partly as a result of an inadequate policy and institutional framework, to the

detriment of economic development, and in opposition to devolution's positive impact.

3.2.4 Devolution and spatial disparity concerns in Brazil

Through a mechanism similar to that of promoting inter - territorial competition, devolution

can often lead to increased inequality between the regions of a country. In a devolved system,

spatial equality usually comes second to the main objective of promoting an economic

dividend within each region (Agnew, 2000). By putting each in charge of its economic

development and exposing it to competitive forces from its neighbours, devolution carries

with it implicit fiscal, political and administrative costs which fall more heavily upon those

regions with limited adjustment capacities, resulting in differential rates at which regions can

capitalize upon the opportunities it offers and leading to greater development of initially rich

and powerful regions to the detriment of poorer areas (Rodriguez - Pose and Gil l , 2004).

62

In addition, insofar as redistribution to minimize spatial disparities is a rate of the central

government, the reduction of the latter's power and resources through the devolutionary

process can reduce its capacity to correct such disparities and thus increase inter - regional

inequality (Prud'homme, 1995). Further, from a dynamic point of view, devolution can bring

about a regressiveness in the allocation of government expenditure, as the empowerment of

the states in deciding how transfers are allocated gives disproportionate negotiating strength

to the richer ones, whose degree of influence over the central government is higher, allowing

them to secure a disproportionate share (Rodriguez - Pose and Gil l , 2003). Thus, devolution

can reinforce regional inequalities, which may prove detrimental to economic development

due to their negative welfare consequences (Cheshire and Gordon 1996, cited in Agnew,

2000) and the under - utilization of resources, such as infrastructure and labour, in lagging

regions (Armstrong and Taylor, 2000), for instance.

In line with the theoretical predictions above, empirical evidence from various developed and

developing countries indicates a clear coincidence of increasing spatial disparities with

devolution initiatives. Most surprisingly, however, Brazil is a notable exception to this trend,

experiencing a 16 percent decline in spatial inequalities between the 1980s and 2000, when

devolutionary efforts were on the rise (Rodriguez - Pose and Gil l , 2004, p. 2098). As in the

previous case of inter - territorial competition, Brazil's policy and institutional framework

has played a role in affecting the link between devolution and regional disparities. In contrast

to the previous case however, the role has been positive, comprising of an effective

mitigation of the negative consequences of devolution on spatial disparities.

Firstly, the fact that devolutionary trends have not been accompanied by an increase in

regional disparities can be attributed to the existence in Brazil of a fairly developed and

redistributive fiscal transfer system, which, according to Prud'homme (1995) is an important

tool for controlling the negative effects of devolution on spatial disparities. The federal

63

government assumes exclusive responsibility for the taxes on personal and corporate income,

payroll, wealth, foreign trade, banking, finance and insurance, thus having control over a

large revenue pool from which transfers to the state governments can be made (Rodden,

2003). These transfers are fixed by formula, which determines a participation co - efficient

for each state that is based mainly on re - distributive criteria, with about 85 percent of total

funds being set aside for the poorer regions - the North, North - East, and Centre - West

(Rodden, 2003, p. 8). Further, because the majority of federal taxes are generated in the south

and south - east, the extent of regional re - distribution is even greater than this figure would

suggest (Dillinger and Webb, 1999).

Finally, the Brazilian federative system is also designed to generate a significant process of

redistribution in terms of political power and congressional representation of the states (Serra

and Afonso, 1999). In the Federal Senate, where each state is represented by three senators,

rich and poor regions enjoy equal representation. This equality in representation is of great

importance, as the Brazilian Senate is responsible for analyzing and voting all bills and

constitutional amendments that come out of the Chamber of Deputies.

In sum, in contrast to the case of inter - territorial competition, the institutional and policy

framework of Brazil has contributed to mitigating the perverse effects of devolution on

spatial disparities and therefore on economic development.

3.2.5 Conclusion: Lessons for other developing countries

As a logical conclusion to the arguments presented on devolution in pursuit of economic

development in Brazil, it can be asserted that, for the case of Brazil, devolution has affected

economic development through various complex channels, and the extent to which the two

factors have been positively related has in part been dependent on institutional - specific

policies.

64

The experience of Brazil under devolution provides for other developing countries

undergoing similar changes, with regards to accommodating the potential consequences of

transferring resources and power tiers of government. As the case of Brazil clarifies the

negative consequences of devolution on equity and efficiency could be overcome through

policy, yet, if left unmitigated, they can have clearly detrimental consequences for economic

development.

3.3.0 China

3.3.1 Introduction

This section examines different aspects of devolution that both favour and deter the local

economic development prospects of Chinese provinces and localities. Despite the accelerated

economic growth of China, there are rising inequalities among regions and a growing concern

on inefficiencies and corruption of the sub - national levels of government. The section

presents how the devolution process affects Chinese economic development, especially by

looking into the area of fiscal decentralisation and its consequences.

3.3.2 Devolution in China: A special case

China's economic reform began in 1978. There were many political and social mistakes

gradually unveiled after the 1970s, the emergence of 1978 economic reforms has began two

years after Mao's death. Instead of the highly centralised fiscal structure of Mao's era, Deng

Xiaoping became in power and introduced his new fiscal decentralisation structure, notably

by a fiscal contracting system known as eat in separate kitchens (Rodriguez - Pose and Gil l ,

2004) or eating from separate stoves (Yeah, 2007). Shift of the tax collection duty from

central government to sub - national governments was the main issue and started in the early

1980s. In a result, some sub - national authorities were conferred with the rights for their own

budgets and to manage their own finance (Yeah, 2007). In 1994, China has its fiscal reform

to correct some errors in early stage of fiscal decentralisation, mainly the abolition of the

65

traditional formula of central province fiscal transfers to a gradual negotiation based

contracting (Ping, 2000).

China has distinctive aspect of decentralization in which Chien and Gordon (2008) call it an

asymmetric process of decentralisation (see figure 3.3.2 below):

"Allowing substantial economic autonomy to sub - national units, while maintaining a centralised system of political control - and with acceptance that some regions would grow faster than others. This opened the way for personally ambitious officials in provinces and cities to adopt innovative .strategies both for promoting local growth and for mobilizing the resources required for this purpose. With narrowly defined economic goals, little constraint on external effects, and often ambiguous positions in relation to the public/private divide, sub - national administrations could take on many of the characteristics of North American growth machines, albeit in a quite different context" (Chien and Gordon, 2008. P. 41 -42) .

Figure 3.3 2: Asymmetric decentralisation in China

Centralized career

appointments,

yearly performance

target, 5-year plan

Local

V govemments

CUpper-level \

governments J

Fxonomic centralized

power resources

Centralized

performance review,

career reappraisal

Development plans, preferential

policies, budget allocations and

governmental investments

Economic performances, particularly in FDl, industrial output, GDP, trade, fiscal revenues, jobs

Source: Chien and Gordon (2008)

3.3.3 Devolving responsibilities

According to Donahue (1997), devolution engenders resources and responsibilities'

decentralisation, which could be influenced by both national, and sub - national governments.

In China, there are both separate and joint administrative duties amongst Chinese levels of

government. According to Yeah (2007), the central government is responsible for macro -

economic management, foreign affairs, national defence, customs, post and communications.

66

among other activities. Joint responsibilities include urban development, finance, civil affairs,

ethnic affairs, justice, supervision and population planning.

However, in the early period of fiscal decentralisation central government was devolving

more responsibilities than resources, 80% of all tax collected by the sub - national

governments were allocated by central government (Bahl, 1999). In figure3 shows the

controversial situation after 1994 when China had its fiscal reform by giving away fiscal

autonomy to the region rather than fixed fiscal transfers (Ping, 2000). So in results, giving

incentives for state to collect their own taxes, and managing their own expenditures.

Figure 3.3.3. China: Central and Sub - national government expenditure as percentage

of total

)0 ^ —•—central -•=rocar

0 I 1 1 1 1 1 1 1 1 1 1 1 ' 1 1 1 1

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

After the fiscal reform in 1994, central controls were reduced in investment, land usage,

banking and management of publicly owned companies (Chien and Gordon, 2008). For

instance, the power of the state planning committee was reduced transferring more

responsibility for managing trade and FDl activities to sub - national governments (Zhang,

1994; Huang, 1996). Even though, there have been critics regarding economic growth in

China, Beijing and the Communist Party still have a firm political conviction that even poor

results in some regions would not threaten the process (Lichtenstein, 1991; Woo, 1999;

67

Fewsmith, 2000; Chien and Gordon, 2008). In consequence, central government does not

worry about territorial variation in this perspective, and gives certain autonomy to the

province officials as long as long as it will not shake the party's power and control. However,

Yeah (2007) argues:

"To the Beijing government, the decentralisation that has been going on since the beginning of reform in 1978 has financially weakened the hand of the central government, besides growing worries over the widening inequalities between the increasingly prosperous coastal regions and the inland regions that were left behind that had the potentials to lead to in.stabilities that could threaten the Communist Party's monopoly of political power" (Yeah, 2007, p. 8).

Another issue is losing trade in the domestic market by giving autonomy to the provincial

governments. That is the result of local protectionism described by Chien and Gordon (2008).

Local produced goods (no involvement of FDl) in one province are hardly to be seen in other

province, while at the same time there was a rapidly increasing amount of trade profit by

overseas markets, inter - provincial co - operation trade was at best stagnating or falling

sharply as a proportion of sales or GDP (Kumar, 1994; Poncet, 2003, 2005). Consequently,

sub - national governments gained great fiscal and decision controls and often ignore the

importance of the domestic markets and inter - provincial co - operation in trading. Focus on

attracting FDl seems becoming the only solution for promoting economic growth, it could be

potentially dangerous and harmful for Chinese economy as a whole by putting all eggs in one

basket. China could lose FDl by rising competition from other strong contestants in the world

who are participating contemporarily in the globalisation economy such as India and who

have similar factor endowments than China. Later in this section, it is explained why local

leaders are very interested in FDl as the main development tool and what could be the

consequences.

68

3.3.4 Devolving Resources

China has gone through a few times fiscal reform in post - Mao's era (World Bank, 1990;

Wrong et al., 1993; Zhou, Yong, 1992, 1998), unified fiscal systems were abolished and a

more decentralised fiscal system was instituted (Yeah, 2007). Central and sub - national

governments' expenditure generally keeps the ratio of 3:7 in the last 25 years (figure 4).

Zhang and Zou (1998) produced a more detailed work on how central and local government

share their spending, mainly through 3 ways (Figure 3.3.4), budgetary spending, extra -

budgetary spending, and their sum consolidated spending:

Figure3.3.4. China: Central and Sub - national government expenditure as percentage of total government expenditure

0 H 1 1 1 1 1 1 1 1 1 — I n 1 1 r

1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year —•—Central U Local

Source: Adopt from Yeoh (2007)

69

Figure 3.3.5: Share of Spending

T. Zhong. H. Zou/ Journal of Public Economics 67 (1998) 221 -240

Share of Budgetary Spending Relative to GDP

197819791980198119821983198419851986198719881989199019911992

Share of Extra - budgetary Spending Relative to GDP

70

Share of consolidated spending Relative to GDP

50%

a. Q O o OX)

c ••5 § Q.

C/5

I Series2

iSeriesl

^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^

Source: Adopt from Zhang and Zou (1998)

3.3.5 Disparities

There is little doubt globalization caused disparities between places, but the devolution effect

remains ambiguous. Although devolutionists deny that devolution can cause regional

disparities, large empirical evidences manifest that is not a coincidence. Rodriguez - Pose

and Gill (2004) argue that fiscal impact of devolution is likely to cause spatial inequalities.

They found a negative correlation between devolution and regional disparities in USA, India,

Germany, Spain, Italy and Mexico. Zhang and Zou (2001) found a negative correlation

between devolution and regional disparities in China. Devolution cause more disparities (Gill

et al., 2004) especially in the context of developing countries than developed countries (Bird

and Smart, 2002; Litvack, 1998). Regional disparities started with "open and reform" policies

for the coastal region to "get rich f i rsf (Zhong and Zou, 1998, 2001; Chien and Gordon,

2008), and spatial disparities increased gradually between 1978 and 2004 (see figure 7).

According to Zhang and Zou (1998, Table 2) where Guangdong, Jiangsu, Zhejiang and

Fujian enjoy over 12% increase in economic growth, and a doubled figure for provinces such

as Heilongjiang, Xinjiang and Qinghai. Another issue is winner picking which central

71

government favour the ricn region r a m c i mai l iii>^ . „

noticed: ". . . the ratio of provincial budgetary spending to central budgetary spending ranged

from 0.01 in Ningxia to 0.09 in Guangdong. "Moreover, Yeoh (2007) compares the richest

province to the poorest in China by looking into criteria such as GDP, population,

government revenue and expenditure (table 3), similar results has been produced by Zhang

and Zou's showing that central government expenditure in the five richest regions is twice as

much as in the five poorest ones.

Table 3.3.6: China: Fiscal and Economic Concentration in Rich£ and Poor£ Provinces (Sheng), Zizhiqu+ and Zhixiashi++ (%)

Year 2003 2004

Five richest provinces, zizhiqu and zhixiashi* Percentage of GDP 26.10 25.70 Percentage of population 13.10 13.35 Percentage of government revenue 37.62 36.96 Percentage of government expenditure 27.44 27.06 Five poorest provinces, zizhiqu and zhixiashi** Percentage of GDP 8.73 8.73 Percentage of population 17.23 17.22 Percentage of government revenue 8.79 8.80 Percentage of government expenditure 12.60 12.37 Key:

£ By GDP per capita

+"autononious region"

++"direct - ruled/Independent municipality". I.e. municipality under the central government

''Beijing, Zhejiang, TIanjIn, Shanghai, and Guangdong

*''Guizhou, Gansu, Guangxl, Yunnan, and Anhui

Source: Adopt from Yeoh (2007)

3.3.6 Devolution, economic efficiency and transparency

Devolutionists such as Gates (1972, 1973) advocate that local governments are more efficient

than central governments to deliver public services by matching localities' needs and

redistributing resources. Evidence shows the radical economic growth amongst Chinese

provinces. Does this growth fully reflect China's devolution? It is important to note that a

72

government favour the rich region rather than the poor. Zhang and Zhou (1998, 2001, P. 61)

noticed: " . . . the ratio of provincial budgetary spending to central budgetary spending ranged

from 0.01 in Ningxia to 0.09 in Guangdong. "Moreover, Yeoh (2007) compares the richest

province to the poorest in China by looking into criteria such as GDP, population,

government revenue and expenditure (table 3), similar results has been produced by Zhang

and Zou's showing that central government expenditure in the five richest regions is twice as

much as in the five poorest ones.

Table 3.3.6: China: Fiscal and Economic Concentration in Rich£ and Poor£ Provinces (Sheng), Zizhiqu+ and Zhixiashi++ (%)

Year 2003 2004 Five richest provinces, zizhiqu and zhixiashi* Percentage of GDP 26.10 25.70 Percentage of population 13.10 13.35 Percentage of government revenue 37.62 36.96 Percentage of government expenditure 27.44 27.06 Five poorest provinces, zizhiqu and zhixiashi** Percentage of GDP 8.73 8.73 Percentage of population 17.23 17.22 Percentage of government revenue 8.79 8.80 Percentage of government expenditure 12.60 12.37 Key;

£ By GDP per capita

+"autononious region"

++"direct - ruled/independent municipality". I.e. municipality under the central government

''Beijing, Zhejiang, Tianjin, Shanghai, and Guangdong

'"'Guizhou, Gansu, Guangxi, Yunnan, and Anhui

Source: Adopt from Yeoh (2007)

3.3.6 Devolution, economic efficiency and transparency

Devolutionists such as Gates (1972, 1973) advocate that local governments are more efficient

than central governments to deliver public services by matching localities' needs and

redistributing resources. Evidence shows the radical economic growth amongst Chinese

provinces. Does this growth fully reflect China's devolution? It is important to note that a

72

large proportion of growth is accounted for the participation of China in the globalisation of

the world economy.

China is a huge country in terms of both its geographical and population scale. It comprises

many different levels of governments. According to Yeoh (2007, p. 4): "The sub - national

governments totalled around 50 thousand units, viz. 31 sheng (provinces)/ Zizhiqu

("autonomous regions")/ Zhixiashi (direct - ruled municipalities), 333 prefectures, 2148

counties and 48697 townships": and a unique hierarchical administrative structure presented

in figure (6). In addition, there are 56 different ethnics concentrated or spread across

provinces in China. The central govemment by no means could deliver efficient policy to

meet the local needs in this perspective, even without considering satisfying local needs when

designing policies. In this perspective, devolution should bring a significant opportunity for

Chinese citizenship to raise their voice, and participate in development decision making.

However, this is not the case as it is explained later in this section.

Central government

Provinces 27

Zhixiashi 4

Prefectures 127

Municipalities/cities 206

Municipalities/cities 413

Counties 1735

Town 16400

Townships 31600

Figure 3.3.3 above: China: Hierarchically Ordered Budget Levels.

Source: (Rao,2003:27)

73

Another important issue related to the economic efficiency of devolution seems, in one hand

to give sub - national government's officials the chance and space to perform, and on the

other hand, the central government creates incentives to make sure local leaders are doing

their jobs well. Chien and Gordon observe a form of performance based promotion system

(2008, p. 41):

"Performance - based personnel management served to trigger careerLsm as a political incentive for

local leaders to pursue stronger economic development (Chien, 2008).'"

Li and Zhou (2005) who finds that the correlation between performance and promotion is

significant further confirm this observation. In this perspective, the emergence of economic

efficiency does increase by stimulating and motivating local officials, in another mean, would

they gamble their political career life? As a result, local leaders would try to do their best to

pursuit success rather than failure (especially in terms of economic growth).

Devolution effects in relation to increasing political transparency by promoting public

participation, and against of large centralised bureaucracies (Armstrong and Taylor, 2000;

Canaleta et al., 2003; Tunstall, 2001) is largely unseen in China. For instance, public

spending decisions are only made within a few senior public officials. The voice of large

citizenships could not be heard. This is described as agency problem when delivering

devolution into practice (Rodriguez - Pose and Gil l , 2005). Most of the project spending is

only for the purpose to fulfil some minority politicians' needs to get promotion, and some of

their projects have nothing to do with majority needs. According to Chien and Gordon (2008)

on the issue of territorial competition amongst Chinese provinces:

"In agency terms, the main driving force for territorial competition in the contemporary Chinese case thus seems to be the personal ambition of local officials, pursuing broad growth goals set by central government orthodoxies - and have consequences that can also be negative for other areas" (Chien and Gordon, 2008. P. 41)".

74

3.3.7 The Corruption Issue

Decentralisation might lead to greater corruption at the local level (Prud'homme, 1995).

Therefore, another question is whether decentralisation leads to more or less corruption in sub

- national government in China. The answer seems to be more corruption in absolute terms.

Corruption is becoming a common phenomenon but with serious influence on China's

economic growth. Yulun Jiandu (2006) in Chinese Digital Online describes the corruption

situation in China:

"Since tlie 16" Congress of the Chinese Communist Party, more than 100 ministers and provincial -level officials were sentenced for corruption, an unprecented number, according to statistics released by the Supreme Procuratorate. In 2005, 47306 officials were disciplined -punished by Chinese supervision agencies. Another authoritative source registered 703 corrupt officials who were arrested while attempting to fly out of the country with cash, 14.5% more than a year before. More than 7 billion Yuan ($930 million dollars) were taken back last year, 62.9% more than in 2004. Last year, 8490 public officers were investigated for taking bribes of over 100000 yeans or misusing public funds of more than 1 million yeans; 2799 county - level and above officials (including eight minister - and provincial - level cadres) were investigated for criminal cases; 7805 officials were investigated for crimes in finance, education, medicine, electricity, land, and transportation industries; 9117 state -owned enterprise cadres were investigated for pocketing embezzling or misusing funds; 1931 village cadres were investigated for embezzling or misusing public funds or properties." (Yulun Jiandu 2006, in Chinese Digital Online).

Similarly, Yeoh (2007) has discovered channels of corruption by sub - national govemments,

through extra - budgetary funds. He describes it is a Double - edged Sword which in one

hand continues to provide considerable autonomy to the sub - national governments, but on

the other hand is also a source of corruption. In addition, besides corruption of local officials,

another serious issue that could hinder economic development is extra - establishment

revenue, described as revenue collected by sub - national governments for their own

expenses (Yeoh, 2007). Extra - establishment revenue has no official statistics and no official

rules, has been described as the "three wantons": wanton collection of fees, wanton

imposition of fines and wanton rising of funds (Gu and Chen, 2002; Yeoh, 2007). Funds are

mainly generated by fine received from small entrepreneurship, causing moral hazard and

reducing potential investor's goodwill to invest in the localities.

75

3.3.8 Conclusion

in general, devolution especially fiscal decentralisation operates quite successfully in China

in terms of economic growth, but not in equity. The uniqueness of its asymmetric

decentralisation form (Chien and Gordon, 2008) brings China some strengths but also

weaknesses. In one hand, sub - national governments are given authority and fiscal

autonomy, but central government is still in tight control. The benefits of decentralisation are

evident when comparing with the decentralisation policy in Brazil, which, in part, failed on

central control by allowing bidding wars for FDl amongst local governments (Rodriguez -

Pose and Arbix, 2001). On the other hand, central government is also very tolerant on local

decision-making as long as it benefits economic growth and not shakes the control of the

Communist Party. Consequently, it provides enormous incentives for local leaders to pursuit

economic growth. However, different provinces have diverse socio - economic contexts and

different local governments' capabilities. Some provinces have benefited more than others

have by devolution, notably spatial disparities were spawned out and spread fast across China

(Zhang and Zou, 1998, 2001; Chien and Gordon, 2008; Yeoh, 2007) by giving them sub -

national fiscal autonomy. Furthermore, apart from income disparities, other issues are a lack

of political transparency and an increase in corruption. Al l of them prevent economic

development at a local and national scale.

3.4 Lessons for Kenya

As stated in the beginning of this chapter, the prime objective is to study devolution in Brazil

and China and lessons that Kenya can learn from these to foster her economic development

via devolution as enshrined in the 2010 Kenyan constitution. Both Brazil and China have

multiple ethnicities, and part of the way they have chosen to manage these differences is

partly through devolution. Whether they have managed this is arguable, especially i f each is

considered individually. There is also the issue of how each country manages the effort of

76

nation - building in its own environment with the available resources. While Brazil went

through their devolution process at times of great transition after military coups in 1988,

China is similar to Kenyan situation in that they managed to go through the process without

war or independence of devolving resources being the push.

The first, and perhaps most important lesson, is that devolution is not a magic bullet that will

resolve all problems. Out of the rhetoric that accompanies the debate around devolution, the

protagonists and opponents frame devolution as being the system that will resolve all of

Kenya's problems, or at least those around issues of economic growth, equitable distribution,

and redressing the ills of the past. The Chinese experience shows that, especially in a

situation of unequal natural resource allocation, devolution only serves to exercerbate

economic problems. When one considers issues like the derivation principle one can see

where potential problems may lie.

Second in a situation of natural cleavages - whether ethno - language or religious - it may be

wise not to institute devolution units that adhere too close to these for example, there are 56

different ethnics concentrated or spread across provinces in China. The central government

by no means could deliver efficient policy to meet the local needs in this perspective, even

without considering satisfying local needs when designing policies. In this perspective,

devolution should bring a significant opportunity for Chinese citizenship to raise their voice,

and participate in development decision making, however this is not the case. For Kenya, the

attempts at ethnic cleansing in the 2008 post election violence show that, for some, certain

regions in the nation should be ethnically 'pure', regardless of settlement and economic

patterns that have been going on over decades. For a country such as Kenya, where the

surname, the language or dialect that you speak and your accent may betray our roots, and the

temptation for some regional demagogues to 'purify' devolved regions may be hard for them

to resist.

77

The other obvious lesson is that on how (or how not) to share the economic output of a

country that is, as many others, endowed differently in different regions. Brazil and China

have struggled with the derivation principle from the very beginning, arguing about whether

to recognise the origin of economic gains, and what percentages to retain in the regions where

these gains have originated. Of course, the most convenient is to have most of the economic

output delivered to the centre, which then decides, according to pre - agreed principles, how

to distribute these gains. However, as both countries have shown us, this is the surest route to

massive corruption, as those who control the economic taps have the most to gain from

skimming off from the top. Also, those whose regions generate the most (especially if Kenya

was to discover hydrocarbons or other natural wealth) would have quite a bit to say about

their regions being disfavoured in the distribution of this natural wealth. Also, how does a

decentralised system account for periods of stress? I f the drought and subsequent famine that

have stalked Kenya for much of the 2000s - most acutely throughout 2009 - were present at

a time of a decentralised entity, would food producers in places such as the Rift Valley,

Central and Western provinces demand that certain quotas of food be retained in their

regions? Also, given the fact that many resources consumed in the big cities tend to be

produced in other regions (Nairobi's water is harvested in Central province, most of the

country's electricity is generated in Eastern province along the Tana), how would these be

reconciled? Would the regions demand compensatory payment for these resources? (There is

an interesting movement called Payment for Environmental Services (PES) that deals with

just issues).

Related to this is how to share tax revenues. In both countries under review, the biggest share

of tax revenue (and some of the most significant) goes to central government, with regional

government being involved in the collection of one or two taxes. Because government tends

to be a top - heavy institution, this tends to bring in the question of how to deal with this -

78

the most obvious way being with having central government make transfers to the regions.

However, this is not always the best option. First, is not always the fact that he who pays the

piper calls the tune. I f central government bankrolls the region, power will surely centralise

despite the best protestations of everyone. Secondly, regional governments the world over

tend to be repositories of patronage. They tend to be bloated in terms of personnel, and thus

fairly expensive to run. I f this is the case, and they cannot make ends meet due to constrained

tax capacity, would central government countenance funding an institution that perhaps only

serves the interest of some regional political elites? In other words, i f by funding a regional

government, the central government would only be creating, maintaining and perpetuating

political patronage in the regions, would central government feel obliged to do so?

From both Brazil and China - lack of capacity in the regions, leading to lack of service

delivery - is something Kenya should be wary of I f central government was to allow regions

to operate independently, this lack of capacity may lead again to differentiated development,

leading to complaints about some regions being favoured over others.

How will Kenya manage the transition process? Brazil had to undergo several military coups

before finally settling down in 1988 and making devolution work. Transition processes are

some of the most fraught in any period of political change, but especially at a time of

transition between a unitary system and a federal one. How does the country deal with ethnic

minorities? How do regions deal with what are now federal assets within their regional

borders (from hard assets such as headquarters to moveable assets such as police and the

like)?

All the above said, however, there are some merits to devolution, as shown in the case

studies. One of the biggest, but perhaps least celebrated, is that devolved regions tend to serve

as training grounds for national leadership. One of the banes of centralised government, as is

79

evident in Kenya, is that national 'leaders' tend to be callow, untested figures, often in the

first term of any kind of elective position. Due to this, the level of leadership displayed tends

to be of the most puerile sort. As evident in places like China, having local and regional tiers

of leadership means that we can winnow our leaders through these tiers before they ever

present themselves for national leadership positions. This can only be a good thing for the

country.

I f devolution and its processes are properly handled, then other intangible benefits can accrue

to the country. Brazil benefited immensely from its process being an inclusive one and the

outcomes were predicted on popular participation at all levels. These are important lessons

for Kenya. Much closer to home (although outside the ambit of this chapter) is the fact that

initiatives such as the Constituency Development Fund have, for many citizens, brought

home the link between the taxes they pay and the services they receive.

Unspoken in all this, and outside the purview of this chapter, is the big issue that often goes

unspoken in Kenya. Well over 50% of Kenya's economic output is concentrated in the

Nairobi region. How do we treat Nairobi? We may decide to go the Nigerian - Abuja,

Australian - Canberra, Or American - Washington DC way, and declare what is at present

Nairobi province to be a capital territory, where the normal rules that apply to the other

provinces do not apply. Even if this happens, however, while retaining the federal capital

there, and with companies still opting to take advantage of historical developments and

developed infrastructure, it would still be a difficult issue to handle. Would federal decisions

still defer to Nairobi? Would a Nairobi Governor (or executive mayor) be so primus that in

all practical senses, s/he would not be inter - pares in relation to counterparts from the rest of

the country?

80

Finally, and again, outside the purview of this chapter, is how a devolved Kenya would relate

to a rapidly integrating East Africa. How would the devolution experiment progress if (we

assume) all actors are sincere in wanting an East African Federation (leaving for the moment

Muammar Gaddafi's quixotic quest for a 'United States of Africa')?

What is evident through all this is that the process of devolution, regardless of its motivation,

is one that needs to be undertaken with a full understanding of its costs, implications and

risks, and what it can and cannot deliver? Other countries have gone through the process, and

it is evidently important for Kenya to learn the right lessons as we contemplate our own

process.

81

C H A P T E R FOUR

4.0 K E N Y A ' S E C O N O M I C I N E Q U A L I T I E S , D E V O L U T I O N I M P A C T ON ECONOMIC D E V E L O P M E N T P O T E N T I A L I T I E S AND C H A L L E N G E S

4.1 Introduction

From previous first two chapters of the discussion so far has been that Kenya has fallen short

on governance, and that this should therefore be a key area of reform i f other focus areas,

such as devolution, are to take root. The reforms as witnessed in the process of recruitment

of judges through the Judicial Service Commission conducted in April/May 2011 holds a lot

of promise for securing the future of the rule of law, which in turn would secure the effective

implementation of the 2010 Constitution.

Any substantive analysis of the Kenyan political economy will point to impunity as a major

impediment to equitable access to factors critical for growth and development, such as

education, infrastructure development and maintenance, and domestic and foreign

investment. Articles 10, 73 and 75 to 77 of the constitution referred to the issues that the

NARC government brought to the fore through its enactment of various legislation and

related measures designed to promote good governance, such as the Public Officer of Ethics

Act (2003), Anti - Corruption and Economic Crimes Act (2005). Articles 10(2) (a) to (d) of

the Constitution emphasize the national values implicit in the implementation of the

aforementioned legislation: patriotism, national unity, rule of law, democracy, participation,

human dignity, integrity and sustainable development (among others). Respect for these

values is especially important because of the risk noted above of exporting malpractices from

national to sub - national levels through decentralisation and devolution (see Fjeldstad, 2003).

Article 73 underscores these values as well, and emphasizes consistency (State Officers) in

the purpose and objects of (the) Constitution - i.e., respect for the people (invoking Article

1); bringing honour to the nation and dignity; and public confidence in integrity of the office

82

to serve the people, rather than the power to rule them. Article 75 addresses conflicts between

personal interests and public office, while Article 77 refers to dedication to duty to the

exclusion of other gainful employment and politics.

Beyond these essentials of integrity among public servants, an evaluation of the provisions

for devolution should at least consider:

1. Whether the devolution structures provided are appropriate;

2. Whether the distribution of roles is optimal;

3. I f the provisions for resourcing are adequate; and

4. The potential effect of devolution on national cohesion, and economic development at

county levels.

4,2 Kenyan Structures of Devolution

Going by the characterization above of'good' devolution (Section 2), the 2010 Constitution

has given Kenya a good framework, from the fact that is now rooted in the supreme law of

the land, to its attention to issues of the assignation of revenues and expenditures.

Political expediency, however, seemingly caused Kenya's constitution makers to equivocate

on the fate of two decadent institutions in the light of devolution - the provincial

Administration and the Local Authorities (LAs) . Had the constitution makers overtly declared

the abolition of the two institutions, the widespread membership of the two institutions across

the country could have undermined a "Yes" outcome at the August 2010 referendum. Indeed,

the tension around the process at some instances meant that Kenyan devolution could not

benefit from Uganda's initial implementation with ten counties before rolling out the reform

to the rest of the country (Kauzya, 2007).

The fundamental problem with the Provincial Administration lies in its original design by the

colonialists, as an instrument of repression over the citizenry - based on the colonial

83

chief/district commissioner nexus - and the perpetuation of the same role after

independence.^^This ignominious role reached its peak during Moi's quarter century in

power. Kibaki's 2002 victory came atop a firm NARC manifesto commitment to scrap the

institution, but this intention promptly changed when Kibaki's inner circle recalled the

usefulness of the agency for the purposes of self - perpetuation (against dissenters within

NARC as well as the bona fide opposition). Ironically, the growth in the independence era

stature of the Provincial Administration was precisely because it coordinated the sub -

national central government team, which had usurped some of the critical functions the LAs

had inherited from the colonial Native Councils, such as delivery of education, health and

water.^*

Nevertheless, the 2010 Constitution intentionally avoided an overt abolition of the Provincial

Administration and LAs, preferring to provide for this implicitly by making no mention of

the institution in that important Chapter 11 on devolution, or in the very functional Fourth

Schedule on the way forward. Instead, the document relegates the hitherto powerful

institution to the 'Transitional and Consequential Provisions' of the Sixth Schedule. Article

17 provides that the national government (presumably through an edict) - not Parliament

(through a statute) - shall restructure the institution "to accord with and respect the system of

devolved government..." The import of this provision is that whatever role is assigned to the

Provincial Administration, it will , as in the previous dispensation, not be a constitutional

agency. The Task Force on Devolution in Kenya (TFDK, 2011) recommended a limited role

for the Provincial Administration, possibly collecting taxes, supervising law and order, and

promoting statehood. Given its history, however, the Provincial Administration could only

" Decades into independence members of the Provincial Administration continue to be referred to anecdotally

as 'the Crown', an illusion to the British monarchy that the institution originally represented. This detracts from

the republican coat of arms borne by these officers.

Widner (1992) has argued convincingly that the motive for this usurpation was political rather than service

delivery expediency.

84

perform these functions effectively after itself undergoing 'radical surgery' to exercise its

current ethos. The retraining of public servants already mooted at the Kenya Institute of

Administration and related government institutions would need to focus extensively on

equipping such officers with the capacity to deliver Articles 1 (Sovereignty of the people) and

10 (National values and principles of governance), and Chapters 4 (Bi l l of Rights) and 6

(Leadership and Integrity).

I LAs are also consigned to the same Sixth Schedule, where Article 18 mandates their

I perpetuation, subject to subsequent legislation that must be enacted within five years (i.e., by

2015). Various factors in the 2010 Constitution point to the legislated demise of LAs before

2015, however, first devolution is a centrepiece of a new dispensation that also transforms

parliament into a bicameral institution with a Senate established by Article 96 specifically to

cater for counties. Second, the Fourth Schedule explicitly delineates county functions Vis - a

-Vis those of the national government. It provides that the enabling legislation for this must

be in place within three years (by 2013). Significantly, county functions closely map those

currently undertaken by LAs . Finally, the basis of elected county leadership will largely be

the same wards as those under the LAs.

The provision for legislation by county assemblies and the ring - fenced budget resources (at

least 15 percent of government revenue) will provide room for an improved focus on some

local priorities, unlike the past where legislation and budgeting were largely top - down.

Under Articles 184 and 200, and the Schedule, the Constitution also requires that provisions

be made within a year for the classification and governance of the capital city, other cities

and urban areas. As can be seen from the government's unprecedented investment in the

Nairobi - Thika super highway, Kenya Vision 2030 depends very much on transforming

Nairobi into a metropolis, with a whole ministry established exclusively for the purpose in

85

2008. With legislation and a strategic plan in place, the starting point of the drive to the

metropolis was the integration of nine neighbouring LAs under the greater Nairobi

Metropolitan Authority. Yet, the co - opted authorities are critical for the economies of their

respective counties, i.e., Kajiado and Ngong for Kajiado; Kangundo and Mavoko for

Machakos; and Gatundu, Kiambu, Kikuyu, Limuru and Thika for Kiambu. Since the First

Schedule recognizes Nairobi City as a district county, much tact will be required to resolve

the standoff that is likely to arise from the ambitions for the Nairobi Metropolitan Authority.

The T F D K ' s draft report critically overlooks these areas of potential conflict, as has been

evident in the authority's clash with the Nairobi City Council. T F D K does refer to an

impending Local Government Bil l (2009) and the Transition to County Government Bi l l

(2011), However, that may provide opportunities for resolving issues surrounding the

division of responsibilities between urban and rural areas within counties.

In providing for multiple layers of elected county representation (county assembly, county

government, county executive committee) - alongside the county roles of senators and

National Assembly members envisaged in T F D K ' s draft report - Chapter 11 enhances the

scope for democracy, self - governance and self - management. Furthermore, these multiple

sites of self - representation also potentially provide alternative checks and balances against

the kinds of individualistic excesses to which Kenyan politicians have hitherto exposed their

electorate. T F D K provides for three rural sub - county governance levels and categorizes the

urban counties into large, medium and small municipalities. The T F D K does not, however,

consider the relationship between the urban and rural counties categorically. It is hoped the

Draft Local Government Bil l 2009 will address such issues.

In these respects, and critical to the functioning of the counties, will be the Senate, which was

created to represent and protect the interests of the counties and their governments (Article

86

96). The right to recall a legislator is provided only for parliamentarians and governors, but

keeping these critical officers on their toes will afford an effective capacity for oversight over

others. Indeed, given the concern that devolution can both import poor governance to the sub

- national level (Fjelstad, 2003) and spawn insulated rural elite, the existence of a multi -

party democratic framework is likely to provide stiff competition for anyone desiring to go

into politics, or to stay there. Given the roles of the senators and the senate vis - a - vis

counties, T F D K also appreciates the imperative for senators to be accorded specific

recognition by the county assembly, such as having an ex - officio capacity to enable their

attendance at deliberations to facilitate a vital link to the national level.

Besides elected county leadership. Article 235 provides that legislation will provide 'uniform

norms and standards' for establishing and abolishing offices in the county governments

(provided for in Article 176), and for recruitment to such offices. Articles 177 to 187 provide

the statuses of the two arms of the county governments, i.e., the county assembly and the

county executive committee.^' These institutions will effectively replace the Provincial

Administration and LAs, as evidenced in the sharing of responsibilities only between the

national and devolved levels. Compared with the old constitutional order through which the

legislative and executive functions of a single district belonged to separate hierarchies, the

new system integrates both functions under the respective county. Notwithstanding extensive

reliance on IGFTs, this should improve the coherence between perceived needs and the

strategies for meeting them. The election of governors (rather than the top - down

appointment, as was the case with the Provincial Administration) will heighten grassroots

ownership; and Article I S i ' s provisions for the removal of a county governor should raise

efficiency if used judiciously, and not vindictively to settle scores.

Section 4.5 of this chapter addresses the risks posed by county - based recruitment.

87

Other critical institutions include the Commission on Resource Allocation (CRA) (under

Articles 215 - 219) and parliamentary oversight of public audited reports. Whether service

delivery actually improves will depend on various other factors, such as the functional

integrity of planners and implementers (e.g.. Articles 10, 73 and 75 - 77), and the actual flow

of human (e.g.. Article 235), financial (Chapter 12) and other resources (see section 4.3).

Perhaps the weakest aspect of the Constitution with respect to devolution, however, was the

failure to rationalize the number of counties beyond the 47 statutory districts, which vary

widely in area, natural resource endowments and population size. Yet, the recourse to history

rather than determining the counties afresh was understandable given the underlying interests

that were a play in attempts to block the review process. Even as the difficult devolution

chapter was being debated, Mwai Kibaki, Kenya's president continued to balkanize the

country into untenable sub - ethnic and clannist enclaves dubbed 'districts', the problem with

this being that these enclaves would consequently demand district recognition within the

context of sharing the 'national cake' under devolution. While Moi had created about 30

unconstitutional districts in his 24 - year presidential tenure, Kibaki attempted to create over

254 districts in his seven years in power up to 2010 (excluding some ten districts during the

week of promulgating the new Constitution). Under such dubious political circumstances, it

would have been injudicious for the Committee of Experts on the Constitution to open up

debate on the numbers and sizes of counties. Indeed, the Committee set aside the

recommendations of professional demographers on reconfiguring county and regional

boundaries, as such extensive consideration might have made untenable the deadlines set by

the National Accord. Surprisingly, the T F D K report contains no discussion on this matter of

the numbers of counties, and instead focuses only on the extent of decentralisation below the

county level.

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4.3 Division of Responsibilities

Reading alongside Chapters 11 and 12, the Fourth Schedule elaborates the roles assigned to

the national and devolved levels. At this point, the provisions are simply general statements,

and one is only too aware that the 'devil will be in the detail' of the legislation for actualizing

the provisions. Besides international issues. Part 1 of the Fourth Schedule focuses extensively

on national sectoral policy issues, the uniformity of which across the counties will be critical

for delivering ambitious development objectives, such as Kenya Vision 2030. Until enabling

legislation is developed, there is little room to debate the allocation of responsibilities

between the national and county levels, but at that point, it will be possible to evaluate the

respective capacities across the different levels of government. For example, public opinion is

quite divided on which of the five levels of the Provincial Administration should be retained,

with some feeling that at least the Chiefs should stay, whether appointed or elected.

Regional inequalities are significant in Kenya. The country's widely varied natural resource

endowments, such as its diverse agro - ecological zones, also have implications for

livelihoods across the counties.''" Expansive North Eastern Province, for example, lacks

bitumen roads, while the much smaller Kiambu county has 400 - odd kilometres of road

network. Other regional inequalities are summarized in the table below:

Kenya's agro - ecological zones are: 0 - ever - wet, evergreen rainforests; 1 - evergreen rainforests; 2 -seasonal rainfall (1 to 2 dry months); 3 - seasonal, semi - deciduous forests/savannah; 4 - deciduous unmoral/bimodal rainfall grasslands; 5 - short gra.ss savannah/thorny trees/bushes; 6 - bush land with perennial grass suitable for ranching; 7 - semi - deserts; and 8 - deserts.

89

Table 4.3: Provincial welfare indicators (percentage), 2007

Province Rural Immunization Facility Net primary Net Poverty coverage deliveries enrolment secondary (2005) (2007) (2006) (2007) enrolment

(2007) Central 30 85 71.8 82.5 33.3 Coast 70 78 31.7 80.8 13.7 Eastern 51 78 37.6 98.3 25.3 North Eastern 75 81 11.7 27.5 4.3 Nyanza 58 66 46.7 98.3 27.0 Rift Valley 50 70 33.6 97.8 22.9 Western 54 66 25.7 99.0 23.9

Nairobi - 78 77.0 29.0 25.7 Note: 'Net enrolment' refers to children of school going age who are in school, as opposed to gross enrolment, which includes all children in school, whether under - or over - age.

Source: KIPPRA (2009), various tables and figures.

How the enabling framework provides for the management of such inequalities will be

critical. The development of the enabling service delivery is to be realized. For example,

Kenya joins many other countries globally that have failed to redirect their meagre budgetary

spending to the more cost - effective grassroots facilities. The new constitutional

dispensation anticipates that counties will be able to do this for their county health facilities

and pharmacies, which will have implications for how ministry resources are shared between

the two levels of government. For example, regions with comparatively low rates of births

(rather than at home) will need to emphasize village and household - based education, as is

provided in the Health ministries' existing Community Strategy (MOH, 2006), which

translates into more personnel (Although of differing cadres) than would be needed by

regions performing comparatively better on that indicator.

In light of potential conflicts over shared services, and in order to ensure sustainable

legislative and other frameworks coming out of the Fourth Schedule, it is imperative that the

appropriate authorities undertake an evaluation of counties' potentials for service delivery (to

acceptable levels) across the country. The anticipated legislation and frameworks must

90

provide for the staggered implementation of the devolution provisions. While vertical

conflicts should not be difficult to manage, T F D K also provides for an alternative Disputes

Resolution framework that could handle horizontal conflicts across counties.

4.4 Securing Fiscal and Human Resources

The third area of concern is revenue assignation, addressing fiscal (and human) resources.

For financial resources, the critical provision is Article 203(2), which provides that not less

than 15 percent of national revenues will be shared equitably among the counties based on

recommendations of C R A (Article 216). While such national revenue will be generated

through taxes as specified by Article 209(1), counties will be able to augment their financial

resources through entertainment taxes, property rates and any other taxes permitted by

Parliament (Article 209(3)). Some county governments will also be eligible to access the

Equalization Fund, which amounts to 0.5 percent of annual national government revenues

(Article 204). Finally, county governments will, under Article 212, be allowed to borrow,

subject to a guarantee issued by the national government and with the approval of county

assemblies.

Among the principles to guide, the allocation of financial resources is equity, which requires

that equals be treated equally and un - equals appropriately un - equally - the only approach

to delivering the Bi l l of Rights (Section 5.4). The same principle underlies the CDF Act's

allocation of its ring - fenced 3.5 percent of national revenues. Yet, CDF shares 75 percent of

its resources equally across the 210 constituencies, and only 25 percent is distributed on the

basis of poverty incidence, resulting in an outcome that is grossly in - equitable, given the

wide development disparities across the country (see table 1).'" It is imperative that the spirit

Allocation of C D F kitty would likely achieve greater equity if the proportions were the other way round: 75

percent allocated according to comparative constituency poverty statistics and 25 percent equally across all 210

constituencies.

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provide for the staggered implementation of the devolution provisions. While vertical

conflicts should not be difficult to manage, T F D K also provides for an alternative Disputes

Resolution framework that could handle horizontal conflicts across counties.

4.4 Securing Fiscal and Human Resources

The third area of concern is revenue assignation, addressing fiscal (and human) resources.

For financial resources, the critical provision is Article 203(2), which provides that not less

than 15 percent of national revenues will be shared equitably among the counties based on

recommendations of C R A (Article 216). While such national revenue will be generated

through taxes as specified by Article 209(1), counties will be able to augment their financial

resources through entertainment taxes, property rates and any other taxes permitted by

Parliament (Article 209(3)). Some county governments will also be eligible to access the

Equalization Fund, which amounts to 0.5 percent of annual national government revenues

(Article 204). Finally, county governments will, under Article 212, be allowed to borrow,

subject to a guarantee issued by the national government and with the approval of county

assemblies.

Among the principles to guide, the allocation of financial resources is equity, which requires

that equals be treated equally and un - equals appropriately un - equally - the only approach

to delivering the Bil l of Rights (Section 5.4). The same principle underlies the CDF Act's

allocation of its ring - fenced 3.5 percent of national revenues. Yet, C D F shares 75 percent of

its resources equally across the 210 constituencies, and only 25 percent is distributed on the

basis of poverty incidence, resulting in an outcome that is grossly in - equitable, given the

wide development disparities across the country (see table 1).'*' It is imperative that the spirit

Allocation of C D F kitty would likely achieve greater equity if the proportions were the other way round: 75

percent allocated according to comparative constituency poverty statistics and 25 percent equally across all 210

constituencies.

91

of equity in resource allocation be evident, to diffuse tensions across the country. Also, one

fundamental objective of the 2010 Constitution is to "ensure reasonable access to its services

in all parts of the Republic, so far as it is appropriate (given) the nature of the service"

(Article 6(3)). Consequently, it is imperative that civic education sells the idea of affirmative

action directed at raising the less endowed to some basic minimum that can enable them to

compete with the rest of the Kenyan society. While this is the spirit behind, and the role of,

the Equalization Fund (Article 204), the outlay of 0.5 percent over at least 20 years is

unlikely to be enough to redress the inequalities illustrated in Table 4.3.

With regard to IGFTs from the national to the county governments (Article 203 (2)). It is

important to base these on formulas that capture the development differences among the

counties.''^ Kenya has adequate capacity - CRA should note this - for estimating the resource

needs for bridging the gaps between the least well off and acceptable minimum status, as was

done with the poverty studies of the 1990s (see, for example, MPND, 2000). Indeed, given

the anecdotal information of some fiddling with previous census and poverty estimates, it is

imperative to undertake a new round of poverty estimates guided by the principles of good

governance emphasized by the new constitution. Previous Kenyan welfare studies, however,

such as MPND (2000), based their 'small area' data collection and analyses on districts and

constituencies that were often typically too large to capture welfare differences within and

between these basic units of analysis. It is imperative to collect and analyse future welfare

data at least at the sub - location and ward levels. Aggregation of allocations to these

genuinely small areas arrives at a county allocation more clearly reflects comparative need

within individual counties and across the 47 counties.'*''

"̂ Health economics has made extensive advances on methodologies for attaining vertical equity (treating un -equals appropriately un -equally) and horizontal equity (treating equals equally) in resource allocation.

This approach is likely to show how Ndelya in nationally least poor Kiambu County is more comparable to small areas in North Eastern province than it is to the average for Kiambu County.

92

Unlike the previous constitutional dispensation, it is also timely that the 2010 Constitution

provides at Article 219 that the county share of national revenue "shall be transferred without

undue delay and without deduction". Similarly, it is important that the formula does not

penalize counties that qualify for the meagre resources available through the Equalization

Fund. During the public hearings on devolution, T F D K reports concerns that affirmative

action might deter effort among beneficiaries who subsequently await 'charity', and among

developed counties that might feel penalized for their success. Kenyan development

disparities are largely the product of colonial and successive independence governments'

prejudice, building on un - equal agro - ecological heritages, factors that civic education

should underscore to refute the myth linking current development status exclusively with

effort.''''The civic education could also draw on the literature on the virtues of the rich

subsidizing the medical insurance of the poor to enable the latter to access decent health care,

and in so doing ensure that the former are protected from the opportunistic illnesses they

might acquire from the latter (Kalenscher, 2010).

Finally on financing, it is important that Article 212's provision that county governments may

borrow with a governments may borrow with a government guarantee (with county

assemblies' approval) does not increase in - equalities across the counties. The traditionally

wide revenue disparities across LAs are likely to be seen in the comparative abilities of

counties to generate own revenue, '*̂ and in addition likely reflect their relative prospects for

serving loans. Thus, the more developed counties - which contribute the most to GDP and

have the higher potential for own tax revenues - will likely be best, placed to borrow, further

enhancing their capital base. Such concerns should also be factored into the development or

"'' Research has shown, for example, how farming low potential land can be rewarding given a secured access

(infrastructure) to markets (Tiffen et al, 1994). For example, a summary generated from the Annual Local Authority Transfer Fund Report of Financial Year 2008/2009

shows that four counties generated more than 100 percent of their expenditure needs compared with ten counties that managed less than 50 percent of their need.

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Article 203(2)'s formula. Additional to this, Kenya is committing itself more deeply into an

East African Community in which it is the most developed partner. Since the Community's

provisions will , for example, allow the free movement of people across the international

boundaries, it is likely that long - standing perceptions among other East Africans of superior

social services in Kenya could attract foreign users, thereby increasing the burdens especially

of the counties abutting neighbouring states.

Besides financial resources, there is need for human skills with which to identify county

development bottlenecks, to transform national policy into local strategies and costed plans,

and to implement the same. Table 1 shows impressive net primary school enrolment rates for

several provinces, but depressingly low rates at the secondary school level, meaning the rate

of acquisition of home - based post - secondary education skills with which to mange county

development is low. Further, the wide differentials across the provinces will have

implications for the personnel available for county employment. County governments should

have at their disposal all the national level personnel that previously served the defunct LAs

and the district public service over which the Provincial Administration presided. Even so,

the in - equitable regional distribution of skills based on people's 'home' districts is such that

some of the less developed will be constrained in acquiring home - grown skills, meaning

they will have to hire 'expatriates'. It might therefore be expedient, for example, for enabling

frameworks to provide that the Public Service Commission pre - qualify a national pool of

eligible bureaucrats and technocrats from which counties can then autonomously recruit for

their respective administrations. T F D K ' s recommendation on training of civil servants and

future county government managers is therefore timely.

94

Chauvinism may lead some political leaders to resist affirmative action measures. Thus, it is

opportune that the 2010 Constitution provides for:

1. The transfer of functions between govemment levels for the more effective

performance (Article 187);

2. Cooperation between government levels;

3. Support for county governments; and

4. The suspension of a county govemment "in exceptional circumstances" (Article 192).

4.5 Assessment of Impact of Fiscal Decentralisation and Government Grants for Local Development

There is usually an assumption that fiscal decentralisation automatically leads to local

communities' empowerment, enhanced accountability and increased development (UNDP,

2003). For real impact of fiscal decentralisation to be realised at the grassroots, however,

central government must provide leadership in the creation of the appropriate environment.

Some of the pre - requisite for an effective fiscal decentralisation framework comprise

political commitment to national development, the strength and effectiveness of national

institutions, literacy rates, gender balance and prudent public expenditure management

(UNDP, 2003). At the same time, the impact of fiscal decentralisation Is realised i f the local

sub - national governments focus and maximise on their objectives and have adequate

resources with which to deliver the services. The purpose of fiscal decentralisation is to

facilitate development, poverty reduction and improvement of standards of living at the

lowest level where citizens are. This therefore is the reason why fiscal decentralisation

usually focuses on service delivery in areas like education, health, water and sanitation, food

Security and roads infrastructure.

Some North Eastern Province leaders have campaigned strongly against labelling their province as a 'hardship area', a classification that has attracted a special allowance for government officers serving there.

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There is adequate research that has been done to evaluate the impact of fiscal decentralisation

on development and poverty reduction in Kenya. From the available sources, however, it is

evident that devolved funds and grants have to a certain extent had impact on development

and poverty reduction (Mapesa and Kibua, 2008, Republic of Kenya, 2007a and Obuya,

2008). In certain aspects, they have not made sustainable impact. In order to assess the extent

to which the funds have made impact, an analysis of the pertinent development or poverty

reduction indicators, which are derived from the millennium development goals, will be

necessary.

In line with the principles of fiscal decentralisation, it is important to briefly assess the

expenditure responsibilities of LAs and the resulting implications. As noted in Table 2 below,

the single largest expenditure item for LAs ids personnel. In addition, the L A s spent 18.7% of

their allocation on development expenditure (capital expenditure and Maintenance) in

2007/2007 financial year. This would imply that the resources allocated for service delivery

are minimal which negatively affects local development.

Table 4.5.1: Local Authority expenditure structure: Planned and reported actual expenditure F Y 2007/2008, planned F Y 2008/2009 ( K E S ) Expenditure classification

Planned 2007/08 Ksh. "000,000"

Actual

2007/08 Ksh.

"000,000"

Actual % of planned

Planned

2008/09 Ksh.

"000,000"

Increase in %

Civil expenses 1,273 1,236 97.1% 1,855 50.1% Personnel 9,868 9,047 91.7% 10,264 13.5% Operations 3,843 4,008 104.3% 4,484 11.9%) Maintenance 1,140 808 70.8% 3,055 278.4% Total recurrent

expenditure 16,123 15,098 93.6%) 19,658 30.2%

Capital expenditure 3,746 3,469 92.6%) 4,808 38.6% Debt resolution 3,200 4, 229 132.1% 3,106 (26.6%) Loan Repayments 12 13 114.5% 7 (50.2%)

Total expenditure 23,080 22,809 98.8% 27,577 20.9% Source: Adapted from Republic of Kenya (2008a: pp 11)

In relation to the expenditures incurred by various types of LAs, county councils and

Municipal councils spent in F Y 2007 - 08 an average of 70% of their budget on recurrent

expenditure and approximately 17%) on debt resolution (table 4.5.2 below) which implies that

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they had little funds for financing development programmes. It is important to note that most

LAs including the Town Councils depend heavily on L A T F allocation as the primary source

of revenue to finance their budgets.

Table 4.5.2: Relative expenditure pattern by Local Authority (LA) type, F Y 2007/08 (%)

Expenditure Classification

Nairobi City Council

Municipal Councils

Town Councils County Councils

Average

Civil Expenses 1% 4% 9% 12% 5%

Personnel 46% 43% 34% 30% 49%

Maintenance 0% 5% 5% 6% 4%

Total recurrent expenditure

59% 70% 66% 71% 66%

Capital expenditure

15% 14% 17% 17% 15%

Debt resolution 26% 16% 17% 12% 19%

Loan

repayments 0% 0% 0% 0% 0%

Total

expenditure

100% 100% 100% 100% 100%

% of Total expenditures

35% 30% 7% 28% 100%

Number of LAs 1 45 62 67 175

Average expenditure per LA

(KES Millions)

8,070 151 25 95 130

Source: Adapted from Republic of Kenya (2008a: pp 13)

In relation to capital expenditure allocations, roads take up the largest share of LAs

expenditure (which is mainly the allocation from Roads Maintenance Fuel Levy FundO

followed by other projects that are not classified. Education, vehicles, water, and sanitation

had the third, fourth and fifth highest budget items, respectively (Table 4.5.3 below). Not all

LAs spent money on the budget specified budget items. For example, Bungoma Municipal

Council, Butere Mumias County Council and Meru South Council did not spend any amount

on education during the financial year while Maragua County Council spent K E S 55,000 only

out of K E S 17,621,138 allocated for capital projects. This could be attributed to the fact that

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there are minimum tliresholds specified in law or policy for specific projects as is the case in

the CDF.

In addition, most of the projects on the ground are thinly spread with little and often-

inadequate allocation across the projects. This significantly reduces the realization of the

intended objectives of the projects ( L A T F Annual Report 2007/8).

Table 4.5.3: Actual capital expenditures distribution by project type F Y 2007/2008

Actual K E S "000,000"

% Distribution Average project cost K E S "000,000"

Project type No.'« Amount (KES)

No. Amount K E S

Roads 662 1,300 18% 37% 2 Education 932 368 25%) 11% 0.4 Vehicles 107 300 3% 9% 3 Water & Sanitation

521 295 14%) 9% 0.6

Public lighting 77 146 2% 4% 2 Health 315 127 8% 4% 0.5 Markets 122 116 3% 3% 0.9 Council premises

109 98 3% 3% 0.8

Equipment 114 79 3% 2%) 0.6 Administrative support

109 74 3% 2% 0.6

Bus parks 67 67 2% 2% 1 Housing 17 19 0% 0% I Sports/recreation 41 13 1% 0% 0.3 Solid Waste 29 11 1% 0%) 0.3 Slaughter slabs 11 4 0% 0% 0.3 Grand total 3,720 3,469 100%, 100%) 0.9 Source: Adapted from Republic of Kenya (2008a, pp 15)

While assessing the impact of fiscal decentralisation on development, it is important to take

into consideration the operating mechanisms of the various fiscal transfers. For example,

although L A T F is an inter - governmental fiscal transfer fund, its core purposes, that is, to

reduce outstanding debts and to improve financial management and accountability and to

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provide budgetary support for personnel and operational costs, do not directly relate to local

development. Evaluation of its impact on local development should therefore be narrowed

down to the specific monies that are apportioned to development. This, however, would still

pose a challenge as L A T F funds are lumped together with other revenue generated locally by

the LAs. A better approach would be to assess the impact of the overall budget of LAs on

local development, as this would give a more comprehensive picture of the impact since L A s

do not keep separate accounts for L A T F . In addition, the success of L A T F heavily depends

on the effectiveness and efficiency of the supporting structures and operational ization of

governance, accountability and management of the LAs .

The assessment of the impact of fiscal decentralisation will focus on the analysis of the key

sectors that relate to development indicators as identified in the Kenya Vision 2030 (Republic

of Kenya, 2007b). These are education, health, water and sanitation, transport infrastructure,

improvement of livelihoods and environment management.

1. Education

Access to basic education facilitates the improvement on literacy levels, which contributes to

poverty reduction. The CDF, L A T F , C E B F , and FPE have significant budgetary allocations

targeted at improving availability and access to education services. The CDF allocates about

32 percent of the entire allocation to provision of education services with some constituencies

spending more than 45 percent of their allocation on education (Maina, 2005). The CDF and

L A T F have contributed significantly to the development of education infrastructure and

facilities like new schools, classrooms, laboratories, workshops and purchase of desks and

bursary allocation, which has greatly enhanced the availability and quality of learning

facilities (Republic of Kenya, 2007a and l E A and KNHCR, 2006).

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The FPE fund has increased the access and affordability of basic education, which has seen

increase in enrolment rates across the country. According to government statistics, following

the introduction of FPE in 2003, the enrolment of children increased from 5.9 million in 2002

to 7.42 million in formal public schools in 2004 (Republic of Kenya, 2005). A perception

survey conducted by KIPPRA indicated that FPE fund recorded the highest rating for impact,

with over 90% reporting a positive impact (Obuya, 2008). Besides, the bursary support

allocations granted under CDF, L A T F and C E B F have enabled the poor and needy students

afford the expensive secondary and post secondary education. This support from the

decentralised funds has increased literacy levels thus reducing poverty.

Although there is remarkable impact on literacy and development, the funds have been

marred by lack of transparency and discipline in management resulting in reduction of the

available resources for development (UNDP, 2003). An observation from constituency based

CDF allocation on education support shows that most of the education funding goes into non

- academic infrastructure (such as school gates, fences and modernising class rooms) as

opposed to academic infrastructure, such as, laboratories, workshops and libraries (Republic

of Kenya, 2008c). There have been reports of corruption and wastage of resources in the

implementation of the funds for example where school management committees buy cheap

and substandard learning or teaching materials, multiple awards of bursary allocation from all

funds due to collusion between beneficiaries, school management and committee which have

negatively impacted on the development and provision of education services (Kimenyi,

2. Health

Provision of quality, accessible and affordable health services contribute to improved health

care, including reduction of mortality rates and disease burden. The CDF and L A T F have

budgetary allocations to finance development of health facilities and necessary equipments.

Health sector is usually the second highest budgetary allocations through decentralised funds

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after education (Alila and Omosa, 1995). The fijnds have reduced for example the distances

that would have to travel in search for basic health care services.

The CDF framework, however, does not allow for the support of recurrent expenditure for

any of the funded projects. In addition, the implementation of health projects supported by

CDF is hardly harmonised with Ministry of Health's plan for development and management

of health facilities. As a result, there have been many health facilities constructed through

CDF but stay idle, as there are no personnel or necessary resources to support the recurrent

expenditure (Maina, 2005).

Without the essential of recurrent expenditure to facilitate the purchase of drugs and

recruitment of personnel, the realisation of improved health care through decentralised funds

may not be realised. In addition, the resources allocated per constituency are not sufficient to

provide the required services.

3. Water and Sanitation

Water is a basic life supporting necessity. Improved access to clean and safe drinking water

as well as appropriate sanitation is core to development. The CDF has contributed

significantly in the digging of boreholes, dams and water pans especially in the arid and semi

arid areas, piping of water as well as provision of repairs and maintenance of community

water services (Chitere and Ireri, 2008). These gains notwithstanding, the cost of providing

water and sanitation services at community level is very expensive therefore; the funds

allocated have been inadequate. Consequently, access to water services has remained a major

challenge especially to the poor.

4. Transport and Infrastructure

The CDF and L A T F have contributed notably to the construction, repair and maintenance of

the rural access roads especially the non-classified ones that do not benefit from the Roads

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Maintenance Fuel Levy Fund. Some of the constituencies have gone to the extent of

acquiring graders for maintaining their roads. In addition, the Roads Maintenance Fuel Levy

Fund has contributed immensely in the rehabilitation, construction, repair and maintenance of

the most of the national and local classified roads. This has facilitated the movement of

people and goods.

5. Improvement of livelihoods

The decentralised funds and grants have contributed significantly to the improvement of

livelihoods and standards of living through job creation especially the employment of

unskilled labour in the funded projects and those supplying goods and services as evidenced

by vibrancy of local shopping centres due to initiation of community-based projects (Maina,

2005).

6. Environment Management

The devolved funds have not committed sufficient funding for environment management. For

example, under CDF, a constituency is only allowed to allocate not more than 2 percent of

the total allocation to environment projects.

Despite the positive contributions made by the decentralised funds, the mismanagement of

the funds and corruption has reaped off many resources destined for development. There have

been reports of nepotism and tribalism in selection of committee members and allocation of

funds for development as well as cronyism where leaders seek to reward their political

supporters, wrong prioritization of project initiation of projects that are not preferred by the

local residents or beneficiaries, over pricing of goods and services procured (Robinson,

2004). A l l these have negatively affected development at the grassroots. In addition, the

frameworks that govern the decentralised funds do not mainly relate to or seek to create

synergy with the national development plans. Despite the significant resources allocated for

fiscal decentralisation, their lack of harmony with other development projects funded by

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government or non-government entities slows down the development process. In addition, the

funds allocated are not adequate to allow heavy capital investment that would facilitate trade

and development at the local level, which would stimulate local economic growth, and

development.

4.6 Devolution and the Bi l l of Rights

Respect for, and adherence to, the national values of Article 10 and Chapter 6 of the

Constitution will be critical to the scope for actualizing the Bil l of Rights, which Article 19

declares to be an integral part of a democratic state. The rights are also "inalienable", i.e.,

they belong innately to individuals rather than being the product of state benevolence.

Articles 2 5 - 5 1 of the Constitution list key rights, including the right to life, equality/non -

discrimination, human dignity and security. Among the rationales behind devolution was the

need to allow a micro - determination of the means through which such rights could be

secured, as opposed to expecting - in the face of the existing gross and growing in -

equalities five decades after independence - that the centre (Nairobi) has the means, and

indeed the desire, to ensure such rights for all Kenyans. Devolution provides an alternative

framework for attempting to deliver a Bil l of Rights that would ensure - literally - that the

mere fact of being Kenyan comes with a basic minimum and inalienable level of welfare

upon which one can build private initiative. Article 20 applies the Bi l l of Rights to all

individuals, state organs and laws, and imposes a duty upon the court system to develop laws

that will secure these rights and fundamental freedoms. Under sub - section (3) (b) of Article

20, courts are also able to "adopt an interpretation (of the law) that most favours the

enforcement of (such) a right or fundamental freedom".

A functional equitable resource allocation framework (Article 203) is critical for securing the

'basic, minimum inalienable welfare level' alluded to under the Bi l l of Rights. Civic

103

education targeting communities from more developed areas will also be necessary to bolster

these efforts. Various sectors already have estimates of the minimum resources required to

deliver a minimum package of services. In public health, for example, the World Health

Organization has established estimates of the cost of a minimum package of primary health

care, which it sets at US$ 3.4 per person per annum.''^A less useful estimate is the African

Union's Abuja 2000 Declaration committing governments to a minimum public health

expenditure rate of 15 percent of public spending.^'^These national level averages provide

useful starting points from which to review resource allocations to date to explain current

welfare attainments. These averages can also facilitate the estimation of the resources needed

to meet the objective of the time - bound Equalization Fund. It is imperative that a similar

approach be employed to ensure that counties can meet the resource requirements set by

Article 187 (2) (a).

4.7 National Cohesion - The Threat of Devolution and Economic Development

The proposed devolution of government formed one of the most divisive issues in the country

in the run up to Kenya's August 2010 constitutional referendum. National cohesion remains a

critical element to the successful implementation of the 2010 Constitution. Construed in the

manner intended during the 1961 constitutional talks at Lancaster House, devolution dubbed

Majimbo - would protect the smaller ethnic groups (then coalesced in K A D U ) , against

domination by the larger ethnic groups (then in KANU) . The independence framework was

supposed to provide for ethnic enclaves of ancestral lands on which non - indigenes would be

encroachers. Kenyatta appeased his Kikuyu people over his apparent betrayal of the Mau

Mau ideal of recovering land lost to white settlers, by resettling Kikuyu peasants in an area

See htlp//www.who.inl/macrohealth/infocentre/advocacy/en/investinginhealth020052003.pdf Accessed 18 July 2011.

According to World Health Statistics 2009, only si,\s had attained the 15 percent public health share of aggregate public spending as at 2008, with another 14 countries' share falling between 2000 and 2006. However, greater gains could also accrue from efficiency reforms, such as reducing available spending to preventive care, and away from the current focus on hospital/urban/curative care.

104

stretching 600 square kilometres west of their ancestral homelands of Central Province and

into pockets of Coast Provincc^'^Thus, the issues of devolution and land rights in the 2010

Constitution drew sharply antithetical emotions from at least two groups in the country. For

the 'indigenes' Rift Valley and Coastal Kenyans hosting 'encroachers', devolution to semi -

autonomous (counties) would provide an opportunity to reclaim lost land. For 'encroachers' -

predominantly Kikuyu - it would be consignment to the wilderness, given their inability to

return to their ancestral Central Province where the Kikuyu elite hold comparatively large

tracts of land amidst extensive population pressure.

This standoff in opinions over land management has been the basis of ethnic violence in

Kenya, heightened through state instigation, ever since Kenya's 1991 return to multi -

partyism.^°Land rights - based violence reached a peak in the aftermath of the disputed 2007

presidential elections.^' Whereas the 2007 election and aftermath clearly pitted the incumbent

president's PNU party supporters, the immediate outcome was a coalition government in

which the arguably conservative PNU's upper hand resided in its possession of the

presidency, while the arguably progressive ODM's numbers controlled the parliament.

The latter reality would have been provident for the quick passage and implementation of the

2010 Constitution. Flowever, the push by the International Criminal Court ( ICC) to try the

alleged masterminds of the post 2007 election violence in the face of persisting government

intransigence on the matter, deepened emergent divisions in ODM, whose parliamentary

majority has been undermined by rebel politicians from the northern Rift Valley arena of the

brunt of the 2007/2008 violence. Consequently, parliamentary business on implementing the

2010 Constitution has moved in fits and starts, undermining the spirit of the National Accord

The westward settlement of the Kikuyu into Kalenjin ancestral land instigated the 1965 Nandi Declaration asking 'foreigners' to leave. On settlement in Coast Province, sec Kanyinga (2000).

For an indictment of the Government in the violence of the earlier years (1991 and 1997), see the Judicial Commission of Inquiry on Tribal Clashes in Kenya, popularly known as the Akiwumi Report.

For details of the post - election violence, sec Kenyan National Commission of Human Rights (2008), Kanyinga, and Okello (2010).

105

that sought to have critical new institutions in place ahead of both the 2012 elections and the

five — year timetable of the Fifth Schedule of the 2010 Constitution. Thus, on the 2011 eve of

the much - anticipated 2012 elections, various outstanding issues could enable malignant

elements to try to plunge the country into a repeat of the 2007/2008 violence. Besides some,

internally displaced persons - genuine or impostors - continuing in camps, the frameworks

for land reforms have yet to be in place, meaning that the grievances that provoked past

violence remain largely unresolved.

In several instances, however, the 2010 Constitution does address some of these fears. Article

40 guarantees any citizen "the right...to acquire and own property...in any part of Kenya...

(which) the state or any other person (may not) arbitrarily deprive (one of), or limit...or

restrict the enjoyment of..." Articles 47 and 48 also guarantee individuals access to fair

administrative action and to justice, respectively. Although these provisions might appear to

appease the more recent arrivals on disputed land than it does the original inhabitants. Part I

of Chapter 5 on the management of land provides avenues to the more equitable management

of land. For example. Article 60 on land policy emphasizes 'equitable access' to land for

'sustainable and productive management'. Furthermore, Article 68 directs that land laws be

rationalized (to) prescribe minimum and maximum land holdings. Appropriately

implemented, these provisions would bring into use prime land hitherto held idle for

speculative purposes. Alongside the socio-economic transformations envisioned under

Kenya Vision 2030, aimed at opening up livelihood opportunities outside self - provisioning

and smallholder agriculture, these proposed land reforms should go a long way towards

reducing the scope for land - related tensions.

Other provisions that are relevant to enhanced national cohesion include those aimed at

reducing ethnic bias in public appointments, which have hitherto been seen as the avenue

through which ethnic groups have eaten (Kauzya, 2001). This is important, as the literature

106

has shown quite conclusively that ethnic conflict is often fuelled by competition over scarce

resources, which spawns 'coalitions of convenience' (Elischer, 2008; Kimenyi and Ndung'u,

2005). A research report released in April 2011 by Kenya's National Cohesion and

Integration Commission showed the persisting violation of the National Cohesion and

Integration Act (2008), which allows no more than one - third of any public agency's staff to

come from one ethnic community. The 2010 Constitution has done well to establish a

framework of checks and balances that will ensure that political leaders do not use

appointments as a means of currying electoral favour. For example. Article 152 (2) provides

that the president will nominate non - parliamentarians to be Cabinet Secretaries, and that

their appointments must be approved by parliament. Other key public appointments are

similarly protected: Attorney General (Article 156 (2)); Director of Public Prosecutions

(Article 157 (2)); Chief Justice and judges (Article 166 ( I ) ) ; Public Service Commissioners

(Article 233 (2)); National Security Organs (Article 239 (6); Inspector General (Article 245

(2)); and Commissions and Independent Offices (Article 250 (2)). Within months of the

promulgation of the 2010 Constitution, two attempts by the president to make exclusive

appointments to key public offices met with appropriate rebuff from parliament, civil society

and the public.^^Consequently, the April - June 2010 public scrutiny that accompanied the

nominations of key judicial officers suggests that public appointments are likely to contribute

less to ethnic acrimony.

" The unilateral 2009 reappointment of the non - performing head of the Anti - Corruption Commission, who had reportedly tried to block investigations into corruption (Wrong, 2009), was blocked, as was the 2011 attempt to handpick the Chief Justice, Attorney General and Director of Public Prosecutions.

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C H A P T E R F I V E

5.0 C O N C LU SIO N AND R E C O M M E N D A T I O N S T O A C H I E V E E C O N O M I C D E V E L O P M E N T P O T E N T I A L I T I E S IN K E N Y A

5.1 Conclusion

This thesis has undertaken an extensive review of Kenya's transition into independence with

a view to analysing dominant issues that are likely to shape devolution on economic

development in Kenya with comparative analysis with devolution in China and Brazil. It

noted the manner in which various colonial institutions found their way into independent

Kenya, in total disregard for the fact that colonial institutions were designed to repress - not

develop - the natives. Notable among these was the Provincial Administration, the status of

which both Kenyatta and Moi greatly elevated to enable them to over - concentrate

governance in the presidency while emasculating other institutions that should have overseen

equitable development. At the same time, the weakening of parliamentary scrutiny of public

finances bred extensive corruption and the arbitrary disbursement of development resources,

resulting in a widely unequal society whose social sector services were highly dependent on

similarly unequal potential for Harambee resources. Occurring alongside the global

economic realities that by the 1980s led to need for structural adjustment programmes,

service delivery declined in ways that induced demands among Kenyans for greater

autonomy over their fates through greater decentralized governance.

After two decades of debating content, Kenyans finally, and emphatically, voted in a new

constitution in August 2010. Besides providing for devolution (Chapter 11), the 2010

Constitution acknowledges the risks posed by poor governance (impunity fuelled by low

levels of integrity) to equitable and sustainable development. The constitution consequently

devotes substantial attention to the ideals of good governance (such as Articles 10, 73 and 75

108

- 77) as the foundation of reforms such as devolution, and without which such reforms would

fail.

On devolution (Chapter 11, parts of Chapter 12 and the Fourth Schedule), the constitution is

true to the theory and empirical evidence of good devolution frameworks. First, it is founded

on the supreme law of the land. Second, the constitution is clear on relative roles of the

different levels of government, and on the assignment of expenditure and revenue. The

emphasis on equity is critical for Kenyans to appreciate the structural changes that must occur

in budgets, for example, i f the very ambitious but nonetheless timely Bi l l of Rights is to be

fully achieved. Critically, the Constitution does away with the hitherto notorious Provincial

Administration and with LAs, whose perpetuation would amount to an untenable duplication

of county government functions. Additionally, out of political expediency the Committee of

Experts on the Constitution avoided the rationalization of county numbers, sizes and

populations, opting for the country's 47 existing legal districts. The Constitution does,

however, provide scope for the future rationalization of the countries.

That Kenyans want the full and expeditious implementation of the 2010 Constitution is

reflected in the broad approval of the April - June 2011 process of nominating the Chief

Justice, Deputy Chief Justice and Director of Public Prosecutions. Progress on the more

contentious issues calls for the expeditious implementation of the Fifth Schedule, however,

which provides for enabling legislation. Two factors stand in the way of this agenda: the

impeding and highly divisive ICC trials over the post 2007-election violence; and the

aftermath of 2013 general election. The partisanship arising over these issues has already

imposed bottlenecks to the efficacious attention to the Fifth Schedule.

109

5.2.0 Recommendations

The following steps are recommended for the way forward for devolution to have a positive

impact on economic development in Kenya:

5.2.1 Civic education

Even more importantly than during the campaigns ahead of the August 2010 referendum is

the need, now, for civic education so that Kenyans may understand the contents and

implications of operating the 2010 Constitution, which is here to stay. The failure to enlighten

the citizenry on its contents could lead to disillusionment. Indeed, the work on the Fifth

Schedule would benefit greatly from such civic education since the constitution - drafters left

some issues for broader public determination, such as the precise fates of the Provincial

Administration and LAs . The tight timetable in the Fifth Schedule means that such a civic

education programme needs to be undertaken expeditiously.

5.2.2 Safeguarding integrity in the process

With respect to issues of integrity in national leadership, there is an urgent need to draw on

deterrence as a means of raising the stakes against transgressions. Too many Kenyan leaders

have acted with impunity and faced no sanctions. The October 2010 change in attitude of

parliamentarians of demanding that cabinet ministers step aside to facilitate investigation into

alleged impropriety in their dockets is a timely development. The Kenya Anti - Corruption

Commission has mentioned re - opening criminal investigation files from the 1990s, which

had been shelved through political patronage and it, has taken the unprecedented step of

prosecuting a cabinet minister. The public vetting of candidates for the judicial offices

opened the eyes of the electorate to the importance of such disclosure - and very likely

discouraged potential office seekers with skeletons to hide - and hopefully the practice will

110

trickle down to tiie county level and below. Such measures will provide a welcome deterrent

to future malfeasance over public resources.

The resulting savings providing the resources with which to implement the numerous reforms

required by the Constitution.

5.2.3 Capacity for implementation

Specifically for devolution, but also in many other areas, there is a great need to assess the

capacity and other resource needs for the successful implementation of the devolution

agenda. C R A ' S work will be critical for the successful implementation of devolution as well

as the Bi l l of Rights. Thus, there is an urgent need to update the national household welfare

database to enable C R A to undertake small area analysis at the sub - location and ward levels

at which resources should be allocated, to replace the current analysis and allocations based

on the district and constituency. Further, there is need to develop short courses emphasizing

good governance alongside core technical training which should become mandatory for

individuals desiring to hold county offices. These measures are important since county

autonomy, which will be interpreted by some, as the freedom to employ 'our own', must be

tempered by the imperative to deliver services. Since counties will look down on employment

of'expatriates' (from other counties), it is imperative that in - county capacity be nurtured to

the extent possible. Additionally, one critical output of the Fifth Schedule should be a

framework that ensures that counties recruit from a pool of individuals able to deliver on

nationally acceptable minimum standards of services.

5.2.4 Financing

On funding assignation, it is critical that CRA understand its role, which is to justify what

share above the 15 percent floor the Treasury should set aside for the countries. This will

require C R A to have adequate resources to understand multi - sector financing gap studies.

I l l

Additionally, it is vital that civic education on the equity implications of devolution is

undertaken, i.e., on how and with what objectives national resources will henceforth be

shared.

5.2.5 Oversight framework

In the process of developing the frameworks provided for in the Fifth Schedule, it will be

necessary to develop an autonomous oversight framework that monitors the scope for

synergy between national and county level sectoral interventions, and among the counties

themselves.^^ It should not be taken for granted that sector operatives at the national and

county levels will work harmoniously.

5.2.6 The regional integration process

It is important to start thinking, even at this seemingly early stage, about the implications for

devolution of Kenya's accession to the revived and enlarged East African Community, whose

benefits will include the freedom of movement and employment across the international

boundaries. This is especially important for countries on international borders, which the

IGCT literature recognizes might need additional subventions.

Besides the above recommendation steps, in the foregoing discussion in chapter four, it is

clear that fiscal decentralisation and proper utilization of 2010 Constitution can be a tool for

economic development and democratization. The challenge with the Kenyan model of fiscal

decentralisation is that it is not comprehensive, lacks coordination mechanism and autonomy

from political interference. In addition, it is not self - sustaining as it is highly controlled by

the central government. Therefore, in order to make fiscal decentralisation effective and

efficient, the following recommendations would be instrumental in the transformation

process:

" In other words, the benefit accruing from a road built by a single county might require that neighbouring

counties or the national ministry also invest in their adjoining roads.

112

5.3.0 Comprehensive decentralisation system

Fiscal decentralisation should be viewed as a comprehensive system rather than piecemeal

system. It should go hand in hand with political and administrative decentralisation.

Therefore, the framework and the process of fiscal decentralisation should be integrated in

the Constitution of Kenya. In addition, the persons managing the decentralised funds must be

elected by the local citizens and must have administrative control over the services that they

are charged to deliver.

In addition, the local communities' participation in decision-making process in fiscal

decentralisation especially at the local level should be integrated into the legal framework.

The participation should be a two way process. The communities should be represented in the

decision-making forums and the managers of fiscal resources at the local level should hold

public forums to report to the communities on the progress in financial management as well

as projects planning and implementation.

5.3.1 Expenditure responsibilities

The principle of subsidiarity should be integrated in sharing out the functions between the

central government and the sub - national governments. In principle, the central government

should be involved in formulation and management of national policies as well as national

natural resources such as lakes, ocean, national forests and national physical resources such

as highways and metropolitan cities, among others. The sub - national governments on the

other hand should be involved in policies and service delivery at the local level. In this

regard, service delivery in areas such as education, health, water and sanitation, roads and

agriculture should be managed by the sub - national governments except the national

institutions such as national hospitals and universities. Expenditure responsibilities should

therefore be matched with the assigned functions.

113

The sub - national budgets should be integrated with the national budget and there should be

a legal process of consultation and cooperation between the levels of government in

developing the budgets. In addition, expenditure responsibilities should be specified in the

law.

The law must also assign Capital Investment Responsibilities whereby responsibilities for

capital infrastructure should be placed at the level of government responsible for the delivery

of the specific services including the operation and maintenance of those facilities.

5.3.2 Revenue assignment

The revenue assignment between the levels of government should follow the various

functions and expenditure responsibilities assigned. The sub - national governments should

have a certain level of fiscal autonomy. This means that they should access to revenues that

are certain and predictable. The revenue base for sub - national governments should be

expanded to include user fees or service charges for each responsibility assigned. There

should, however, be mechanisms to ensure mandatory efficient and effective revenue

collection by the Local Governments, which currently has been a challenge with the LAs.

Such mechanism could include requirements for the sub - national governments to meet the

agreed revenue collection targets before receiving certain percentage of inter - governmental

transfers.

In principle, the sub - national governments should have own revenue sources to finance the

services, such as, the formalized grants - that is grants which are objectively provided for and

guaranteed in the law and therefore predictable. Martinez Vazquez and McClure (2002) argue

that there should be an elaborate revenue sharing mechanism between the sub - national

governments and the central government through an agreed formula. The sub - national and

central governments could also operate a tax sharing mechanism, which spells the

114

proportions of revenue from specific national taxes (originating from within their boundaries)

that would be assigned to the various levels of government. Local governments should be

allowed to raise their revenue through bond issuance whereby they issue non - guaranteed or

limited liability debt to finance investment in public utilities. These "revenue bonds" should

be repaid from revenue proceeds associated with tariffs set at full cost - recovery levels

(Martinez - Vazquez and McClure, 2002).

Table 5.3.2: Fiscal autonomy in sub - national governments

Summary recommendations on fiscal recommendations on fiscal autonomy relating to revenue assignment

Own taxes Base and rate under local control.

Overlapping taxes

Nationwide tax base, but rates under local control

Non - tax revenues

Fees and charges. Generally, the central government specifies where such charges can be levied and the provisions that govern their calculation.

Shared taxes Nationwide base and rates, but within a fixed proportion of the tax revenue (on a tax - by - tax basis or on the basis of a "pool" of different tax sources) being allocated to the sub - national government in question, based on (1) the revenue accruing within each jurisdiction (also called the derivation principle) or (2) other criteria, typically population, expenditure needs, and/or tax capacity.

General purpose grant

Sub - national government share is fixed by central government (usually with a redistributive element), but the former is free to determine how the grant should be spent; the amounts received by individual authorities may depend on their efforts.

Specific grants

The absolute amount of the grant may be determined by central government or it may be "open minded" (that is, depend on the expenditure levels decided by lower levels of government), but in either case central government specifies the expenditure programs for which the funds should be spent.

Source: Anwar Shah, 1994, quoted in Martinez - Vazquez and McClure, 2002: pp 23

115

5.3.3 Inter - governmental fiscal transfers

Al l inter - governmental transfers and related financial grants such as CDF, C E B F and FPE

should be disbursed to sub - national governments that have elected representatives of the

local beneficiaries. The transfers should be based on the identified budget deficits within sub

- national governments. In order to ensure that the transferred grants are utilized for local

development, a local development allocation model should be applied in categorizing the

various expenditure items, and the quantum of finances that should develop a mechanism for

fiscal monitoring and evaluation to ensure that the resources transferred to the local levels are

prudently utilized.

5.3.4 Sub - national government borrowing

The power of sub - national governments should not be generalized. Instead, they should

only be allowed to borrow money to finance development capital projects and especially the

ones that have the potential to spur local development and increase revenue base as well as

overall collection. There should be mechanisms to ensure that sub - national governments

that are highly indebted are not allowed to borrow further unless the central government

approves it in special circumstances. For example, in cases where the borrowed monies

would be utilized to develop revenue base to repay the pending loans.

The central government should facilitate capital investment at the sub - national level. A l l

types of sub - national borrowing should therefore be closely regulated by the central

authorities. Besides enforcing the debt limits established by the law, there should be a

certification process of the conditions for any bond issues. The central government as a

general policy should not act as a guarantor of regional and local government debt issues

(Martinez - Vazquez and McClure, 2003).

116

There should be an established sub - national development funding mechanism to cater for

long-term capital investment. This should be done through creation of an autonomous

institution with direct and final responsibility for borrowing and investment projects. Both the

central and local government through bond issues in the capital market could fund the

institution.

5.3.5 National fiscal decentralisation institutional management framework

There should be an institutional framework for management of certain specific matters

related to fiscal decentralisation. In this regard, the Fiscal Decentralisation Commission

should be established to deal with matters related to revenue allocation among the sub -

national governments such as allocation formula for models, monitoring and evaluation of

implementation of fiscal decentralisation, technical assistance and oversight in the

management of inter - governmental fiscal transfers, handling conflicts between sub -

national governments or between sub - national governments and the central government.

The sub - national authorities should have considerable autonomy from central government

while at the same time being accountable to local citizens for the public goods and services

that they deliver.

The central government should have the capacity and mechanisms to monitor and evaluate

decentralisation. The central government must set uniform rules and standards regarding

financial management systems, expenditures and borrowing parameters and ensure strict

compliance by each devolved unit as well as maintain regular comprehensive financial and

systems audit.

There should be different inter - governmental systems applicable to urban and rural

devolved units. This ensures that the systems take cognizance of capabilities on expenditure

responsibilities, borrowing and provision of services.

117

Fiscal decentralisation should integrate well the taxing powers to the devolved units to ensure

local sustainability and beneficiaries' involvement and ownership of the devolved unit as well

as have the basis of demanding for accountability.

The devolved units' systems should be less complicated and easy to work with and comply

with. For example, the central government should not apply all its complicated financial

management systems to the devolved units. This will ensure ease in compliance.

Fiscal decentralisation should be effectively linked with broad national plans and goals to

avoid wastages and mis - allocation of resources at the devolved unit level. For example,

development planning and the subsequent budgetary allocation should be harmonized at the

various levels of government through consultations and pursuit of similar plans.

Al l thematic or sector based allocations and fiscal transfers should be harmonized and

centrally managed or disbursed. For example, all funds allocated for education bursary within

a given devolved unit should be managed by one institution or be jointly administered by the

respective receiving agencies. This should also apply for roads, water and health services

among others.

For greater decentralisation of fiscal arrangements, incentives can be put into place to use

resources more efficiently. These may include greater autonomy for local governments in

administrative matters as well as in the execution of their budgets. Sub - national

governments can be given greater incentives for raising own - source revenues by being

given authority to levy buoyant taxes, greater use of formula - based fiscal transfers, and the

reduction of investment in vertical programs in favour of local development initiatives

planned and financed by local governments.

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