Post date: Mon, Jul 22, 2024
Category: Finance
By: Leo Kipkogei Kemboi,

1. Introduction

Fiscal decentralisation is a core part of Kenya’s Constitutional order. Fiscal decentralisation is allocating revenue and expenditure responsibilities to lower levels of government. Kenya’s identity as a sovereign republic, as stated in Article 4 of its Constitution, is deeply intertwined with the national value of devolution, emphasised in Article 10. This unique relationship positions fiscal decentralisation as a critical tool for strengthening national unity. By granting counties financial autonomy, Kenya directly upholds its commitment to devolution, empowering local communities and reinforcing the principles of self-governance inherent in a republic. This localised approach to resource management can promote shared prosperity by addressing the specific needs of communities and reducing regional disparities that could otherwise fuel division. By enabling citizen participation in local development, fiscal decentralisation fosters a sense of ownership and pride in the Kenyan republic, ultimately strengthening the bonds of national unity.

Fiscal decentralisation is entwined into the very fabric of Kenya’s government structure and how resources are managed. The Constitution of Kenya 2010 enshrines fiscal decentralisation in several ways,

• Chapter Eleven of the Constitution lays out the framework of the Devolved Government, and this entire chapter is dedicated to establishing the framework for devolution in Kenya. It outlines the principles, structure, and functions of county governments
• Article 174 states that one of the objectives of devolution is to “give powers of self-governance to the people and enhance their participation in the exercise of the powers of the State.” This includes the power to manage their finances.
• Article 202 mandates the equitable sharing of nationally collected revenue with county governments, giving them the financial autonomy to perform their functions.
• Article 207 empowers counties by allowing them to impose property rates, entertainment taxes, and other levies to generate their revenue.

Fiscal decentralisation is an incidental aspect and a fundamental principle of Kenya’s governance system, and the Constitution seeks to empower counties by giving them the political authority to make choices and the financial resources to carry out their functions.

The Public Finance works, rooted in the works of Musgrave, Tiebout, and Oates, offer a framework for dividing governmental fiscal responsibilities (stabilisation, redistribution, resource allocation) among different levels of government.[i] [ii]  While central governments are best suited for stabilisation and redistribution, decentralisation is seen as a way to enhance resource allocation in the public sector. [iii] These theories operate under the assumption that governments prioritise societal well-being. When people’s preferences diverge, decentralisation allows for a more comprehensive array of local public services, potentially increasing overall welfare. This is because local governments are thought to have a better grasp of their constituents’ needs and preferences than the central government, leading to more tailored and efficient provision of public services. The ability of citizens to migrate to jurisdictions that align with their preferences (Tiebout’s “voting with one’s feet”) incentivises local governments to provide services efficiently and innovatively.[iv] There are two context issues that we need to understand;

a. Poverty is a national feature

Poverty in Kenya presents a significant challenge, impacting a substantial portion of Kenya’s population. Here are reasons why people who favour revenue division based on population should be keen. First, poverty is a rural problem in Kenya because urban areas generally have high incomes. Secondly, poverty is an income problem that can only be dealt with through better labour outcomes or private sector expansion, not government spending. Third, the pegging argument on direct spending addresses other fiscal components, i.e., taxes, waivers, subsidies, and borrowing. Fourth, funding for public goods is the role of government whose enjoyment can’t exclude people based on geography or contribution level, i.e., defence. Fifth, spending has to achieve optimal outcomes, requiring the government to focus on public goods and constitutional obligations.

The Constitution lays a strong foundation for social progress, and it guarantees fundamental rights like the right to life, health, education, housing, and social security, aiming to uplift all citizens and combat poverty. The principles of equity, inclusivity, and public participation guide the government in prioritising reducing inequalities and ensuring equal opportunities. The specific provisions for affirmative action, rights of older persons, and devolved government further strengthen the commitment to social justice and targeted interventions. In short, the Constitution provides a robust framework for a more equitable and just Kenyan society.

As of 2021, over 30.5% of Kenyans, equivalent to 15.1 million people, lived below the poverty line, struggling to afford necessities. This means almost one in three Kenyans faced poverty, highlighting the widespread nature of the issue. The distribution of poverty is strikingly uneven. According to the Kenya Poverty Report 2021, 40.7% of the rural population lives in poverty, compared to 34.1% in urban regions.[v] This stark disparity underscores the deep-rooted inequalities in development and access to opportunities between rural and urban communities. Beyond the poverty line, different levels of deprivation paint a more concerning picture. Hardcore poverty, the most severe form, affected 7.8% of Kenyans in 2021, reflecting a daily struggle for basic survival.

31.2% of the population experienced food poverty, highlighting the persistent challenge of food insecurity. While Kenya witnessed a reduction in poverty between 2015/16 and 2019, the period between 2019 and 2020 saw a sharp increase, likely driven by global economic shocks and potentially exacerbated by the COVID-19 pandemic. Although poverty rates slightly recovered in 2021, they remained higher than pre-2020 levels, indicating a concerning slowing down of progress. Adding another layer of complexity is the shifting dynamics of poverty. The proportion of urban poor increased between 2019 and 2021, suggesting a growing concentration of poverty in urban centres. This trend is likely driven by rapid urbanisation and limited access to opportunities for marginalised urban populations, demanding a more nuanced approach to poverty reduction strategies.

b. Economic Activity Deprivation

In 2019, over half of Kenyans aged 18-59 experienced economic activity deprivation, notably those aged 35-59 (57.9%). However, this represents a significant improvement from 2009, with those aged 26-59 seeing a more than 25% decrease in deprivation, likely due to improved educational attainment translating into better job prospects. Youth (18-25) not in education, employment, or training also decreased from 66% to 53.1%. Despite overall progress, a stark urban-rural divide persists. In 2019, nearly 60% of rural residents aged 26-59 experienced economic activity deprivation, compared to just under 50% in urban areas.[i] While both regions saw improvements since 2009, the gap remains substantial, highlighting the need for targeted interventions in rural communities.

County-level analysis reveals even more significant disparities. In 2019, Garissa had an 80% deprivation rate among 26-34 year-olds, compared to 40% in Kiambu. Garissa, Turkana, Wajir, Mandera, and Marsabit consistently ranked among the most deprived, while Kiambu, Machakos, Nairobi City, Makueni, Nyeri, Nandi, and Uasin Gishu showed the lowest deprivation.

Investments in people and promoting inclusive growth must be made to combat economic deprivation. This requires prioritising quality education and affordable healthcare and creating a stable macroeconomic environment necessary for job creation in relevant sectors. Fair labour practices, robust social safety nets, and access to factors enabling asset accumulation are crucial for protecting workers and fostering social mobility. Targeted interventions should address regional disparities and empower disadvantaged groups through tailored policies and programs.

2. Constitutional Architecture on Sharing of Fiscal Resources

Article 202 of the Kenyan Constitution is central to understanding how the country approaches resource allocation. Article 202 lays the foundation for fiscal decentralisation in Kenya. It mandates that the national government share revenue collected nationally with county governments. This sharing is not meant to be arbitrary but is guided by the principle of equity.

The Constitution recognises that “equitable sharing” is not always the same as “equal sharing.” While population size is undoubtedly a factor in determining how much each county receives, it’s not the only one. The Constitution acknowledges that other factors must be considered to ensure genuine fairness. Think of it this way: simply dividing the national revenue pie based on population might leave some counties struggling to meet their basic needs. This is because different regions have different starting points. Some might have historically faced marginalisation, have lower revenue-generating capacities, or grapple with unique geographical challenges like aridity or remoteness.

Therefore, Article 202 paves the way for a more nuanced approach to revenue sharing, considering Historical Disparities, Development Needs, and Revenue Generation Capacity. The Constitution of Kenya recognises and addresses past injustices that might have left some regions economically disadvantaged. Parliament should ensure that counties have sufficient resources to provide their residents with essential services like healthcare, education, and infrastructure. The Constitution of Kenya 2010 acknowledges that some counties might struggle to generate significant revenue locally and require additional support from the national government. By moving beyond a purely population-based approach, Article 202 aims to ensure that all Kenyans, regardless of where they live, have a fair shot at access to opportunities and a decent standard of living.

3. Conditions on Sharing of Resources

They are direct provisions in Article 203 and other conditions that prescribe an approach to equality, interpretation of the Constitution, and other national values.

3.1 Article 203 Conditions

Article 203 moves beyond a simplistic “one size fits all” approach to resource allocation. It acknowledges the complexities of development and mandates a nuanced approach that considers historical context, regional disparities, and the needs of marginalised communities. This ensures that principles of fairness, justice, and inclusivity guide the Kenyan government’s pursuit of equitable development. Article 203 outlines this commitment by providing specific criteria for determining how national revenue should be shared with counties.

i. Article 203 (d) Functionality of County Governments

This criterion underscores a fundamental principle of devolution: counties must have the financial muscle to carry out their responsibilities effectively. The Constitution grants counties significant autonomy in managing their affairs, including healthcare, agriculture, and county roads. However, this autonomy is meaningless without adequate resources. Therefore, even if a county has a smaller population, it should receive sufficient funding to provide essential services to its residents and fulfil its constitutional mandate. This ensures that devolution translates into meaningful development across all regions.

ii. Article 203 (g) Addressing Economic Disparities

This criterion tackles the issue of regional inequality head-on. Kenya, like many countries, grapples with uneven development. Some regions have historically lagged due to geographical isolation, unequal resource access, or past discrimination. Article 203 recognises that allocating funds based on population would perpetuate these disparities. Instead, it mandates considering the existing economic landscape and prioritising resource allocation to uplift disadvantaged areas. This might involve investing in infrastructure, promoting economic opportunities, or providing targeted social support in marginalised communities.

iii. Article 203(h) Affirmative Action for Disadvantaged Groups

This criterion goes beyond geographical equity to address historical injustices faced by specific communities. Kenya has a diverse population, and some groups have faced systemic marginalisation and discrimination. Article 203 recognises the need for affirmative action to level the playing field. This might involve allocating additional resources to regions with large populations of historically marginalised communities, even if those regions aren’t the most populous overall. The goal is to provide equitable opportunity for all Kenyans to prosper, regardless of background.

3.2 Other Constitutional Conditions

1. Article 27 of the Constitution of Kenya: While seemingly fair, a “one man, one vote, one shilling” approach to resource allocation in Kenya risks contradicting Article 27’s guarantee of equality. Solely focusing on the population could further disadvantage historically marginalised communities and under-resourced regions facing unique challenges. As envisioned by Kenya’s Constitution, actual equality demands considering historical context and present realities to ensure equitable outcomes for all Kenyans.
2. Article 10 of the Constitution of Kenya: A “one man, one vote, one shilling” approach to resource allocation could lead to outcomes that are in tension with the spirit of Article 10. Article 10 of the Kenyan Constitution defines the country’s national values and principles of governance, emphasising human dignity, equality, justice, good governance, and sustainability. A “one man, one vote, one shilling” approach to resource allocation, while seemingly equal, could contradict Article 10’s spirit. Ignoring historical disadvantages and varying regional needs risks perpetuating inequality and hindering social justice. This could breed resentment, undermining national unity. True equity, as envisioned by Article 10, demands a more nuanced approach to resource allocation.
3. Article 259 of the Constitution of Kenya: Article 259 provides a basis for interpreting the Constitution of Kenya. Interpreting conceptual “One man, one vote, one shilling” what
   1. Substance over Form: Article 259(a) prioritises the “spirit, purport and objects of this Constitution” over a literal interpretation. Therefore, while “one shilling per person” might sound numerically equal, Article 259 encourages us to look deeper. Does this approach fulfil the Constitution’s equity, social justice, and national unity goals, which Constitutional tenets demand?
   2. Historical Context: Article 259(d) mandates considering “the history of Kenya.” This is crucial when assessing resource allocation. Historical injustices and marginalisation cannot be ignored. A purely population-based approach might perpetuate these inequalities, contradicting the Constitution’s spirit.
   3. Progressive Realisation of Rights: Article 259(c) emphasises the need to “develop the law progressively.” Resource allocation strategies should evolve to address emerging challenges and ensure equitable outcomes.

Conclusion

In conclusion, an argument based on population would be inadmissible based on Constitutional principles outlined in the Constitution of Kenya, 2010. While population size is a factor in resource allocation, Kenya’s Constitution mandates a more nuanced approach. Articles 202 and 203, alongside others, emphasise considering historical disparities, regional needs, and revenue-generating capacities to ensure equitable sharing. This approach, grounded in fairness and inclusivity, empowers local governments to address unique challenges and fulfil their constitutional mandates. A solely population-based model would neglect historical marginalisation and hinder balanced development. By recognising diverse needs, Kenya can achieve equitable resource allocation, promoting a just and inclusive society where all citizens have the opportunity to thrive.

[i] Kenya National Bureau of Statistics. Inequalities in Wellbeing in Kenya (Based on 2009 and 2019 Kenya Population and Housing Census). 2023.

[i] Oates, Wallace E. “Toward a second-generation theory of fiscal federalism.” International tax and public finance 12 (2005): 349-373.

[ii] Musgrave, Richard A. “Approaches to a fiscal theory of political federalism.” Public finances: Needs, sources, and utilization. Princeton University Press, 1961. 97-134.

[iii] Oates, Wallace E. “An essay on fiscal federalism.” fiscal federalism. Edward Elgar Publishing, 2004. 384-414.

[iv] Fedelino, Ms Annalisa. Making fiscal decentralization work: cross-country experiences. International Monetary Fund, 2010.

[v] Kenya National Bureau of Statistics. The Kenya Poverty Report  2021 (Based on the 2021 Kenya Continuous Household Survey ). 2023.

 

Photo Credit: Freepik

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