Campaign cash poses new challenge to economy

By Jackson Okoth
The coming months will be jammed by political activity as Kenyans ready to go to the polls in March in an election that is billed to be a high stakes contest.

The fact the President Kibaki will not be contesting for presidency heightens the political rivalry — with candidates pulling all stops in the race to State House.

Thus with Kenya hurtling down into election mode, the big question is whether the economy can cushion itself from excess cash that is usually splashed around up to polling day.

Already, those vying for presidency and other elective positions are spending huge sums to prepare their campaign ship by setting up secretariats, recruiting staff and consultants.

The amount of cash candidates spent in 2007 serves as an indicator of the amount of cash that will be injected into the economy in the next few months.

To make an impact, presidential candidates have started spending on public rallies although a full picture of what their budgets are is not clear.

What should be of concern is what measures Treasury will employ to ensure the campaign cash does not disrupt the economy’s fundamentals now that the Central Bank of Kenya (CBK) has managed to rein in inflation to 10 per cent from 20 per cent last year.

A report on the 2007 polls by the Coalition for Accountable Political Financing (CAPF), a group of governance-focused civil society organisations, shows politicians spent a whopping Sh5.6 billion on campaigns.

Pyramid schemes
Much of the campaign funds were absorbed by the media, fund raising officers, manufacturers of campaign paraphernalia, hotel and travel firms, event organisers, campaign strategy advisers, consultants, campaign coordinators and party agents, pollsters, security firms, entertainers, youth and women groups.

Data gathered by CAPF suggests that in the 2007 poll, more than Sh850 million came through party nomination fees and levies, Sh1 billion from foreigners including Kenyans in the Diaspora, Sh1 billion from individual donations and contributions and Sh500 million from commercial banks, Saccos, pyramid schemes and other shadowy sources.

The data also shows that about Sh700 million was raised through sale of personal assets by candidates. On average, most parliamentary aspirants spent between Sh7 and Sh8 million during the 2007 General Election.

On misuse of State resources, the study found out that during the 2007 polls, senior civil servants and personalities working in parastatals were active in partisan campaigns.

It is unclear whether funds sourced by these personalities were from the coffers of State corporations or their own individual accounts.

Figures show that misuse of state resources by public officers amounted to Sh 450 million.

Monitored campaign expenditure tracking data estimates that in 2007, candidates could have spent between Sh2 million and Sh3 million on voter bribery. The highest spenders used Sh7 million to bribe voters in the form of cash hand outs, which accounted for eight per cent of bribes used.

A typical expenditure plan by political aspirants included cash set aside for voter bribery, travel and logistics, media campaigns, campaign material, propaganda, entertainment and promotions as well as money to organise rallies and pay for security.

“In previous elections, we have seen excess cash injected into the economy, money that is not supported by production. This is what happened with the Goldenberg scandal in the 1990s when excess cash was printed and pumped into the system,” said Kareithi Murimi, Risk Consultant.

He told Business Weekly that a huge cache of campaign cash expected in the 2013 polls will introduce excess liquidity (cash) in the economy, putting pressure on inflation and upsetting the Shilling exchange rate.

His sentiments are also supported by Japheth Awiti, an economist at the University of Nairobi who says that in an election, most people abandon work and instead go for hand outs.

“Though it is difficult to control election spending we should be worried if the money is used to bribe voters,” said Awiti.
Unlike the 1992 polls when the Government took a huge overdraft from the Central Bank of Kenya (CBK), forcing monetary authorities to print more cash, there is no likelihood that this reckless behaviour will be repeated in next year’s General Election.

The shilling is expected to remain volatile as the 2013 polls approach depending on how foreign investors view the county’s political risks and whether there will be any influx of foreign exchange from bank accounts abroad.

“We expect an average performance of the shilling if an influx of Forex happens during the election period,” said Dominic Kiarie, managing director, British American Asset Managers Ltd.
Available figures show huge aounts of funds belonging to individuals in Kenya, are stashed in foreign countries including the United Kingdom and Switzerland.

Residents of the East Africa Community (EAC) are said to have more cash stashed in Swiss Banks than those from any other region in Africa.

Offshore accounts
The Swiss National Bank (SNB), the Central Bank of Switzerland, in its latest report on the country’s banking sector states that the EAC countries of Burundi, Rwanda, Uganda, Tanzania and Kenya have at least $1.3 billion in the country.

Kenya tops the list with $857 million followed by Tanzania ($178 million), Uganda ($159 million), Rwanda ($29.7 million and Burundi ($16.7 million).

“There is suspicion that owners of these funds are not on the presidential bid or any race for elective post but will use this cash to buy influence and support candidates who will guarantee them lucrative Government contracts or tenders when in office, said Murimi.

“We are seeing a hype of activity as individuals jostle for government contracts to set up county administration offices and other facilities. This could be corruption moving to the counties to raise campaign cash.”

In the absence of a law to monitor and regulate campaign spending, calls have been made for the Independent Elections and Boundaries Commission (IEBC) to come up with a structure that will force candidates to disclose source and use of their campaign cash. “We urge the Office of Auditor General to ensure State resources are not used in campaigns,” said Murimi.

Expectations are high that Parliament will pass the Campaign Financing Bill 2011 fast before politicians choke the economy with campaign billions. The Bill is expected to put brakes on negative effects of uncontrolled ‘political cash’ on the economy.

The Campaign financing Bill spells out stiff penalties for those who flout laid down rules and procedures required in raising and spending funds during an electioneering period.

Pending bill
The legislation will provide a ceiling on funding of election campaigns, use of funds during party nominations and provide for the management, spending and accountability of funds during elections.

If the Bill becomes law, there is need for political class to restrain their campaign spending habits.

“It is doubtful that MPs will pass this bill into law without amendments because of their vested interests,” said Murimi.