Why the next regime should prepare for an ailing economy, and lesson from Singapore

Traders convert their car boots to sell fruits, vegetables, groceries, eggs and other fresh farm products along Northern Bypass in Nairobi, June 4th, 2020. Many entrepreneurs turned creative to earn a living after several job losses due to the Covid-19 pandemic. [Elvis Ogina, Standard]

In one of my many hustles, I am a national champion of business process re-engineering. In fact, I know a couple of things that happened behind the scenes in order to actualise the one-stop-shop model of service provision offered in the Huduma Centres.

At the heart of re-engineering processes, nothing is given but rather we question the role and value of anything and everything. The goal is to achieve the most effective and efficient way of doing things without compromising on quality, performance and value proposition to the target customer/beneficiary. While it is commonly practised in business processes, the concept has practical relevance at the policy level and management of the economy.

As I have postulated before, the next administration will have a horrendous task to restructure and re-jig the economy. This is the only way it will be able to make any meaningful impact on our socio-economic welfare. At play will be a huge budget deficit and low revenue base against a huge debt burden and wage bill. Consumption levels are bound to remain low due to the Covid-19 pandemic and stunted household incomes, thus stifling economic activity into the medium if not long term.

There is also high unemployment and/or underemployment and challenges of sustaining welfare benefits and driving the administration’s developmental agenda. Therefore, finding an innovative, bold and decisive actionable economic plan is not optional for whoever seeks to become the next tenant at Statehouse. We need a Bill Clinton moment at this point in time.

Lesson from history

There has been an alleged letter from the late Lee Kuan Yew, the founding prime minister of Singapore, circulating on social media. While it is not clear whether he was the missive’s author, it depicts the reality of the diametric path his country’s leadership took from that of the largely poor African continent.

The meme expresses his dismay at how former freedom fighters turned presidents demonstrated wanton opulence with private jets in foreign capitals where they were begging for assistance. Yew flew on commercial flights with an extremely lean delegation. He also misreported to the world the true fortunes of his country’s economy. This allowed Singapore to continue enjoying concessionary loan facilities and grants from development partners beyond what was necessary.

By last year, data from the Singapore Economic Development Board indicated the country is home to over 37,000 international companies and over 154,000 small and medium enterprises. This might not raise any eyebrows until we put into context the geographical features. With a size of only 721.5 square kilometres, the country is only slightly larger than Nairobi.

The county has no natural endowment other than the sea; no land to grow her own food and no rivers or springs for any natural clean water. Often referred to as the ‘Lion City’, just how has this small island managed such an economic feat? What is it they did correctly that we did not do? What lessons can we learn from them?

An online search for economic data, trade and investment about Singapore provides signals to the allure for multinationals. At the click of a button, one can access up-to-date data on the economy, trade and investments, and socio-economic demographics.

The country has exploited her social fabric that consists of a mix of Asian, European and American influences to lure the world to her shores. Other notable attraction points include at least 21 bilateral and regional free trade agreements and 41 investment guarantee agreements. A vibrant financial centre and access to funding have also been critical engines for growth.

By March 2016, the country had at least 124 commercial banks, 365 fund managers, 531 capital market services license holders, and the fourth largest forex trading centre in the world. But the clincher is the headquarter incentives scheme for foreign businesses, which offers a concessionary tax rate of 15 per cent for qualifying income for the first five years. There are also tax rates of between zero to 10 per cent.

This is complemented by tax-free repatriation of dividends to direct-held foreign subsidiaries and the world’s most robust personal tax framework ranging from between zero to 22 per cent. Incomes up to Singaporean dollars 20,000 (Sh1,648,000) are tax-exempt and a taxpayer reaches the highest tax bracket at S$320,000 (Sh26,368,000) at current exchange rates. This is complemented by generous tax reliefs to make its citizens most likely the least taxed in the world.

Contrast this tax regime with, for instance, Kenya’s personal income taxes. Only income up to Sh288,000 annually is tax-exempt. A taxpayer hits the highest tax bracket at an income level of Sh387,996 annually (Sh32,333 per month) of 30 per cent. This reflects the misguided fiscal policy that presumes the government can tax its way out of poverty.

Overhaul tax policy

As a matter of priority, the next administration must conduct a comprehensive overhaul of the country’s tax policy. This has to provide tangible and sustainable incentives to both foreign and domestic investors to put up shop across the country. The inconsistencies from various counties must be harmonised and be made predictable. Personal taxes must allow for more money at the household levels to stimulate consumption and domestic savings to mobilise adequate capital stock.

Second, the energy sector has been in a spot for several weeks now for the wrong reasons. Adduced evidence points to a costly energy burden for citizens and businesses due to opaque power purchase agreements and mediocrity at Kenya Power. No task forces or Executive orders can sort this mess. It’s time to let market forces sort the mess, which is similar to that of the defunct postal and telecommunication body in the late 1990s. The next administration must move with speed to de-monopolise electricity marketing and restructure the entire value chain. The redundant agencies must die for a new normal to emerge, consumers get options to choose from, and allocative efficiency to be attained. Only then can manufacturing be revived and the country becomes a competitive investment destination in the region.

Third, a ruthless re-organisation of public expenditures must be undertaken. While government spending will be necessary to inject money into the economy, this must only be towards productive and effective purposes. Priority must be spent within the local economy as opposed to foreign-based contractual agreements. Beyond that, a thorough audit of the mandate, roles and performance of State agencies must be undertaken.

It is without a doubt that many agencies have been established through Executive orders with the sole purpose of providing board appointment opportunities to political allies. Others have been reactionary interventions to cover the failures of other State agencies. A painful consolidation and elimination must happen. As a policy, taxpayers’ money must never be used to bail out dysfunctional State agencies. This is the policy in Singapore–government revenues are mainly dividends paid to Treasury by their State corporations.

Fourth is the consolidation of government information and communication. As I was researching for this article, I couldn’t find data on how many international companies have regional hubs in this country, how much they have invested, and the number of jobs created. I only found a list of the companies on Wikipedia. But for Singapore, a single click led to numerous links to public and private enterprises with the data I needed.

I pretended to register a company in Singapore and it took me exactly 23 minutes to get a personal email with all the basic information needed to complete the registration and costs. In Kenya, it is an open secret that public officers demand hefty bribes to facilitate such registrations.

Finally, it is time to reconstitute the National Economic Council. Singapore has its Future Economy Council. Bill Clinton’s first undertaking before he was sworn in as president was to call for an economic conference. The Kibaki administration established and faithfully maintained the economic council for the entire term he was in office. Heaven knows why the Jubilee administration killed it. Or could it be a signal about their economic thinking?

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