Social, economic and political shocks that lie ahead for Ruto's government

Happy New Year! Today’s article is the first of the 52 that lay ahead for the year 2025, God’s willing. As has become the custom for this column, we shall start by reflecting of the social, economic and political factors that are likely going to shape our national economic outlook for the next 12 months.

In reality, there is no economic forecast or model that can accurately predict a 12 month horizon for any economy. The socio-economic and political environments within which economies operate are quite dynamic and can drastically change in a twinkling of an eye.

This is especially so at this age of global interconnectedness. Triggers that can impact global economic order either for better or for worse can originate from any corner of the world and quickly spread to the rest of the countries as happened with COVID-19. Nevertheless, economists will always rely of available indicators, past trends, environmental scan and consumer sentiments to anticipate the economic outlook into the short term.

This brings me to the central question of todays article: what are the factors that are likely going to shape the economy this year?

The first indicator worth noting is the government revenue collections for the first five months of the fiscal year 2024/25. Emerging data indicates that the Kenya Revenue Authority (KRA) was way off the target of sh.2.47 trillion, collecting sh.856 billion in the five months to November 2024. This translates to about 35 per cent of the annual target.

While revenue collection by the taxman would have high and low seasons depending on business cycles and variation of end of accounting periods for businesses, three classes of taxes would be good predictors of the undercurrents within the economy. These are the Value Added Tax (VAT), Excise duty and Import duty. These tax classes are largely depended on consumption behaviour within the economy and would be good predictors of consumer sentiments.

The taxman missed the VAT, Excise duty and Import duty by sh.15.1, sh.6.5 and sh. 2.8 billion respectively for the period. Since this taxes are largely driven by consumption, they are a good representation of what is happening at micro-levels for households and businesses. If this is true, then it could invalidate the real drivers of the celebrated macroeconomic outcomes on inflation and exchange rates at official levels.

This seems to validate expert views that what we see at the macro level may be as a result of subdued demand for basic consumables and imports, and adjustments in supplies on the part of businesses. However, time will tell the exact nature of the underlying factors as the year unfolds.

The second factor is inferred from President Ruto’s New Year address to the nation. Out of the about 24.17 minutes address, he dedicated sizeable time to reflect on our Constitutional freedoms, dangers of unchecked liberties and radicalization on digital platforms, especially on social media. Further, he touched on what is now emerging as a pet subject in his recent speeches of what he terms as a decay on our moral fabric and the role of the family unit.

To be fair on his critique of the emerging revolution on the social media spaces, the president seemed to acknowledge that there have been some leadership failures on the part of the government. Thus imploring on leaders to reflect deeply of what has brought us to where we find ourselves as a nation at this point in time. Later, he would dance to the tunes of ‘Kasongo’, appearing to embrace the onslaught against his administration on social media platforms, especially by the young generation.

From an analytical point of view, the President’s message to the nation sets the stage for the social environment that we start the year in. Notably, a day before the New Year started, the civil society staged the first of what they promise to be a series of public demonstrations to protests against unexplained abductions of perceived critiques of the government.

While the security apparatus denies any involved or knowledge of who the abductors are, their inaction and lack of effort to bring to book the abductors betrays the government position on the matter. The agony of parents seeing their children abducted in broad daylight and a government denying knowledge of this is the biggest risk we start the year with.

This has the potential of reviving the momentum of the Gen-Z wave of protests. As things stand, the government seems to view that matter as trivial, especially in the comfort of a broad-based government and buying some vocal Gen-Z leaders into its fold. Unfortunately for the powers that be, a majority of the young generation views the outcome of the broad-based government as a betrayal of their sacrifices by former Prime Minister Raila Odinga, and now former President, Uhuru Kenyatta.

To them, even the remaining remnants of the opposition is part of the evil axis of the old order that they crave to drain from the Kenya’s political scene. If these protests gains momentum akin to what we had in June last year, then the silicon rubric will have been broken to a point of no return. This is a risk the President and his men must treat with the seriousness it deserves. It has the potential to destroy all the economic threads that we are hanging on.

Closely related to these social factors is the political outcome of the African Union Chair (AUC) on February 25. The President’s choice to spend the festive season in the Nyanza/Western region and hosting President Museveni of Uganda and Ghana’s president – elect, John Mahama, appears well calculated. Should President Ruto succeed in securing the AUC seat for Raila Odinga, he would have likely succeeded in appeasing a considerable political base sworn to Odinga-ism. Such an outcome would likely buy him sizeable political capital up to 2027.

Outside the social and political factors, the poor short rains are likely going to test the celebrated fertilizer subsidy program and cost of basic food stuffs. For some experts, Kenya Kwanza (KK) has enjoyed a window of what financial economists call a ‘lucky escape’ due to favorable weather in the two years in office. From past trends, recurrent bouts of drought and famine have tested the resilience of every administration over the past six decades.

Unless things change in the long rain season, 2025 may be the year when the KK administration would be put on the weighing scale on emergency and relief response. The response to the flooding crisis in 2024 was lackluster and chaotic. The economy cannot afford such a mediocre response on a widespread scale, should it become necessary.

The final factor that we discuss here today that’s likely going to impact the economy are government spending programmes. While the tone from the National Treasury seems more organised, the teething problems of pending bills and over taxation remains unresolved and with no clear action plan. Those in power continue with their extravagant waste of public resources on the one hand, while crying over lack of funds when it is convenient.

To kickstart economic activity in 2025, the executive must propose a simple, clear and actionable plan to inject adequate cash-flows into circulation. Clearing outstanding pending bills, paying for government purchases promptly and well targeted stimulus economic packages are a matter of necessity as we start the year.

The window of opportunity is very short for the President to convince disgruntled and economically deprived voters that he means well for them. There is only 52 weeks left!