The financial aspects of Devolution

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BY DANIEL KAMANDE

The March 2013 General Elections saw Kenyans elect the Governors, Senators and County Representatives. This made the establishment of devolved Government a reality as envisioned in the new Constitution. With devolution, Kenya is administratively divided into 47 Counties. Equally, power is transferred from the National Government to County Governments.

The new Constitution recognizes one of the main objectives and principles of a devolved Government as the right of communities to manage their own affairs and further their development. It is expected that this will give the people a sense of identity and self-empowerment. They will feel recognized in their contribution to the growth of their own county. However, there is a lot that still needs to be done so that the gains envisioned in the constitution and more so the devolution to be appreciated by all Kenyans.

How will the resources be shared? The new Constitution provides for equitable sharing of national resources. Specifically, the Constitution requires that revenue raised nationally be shared equitably between the National and County Governments. It details a criterion to be followed in vertically determining the equitable shares of both the National and County Governments on the one hand; and horizontally among the 47 counties.

The law requires that at least 15% of the national revenue collected by National Government be shared equally among the 47 counties. Already there is hot debate on the allocation of the monies that shall go to the County Governments, with division emerging between the National Assembly and the Senate on what amount needs to be allocated to the devolved units.

In addition, the Commission on Revenue Allocation (CRA) came up with some indicators that are used to allocate funds to counties. These indicators are population, poverty levels, county land area, prudential financial management/performance index, and fund equalization index. CRA still faces some challenges as some of its allocations are meeting varied reactions from Kenyans.

Will the County Governments have power to raise and spend revenue? The Constitution through taxation section gives County Government power to generate revenue. The Country Government may impose property rates, entertainment taxes and any other tax that it is authorized to impose by an Act of Parliament.

In addition, a County Government may borrow with the approval of the County Government’s Assembly and only if the National Government guarantees the loan. Once various taxes have been determined they will have to be collected. Before Devolution, the practice was that Local Authorities collected local taxes within their jurisdiction.

Experience indicated that most Local Authorities had limited capacity to discharge that function. With the new Constitution, it is still a subject of debate whether KRA will collect revenue on behalf of the Counties or whether it shall assist the Counties in building their own capacities to collect their own revenue. There has been dispute between the Ministry of Finance and the Transitional Authority over the administration of the revenue of National and County governments.

In the long term, if the County Governments are suppressed leaving the control of finances in the hands of the National Government, then the whole concept of devolution will be defeated. In fact, County Governments without the power to control their own finances will be political and administrative units, negating the whole idea of devolution of the country into counties with more efficient financial management systems.

What will be cost of devolution? The costs attributed to devolution are not new costs. Previously, there were some funds (budget) which were annually earmarked for districts and the Councils. With the new Constitution most of the Districts and the Councils budgeted items are transferred to Counties as the functions are equally transferred. County budget need to reflect this reality. The salaries and remuneration commission need to establish realistic salaries for public officers at County level. For example, the commission may consider providing for allowances, not salaries, for County Officers whose functions will not call for full time commitment.

Would Kenya experience improvements in living standards that are associated with devolution? Where it is practiced, devolution has effects on the nationals of the country both directly and indirectly. In the case of UK, devolution saw falling levels of poverty and improving employment rates across the country after ten years of initiation.

In addition, there was improvement of social housing and on social care devolution which resulted in reduction of costs for older people. Every living being with free will and self-movement seeks to find what is best for him and the community. If every individual would have the common good within them, then without doubt we would reap the positive effects of devolution.

Over the years Kenya has witnessed a culture of corruption, poor governance and ethnicity which have resulted in ethnic conflicts. Insecurity is widespread and this has ensured that there is still widespread poverty. Political uncertainties, marginalization, excessive waste of natural resources, excessive political intolerance, gagging as well as cut-throat political competition have become the order of the day.

With the new Constitution, the devolved government is a new dawn. It is expected that Kenyans will continue to elect responsible leaders who are development oriented to govern the devolved Counties.

(The writer is an Economic Expert with Ernst & Young. Email: [email protected] The views expressed are not necessarily those of Ernst & Young)

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  • Wehliye

    There is empirical evidence to show that whereas devolution will help on social matters, it does not help when it comes to economic development. I think this devolution thing works best after a country has taken off and counties are able to rely a lot more on revenues generated internally rather than wait for handouts from the centre. Countries like Malaysia, Singapore and other Asian Tigers reached the current level of economic development simply because there meritocracy. Focused leadership, sometimes with a bit of ‘benevolent dictatorship’ is what took them there. The reason many Kenyans want devolution is because in the past the centre has always been corrupt and there was unequal distribution of resources. These are the wrong reasons to devolve. I am afraid ours will fail, economic growth wise that is!

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