Rethinking Development Aid Strategies
for Kenya
Kenichi Ohashi*
January 2022

Abstract
Development partners have long recognized that “governance” is the fundamental development
problem in Kenya. Yet, they have not been able to devise an effective approach to help the country
address it. In the meantime, “traditional aid” has continued on large scales. This is not a uniquely
Kenyan issue. In a companion report (Ohashi 2022), I present a generalized framework to explain
why aid fails in such a situation, and argue that the central focus of aid should shift from helping
developing countries fill resource gaps to helping them make a transition from an elite-favoring
and rent-centered political economy system to an “inclusive” one. I argue that in most developing
countries, there are social forces that are pushing to make their countries more inclusive. Byaligning their support with such internal dynamics, development partners can provide much more
effective aid. Applying this broad framework to Kenya’s development patterns, this reportoutlines how the elite-captured system obstructs robust economic growth through multiple
channels. The study then identifies the devolution process that began under the 2010 constitution
as the critical tipping point for social dynamics in Kenya. It has given Kenyan citizens a politicalchannel through which to express their demand for change more forcefully. Out of 47 counties,
several have emerged as vanguards of the movement toward establishing an inclusive political
economy system. Some of the key success stories form reform-minded counties suggest thatfinding ways to remove or counter cartel behavior is far more powerful than “fighting corruption”
by prosecuting the perpetrators. Building on these two key elements, the report suggests several
strategic ideas for a more coherent aid program for Kenya that is focused on assisting the country
in moving toward an inclusive system.

Keywords: Kenya, governance, corruption, political economy, aid strategy, devolution

Senior Economic Advisor to the Presidency of the Republic of Kenya from 2014 to March 2021, andformer Country Director, the World Bank (kenohashi2@gmail.com). He commonly goes by Ken Ohashi.
*

Acknowledgement
This study is based primarily on a JICA-funded assignment to provide economic policy advice to the
Presidency of Kenya. The author benefited immensely from extensive interactions with his counterparts inthe national and many county governments, a wide range of Kenyans from all walks of life, and those in
the international community. He is particularly indebted to Ms. Anne Olubendi, Senior Economist of JICA,
who supported his work over several years of his engagement in Kenya and shared her keen insights into
the development challenges of her country.

11. Introduction
Similar to my companion report (Ohashi 2022), this report uses “aid,” as opposed to thebroader “development cooperation,” to emphasize the financial dimension of assistance thatdevelopment partners provide to developing countries, for this is the area that is often mostproblematic in an environment of bad governance. “Governance” refers to “the formal andinformal arrangements that determine how public decisions are made and how public actions arecarried out,” as defined by the Organisation for Economic Co-operation and Development(OECD).1 The OECD further notes the principal elements of good governance are accountability,transparency, efficiency, effectiveness, responsiveness, and rule of law.
This report is based primarily on my work as Senior Economic Advisor to the Presidency
of Kenya from 2015 to 2021 as well as my work on Kenya at the World Bank during 1996-99. It
also draws on the broader experience from my career at the World Bank (1979 to 2011) and on
an assignment with the Japan International Cooperation Agency (JICA) in Myanmar more
recently.
At the tine of its independence in 1963, Kenya was the leading economy in East Africa,
with a more advanced industrial sector, good basic infrastructure, and a well-educated workforce.
Yet, it has never achieved the kind of sustained economic growth that many observers believed
was possible. Chart 1 shows Kenya’s annual per capita GDP growth rates since 1961 as well as
the timing of key political events. As Kenya became less dependent on the exports of a few key
commodities (notably coffee and tea), the variability in the growth rate has become attenuatedafter the 1970s. However, only in the last 10 years, Kenya has been able to maintain positive
growth rate for any extended period. Still, the average annual growth rate of 3.2% from 2009 to2019 falls far short of the 7+% goal set out in “Kenya Vision 2030,”2 the country’s long-term

See the overview section of the OECD’s policy framework for investment.
http://www.oecd.org/investment/toolkit/policyareas/publicgovernance/2
Government of the Republic of Kenya (2007).
1

2

development vision statement. There has long been a widely-shared agreement that thefundamental development problem of Kenya is “governance.” However, development partners
have not been able to devise an effective approach to help the country address it. Of course, thisis not a uniquely Kenyan problem.

While acknowledging the central importance of governance problems, in Kenya andelsewhere, development partners have tended to take a “micro” view of aid, i.e., justify individual
projects by looking at the economic rates of return or other measures of direct benefits from suchinterventions in isolation. Because the needs for specific help (be it in roads, water, education,
healthcare, or agriculture) are acute and apparent, it is natural to focus on solving the narrowlydefined problems. However, ignoring the fungibility of aid is deeply flawed in an environment ofpoor governance. Fungibility means an additional $1 from a development partner earmarked fora particular sector does not generally lead to an additional $1 expenditure in that sector. Rather,
the additional spending is spread across many sectors. Therefore, its impact should be measured
in terms of what benefits the additional $1 in general expenditures brings. From such a “macro”
viewpoint, aid in a poor governance environment becomes a highly questionable proposition. At
best, even with rigorous oversight by the development partner, the amount of high-quality

3

spending is likely to go up by only a fraction of $1. At worst, they can perpetuate an elite-captured
political regime by giving the government more resources to solidify the status quo.
In the companion report (Ohashi 2022), I offered a broad perspective on this challenging
but profoundly important issue. After validating the thesis that the most important determinant ofa country’s ability to sustain economic growth is the inclusiveness 3 of its political economy
system, based on comparative analyses of several East Asian economies, the report argued thatthe focus of aid should shift from helping developing countries fill resource gaps to helping themmake the transition from an elite-favoring and rent-centered political economy system to an
inclusive system. This calls into question more traditional, project-oriented thinking on aid. The
report argued that development partners should try to align their support with domestic social
forces that are pushing the country toward the critical passage to an inclusive system.
That general framework proves to be an appropriate analytical tool to understand Kenya’s
governance challenges and explore possible donor approaches to asssist the country more
effectively. After describing how the elite-favoring system stymies robust economic growththrough multiple channels in Kenya, the report identifies the devolution process that started underthe 2010 Constitution as the most important source of impetus for transformational change in the
country. In effect, Kenya has created its own “break in history,” which can open a window ofopportunity to set aside the old ways of doing business and establish a new set of rules. As such,the report encourages development partners to place a strategic emphasis on supporting reformminded counties as the spearhead of socio-political change.
The report also emphasizes the importance of addressing “corruption” issues from theperspective of “de-cartelizing” the economy, for such an approach has proven far more effective

In development discourse, “inclusive” commonly means “pro-poor.” In this report, it is used slightly
differently. It describes a system in which the elite group does not enjoy special access to economic
opportunities. See the conceptual discussion in section 3.1 for the definition of “inclusive” in this report.
Footnote 8 explains the difference more explicitly.
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than the prosecutorial approach to “fighting corruption.” Furthermore, it notes the importance ofa professional and independent media as a key agent for mobilizing public pressure for reform.
This approach does not mean that the “traditional aid” should be abandoned. Instead, thereport suggests ways in which more familiar forms of aid can evolve into effective instruments topromote the transition toward an inclusive political economy system.

2. Past efforts to address governance problems in Kenya
As early as 1998, the World Bank pointed out in its Country Assistance Strategy (WorldBank 1998) that the basic problem of Kenya was “economic governance”4 and that providing
large amounts of financial assistance was not helpful. The Country Assistance Strategy (CAS)backed up its argument with the findings of a Public Expenditure Review (PER). 5 The PER
demonstrated that despite the increases in public spending on healthcare, education, and roads,
the quality of all three had fallen. The overall level of public spending was quite high (around
30% of GDP). The issue was not scarcity of funds; it was the ineffectiveness of the spending.
Whether the funds were poorly used or “stolen” outright, the problem came back to badgovernance. Although the World Bank lending to Kenya was on highly-concessional terms, it did
increase Kenya’s debt. If World Bank-funded projects were not meaningfully raising the capacityof the economy to grow, they were merely adding to the debt burden of the future generation of
Kenyans. Therefore, the CAS proposed that the World Bank lending to the country be scaled backsharply, pending credible reform actions to address the governance issues. This stance wasstrongly supported by key bilateral donors, which had formed the “Economic Governance Group

This was one of the first CASs at the World Bank to focus explicitly on “governance” as a key issue. The
General Counsel of the World Bank at the time considered the simple term “governance” to be “political”
and hence outside the institution’s mandate. Thus, the use of the term “economic governance.” However,the World Bank soon began to speak plainly about good governance as an important basis for sustaining
development.
5
Kenya Public Expenditure Review 1997. It was conducted jointly by the Government of Kenya and theWorld Bank, and the report was meant to be published by the Government. However, because of internaltransitions, etc., the document was never published.
45

(EGG),” including the World Bank, to focus on addressing governance issues in Kenya. The EGG
often met at the level of the heads of missions, i.e., ambassadors in the case of bilateral programs,
indicating the seriousness they attached to the issue.6
Following the recommendations of the 1998 CAS, the World Bank put the Governmentof Kenya on notice that it would keep the lending at the “low case” level until the Government
took some credible measures to demonstrate its commitment to improving governance. This
meant that the lending program would be kept at around $150 million for 3 years, as opposed to$300-500 million in a “base case,” or middle-level, scenario, and even higher in a “high case.”
The Moi Government responded by appointing Dr. Richard Leakey, a prominent opposition leader,to the post of the Head of Public Service in 1999. Under his leadership, several experienced andreform-minded Kenyan professionals were appointed to key senior posts. To assure their
independence, they were drawn from outside the government bureaucracy, including from theWorld Bank Group. This “Dream Team” was to push forward much-needed policy andinstitutional reforms. In the end, it is clear the World Bank ramped up its lending prematurely.7 It
was based more on the promise of action by the Government and the World Bank’s faith in Dr.
Leakey’s ability to overcome the political and bureaucratic resistance. Some within the WorldBank cautioned senior management to wait until meaningful and not-so-easily-reversible progress
is made before releasing budget support. However, the old argument that “we must support thereformers,” coming from the top of the organization, prevailed. In the end, even the “Dream Team”
could not overcome the entrenched political interests. Many Kenyan observers felt Mr. Moi
outsmarted the World Bank, much as he had done before. World Bank money started to flow again,
but no real change happened.

US Ambassador Prudence Bushnell, for instance, was an active and influential participant in EGG
discussions.
7
The World Bank approved Kenya Economic and Public Sector Reform Credit ($150 million) in August,2000 (World Bank 2000). The first two tranches ($50 million each) were disbursed, but the project closed
in 2004 without disbursing the last tranche, and was later rated “unsatisfactory” by the World Bank.
6

6

Despite this disappointment, the concern for governance was not lost in the thinking of
the World Bank and other development partners in Kenya. However, the solutions they would
recommend have tended to be technocratic. They would advocate for a more modern publicfinancial management (PFM) system, online systems to deal with many citizen services, “eprocurement,” information disclosure, and so on. Time and again, the design and implementationof such programs have been manipulated to leave loopholes that the “rent seekers” could abuse.
For instance, Kenya has required many categories of government employees to declare their assets
to the Public Service Commission every 2 years. In reality, no disciplinary actions seem to happen.
It is clear that the system is not taken seriously.
The national government has long been a source of “rent”8 in Kenya. In early days,
allocation of state-owned land was a major source of rent. More recently, public finance itself has
become the target of rent seeking. This made the elite class willing to spend much money to gain
political power, especially in multi-party politics after 2002. As elections became more“expensive,” the need for rent seeking too intensified. It is a vicious circle that has pushed Kenya
deeper into a money-driven, rent-centered political economy system. Despite the greater politicalopenness and the space for dissenting voices since the restoration of multiparty democracy in
2003, it is fair to say that the basic governance system has not improved in Kenya. In the meantime,development partners have continued to give Kenya large amounts of traditional aid, without
being able to make much headway in helping Kenya address its governance issues.

3. A framework for considering aid in an environment of poor
governance
3.1 Central importance of the political economy system to sustained growthIn economics, “rent” generally refers to an excess return over and above what a market equilibrium would
yield. In this report, “rent” as in “rent seeking” is used more specifically to mean excess profits frompreferential arrangements, including illicit deals.
87Recent works by Douglass North, John Joseph Wallis, and Barry R. Weingast (2009.
Violence and social orders: A conceptual framework for interpreting recorded human history) and
Daron Acemoglu and James A. Robinson (2012. Why nations fail: The origins of power, prosperity,and poverty) have argued that an “inclusive” political economy system (or “open access order”
in the language of North, Wallis, and Weingast) is the central driving force for sustained economic
growth. When the system favors the elite group, by creating many opportunities to generate “rents,”
there is little incentive to compete in the market on the basis of innovation, quality products, andproductivity gains. By establishing a system in which everyone is given a fair chance to benefit
from their industry and ingenuity, a country can promote innovation and productivity growth.
This is the fundamental driving force for sustaining economic growth and raising the generalincome levels.
Consistent with the works of North et. al. and Acemoglu and Robinson, this report defines
the two contrasting political economy systems as follows:
An “inclusive system” consists of a set of institutions (including social norms) thatassures every citizen of the country equitable opportunities to engage in any lawful
economic activities and be rewarded fairly for their efforts. 9 That would commonly
include institutions to conduct economic policies transparently and effectively, regulate
economic activities to check abuse of market power and violation of safety or
environmental rules, and prevent acute economic inequality. There would also be legal
and judicial systems to protect private properties and enforce contracts, as well as an
education system to equip everyone with the abilities to engage productively in economic
activities.

In development discourse, “inclusive,” as in “inclusive growth,” is often used to mean “pro-poor.” If“pro-poor” implies giving the poor a preference, an “inclusive system” in this report does not necessarily
suggest that. However, such a system does give the poor basic social services (e.g., education and training)and social protection so that they are able to participate in economic activities productively.
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A “non-inclusive system,” which this report often calls more descriptively an “elitefavoring and rent-centered system,” consists of a set of institutions that gives the eliteclass privileged access to profit-making opportunities, i.e., a license to generate rent. Thisis typically done by giving elites a monopolistic power in the market or preference inpublic procurement, allowing them to abuse workers, consumers, and weaker firms, andletting them misuse or even steal public resources outright.
In economics, “rent” generally means an excess return over and above what a market equilibrium
would yield. In this report, “rent,” as in “rent-seeking,” is used more specifically to mean excess
profits from preferential arrangements, including illicit deals.
By reducing the elite group’s privileged access to economic opportunities and protecting
the ability of everyone to benefit from their economic efforts, countries with inclusive institutions
encourage innovation and investment, thereby raising productivity, which ultimately determines
the level of incomes. By contrast, where the elite group can earn large economic rents by using
their monopolistic power or other ways of limiting competition, the entrepreneurial energy tends
to be directed toward rent seeking.
In the companion report (Ohashi 2022), I showed this conceptual framework is strongly
supported by the experiences of many East Asian economies since the mid-20th century. The
contrast between the spectacular economic achievements of Japan, Taiwan, South Korea, andSingapore on one hand, and the poor record of the Philippines and the partial success of Thailand
on the other hand is instructive. The countries that effectively limited rent-seeking opportunities
for the elite class have been able to build an inclusive political economy system; they staged
sustained and rapid growth, and joined the ranks of high-income countries within a matter of ageneration or two. On the other hand, the countries like Thailand (and Malaysia, as another good
example) that made partial progress but left many rent-seeking opportunities for the elite groupsuffer from the “middle-income trap.” The Philippines and other countries that have allowed theelite dominance to continue have lagged farther behind in economic development. The

9comparisons between these countries support the idea that the character of the political economy
system is the decisive determinant of a country’s long-term success in economic development.

3.2 The implications for development aid
This perspective on the driver of economic growth has important implications for theeffectiveness of aid. I pointed out (Ohashi 2022) that, because of fungibility of aid resources,development aid is likely to be wasted in an environment of poor governance. A development
partner typically thinks that if it provides, say, $1 million for a specific project, it will have aconsiderable positive impact. Because the project is usually designed to address a specific andapparent need of the recipient country, such as rural roads, safe drinking water, or better healthcare,
this seems intuitively obvious. However, “fungibility” of aid means that the net effect of giving
the $1 million for a health project, for instance, is quite different. Dollar and Pritchel (1998, 6869) points out that empirically the government spending on the health sector will rise by only asmall fraction of $1 million. The rest is spread across all sectors to meet other pressing demands.
Therefore, if the quality of overall spending is poor, which is generally the case in a country withpoor governance, the net impact of the $1 million in aid is quite limited.
Worse yet, such funding could be perpetuating the elite-favoring political economy
system. Even corrupt governments are under social and political pressure these days to maintaina measure of democratic legitimacy. For their own survival, they need to be delivering somepublic services that benefit the population at large. If a development partner provides good public
services in such a country, that can reduce the pressure on the government to do so, and allows it
to increase its own spending on things that benefit itself and its supporters, thereby quite likely
further entrenching elite dominance. Therefore, the traditional “micro” justification of specificprojects is unsatisfactory.
Once development partners accept that the central challenge of most developing countries
is to make the transition from an elite-favoring system to an inclusive system, they cannot ignore10

it as a “domestic issue.” Without overcoming the legacy of the old system, most developing
countries would not achieve sustained growth. If development partners were not prepared to help
them address this most important obstacle to economic success, what would be their raison d'être?

3.3 A different way to approach aid in a bad governance environment
What should development partners do to help developing countries address their political
economy issues then? One obvious approach would be to give aid only to those countries that are
making a credible transition to an inclusive system. I pointed out (Ohashi 2022) that, while thisapproach may appeal to the “purists” who believe in “getting the incentives right,” it is notpractical for a number of reasons. More importantly, there is a good reason to continually engage
with most developing countries even when the governance environment is far from perfect. (Ofcourse, if the governance situation deteriorates to the point of even the most basic human rights
being ignored, there is little basis for continuing aid.)
In this age of democratic awareness worldwide, most people want their political economy
system to be inclusive. Their desire for change is the fundamental driving force for thetransformation of the political economy system. The way in which such energy becomes a more
direct force for political change varies from one situation to another. It is highly contextual,depending on the history, cultural and social traditions, and political situation. Sometimes, it willtake a long time for the process to effect the transformation, because the elite group has both the
incentives and means to defend the status quo. It often requires some catalytic event, such as anational crisis or a “break in history.” By understanding the country context and identifying the
key dynamics for change, development partners can give support to the spontaneous process forpolitical economy transformation. This is the central reason for continual engagement.
The World Bank’s experience in Nepal offers an illustration. In the early 2000s, the WorldBank identified communities as the real driving force for transformation of the political economy
system in Nepal, and focused much of its assistance on projects that promoted community-based

11

development initiatives. This concept was based on in-depth understanding of Nepal as well as
the knowledge of a wide range of aid programs funded by the World Bank and other development
partners in the past. It was a long-term strategy to support Nepal in moving to an inclusive system.
The idea was to help communities build up their capabilities so that when some critical event
happens, they can lead the way in transforming the political economy system at the national level.
In the language of Acemoglu and Robinson (2012), it was facilitating an “institutional drift” inanticipation of some “critical juncture” that provides a pivotal point for the evolution of thepolitical economy system.
However, this does not mean “traditional aid” should be abandoned. Investments ininfrastructure, education, healthcare, agriculture, and so on are all important building blocks ofan inclusive economic system. As long as the recipient country is making credible progress toward
the transformation of its political economy system, those traditional aid projects can be expected
to be useful. Furthermore, with small tweaking of the design, many projects can become useful
instruments to support the endogenous dynamics for systemic transformation, in addition toserving a more immediate purpose. The key is to ensure that every element of the aid program,including “traditional projects,” are furthering the overall strategic goal of helping the recipient
country overcome the grip of an elite-captured system and move toward an inclusive one.

3.4 How do transitions to an inclusive system happen?
Most developing countries are trapped in an elite-favoring and rent-centered political
economy system. How some countries have escaped that situation and managed to get on a new
trajectory varies from one case to another. Nevertheless, reviewing “common” patterns offerssome hints on how it could happen in other countries, including Kenya.
Most of the recent success stories share two key features. First is the role of national crisis,
which forces the leadership class of the country to reimagine the fundamental structure of thepolitical economy system. (Or, alternatively, a new leadership group takes over with a fresh

12vision.) The second feature is the existence or emergence of an autocratic regime that tends to bebetter able to overcome opposition to reform from entrenched interest groups. (Of course, thisdoes not mean all autocratic regimes are reform-minded. In fact, most autocratic regimes are partand parcel of elite dominance.) I noted that the transitions to an inclusive system in Japan (1945),
Taiwan (1949), South Korea (1961), Singapore (1965), and more recently Rwanda (post 1994
genocide, though Rwanda’s transition is still a work in progress) are all marked by these two
features.
A slightly different model is suggested by the developments in Myanmar during the last
decade where a “break in history” has played an essential role, at least until the military coupd’état in early 2021. When the previously reclusive military regime suddenly launched politicaland economic reforms in 2010, the suddenness of the move in effect suspended all old rules andopened an opportunity for the Thein Sein government to establish a new and more inclusive
economic regime. One could argue that Myanmar too was facing an incipient crisis. However, tothe extent that a possible transition started more in anticipation of a crisis than after an onset ofan existential crisis of the kind that other five countries had faced, it does provide a useful example
for countries like Kenya that are not in an acute crisis. A sudden jolt to the system can “loosen”
the entrenched rules of the political economy system and allows for new rules to be established.
In the “Western” countries that achieved a high-income status early, elite dominancebecame gradually moderated and a more inclusive political economy system emerged often
alongside the process of the maturation of democracies. In countries like Kenya, a mature formof democracy was transplanted at the time of independence, without a gradual process ofdeveloping democratic institutions and culture. Therefore, the experiences of “the West” may notshed much light on how countries like Kenya could overcome elite dominance. Nonetheless, an
important hint for them may be found in the significant shift that happened in the US in the earlypart of the 1900s. Those were the days of “robber barons”; many corporations were gaining
monopolistic powers in oil, steel, railways, banking, and so on, often using illegal means.

13Municipal administrations in many large cities were notoriously corrupt. In reaction to suchexcesses by the privileged class, a cohort of outstanding journalists emerged, and wrote a numberof powerful investigative reports.10 Their reports led to a widespread public outcry over the abuseof power by the elite class, which prompted the introduction of anti-trust legislation and reformof municipal governments. Times are of course different, but the basic notion that the media canplay a critical role in a country’s fight against elite dominance remains relevant to many
developing countries of today.

4. Kenya’s governance problem in a new light
Let us now look at the reality of slow economic development in Kenya from a political
economy perspective described in Section 3. The stifling effect of an elite-favoring and rentcentered system is crystal clear, and explains why the country has been held back. The widespread
rent-seeking behavior represses the economic potential of the country in multiple ways. First, it
reduces the effectiveness of public investment and economic policies to foster growth. Second, it
undermines the normal function of markets and weakens the process of “wealth accumulation”
through specialization and trading as Adam Smith had envisioned. Third, economic incentives are
such that entrepreneurial energy tends to be directed more toward rent seeking and away frominnovation, quality enhancement, and productivity gains. Fourth, related to the third point, the
new generations of Kenyans no longer seem to believe that hard work and honesty will help themsucceed economically. Such a change in their outlook on life has a lasting impact on Kenya’s
ability to sustain vigorous economic growth.
The causal relationship between governance and economic development/growth iscomplex and has been long debated. A broad consensus today is that it runs in both directions andthat improvement in certain elements of governance will likely have a material impact on the
These journalists were dubbed “muckrakers” by President Teddy Roosevelt, who appreciated the valueof their work but also found their persistence at times irksome. See Doris Kearns Goodwin 2013.
1014

country’s ability to grow rapidly. However, what aspects of governance needs to be addressed ishighly specific to the country context.11 When the mechanisms by which key elements of poor
governance are hindering Kenya’s economic growth are so clear, there is little doubt that Kenya
must overcome poor governance in some key areas to succeed in economic growth.
From the perspective of the “good enough governance” discussion,12 which emphasizes
the need to focus on the select aspects of governance that are critical to accelerating economic
development (because developing countries cannot possibly improve all aspects at once or in ashort period of time), these four channels of governance failures offer a useful guide. Although
the approach of this report is not to suggest specific reform measures for each area,13 the fourchannels are useful in thinking about how certain reform efforts may be helping Kenya movetoward “good enough governance.” Let us now examine more closely the four channels throughwhich poor governance hurts Kenya’s economic growth.

4.1 Public sector channel
It is impossible to determine how much of the public spending is misused throughcorruption. However, circumstantial and anecdotal evidence abounds. The Auditor General’sreport for FY2016/17 noted that 27% of the combined recurrent and development expenditure
was not properly accounted for.14 When the idea of the new Mombasa-Nairobi railway project
was mooted (the so-called Standard-Gauge Railway, or “SGR”), General Electric was indiscussion with the Kenyan government on this project. Out of the blue, the government

See Rodrick (2008) and Grindle (2005).
See Grindle (2002 and 2005) and Khan (2008).
13
Instead, this report focuses on the most powerful “drivers of change” that seem to be addressing the
problems in any of the four areas in some significant ways, and suggests ways to support them. While it
may not offer a “complete” plan of action to cover all key areas, it does recognize the importance of buildingon the existing internal dynamics. Experiences clearly show that without an internal driver for change,
nothing external can bring about real reform.
14
Summary of the Report of the Auditor-General on the Financial Statements for National Government for
the Year 2016/17 (2018), Office of the Auditor-General. The categories classified as “adverse” or“disclaimer” are considered to be not accounted for. The figure was 38.5% in FY2013/14, 16.4% in
FY2015/16.
11
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announced its decision to single source the project from a Chinese contractor at some $3 billion.
A director of the GE office in Kenya said the GE team thought the contract amount was “about 3
times what it should have cost.”15 The return on public investment tends to be low for anotherreason. The national government simply has too many projects in its books. A study by the WorldBank in 2015 found that the National Treasury could not even produce a complete list of all public
investment projects.16 Many projects are added to the public investment program without proper
vetting. As a result, many projects receive small amounts of budget each year to keep some
preparatory work funded without making meaningful progress. This dilution of the development
budget leads to excessively long project implementation periods and cost escalations, which
combine to reduce the return on investment. The same study found that the incremental capitaloutput ratio (ICOR) had risen from 3.3 during 2003-07 to 5.3 during 2008-12.17 To compound
the problem, the actual implementation of the development budget typically falls far short of thetargets. The Controller of Budget reported that in FY2018/19 the absorption rate for thedevelopment budget for the national government was 79.2% (Controller of Budget 2019a, 14)
and that for the county governments (in the aggregate) was 57.8% (——— 2019b, 314). It
suggests that even the limited number of high priority projects, for which more generous budget
allocations are made, are not implemented at expected rates.18
Public policies and regulations, too, are often distorted by the influence of well-connectedbusiness people. For instance, “counterfeit imports” have been a serious concern to domestic
manufacturers. (In Kenya, “counterfeits” are often used to mean not just illegal imitations ofgenuine products, but also goods that have been imported without the required duty or quality
inspection. Both pose unfair competition to the domestic producers.) In 2018, the Anti-Counterfeit

Author’s interview in May 2015.
Author’s interview of a World Bank official who conducted the review of the public investment
management system in 2015.
17
Public investment management in Kenya: Reflections on current processes, gaps and systemic risks.
(Power Point presentation) November 2015. The World Bank.
18
The Controller of Budget (2019b, 212) also noted that the county governments (in the aggregate) was
overspending on salaries and travel expenses.
15
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Authority mounted a spirited fight against counterfeit imports, which was much appreciated bydomestic manufacturers. However, the effort petered out after several weeks. There is little doubtthat those who have much to gain from such trade used their influence.

4.2 Market channel
The influence of “cartels”19 is particularly damaging to the small farmers and SMEs.
When small farmers buy fertilizer and seeds, the prices are often unfairly high and the quality
uncertain, because the supply chain is manipulated by the cartel. After a season of hard work,when they harvest their crops, farmers are forced to sell them cheap. They are typically unable towait for the price to rise, or they may even have pre-sold their produce to get financing for inputs.
The middlemen make big profits, and actual producers get a pittance. The government actually
has a policy of supporting small farmers by buying maize from them for the Strategic Grain
Reserve at a preferential price. The National Cereals and Produce Board (NCPB) manages theReserve and procures maize from farmers. Only registered small farmers who are also vetted at
the time of procurement are eligible to supply the maize. In reality, large farmers and traders abuse
the system by using fake certificates of vetting. Some traders even smuggle in maize fromneighboring countries at a low price and sell it to NCPB. Furthermore, the NCPB at times sets anarbitrary minimum lot requirement that is far in excess of what small farmers could possibly
deliver, forcing desperate small farmers to sell their maize to a middleman. All this has turnedeven a program that is meant to help small farmers into a rent-generating opportunity for the
cartels. 20 In effect, the market system has become an instrument of exploitation. Small
manufacturers in Kariobangi (light industry area in Nairobi) make a wide range of products, butmuch of the profits is skimmed by the middlemen who exploit the small producers’ lack ofknowledge about the potential buyers. Well-functioning markets are the most powerful driver of

In Kenya, “cartel” is often used to describe a group of actors who collude to manipulate a market, supply
chain, public procurement process, etc. to gain illicit profits.
20
See Ad-Hoc Committee on the Maize Crisis in the Country (2018, 26-30) for some specifics.
19

17

“wealth accumulation,” as Adam Smith observed. Yet, in Kenya, it is not working for most of thesmall producers.
In manufacturing, even technologically-advanced companies suffer from distorted
industrial policies that favor traders. For instance, in the 1990s, with the Kenya Dairy Board
pushing for the use of proper milk cooling tanks, a domestic industry to manufacture small coolingtanks grew rapidly. It imported refrigeration compressors duty free and fabricated the tank toassemble complete cooling units. In the late 1990s, however, a 25% duty was imposed on thecompressors while complete units could be imported duty free. This made local manufacturing ofcooling tanks uncompetitive. Previously, no one was importing such units, as the customers weresatisfied with the domestic products. Suddenly, some traders began importing complete units; thedomestic manufacturers were forced to switch to simply marketing imported cooling tanks.
Basically, this was killing domestic manufacturing to promote imports.21 (This is also a problemof the public sector channel, as it is a case of policy distortion.) Similar biases seem to afflict
many industries, thereby weakening Kenya’s manufacturing. It is no wonder the manufacturing
share in GDP has declined from a peak of about 13% in 2007 to 7.5% by 2019.

4.3 Innovation channel
Because the well-connected people have easy access to rent, few of them have incentives
to invest in coming up with innovative products, better quality, or higher productivity. Allowing
importation of “counterfeit goods” is a case in point. It is effectively suppressing domestic
production of whatever products, so that those who do not have the engineering capability to makethem can just import them and sell them at unfair prices. The case of small milk-cooling tanks
cited earlier is another example.
It is not that Kenyans are incapable of innovation and production of high-quality products.
M-Pesa, the ubiquitous mobile phone-based money transfer service in Kenya, is probably the21

Ohashi 2020b describes it as an “inverse import substitution policy.”18

most famous of the country’s innovations. But, in manufacturing, too, Kenyans are not lacking iningenuity. For instance, Numerical Machining Complex (NMC) has demonstrated advanced
engineering capabilities and innovativeness. It is a peculiar company, which descended from theill-fated national car project under President Moi. 22 Although it is a state-owned enterprise(technically owned by Kenya Railways and Nairobi University), with few financial resources, it
has managed to pursue its own technology development, while serving mainly as a place whereother manufacturers can have broken machine parts reproduced. NMC has developed its own
irrigation pumps, basic numerically-controlled machine tools, and other products. It has helped
Jomo-Kenyatta University of Agriculture and Technology produce a prototype tractor that isdesigned to be considerably cheaper than comparable imports. However, because NMC does nothave any working capital to speak of, it cannot even advertise its products. For instance, their
irrigation pumps seem to offer much better value than imported competitors from China, but new
buyers come to NMC only by chance or word of mouth. Even if the government were willing toallow it, it is doubtful that many Kenyan entrepreneurs would be interested in investing in such aventure. There are too many other opportunities for “quick money.”
One of the most respected Kenyan industrialists has stayed with certain basic steel
products for decades and refused to go into the machinery and other more advanced sectors. He
has explained that it is not because there are serious technological barriers, but that mostentrepreneurs do not find such investments attractive. Sadly, even someone who is running
legitimate manufacturing businesses is unwilling to pursue more advanced or innovative products,
because he knows the government is not serious about promoting such industries. He pointed outthat the government needs to be investing in training of skilled workers and creating an

In 1986, President Moi mooted an idea of developing a domestic car industry. The Nairobi University
took up the challenge of making a prototype passenger car, and in fact produced several “Pioneers.”
However, Nyayo Car Company never went into commercial production. The company has become NMC
of today.
22

19

environment for fair competition. Absent such support, he does not see a chance of success inadvanced industries.23

4.4 Social norms channel
In 2016, the Kenya Youth Survey conducted by the Aga Khan University found “50%believe it does not matter how one makes money as long as one does not end up in jail” and “47%admire those who make money through hook or crook” (The Aga Khan University 2016). Clearly,
many young Kenyans see “rent-seeking” as a widely accepted way to succeed financially. They
may even feel honesty and industry are not a “smart way” to work in Kenya. They see many
prominent Kenyans who have made a fortune by rent-seeking activities, but few visible rolemodels who succeeded by honest efforts. A country in which social capital is eroded so badly
would be hard pressed to build a productive and competitive economy. Besides, if the young
Kenyans themselves do not believe in an “inclusive system,” who would bring about the criticaltransformation of the elite-favoring and rent-centered system?
Through these four channels, the elite-favoring political economy system saps Kenya ofthe energies of healthy competition, innovation, and hard work. More than anything else, this is
the most compelling explanation for the lackluster and uneven growth record of the country.

5. Rethinking the aid strategy for Kenya
5.1 Understanding the driving forces for transformation in Kenya
Let us now consider Kenya’s own historical context. Where can we find the internal
driving force for systemic transformation? And, how can development partners support it?
Kenyans would often ask whether any country has made the critical transition to an inclusive
political economy system within a multiparty democracy, imperfect as it is, and without getting

23

Author’s interview in November 2017.

20

into an existential crisis of the kind described in Section 3. Indeed, there is no perfect precedentfor Kenya to follow. However, the discussion in section 3.4 offers some hints. Myanmar’s
experience of a break in history is quite pertinent to Kenya; as explained later, devolution underthe 2010 Constitution also presents a break in history, though it may not have been quite as
dramatic as the political shift that happened in Myanmar in 2010. Another hint from a more distantpast is the critical role that the media played in bringing about major governance reforms in the
US in the early 1900s (see section 3.4). Kenya does have an active media with some excellent
investigative journalists.24 It may well play a key role in mobilizing public opinion.

5.1.1 Devolution as the central driver of change
Kenya faced a national crisis in 2007/08, when ethnic violence broke out after the
disputed presidential election in 2007. It has been estimated that over 1,000 people were killed
and up to 500,000 people displaced.25 It came as a shock to Kenyans, as they had felt ethnic
violence was not a serious threat in their country. This was perhaps the deepest national crisis that
Kenya had faced since its independence in 1963. It did not lead to any immediate and profoundchange of the kind seen in Rwanda or some East Asian countries. However, it did create a national
agreement that Kenya must introduce meaningful devolution to address long-standing grievancesof many regions and groups that had felt they had been neglected by national politics and the
majoritarian tendency. This led to the new constitution of 2010 which significantly altered thegovernance structure of the country. Forty-seven counties were created, with directly-elected
governors.26 Many key state functions were devolved to the counties, including health (except
For instance, John Githongo famously made public the involvement of high-level politicians in the
Anglo-Leasing scandal of the early 2000s.
25
Human Rights Watch 2008.
26
The county government consists of an elected governor and a deputy governor who runs with the
gubernatorial candidate, and an executive committee (or a “cabinet”), consisting of appointed members
who head key functional areas. They are supported by county staff. The county government is responsible
for executing the functions assigned to the county (as specified in the constitution, and briefly described in
the main text). Each county has a unicameral county assembly, consisting of one elected member from eachward and a certain number of appointed members to ensure gender and ethnic minority representation. The
county assembly is responsible for legislations necessary for the execution of the county government
functions, including in particular the budget, and for the oversight of the executive branch. There is nocounty court system as such.
24

21

national-level health facilities and functions), agriculture, water/sanitation, rural roads, and some
aspects of education (e.g., early childhood development (ECD) and the lower levels of thetechnical and vocational education and training (TVET) system). With this, a large portion of theoverall government budget has been given to the counties.
The logic of devolution was to make the county executives and assembly members moreaccountable to the people, as they were much closer to the electorate than the national-level
political actors had been. Many were concerned that devolution might simply “devolve corruption”
to the local levels. By all accounts, this has happened to varying degrees. Still, many counties that
had scarcely benefited from the national government spending in the past have seen rural roads
and other infrastructure being constructed and the local economies being stimulated. Furthermore,some governors have recognized the need for a real change in the way politics was practiced.
Rather than providing “private goods” to secure their popularity, they focused on providing“public goods,” in a transparent and accountable manner. Such a radical change was possible,
because the governors were able to start with more or less a clean slate. 27 Knowingly or
unknowingly, Kenya managed to create a “break in history” in which new rules could be written.
Not many governors have been able to seize the moment. The people were accustomed
to the old ways of politics in which politicians were the sources of personal largesse, and manymembers of county assemblies (MCAs) too expected the familiar money-driven politics to be
replicated in the new county environment. Nonetheless, some governors have clearly succeededin breaking from the past. Governor Kibwana of Makueni has emerged as the most visible
example of a clean and effective governor who has delivered important benefits to the county
citizens. He has taken participatory decision making seriously, and responded to the priority
wishes of the residents with carefully-thought-out programs. He has introduced a county-run
universal healthcare system. He has also built the county’s own mango processing plant to assure
The observations about devolution are based on author’s extensive conversations with several governors,
national government officials, academics, and others. On the misuse of funds at the county level, see also
Controller of Budget (2019b).
27

22

farmers get a decent price for their mangos and a milk processing plant to help dairy farmers sell
the processed “Makueni Fresh” milk in the local market.
In Makueni, the people seem to have understood the value of the new governanceenvironment. During Governor Kibwana’s first term (2012-17), the MCAs insisted that a largepart of the development budget be given to them so they could allocate the money to their own
pet projects. Met by the Governor’s refusal, they even tried to impeach him. In the 2017 elections,
all the MCAs except for one were voted out. The Makueni residents overwhelmingly sided with
Prof. Kibwana. They also organized, spontaneously, community oversight groups to ensure
contractors for civil works do the work properly and honestly. It is likely that when reforms bringtangible benefits to the residents and the governor establishes a reputation for his or her integrity,
citizens will become strong supporters of the “new politics.”
When one applies the perspective of the four channels through which the governanceproblem undermines Kenya’s development process (as noted in section 4), it becomes clear why
Makueni has been successful. First, it brought transparency and accountability to the public policy
and procurement process, to address issues of the public sector channel. Second, the county helped
to make at least some important markets work well for the small farmers, to address the issues ofthe market channel. Third, shielded from “private goods-centered” politics, the county
administration has shown much innovativeness in solving problems in healthcare as well as in theinstitutionalization of the participatory budgeting process. 28 In the private sector, too, unlike
many other counties, more young people seem to remain in the county. It is likely that they see
many new business opportunities. This augurs well for the innovation channel. Fourth, a new andmore inclusive political culture is taking hold, to address the issues of the social norms channel.

In Makueni, the participatory budgeting process starts from “communities” (consisting of about 50
households), but the budget is allocated only down to the level of 30 wards, each of which is given Ksh 32
million (as of 2019) in development funds. They are encouraged to collaborate with neighboring wards toconsider joint investment projects. The residents now take this process seriously, and the investment
decisions have impressed the county officials. (Based on author’s interview of an official from the County’s
Directorate of Public Participation in 2019.)28

23

However, Makueni is not a unique success story. For instance, the governors of Vihiga,
Laikipia, and Elgeyo-Marakwet have also built reputations as committed and effective reformers,
just among the counties I have been able to visit or hear much about. What they seem to have incommon is a combination of a genuine desire to change the traditional money-driven politics sothat the government becomes an instrument to uplift every citizen, and strong managerial
capabilities. There are governors who seem to have good intentions, but have been outmaneuvered by the “cartels.” For instance, one governor, learning from the success of the milkprocessing plant in Makueni, wanted to purchase the same equipment from the reputable Kenyan
manufacturer or something comparable. However, the procurement process was evidently
manipulated so that this manufacturer could not even submit a bid. The on-line bid submission
portal was down during the tender period, despite repeated complaints from the manufacturer. As
soon as the deadline passed, the portal was back up again.29 Some trader won the tender andsupplied an imported machine which promptly broke down and could not be serviced. It is almost
certain that a local cartel had taken advantage of the governor’s well-meaning initiative and turned
it into an opportunity for a corrupt deal. By contrast, when Makueni built the mango processing
plant, it sole-sourced the contract with Jomo Kenyatta University of Agriculture and Technology(JKUAT). JKUAT being a public entity, the county could negotiate a contract directly with it.30
Governor Kibwana was able to preempt the risk of cartel interference in the procurement process.
All this shows that although it takes a rare combination of personal character and managerial skills
to be an effective governor who can create a new governance environment, it is indeed happening.
This gives hope for devolution creating a self-sustaining dynamic for better governance.
When a few counties show such a change is possible, it is likely that Kenyans in other counties
will be ready to suspend their cynicism about the well-established “reality” of corrupt politics,

Interview of the manufacturer by the author, 2019.
JKUAT appointed a professor who had actually managed a similar project before to manage the Makueni
project. He in turn assembled an impressive team of experts to prepare a thorough project plan, completewith a market analysis, environmental mitigation plans, and even HR management policies.
29
30

24

and support the “new politics.” In fact, it is perhaps more appropriate to view the process as
citizen-led, rather than governor-led. Devolution has given Kenyan citizens a much more effective
political channel through which to press for a genuine democratization of the country. Somegovernors have quickly responded to their wishes; others will be forced to respond to the popularwill sooner or later. It appears that the recent Covid-19 pandemic and the national government’s
inability to mitigate the plight of the “common people” is raising the level of their anger, andheightening the demand for “new politics.”
These success stories from counties stand in sharp contrast to the lack of meaningfulprogress in improving governance at the national level. The need for better expenditure
management (especially the public investment program) has been recognized for decades, but thesystem has not improved in any meaningful way. Restructuring of the sugar sector and the maize
sector has been proposed repeatedly, but no decisive actions have been taken. “Fight against
corruption” goes back many decades as well, including the notorious cases like the Goldenberg
scandal in the 1990s and the Anglo-Leasing scandal in the early 2000s. Many have been accusedof wrongdoing in these and many other corruption cases, but no major figures have been convicted.
In all these areas, powerful national-level cartels are deeply entrenched and block any reform orprosecution that threaten their interests.
Many Kenyans and external observers believe that devolution is finally bringing about
real governance reform, albeit on a smaller scale. When local level success stories begin toaccumulate, it will likely create a self-sustaining social and political dynamic of its own. Residents
of other counties will take note of such developments and demand similar actions. Their governors,
too, will recognize the importance of such reforms, if only out of their own political self-interest.
Reform-minded governors will eagerly learn from good examples and embrace the ideas. Even
though each initiative may be modest in scope and the number of beneficiaries, when many of the
47 counties begin to implement similar reforms, the overall impact will not be small. Such reforms
not only add up, but also multiply as they tend to stimulate other initiatives. In a larger historical25

sense, this may be the only realistic path for Kenya to eventually effect a meaningful reform of
the governance system at the national level. That will be a true victory for those who believed indevolution. This is why devolution is the most important driving force that is likely to be moving
Kenya in the direction of an inclusive political economy system.

5.1.2 Addressing poor governance issue as a problem of cartels
A second important factor that deserves close attention is the emerging evidence thatfreeing the economy from the grip of cartels may be far more effective in addressing the poor
governance problem than “fighting corruption.” Some of the major success stories that haveappeared from counties are essentially county government interventions to give farmers more
direct access to broader or higher-value markets and raise the price they get for their products.
Makueni’s mango processing plant and milk processing plant both help farmers with value
addition and link them to the higher end of the value chain. Murang’a County’s support for dairy
cooperatives and Kitui County’s support for honey producers’ cooperatives do the same. In eachof these cases, the other side of the story is that the county has helped farmers get around the
exploitative practices of the local cartels. For instance, in Makueni, mango farmers used to get
only about Ksh 2 per kg, as they had no way of storing ripe mangos, but the county’s mango
processing plant pays Ksh 15 per kg and breaks even.31 The county did not bring any legal action
against exploitative middlemen. Yet, the economic impact of overcoming the local cartels was
immediate and substantial. Even if it does not punish anyone for corrupt deeds they committed in
the past, neutralizing cartels will curtail the scope of rent seeking in the future. For Kenya, this is
likely to be more important than dealing with the past. In essence, it restores the fundamental
function of market, which is to allow small producers to “accumulate wealth” by a simple act of
producing and selling products in which they have a comparative advantage. This addresses theissue of the “market channel” and moves the Kenyan economy toward an “inclusive system” inwhich honest labor, not rent seeking, is rewarded.
31

The author’s discussion with Governor Kibwana in September 2018.

26

Makueni and other counties have also brought transparency and accountability to the
public procurement process. For instance, in Vihiga, where many contracts were awarded without
a proper bidding process previously, the new governor has made it a rigorous competitive process.
As already mentioned above, citizens in Makueni have spontaneously organized community
oversight groups to prevent shoddy works by contractors. These actions limit rent-extraction
opportunities by cartels. It is cleaning up the “public sector channel.”
These tangible results contrast with the disappointing outcomes of President Kenyatta’s“fight against corruption.” Since the beginning of his 2nd term, his administration has stepped up
the efforts to prosecute those suspected of corruption. Many government officials have been
charged with corruption, including many cabinet secretaries (formerly ministers) and principal
secretaries (formerly permanent secretaries), but few cases have been decided. Most Kenyans
believe the court system is corrupted, especially at the lower levels, and it is extremely slow. This
has allowed many who have been accused of serious crimes to delay the court proceedings longenough so that key witnesses will become no longer available, and thus have their cases dismissed.
Poor coordination among the Ethics and Anti-Corruption Commission (EACC), the Directorateof Criminal Investigations (DCI), and the Director of Public Prosecutions (DPP) has also
contributed to the ineffectiveness of the government’s fight against corruption.
It is important to note that President Kenyatta’s governance reform measures were notlimited to the prosecution of the corrupt officials. Under his leadership, in 2018 the AntiCounterfeit Authority launched a concerted effort to stop illegal importation of goods (both thoseimported without paying a proper customs duty and without meeting quality standards). The goal
was in part to fight corruption, but importantly it was also to protect domestic manufacturers. He
also decreed in 2018 that starting on July 1, 2018, the results of all public procurement would bemade public. The Standard newspaper reported on June 14, 2018, “The disclosure of tender andawards details, State House said, will allow for public scrutiny and prevent any collusion between

27

Government officials and 'tenderpreneurs.'” This was an important and promising reform to makemanipulation of the public tender process much harder.
Unfortunately, these measures have had only limited success. The stepped-up efforts by
the Anti-Counterfeit Authority were widely lauded by both domestic manufacturers, which had
long suffered from the unfair competition, and the general public. Some domestic manufacturers
even saw a jump in orders.32 However, the drive petered out after a short while. The transparency
measure that the President had announced for the public procurement process was weakened in
the implementation phase. The Public Procurement Regulatory Authority (PPRA) has publishedonly the information on the winning bids. This makes it far less obvious whether there were betterbids that should have been selected. It is reasonable to assume that the reason why these efforts
are not effective, sustained, or implemented properly is because cartels have such a strong
influence on government policy decisions and implementation, particularly at the national level
where “big players” are involved. Even a popular president has difficulty coping with it.
At the same time, it is clear that the reformers were onto something that seriously
threatened cartel interests. The tougher actions by the Anti-Counterfeit Authority quickly boosted
the demand for some domestic manufacturers. Kenya Private Sector Alliance (KEPSA) noted thatfull publication of all public tender bids would be the top priority action it would recommend to
improve the business environment for domestic manufacturers.33 The idea of “decartelization”
may be gaining ground among the policymakers in the national government.34 Those who pushed
for stronger actions by the Anti-Counterfeit Authority or full disclosure of public procurement
results were thinking along the lines of “decartelization,” even if they may not have put is so
succinctly. Even though the resistance to “decartelization” will be fierce at the national level, it is

The author’s interview of a senior officer of the Kenya Investment Authority in August 2018.
Interview of the KEPSA secretariat by the author, February 2020.
34
In fact, the term “decartelization” was coined by an advisor in the Office of the Deputy President during
a meeting in which several advisors and I were discussing how “cartels” are distorting the markets andrendering government policies and programs ineffective. He noted what we should focus on is“decartelization.” Everyone agreed it was the right way to think about the solution.
32
33

28

still likely to be a more effective approach to governance reform than a prosecutorial approach toit.
From the political economy point of view, subduing cartel behavior at the local level isfar easier than at the national level. For the most part, local cartels involve relatively small players.
A forceful governor has a good chance of overriding them. Besides, when the benefits are apparent
and immediate, the governor can expect strong public support from the county residents. In fact,
in Makueni, local citizen groups have become so active in monitoring the civil works projects
funded by the county that the contractors are compelled to deliver good quality work on time. At
the national level, cartels that operate in sectors like sugar, maize, and fertilizer involve far more
powerful players with political connections to high levels of the national government. 35 It is ofcourse important to dismantle such powerful cartels, but the current situation in Kenya clearlygives county-level reforms a far greater chance of success.

5.2 Possible assistance approaches for development partners
The discussion in the previous section suggests a few strategic elements for development
partners who wish to support the process of transformation in Kenya’s political economy system.
First and foremost, it is important for them to place a clear focus on supporting genuine
reforms at the county level. There may be broadly two types of initiatives. One concentrates on
improving the provision of public goods, like universal healthcare or well-planned and properlyconstructed rural roads. This is important not only for what they provide immediately, but also in
shifting the focus of politics from the provision of “private goods” to the provision of public goods(the public sector channel).36 If the public service is designed to benefit the poorer and more
vulnerable segments of the population, that will be even better, as it will reinforce the notion that
A confidential study commissioned by Gatsby Africa recently documented in detail how highly-placed
people are involved in cartels in many key segments of agriculture sector, which explains why reforms havebeen difficult. To many Kenya observers, it was simply a confirmation of what they have long suspected.
36
Development partners often support implementation of such projects by local bodies. The suggestion
here is slightly different in that the aid will be given selectively to the local governments that are trying toestablish a transparent and inclusive exercise of political power.
35

29

a key function of the state is just that. It shifts the political understanding toward inclusion (thesocial norms channel). The second type is designed (even if not explicitly) to neutralize cartel
behavior and make the market work for the small players (the market channel). Again, suchinterventions also bring a broader benefit of weakening the rent-seeking culture, an antithesis of
an inclusive economic system (the social norms and the innovation channels).
Supporting reform-minded governors is not a simple task for several reasons. Governors’
terms are limited to two, so it is not certain how sustained an effort a particular county will beable to make.37 Often a governor may have a good idea, but that is not enough. As noted above(Section 5.1.1), a good idea can easily become another opportunity for rent seeking if the governor
does not have a strong managerial capability to get the plan implemented properly. It is also
possible that some governors will propose eye-catching initiatives mainly to attract aid money.
All these pitfalls notwithstanding, it is a strategic direction that development partners should
consider supporting. That is where most encouraging reforms have been happening.
Second, development partners should pay particular attention to the reform initiatives that
aim to “decartelize” the economic system, both in the market sphere and the public sector sphere.
Most of the recent success stories emerge from counties. Therefore, this strategic element strongly
overlaps with the first element.
However, some policy thinkers at the national level are beginning to pursue reform ideas
along the same line. Section 5.1.2 noted two initiatives at the national level, President Kenyatta’s
decree in 2018 on full disclosure of all the bids for public procurement and the stepped-up efforts
by the Anti-Counterfeit Authority also in 2018 to crack down on illicit imports. The initiative on
public procurement was particularly promising, because once the system of online disclosure is
installed, it is not easy to tamper with the information. In fact, this initiative had a good chance of
success. It was one of the main actions for a policy reform program that the World Bank wasSome observers note that the “regional bloc” of counties, which has been suggested to promote bettercoordinated development projects across neighboring counties, may also provide a more lasting framework
for reform efforts.
37

30

negotiating at the time, with an unprecedented $750 million budget support loan on the table.38
The work by the Anti-Counterfeit Authority was more complicated, as it involved many inspectors
and other agents who are constantly exposed to pressures, bribes, or even threats. Nevertheless,when credible opportunities arise, development partners should support innovative“decartelization” policies at the national level, because the impact can be sweeping. Support could
be given in the form of ideas and technical assistance (e.g., in technologies for inspection ofimports), or even in the form of physical infrastructure (e.g., improving the laboratories of Kenya
Bureau of Standards) if the commitment to reform is clear. However, in supporting national-level
reforms, development partners will have to think through the design of the reform measurecarefully. The “cartels” are extremely clever and well-resourced; they will try to subvert the intent
of the reform measure in every possible way to protect their interests.
Third, development partners should also consider supporting the media to disseminate
information about such success stories. Kenyan media is quite active, but it is not well resourced.
This is particularly a serious problem for the traditional media houses, because people are
increasingly relying on free internet sites for news. The financial pressure on the media houses
has reduced their ability to produce quality reports, which in turn makes their products lessattractive. They seem to be trapped in a vicious circle.39 This seems to be also making somejournalists willing to be “bought” by politicians and spread falsehoods. This situation adds to theimportance of strengthening responsible journalism. For about 5 years starting in 2010, DFID,DANIDA, and CIDA jointly funded the Kenya Media Program, precisely to address this problem.
The program, which was executed by Hivos, a Dutch NGO, funded training of journalists anddevelopment of “content,” especially through investigative journalism. Perhaps because of its

It is unclear why the World Bank accepted a much softer measure. It is unlikely that its experts could not
see the implications of such a limited measure.
39
A senior faculty member of Aga Khan University’s Graduate School for Journalism andCommunications felt there was a latent demand for high-quality reports, because many Kenyans wereincreasingly concerned about big issues like governance, but were not getting fresh ideas on them. However,media houses needed help in breaking out of the vicious circle. (Author’s interview in 2019.)38

31

success in generating critical analyses of social and economic issues and government policies,
these development partners apparently incurred the displeasure of the government, and they were
unwilling to fund the next phase. However, it is important that success stories emerging indifferent counties be shared widely. Kenya’s development partners should consider reviving asimilar program to assist the media. The example of the “muckrakers” in the US in the early partof the 20th century demonstrates that good journalistic work can move public opinion and change
national politics.
Fourth, development partners can also support cross learning among counties. There aresome truly innovative initiatives. For instance, Vihiga’s Governor Otichilo has established anadvanced Geographic Information System (GIS) lab to build an extensive database on the stateof development in his county.40 (He is a GIS expert himself, having managed the United Nations
Economic Commission for Africa (UNECA)’s Regional Centre for Mapping Resources forDevelopment.) What is impressive is the effective use of the data for policy making andparticipatory decision process. He firmly believes in participatory decision making, but he is also
convinced that without pertinent information, such a process would become simply a place formediating between competing local demands. As an example, he has a map of the county withevery health center shown, with a circle with a 2-km radius drawn around it. It is obvious thatmuch of the county is covered by one or more circles, but there are areas that are conspicuously
blank. When the citizens from different villages gather to discuss where the next health center
should be built, the discussion becomes much more constructive and civic minded. He believes
that other counties can also benefit from this technology, and some are already in discussion withhis team. Since it requires considerable technical training as well as investment in the equipment
and software, cross-learning will not be cheap. This is an area where development partners couldMore generally, he thinks policy decisions must be data based. His team has also developed a system tomeasure its own performance with objective data.
40

32

step in and offer assistance. They might also bring good examples of GIS-based policy
formulation and monitoring of economic and social development from other countries.
Of course, development partners’ efforts to support Kenya in a new way will be far more
effective, if they can achieve a common understanding of the problem and develop a sharedstrategy for addressing the deeper governance issues in a coordinated manner. At the moment,
development partners in Kenya do not seem well aligned with a common approach. In the daysof the Economic Governance Group in the 1990s, there was a significant measure of agreement
among the development partners in Kenya at least on the need to address governance issues. This
forced the Moi Government to respond, with the creation of the “Dream Team.” Although thedevelopment partners (mainly the World Bank) failed to build on that opening (see Section 2), it
does show that a coordinated approach carries more weight.

5.3 Re-engineering “traditional aid”
Does the above argument mean more traditional aid, such as investment in infrastructure,
agricultural technology, education, and healthcare, are meaningless? In the companion report(Ohashi 2022), I noted this is not at all the case. Those are important building blocks of a wellfunctioning inclusive economic system. However, development partners need to assure
themselves that Kenya is making credible progress toward the critical transition to an inclusive
political economy system, because only then can Kenyan citizens expect to get significant benefits
from such investments.
I also emphasized the importance of building into “traditional projects” components tostrengthen the shift toward an inclusive system. An excellent example may be the Smallholder
Horticulture Empowerment and Promotion (SHEP) projects which JICA has implemented in a
number of countries, including Kenya.41 It rightly emphasizes the importance of encouraging
horticulture that is driven by market demand. There is already a focus on what will command a
41

See Introduction to the SHEP approach (2014), JICA.

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good price in the market. If the programs can help farmers become more organized in addressing
the challenge of low prices arising from cartel behavior, the interventions will be a step closer todealing with the deeper issue. Such additional assistance may take the form of something akin to
the mango processing plant of Makueni. It will not be a big stretch from a more traditional
approach, but it will be addressing the problem of the market channel squarely, a key element ofa strategy to help Kenya transition to a more inclusive system.
What “inclusion elements” a development partner can build into more familiarinterventions will vary from one project to another. They should not be artificial add-ons to dress
up traditional projects as inclusion-conscious programs. By keeping an eye on the strategic goalsof helping reform dynamics at the county level and finding every possible way to “decartelize”
the economy, development partners can expect to spot meaningful ways of using the familiar
projects to serve a higher objective. In fact, many government counterparts will tend to expect aid
to take the form of tangible investments in infrastructure, basic public services, industrial
promotion, etc. Those traditional programs serve to motivate engagement from the government,
which then open opportunities to broaden the scope of the programs. Along with the efforts tounderstand the spontaneous drive for change in Kenya, this is where creativity in program design
will bring high returns in terms of the relevance of aid programs.

6. Conclusions
In the context of Kenya, this note identifies two key areas of focus for development
partners, devolution and “decartelization.” In particular, it seems important to support truly
reform-minded counties in their efforts to bring greater transparency and accountability to public
service delivery and to bypass or overcome cartel behavior that inhibits proper functioning ofmarkets. This is a powerful way to support the domestic dynamics for change. Helping small

34

farmers, SMEs, and average citizens with initiatives to circumvent cartels brings immediate
benefits, thereby confirming to them that an inclusive system indeed works. This in turn willreinforce the demand for reform. Such opportunities may arise in many different ways, including
in agriculture, industrial promotion, healthcare, or even infrastructure. This suggests that what isneeded is not an entirely new program, but rather a program with a more conscious focus on
supporting the important changes that are leading Kenya toward inclusion.
The second priority area is “decartelization.” It overlaps significantly with devolution,
but it is also an important strategic direction that national level governance reforms are likely totake. For instance, looking at a market reform idea not from the “liberalization” angle, whichdevelopment partners have tended to do, but from a more focused angle of “decartelizing” themarket may generate more innovative and practical ideas for improving the market functions.
Fully liberalized and properly regulated markets is ideal, but a market that is not seriously
distorted by cartels may be “good enough” and certainly more achievable.
Looking at Thailand of today, Kenyans would often say they would be happy to reachthat level of prosperity, even if it falls far short of where South Korea and Singapore are. It is
unlikely, however, that Kenya can emulate Thailand’s growth path because of the geographic andother differences. Thailand is close to major sources of foreign direct investment (FDI) and issituated in the middle of a fast-growing region. Its civil service, with the backing of the monarchy,
has been able to provide some counterweight to the narrow interests of the business community.
Kenya’s circumstances are less serendipitous. All the more reason Kenya needs to make a clean
break with the old political economy system.
That may seem like a daunting challenge. It is important to remember, however, that
Kenya still retains a considerable strength in its industrial capabilities. The only problem is thatgovernment policies have tended to favor imports over domestic production and discourageexports. Unlike many of its neighbors, Kenya does not have to “invent” manufacturing industries.
It only needs to stop stifling them. If Kenya can revamp its industrial policy regime to make it

35

“inclusive,” there is little doubt that the economy will flourish. But, what really stands in the way
is not industrial policy as such, but an elite-favoring political status quo. This is why the Industrial
Transformation Programme of 2015, which was promoted with much fanfare, never got very far.
Like most other developing countries, Kenya’s central development challenge isgovernance. Development partners cannot ignore it and continue with the traditional ways ofgiving aid. There are ways to help Kenya with this critical issue. I have suggested broad strategic
directions that development partners may wish to consider. How to translate them into specificassistance programs will require more detailed analyses of the opportunities and matching of suchopportunities with each development partner’s unique strengths. Of course, development partners
should make every effort to work jointly, so that the individual programs add up to a coherent
whole that is sharply focused on supporting Kenya’s transformation process. All of this will not
be an easy task. However, the likely reward in the form of much larger and lasting impact is very
high.

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Abstract (in Japanese)
要約
開発パートナーは、ケニアの根本的開発問題は「ガバナンス」であること久しく認識してきた。しかし、それに対処する支援をする効果的なアプローチを策定する事が出来ずにいる。その間も、「伝統的援助」は大規模に続いてきた。これはケニア特定の問題ではない。関連論文（大橋 2022）は、このような状況では援助の効果が低い事を解明する一般的な理論を提示し、援助の焦点は、途上国の資源ギャップを埋めることから、
エリート重視・レント志向の政治経済体制から「包括的」体制への転換の支援へ移るべきであると説く。同論文は、途上国には包括的体制確立を推進する社会的ダイナミクスがあり、開発パートナーは援助をその内在的な動きと整合させ、より効果的な支援を出来ると提唱する。本稿は、この一般論をケニアに適用し、エリート寡占体制が複数の経路を通じて経済成長を妨げていることを解説する。また、2010 年憲法に基づく地方分
権化が、ケニアの社会的ダイナミクスの重要な転換点と捉える。それは市民に改革を求める有効な政治経路を与えた。47 の郡の中の数郡は、包括的な政治経済体制を確立する運動の先駆者として浮上している。さらに、成功例は、カルテル行為を排除する改革
が、司法で「腐敗と戦う」よりも有効であることを示唆している。この 2 つの要素に基づき、本稿は、ケニアの包括的体制への移行を支援することに焦点を当てた援助の戦略的アイデアを提示している。

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