Mr. Prime Minister, Minister Githae, other ministers and government officials present here today, Excellencies, heads of missions, ladies and gentlemen:
We the development partners are pleased to be having this meeting with the Government of Kenya today in the Development Partnership Forum (DPF). The pre-DPF meeting on June 7 provided good preparation for this meeting. We would like to thank the Government for its active and high-level participation in that meeting and the Sector Working Groups for their work in assessing progress to date and identifying new areas of focus. Given that a year has passed since we last updated the twelve commitments, we had at least some progress on ten of the twelve, albeit little or no progress on two.
On June 7, we also identified twelve commitments to monitor closely over the coming six to twelve months. The documents recording these commitments are before you. These are actions that we believe that our partnership can achieve together. For our partnership to work best, we need to trust that agreeing these commitments will also result in getting them done, excepting unforeseen circumstances. It is a matter of mutual credibility and accountability.
Ladies and gentlemen, as we all know, Kenya has been in a period of transition since the new constitution was approved in 2010. It is not surprising, then, that our preparation for this meeting focused on the transition, particularly implementation of the constitution and the upcoming elections. In addition, they have reflected the economic challenges that Kenya currently faces—to address emergencies, achieve poverty reduction, and manage global impacts like the euro zone crisis. As development partners, we wish to note some of our key concerns in these areas, as reflected also in the twelve new commitments agreed in the pre-DPF meeting two weeks ago.
First, we wish to say a few words about economic growth. While the Government last year acted appropriately to stabilize the economy, we believe that more needs to be done, particularly to promote growth and to spread its benefits to the poor. In late 2011, the government raised interest rates and curbed spending. As a result, inflation fell, the exchange rate stabilized, and growth slowed to 4.4 percent. With good rains, continued stability, and avoidance of shocks, growth could reach 5 percent this year and next. But as the economy stabilizes, the Government needs to shift its focus from short-term stabilization to growth-oriented structural reform. High oil import prices and low export earnings have widened Kenya’s trade deficit, and this, together with an excess of investments over savings, has resulted in a current account deficit of 12 percent of GDP, a record high. Kenya is living beyond its means. To reduce these deficits, Government policies should create incentives to reduce consumption, accumulate savings, and promote investments—particularly in export- and growth-related infrastructure such as power, water, energy and transportation (as reflected in commitment 8). Moreover, we believe that policies should aim to ensure that the poor benefit disproportionately from growth, through increased jobs, enhanced access to services and social transfers where needed (concerns that motivated commitments 7 and 9). This constitutes a long-standing and uncompleted agenda item that Kenya must not put off any longer.
The development partners are willing to help. While our contribution to government spending is small, we continue to play a large role in development spending in various sectors. The preparation of a second Medium-Term Plan for achieving Vision 2030 (which we highlight in commitment 12) provides us with a good opportunity to re-establish our partnership on a firm foundation. To contribute more effectively, we development partners need to work with the Government to improve the alignment and absorption of our funding (as reflected in commitment 1) and to strengthen the integrity of the budget process. In this light, we commend the Government for its effort to implement IFMIS, but also regret the lack of improvement in the PEFA indicators. The development partners are also often ambassadors to potential foreign investors, but our inducements will be effective only if needed infrastructure is available, the policy and institutional environment is business-friendly, political processes do not derail critical economic decision-making, and corruption does not impede equal competition.
Finally, the development partners share the excitement of all Kenyans resulting from the recent discovery of oil in Kenya—but also their concern that these resources be exploited in ways that support sustainable development. To this end, we are ready to help the Government learn how other countries have successfully managed extractive resources for development.
In our second key point, we development partners would like to stress the importance of drought preparedness and risk reduction. Important progress has been made. We welcome the Government’s national plan for ending drought emergencies and its establishment of the national drought management authority. But this is not enough. It is increasingly evident that drought in Kenya is a recurring social and humanitarian crisis. Drought-related damages and losses over 2008-11 totaled $12 billion, with many of Kenya’s most vulnerable households suffering shocking levels of asset depletion. To address the risk of drought, the Government and its partners need to improve water management, rebuild forest cover in the five water towers, and adapt climate-smart agriculture and pastoralism (as reflected in commitments 2 and 3). In consultation with its EAC partners, Kenya should also revise some of its agriculture policies, which are partly responsible for its food crises. Due to the Government’s high price policy and EAC restrictions on food trade, Kenya’s poor pay much more for maize than the market requires, and rich farmers gain.
Third, a preoccupation of the Government and its partners since August 2010 has been implementation of the new constitution--the single most important political development in Kenya since independence. Many Kenyans see the new constitution, rightly, as a key instrument for establishing needed checks and balances, strengthening parliamentary oversight of the executive, enhancing the professionalism of the judiciary, rectifying historical geographical inequalities in the distribution of services and investments, and protecting the rights of women and marginalized groups. These are all important endeavors (partly reflected in commitments 4 and 6), and much progress has already been made through legislative action. Full implementation of the constitution will also contribute strongly to pro-poor growth and social inclusion.
But these gains will be hard-won, and there are real risks of failure. In particular, devolution will involve creating an entirely new level of government, and it will be challenging for the Government to manage this momentous transition while ensuring that service delivery continues and is expanded. Paradoxically, those counties that stand to benefit the most in theory could lose out in practice, if their capacity to manage devolved funds is not sufficiently developed. Urban services are also vulnerable since the institutions in charge of urban services will be abolished. To make devolution work, fundamental questions remain to be answered, regarding functional assignments, fiscal transfers between and across levels of government, public service transitions, and accountability mechanisms. Coordination of the transition at both national and county levels will be crucial, and this will require the establishment, with urgency, of an able and inclusive Transitional Authority (highlighted in commitment 11).
Our fourth point concerns the upcoming elections. The development partners, like Kenyans everywhere, look forward to the elections with a sense both of opportunity and of apprehension. No one can forget the terrible aftermath of the 2007 elections, and we must all do all that we can reasonably do to prevent its recurrence (hence our support for commitments 4 and 5, on enhancing peace, security, reconciliation and integrity). But free, fair and peaceful elections in 2013 would also confirm Kenya’s new beginning, as it would finally introduce many of the governance changes promised in the new constitution. With the right governance, Kenya can grow at 7% or more per annum. Yet history shows that growth often plummets around national elections: the Government is distracted, key decisions are postponed, and potential investors wait out a period of increased risk and uncertainty. We cannot let this happen again. The Government and its partners need to stay focused on economic governance, including the fight against corruption, even while the citizens exercise their fundamental rights of political governance.
So, as development partners, our support for the 12 commitments reflects our concern with four fundamental drivers of Kenya’s future: the elections; the new constitution; drought mitigation; and sustainable growth, equitably shared. A thread that binds these concerns together is governance—how effectively the Government exercises its power to manage the country's resources for development. Many donors will shape their future aid programs in the light of their assessment of Kenya’s governance—how well the Government manages the election process, its planning and budgetary processes, its macroeconomic levers, the fight against corruption, and the agenda for structural reforms. These factors will affect both how much aid or investment financing the development partners will provide, and also the modalities for its provision. Donor disappointment with management of the education program (reflected in commitment 10) shows how donor support, even in a vitally important sector, can be reduced or withdrawn when poor governance corrupts the aid environment.
Kenya has the capacity to be a leader in Africa and the world. This is a country of tremendous potential. The intelligence and entrepreneurship of the Kenyan people is widely recognized, and amply demonstrated. Since 2000, macroeconomic management has been strong; important gains have been made in health care and education; and infrastructure investments have visibly changed the nature of the economy. Kenya provides one-quarter of the flowers at the Dutch auctions, and it is the world leader in mobile money—an innovative product that has transformed the lives of the poor. Its banks and its energy utilities are among the strongest in sub-Saharan Africa. It has a relatively diversified economy, and a very strong services sector, and it is advantageously located in one of the fastest growing regions of the world today. We, the development partners, are privileged to be in Kenya at this exciting time, and determined to help bring prosperity to all Kenyans, including especially the poor.