Mr President, expand cash transfer plan in Corona crisis
Thursday, March 26th, 2020
Dear Mr President,
I take this opportunity to thank your government for the good work it is doing to manage the coronavirus crisis.
It is clear the government is making every effort to ensure Kenyans are safe and healthy.
However, the economic problems arising out of this pandemic will linger. With offices, factories and other forms of economic activities shutting, problems will start manifesting in the country soon.
Whereas every leader is urging Kenyans to stay at home, few have taxed their minds on how most Kenyans will survive during the lockdown.
Lockdowns are currently the standard response to coronavirus globally, but Kenya, and other developing nations in general, must take into account the dire economic situation that precedes the crisis.
It is important to compare Kenya’s economy with that of other countries that have declared lockdowns.
According to 2017 statistics, the average wealth of a Kenyan as measured by Gross Domestic Product per head is $1,507.81 (Sh159,677).
Compare this to Corona-ravaged Italy’s $31,952.98 (Sh3.4 million) or Spain’s $28,156.82 (Sh 3 million).
Nevermind that the two countries can always tap on emergency European Union resources.
Whereas in comparative terms China GDP per capita of $8,730 (Sh924,507) according to 2018 figures, seems modest, its sovereign wealth fund held by China Investment Corporation is worth $941 billion in assets.
It is the second largest sovereign fund after Norway’s. It can always tap on the fund in times of crisis like this one.
Kenya does not have such a fund. Its Sovereign Wealth Fund bill which was mooted due to the stillborn oil boom of Turkana is still stuck in the National Assembly.
The calls for lockdown in Kenya are good, but it must be understood that this means more poverty and penury. A balance between necessity for a lockdown and economic needs must be struck.
This calls for application of Keynesian economics, named after British Economist John Maynard Keynes.
His theories were about how in the short run – and especially during crises – economic output is strongly influenced by aggregate demand (total spending in the economy).
Keynesian economists state market economy often experiences inefficient macroeconomic outcomes in the form of economic recessions and inflation, and that these can be mitigated by economic policy responses, in particular, monetary policy actions by the central bank and fiscal policy actions by the government to stabilise output over such cycles.
This calls for a managed market economy-—predominantly private sector—but with an active role for government intervention during recessions and depressions.
In Kenya under this crisis, my remedy would entail boosting and expanding the current cash transfer programme. Currently, the plan targets old persons aged over 70 years.
I propose expanding it and targeting all households that have been categorised by 2019 Population and Housing Census as low income.
Such households should get cash transfers for two months assuming the problem linger for that period.
According to 2019 census, Kenya’s population is 47.5 million, with about 12 million households.
The Institute of Economic Affairs estimates about three million Kenyans are in the formal sector. Some two million are in the informal sector, but are doing well.
These can be excluded, leaving households in the low-income bracket at an estimated seven million.
A cash transfer of Sh10,000 per a low-income household would thus translate to Sh70 billion. For two months, that would translate into Sh140 billion and Parliament can be convened urgently to re-allocate cash for such a fund.
Various issues may be raised in regard to this approach. Criticism for such transfer includes the argument that some recipients would misuse it.
However, studies of the impact of other direct cash transfer programmes provide evidence to the contrary. In any event, Kenya is dealing with a crisis and cash transfer is not meant to be permanent.
Identifying actual recipients is easy. Mobile phone service providers possess important data, while Huduma numbers registration process did capture household data for majority of Kenyans.
The data can be harnessed to map out recipients. Going on a lockdown without providing a safety net is not very wise. —The writer is Senator, Muranga county