Why government can't borrow its way to prosperity

Trying to understand the Kenya’s economic system under conventional economic models is a painful and often confusing endeavor. This past week, I had two diametrically opposing experiences, yet they are connected to each other at the center.

On Monday afternoon, I took a leisurely drive from Lower Kabete along the Western Bypass, connecting through Kikuyu, Karen, Ngong and Kiserian, then up Magadi Road to Corner Baridi. For context, I have known the Lower Kabete area for the past 27 years, since I joined the University of Nairobi’s School of Business in the late 1990s. Back then, Lower Kabete was a typical village, with Wangige serving as the main local market. Nearby Mwimuto was even more rural and insecurity in those areas then was the norm rather than the exception.

What caught my attention this time, however, was how the area has changed over the past two and a half decades. After passing the School of Business, you come across one of the government’s Affordable Housing projects, rising on what was once farmland belonging to the Approved School for underage offenders. On the opposite side of the road, the land that was once entirely public is now partly occupied by the Judiciary, with the next section taken up by an abandoned construction site previously used by the Chinese contractor who built the Western bypass.

Beyond that section, the entire stretch from Lower Kabete shopping centre to Wangige has been transformed into a concrete jungle, with apartment blocks replacing ancestral farmland. Many of these buildings are still under construction. It makes one wonder how the government’s affordable housing units will compete with such private developments. The roadside that once teemed with Napier grass and grazing dairy cows is now lined with small businesses, an unplanned sprawl typical of modern development across the country.

The same scenes continue as you turn off the bypass toward Kikuyu, Thogoto and Dagoretti before being greeted by the calm and elegance of the Karen suburb. Beyond Karen, however, you are thrust back into the chaos of rapid, unplanned growth at Ngong township and Matasia. In Kiserian, donkey-drawn carts appear to be the preferred means of transporting goods, often blocking motorists without a care in the world.

For those who have travelled widely across the country, this pattern of chaotic urban growth is a familiar sight in almost every county. It is not unique to Kiambu or Kajiado, where most of the areas described above fall. Scaled up to the national level, the economic activity along these corridors mirrors the true structure of Kenya’s economy over the past two decades.

Typically, development here is uncontrolled, entrepreneurs, if we may call them that, crowding each other with near-identical businesses until any hope of a decent customer base or profit margin is squeezed dry. Traffic flow is a nightmare, providing fertile ground for police control and extortion. .

The following day, I had the privilege of serving as a panelist at the Okoa Uchumi Debt Conference, organized by civil society to discuss the country’s spiraling debt crisis. Coincidentally, National Treasury CS John Mbadi held a press briefing to highlight the measures being taken to contain public debt and ensure its sustainability in the medium to long term.

One of the notable developments in the debt market this week was the exchange of maturing obligations for longer-term instruments worth US$1.5 billion, as well as the restructuring of the Standard Gauge Railway loan into a Chinese Yuan (Renminbi)-denominated facility. This move is expected to save the country millions of dollars in interest payments over the loan’s duration.

According to the CS’s report, Kenya’s debt situation remains elevated and at risk of distress, currently accounting for 67.8 per cent of the Gross Domestic Product (GDP). Debt servicing consumed about Sh1.72 trillion, representing 50.6 per cent of the total government revenue estimated at Sh3.4 trillion for the fiscal year. The majority of this debt portfolio is now domestic, with interest payments alone surpassing Sh1 trillion.

This second scenario reflects the sophisticated policy jargon dominating national discourse, while the earlier one reveals the real face of economic activity on the ground. Instead of thriving industries, Micro, Small and Medium Enterprises (MSMEs) are locked in cut-throat competition, cannibalizing one another in unplanned and uncontrolled township developments.

In Nairobi County, Governor Sakaja’s administration has extended this chaos by encroaching on once orderly suburbs, road reserves and pedestrian walkways, transforming them into hawkers’ paradises. These makeshift shops open and close faster than a 100-metre Olympic dash. The country’s economic structure has been reduced to a copy-paste model of small businesses, where any sign of success in one area is quickly duplicated by competitors, leading to an alarmingly high attrition rate among MSMEs nationwide.

On deeper reflection, these experiences expose the persistent disconnect between policy and reality, an issue this column has consistently highlighted. Take the Lower Kabete, Ngong and Kiserian models as examples of real economic activity: How does CS Mbadi expect to repay the debts he is merely postponing into the future? How does borrowing to buy back maturing obligations help create strong, profit-making enterprises capable of generating the billions in taxes needed to sustain the economy?

At the policy level, MSMEs have been presented as the cornerstone of the Kenya Kwanza economic philosophy, one of the five pillars of the Bottom-Up Economic Transformation Agenda (BETA). Under President Ruto, the promotion of MSMEs removes any pretense of pursuing structured interventions to develop the manufacturing sector as envisioned in Vision 2030.

Simply put, the Ruto administration appears indifferent to the fate of industries, so long as it can appeal to unemployed youth through flashy programmes that, at best, help them survive rather than thrive, while leaders consolidate political power and expand private wealth through public resources.

Notably, after the collapse of the Hustler Fund, the initiative has since morphed into Nyota Mtaani, launched by the President with pomp and colour, now roping in the World Bank and an estimated Sh5 billion supposedly set aside as start-up capital for small businesses.

This new initiative is now being hailed as a genius model to create jobs for the youth through MSMEs. Yet, from a policy and technical standpoint, one must ask: What is truly unique about Nyota Mtaani that its predecessors—the Hustler Fund, Youth Fund, Women Fund, or Uwezo Fund—lacked? What will make youth-led MSMEs under this programme succeed where others failed?

More fundamentally, how will the economy establish structural safeguards to underwrite interest payments and maturing debt obligations within this largely agrarian-based approach to enterprise? Without a solid industrial base or value-added production, these schemes risk becoming short-term political spectacles rather than sustainable economic solutions.