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Time for cost cutting in public sector is now
Eric Ombok
Published: 26-MAY-06

Whenever you speak to any person in the top management of any organisation in the private sector about their corporate strategy, one thing that dominates their talk is the need for continuous cost cutting.

When you take a cursory look at how the government runs its day to day business, you cannot help but notice the wanton squander of scarce resources. In a report entitled, �Living Large: Counting the cost of official extravagance in Kenya�, by the Kenya National Commission for Human Rights, �Between January 2003 and September 2004, the new NARC government spent at least 878mn Kenya shillings (about $12.3mn) on the purchase of luxury cars that were largely for the personal use of senior government officials such as ministers, assistant ministers and permanent secretaries�.

According to the Report which was published in January 2006, the shocking finding is that the amount spent on luxury cars is just about the same amount that was allocated under the Constituency Development Fund in 31 of the country�s poorest constituencies.

�In Mbita Constituency, it would have meant having to do without classrooms in 12 primary schools, classes and staff houses in 5 secondary schools, dams and boreholes in 4 water projects, projects in 8 health centres and an emergency reserve of 1,3 million�, says the report.

The 878mn shillings is enough to see 25�000 children through eight years of school or the 878mn shillings would provide ARV treatment for 147�000 people for a whole year. The High Court of Kenya was the largest spender at 82,5mn shillings for thirteen Mercedes Benz vehicles at about 6,35mn shillings a piece.

However, it is gratifying to hear Kenya�s new Finance Minister, Amos Kimunya, and Permanent Secretary at the Treasury; Joseph Kinyua, say that the 2006/2007 budget could reflect the intended cut back on recurrent expenditure.

The intention at the moment is not to provide senior government officials with a government maintained car, but a loan to buy one for themselves then pay them an allowance to maintain the vehicle.

According to the Budget Outlook Paper for 2006/07 � 2008/09, total expenditures are projected to remain broadly unchanged at around 27,5 percent of GDP over the medium-term, as a decline in recurrent expenditures is offset by higher development spending.

Over the duration covered by the current Budget Outlook Paper, the government says it intends to reduce the wage bill from 7,8 percent of GDP in 2004/05 to 7,3 percent by 2008/09. There are also plans to implement the Voluntary Early Retirement scheme (VER) with the objective of downsizing the civil service by 21�338 by between 2004/05 and 2006/07.

Apart from wasteful spending, another issue of grave concern is the low absorptive capacity of development resources in the last few years. The scenario here involves funds meant for development projects across the country by various ministries being sent back to the Treasury at the end of the financial year because they were not spent.

Exporters who have been asking for government intervention following the strengthening of the shilling against the dollar have blamed the movement of the shilling on excess dollars in circulation.

Assuming the exporter community is right on the cause of the shilling�s appreciation, most of the unspent development funds actually come in the form of dollars. In addition, there are reports that more dollars are held within the Kenyan economy for relief and construction projects in Southern Sudan and Somalia in particular. These have therefore reduced the government�s demand for foreign currency.

In government circles, lengthy procurement procedures and shortfalls in foreign financing have been blamed for the low absorptive capacity of development resources. Although the Public Procurement and Disposal of Assets Act has been hailed as a panacea for enhancing transparency and accountability in the procurement of goods and services by the government, the same procurement process is to blame for inflated prices of commodities.

The Public Procurement and Disposal of Assets Act has indeed succeeded in eliminating single sourcing of goods and services, which was rightly blamed for creating a conducive environment for corruption to thrive in the public sector.

But one inexplicable consequence of the Act is that most of the quotations for procurement of anything within the public sector, from biro pens to earthmovers, are above market rates.

This can be easily addressed by having a proviso which states that everything which is procured has to be at market rates if not lower, because the bulk purchases should attract a quantity discount.

Recommendation is the reports of the Auditor and Controller General should be treated like the Report of the Commission of Inquiry into the Goldenberg scandal. This means acting on it promptly and whoever has to be surcharged, suspended or sacked for wasteful expenditure has to face these consequences without further delay.

This column was first published in Business in Africa Magazine, April 2006. To subscribe click here

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