AYABONGA CAWE: Kenyan riot deaths show how debt reform can go awry

Amid running battles in the Nairobi streets between Gen Z protesters and the police and army, the acrid smoke of tear gas filled the air. Cardboard placards with colourful messages berating the president, the finance bill, the IMF and the political elite told the story of all that can go wrong with debt reform. 

As with most African tragedies, we had seen this all before. The late Kenyan writer Binyavanga Wainaina, writing of the Nairobi of his youth in the early 1990s, recounted “streets upon streets of Kenyan shops and textile factories disembowelled by the death of faith in a common future”.

Over three decades later Wainaina could have been describing the Nairobi of the past few weeks when he observed that “the government, pressed by the IMF, is about to stop subsidising university education”.

While the specifics may differ, the finance bill represented a shift from subsidising particular forms of consumer and industrial activities. Gen Z Kenya’s lack of faith in their future due to these reforms was on display with many dead, injured or in jail.

It was a reminder amid the looting and chaos of the visceral (even fatal) outcomes of one of postcolonial Africa’s most contentious episodes of fiscal reform.

How did things get here? In February Kenya raised a $1.5bn bond in the capital markets to finance the buying back of a $2bn eurobond (initiated in 2014) that was set to mature in June. This was ostensibly to manage the risk of a potential sovereign default, with Kenya having planned to buy back other debt of almost a billion dollar more by year’s end.

However, the Kenyan parliamentary budget office suggested there was still “significant risk of debt distress” as Kenya’s debt profile remained “susceptible to fluctuations in exports, exchange rates, fiscal conditions and natural disasters”.

Enhance compliance

Despite default risks being avoided by the buying back of the 2014 eurobond before its maturation, the IMF noted on June 11 “a significant shortfall in tax revenue collection and deterioration in the primary fiscal balance”. The IMF statement suggested the solution to these risks was to “enhance tax compliance and improve the efficiency of expenditure”. It seems the finance bill was aimed to these ends.

The bill included a raft of taxes aimed at digital operations, a new motor vehicle tax, the removal of an affordable housing measure, and the removal of VAT exemptions on mobile money transfers, e-betting, remittances and bread.

In addition, increases in excise taxes on sugar for confectionery, cigarettes and mobile data, alongside the introduction of new taxes on vegetable oils at the stroke of a signature, raised the costs of many Kenyan households. On the trade front, the bill introduced levies on everything from vodka to steel billets, motorcycles and furniture.

It is these changes and so much more that raised the ire of Gen Zs such that they registered their disaffection by bringing Kenya to its knees.

Kenya’s exposure of the structural and conjunctural booby traps that confront multilateral debt reform holds lessons for similar processes unfolding elsewhere on the continent.   

It is a difficult moment precisely because it raises the prospect that debt reform from above will not be met by resigned disapproval on the part of those who must shoulder the costs. As Wainaina suggested in his memoirs, people become increasingly resolute as the fear of challenging the status quo dies.

“They start to want again,” Wainaina says, and “wanting too, brings its own risks.” Such risks will remain until African economies successfully contend with their reliance on a narrow subset of foreign exchange earners, such that commodity production presents a “boom-bust” set of possibilities that make their borrowing requirements rise and fall with the value of things we produce and export but the whose prices we do not set. 

• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.