For several decades now, there has been talk in Kenya about “state capture”. Every anti-corruption activist has been talking about it and among politicians, it has become the mud they throw at each other.
“State Capture” in Kenya may be as old as the Republic but it only begun to manifest itself in 1991 through the infamous “Goldenberg scandal”. This was a scandal in which several ministries and agencies colluded to siphon money from the Treasury using a fraudulent scheme under which it was claimed Kenya was exporting Gold, a mineral it doesn’t mine commercially.
Later, the Judiciary and numerous judges and magistrates were looped in as “accessories after the fact” to assist in the clean-up and cover-up.
There are many definitions of what “state capture’ is and they all describe the manipulation of laws, rules and regulations and state institutions for the benefit of private commercial interests.
The dramatic vision most people have of state capture is a small permanent group of persons meeting in a form of masonic lodge where they discuss and devise schemes of how to exploit the country.
That may exist, and does most likely happen. But state capture is beyond such happenings.
State capture can be ad hoc, where the players are brought together by an opportunity that may not present itself again or soon.
State capture can be systemic, where the same opportunity will presents itself repeatedly but does so to a totally different set of players who then employ the same tactics as those before them.
And yes, state capture can be systematic, where it is organized by a permanent group of people but with succession plans that create an elite coterie that benefits in perpetuity.
Kenya has all these forms of state capture. And too many of our political elite are participants in either the ad hoc, systemic or systematic forms of state capture. And so irresistible are some of these networks that even Presidents can’t resist them, nor can they fight them.
On 21st July 2022, President William Ruto, then a presidential candidate, spoke to Emmanuel Igunza on BBC Africa on various elements of his manifesto. Regarding corruption, he told BBC Africa:
“We have put it in our manifesto that we will deal firmly and decisively with entrenched, chronic corruption that has taken over institutions and turned the whole country into state capture”.
The manifesto he was talking about captured this promise as follows:
“Ending State Capture : Establishing, within 30 days, a quasi-judicial public inquiry to establish the extent of cronyism and state capture in the nation and make recommendations.”
Since the Kenya Kwanza regime assumed power, state capture has only been murmured under the breath. Recently though, there is a more audible mention of it. Political analysts are suggesting that the intention is to divert attention from the state capture that is now evident in the Kenya Kwanza regime.
Just in case Kenya Kwanza actually establishes a state capture inquiry, the following are the areas that must be top of the list in the inquiry. They are the seven deadliest cartels operating in Kenya.
THE TREASURY
The Treasury is the deadliest cartel in Kenya. It is the nerve centre of all state capture in the country. It’s patron, from Jomo Kenyatta to William Ruto, is the President of the Republic of Kenya.
Treasury is the perfect example of systematic state capture. It was organized a long time ago by a group of young educated African technocrats who set up a succession plan that created an elite group of professional economists that supports and benefits top leaders of every regime in power.
Every President in Kenya comes to power swearing how they will reform the Treasury. They all, without exception, become lap dogs of the Treasury cartel. This is because over the years, Treasury has devised ways in which it can secretly divert billions of shillings from public coffers into the pockets of presidents and their cronies.
The following are the ways which Treasury uses to steal taxpayers money.
Sovereign guarantees
Sovereign guarantees have been used since independence to steal taxpayers money. Their use was only exposed by the Anglo-Leasing scandal in 2004. This method involves accepting a foreign contractor to do a project in Kenya, allowing that contractor to borrow money to finance the construction and guaranteeing the lender periodic payments from the taxpayers’ money.
However, the costs of these projects are highly exaggerated and more often, the projects are never done.
One of the earliest heists using sovereign guarantees was a project called KenRen. In 1975, the Kenya Government entered into a joint venture with an American manufacturer to build a fertilizer manufacturing plant in Kenya. The American investor then went to two European banks and borrowed money for the project. The government of Kenya guaranteed.
No factory was ever built. The American firm and its local accessories appropriated the money, around Kshs. 2.4 Billion. The Kenya government was sued by the banks and the taxpayers had to pay. The heist was only discovered 30 years later when the NARC government came to power.
In the Anglo-Leasing scandal, the government gave sovereign guarantees to international lenders to finance 17 security projects in Kenya. None of the projects was ever built and it also turned out that some of the companies that were financed were bogus. Kenya’s liability on these guarantees went up to 56 billion shillings, some of which have been claimed and paid by the Kenya taxpayer.
More recently, the method has been used in the proposed Arror and Kimwarer dam project where Kshs. 7.7 Billion is said to have been lost.
Direct foreign commercial borrowing
No one but Treasury ever knows how much Kenya has borrowed from foreign commercial lenders and which of these foreign loans are being paid every year. Indeed, the Kenya debt ledger is one of the most fluid documents and even parliament is never sure what the actual status of any foreign borrowing is.
Money from foreign loans given by private commercial lenders is easy to steal because the money is deposited in foreign accounts operated by Treasury. These accounts are not accessible to even the Auditor-General and the audit office has to rely on whatever disclosures the Treasury wants to make.
This method of theft was alleged by the opposition in respect to the Eurobond of $2 Billion which Kenya floated a decade ago. According to the allegations, after paying a pending loan and accruing commissions and fees, Treasury was left with slightly over $1 Billion which is said to have disappeared.
The Auditor –General asked Treasury to account for the money and Treasury said that it had credited the Central Bank of Kenya with a corresponding amount in Kenya shillings. The Auditor-General demanded to see the $1 Billion amount credited in the Kenya dollar account in Federal Reserve Bank of New York but the government told him he was stupid. Literally.
Although the Auditor-General was to later table a report to the National Assembly saying the amount had been accounted for, it is still believed that $1 Billion of the Eurobond money ended up in private hands. Mention is made of the sum being transferred to a bank in the Middle East.
The reason most Kenyans thought that the claims by the opposition were incredible is because it was inconceivable that such an amount can be stolen so blatantly from an international bank. That is why the government was saying that the Auditor-General was stupid.
But in 2015, the Prime Minister of Malaysia and his cronies stole $4.5 Billion of money obtained from a commercial bond floated by the country. The money was used to buy yachts, finance the shooting of movies in Hollywood and buy expensive goods and jewelry.
Here in Africa, around the same time, 2013-2014, officials of the government of Mozambique working with foreign lenders stole $3 Billion dollars loaned to a project on which the Mozambique government gave a guarantee.
The Kenyan Treasury borrows billions of shillings from international commercial lenders that the people never get to know. So secretive is Kenya’s debt dealings that it has even been alleged that Kenya is sending money to international accounts for loans that have already been fully paid and others that do not even exist.
Creative budget making
In order to cater for expenses that may arise and that had not been provided for by the National Assembly, the Constitution allows the Treasury to spend money and seek approval of the National Assembly later. The amount of money the Treasury can spend this way is up to 10 percent of the budget.
This power has always provided the avenue for Treasury and the political leadership to spend as they wish.
What Treasury does is to hide huge amounts of money in places where it will never be used. For instance, expenses are over-funded, projects proposed and provided for and non-priority agencies generously financed.
After the budget has passed, Treasury goes back and shaves off these over-provisions and allocates the money as per the wishes of the political leadership or the Treasury operatives. This creative budget making allows the misallocation of money without affecting essential expenditure later in the financial year.
That is why we say that in Kenya, corruption is budgeted.
In 2009, Treasury was caught red handed by a local advocacy organization called Mars Group when the lobby group exposed that the supplementary budget had been exaggerated by 9.6 Billion shillings. Treasury admitted but said it was the result of a “computer error”.
Two years later, the same lobby group exposed that there was a discrepancy between the amount of money collected as taxes and the amount Treasury was accounting for. Over a two year period, 2007/2008 and 2008/2009 financial years, a sum of Sh489 billion in tax revenue raised in 2007/2008 and another Sh215 billion in 2008/2009 could not be accounted for.
Till today, The Treasury remains the one institution that is immune to audit despite numerous calls over the years for a thorough audit of the Treasury.
INDEPENDENT POWER PRODUCERS
According to the Ministry of Energy and Petroleum, Kenya’s installed hydropower capacity is above 800 MW. The potential for small, mini and micro-hydro system is estimated at 3,000MW nationwide. Experts say only a quarter of this has been developed.
Initially, Kenya gave a lot of priority to hydroelectric power production and had started by constructing the seven folks dam project. The idea was to build seven dams across the river Tana, with the same water flowing from one to the other and generating electricity at each dam. This project, and other planned hydroelectricity power generation projects, were looked at as a source of cheap electricity for Kenyans.
In the mid-1990s, attention was turned away from hydroelectricity to commercial independent power producers who use diesel generators to provide power to the national grid. These private investments came about when Kenya woke up one day to be told that the water in the seven folks dams had all but run out and a shortage of electricity followed. Private investors were quickly contracted to set up diesel generators and cater for the shortfall.
Critics believed then, and many still do, that the water had been deliberately drained to create an energy crisis. Politically connected investors were granted licenses as Independent Power Producers (IPP) and since then, they have had a stranglehold on the electricity sector in Kenya.
Complaints have been raised about skewed contractual terms in the Power Purchase Agreements with the National Assembly calling on the government to renegotiate the terms but no action has ever been taken despite assurances that the terms would be reviewed. The IPP issue comes up in every Parliament but nothing ever happens.
In August this year, Business Registration Service Director General Kenneth Gathuma failed to reveal the names of the owners of Independent Power Producers (IPPs) to members of the National Assembly Departmental Committee on Energy. Gathuma named companies that owned shares in the IPPS, most of them being foreign companies, but failed to name the individuals involved.
IMPORTERS OF REFINED PETROLEUM PRODUCTS
The fuel sector has been a liberalized market that is run almost entirely by private fuel importers save for the National Oil Corporation which belongs to the government. Beginning the entry of the Ruto administration, a deadly cartel is developing in the sector and controlling the importation of fuel in the country.
In what has come to be termed as a G-G oil deal, three companies are exclusively importing the entire fuel requirements for Kenya at prices that are determined exclusively between the government and the oil suppliers.
Previously, the importers of fuel were determined by what was called the Open Tender System (OTS) where all licensed importers competed on who could obtain the best price internationally for the country’s fuel needs on behalf of all oil marketing companies.
All licensed oil importers have had a right to participate in the tender. The government plays only a facilitative role and had no role to play in the system. The winner of the tender would be allowed to exclusively import fuel for the next one month and sell it to the other oil marketing companies.
Under the G-G system, Kenya’s fuel needs can only be imported from three international oil suppliers who are granted what is termed as a “preferred right” to supply fuel to Kenya. The prices for the fuel are set by the three suppliers together with the government of Kenya.
Three local oil marketing companies have been nominated as the sole sellers of the imported oil, taking over the role that was played by the winner of the OTS. The fuel is sold to the other local companies are prices determined by the supplier and the government.
Finally, all imports are financed exclusively by one bank that is nominated by the government. The financing terms including the currency conversion rates are determined by the bank, called “the financing party”, together with the government.
The total and complete ouster of market forces by the government in collaboration with a handful of international oil suppliers and local oil marketing companies make the G-G fuel importation system one of the deadliest cartels in Kenya.
ALLOTMENT OF PUBLIC LAND
The system of allocation of public land is the oldest cartel in Kenya. It started in 1884 when a cartel of European governments came together at Berlin and shared Africa among them. The territory known as Kenya today was allocated to the United Kingdom.
Queen Victoria of England then started granting titles to land in Kenya. Commercial ventures like the Imperial British East African Company were given Royal Charters that allocated to them all the land they could exploit in the territory. Later, other members of the British aristocracy were allocated land to come and settle on and exploit. This Royal cartel continued operating through the reigns of King Edward VII who succeeded her and King George V who succeeded him.
In 1920, King George V decided to set up a colonial administration in Kenya. He delegated his sovereign right to grant titles in Kenya to a Governor who then allocated land in the country as per his wishes. Anyone who wanted a title to land in Kenya had to be in good terms with the Governor who had total discretion on how to allocate the land.
In her book Out of Africa, later turned into a seven Academy award winning Hollywood movie, Karen Blixen told of her tribulations trying to convince the Governor to allocate land to local African natives who had been settlers on her plantation.
When Kenya became independent, the cartel was inherited by the new African government with the President taking over the powers of the colonial Governor. Throughout the Kenyatta and Moi administrations, the President decided exclusively who was allocated public land in Kenya. The powers were in fact expanded so that the permission of the President was required for an allotee to even transfer these lands to commercial buyers.
Today many of these powers were curtailed by the new Constitution but the influence of the President over public land is still being exercised but very secretly. Early this month, a local newspaper reported that Energy and Petroleum Cabinet Secretary Davis Chirchir had directed Kenya Pipeline Company to lease part of its 300-acre land in Mombasa to a Nigerian firm that seeks to construct a 30,000 metric ton capacity Liquefied Petroleum Gas import terminal.
LAND GRABBING
An offshoot that developed from the cartel of allocation of public land was a land grabbing cartel. It is made up of officers from the Ministry of Lands, middle level politicians and political operatives, private surveyors, lawyers and estate agents. It works by identifying vulnerable parcels of land and using either fraud or sheer force to acquire the title to the land.
Vulnerable titles are usually unsurveyed public land, land with expired government leases and unutilized private land. The methods used to grab the lands are several.
Brute force– The cartels sell the unsurveyed public land or unutilized private land to members of the public and urges them to construct buildings on the land and settle. In other instances, goons are sent to invade private property and destroy everything on the land. The latter is the common practice when grabbing land whose government lease has expired.
Adverse possession– The law requires everyone who wishes to evict a trespasser to sue within 12 years or they would lose the right to do so. In such an eventuality, the trespasser acquires title to the land. Adverse possession is used to grab unutilized private land usually with the cooperation of local administration and manufactured evidence.
Duplicate titles– Ministry of Lands officials produce duplicate titles for unutilized private land, surveyors subdivide the land, estate agents sell the new parcels through lawyers who share the money around the conspirators.
Fraudulent titles are also produced by the forgery of government letters of allocation of unsurveyed public land. Retired officers of the Ministry sign the titles which are dated to correspond with the period of service of these officers.
While the Treasury is the deadliest cartel in terms of amounts of money involved, land grabbing is the deadliest cartel in terms of violence, property destruction and loss of human life.
IMPORTATION OF AGRICULTURAL GOODS
Although Kenya’s agricultural policies from independence talk of achieving food security, every action taken in the agricultural sector is aimed at ensuring that Kenya will always be a net importer of food.
According to Kenya’s 2nd National Development Plan (1970-1974), agriculture was the most important sector of the economy contributing then to 34% of the country’s G.D.P and one third (1/3) of wage employment. Three quarters (3/4) of the population was recorded as dependent on agriculture for their livelihood.
The significance of agriculture as the essence of socio-economic development in Kenya was re-stated in the 3rd National Development Plan (1974-1978), the 4th (1979-1983) the 5th (1984-1988), the 6th (1989-1993), the 7th (1994-1996), the 8th (1997-2001) and the 9th (2002-2008).
The Poverty Reduction Strategy Paper for the period of 2001-2004 identified low agricultural productivity as the number one (No.1) cause of poverty in Kenya. Among the main reasons why agriculture had declined, the strategy paper said, was because of many years of inappropriate legal and regulating framework and poor governance in key institutions supporting agriculture.
Kenya’s agriculture is deliberately mismanaged in order to protect the interests of the agriculture cartels. There is a wide disconnect between the policies laid out in the various agricultural strategy papers and what the government actually does.
The most recent strategy paper, Agricultural Sector Transformation and Growth Strategy (ASTGS) 2019-2029, is a masterpiece. But there is little similarity between what it suggests and what the government is doing.
Indeed, there is not a single government action over the last few decades that has moved Kenya any closer to food sufficiency. Whether it is maize, sugar, wheat or rice, there are established and impenetrable networks that import them into Kenya year after year.
PROCUREMENT OF PUBLIC GOODS AND SERVICES
Cartels in public procurement have come as a response to the promulgation of procurement laws. Before the NARC government came to power, there were no laws governing competition for public procurement. Government used its own circulars to direct the process of procurement. The procuring agency could give a tender to whoever they wanted.
The first law was the Public Procurement and Disposal Act of 2005. Later, the issue of procurement became a constitutional issue and the Constitution 2010 laid down the principles necessary to ensure fairness in these processes.
The result has been the formation of procurement cartels all over the public procurement agencies in an attempt to circumvent the strict constitutional and legal parameters. This cartel control of procurement has become so entrenched that suppliers have unwritten rules governing how to participate in public procurement.
For instance, if you haven’t spoken to anyone, don’t bother tendering. Tenders being expensive both in time and money, suppliers who participate in unsuccessful tenders end up out of pocket and out of spirit. Finally coming to the acceptance that tender processes are controlled by cartels, the rule of thumb among suppliers is not to bother tendering if there is no communication line to the cartels.
Secondly, suppliers know they need to understand the food chain. It’s not enough to talk with the cartel; one must understand who is at the top of the food chain. There are tenders in Kenya that a supplier will not get if the Cabinet Secretary has not approved the award. Both all the way up and all the way down, there are categories of tenders based on the amounts involved that are determined by different heads.
For instance, tenders of a value of around Kshs. 500 Million are the dominion of the Cabinet Secretary. Below that, from around Kshs. 100 Million to Kshs. 300 Million, is the dominion of the Principal Secretary. Above Kshs. 1 Billion, the cronies of the president take dominion.
Don’t hold your breath.
Clearly, state capture is deep rooted in Kenya and very expansive. It is very doubtful that Kenya Kwanza, which dared to promise a public inquiry of state capture, can deliver on this promise. I would not hold my breath.
