Picture: Fred Mutune/Xinhua – Protesters blockade a road in Kenya's Nairobi on July 12. Kenya’s Finance Act 2023, which has provoked country-wide protests by aggravating the cost-of-living crisis through taxes on basic commodities and incomes, is welcomed by the US because it will “give Americans safety on investing in the country”
By Pavan Kulkarni
Up to 23 people have reportedly died in the crackdown by the police on the recent protests in Kenya against the new tax regime introduced in the Finance Act 2023, with backing of the US and IMF.
The UN human rights office (OHCHR) said in a statement on Friday, July 14, that it is “very concerned by the widespread violence, and allegations of unnecessary or disproportionate use of force, including the use of firearms, by police during protests in Kenya”.
Protests are set to continue, with the third round scheduled on July 19. Protesters complain that the taxes envisioned in this act, which the government is collecting despite the implementation of the Act itself being suspended by the High court, is aggravating the already spiralling cost of living crisis.
One of the most unpopular measures has been the doubling of the Value Added Tax (VAT) on fuel products.
Nevertheless, it will “give Americans safety on investing in the country”, US Ambassador to Kenya Meg Whitman explained in a speech from her residence welcoming the Act.
Even before tabling this controversial Act as a Bill in the parliament, President Ruto had outlined the tax reforms envisioned in it at the American Chamber of Commerce (AmCham) Business Summit, hosted in Nairobi in March.
Two days after Ruto signed the Finance Act 2023 into law on June 26, Whitman said in an enthusiastic statement: “There’s something happening here. It is abundantly clear to me, and I hope by now it’s clear to you too – Kenya is open for business.”
Even after the High Court temporarily suspended the implementation of the Act on June 30, before extending the suspension indefinitely on July 10, Whitman persisted in her praises. “One of the most important elements of the Finance Act ... is the changes ... made to the investment climate,” she explained on July 3.
She lauded, as an example, the “elimination of the one-third domestic equity rule which kept companies like Amazon Web Services (AWS) from coming into Kenya.” She also praised the “removal of export services tax” that was applicable on outsourced businesses and call centres providing labour in Kenya to service foreign markets.
The latter makes it more economical for US capital to use the labour of “the Kenyan people”, whom she had described as the country’s “biggest asset”, in her letter to US President Joe Biden’s Advisory Council on Doing Business in Africa ahead of the AmCham’s summit. “They are educated, English-speaking, hardworking, cost-effective, and exhibit a very low turnover rate,” she elaborated.
It is these Kenyan people who are being fleeced by the Finance Act, which, while making several concessions to foreign capital as Whitman elucidated, tolls the masses by taxing the staple maize and sugar, and doubling the VAT on fuel.
While thus imposing a further upward pressure on prices of basic commodities, the Act is also eating into incomes by imposing a housing levy to build ostensibly “affordable houses” that are going to be sold at prices the majority of Kenyans cannot afford.
Justifying taxes with rhetoric against debt, while dragging Kenya deeper into debt
While Ruto claims these measures are necessary to reduce the country’s reliance on external debt, it was his own government that borrowed another $447.39 million in debt from the IMF in December 2022, only three months into power. On approving that loan, the IMF went on to praise the Kenyan government’s “commitment to fiscal consolidation”, “prudent macroeconomic policies and resolute implementation of structural reforms”.
In February 2023, IMF resident representative for Kenya, Tobias Rasmussen, said that the “IMF has welcomed the new administration’s firm stance on reducing debt risks, backed by strong actions to preserve fiscal discipline in a difficult environment.”
“It is the conditions imposed on the IMF loans that have informed the tax reforms in the Finance Act 2023,” said Booker Ngesa Omole, national vice-chairperson and national organising secretary of the Communist Party of Kenya (CPK).
“While claiming to want to reduce Kenya’s indebtedness, the government is already in negotiations with the Paris Club, the IMF and the World Bank to secure even more loans. There is also discussion in the parliament about unveiling another Eurobond,” he told Peoples Dispatch.
For all the rhetoric against dependence on external finance, “look at his recent appointment (of Kamau Thugge) as the governor of the central bank”.
“He was talking about appointing someone who is acceptable internationally. What does this international acceptability mean? He was essentially saying that the governor of our central bank must be approved by the World Bank and IMF,” Omole remarked.
Ruto has blamed the previous administration of President Uhuru Kenyatta for starting this spiral into debt. The IMF had approved a 38-months-long extended credit and fund facility of $2.34 billion in April 2021 during Kenyatta’s presidency. However, Ruto, who now blames Kenyatta, was himself the elected deputy president under Kenyatta’s administration.
Though Ruto eventually fell out with Kenyatta, who went on to back the main opponent Raila Odinga’s presidential candidacy against Ruto in the election last year, Ruto “cannot deny the responsibility for the failed finance policies of the previous government”.
“He was very much a part of it and in a top position,” Omole says.
On assuming the presidency, Ruto has sought increased credit from the IMF. Following the staff level agreement with the IMF in May, pending approval by its executive board this month, the total credit committed by the IMF to Kenya will rise further to $3.52 billion.
By the time Ruto took office, Kenya’s external debt was $24.4 billion. While Western media and think-tanks continue peddling the narrative of ‘Chinese Debt Trap’, more than 69 percent of Kenya’s external debt as of last October was held in US dollars. Another 18.8 percent was denominated in Euros, and only 5.3 percent in Yuan.
Ruto — whom Ambassador Whitman praises as a president who is “easy to work with” in her letter to Biden’s Advisory Council ahead of the business summit — will only drive Kenya’s economy deeper into debt, and into the clutches of Western Capital, Omole has warned.
Pavan Kulkarni is a journalist and an author at Peoples Dispatch
This article was first published on Peoples Dispatch