Lead image for How Financing Missteps, Not Ambition, Undid Kenya's Vision 2030.
If the successor to Vision 2030 is to be more than a fresh list of things to borrow for, it has to begin where the last one failed, with the discipline that turns borrowed shillings into productive ones. Writes Cuba Houghton, a Kenyan economist and public finance practitioner.
As Kenya begins to imagine what comes after 2030, the temptation will be to debate the next set of flagship projects: which road, which port, which city. That is the wrong argument. The failure of Vision 2030 was never a shortage of ambition or projects. It was that we decided what to build without ever really deciding how to pay for it, or how to know whether it was working.
Kenya’s development blueprint, Vision 2030, aimed to transform it into a newly industrializing, middle-income country through, among other avenues, investment in infrastructure development and key public services such as Health and Education. According to the plan ‘investment in national infrastructure will be given the highest priority’, making infrastructure a foundational pillar and arguably the prevailing definition of development itself since.
This focus on building implicitly created an infrastructure deficit, setting Kenya on a path requiring large-scale and expensive projects such as the Nairobi-Thika Superhighway and the Standard Gauge Railway (SGR) from Nairobi to Mombasa. Building this kind of physical infrastructure often means undertaking very large, expensive and long-term projects. The justification offered is that these projects are expected to boost incomes, create jobs and promote long-term economic growth.
If what comes after Vision 2030 makes the same mistakes, Kenya will simply borrow, build, and bust again, and it will once more be the social pillar that pays for the economic one.
Faced with a long list of such projects, Kenya resolved to borrow aggressively, both locally and externally, to finance development. This model is neither new nor unique, as several other countries had by that time pursued debt-led development. In the 2000s, Ethiopia, Ghana and Nigeria are examples that, like Kenya, looked to commercial Eurobonds and Chinese loans to finance large infrastructure sectors. Further East, China itself had by then become the reference case for a state-led, debt-financed investment model.
The economic argument for borrowing is that it unlocks finance in a short period, allowing nations to invest in multiple large projects today and spread the cost of repayment into the future. If these investments are productive enough (return>cost) governments should comfortably repay the resulting public debt through higher tax collections enabled by the new economic activity. Borrowing also gives governments quick access to finance to respond to emerging crises, like the COVID-19 pandemic or an extreme weather shock.