President William Ruto addresses parastatal chairpersons and Chief Executive Officers at State House, Nairobi.
Thousands of workers are staring at job losses as the government mulls merging or winding up at least 140 parastatals performing similar functions or draining public coffers by perennially being in the red.
Top of the list of the looming massive job cuts will be chief executive officers, board chairpersons and members, as well as excess staff in the targeted agencies.
On Tuesday, the Nation reliably established that 26 State corporations are financially dead and have been making losses in the last five financial years.
Although the list by the Treasury is yet to be made public, ministries under which the affected agencies are domiciled have been notified, according to insider sources within the presidency.
The radical approach to management of the corporations was announced yesterday by President William Ruto, who fired a warning shot to loss-making parastatals, saying the government will have no choice but to wind them up.
Currently, Kenya has 290 parastatals out of which 80 are commercial corporations, with a high number concentrated in the energy, ICT, financial and transport sectors, while 210 are non-commercial entities. Six others have not been operationalised.
Non-commercial State corporations include universities and vocational training colleges, water development agencies and national hospitals.
In the financial year ended June 30, 2024, the government pumped in Sh1.6 trillion to the State corporations, with minimal return on investment.
Speaking during a meeting with Chief Executive Officers (CEOs) and chairpersons of State corporations at State House, Nairobi, yesterday, Dr Ruto said some agencies have been making losses for years and have become a drain on the Exchequer.
Dr Ruto said the government will engage in an elaborate consolidation process that will stop duplicity of functions and wastage.
“Those institutions that are making losses and have no plans or intentions of doing anything, we will shut them down. We will get their employees to go and work somewhere else and at least stop making the losses,” said President Ruto, adding: “We must end excess capacity. I want some of them to volunteer so that Kenyans stop wasting their money.”
In November last year, the National Treasury set in motion the process of selling 11 government-controlled entities in a bid to raise billions of shillings and free up cash it sinks in supporting operations of some of them every year, only for the process to be temporarily stopped by the courts.
Six of the government entities that were put up for sale included National Oil Corporation of Kenya, Rivatex East Africa Limited, Numerical Machining Complex Limited, Kenya Vehicle Manufacturers Limited, Mwea Rice Mills and Western Kenya Rice Mills.
Five others, lined up for privatisation, either through an initial public offering or sale to a strategic investor, included Kenya Pipeline Company, Kenyatta International Convention Centre, Kenya Literature Bureau, New Kenya Cooperative Creameries Limited and Kenya Seed Company.
According to a source at the State House meeting, heads of the earmarked State corporations will from Monday next week appear before the Treasury to justify why their agencies should not be done away with.
The source said the Treasury will look at the viability of the parastatals by examining their audited books to make a decision whether to merge those playing similar roles or completely do away with those unable to generate money despite billions being pumped into their operations.
“Of the Sh3.7 trillion investments the government has pumped into the loss-making commercial state corporations, the return on investment has been a paltry Sh5 billion. This is not viable and there is no way the government will keep on pumping money into them and also paying their losses,” said the source.
A 2021 report by the National Treasury revealed that in the fiscal year ended June 2020, commercial enterprises accounted for 89 per cent of total liabilities in the State corporation sector.
The report fingered some 18 major State corporations for weak financial performance and high levels of indebtedness, arrears, and contingent liabilities, which stood at a staggering Sh382 billion.
“The financial risk analysis revealed that 11 of these State corporations are loss-making, and 11 reflect a high liquidity risk, implying that they are unable to service short-term obligations when they fall due. Subsequently, 14 of them have accumulated sizable arrears, totalling Sh211 billion or 2.2 per cent of GDP,” the report read in part.
The State corporations included Kenya Ports Authority, Kenya Pipeline Corporation, Kenya Airports Authority, Kenya Electricity Generation Company, Kenya Power and Lighting Company, Kenya Railways Corporation, Kenya Broadcasting Corporation, East African Portland Cement Company and Postal Corporation of Kenya.
Others were the Kenya Post Office Savings Bank, Kenyatta National Hospital, Kenya National Examinations Council, Athi Water Works Development Agency, Kenya Wildlife Service, Jomo Kenyatta University of Agriculture and Technology, Moi University, Kenyatta University, and the University of Nairobi.
According to a Quarterly Economic and Budgetary Review released last month by the National Treasury, the national government’s total outstanding pending bills amounted to Sh539.9 billion as of December 31, 2023.
The pending bills were mainly made up of Sh448.4 billion, translating to 83.1 per cent of debts by the State Corporations.
The President yesterday said the country must begin living within its means and stop the habit of running huge budget deficits.
“The reason why we have Sh9.5 trillion debt is because every year, we make a budget but we spend beyond the resources we collect. We are digging a bigger hole of at least Sh800 billion every year and now we are at Sh11.3 trillion and if we don’t stop, you know what will happen. I have told Njuguna Ndung’u that in three years’ time, we must run a balanced budget,” said Dr Ruto.
The Jubilee government has been criticised for failing to implement recommendations of the taskforce on the review of parastatals.
The reforms programme, the Mwongozo Code of Governance for State Corporations, had recommended a massive reduction in parastatals that would see the number drop to less than 200, saving Kenyans billions of shillings in wastage.
The 10-member taskforce co-chaired by lawyer Abdikadir Mohammed called for the reduction of the parastatals from 262 to 187.
The Agriculture ministry, the most bloated in number of parastatals, was to be the most affected. Here, 42 were to be dissolved, 28 merged and the roles of 22 others transferred to other institutions.
Some of the parastatals have had their functions devolved and the taskforce recommended that they be done away with.
The government has only managed to merge parastatals in agriculture, by establishing the Agriculture and Food Authority (AFA).
The agencies that were collapsed under AFA and are now directorates include Kenya Sugar Board, Coffee Board of Kenya, Tea Board of Kenya, Coconut Development Authority, Cotton Development Authority, Sisal Board of Kenya, Pyrethrum Board of Kenya and Horticultural Crops Development Authority.
At the same time, the President sounded a warning to corporations making profits to stop wasteful expenditure, including financing largesse in their parent ministries and unnecessary procurement.
Consequently, he directed all parastatal chief executives to reduce their recurrent budgets by 30 per cent.
Additionally, commercial corporations must, from now, he said, remit 80 per cent of their profits after tax to the National Treasury.
On the other hand, regulatory institutions were ordered to remit 90 per cent of their surplus funds to the Treasury.
“We will give you directions on what to do with the remaining 20 per cent,” the President said. “There will be no exceptions. Everybody must comply.”
The President reminded the parastatals that the money they make does not belong to their boards or management, but to the people as return on investment.
Dr Ruto said it is time the government, including the agencies, live within their means by making sure their expenditure do not exceed revenues collected.
The President regretted that the abuse of public resources has become so rampant that it is inhibiting service delivery.
He directed that, from now on, government budgets and expenditures be subjected to rigorous scrutiny.
In 2022, five State corporations were marked for major restructuring to shed excess workforce and curb wastage of resources.
This is after an audit by the Public Service Commission revealed that the Kenya Medical Supplies Authority, AFA, Utalii College, Egerton University and Rongo University top the list of institutions with excess staffing.
The five institutions had a combined excess workforce of 1,726, with Kemsa having the highest at 536 employees, Utalii College (393), AFA (327), Egerton University (210) and Rongo University (137).
This new development comes at a time when the current administration is staring at missing its tax collection target by Sh300 billion.
“We are in a hole and they say that when you find yourself in a hole, you must stop digging. We must cut on expenditure and borrowing. Let us not tell a lie. We must begin to live within our means. There will be nothing popular when we fall off the cliff,” said the President.
“I didn’t become president to fill up the position or earn a salary, that is not why I am the President. We must change our country,” he added.
