In Kenya, a test for the ‘middle-income effect’

A busy intersection in Nairobi's business district. The Vision 2030 agenda aims to propel the country to middle-income status by the year 2030 by taking steps to build the economy, change the political climate and create social reforms. Photo by: Tom Spender / CC BY-NC-SA

For decades, Kenya has claimed pride of place in the United Kingdom’s aid program, in no small part due to the long history between the two countries. In 2011, the U.K. Department for International Developmentnamed Kenya as one of 27 focus countries as part of its reform drive.

Shortly after returning from Kenya last year in her first visit to Africa as head of DfID, U.K. Secretary of State for International Development Justine Greening underscored the importance of the United Kingdom’s continued development engagement with the East African country.

“It is impossible not to wonder what the children I saw in Kenya might grow up to achieve, if only they had better opportunities,” Greening said.

DfID has aligned its Kenya program with the Kenyan government’s Vision 2030 agenda, which aims to transform the East African nation into a middle-income country by 2030 through a mix of economic, political and social reforms. According to the World Bank, Kenya’s rapidly growing economy could propel the East African country to middle-income status much sooner than the Kenyan government’s target — as early as 2016.

If those projections hold, Kenya would soon join the ranks of a dwindling number of middle-income countries that remain on the United Kingdom’s aid portfolio following its recent decision to end aid to both India and South Africa. In its June spending review, the Cameron administration revealed that it will continue to close aid programs in middle-income countries.

As Kenya approaches middle-income status, aid analysts are understandably doubtful that the East African country will cling to its privileged position in the British aid program for very long. Jonathan Glennie, a research associate at the Overseas Development Institute, contends it’s likely that the United Kingdom will gradually reduce aid to Kenya in the foreseeable future.

“DfID have sent a clear message, based on internal policy, that countries entering MIC status will be treated as beginning a process of aid exit,” Glennie asserted.

Glennie did emphasize that the United Kingdom’s deep-seated and historic ties to Kenya “will probably make it harder to cut aid for some time.”

DfID: No plans to cut Kenya program

For now at least, DfID is adamant that its Kenya program isn’t about to trod the same path as India or South Africa.

DfID Kenya head Lisa Phillips told Devex that the U.K. aid agency has no plans to wind down its assistance to the African country. Phillips also pledged that DfID would stay put in Kenya well beyond its current operational plan for the country, which ends in 2015.

“Planning for our program after this date will consider all factors but will remain focused on helping the poorest Kenyans and we are definitely here for the long haul,” Phillips said.

DfID’s 2011-15 operational plan for Kenya has set in motion a near doubling in British foreign aid to the East African country — from 69.3 million pounds ($108.4 million) in 2010-11 to 136 million pounds in 2014-15. Over that period, Kenya is slated to remain the second-largest bilateral donor to Kenya, after the United States. The largest share of DfID’s budget for Kenya continues to be spent on poverty, hunger and vulnerability programming.

Click on the image to view a larger version of the chart.

Interestingly, DfID’s current operational plan for Kenya does leave the door open to a piecemeal reduction in assistance after 2015.

“Aid could gradually be replaced by investment later in the decade, including from public finance such as the CDC Group,” the document notes.

Wholly owned by  DfID, the CDC Group is the U.K. government’s development finance institution. In recent years, the CDC Group has provided loan financing to private businesses in African and South Asian countries, including Kenya.

Following embezzlement scandal, U.K. budget support still on hold

Despite DfID’s assurances that it is committed to Kenya for the long term, Phillips also revealed to Devex that resuming budget support to the Kenyan government was not in the cards for the U.K. aid agency. In 2010, DfID terminated financial assistance to Kenya’s education ministry after allegations that donor money for the Kenya Education Sector Support Program had been embezzled. Since then, DfID has disbursed its assistance to Kenya entirely through nongovernmental channels.

Phillips confirmed to Devex that the Kenyan government has refunded more than 1.1 million pounds to DfID — representing the full amount embezzled from the U.K. aid agency. She made clear, however, that DfID is far from pleased with the Kenyan government’s response to the aid embezzlement scandal.

“This [refund] has taken an unnecessarily long time and we are deeply disturbed by the shocking scale of financial loss discovered in the Ministry of Education — much worse than we had previously thought,” Phillips said. “Those responsible must be held to account without delay, at all levels.”

Mwalimu Mati, CEO of the government watchdog Mars Group Kenya, said that while there have been some prosecutions, it appears that no high-ranking government officials have been convicted on the aid embezzlement charges as of yet.

Since taking office in April, Kenyan President Uhuru Kenyatta — who served as deputy prime minister in the previous government — has embarked on a public drive to weed out corrupt officials among the ranks of the civil service. Yet even as many in Kenya’s aid community say that it is far too early for DfID to resume budget support to Nairobi, some caution that the U.K. aid agency’s decision to bypass governmental channels may prove to be unsustainable in the long-run.

“I don’t think that the NGO sector in this country is developed enough … They can’t duplicate government spread,” Mati argued. “We don’t want to sort of avoid government and try to create parallel systems which ultimately will have a weaker effect than going through government.”

NGO partners not taking any chances

Nongovernmental organizations have long been the lynchpin of the U.K. aid program in the East African country, and even more so since the aid embezzlement scandal. Forty-five percent of DfID’s funding for Kenya is currently distributed to not-for-profit NGOs, compared with 25 percent for international organizations and 24 percent for emergency relief groups.

For the time being, most of DfID’s NGO partners in Kenya seem cautiously optimistic that funding from the agency isn’t about to dry up anytime soon. A number of these groups, however, aren’t taking their chances and have taken steps to diversify their sources of funding — some sooner than others.

For Financial Sector Deepening, a Kenyan trust focused on promoting financial inclusion, diversifying its donor base has been a work in progress over several years. Since FSD was established in 2005, DfID has continued to be its largest donor. But in 2009, it secured another lucrative funding stream when the Bill & Melinda Gates Foundation joined its roster of public and private donors, which also include the Kenyan government, the World Bank, and the Swedish International Development Cooperation Agency.

Backed by a diversified donor base, FSD is hopeful that it will be in a position to press ahead with its programming if and when DfID cuts off funding.

“They’re all very interested and keen to see us continue, I would think,” James Kashangaki, FSD head for inclusive growth, said of the organization’s donors.

Inuka is another of DfID Kenya’s NGO partners that has been successful in building a diversified donor base. While the Nairobi-based advocacy group considers DfID as one of its major funders, Inuka also counts on the support of other organizations including the U.S. Agency for International Development, the Japanese government and the Hanns Seidel Foundation.

According to Tom Mboya, deputy CEO of Inuka, the group’s efforts to widen its donor base haven’t been entirely driven by financial considerations.

“Inuka, as an organization has always believed that donor funds alone cannot and will not be the answer to the challenges we face as Kenyans,” Mboya asserted. “For that reason, since inception, Inuka has gone to great lengths to diversify our funding base so as not to be totally reliant on donor funding.”

While Inuka and FSD are keen to emphasize that DfID is far from their only source of funding, both organizations say that Kenya’s NGO sector — which remains dependent on external financing — continue to benefit from the U.K. aid agency’s partnership.

FSD’s Kashangaki, for one, welcomes DfID’s recent drive to hold both the agency and its implementing partners to higher standards of aid effectiveness and value-for-money.

“My advice to DfID would be to set the bar high for implementers, to make sure that they get value for money and ensure that we’re held accountable for delivering what we say we’re going to deliver,” Kashangaki told Devex.

Devex is going to Nairobi in October to host its first-ever career and partnerships forum in the developing world. Find out more about the Devex International Development Partnerships Forum and Career Fair in Nairobi, Kenya.

About the author

  • Piccio

    Lorenzo Piccio

    Lorenzo is a contributing analyst for Devex. Previously Devex's senior analyst for development finance in Manila, he is currently an MA candidate in international economics and international development at the Johns Hopkins School of Advanced International Studies in Washington. Lorenzo holds a bachelor's degree in government and social studies from Wesleyan University.