A struggling economy. Soaring price of food and other living costs. The shilling dubbed the world’s second worst performing currency. This was Kenya in the early 2010s.
Critics placed the blame for the country’s economic woes squarely on the man in charge of monetary policy — Njuguna Ndung’u. In 2011, a Reuters survey voted him the least effective central bank governor in Africa, and a year later legislators tried to have him removed from office.
But then, things changed. The central bank hiked interest rates to a high of 18% to tame inflation that had skyrocketed to 20% at one point. Soon enough, prices and the value of the shilling stabilized. Four years after being ranked as the worst policymaker in Africa, he left office in 2015 voted the best central banker on the continent.
Now Ndung’u is again back at the apex of policymaking. In September, new President William Ruto plucked him out of his comfortable world of academia and thrust him back into governing — this time as Kenya’s new finance minister.
It must feel like déjà vu for Ndung’u, the man with a doctorate in economics from Sweden’s University of Gothenburg. He will need all the nous from his time as a central banker to deal with an economy that is struggling with familiar troubles — high inflation and a devalued currency, on top of a persistent drought, food crisis, and youth unemployment.
How he chooses to tackle these issues will shape development in East Africa’s largest economy.
Ruto won the presidency with a promise to lift up the “hustler nation” — a group of Kenyans left behind by an economy that he says works only for the few.
“Soccer requires intelligence, good vision and strategy. And all these qualities are applied in managing the economy.”
— Njuguna Ndung’u, Kenya’s new finance minister“The new regime is adamant on fixing the economy,” said Churchill Ogutu, an economist in Nairobi with the investment firm IC Group. “The task ahead is not light.”
Ogutu said the government identified critical sectors of the economy that need to be supported, such as investment in agriculture and providing small- and mid-size businesses with low-cost loans. These priorities are part of Ruto’s goal to tackle youth unemployment, which stood at nearly 14% in 2021.
The country, which in 2020 received about $4 billion in foreign aid, is a crucible of development in the region. Kenya is the headquarters of some of the largest aid organizations and multinational firms that operate in East Africa, including United Nations agencies and companies such as Alphabet’s Google.
Kenya has also contributed forces to the African Union Mission in Somalia to help the government fight al-Shabab militants. It is also host to some of the world’s largest refugee camps, populated largely by communities fleeing violence from neighboring South Sudan and Somalia.
Since leaving office, Ndung’u taught economics at the University of Nairobi and was the executive director at the African Economic Research Consortium.
Over the last two years, the man whom journalists have at times described as reticent has been vocal about how COVID-19 was a “wake-up call” for African countries, including Kenya. Now health is one of his top priorities.
“It is time to focus now on how this crisis can have positive ends,” he told the Institute for New Economic Thinking two years ago. “There is no need for more excuses, we don’t know where the next pandemic will come from. We need a universal healthcare system that is affordable for all.”
He also implored governments to entrench gains made to expand access to financial services to low-income communities. Ndung’u, who as central bank governor championed the advent of mobile money, was critical of taxes imposed on digital transactions by Kenya and several African countries.
Taxing mobile money transactions may have the opposite intended effect of raising revenues for governments. “[It could] create an incentive for cash transactions that escape taxation,” he wrote in 2019, and “reverse the economic gains from mobile banking, especially for low-income earners who rely heavily on these services.”
He said governments should build on the mobile money revolution, especially in areas such as agriculture. During COVID-19, electronic payments worked well to connect smallholder farmers with markets even during lockdowns, he said.
“It is my very strong conviction we need reforms and two issues come to mind — protect private investment, to secure decent jobs, and protect markets which will accelerate economic recovery,” he said.
Ndung’u has been bullish about the potential of technology as a catalyst for development in Africa.
He feels governments should invest in the type of education that will skill its people to take advantage of technologies, such as artificial intelligence, the Internet of Things, or IoT, and blockchain.
“The spread of digital technologies can empower the poor with access to information, job opportunities, and services that improve their standard of living,” he said in a paper he co-wrote a few years ago.
Theorizing about development is one thing, but executing on those ideas is another task altogether. Ndung’u is once again back with the opportunity to effect some of these policies.
It’s becoming clear, however, that there are daunting challenges ahead.
Ndung’u takes over the economic portfolio at a time when the country’s public debt hit 8.6 trillion shillings as of May 2022. Some analysts project that debt could hit about 70% of GDP by next year.
The level of borrowing led the International Monetary Fund to describe Kenya as “at high risk of debt distress.” The World Bank has also said that the country is at a “high risk of external debt distress.”
Ndung’u recently told lawmakers that tackling the debt issue will be top of his agenda so as to create room to invest in healthcare, education, economic inclusion, and other development priorities. The government may have to borrow cheaper loans to help pay off the expensive debt currently in government books, he said.
“The current thinking of the government and donors who are providing food relief is that we may need concessional borrowing to help us remove expensive loans,” Ndung’u said. “This will then get us fiscal space to finance development expenditure.”
Ndung’u has revealed that the government was negotiating with the World Bank for a loan that will be directed toward programs such as the country’s hunger safety net.
Ruto has tried to keep his campaign promises. His pledge to cut spending began with a controversial move to remove fuel subsidies. These moves helped the government reach an agreement with IMF that could unlock $433 million in funding.
This month, his office announced the creation of the Financial Inclusion Fund, dubbed the “Hustlers Fund,” that will extend loans to small businesses, a key election pledge.
But the new president has acknowledged that he may have to delay the delivery of some economic projects. He has said that the government may look to borrow from the markets as long as the rate doesn’t exceed 10%, a slight shift from the initial suggestion that the administration will look to secure concessional loans.
Soon enough Ndung’u will reveal his plans for the country’s supplementary budget. What he will announce then will provide a signal of what economic direction he wants to take Kenya.
Ogutu, the economist, commended the intention to cut down on expensive debt. But he was skeptical about whether they can fully fund projects promised during the campaign while also cutting spending.
“Tight balancing act he has,” Ogutu said of Ndung’u’s new job. “To meaningfully tackle debt, you need to curb runaway expenditure. Just coming off the elections, I think it's pretty premature they will do so in their first year.”
Ndung’u is a passionate soccer fan, a sport he played as a young man. The game offered him a framework to deal with the economy, he has said.
“My advantage was that I could dodge with the left or right leg and I would use both legs for scoring as well,” he told journalists a decade ago. “Soccer requires intelligence, good vision and strategy. And all these qualities are applied in managing the economy.”