Background Information on State Corporations Reforms

After Kenya’s independence in 1963, the establishment of the parastatals was driven by a national desire to:

• Accelerate economic social development;
• Redress regional economic imbalances;
• Increase Kenyan Citizen’s participation in the economy;
• Promote indigenous entrepreneurship;
• Promote foreign investments (through joint ventures).

This desire was expressed in the Sessional Paper No. 10 of 1965 on African Socialism and its application to planning in Kenya.
REVIEW OF THE PUBLIC ENTERPRISES PERFORMANCE
A comprehensive review of the Public Enterprises Performance was carried out in 1979 (the Report on the Review of Statutory Boards) and 1982 (the Report of the Working Party on Government Expenditures).
The Report on Review of Statutory Boards pointed out that:

• The growth in the parastatal sector had not been accompanied by development of efficient systems to ensure that the sector plays its role in an efficient manner;
• There was clear evidence of prolonged inefficiency, financial mismanagement, waste and malpractices in many parastatals;
• Government investments had largely been at the initiative of private promoters with government being brought in either as an indispensable partner or to undertake rescue measures;
• Many of the parastatals had moved away from their primary functions, especially the regulatory boards most of which had translated their regulatory role into executive one, resulting in waste and confusion;
• There was danger of over-politicizing production and distribution through establishment of too many parastatals.

The Report on the Working Party on Government Expenditures concluded that productivity of state corporations was quite low while at the same time they continued to absorb an excessive portion of the budget, becoming a principal cause of long-term fiscal problem. The report observed that:

• Nationalization had remained merely presentational through government ownership;
• State corporations’ operations had become inefficient and unprofitable, partly due to multiplicity of objectives;
• Existence of parastatals in commercial activities had stifled private sector initiatives; and
• Many of the joint ventures had failed, requiring the Government to shoulder major financial burden.

The Report on the Working Party on Government Expenditures concluded that some of the resources diverted to the government to finance the state corporations’ activities could have contributed more to national development if these state corporations were left in the private sector. The report recommended that:

• The Government should act as a creator of favourable  setting within which people can develop themselves and the economy
• The Government should divest from its investments in commercial and industrial enterprises to transfer active participation to more Kenyans through participation in shareholding
• The Government should reduce exposure to risk in areas in which the Private Sector can assume risk without government intervention
• The Government should dismantle some of the existing administrative hurdles which discourage private sector initiative and provide needless opportunities for corruption
• The Government should reorganize legal and institutional framework regarding monitoring and supervision of parastatals.

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