Henry K. Rotich: A man of complex numbers

When Henry Rotich was appointed Finance minister in April 2013, he was only 44 years old. It was a prestigious position for a man with a quiet, almost timid, disposition. And although he had by-passed several of his seniors at Treasury, he was not like other Cabinet secretaries who hungered for media attention. No, he did not clamour for that hubris.

But he was soon to find out, like some of his predecessors, that the high seat at Treasury building could be a cold and lonely place. And that any mistake could land him in trouble – in his case, trouble so deep that in just a few years his triumph would turn to ashes, leaving him with the dubious distinction of being the first sitting Kenyan Cabinet minister to be arrested for corruption.

Navigating Kenya’s Treasury was not difficult for Rotich; after all he was an insider, having worked at the Macroeconomics Department. Also, he had the veteran economist Kamau Thugge by his side as Principal Secretary.

The election of Uhuru Kenyatta as president and his promise of a digital government, huge infrastructure projects, and the fight against corruption would mean that Treasury would have to craft measures to finance the Jubilee dreams. This job fell on the young Rotich’s soldiers. The public expected a new dawn; a fresh start from a man who could wrestle with the corruption ghosts of yesteryear.

Rotich had caught the eye of Uhuru Kenyatta when he was Finance minister in the Kibaki administration. Before joining the Treasury, Rotich had worked at the Research Department of the Central Bank of Kenya (CBK) since 1994. Between 2001 and 2004, Rotich was attached to the local office of the International Monetary Fund (IMF) in Nairobi, where he worked as an economist. During his career, Treasury had seconded him to several boards of state corporations, including the Insurance Regulatory Board, the Industrial Development Bank, the Communications Authority of Kenya, and the Kenya National Bureau of Statistics.

In June 2014, after just a year in office, Rotich flew to the US, accompanied by Thugge, to drum up support for a sovereign Eurobond to raise money for infrastructure projects. The roadshow took him to the West Coast, covering San Francisco and Los Angeles, then the East Coast to cover Boston and New York – one of the globe’s key financial centres. The delegation then flew to London, Berlin, and the Middle East.

The roadshows did not disappoint. Rotich reported that there was “serious interest” in the Kenyan bond and soon announced that Ksh280 billion had been raised, borrowed in five and 10-year tranches.

The success of the Eurobond appeared to mirror the academic record of the Harvard-trained economist who had never struggled to post good grades in school. Rotich seemed to have cemented his place at Treasury and his flag was flying high in the Cabinet, just like his days at Fluorspar Primary School in Keiyo South, where he was always top of his class. He had just become an important cog in Jubilee’s fundraising efforts – perhaps the most reliable person in Kenyatta’s administration. In one fell swoop, he had restored Kenya to its rightful place from which it had been dislodged during the preceding regime when international financial managers had removed it from a list of countries that would crash without budget support.

But trouble soon came knocking on his door as questions were raised about the accounting of the Eurobond. Rotich would be thrust to the centre of attention when opposition leader Raila Odinga alleged that the Eurobond money could not be traced to any project or expenditure.

“There is no money missing,” Rotich insisted in his defence of the Treasury. “This one was clearly misinterpretation of our fiscal accounts.”

He dismissed the claims as “absolutely false and misleading”, as Deputy President William Ruto came to his rescue, arguing that not a single cent had been lost. “That someone is alleging that over Sh200 billion sovereign Eurobond money was stolen is nonsense…I think this is the biggest lie ever told to Kenyans since independence.” Rotich would appear in a lengthy question-and-answer session with journalists, detailing the movement of the cash between US banks JP Morgan Chase and Citibank.

But the matter was just not going away, instead threatening to complicate his tenure at the Treasury. Auditor General Edward Ouko added to the fire, saying some Ksh196.9 billion from the Federal Reserve Bank of New York had been received at the CBK in three tranches. The report indicated that the balance of Sh53 billion had never arrived in the country, instead being utilised to repay a syndicated loan. Treasury could not pinpoint the beneficiary projects, insisting that the proceeds came into one pot at the National Exchequer accounts at the Central Bank and thus could not be identifiable as being earmarked for any particular infrastructure project. Ouko insisted that the funds should be traceable.

Despite the controversy, Rotich’s appetite for borrowing had been whetted and he was to go back for another Eurobond in 2018, netting $2 billion in 10 and 30-year tranches, and another Ksh210 billion bond in 2019, raising in excess of $6.8 billion in three sovereign Eurobonds in five years. He never satisfactorily answered the questions that were raised about the loans. Bad press dogged the soft-spoken CS who always used a measured tone. He could not shake the persistent focus on Treasury as mega-projects got embroiled in controversy. With so many balls in the air, it was inevitable that it was only a matter of time before some dropped.

On July 28, 2016 the National Assembly passed the Banking (Amendment) Bill, 2015, to regulate interest rates applicable to bank loans and deposits. This was to fulfil a Jubilee campaign pledge to cap interest rates in a bid to make credit affordable for budding traders. The new law capped lending rates at four percentage points above the Central Bank rate (CBR), which at the time was set at 10.5 per cent. That meant that commercial banks would not be allowed to lend at rates above 14.5 per cent.

While the Kenya Bankers Association (KBA) welcomed the President’s decision to sign the Bill into law, it indicated it was not convinced that “an arbitrary rate cap is in the best interests of the majority of people and the businesses that this law seeks to support.”

The President had pointed out that Kenya had “one of the highest returns-on-equity for banks in the African continent” and that it was time to reduce the cost of credit. Bankers, on the other hand, were convinced that the new law would present many difficulties to the banking industry and warned that credit might be unavailable – and that there was danger of the emergence of “unregulated informal and exploitative lending mechanisms”.

In November 2019, much to the relief of the bankers, the interest rate cap was finally removed at the behest of the IMF as one of its conditions to renew the $1.5 billion credit facility programme which had expired in 2018.

Defending the decision, President Kenyatta said that while the intentions were good, in practice the cap had actually reduced credit to the private sector, damaged growth, and weakened the effectiveness of monetary policy. According to analysts, SMEs had been denied loans worth about Ksh300 billion, about 1 per cent of the GDP. Also, the credit extension to SMEs as a percentage of total bank loans fell to 15 per cent in 2019, from about 25 per cent before the cap was instituted. This was another of the occasions when Rotich had to eat humble pie.

Another of the Jubilee administration’s campaign promises was to buy each primary school pupil a laptop. Rotich dutifully allocated Ksh53.2 billion in the budget for the supply of 1.35 million laptops to Class One pupils, the development of digital content, the rolling out of computer laboratories for Class 4 to 8, and the building of the capacity of teachers in all schools. It was estimated that the figure would translate to Ksh17.4 billion each year, starting from the financial year 2013/14.

The laptop project never really took off, getting mired in corruption, with the Auditor General questioning how some of the money was used. Some of the tablets that were bought had factory defects and could not be used. Rotich must have felt the frustration of an economist as line ministries failed the integrity test.

His next test was managing Kenya’s rapidly ballooning debt while at the same time also financing the government’s mega-infrastructure projects. By the time he left office in January 2020, the public debt had shot up from Ksh1.7 trillion to Ksh5.1 trillion, an increase of Sh3.4 trillion. Economists said this was the “fastest accumulation of debt in Kenya’s history”.

In his last budget speech for 2019/20, Rotich urged Kenyans to be “prudent and efficient” in managing resources and called for the mobilisation of domestic resources to fund priority projects and programmes. “We need to reduce our fiscal deficit in order to stabilise and reduce our debt,” he said.

But it was not all gloom for the CS. Rotich was happy that Kenya’s economy had grown from 5.8 per cent in 2013 to 6.3 per cent by 2018 . He was excited to tell Parliament that the economy was still “resilient, in the midst of significant global and domestic headwinds”. While this was highest growth for the past eight years and was well above the sub-Saharan African regional average growth of 3 per cent, Rotich wanted to cut the government’s spending budget by Ksh55.1 billion.

The country was still recovering from drought and the IMF was worried about the growing debt. Economic growth had slowed down in 2017 to 4.9 per cent from a revised 5.9 per cent in 2016 due to a severe drought in the first quarter of 2017 followed by poor rainfall. Another positive was that Kenya had moved from being the 12th largest economy in Africa, to the sixth, tripling its wealth from a GDP of Ksh4.5 trillion in 2013, to close to Ksh13 trillion.
Getting funds to finance President Kenyatta’s infrastructure dreams was one of Rotich’s agenda at the Treasury. Several projects had sprung up across the country – roads, electricity connections, dams, and ports. The budget had doubled from Sh800 billion in 2012/2013 to Ksh1.662 trillion. Perhaps looking back, Rotich can take consolation in the fact that he was in charge when the road network grew six times and power generation 40 times as more homes were connected to electricity.

In 2014, Kenya rebased her economy and became one of Africa’s top 10 economies. The Kenya National Bureau of Statistics figures indicated that the GDP had grown by an estimated 25 per cent after the base calculation year was changed from 2001 to 2009. Rotich observed that the this would help to “raise the profile of the economy to investors” as Kenya moved up to slot nine from the previous 12th.

Rotich told Parliament’s Finance, Trade and Planning Committee that the government has been assured of loans totalling more than $10 billion over the next four years and that increasing the debt ceiling would ensure the loans were within the law. The CS said the World Bank has committed to making $4 billion available to Kenya over the next four years. The African Development Bank was offering $2 billion and the European Union $4 billion to fund the construction of a crude oil pipeline from Turkana to Lamu and a power transmission line from the coal power plant in Lamu to Kitui. Other projects were the Galana Kulalu and other irrigation schemes, the development of a geothermal power plant, and a power line through Kenya from Ethiopia to Tanzania.

Rotich was the first Finance minister to deal with devolved governments – which had to be financed from Treasury. This required a fine a balancing act as he came under sustained criticism from the county governments, which felt that he was withholding money from them. Treasury was being accused of lecturing county governments on how to use their own money:

“Treasury must stick to the law. Officials there should stop undermining devolution by unnecessarily delaying the transfer of funds to counties,” said Senate Finance Committee Chairman Billow Kerrow when transfer of funds had been delayed. The CS was worried that county governments were fast accumulating debts by failing to pay suppliers.
But it was the dam projects that would finally sink Rotich. It was alleged that the Ksh63 billion Arror and Kimwarer dam projects had seen the country lose billions of shillings in unexplained payments although they had not yet started. The scandal would land Rotich in court, charged with abuse of office and conspiracy to defraud the government of Ksh27 billion.

Other charges included engaging in a project without planning, failing to comply with guidelines and procedures relating to procurement, and financial misconduct.

For a man who had walked into Treasury with clean hands, Rotich’s fall from grace to grass must have bewildered him. The heavy burden of the office, the complexities of a large government, and his relatively youthful age had seen him drop some balls.

He can console himself that he had watched Kenya’s budget grow – and that several mega projects of that time have his signature.

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