Kenya’s High Court decision derails Ruto’s privatisation plans

Kenya’s High Court has nullified the Privatisation Act 2023, marking a major setback for the government as it seeks to diversify its funding sources and unlock fresh financing from the International Monetary Fund (IMF).

Judge Chacha Mwita ruled that the legislation failed to undergo “meaningful” public participation during its development, contrary to the requirements of the constitution.

“The six memoranda received coupled with a few handpicked stakeholders could not effectively represent the views of the people as required by Article 10 and 118 of the Constitution,” the court stated.

Mwita also raised concerns over provisions in the law that allowed for the sale of state firms to proceed if lawmakers failed to approve the transactions within ninety days. This, he argued, bypasses the oversight role of parliament and weakens the legislature’s ability to hold the government accountable.

President William Ruto’s administration intended to offload a partial stake in the Kenya Pipeline Company and the National Oil Corporation of Kenya, which are fully-stated owned. It also planned to cut back shareholding in listed firms, including Stanbic Bank (Standard Bank Group’s Kenyan unit), the Nairobi Securities Exchange and East African Portland Cement, among others. Overall, 35 firms had been slated for privatisation under the nullified law.

Complicating matters with the IMF

Ruto’s ambitious privatisation push is part of a wider set of reforms that Kenya agreed to in its $3.6bn financing package with the IMF. Kenya secured a four-year loan agreement with the IMF in 2021 and, in May 2023, obtained additional funding to support climate change measures, bringing its total IMF loan access to $3.6bn.

In return, Kenya’s government pledged to implement a series of reforms aimed at diversifying its funding sources and reducing its heavy reliance on debt. Among these measures is the expedited privatisation of state-owned enterprises, many of which have been operating at a loss.

In its latest country report for Kenya, the IMF argues that “state corporations remain a strain on the budget.” The report found that 242 state entities incurred losses amounting to 0.7% of GDP in the fiscal year 2022/23, up markedly from 183 firms facing losses equivalent to 0.5% of GDP in the previous year. 

With treasury officials anxiously awaiting a long-delayed $600m IMF tranche, experts argue that the new setbacks in the privatisation process – coupled with the government’s failure to pass new tax measures amid deadly protests in June – pose significant obstacles to securing new funding from the lender. 

Blame game continues

With Ruto’s privatisation plans thrown into uncertainty, the ongoing debate over the IMF’s role in Kenya’s economic woes is expected to escalate. Critics attribute the country’s rising taxes, stringent austerity measures, and the attempted sale of valuable national assets to the IMF’s influence within the corridors of power.

“Historically, following the IMF’s advice without scrutiny has led to adverse effects on the citizenry and workers,” stated Francis Atwoli, secretary general of the Central Organisation of Trade Unions (Cotu), during a press briefing in August. His comments were in reaction to a meeting between IMF representative in Kenya, Selim Cakir, and Treasury cabinet secretary, John Mbadi, who assumed office in August after a cabinet reshuffle by President Ruto.

“We urge the new Treasury cabinet secretary to approach IMF conditionalities with caution and a thorough understanding of their potential impact on ordinary Kenyans,” Atwoli added.

But Mbadi has maintained that the IMF “does not invite itself” to a country. During his vetting in parliament, he told lawmakers that “the IMF will never invite themselves to a country. We do invite them and agree with them on a program.”

He argues that several shocks that Kenya experienced compelled the government to turn to the IMF to assist with shoring up its finances.