When I was growing up in Bavaria—Germany’s largest and proudest state—there were a lot of efforts to revive remote regions, especially those bordering the former East Germany and Czechoslovakia.
There were special incentives for industries to locate in these regions and important federal subsidies to their local governments. Other countries made much more radical attempts at reshaping their economic geography.
Indonesia forced people from “overpopulated” Java to resettle in remote parts of the country, including to the culturally distinct province of Papua. Brazil, Nigeria, and Tanzania relocated their capitals to “decongest” their mega-cities.
All of these experiments yielded the same result: complete failure! Germany’s remote regions never became centers of economic activity, while the big cities—especially in emerging economies—continued to mushroom and grow.
These lessons are important for Kenya as it embarks on a massive decentralization program—arguably the most radical in the world today.
Devolution will reshape the country’s institutional architecture, not just because of the transfer of functions and finance, but also because it involves the creation of a forty-seven brand-new counties which will bring together deconcentrated offices of many national ministries, local authorities, and district administrations.
Kenyans have sky-high expectations of what devolution will bring, but decentralization is not in-and-of itself a panacea for development. Almost everywhere, at different times in history, decentralization has been driven by political imperatives, not by economic arguments.
The challenge for Kenya’s policy makers in the next year and beyond will be to manage expectations carefully because the risk of disappointment will be huge. To do this they will need to be mindful of four paradoxes that will characterize the decentralization process in this early phase of transition:
Paradox 1. What is politically desirable is economically impossible. Ideally, wealth and incomes should be distributed evenly across Kenya’s 47 counties. This is economically impossible because firms and individuals tend to locate where there are already clusters of economic activity—which is mostly in the cities—so they can benefit from “economies of scale.” Investments by companies also tend to be lumpy—think of establishing a factory—and thus geographically concentrated. This is why in Kenya most economic activity is concentrated along the Northern corridor—from Mombasa to Nairobi and onward to Kisumu and Kakamega—where the majority of Kenyans live (see figure).
Figure: Kenya’s economy is concentrated along the “Northern Corridor” (click on it to see it larger)
Source: World Bank Kenya based on the methodology of the World Development Report 2009
Paradox 2. To make decentralization work, you need strong central systems. Some Kenyans want the central government to stay out of devolution and leave it to the counties to manage their own affairs. In fact, devolution requires sustained central coordination to be effective. Central systems serve two main purposes: to make sure weaker counties’ needs are being addressed through capacity building and that the spending and performance of county governments can be compared on a common basis thanks to accountability systems.
Paradox 3. If not managed well, decentralization may lead to greater inequality. Some counties will start at a relative disadvantage and it will take time to build up their capacity. They will be the least equipped in practice to make efficient and transparent use of their resources and retain the skilled staff that is essential to making services work.
Paradox 4.Despite decentralization, county governments won’t have a lot of additional resources to spend. Counties will receive transfers from the center but also inherit responsibility for delivering a wide array of existing services. The size of the transfers for each county will also be small. If the government would devolve 15 percent to sub-national governments, each of the 47 counties will only receive 0.3% of national revenues. Counties will have the latitude to shift funding to new uses but they will need to make cuts in other services that are currently provided.
In many countries, decentralization is associated with great hopes and disappointments. The disappointments resulted from a misunderstanding of what decentralization can realistically achieve in the short run.
One thing is clear. To address spatial imbalances in lagging regions while maintaining services where Kenya’s growth is generated, Kenya has to grow the cake while splitting it. This would make sure that each slice of the cake is bigger.