Six billion pothole 'fix' shows the urgent need to reform our public finance model

A week earlier, your columnist had been stuck for two hours on Eighth Street after a large lorry laden with sand sank into a pothole just outside the Total Energies depot. It happened again a few days later, this time on Seventh Street: big sand track; stuck in a pothole; near a large oil company depot, this time Shell/Vivo Energy.

The irony was hard to miss. Last November, Vivo was named as the country’s largest top tax contributor. Oil companies, Total inclusive, have been among the top taxpayers for more than three decades. The square mile cordoned off by Eighth, Fifth Street and Old Port bell Road also includes offices and warehouses belonging to MTN, National Water and Sewerage Corporation, Mandela Group, Roofings, and many other large taxpayers. Yet the roads around them are bad enough to swallow whole lorries. It’s hard to stomach!

Although intended to offer a respite to the problem, the presidential directive was a reminder of the dysfunctionality of our public finance management, in several ways.

First, as already noted, is poor prioritisation. Roads are economic force-multipliers, allowing goods and people to move quickly to create value. When people and goods can’t move because they are stuck in potholes, it is bad for business, and bad for the taxman. Building great roads in low-traffic areas upcountry is good politics but poor economics and unsustainable in the end if it is at the expense of roads in the country’s main commercial hub.

Of course better roads upcountry need not be the price for bad roads in the city. The related dysfunctionality here is allocative inefficiency. This has two parts to it, so kindly bear with me as we go through the sausage making. The first is that building stuff costs money, but not allocating money to maintain stuff wastes it.

Ordinarily, potholes do not appear overnight. They start as a small crack, then a small hole, before growing into a massive monster with a greedy appetite for car tyres. With sufficient money set aside and used assiduously to repair cracks in the road as they occur, we would spend less money overall and postpone having to redo entire roads.
We would also avoid the inconvenience and embarrassment of roads swallowing big lorries in our capital city.

So why don’t we put aside enough money for operation and maintenance? Well, that’s the second part of the problem. With a cost-to-build of close to a million dollars per kilometre, the six billion generously handed out by the President would scarcely cover the cost of redoing just one of the roads in the Industrial Area.

How, then, do we arrive at a situation whereby the whole capital city with many crumbling roads – the same capital city from which most of the tax revenue is extracted – is allocated just six billion shillings in emergency road repair funds? To put that in context, that figure is less than five percent of the amount of money allocated to the President for donations.

The related question is, why should it be the President, of all people, to direct and determine allocations for road repairs, something that in many functional countries is the domain of division mayors and their councils?

Thus we arrive at the crux of the matter. Our public finance model is largely democratic at the point of collection – everyone who isn’t able to wiggle their way out through an exemption should pay tax into the coffer – but managed by diktat at the point of expenditure.
There’s no clear formula to determine who gets what from the public coffer, and whether it is based on how much they put in, or how much their allocation will bring back. Instead, a large chunk of the public finance is wasted on consumptive political expenditure like handouts to musicians and all hues of charlatans, instead of putting it in productive economic ventures.

This pedestrian approach to public finance management erodes long-term economic value. It also corrodes the social contract between taxpayers and the rulers, leading to the kind of political unrest we are beginning to see. Like the sand trucks stuck in the potholes, it is better to avoid getting into these political puddles in the first place than try to climb out of them.