Fiscal Decentralization in Kenya and South Africa: a Comparative Analysis'

Abstract

Kenya and South Africa have adopted fiscal decentralization models in their Constitutions. Though Kenya’s system is at its nascent stages and its implementation is slowly progressing, South Africa has, to a great extent, successfully implemented its system since 1996. South Africa leads the African continent in fiscal decentralization, and is therefore of significant comparative value while analyzing the opportunities and limitations of the Kenyan system. The comparative analysis is based on the pillars of effective fiscal decentralization. Although both systems adhere to the pillars, South Africa has three spheres of devolution whereas Kenya has two. This article establishes that the Kenyan decentralisation system is weaker in a few respects. First, it devolves minor functions to the County Governments, leaving the bulk of the health and education expenditures under the control of the National Government (NG). Second, it devolves taxation powers to County Governments for taxes which, under the previous local authorities system, have historically been low yield and hard to collect. Third, it insists on National Government guarantees, which may be an incentive for irresponsible borrowing by County Governments. However, the Kenyan system is stronger in two respects. First, it creates an equalization fund, with decisions on amounts being made by Parliament in consultation with the Commission on Revenue Allocation (CRA). This insulates the system from skewed allocations meant to benefit certain areas over others. Second, the Kenyan system has more implementation supervision institutions, including the CRA, the Constitutional Implementation Commission (CIC) and the Transition Authority (TA). The only such body in South Africa is the Financial and Fiscal Commission (FFC), playing a supervisory role in devolution of fiscal matters.