Simplifying revenue formula will make it fairer
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
26 July 2020
I see two problems
with the proposed revenue sharing formula proposed by the Commission on
Revenue Allocation (CRA). First, it is too complicated; secondly the gap
between the county that gets the lowest amount and the one that gets the
highest is too wide.
The first two revenue
sharing formulae had five factors. The proposed third formula has ten
parameters, namely, basic equal share, population, land area, poverty,
health, agriculture, urbanisation, roads, fiscal effort and fiscal
prudence. But still, Nairobi, which is on top gets almost six times the
amount going to Lamu, at the bottom of the list!
This revenue sharing
formula needs to be simplified in a way that also reduces the gap
between the highest and lowest allocation. This can be achieved by
cutting the number of parameters from ten to just four that carry equal
weight. These are: (1) basic equal share, (2) population, (3)
accessibility and (4) economic growth rate.
Since the parameters
carry equal weight, the amount to be allocated will be divided into four
equal parts and distributed to the counties depending on their score on
each of the four factors.
Working with the
proposed Sh321 billion for 2020/21 financial year, each parameter is
thus assigned Sh80.25B. The amount under equal share is divided by 47
and each county gets Sh1.7B.
Next, the Sh80.25B in
the population basket is divided by the national population
(47,564,296). This gives about Sh1,690 per person. Then, this figure is
multiplied by each county’s population in order to get the allocation
under this factor. Nairobi, with 4.4 million people (the highest), gets
Sh7.44B, while Lamu with 144,000 (the lowest) gets Sh243 million.
Accessibility is
related to the land area, but not directly. We get a hint from the fact
that distances are measured in kilometres while areas are in square
kilometres. So, we need to turn the square kilometres into kilometres by
taking the square root of the area.
The accessibility
factor computed in this way is higher for larger counties and lower for
the smaller ones, but the relationship is not linear. A county that is
four times the size of another does not get four times the money! It
gets twice as much.
Under this parameter,
the smallest county, Mombasa, get Sh280 million while the largest
(Turkana) gets Sh5 billion. Notice that even though Turkana is over 300
times the size of Mombasa, it gets about 18 times the money.
Finally, the economic
growth rate of the counties is considered. This captures all the other
seven factors and gives a good overall assessment. The most current data
from Kenya National Bureau of Statistics shows that, in 2017,
Tharaka-Nithi recorded the highest economic growth (27.4 per cent) while
Turkana had the lowest (6.2 per cent). From this, Thara-Nithi gets Sh3B
while Turkan gets Sh689 million.
When the allocations
under the four parameters are added up, it turns out that Nairobi still
comes on top with Sh10.6B while Nyamira with Sh4.2B is at the bottom.
The ratio of the
highest to the lowest allocation is now much smaller at 2.5 times
compared to the previous 6 times. Furthermore, even though Nyamira has
dropped from position 42 to 47, it loses less than 10 per cent of its
allocation compared to the CRA proposal.
Full details of these calculations, plus the allocations to all counties are available HERE
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