Most governments around the world would declare their adherence to the principles of fairness and equity. Organised jointly by the Office of the Prime Minister, the Ministry of State for Development of Northern Kenya and other Arid lands, and the Commission on Revenue Allocation (CRA), and facilitated by the United Nation’s Millennium Campaign, the Naivasha seminar, Financing for a Fairer, Prosperous Kenya, addressed an ongoing public debate prompted by the adoption of a new constitution in 2010.
While Kenya’s social indicators have been improving, national averages obscure deep sub-national fault-lines.
Intersecting with these wealth-based disparities are some of Africa’s starkest horizontal disparities. Poverty incidence in counties such as Marsabit, Wajir, Mandera and Turkana exceeds 80 percent – double the national average.
The 12 counties account for just over 20 percent of Kenya’s primary school age population, but almost half of the out-of-school population.
Gender gaps in education are among the widest in Kenya both in terms of access, progression through schools and test scores. Given the level of education disadvantage facing children in the ASAL counties, an equitable system of public spending might be expected to transfer more per pupil than to other counties. The new constitution marks a bold attempt to set Kenya on a course toward a more equal society. The Naivasha conference explored a range of international approaches to equity in public finance.
Attach more weight to equity: The 2010 constitution is unequivocal in demanding that public spending plays a greater role in mitigating disadvantage. Focus on the poverty gap: The current formula envisages equal transfers to each poor person, irrespective of their distance from the poverty line.
Look beyond devolved financing: Much of the debate in Kenya has focused on the devolved budgets, to the exclusion of the 85 percent of public spending that will remain under the control of central government. Develop a cost-based citizenship entitlement framework: The 2010 constitution enshrines a number of citizenship rights to basic services. The debate on public spending prompted by the new constitution provides Kenya with a real opportunity to accelerate human development. It is hard to overstate the importance of the fiscal framework for devolved financing in Kenya. If Kenya is to translate the bold new principles of the constitution into policies that expand opportunities for the country’s most disadvantage people and marginalized counties, political leaders will need to abandon the back seat and provide real leadership.
It shifts the locus of political authority away from what has been a highly centralized state toward 47 devolved counties.

Child mortality rates among the poorest 20 percent of households are twice as high as those among the richest 20 percent. In a report prepared at the request of the Ministry for Northern Kenya and presented at the Naivasha seminar, the Brookings Center for Universal Education looked at social indicators for 12 of the Arid and Semi-Arid Land (ASAL) counties. Just 5-6 percent of births reported in Wajir and Turkana are attended by skilled health workers, compared to a national average figure of over 30 percent. Prompted in part by the wave of violence that followed the 2008 election, its provisions reflect a broad public concern that the deep social fault lines running through Kenyan society are a source not just of social injustice, but of political instability and economic inefficiency. One particularly instructive case-study, presented by Pinaki Chakraborty of the National Institute for Public Finance and Policy in New Delhi, focused on India.
In South Africa, public financing has sought to narrow the extreme disparities associated with the legacy of apartheid, in part through a Provincial Equitable Share formula that allocates additional resources to devolved governments in regions with large populations facing disadvantages in health and education.
While income poverty is a partial indicator of disadvantage, it should carry a weighting of 30-50 percent in the devolved financing formula.
If these rights and entitlements are to be translated into real entitlements, government needs to establish the costs of provision and to allocate resources against these costs. Current levels of inequality are a source of social injustice, political instability and economic inefficiency, with disparities in opportunity acting as a drag on growth. It enshrines far-reaching provisions on social and economic rights, including a new bill of rights. The Gini co-efficient for wealth distribution is 0.44, which is higher than in neighboring countries like Ethiopia and Tanzania.
Young adults from the poorest quintile have five years less schooling than those from the wealthiest households. Those (very few) girls who make it through the education system to take the secondary school exam are half as likely as boys to achieve the grade required to secure state funding for higher education.
Figure I provides a snapshot of the share of each of Kenya’s counties in the total primary school age population, and the share of that population which is out of school.
Figure 2 measures the ratio of public spending received by each county against the county’s share of school-age children (equivalence is demarked by a ratio of 1). The CRA has been charged with translating constitutional principles in favor of greater equity into concrete policies for allocating government revenue. This country has a highly devolved system of public finance, with around one-third of federal government revenue allocated to states.
Fiscal devolution in Ethiopia is governed through a formula that measures fiscal capacity against the estimated costs of achieving specific policy targets, in some cases geared toward the Millennium Development Goals (MDGs).

While political authority is being devolved to the counties, revenue mobilization will remain highly centralized (a marked contrast to the situation in large federal countries like India and Brazil).
One of the weaknesses of the CRA’s approach to date has been in the undue weight attached to population and equal per capita transfers. As the recent history of Brazil has demonstrated, strategies that are good for equity and the development of more inclusive societies can also be good for growth. Economic growth has been skewed toward urban centers and a narrow band of commercial farming areas, with the World Bank estimating that 80 percent of economic activity is generated in just half of the new counties. The ASAL counties (green columns) receive less than they would if the budget were allocated as an equivalent transfer for each child – in some cases, much less. It is quite another successfully to navigate the political process through which public spending is allocated across counties, social groups and sectors. The allocation is governed by a horizontal distribution formula which takes into account the fiscal capacity of each state (their ability to raise revenue), population, land area and other factors. Providing an equal payment for people and counties in very unequal positions is not compatible with the constitution’s equitable sharing provisions. The Brookings paper explores a number of options and calls for an approach that would allocate spending through the following formula; 50 percent for children in school, 20 percent for children out of school, 20 percent on the basis of the county share in the national poverty gap, with residual transfers linked to gender equity and a special fund for the most disadvantaged ASAL counties. Thus, budget transfers to Turkana are less than half of the level that would take place on the basis of equivalent transfers per child. Broadly, the formula aims at narrowing fiscal inequality between richer and poor states, and at equalizing capacity to deliver basic services. And while there has been an extensive debate over how to weight different types of inequality, the data available is often dated, unreliable and contested.
For example, Turkana accounts for just over 2 percent of the school age population, but 9 percent of the out-of-school population.
The reason for the disparity: transfers are determined by the number of children in school, penalizing those counties with low school participation rates. They have steadfastly avoided engaging the public in a wider debate on the case for greater equity, preferring to delegate responsibility to the CRA without establishing clear guidelines. This is a stark illustration of the unequal life-chances facing children n many of the ASAL counties.

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