Constitution and Constitutionalism

 An appraisal of the Equalization Fund

By Abdiqani Ismail and Mohamed Billow

Kenya’s history of regional marginalisation and extremely unbalanced growth is widely documented. The Kenyan government’s direct and indirect systematic policies influenced the discrimination of particular regions. 

According to the Kenya Integrated Household Budget survey report on the health of the Kenyan economy, the share of the population living below the absolute poverty line was lowest in Central Kenya, followed by Rift Valley, Nyanza, Eastern, Western, and Coast regions. Due to distance and inaccessibility, residents in marginalised communities are often disconnected from the national development axis. 

To rectify this history of discrimination, regional inequities, and economic imbalance, the Constitution of Kenya sought to implement positive steps to achieve regional equilibrium in the near future. Article 27(6) of the Kenyan Constitution aims to address this issue by instituting provisions to rectify the past injustices committed against the neglected areas. The Constitution created the equalisation fund in light of these existing conditions.

The equalisation fund was established to help marginalised areas catch up with the rest of the nation regarding access to basic requirements. According to the report of the departmental committee on finance and national planning on the consideration of the equalisation fund Bill, 2019 ‘the vision the framers of the constitution had for the equalisation fund is yet to be achieved, that the fund is choked by bureaucratic red-tape that exists with the regards to the administration of the fund currently run in the National Treasury and that the fund has failed to achieve the significant impact in the marginalised area as was intended. 

Determining why, a decade after the proclamation of the Constitution, the operationalisation of a fund meant to aid the most vulnerable populations remains in limbo is so essential. And, most significantly, given that the fund has a time-bound timetable for being active, will it fulfil its stated goals of redressing the historical imbalance in regional development?

The Legal Framework

Article 204 of the 2010 Constitution of Kenya establishes the equalisation fund to address the development and economic marginalisation of disadvantaged communities.  The Article stipulates the establishment of a fund from which one-half of one percent (0.5%) of the national government’s annual revenues, as determined by the most recent audited financial statements, shall be used to develop and improve essential services such as water, roads, health facilities, and electricity in marginalised counties. 

Article 216 (4) of the Constitution requires the Commission on Revenue Allocation to formulate, publish, and periodically evaluate a policy establishing criteria for identifying marginalised regions to implement Article 204. (2). 

The Public Finance Management Act assigns the National Treasury the responsibility of administering the Equalization Fund. The National Treasury will maintain the Equalisation Fund in a separate account at the Central Bank of Kenya. 

In addition to explicit instructions from the National Treasury, the Act permits withdrawals from the equalisation fund with the consent of the Controller of Budget. If a portion of the funds remains unused or there is a balance after the fiscal year, the Act requires that the leftover amount be preserved to further the reasons for which the equalisation fund was created. 

The Equalization Fund Administration Regulations 2021 were enacted to offer administrative and management guidelines for the equalisation fund. The regulations stipulate management by establishing a board of advisors and processes for formulating and submitting work plans. In addition, the regulations include instructions for withdrawals from the funds and processes for winding down the fund. 

The Equalization Fund Bill 2019 is now awaiting passage in the National Assembly. The law aims to operationalise the fund by resolving some of its ancillary difficulties. By delegating control of the bill to the sub-county level, the regulation intends to improve management and decrease bureaucracy in fund administration. Bringing the management of the fund closer to the community, the proponents think, will increase public participation. 

The Commission for Revenue Allocation (CRA) formulated policies regarding the criteria for designating marginalised areas and the distribution of the equalisation fund. The CRA identified fourteen (14) counties using broad criteria such as legislative discrimination, geographical location, culture and lifestyles, external domination, land legislation and administration, minority recognition groups, ineffective political participation, and inequitable government policies in its first policy, developed in 2013 and intended to cover the allocation for the fiscal years 2011 to 2014. 

In 2018, the second policy and criteria for revenue sharing among marginalised communities were published. The CRA adopted a controversial new criterion for defining marginalised areas. This unique formula identified thirty-four (34) counties as marginalised regions based on access to clean water, school enrollment, and improved sanitation and power.

The Implementation Matrix

Not surprisingly, despite the constitutional edicts on the operationalisation of the equalisation fund, the state has been engulfed in constitutional politics or what can be described as an institutional rivalry. The first attempt to control the funds through legislation was spearheaded by the then Samburu West MP Lati Lelelit in 2015 when the Honourable member sponsored the Equalisation Bill, 2015. In essence, the Constitutional Amendment Bill sought to amend Article 204 of the Constitution to devolve the management of the funds to the constituencies. 

These quests suffered a major setback after former President H.E Uhuru Kenyatta rejected the Bill. The heroine effect of constitutional failure continued to bite as the National Treasury developed Guidelines on the Administration of the Equalisation Fund without hindering the recommendation of the Commission on Revenue Allocation. 

This happened notwithstanding the constitutional stipulation for mandatory consultation between Parliament, National Treasury and the Commission on Revenue Allocation. In a bid to arrest the slide towards compounding illegalities, the Council of Governors filed Petition 272 of 2016: Council of County Governors v Attorney General & 2 others; Commission on Revenue Allocation & 15 others (Interested Parties) [2019] eKLR contesting the constitutionality of the Guidelines for failure to take into account the recommendations contained in the Policy on the Criteria for Identifying Marginalised Areas and Sharing of the Equalisation Fund for the years 2011-2014 by the Commission.

On its part, the state argued that the National Government, through the National Treasury, had “the free hand” in managing Equalisation. Further, the Attorney General posited that the Commission on Revenue Allocation’s recommendations were only to be considered by Parliament during the enactment of the Equalisation Fund Appropriation Act. The Court espoused a purposive-laden approach to constitutional interpretation in entrenching constitutional supremacy. It affirmed that the advisory of the Commission under Article 259(11) of the Constitution was binding on the National Treasury and, by extension, the Cabinet Secretary for Finance. 

The Guidelines on the Administration of the Equalisation Fund ended ‘in fiasco’ as the Court declared it unconstitutional for violating Articles 204 and 216 of the Constitution with respect to compliance with the Commission’s recommendations.

Ideally, policy formulation is too sacrosanct a process to be left to preserve the National Treasury. Worse, the fact that the Commission for Revenue Allocation was edged out in the making of a policy touching on funds only aggravated the derailments of the funds.  

In effect, this illegality–laden process has eclipsed constitutional supremacy, national values and governance principles and the very objects of devolution, most importantly, the Equalisation Fund and Fiscal devolution.

On paper, the Constitution guarantees marginalised communities the fundamental right to funds from the Equalisation Fund to assist in redistributing fiscal resources. In practice, the state has deliberately derailed the implementation of these Constitutional stipulations through bureaucratic tapes and institutional rivalry.

 In other words, the state has been engaged in what can be best described as haggling over the rules of the political games. Going forward, what compounds the vexing implementation matrix is, first, the second policy of the Commission, which enlists counties that enjoyed the fruits of independence as marginalised areas. Should the counties connected to the political power grid benefit from the funds, the purpose for which Article 204 was enacted would be negated. Secondly, but more fundamentally, Parliament has failed to enact a legislative framework to unlock the implementation conundrum that stalled fund administration. 

From a Constitutional standpoint, this implementation matrix mirrors compounding illegalities, with each step riddled with legal penumbras. 

Concerns and way -forward

Under the Constitution, the CRA is mandated to determine, publish and regularly review a policy in which it sets out the criteria to identify the marginalised areas for the equalisation fund. In the first policy, CRA identified 14 counties; in the second policy, 34 counties were identified. 

The formula used by CRA to identify the 34 counties as marginalised areas and the by-passing of the counties in its unit analysis significantly undermined the equity principle inherent within the objectives for establishing the fund. 

The formula is misguided and calculated to perpetuate the discrimination the fund was supposed to cure by diluting the fund’s impact by thinning the amount allocated to each county.  

The framers of the Constitution could not have contemplated that 34 out of the 47 counties in Kenya were marginalised areas. The Constitution envisioned a situation where the “few marginalised” areas would be propped up to be on the same level as the rest of the nation. It, therefore, beats logic to imagine that 78% of the nation is to be identified as marginalised. 

The current formula will result in thinning out the funds, therefore, cheating out the real marginalised areas from any impactful development. The fund has a sunset date and is supposed to have maximum impact within a short period. It is hard to see how it will achieve the anticipated effects by spreading the fund to underserved areas.

The decision by the CRA to focus on the ward as a unit analysis in identifying a marginalised area instead of counties as anticipated in the Constitution is both shallow and hypocritical. The CRA’s attempt to re-engineer and create ‘new marginalised areas’ ignores the reality of past regional discrimination in Kenya regarding development. 

Counties in marginalised areas, especially Northern Kenya, have barely benefitted from the past or current government’s development agenda. Comparing Counties in the central region to those in the north regarding infrastructure development will reveal the dishonesty of the CRA formula. In contrast, if counties like Kirinyaga, with 90% tarmac roads, are identified as marginalised, what term would one use to describe a county like Turkana or  Wajir with 2% tarmacked road?

Therefore, to ensure the achievement of the objectives of the fund, equitable distribution of the fund and development of the marginalised areas, CRA ought to revise its criteria for identifying marginalised areas. CRA ought to appreciate the historical mischief the Constitution intended to cure and not devise formulas that are calculated to defeat the fund’s purpose. 

It is to be appreciated that the fund was never implemented until recently, meaning no monies were released to the marginalised counties. Such funds were to be kept in the kitty and were not supposed to lapse. Therefore, the Nation Treasury should ensure those funds are released to the appropriate counties, using the formula that was in place when they became due.

A significant issue that has plagued the implementation of the equalisation fund is the attempt of the National Government to utilise the National government administrative mechanisms, such as the administrative structure of the Constituency Development Fund, instead of collaboration with the counties structure. 

However, this action not only flies in the face of the Constitution in interfering with the separation of power between the National Government and County Governments but also delays the implementation of projects due to the conflict created between the National Government and the Counties. Purporting to administer the fund through the National Government channels without involving the County Governments would undoubtedly suffer the same fate as that of the CDF.

In conclusion, we posit that when the government violates the constitution they are entrusted with implementing, the results turn out to be anarchical and perversion of the rule of law. It is not in doubt that the marginalisation fund exists in our constitutional design and remains a commitment in our constitutional edifice to empower the oppressed; thus, the state must act swiftly to address the cannibalisation of our constitution by the political class. To that end, the operationalisation of the marginalisation fund leaves much to be desired.