Public Sector & Infrastructure Insight - PwC

Public Sector & Infrastructure Insight

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Perspectives on current issues and trends in Public Sector & Infrastructure/June 2016Introduction-Public Sector Insight P2 / Introduction-Infrastructure Insight P3 / Culture versus strategy in public service: A case of the tail wagging the dog? P6 / Why is corruption such a stubborn problem? P8 / Technology is driving the African innovation revolution P10 / Let’s press on with planning for Kenya’s ‘oil boom’ P12 / Performance management is a key driver in making devolution a success in Kenya’s Counties P14 / Can our Counties scale up service delivery through organisation design? P16 / Opening up Africa’s airspace P18 / Not for Profi t Organizations in the provision of public goods/services P20 / Internal audit can support the fi ght against fraud P22 / New law to improve public procurement and asset disposal system P24 Understanding public-private partnerships P26 / Planning your journey on the road to immigration and tax compliance P28

Leading insights for decision makers in Kenya’s public sector and infrastructure sectors.

Inside this issue...

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Kuria Muchiru

+254 20 285 5000 [email protected]

Elizabeth Ndii

+254 (20) 285 [email protected]

Marylinda Ngige


Byron Mudhune


Dr Johan Leibbrandt


Daisy McCartney

+44 (0) 20 7804 [email protected]

Patrick Macharia


Tibor Almassy

+254 20 285 [email protected]

Isaac Otolo


Mwangi Karanja


John Kamau


Muchemi Wambugu


Allen Kimani

[email protected]+254 20 285 5249

Shreya Shah

[email protected]

Introduction-Public sector insight

Technology is driving the African innovation revolution

Opening up Africa’s airspace

Culture versus strategy in public service: A case of the tail wagging the dog?

Performance management is a key driver in making devolution a success in Kenya’s Counties

Internal audit can support the fi ght against fraud

Understanding public-private partnerships

Introduction-Infrastructure insight

Let’s press on with planning for Kenya’s ‘oil boom’

Not for Profi t Organizations in the provision of public goods/services

Why is corruption such a stubborn problem?

Can our Counties scale up service delivery through organisation design?

New law to improve public procurement and asset disposal system

Planning your journey on the road to immigration and tax compliance

Public Sector & Infrastructure Insight • June 2016 3

Introduction – Public Sector Insight

The overarching priority for Kenya’s national and county governments is to implement the manifestos in a relatively short period of time.

We can reasonably ask whether the election season will cause the pace of implementation to increase, in response to promises made, or slow down because of the elections’ distracting infl uence. I believe that election season poses challenges but we should decisively focus on the opportunity to increase the pace of implementation.

There are a number of underlying factors affecting the pace of implementation and one of them is corruption. Kenya’s anti-corruption efforts are at a crossroads. We have a new chairman of the Ethics and Anti-Corruption Commission, Philip Kinisu, and the increased credibility of our anti-corruption efforts should enable Development Finance Institutions to dedicate funds, to augment Government funding, to support and further strengthen anti-corruption efforts. The EACC needs money, talented and committed people and world-class technology to do its job well.

His Excellency the President, Uhuru Kenyatta, has declared corruption a national security threat. This strong stance supports the anti-corruption agenda’s credibility but the fact that corruption has been declared a national security threat is still very alarming. It requires different strategies that are focused more on outcomes.

Refl ect on the Constitutional requirement that all elections petitions must be heard within six months. This is possible by setting aside judges and the same strategy would work for adjudicating allegations of corruption. Instead of special magistrates for corruption, any court judges hearing injunctions could be the same ones listening to the case.

Right now, many high-profi le corruption allegations are immediately escalated to the High Court so that magistrates in lower courts are prevented from hearing the case. Corruption cases can languish for years in this state of limbo. It is time for major changes.

First, there is a clear need for deepening democracy and strengthening the electoral process even more. Second, public sector leaders should be just as accountable as CEOs for utilising funds wisely. Third, a focus on public service outcomes will create more accountability.

The national government has indicated a serious focus on infrastructure by dedicating four Permanent Secretaries to the Ministry of Transport and Infrastructure. The national government and many county governments have shown a clear focus on the youth agenda, slum clean-up and job creation as well as streamlining public service delivery and rationalising the public work force.

But even these efforts have been hampered by corruption. Reducing bureaucracy such as through automating government services helps to reduce

day-to-day corruption. Huduma Centres are service-oriented and accountable and they are good points of contact between citizens and government.

We can support these and other positive efforts. The business community, bilateral and multilateral organisations, the Independent Electoral and Boundaries Commission, political parties and many other parties all have a role to play.

PwC’s recent Global Economic Crime Survey shows that in Kenya, we are getting better at detecting incidences of fraud. In a certain sense, everyone is a journalist now. Information technology helps, not just to detect fraud but also to empower people. YouTube, Twitter, blogs and other new media can create and heighten awareness of corruption. If the media continues to do its job and the increasing number of people carrying smartphones continue to do their part, then we can fi ght corruption successfully together.

Kuria Muchiru is a Partner with PwC Kenya and the fi rm’s Goverment & Public Sector Leader.


4 PwC

Introduction – Infrastructure Insight

Tibor Almassy is a Partner with PwC Kenya and the fi rm’s Infrastructure Industry Leader.


Corruption, infrastructure and debtCorruption is a big issue. But we must remember that it is not a Kenyan issue or an African issue. It is a global issue. This is the context in which any discussion about corruption should take place. Corruption is signifi cantly more detrimental to development in the earlier stages of an emerging economy.

Corruption impedes the development of infrastructure projects, among other areas, and this has a substantial impact on economic growth. In more advanced economies, the base infrastructure is already in place and as such, the effect of corruption is proportionally less.

Kenya now has a window of opportunity to develop infrastructure that will support growth. In ten years’ time, demographic shifts and urbanisation will exert much more pressure on infrastructure. Kenya needs to build its planned mega infrastructure projects,

the roads, the ports, and all other requirements that will fully implement Vision 2030. Infrastructure contributes directly to job creation and productivity, and infrastructure has the highest economic multiplier effect of all investments in an economy. But infrastructure is expensive.

Expensive, however is a relative term. It can only be really understood if it is compared to its implied alternative. Expensive compared to what? And what is the actual alternative? Can Kenya afford to build these mega projects?

The question should rather be can the country afford not to build the planned infrastructure.

Financing infrastructure projects like roads is possible via a user pays principle, when people are willing to pay for the use of the asset, such as paying tolls. Where there is substantial opposition to this mode of fi nancing, then government must pay or subsidize some part of these


costs even in the form of public private partnerships (PPPs). We have had a fairly narrow view of the type of organisations that are willing to fi nance infrastructure PPPs. Development Finance Institutions, for example, could pay for infrastructure improvements directly—if the right controls for accountability are in place.

The other way to raise money is through public debt. However, given the debt-to-GDP ratio that Kenya would like to adhere to, at 50%, the capacity to borrow additional funds is limited.

The debt-to-GDP ratio is much higher in developed countries but it is secured by a larger and more reliable tax base. On the other hand, infrastructure projects carry the highest economic multiplier and as such, long-term economic growth will be impeded without the development of the infrastructure base.

We can also ask whether Kenya can afford to borrow more money. There is a common fear of the entrenched debt that has paralysed developing countries in other parts of the world, which is why the purpose of borrowing money must be very clear.

There are numerous options in which to borrow money specifi cally for infrastructure projects such as infrastructure bonds and borrowing for specifi c projects.

I believe that the answer is not to borrow less money but to put more controls in place and build a diversifi ed economy with a stable, growing tax base. An economy needs infrastructure to grow and it can make sense to raise the self-imposed 50% debt-to-GDP ceiling if the projects selected are priorities with a clear multiplier effect on the economy. Long term economic growth needs these infrastructure projects and it is therefore

paramount to implement them even at the expense of higher public borrowing ratios.

There is no single way to measure the multiplier effect of infrastructure development, or how long it will take to realise the benefi t, or the impact on productivity. But we know that a manufacturer evaluating whether to invest in a new Special Economic Zone will look fi rst at transport and logistics. Most often, infrastructure is the deciding factor.

At a minimum, Kenya must fi nish the Standard Gauge Railway and highway PPPs including Nyali Bridge and the Mombasa to Nairobi and Nairobi to Nakuru routes. In case of the crude pipeline, the Northern route makes more commercial sense in cooperation with Uganda.

The pipeline is the backbone of the LAPSSET project. Port development, service roads and other infrastructure all depend upon it—and so do thousands of jobs. If Kenya must go it alone on this project, without Uganda, then it should do so even if it means there could be a

funding gap that the government needs to take on.

Kenya’s challenges now are implementation and prioritisation. Implementation will require additional focus on the PPP model to ease fi nancing burdens and the acceptance of user charges for the various assets.

In the longer term the question will become one of prudent and cautious debt management versus the possibility of a larger growth rate in GDP through fast tracking of infrastructure projects and the reaping of benefi ts from the multiplier effect.

With infrastructure providing the highest economic multiplier, the faster these projects get off the ground the sooner they can add to the overall economic performance.

In my view, the adherence to the current debt-to-GDP ratios as envisioned will continue to limit the pace at which these projects are implemented. It is time to consider the benefi ts vis-à-vis the risks of raising this debt ceiling in light of the above.

We have had a fairly narrow view of the type of organisations that are willing to fi nance infrastructure PPPs. Development Finance Institutions, for example, could pay for infrastructure improvements directly—if the right controls for accountability are in place.

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Culture versus strategy in public service: A case of the tail wagging the dog?

Time and time again, I have had the opportunity to observe how organizations operate, viewing fi rsthand high-performing cultures where extraordinary things are accomplished by ordinary people.

On the other hand, I have also had the opportunity to observe ordinary things being accomplished by extraordinary people on a daily basis.

Does this quote sound familiar?‘My Organization has just spent USD 200,000 and weeks in a series of strategic planning sessions, reviewing the opportunities and environmental landscape while assessing our strengths and challenges. All our work has resulted in voluminous binders containing analysis, charts, graphs, tactical plans, and metrics. We’ve assembled everything that we need for success, right?’

The grim reality is that most strategies either fail or are never implemented. In fact, many different studies have suggested that some 90 percent of them do not live up to expectations.

At the outset, I can make two observations about strategy.

First, strategy should guide what organizations actually do. Consider public organizations. They create assets (infrastructure, products and services)

and enable people (customers, citizens) to use those assets to create benefi ts for themselves. So a strategy should guide public organizations to create assets effectively and effi ciently, and to help people to use those assets to their benefi t.

Second, strategy must defi ne practical actions (projects) that will produce real results that people will actually use to create worthwhile benefi ts. Strategies must describe:

• What you will do

• What you will produce

• How the results will be used by citizens or customers

• Why the results will be used

Few strategies—particularly in public service—convincingly connect inputs (projects) to outcomes and benefi ts. Such strategies completely miss the crucial importance of users; people only use a service if they will benefi t from it.

Organizations create or deliver results. They cannot deliver uses and benefi ts. For example, a public project to build railway infrastructure will help to facilitate the benefi ts of industrialization

Byron Mudhune is a Manager with PwC Kenya’s Strategy and Operations Advisory Practice



when people use the railway. Any strategy must understand what users will actually do and not just build assets and hope that people will continue to come and use them and pay enough for them to justify the investments.

My two observations about strategy have one thing in common: people. Culture is all that invisible stuff that glues organizations and people together. It is invisible but it is this “invisibility” that causes many strategy practitioners to treat culture as a soft topic. And yet culture determines how people get things done in organizations.

My point is this: putting aside strategy development, if you do not have a strong culture, you will not be able to effectively execute your strategy in a sustainable way. At the same time, if you do not have the focus and direction of a strategy, your culture will not survive. Culture is a major 21st century performance differentiator. Culture creates the foundation for strategy and will either be public service’s greatest asset or—worst case—its largest liability.

While culture has many aspects and manifestations, its core should include a clear sense of purpose and shared values that guide decision making.

Culture and strategy among Boards of DirectorsOne critical and often overlooked area of the culture spectrum is the mandate of the Board of Directors with regard to strategy development and execution. Increasingly, boards are also establishing strategy committees to help them fulfi l their responsibility for strategy.

There are several reasons for this, including the fact that not all directors will be as familiar as others with the organisation’s general industry environment or with the specifi cs particular to its business. Similarly, the depth of knowledge, skills and general abilities of individual directors can have a signifi cant impact on the ability of the board to contribute to the strategic processes of an organization. Another

factor is the willingness and capability of the board to be kept fully informed in areas essential to making a signifi cant contribution to strategy formulation. Instead, board members may wish to concentrate on the strategy review process during board meetings.

However, since strategy is at the heart of organizational success and failure, leading practice guidance on corporate governance rarely, if ever, recommends the formation of a strategy committee. This is because strategy is the responsibility of the whole board and assigning responsibility to a committee might lessen the involvement of those directors not on the strategy committee.

If the board does not feel it has enough time to focus on strategy during regular board meetings, it should look to its current processes beginning with the meeting agenda to give the board an appropriate focus. The largest obstacle to covering all of the items on the meeting agenda is that many boards tend to get bogged down in discussions about operational or compliance issues and they run out of time to discuss important strategic matters. There are good reasons to change the traditional order of agenda items or even delete certain items if this means addressing important priorities fi rst. After all, most meetings follow a formula through habit, not because there is any legal or other requirement to do so.

I recommend scheduling discussion of strategic issues much earlier in the program to include:

• All board papers for decision should explain how the proposal is linked to the current strategic plan and any strategic implications;

• Have an agenda item on forthcoming strategic decisions keeps directors engaged in the strategic planning process and forewarns them of the decisions to come;

• Focused strategy reviews can be built into the board’s agenda at periodic times throughout the year. These reviews could cover a specifi c topic area;

• Hold two annual strategy retreats rather than one. The fi rst is a forum to review progress against the previous year’s strategic plan, to highlight short-term and possible long-term changes and to identify strategic possibilities for further development. The second is a forum to actually develop and agree the strategy going forward. The fi rst workshop will be a key input to the second and will generally precede the second by four to six months and

• Bring external industry experts into board meetings from time to time to discuss topics of interest related to strategy can stimulate ideas and strategic thinking by directors.

A thriving culture in public serviceI challenge you to search public strategy documents to fi nd compelling evidence of desirable uses and benefi ts. If this information is missing, how can you have any confi dence that end-users will actually behave according to what the strategy anticipates?

By altering and strengthening culture, organizations can thrive. The famous balanced score card tool, used as a tool of strategy execution, is powerful but you need to diagnose what the underlying problems actually are and then apply the specifi c parts or emphasis of the approach to the particular problem. In the near future, it will be prudent to run culture diagnostics before deciding which particular emphasis and strategy approach to adopt.

It saves time and money and, most importantly, gets better results.

Culture is all that invisible stuff that glues organizations and people together. Culture determines how people get things done in organizations. Culture is a major 21st century performance differentiator.

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Why is corruption such a stubborn problem?

What is not in doubt though, is that corruption is a major and old problem. A problem that needs resolving but a stubborn one. So, is there a silver bullet against corruption? Have others fought this dragon and succeeded?

In reviewing how other nations have tackled corruption, the USA may be a good place to start. The Foreign Corrupt Practices Act (FCPA) is probably the best known US anti-corruption initiative.

Enacted in 1977, the FCPA became even more impactful in 1998 when its anti-bribery provisions were amended to include foreign fi rms and persons who cause corrupt payments within the US.

The US government and regulators have not been shy in fi ning entities that violate the FCPA with one company having been fi ned US$ 800 million (KES 82 billion) in 2008.

The term ‘corruption’ has been defi ned in many different ways. But other than its defi nition in regards to the change of the meaning of words, most other defi nitions point to dishonest or fraudulent conduct. Most people will rightfully recognise bribery, fraud, embezzlement and abuse of offi ce as being corrupt practices. Many people will however debate whether jumping a queue is corruption or simply bad behaviour.

Ten years after the FCPA and following public dissatisfaction with anti-fraud measures in the UK, the UK government in 1987 enacted the Criminal Justice Act.

This Act created the Serious Fraud Offi ce (SFO) and gave it powers to investigate and prosecute serious or complex fraud and corruption. The UK Anti-bribery Act of 2010 was later passed to deal specifi cally with bribery. Kenyans will be familiar with the work of the SFO as relates to at least two recent cases that have made headlines locally.

More recently, the 18th Communist Party of China (CPC) National Congress of 2012, resolved that there was a severe need to fi ght corruption. Since then, over 100,000 corruption cases have been prosecuted.

Where the US has used huge fi nes as punishment, China has handed down harsh jail terms. In 2013 for instance, China dissolved the Railways Ministry and sentenced its former Minister to death, later commuted to a life sentence.

John Kamau is a Senior Manager with PwC Kenya’s Business Recovery Services Advisory practice.



Kenya does not have a shortage of anti-corruption laws or institutions. The Prevention of Corruption Act of 1956, the Public Offi cer Ethics Act and the Anti-Corruption and Economic Crimes Act of 2003 as well as the Ethics and Anti-Corruption Commission Act of 2011 have sought to address corruption in the public sector.

The last two Acts established the Kenya Anti-Corruption Commission (KACC) and the Ethics and Anti-Corruption Commission (EACC) respectively. The Offi ce of the Auditor General, Asset Recovery Agency, Police, Director of Public Prosecution and the Judiciary are also major players in this war.

To prevent the private sector from facilitating corruption, the Proceeds of Crime and Anti-Money Laundering Act came into effect in June 2010 and the Financial Reporting Centre (FRC) was set up to ensure compliance to this Act.

The Central Bank of Kenya, the Capital Markets Authority and the Insurance Regulatory Authority have also all issued guidelines aimed at combating money laundering and terrorism fi nancing.

With the laws in place, the relevant institutions should perhaps now deliver the large fi nes and harsh jail sentences. This will ensure that corruption is punished and will no doubt help deter it. To achieve this however, relevant institutions need to be adequately resourced and trained to investigate and prosecute corruption and fraud.

Instilling an anticorruption culture is perhaps even more important for the government, individual institutions and Kenya as a whole. Such a culture will stop individuals from making the poor decision that is corruption.

Institutions need to have in place values-based programmes that measure and reward desired behaviour. They should put in place compliance systems that address the connection between values, behaviours and decision-making.The opportunities to be corrupt must also be removed wherever possible. As per the

‘fraud triangle’, fraud occurs where there is opportunity, incentive and rationalization.

Punishing corruption may remove the incentive and discourage individuals from rationalizing in favour of corruption but it does not remove the opportunity.

Fortunately, technology today allows the government and companies to put in place internal controls that minimize the opportunity for fraud.

Technology can and should also be used to more effectively monitor transactions, for example through data analytics.

Finally, the government and regulators must implement strong anti-money laundering measures so that even where the opportunity to defraud exists, the opportunity to extract and enjoy the proceeds of the crime is removed.

More insights on the fi ght against corruption and more on Kenyans’ views regarding this subject were shared in the results of PwC’s 2016 Global Economic Crime Survey, released in February 2016 and available at www.pwc.com/ke

Punishing corruption may remove the incentive and discourage individuals from rationalizing in favour of corruption but it does not remove the opportunity. Technology allows the government and companies to put in place internal controls that minimize the opportunity for fraud.

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Technology is driving the African innovation revolution

It used to be that Africa was content to wait for the world to innovate so that it could borrow or (to put it bluntly) copy. That was a few years ago. Fast forward to today and things have changed considerably.

Africa is innovating and so boldly that other countries are pausing long enough to copy its technologies. A case in point is the brilliantly innovative mobile money transfer technology, commonly known as M-PESA.

M-PESA was launched in Kenya in 2007, at a time when transferring money was majorly limited to bank account transactions and tedious processes in between. Currently, M-PESA boasts almost 20 million subscribers. Other countries, including European countries such as Romania, are already adopting this platform as a viable money transfer option. Indeed, the tides are changing.

The journey towards innovation in Africa can be traced and attributed to various factors. Key among the technology factors is the proliferation of mobile phone use. In 2002, approximately one in ten Africans owned a mobile phone.

A decade and some years later, today’s mobile subscription penetration in Africa

has grown by leaps and bounds. Roughly nine out of ten Africans today own a mobile phone with smartphone use following closely behind.

Africa skipped the landline and went straight to the mobile phone which offers forward-thinking innovators the opportunity to utilize this platform. Currently, the mobile phone plays a critical part of service offering and information dissemination on the continent.

Banks, in particular, have taken to the platform offered by mobile banking to offer convenience to their customers. Today, you need not queue to access your money. A simple transaction on USSD or a mobile banking app will get your money to you, in the comfort of your home (or almost anywhere else).

It is not just the mobile phone that is bearing the torch of innovation in Africa. Internet connectivity is a driving factor as well. Some years back, satellite was

Elizabeth Ndii is a consultant with PwC Kenya’s technology advisory services.



the only option for those seeking connectivity. The laying of undersea fi bre optic cables around the continent has made connectivity available, reliable, faster and affordable for more end users.

On its own, Kenya is connected internally and externally by four fi bre optic cable systems, namely the East African Submarine System (EASSy), The East African Marine System (TEAMS), SEACOM and Lower Indian Ocean Network-2 (LION-2). Now, many popular cyber cafes allow internet access at a much lower cost than was possible with satellite connectivity—a scenario replicated across the continent.

Most internet access is through mobile phones. According to PwC’s global Entertainment & Media Outlook research, internet access providers’ revenue in Kenya increased by a compound annual growth rate of over 20%, 2014 – 2019, and is projected to earn US$ 1.228 billion by 2019. The vast majority of that revenue (US$ 1.006 billion) is from mobile internet access.

Governments across the continent, public companies and even private entities have realized the need to tap into the very able platforms of mobile and internet. In Kenya, almost everybody who has a mobile phone also has access to M-PESA. Many additional products and services

are now available through M-PESA enabled payment services.

With Africans increasingly favouring the convenience offered by technology, governments have moved from long queues to mobile and online service delivery. In Kenya, renewing an expired driver’s license, applying for a passport, registering a business name and many other previously queued-for government services are all online thanks to the e-Citizen platform which describes itself as the ‘Gateway to all Government Services”.

For many Kenyans, it has indeed proved to be exactly that. And you guessed it right: to pay the fees associated with the above renewals, all you need to do is utilise the Paybill function on M-PESA.

Meanwhile, individual innovators are taking it upon themselves to come up with apps that are changing lives. Communities like iHub made up of technology enthusiasts and innovators are emerging with the intention of not just sharing space but ideas as well.

The result is that there are now apps that farmers can use to get information about the best seeds and products to use on their farms for maximum yields, on top of monitoring their produce remotely. They can also buy crop insurance using

their mobile phones.The desire to join the technology revolution in Africa has seen entities, both private and public, turn to technology gurus for advice about how to change their business models to include technology.

Digitization is key for survival in Africa’s current environment.

According to the recently released CIO East Africa 2015 Mega Trends Report, there is increased emphasis by organizations to not just utilize technology in its most basic form but to innovate as well, and also customize it to meet unique needs.

In fact, an increasing number of people in organizations are emerging as leaders of innovation as far as technology goes. This role that was previously and solely played by the CIO is becoming fragmented to include CEOs, COOs and CDOs as well.

The wave of technology innovation in Africa will not forgive anyone who chooses to remain rooted in old traditional methods that are not in tune with today’s digital environment. Indeed, disruption is the watchword in Africa’s technology space today. Disruptive technologies are changing lives in Africa, and for the better. Innovation is driving this change.

With Africans increasingly favouring the convenience offered by technology, governments have moved from long queues to mobile and online service delivery.

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Let’s press on with planning for Kenya’s ‘oil boom’

In March 2012 the Government of Kenya made the big announcement that Kenya was on the verge of joining the global club of oil producing economies. Tullow and Africa Oil had fi nally found potentially commercial deposits of hydrocarbons in the Lokichar area in Turkana.

Almost immediately, the country became nostalgic at the prospects of huge economic growth driven by an oil boom, with crude prices then at US$ 104 per barrel. There was also a fl urry of enquiries on the pricing and availability of plots of land up north. Four years later, just as Kenya was gearing up to make concrete steps towards commercialization of these resources, crude prices have fallen to belowUS$ 30 per barrel.

In response, exploration companies in Kenya have signifi cantly reduced their activities. The fact they have not packed up and left signals that they believe that the country is still a worthwhile frontier for exploration. Oil prices have always been cyclical.

No one has a crystal ball to predict exactly when prices will begin to rise again but history tells us that they will rise at some point, and Kenya’s reserves will prove commercially viable when prices rise above a breakeven point. The question now is what Kenya can do to prepare for this eventuality.

Before 2012, Kenya’s laws, policies and regulations were largely silent on upstream oil and gas. The last major substantive policy review came under Sessional Paper No. 4 of 2004 on Energy.

The Ministry of Energy and Petroleum and other key stakeholders are currently in advanced stages of drafting a number of key pieces of policy and legislation, including a new National Energy Policy, Energy Act, Petroleum Exploration and Production Act and Production Sharing Contract as well as a gas policy.

As expected, these have a greater focus on upstream oil and gas than current legislation. The passing and enactment of this new legislation will strengthen the regulatory framework for upstream development as well as the confi dence of investors into the sector. This follows signifi cant amendments in 2014 to taxation legislation governing upstream oil and gas.

Kenya’s reserves will prove commercially viable when prices rise. The question now is what Kenya can do to prepare for this eventuality.


The Government of Kenya is also developing a petroleum masterplan that will guide development and commercialization of the country’s resources. One of the key objectives of this plan is to assist Kenya in avoiding some of the mistakes that other oil and gas frontier nations have made in the past. The Kenya Petroleum Technical Assistance Project (KEPTAP), supported by the World Bank, is instrumental through this process.

The most signifi cant matter that needs to be closed with fi nality is the decision on the crude pipeline route to give exploration companies greater confi dence and edge them closer to fi nalising front end engineering design and making fi nal investment decisions.

The characteristics of Kenya and Uganda’s crude, sweet and waxy, also means that the route to market would require possibly the longest heated crude oil pipeline in the world. This adds to the costs of commercialisation, coupled with the big question of security around this preferred route.

In order to calm anxiety, the crude pipeline route decision should be made once and for all. Using a LAPSSET route implicitly presents other economic advantages to Kenya, more so through the execution of an anchor project on the corridor, which may improve the viability

of the other key projects planned and eventually open up the economies of northern Kenya, northern Uganda, South Sudan and southern Ethiopia.

Examples from other parts of the world have shown that local communities benefi t most from oil and gas activities during the development phase. There has been huge debate around what level of local content should be in place for various major infrastructure projects in Kenya.

Exploration companies in Kenya have often played the role of quasi-NGOs in the areas of operation. This may not be sustainable in the long run and may even discourage investment.

Kenya needs to develop robust local content legislation in time for development of oil and gas fi elds and this should take more of a ‘national’ rather than local (or “inter-county” and “intra-county”) content philosophy.

The legislation should also be harmonized with proposals that have been made for other extractive sectors. In addition, the proposed Upstream Petroleum Regulatory Authority that has been envisaged in the draft legislation should probably move towards being the face of exploration in the country once it is established, rather than the exploration companies themselves.

Isaac Otolo is an Associate Director with PwC Kenya’s Transaction Advisory practice.


Its role should partly give some cover to exploration companies from the demands of local communities, while offering local communities structured means to engage with upstream investors.

There are still some questions around taxes applicable to upstream players. With the current level of oil prices, resources and questions around potential fi nds in future, the government should consider whether there is a need to review the current legislation to improve attractiveness of the sector to junior exploration companies who typically take on the initial risk before selling down or farming out to other larger players at the fi eld development stages.

Lower exploration costs will make Kenya more attractive relative to other exploration frontiers and will ultimately lead to a larger share of profi t oil for the government in future.

The proposal for a sovereign wealth fund is also noble. While the potential for oil riches may not be well known at the moment, the setting up of this fund will allow for prudent investment of wealth from extractive and other sectors for the benefi t of future generations of Kenyans.

Some of the hopes of the nation have been dimmed by the current low oil prices but there is still a lot that Kenya can do to prepare for a potential boom in the future.

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Performance management is a key driver in making devolution a success in Kenya’s Counties

As the journey of devolution unfolds, one of the biggest challenges faced by counties is developing the capacity to deliver services and track implementation.

Performance management is an indispensable requirement for effective county management and although there are several reasons why counties should consider measuring the performance of its programmes and services, the most compelling reason is that citizens demand and deserve quality service.

Performance management could be described as the alignment of resources, processes, systems and people to the vision, strategic objectives and priorities of the county government.

The evidence of effective performance management in a county is essentially indicated by improved service delivery. It is fundamentally about driving and monitoring results and the correct behaviours of people.

It is therefore essential for a county to create ‘focus’ and ‘alignment’ in the execution of the County Integrated Development Plan (CIDP). The focus should be shifted to performance improvement, both at strategic and

operational levels, thereby unlocking the full potential of the available resources and infrastructure.

To achieve sustainable success, a county must take advantage of change (whether planned or unexpected) with the ultimate aim of never being side-lined by it.

Agility refers to the ability to move quickly and adapt to change and addressing it smartly, while simultaneously keeping the county on course.

To assist the decision making process and facilitate faster and better decisions, it is important for a county to produce timely and accurate information across all systems so as to provide ‘one version of the truth’. This can consistently be achieved when a credible performance management system is adopted and implemented.

Many organisations make the mistake of confusing performance management with an electronic system.

Dr Johan Leibbrandt is an Associate Director of PwC Kenya’s Advisory practice and a Devolution and local government specialist advisor.



The content of the strategy, CIDP and Annual Development and Implementation Plan and the quality of performance indicators and targets are by far the most important factors within an effective performance management system.

The reality is that an electronic system is just a tool and only as good as the content it measures. The familiar principle of ‘garbage in, garbage out’ is very applicable.

Performance management is achieved when there are indicators and targets measuring the inputs, outputs and outcomes of development projects, as well as fi nancial and non-fi nancial activities.

A quick win for improving performance management practices of counties is to

establish individual accountability where performance is assigned and measured within a defi ned period.

It is also true that the quality of services is affected not only by the economy, politics and social conditions, but also by the performance management practices.

An effective performance management system will aim to achieve agility for sustainable success and entrench a performance-driven culture.

To become agile and effective, counties should move beyond legislated requirements and adopt a performance management system that:

• Directs the available resources to what is important,

• Achieves service delivery improvement,

• Improves citizen and stakeholder satisfaction,

• Increases productivity and unlocks hidden potential,

• Aligns operational performance with strategic objectives,

• Aligns the county’s vision and strategic objectives with individual performance scorecards,

• Focuses the behaviour of people towards service delivery improvement and

• Entrenches a positive performance-driven culture.

Adopting a reliable performance management system is non-negotiable for county governments to deliver on their core mandates, achieve strategic objectives and improve service delivery.

Many organisations make the mistake of confusing performance management with an electronic system. The reality is that an electronic system is just a tool and only as good as the content it measures.

16 PwC

Can our Counties scale up service delivery through organisation design?

• Responsive, prompt, effective, impartial and equitable provision of services;

• Involvement of the people in the process of policy making;

• Accountability for administrative acts;

• Transparency and provision to the public of timely, accurate information;

• Fair competition and merit as the basis of appointments and promotions;

• Representation of Kenya’s diverse communities and

• Adequate and equal opportunities for appointment, training and advancement.

By thinking harder about what makes Counties tick, County Governments can turn weaknesses into strengths and even identify new ways of delivering services to citizens.

Recent research published by PwC’s Public Sector Research Centre shows that the new reality of ‘doing more for less’ can provide the catalyst for public sector organisations (like Kenya’s County Governments) to focus precisely on the outcomes that their constituents need and want.

This emphasis on their fundamental purpose serves to re-orient public sector organisations as ‘future-focused’, according to Future of Government: Tomorrow’s leading public body.

The future County Governments of Kenya were defi ned in August 2010 when the new Constitution was promulgated.

From that point onward, the Counties were responsible for deciding if they wanted to consume the legacy left behind by their predecessors or to create a new legacy for future generations.

The hallmark of public service is articulated in Chapter 13 of the new Constitution and identifi es values and principles at all levels of the public service including:

• High standards of professional ethics;

• Effi cient, effective and economic use of resources;

Muchemi Wambugu is a Partner with PwC Kenya and the fi rm’s Counties Practice Leader.



Three years down the road to a more prosperous Kenya, County Governments still need to re-evaluate how they are organised to meet the rising expectations of their citizens. County organisation design plays a major role in helping Counties to deliver services more effectively and effi ciently and to enable their success.

Article 46 of the County Government Act 2012 mandated County Executive Committees with the responsibilities to determine the organisation of their County Governments.

The committees are expected to determine the organisation of various departments and their objectives and purposes, the number and nature of departments at decentralised units and whether to abolish or change the name of any department.

The County Government Act also provided guiding principles for designing the organisation structures for the Counties. These include:

• Responsiveness to the needs to the needs of the local community;

• Facilitation of a culture of public service and accountability;

• Performance orientation and focus on the objectives of devolved government;

• Assurance that the county department roles and responsibilities are aligned to the priorities and objectives set out in the county’s policies and plans;

• Organisation of departments and other structures to respond to changing priorities and circumstances;

• Assigning clear responsibilities for the management and coordination of departments and functions;

• Participatory decision making and

• Provision of an equitable, fair, open and non-discriminatory working environment.

Translating these Constitutional and legislative mandates into successful County organisation designs requires defi ning and optimising capabilities (what, where and how they are delivered), structures and roles, governance and decision making processes, behaviours that are required to measure performance and the physical environment in which people work.

Counties will only gain a competitive edge when they design services processes

that a widely distributed workforce can easily adopt, understand, automate and execute within their organisations.

To deliver their visions and missions going forward, Counties need to fi nd the ideal size, shape and means of operating.

To chart their course on this path, Counties require organisation design frameworks to view their operations through different ‘lenses’ and to guide behaviour in devolved systems as outlined in Article 174 in the Constitution.

Future-focused public sector organisations demonstrate four key characteristics: they must be innovative, agile, connected and transparent. These characteristics are only possible for Kenya’s Counties if they have clear organisation designs.

This article was developed with signifi cant input from Joseph Onyango, who has recently left PwC. We thank him for his contribution.

Future-focused public sector organisations demonstrate four key characteristics: they must be innovative, agile, connected and transparent. These characteristics are only possible for Kenya’s Counties if they have clear organisation designs.

18 PwC

Opening up Africa’s airspace

A number of challenges face the African aviation industry, but it appears that the most signifi cant of these challenges would be the lack of implementation of this Declaration.

Huge potential economic effects can be achieved from the unifi cation of the African airspace. Economic growth can be fostered through improved regional and internal air networks which in turn will drive growth and encourage trade among African countries. African airlines should look inwards in the continent to leverage the available internal resources and create synergy through collaborative partnership among themselves.

Africa is growing very rapidly and is home to some of the fastest growing economies in the world. The continent’s population accounts for 12% of the global total population but contributes less than 1% of the global air service market.

The International Air Transport Association (IATA) has highlighted aviation in Africa as a vital component in contributing to the development of economic, social and cultural life on the continent.

Various initiatives have been undertaken to develop the continent’s aviation industry. Liberalisation of the African air transport market remains the single most important air transport reform policy that the African governments have developed to date.

The Yamoussoukro Decision of 1988 and its subsequent Yamoussoukro Decision in 1999 seeks to address liberalisation. The declaration advocated the liberalisation of African air services and for ‘open skies’ in Africa which would translate into more competition and more African players in the marketplace, greater options for travellers and lower fares.

It was adopted out of the recognition that the restrictive and protectionist intra-African regulatory regime based primarily on Bilateral Air Services Agreements (BASAs) hampered the expansion and improvement of air transport on the continent.

Marylinda Ngige is Manager with PwC Kenya’s Assurance services.



Promoting these internal air links will also contribute to more trade between African countries and other parts of the world and reduce the expensive transport costs which African businesses are saddled with at present.

Regional trading blocs, like the East African Community and the Southern Africa Development Community, could use air transport to increase trade and encourage business between member states.

Recently, during the 11th Northern Corridor Summit held in Nairobi, a deal was signed between Rwanda, Uganda, Kenya, and South Sudan in which they agreed to the liberalisation of the Northern Corridor airspace for the regional airlines.

The deal is expected to be operationalised effectively in January 2016. Besides creating ease with which business can be done in the region, it will unlock opportunities for the airlines and thus improve the profi tability of the industry. The deal is also expected to attract investments into the region, and improve service delivery of the EAC bloc in the aviation industry.

Other proposed deals discussed in during the 11th Northern Corridor Summit include developing a Multilateral Air Services Agreement (MASA) to protect local airlines against competition from external airlines. In addition, agreements on search and rescue as well as accident and incident investigation are

expected to feature during the next summit planned for 2016.

Unifi cation of the African airspace will contribute largely to the growth of Low Cost Carriers (LLCs). Low-cost carriers in the intra-Africa market would usher in a new era of rapid capacity growth, paving the way for growth in travel and in turn result in the greater linking of African economies.

It is expected that LCCs serving internal destinations and regional hubs will generate more economic stimulus than expansive international carriers. In addition, lower transport costs achieved through enhanced competition will reduce a signifi cant trade barrier for African countries whilst also improving prospects for increased tourism.

The resulting improvements in quality and pricing of air services will allow countries that have abandoned national airlines to be in a position to redirect their state resources.

Those savings could be redirected to public investments that have more positive impact on economic development locally. To achieve these benefi ts, however, a number of challenges currently facing the African aviation industry need to be tackled.

These have been identifi ed as fundamental milestones that must be achieved for African aviation to seize the valuable opportunities.First, the aviation industry is still not a top priority for

African governments even though there is growing awareness of the role that the aviation industry could play in development.

The growing presence of foreign aviation companies has posed a signifi cant threat to national carriers thus making some African governments reluctant to open their skies for fear of foreign competition. Some national carriers fall short of commercial viability; they are also symbols of national sovereignty.

Other challenges include a poor record of safety and security and the lack of adequate resources, infrastructure, regulation and government actions.

The poor safety record on the continent is a pressing challenge of great concern to global aviation bodies. Recent statistics indicate that the average number of air traffi c accidents in Africa was nine times higher than the global average. The frequency of accidents stems largely from inconsistency in the implementation and enforcement of internationally accepted safety standards and practices.

Increasing the level of safety should be a key priority for the development of the African aviation industry. The Africa Strategic Improvement Action Plan endorsed by the African Union seeks to address the defi ciencies related to aviation safety and security whilst strengthening the regulatory frameworks.

This plan has been supported jointly by IATA and International Civil Aviation Organization (ICAO) and is foreseen as a platform that will foster regulatory oversight through the adoption of globally accepted safety and security standards.

Additional constraints include a lack of aviation experts and skills, high airport taxes and fees and the weak connectivity and restrictions on transit visas and facilities.

Added to rising competition and high operating costs (resulting from fl uctuating oil prices which airlines battle with continuously), addressing these and other challenges could signifi cantly unlock the industry’s potential for future growth.

20 PwC

Not for Profi t Organizations in the provision of public goods/services

Whereas making a profi t is a major driver for many business operations and activities, delivery of public goods/services remains the core business of government world over.

However, it is obvious that governments are not in a position to meet all public goods/services demands hence other non-state actors have emerged over time to supplement the government’s efforts.

These non-state actors tend to carve a niche around provision of certain services to mainly underserviced segments of the society. The need to supplement government efforts to provide public goods/services is more pronounced in developing countries.

It is estimated that in Kenya for instance, not for profi t organizations represent more than 290,000 full time employees and volunteers, almost the same number as teachers in the public sector payroll.

Funds channeled through the NPOs were estimated at close to Kshs 100B (USD 1B) in 2012/3, which represents almost 8% of national budget for that period. This subsector is therefore a major player in provision of public goods/services in the country.

NPOs are active in all sectors of the economy, but mainly in provision of

humanitarian and development services. For instance, according to the NGO Board Strategic plan 2014-2017, NPOs provide between 45-50% of all health-care services and over 50% of all family planning services.

Key concerns for the NPO sectorCapacity gaps for effective aid delivery

An organization’s capacity is key to effective delivery of its development programs. Due to the terrains in which the NPOs operate, capacity is always a major concern for the NPOs as well as their development partners.

This is complicated by the need to demonstrate local ownership, which often demands that the benefi ciary community must be involved in implementation and decision making. NPOs therefore end up working with very nascent community based organizations which may not have requisite capacity.

NPOs therefore must choose between “importing” the capacity (hiring experts) or building the capacity of the local

Mwangi Karanja is an Associate Director with PwC Kenya’s Assurance practice, specialising in public sector assurance services.



entities. Usually “importing” capacity, though desirable in the short term, does not have long term sustainability.

The “tedious” option of building capacity is therefore recommended for sustainability and local ownership. We have worked with not for profi t organizations in a bid to identify areas that require strengthening and improvement across various functional areas. You need to regularly take stock of the capacity that your network has, and determine if there is need to “restock”, through capacity building.

Regulation and compliance

The NGO Board is responsible for “facilitating and co-ordinating the work of all national and international NPOs operating in Kenya.” As such, as good corporate citizens, NPOs must seek to remain in the good books of the NGO board, to avoid the whip that has left many NPOs fi ghting to restore public confi dence. All NPOs therefore have a responsibility to comply with the regulator so that the charitable sector can effectively compliment the government in national development.

Meanwhile, there is concern about the fate of Public Benefi ts Organisations (PBO) Act. The PBO Act 2013 was meant to provide for the establishment and operation of public benefi t organizations in Kenya. It provides for their registration and establishes an administrative framework for the PBOs to carry out their affairs in a connected manner.

The Act seeks to harmonize the various laws and regulations that govern this sector, such as NGO Coordination Board Act of 1990, the Companies Act CAP 486 for companies limited by guarantee, Societies Act and Trustees Act, among others.

Though assented to in January 2013, it is yet to be operationalized through gazette notifi cation by the responsible minister.

This piece of legislation will demand more accountability, transparency and good governance from the sector. What must be done to fast-track the operationalization of this Act? Do the benefi ts of this piece of legislation outweigh the costs and challenges? These are questions that must be answered as the NPO sector engages with the committee selected by Government to spearhead the revision of this Act.

Tax considerations?

NPOs are also increasingly becoming aware of the need to be compliant with the various tax laws that affect their operations. Failure to comply with local tax laws and regulations attracts punitive penalties and fi nes. These penalties can divert the scarce resources from program interventions hence losing focus on delivery of public goods/services. Some of the tax issues affecting NPOs include:

• VAT exemptions, registration & accounting,

• Tax exemption certifi cates,

• Taxation of benefi ts given to members of staff and

• Accounting for VAT on imported services.

The NPOs would therefore need to invest time and resources to prevent the risk of non-compliance with tax regulations

since, as the old adage goes, a stich in time saves nine. Is it time for a tax health check?

Risk management and threats of fraud

Development work faces the ever-increasing threat of Error, Fraud and Corruption (EFC). EFC not only affects fi nancial resources but also impacts program implementation. Fraud is one of the major leakages that can suck the vitality of an entity to its demise. Fraud and corruption will therefore ultimately deny the intended benefi ciaries of the public goods/services that they so much need.

The NPO that will attract donor funding, and achieve its stated goals of delivering public goods/services must identify the risks and respond to them in all functional areas. Various tools exist to identify and respond to risks associated with error, fraud and corruption. NPOs must play an active role in fi ghting fraud and corruption in Kenya.

Transition from MDGs to SDGs

How relevant is your NPO in the face of the transition to SDGs? This is a question that will determine sustainability of your organization in the coming years.

Watch this space for more...

All NPOs have a responsibility to comply with the regulator so that the charitable sector can effectively compliment the government in national development.

22 PwC

Internal audit can support the fi ght against fraud

Public sector organisations are tackling issues such as escalating expenditure, procurement irregularities, weak revenue, increasing demand for public services and weak governance.

These can be worsened by fraud and corruption, which can cause fi nancial losses and reputational damage and erode employee morale. As the demand for transparency and the government’s war on corruption intensifi es, internal audit functions can support the fi ght against fraud.

Preventing and detecting fraudThe Institute of Internal Auditors (IIA) defi nes the role of internal audit with regards to fraud as providing objective assurance to the Board and management that fraud controls in place in the organisation are suffi cient for identifying fraud risks and are functioning effectively.

This defi nition is commonly accepted across the profession. The defi nition recognises that we should not confuse the role of internal audit with that of management. Management’s role is to establish and maintain an effective system of internal control to prevent, deter and detect fraud.

Incidences of fraud may be detected by internal audit and some internal auditors may have a role in investigations but they should not be solely relied upon by management to prevent and detect fraud, nor should they be seen as the primary investigator of incidents. To be effective, the role of internal audit must be clearly defi ned, agreed with stakeholders and captured in the Internal Audit Charter. This includes internal audit’s responsibilities with regard to preventing and detecting fraud.

Understanding fraud riskInternal auditors must have suffi cient knowledge to evaluate fraud risk and how it is managed by the organisation. They are not expected to have the expertise of a person whose primary responsibility it is to detect and investigate fraud.

Various models are available to help understand fraud risk. One of the commonly used models is the ‘fraud triangle’. This model argues that fraud generally occurs when three conditions are present:

1. Pressure – the need for committing fraud (for example a non-sharable fi nancial problem, either personal or business related);

2. Rationalization – the mind-set of the fraudster that justifi es them to commit fraud; and

3. Perceived opportunity – the situation that enables fraud to occur (often when internal controls are weak or non-existent).

Fraud risks should be considered when undertaking internal audit risk assessments, developing audit plans and determining the scope of internal audit

Daisy McCartney is a Senior Manager with PwC UK.

+44 (0) 20 7804 [email protected]


reviews. Internal audit resources should then be prioritised in the areas of highest risk to be most effective.

Internal audit can also support the organisation in understanding fraud risk such as by holding workshops to increase awareness and supporting fraud risk assessments. These workshops also help to raise the profi le of anti-fraud measures.

Alert to potential indicators of fraud When undertaking audit work, internal auditors should also be alert to indicators of fraud. Indicators are useful but should be used with caution; someone’s behaviour or profi le may ‘tick all the boxes’ but they are not a fraudster. Conversely, someone may tick none of the boxes but still commit fraud. However, some common ‘red fl ag’ behaviours include:

• Dominant/aggressive personalities or people with too much control;

• Resistance to change or a preference for working alone;

• Close relationships with suppliers and protectiveness of those relationships;

• Generally evasiveness or defensiveness if questioned;

• Lack of transparency and supporting documentation;

• Those who handle complicated processes and systems where cash is involved or there are large amounts of cash transactions and

• A long serving, trusted employee who works long hours and does not take annual leave.

Lifestyle auditsSome organisations are conducting lifestyle audits to help identify fraud by assessing whether or not income is consistent with lifestyle. Such an approach should be used with caution; such audits should only be undertaken where other indicators exist and evidence can be gathered lawfully to contribute to a wider investigation. Lifestyle audits may also prove disproportionately burdensome when audit resources are constrained. Auditors should however maintain awareness of lifestyle as another key indicator of fraud.

Assessing controls in place to mitigate fraud risksAs with any audit review, internal auditors should assess both how controls are designed (does the control in place mitigate the fraud risk?) and the

operation of controls (are controls operating in practice?). Control defi ciencies often provide the opportunity to perpetrate a fraud. Auditors should be aware of the implications of control defi ciencies and raise practical recommendations to help reduce the opportunity to commit fraud.

Internal audit functions can also increase their chances of detecting fraud using data analytics tools that review 100% of transactions to highlight those with certain characteristics. The 2014 PwC Global Economic Crime Survey identifi ed that the most serious frauds are increasingly detected using these techniques.

Professional scepticism and the Code of EthicsProfessional scepticism is an ability to apply a questioning mind and undertake critical assessment (of audit evidence presented, for example). By demonstrating scepticism throughout the audit process, the likelihood of uncovering fraudulent activity is increased.

To support internal auditors in developing and applying professional scepticism there should be constructive challenge within the audit team, effective oversight of audit work and independent review. Auditors should also undertake self-evaluation of their ability to be objective and independent in their work, identifying any threats and implementing safeguards.

Objectivity is one of the four key elements of the internal auditor’s professional Code of Ethics. The others are Integrity, Confi dentiality and Competency. Auditors should always apply these key principles for them to be effective in delivering their role and to help fi ght fraud.

To conclude, internal audit functions can assist management by signifi cantly contributing to the fi ght against fraud and corruption. Internal auditors can assess controls in place to mitigate fraud risk, helping to strengthen the control environment and thus reduce the opportunity to perpetrate fraud.

They can also help to uncover fraud. However, the most effective tool for preventing and detecting fraud is culture. The whole organisation must be united as one in the war on corruption.

Internal auditors should assess both how controls are designed (does the control in place mitigate the fraud risk?) and the operation of controls (are controls operating in practice?).

24 PwC

New law to improve public procurement and asset disposal system

Kenyan citizens continue to demand superior service delivery through effi cient, effective and transparent systems and processes.

The public procurement and disposal system in Kenya has evolved from a system of treasury circulars in the 70’s, 80’s and 90’s to the legally regulated Public Procurement & Disposal Act 2005 and subsequent regulations.

Citizens demanded further changes through the promulgation of the Constitution of Kenya 2010, leading to further reform and a new procurement and asset disposal law.

The Public Procurement and Assets Disposal Act 2015 is the new law that came into effect in December 2015. The Act was developed to give effect to Article 227 of the Constitution of Kenya 2010 which stipulates in subsection (1) inter alia that when a state organ or any other public entity contracts for goods or services, it shall do so in accordance with a system that is fair, equitable, transparent, competitive and cost effective.

The Act has put in place governance structures aimed at ensuring that:

• The government gets value for money;

• Procurement is conducted in a prudent manner, minimizing wastage and losses;

• Resources are allocated optimally for the various prioritized government projects and

• Goods, works and services procured are delivered to intended customers on time.

To make the procurement and asset disposal law even more relevant to the new constitutional dispensation, the aspirations of the Citizens and Vision 2030 blueprint, some key provisions therein are notable.

On the governance front, the role of the National Treasury is now recognized, unlike in the previous Act. This role is to formulate policy, develop the procurement and asset disposal system and provide technical support in the effective implementation of the system.

The Public Procurement Regulatory Authority (PPRA) has replaced the Public Procurement Oversight Authority. Its role, as the name suggests, will be that of regulating and enforcing compliance with powers to terminate procurement proceedings, recommend criminal action and debar contractors in breach. The Public Procurement Administrative Review Board (PPARB) will review, hear and determine tendering and asset disposal disputes.

At the procurement entity (PE) level, the tender committees have been replaced with evaluation committees. The accounting offi cer or head of the organisation will be responsible for preparing annual realistic procurement plans within the approved budget. These procurement plans and budget must also be within the national fi scal framework.

The accounting offi cer remains ultimately responsible for tendering and disposal decisions and contract and inventory management. The offi cer also has the responsibility of maintaining the integrity of the public procurement and asset disposal process. All of these

Allen Kimani is a Manager, Public Sector & Infrastructure at PwC Kenya


The Public Procurement and Assets Disposal Act 2015 was developed to give effect to Article 227 of the Constitution that when a state organ or any other public entity contracts for goods or services, it shall do so in accordance with a system that is fair, equitable, transparent, competitive and cost effective.


lowest evaluated price is above budget; or where there is an urgent need that can be met by several known suppliers.

The use of ICT in the procurement process (e-procurement) to reduce cost and increase effi ciency and accountability has been recognized by the new Act.

The tendering and asset disposal process, i.e., from publication of notices to submission of tenders, evaluation and notifi cation of award may now be done through the use of ICT technologies.

Recognising the fact that there will be need for effi ciency in complex and specialized procurement for the achievement of national objectives, new provisions have been introduced. These include:

• Reserving prequalifi cation only for complex and specialized goods, works and services;

• Use of restricted tendering for these complex and specialised goods, works or services;

• Introduction of a two-stage tendering process to give more impetus to specifi cations;

• Use of Quality Based Selection (QBS) method which focuses on quality and selects the highest quality proposal in the procurement of consultancy services and

• Appointment of a contract implementation team by the accounting offi cer of a PE. The team shall comprise members of the procurement function, technical department, requisitioner and consultant where necessary.

County Governments were ushered in by the Constitution of Kenya 2010 and the new Act has taken this into account in all the relevant sections. In addition, the Act has an entirely new part on the responsibilities of County Governments in public procurement and asset disposal where the County Treasury shall be the organ responsible for the implementation of the public procurement disposal policy.

These responsibilities include capacity building, advising the accounting offi cers, ensuring a minimum twenty percent preference and reservation schemes for County residents, monitoring and evaluation of the County supply chain function.

The methods and procedures by which consultants can be procured by public entities have now been included. Consultancy services have been defi ned as those professional services which are predominantly intellectual or advisory in nature.

Responsibility is placed on the accounting offi cer of the PE to ensure that consultants are selected according to methods prescribed under the Act. For RFPs, Quality and Cost Based method of selection is preferred but other alternative methods (e.g. Consultants Qualifi cation Selection (CQS) and Single Sourcing) may be used subject to prescribed restrictions.

It is therefore evident that the new Act improves governance structures, effi ciencies and enhances the scope to address areas and types of procurement and asset disposal that were not available in previous laws.

By doing this it is envisaged that the procurement and asset disposal system in Kenya will fulfi l the aspirations of its citizenry in receiving quality goods works and services on time and to their satisfaction.

responsibilities mean that the accounting offi cer is also relying on the recommendations of the evaluation committee and the professional opinion of the head of procurement. In this regard the accounting offi cer will now approve all procurement proceedings and can terminate the process prior to contract signing.

The Act has appreciated the dynamics of procurement and has introduced six new procurement types:

1. Two stage tendering- for complex procurement

2. Design competition- for determining the best architectural or other design scheme

3. Force account- Making recourse to state or public assets, equipment or labour where it’s not feasible for external fi rms to implement, or the work to be done is urgent or has been unduly delayed by a contractor.

4. Electronic Reverse Auction (ERA) - Online real time bidding and automatic evaluation of bids.

5. Framework agreements- entered into for a defi nite term to supply goods, works or services and whose quantities and delivery schedules are not determinable at the beginning.

6. Competitive negotiations- to be used where there is a tie in price or evaluation scores; or where the

26 PwC

Understanding public-private partnerships

party under a public private partnership results in a net benefi t accruing to that contracting authority defi ned in terms of cost, price, quality, quantity, timeliness or risk transfer”.

Contracting authorities need to decide, through analysis, which services should be provided by government and those that can be transferred to the private sector. In making this decision, the contracting authority needs to understand that the private sector partner is interested in making a return on his investment. To generate interest in a project from the private sector, the

In my conversations with government offi cials and private sector players on PPPs, I have realized that PPPs are one of the most misunderstood concepts in the fi nancing of public projects.

PPPs tend to be perceived as a substitute for public investments with private investment in infrastructure development. Although it is true that PPPs involve private capital, it is not true that any infrastructure or public service can be developed through a PPP. There are questions that need to be answered before a government takes a project to market looking for private parties/investors.

In defi ning a PPP, Kenya’s PPP Act 2013 states that a PPP is “an arrangement between a contracting authority and a private party under which a private party undertakes to perform a public function or provide a service on behalf of the contracting authority, receives a benefi t for performing the public function and is generally liable for risks arising from the performance of the function in accordance with the terms of the project agreement”.

In deciding what services or functions the public authority can engage the private party to deliver, the contracting authority will need to evaluate the Value for Money (VfM) that the project will deliver. VfM is defi ned in the PPP Act as “the undertaking of a public function of the contracting authority by a private

Patrick Macharia is a Senior Manager with PwC’s Advisory Transactions unit.



business case for the project has to be analyzed and demonstrate the profi tability for the private partner. This then necessitates the need to carry out a feasibility study.

A feasibility study is defi ned in the PPP Act as “…a study undertaken to explore the technical, fi nancial, legal, social and environmental feasibility of undertaking an infrastructure or development facility as a public private partnership”.

In deciding whether a PPP project is feasible, a few questions to ask are:

• If the private partner covers the cost of developing the infrastructure how will he be compensated or recover their investment?

• Is there a ready market for the service to be provided? For example, will there be traffi c on a toll road?

• What if the land on which the project is developed becomes a swamp?

These questions and lead us to a concept in PPPs called risk allocation.

Risk allocation in PPPs means that the risks in the project are allocated to the partner (or party) best able to handle them. Failure to allocate risks properly could result in one party being unfairly burdened with risks that they are not able to carry. Very often, this leads to project failure.

Having appropriately (or adequately) allocated the risks and analyzed all aspects of the project, the contracting authority will be in a comfortable position to gauge the full cost of the

project. At this point, the VfM analysis needs to be carried out and a comparison made between developing the project as a public procured project or as a PPP.

An affordability analysis will need to be carried out on whether the project is affordable to the government in case the government has to pay periodic payments (unitary payments) to the private party or if the citizens can afford to pay a user charge (tariff, tolls, rentals etc.).

Once the decision to go the PPP route is made, the competitive tender process will begin. This process could be long and tedious but the end benefi t is that the contracting authority is able to obtain the best price for the service to be procured and be able to receive innovative proposals from the private parties.

To carry out the process described above, the PPP Act does recognize the fact that most contracting authorities do not have the prerequisite experience in carrying out the feasibility analysis and the subsequent procurement process.

The Act therefore allows the contracting authority to hire a Transaction Advisor (TA) with the advice of the PPP Unit. A good TA should be able to guide the contracting authority through the whole process up until the private party signs a PPP contract with the contracting authority.

So, should a project be developed as a PPP? A good feasibility study should provide an indicative answer. In addition, the contracting authority should also test the market to gauge the interest from private parties for such a project.

To generate interest in a project from the private sector, the business case for the project has to be analyzed and demonstrate the profi tability for the private partner.

28 PwC

Planning your journey on the road to immigration and tax compliance

The best way to achieve simplicity in all things is through conscientious planning. Hoping that ‘it will end up well’ is a recipe for chaos.

This is certainly true for everyone complying with Kenya’s immigration and tax requirements. Least cost in terms of time and effort results directly from plans to manage time and effort. Many organisations in Kenya and their employees struggle to plan ahead for compliance requirements and they waste valuable time and effort as a result.

What does a good immigration and tax compliance plan look like? First and foremost, the milestones on the road to compliance should be crystal clear and tailor-made for the individual(s) concerned.

The plan’s main objective should be to stay ahead of the ‘compliance curve’ and continuously identify any risk areas. Ideally, these plans should demonstrate a keen focus on proactively and rapidly discerning opportunities to reduce cost, identify risk and reduce excessive administration.

Alien registration

The road to compliance with immigration requirements begins with ensuring that employees hold the relevant immigration permits to work legally. Administrative procedures have changed over time which shows the premium on migration management as the country’s security laws have sought to streamline the entry and stay of foreign nationals in Kenya, among other objectives.

Since August 2015, registration of foreign nationals has been tied to the endorsement of work permits. The new

directive now requires foreign nationals to avail themselves for alien registration before the work permits are formally endorsed in the passports.

The Department of Immigration has introduced these administrative procedures with a view to tightening the foreign nationals’ registration. However, the time taken to process and issue alien cards has not changed much and typically takes over three months.

Time frames for issuance of immigration permits have generally improved in the recent past. However, since January 2016, there has been a slight slowdown due to the holiday season. As always, organisations are well-advised to plan their immigration requirements and initiate applications early.

Shreya Shah is a Manager with PwC Kenya’s Human Resources Services team within Tax.

[email protected]

The Department of Immigration has introduced administrative procedures with a view to tightening the foreign nationals’ registration. However, the time taken to process and issue alien cards has not changed much.


Preparing for submission of the 2015 self-assessment tax returns

All of the milestones above require good planning and they lay the groundwork for the preparation and submission of the 2015 self-assessment tax returns. Individuals who were ‘chargeable to tax’ in 2015 are required to submit a self-assessment tax return via i-Tax before the deadline of 30 June 2016. The government’s commitment to improved service delivery through electronic channels has advanced several steps forward.

From 1 August 2015, the KRA is no longer accepting manual returns. In order for individuals to prepare for submission of their 2015 tax returns, individuals should take steps to ensure that their PIN is updated on i-Tax (as a fi rst step) where it may have been applied for over two years ago.

The challenge will remain for individuals (in particular expatriates) who departed Kenya in 2015 without confi rming if their PINs were updated on i-Tax. The KRA sometimes requests for original documents to be presented in order for them to verify the individuals and update their records if an individual is unable to use their alien ID/passport to update their PIN (in cases where these documents may have expired).

All of the best-laid plans are still at the mercy of some inconvenience caused by the regulatory stakeholders. There is some inconvenience as a result of poor coordination between the KRA and the Department of Immigration.

Closer links and collaboration between them would enable a seamless transition of information and facilitate the achievement of their individual objectives.

Furthermore, while security remains a concern for Kenya, it would be sensible for the KRA to adopt a common approach to accept certifi ed copies of documents required in order to verify an individual’s details.

Whether the KRA will accept certifi ed passport copies usually depends on the offi cer at the KRA i-Tax desk. The argument here is not for the KRA to become complacent about security but to be alert to the tendency to overplay the risks and abet nonconformity.

The vast majority of individuals and organisations are eager to comply with immigration and tax requirements in Kenya. For many, better planning and formal advice from a trusted third-party would save time and cost throughout the process of planning and compliance.

Applying for a PIN

The next step on the road to compliance is applying for a Personal Identifi cation Numbers (PIN). The move to allow foreigners to apply for PINs using a special pass has assisted the KRA with its ongoing efforts to improve collection of taxes.

Individuals can now apply for a PIN using a special pass or work permit. Previously, individuals were only able to apply for PINs once the work permit had been approved and issued. This requirement had led to delays in the payment of taxes, registration of companies and business names, opening bank accounts and clearing goods with customs.

In order to apply for a KRA PIN, an individual is required to submit an e-registration application via i-Tax (the KRA’s online portal), and thereafter present their documents in person to the KRA (i.e. passport, special pass/work permit, alien card or alien card registration acknowledgment) to enable the KRA to verify the individual’s documents prior to issuance of a PIN.

With the migration to i-Tax, PINs applied for in the last year tend to be updated on i-Tax and at the time of issuance of the PIN (via email), individuals will also be issued with their i-Tax login details.

30 PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of fi rms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.com

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