Report No: AUS8099 . Republic of Kenya Kenya Urbanization Review . February 2016 . GSU13 AFRICA . . Document of the World Bank . Standard Disclaimer: . This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. . Copyright Statement: . The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, http://www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Kenya Urbanization Review KENYA URBANIZATION REVIEW FEBRUARY 2016 i ii Kenya Urbanization Review Contents Acknowledgements......................................................................................................................... xii Executive summary...........................................................................................................................1 Urban Trends: An Urbanizing Middle-Income Kenya..........................................................................1 Kenya is an under-urbanized, middle-income country with growth potential................................1 Kenya’s connective infrastructure can facilitate an economically vibrant portfolio of cities...........3 A poorly functioning land sector is a binding constraint to urbanization........................................4 Urban Challenges: Ensuring a Livable Urban Kenya for All..................................................................5 Urban services have not kept pace with urbanization........................................................................5 Informality is the de facto housing solution for a majority of urban Kenyans...............................8 Poor urban access hurts productivity and livability......................................................................9 Strong Institutions Required for Pro-Growth and People-Centered Urbanization.............................11 Kenya’s devolved system of governance will impact urbanization..............................................11 Urban management is not automatic under devolution.............................................................12 Planning institutions need reform to be effective.......................................................................13 Better local economic planning can foster local economic development....................................14 Lack of urban financing threatens progress................................................................................15 Toward Developing Policy Priorities for Urbanization.......................................................................16 Ensuring effective urban management and governance structures.............................................16 Modernizing land and planning institutions...............................................................................17 Ensuring a sustainable financing framework..............................................................................17 Additional policy considerations................................................................................................18 Bibliography....................................................................................................................................21 Chapter 1 Trends: An Urbanizing, Middle-Income Kenya.............................................. 23 Introduction....................................................................................................................................24 The Demographic Picture: Kenya is Urbanizing Rapidly, but Not Too Rapidly....................................24 Urbanization and Kenya’s Economy.................................................................................................25 Urbanization and Devolution...........................................................................................................29 Local government before devolution .........................................................................................29 Urban governance after devolution............................................................................................31 An urban governance deficit?....................................................................................................31 Transferring national functions..................................................................................................32 Intergovernmental fiscal relations..............................................................................................32 Land Use Planning, Urban Management, and Institutions ................................................................... National Land Policy of 2009—an opportunity missed...............................................................35 Land registration and administration—an institutional dualism pricing out all but the wealthy...............................................................................................................36 Other land management issues..................................................................................................37 iii Kenya’s Portfolio of Cities................................................................................................................38 Bibliography....................................................................................................................................43 Chapter 2.................................................................................................................... 45 Access to Basic Services in Urban Areas ......................................................... 45 Key Messages..................................................................................................................................46 Assessment of Basic Services in Urban Centers................................................................................47 Access to Basic Services within and across 15 Large Urban Areas..................................................... 50 Water and sanitation services—institutional structure...............................................................53 Water and sanitation services—financing..................................................................................57 Electricity—institutional structure............................................................................................. 60 Electricity—financing.................................................................................................................61 Solid waste management services—institutional structure........................................................62 Solid waste management services—financing............................................................................63 Recommendations...........................................................................................................................64 Bibliography....................................................................................................................................65 Chapter 3 Access to Affordable Housing in Urban Areas............................................... 67 Key Messages..................................................................................................................................68 Supply of Housing: Poor Conditions and Inadequate Formal Supply.................................................71 Constraints on Affordable Housing ..................................................................................................74 Constraint 1: High cost of land...................................................................................................74 Constraint 2: High cost of formal construction............................................................................74 Constraint 3: Limited access to housing finance .........................................................................75 Constraint 4: Inappropriate taxes and regulations .....................................................................75 Government Efforts to Address Constraints: Limited and Expensive.................................................76 Private Sector and Civil Society Efforts to Address Constraints: Effective but Small Scale..................77 Recommendations ..........................................................................................................................79 Constraint 1: High cost of land.........................................................................................................79 Constraint 2: High cost of construction............................................................................................79 Constraint 3: Regulatory obstacles...................................................................................................79 Constraint 4: Access to financing......................................................................................................79 Medium term..................................................................................................................................79 Develop mechanisms for proper targeting of access to financing.....................................................79 Bibliography.................................................................................................................................... 80 iv Kenya Urbanization Review Chapter 4 Connectivity for Access and Economic Growth: Mitigating Congestion, Enhancing Accessibility ......................... 81 Key Messages..................................................................................................................................82 Kenya Today—Spatial Development and Mobility Patterns..............................................................82 Nairobi Today—Spatial Development Patterns, Travel, and Accessibility....................................... 84 Urban form: monocentric and rapidly expanding.......................................................................85 Transport system and mobility characteristics: pedestrian and informal.....................................88 Urban transport institutions in transition................................................................................... 90 Crippling congestion costs in Nairobi..........................................................................................91 Accessibility of employment opportunities today: too few, too long, and unequal.....................94 Toward Middle-income Status: Challenges and Opportunities.........................................................96 Recommendations ..........................................................................................................................98 Bibliography.................................................................................................................................. 100 Chapter 5 Land Management and Urban Planning Institutions, Before and Under Devolution..................................................103 Key Messages ............................................................................................................................... 104 Under Devolution.......................................................................................................................... 105 Evaluation..................................................................................................................................... 107 Jurisdictional disputes between the National Land Commission a nd MLHUD undermine prospects for reform............................................................................ 107 Technical capacity begins to improve; planning qu ality and public participation need support.............................................................................. 108 Development control falls short............................................................................................... 109 The Need for Interjurisdictional Cooperation and Metropolitan Planning ...................................... 111 International approaches......................................................................................................... 111 Kenyan approaches.................................................................................................................. 112 Recommendations......................................................................................................................... 114 Bibliography.................................................................................................................................. 116 Chapter 6 Planning for County Competitiveness............................................................117 Key Messages................................................................................................................................ 118 Introduction.................................................................................................................................. 118 Competition vs Collaboration under Devolution............................................................................ 122 The CIDPs...................................................................................................................................... 123 Recommendations ........................................................................................................................ 125 v Bibliography.................................................................................................................................. 126 Chapter 7 Financing Urban Services: Challenges and Imperatives.........................127 Key Messages................................................................................................................................ 128 Introduction.................................................................................................................................. 128 Brief Overview of County Governments’ Financing........................................................................ 130 County Revenues under Devolution .............................................................................................. 130 The equitable share formula.................................................................................................... 132 Own-source revenues.............................................................................................................. 134 Early responses to fiscal shocks...................................................................................................... 135 Sustainable adjustment—reduce expenditure, increase revenue, or both...................................... 138 Financing County Investment: Subnational Borrowing and Public–Private Partnerships................. 140 Constitutional basis for counties’ own-revenue powers ................................................................ 141 Legal issues concerning some county revenue powers .................................................................. 141 Recommendations......................................................................................................................... 147 Bibliography.................................................................................................................................. 149 Annexes......................................................................................................................................... 150 Annex 1: Access to Basic Services (based on data from the Kenya State of the Cities Baseline Survey)142 ......................................................................................................... 150 Annex 2: Water and Solid Waste Management Legislation....................................................... 158 Annex 3: Planning for County Competitiveness........................................................................ 160 Annex 4: Intracity Connectivity in Nairobi................................................................................ 165 Annex 5: Governance changes at devolution............................................................................ 169 Annex 6: Overview of Spatial/Land Use Plans in Kenya (statutory basis and role)..................... 172 Bibliography.................................................................................................................................. 174 Figures Figure 1: Projections of urban population and urban–rural population split.......................................3 Figure 2: Concentration of the urban population...............................................................................4 Figure 3: Access to water and sanitation (left) and to electricity (right) in Kenya................................6 Figure 4: Access to water and electricity by population of urban area................................................6 Figure 5: Access to water by city size in Colombia (left) and Vietnam (right).......................................7 Figure 6: Living conditions in formal and informal urban areas..........................................................9 Figure 7: Transport mode share comparison.................................................................................... 10 Figure 8: System of governance and management of urban areas....................................................12 Figure 9: Percentage of county population living in urban areas, by county......................................12 vi Kenya Urbanization Review Figure 10: The case for development control—building codes are evaded and residential structures collapse and kill residents.......................................................................14 Figure 11: County own-source revenues and fiscal surpluses (% of 2013/14 revenues).....................16 Figure 12: Land, planning, and connectivity.....................................................................................18 Figure 13: Basic services and housing...............................................................................................19 Figure 14: Urban governance and finance ....................................................................................... 20 Figure 1.1: Projected urban–rural percentage population split.........................................................25 Figure 1.2: Share of urban population and number of urban centers................................................26 Figure 1.3: Kenya’s urbanization is below the predicted level compared to income per capita .........27 Figure 1.4: Kenya’s urbanization is driven by services rather than industry.......................................27 Figure 1.5: Industry performance is lackluster and formal jobs are scarce........................................28 Figure 1.6: Seven cities contribute half of the earnings in the economy, and their share is rising as the country urbanizes ...........................................................................................28 Figure 1.7: System of governance and management of urban areas.................................................31 Figure 1.8: First generation and proposed second generation formulas............................................33 Figure 1.9: Transport infrastructure, Kenya......................................................................................39 Figure 1.10: Kenya’s transport infrastructure................................................................................... 40 Figure 1.11: Urban concentration of population and earnings .........................................................41 Figure 2.1: Access to piped water on premises across selected countries, 2012................................47 Assessment of Basic Services in Urban Centers................................................................................47 Figure 2.2: Access to electricity across selected countries, 2010.......................................................48 Figure 2.3: Access to improved water and sanitation in Kenya, 1990–2012.......................................49 Figure 2.4: Current rate of access to sanitation and rate needed to achieve universal access by 2030.................................................................................................................49 Figure 2.5: A growing proportion of the population has access to electricity, especially in urban areas................................................................................................................. 50 Figure 2.6: Electricity connections in urban and rural areas, 2009–2014........................................... 50 Access to Basic Services within and across 15 Large Urban Areas..................................................... 50 Figure 2.7: Access to water and electricity by population of urban area .................................................... 51 Figure 2.8: Population of 15 urban areas .........................................................................................51 Figure 2.9: Poor households spend a much larger proportion of their income on water and electricity than the nonpoor, 15 cities.......................................................................53 Figure 2.10: Institutional setup under the Water Act of 2002 ..........................................................54 Figure 2.11: Financing gap to meet Vision 2030 targets (KShs) billions) ...........................................58 Figure 2.12: Trends in approved budget for Water and Sanitation Services, 2005–14.......................59 Figure 2.13: Water sector budget allocation by subsector, 2011–14..................................................59 Figure 3.1: Annual housing requirement, 1950–2050.......................................................................69 Figure 3.2: Renting vs. homeownership in cities............................................................................... 70 Figure 3.3: Employment formality, income, and food costs, three urban areas.................................75 vii Figure 3.4: Household incomes and living conditions by formality of tenure....................................73 Figure 3.5: Indicators of overcrowding in informal areas: unit size and average number of rooms by formality of tenure 73 Figure 3.6: Government of Kenya budget and implementation........................................................77 Figure 4.1: Major transport corridors in Kenya showing the importance of rail infrastructure and the Northern Corridor........................................................................................83 Figure 4.2: Transport mode share comparison of Nairobi City County with all Kenyan cities............................84 Figure 4.3: Distribution of commercial, industrial, and public land uses, Nairobi City County, 2005..................84 Figure 4.4: Trip distribution by mode, Nairobi City County...............................................................................85 Figure 4.5: Changes in urbanized area between 2003 and 2014, Nairobi City County ......................................86 Figure 4.6: Urbanized areas grew faster than the population in Nairobi City County between 2003 and 2014.................................................................................................................................87 Figure 4.7: Job–housing balance, Nairobi City County (1 kilometer2 grid cells) ...............................................87 Figure 4.8: Existing transport infrastructure, Nairobi City County, including major roads, rail lines, and matatu routes ......................................................................................................88 Figure 4.9: Trip mode shares, Nairobi City County, 2013 ..................................................................................89 Figure 4.10: Trip mode shares, selected African cities......................................................................................89 Figure 4.11: Number and mode share of trips by income bracket, Nairobi City County, 2013...........................89 Figure 4.12: Motorization rates, Nairobi, 2004 and 2013.................................................................................. 90 Figure 4.13: Motorization rates, selected African cities.................................................................................... 90 Figure 4.14: Average travel times, Nairobi, 2013, by income, mode, and trip purpose...................................... 90 Figure 4.15: Aggregate daily personal commuting costs, Nairobi City County...................................................92 Figure 4.16: Per capita VOT spent traveling, Nairobi City County......................................................................92 Figure 4.17: Total VOT spent traveling, Nairobi City County.............................................................................93 Figure 4.18: Share of accessible employment opportunities within one hour of traveling for cars (left panel) and matatus (right panel).......................................................................94 Figure 4.19: Lorenz curves showing spatial inequality in accessibility to employment opportunities in urban Nairobi City County............................................................................95 Figure 4.20: Informal settlements, Nairobi City County....................................................................................95 Figure 4.21: Hospitals within a 30-minute matatu ride ....................................................................................96 Figure 6.1: Most countries grow richer as they urbanize ...............................................................................118 Figure 6.2: GDP growth and urbanization in Kenya seem to go hand in hand ................................................119 Figure 6.3: Economic density (left) tends to be higher where county population is higher (right)...................119 Figure 6.4: More urbanized countries and Kenyan counties are more prosperous ......................................... 120 Figure 6.5: Urbanization and economic prosperity (per capita) do not always go hand in hand...................... 120 Figure 6.6: Kenyan industry is dynamic..........................................................................................................121 Figure 6.7: Changing dynamism across counties............................................................................................122 Figure 7.1: Urban population distribution in Kenya........................................................................................131 Figure 7.2: County revenues per capita, all sources, 2013/14......................................................... 133 Figure 7.3: Proportion of county resources absorbed by inherited costs and 30% development, 2013/14........................................................................................... 133 viii Kenya Urbanization Review Figure 7.4: Distribution of own source revenues among the 47 counties, 2013/14......................... 134 Figure 7.5: Urban counties suffered an overnight reduction in available resources, 2012/13–2013/14.......................................................................................... 135 Figure 7.6: Urban counties were prone to overestimate the own revenue they would collect, 2013/14............................................................................................ 136 Figure 7.7: Urban counties continue to budget for hidden deficits, 2014/15................................... 137 Figure 7.8: County development spending as a share of total spending, 2013/14........................... 138 Figure 7.9: Both urban and rural counties are in a poor position to borrow, for different reasons... 143 Figure 7.10: Only 10 counties have room to borrow within the proposed 20% threshold, once inherited debts are considered...................................................................... 144 Boxes Box 1: Devolution and former institutional roles in water supply and sanitation sector in Kenya.......8 Box 2: Local government before devolution ....................................................................................11 Box figure 1: GDP per capita at 50 percent urbanization rate for three comparator regions.............. 30 Box figure 2: Real GDP growth scenarios.......................................................................................... 30 Box 1.1: Scenarios for reaching GDP levels in three regions at 50 percent urbanization.................... 30 Box 3.1: The impact of large minimum lot sizes................................................................................76 Box 7.1: County revenue autonomy: Comparison with other countries ......................................... 141 Box 7.2: Scope of Kenyan counties’ revenue powers ..................................................................... 141 Box 7.3: Fiscal Responsibility Principles, Section 107 of the Public Finance Management Act......... 142 Box 7.4: Partial survey of county public–private partnerships and quasi-public–private partnership arrangements ............................................................................................................ 146 Tables Table 1.1: Selected comparative development indicators with other middle-income countries........24 Table 1.2: Rate of change in the urban population, selected East African countries..........................25 Table 1.3: Land tenure in 15 urban areas, 2013................................................................................34 Table 1.4: Ownership by type of document......................................................................................35 Table 1.5: Nine steps to register a property......................................................................................37 Table 1.6: Six envisioned metropolitan areas ..................................................................................41 Table 2.1: Water supply and sanitation financing gap for Vision 2030 targets, KSh billion.................58 Table 3.1: Annual income distribution in selected urban areas (%), 2013.........................................69 Table 3.2: Rent levels and percentage of income spent on rent in urban areas.................................71 Table 3.3: Living conditions in Kenyan cities.....................................................................................72 Table 3.4: Cement costs by type of structure, 2014..........................................................................75 Table 3.5: Tax rates for Kenyan individual residential rental property owners, 2014.........................76 Table 4.1: Travel costs by mode, citywide and per trip, Nairobi........................................................93 Table 4.2: Average share (percentage) of Nairobi’s employment opportunities accessible within a given timeframe, by transport mode used and congestion status.94 ix Table 4.3: Number and share of Nairobi City County’s population with access to public services within 30 minutes, walking or by matatu...........................................96 Table 6.1: Tax discounts as a result of competition between U.S. states ........................................ 123 Table 7.1: Size of county budgets and actual expenditures in 2013/14—average, largest, and smallest (US million)..................................................................... 132 Table 7.2: County spending in 2013/14 by economic classification—average, largest, and smallest..................................................................................................................... 132 Table 7.3: Counties are heavily reliant on transfers from national government to finance services............................................................................................................................ 132 x Kenya Urbanization Review Standard Disclaimer This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of the World Bank of the governments they represent. The World Bank does not guarantee the accuracy of the date included in this work. The boundaries, colors, denominations and other information shown on any map in the work do no imply any judgment on the part of the World Bank concerning the legal status of any territory of the endorsement or acceptance of such boundaries. Copyright Statement The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive Danvers, MA 01923, USA; telephone 978-750-8400, fax 978-750- 4470, http://www.copyright.com/ All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street, NW, Washington, DC 20433, fax 202-522-222, email pubrights@worldbank.org. xi Acknowledgements The Kenya Urbanization Review benefitted from the hard Miriam Omolo, Debabrata Talukdar, Clifford Waithaka, Njeri work, dedication, and support of numerous people. The Cerere, and Laban Maiyo. work was coordinated and led by Dean Cira (Lead Urban Specialist) and Sheila Kamunyori (Urban Specialist). The The team is grateful for the support provided by the World report reflects the significant contributions of a team of Bank management, in particular Diarietou Gaye (Country experts who led the research and writing of the individual Director for Kenya), Thomas O’Brien (Country Program chapters. Coordinator for Kenya) and Sameh Wahba (Practice Manager, Global Practice for Social, Urban, Rural and Resilience Pascaline Wanjiku Ndungu (Water and Sanitation Specialist), (GSURR)). The team is also grateful for the continued inputs Chris Heymans (Senior Water and Sanitation Specialist), and and guidance provided by Somik Lall (Lead Economist) Wendy Ayres (Economist) led the work on Access to Basic and Roland White (Global Lead, GSURR) and to those Services in Urban Areas. Ira Peppercorn (Housing Specialist) that participated in a various technical reviews, including led the work on Access to Affordable Housing in Urban Andre Bald (Program Leader), Sumila Gulyani (Global Areas. Lead, GSURR), Mukami Kariuki (Lead Water and Sanitation Specialist), Mesky Brhane (Program Leader, Kenya), Apurva Roger Gorham (Transport Economist) and Paolo Avner Sanghi (Program Leader, Kenya), and William Britt Gwinner (Urban Economist) led the work on Connectivity for Access (Housing Lead, International Finance Corporation). and Economic Growth. This chapter also benefited in large part of from analytical and quantitative work undertaken by The team also thanks the peer reviewers for their support at students in the City and Regional Planning Masters’ Program various stages of the Kenya Urbanization Review preparation: at the University of North Carolina under the guidance of Nancy Lozano Gracia (Senior Economist), Ellen Hamilton Professor Daniel Rodriguez: Nathan Page, Melanie Morgan, (Lead Urban Specialist), Stephen Karam (Program Leader, Jesse Cohn, Scott Boone, Walker Freer, Yijun Ma, Steven Turkey), John Speakman (Lead Private Sector Development Keith, and Nate Baker. The Kenya Urbanization Review team Specialist), Winnie Mitullah (University of Nairobi, Institute is grateful to these students who received no remuneration of Development Studies), and Peter Ngau (University of for their work, but received instead school credit for the Nairobi, Department of Urban Planning). Support for the capstone course as part of their Masters’ programs. preparation of the Kenya Urbanization Review was also provided by Elizabeth Karuoya (Program Assistant) and Ellen Bassett (Associate Professor of Urban Planning, Roderick Babijes (Program Assistant). To them the team University of Virginia) led the work on Land Management extends its gratitude. and Urban Planning Institutions. Megha Mukim (Economist) led the work on Planning for County Competitiveness The team also thanks Bruce Ross-Larson and Joe Caponio together with Dmitry Sivaev (Economist). Kathy Whimp of Communications Development Incorporated who edited (Senior Public Sector Specialist) led the work on Financing the report and Paul Chikombe, the report’s graphic designer. Urban Services with Geoff Handley (Senior Public Sector Specialist), incorporating significant early drafts by Fred The team wishes to thank the Government of Sweden for Owegi (Economist) and Wangari Muikia (Economist) and its generous support to the Kenya Urban Knowledge and technical inputs from Peter Lilford (Consultant). Implementation Program, which provided a significant share of the funding to undertake this endeavor. The Kenya Urbanization Review also benefitted from the Credits for photographs on book cover: contributions of Jane Kiringai (Senior Economist) and Catherine Mwende Ngumbau (Economist), who led the Philip Jespersen: Nairobi skyline at night work on economic trends. The team is also thankful to Ira Peppercorn: All others the consultants who provided analytical inputs, including xii Kenya Urbanization Review Executive summary The story of urbanization in Kenya should be one of This Kenya Urbanization Review takes a deep look at cautious optimism. As an emerging middle-income Kenya’s urbanization process. It provides initial policy country with a growing share of its population living in options in several key areas including housing and basic urban areas and a governance shift toward devolution, services, land use and transport, planning, subnational the country could be on the verge of a major social and finance, and local economic development. These are not the economic transformation. How it manages its urbanization only areas of concern for Kenya’s urban practitioners and and devolution processes will determine whether it can policy makers. But they were identified as areas for more maximize the benefits of its transition to a middle-income in-depth study during initial stakeholder consultations and country. This is in part because no country has reached high- as key priorities in consultations with government experts. income status without urbanization, and in part because It is hoped that the Review will serve to raise understanding the devolution of state authority, resources, and functions of the important opportunity that urbanization presents for may result in more equitable and efficient governance and the country, informing policy makers and interested parties services. alike and expanding dialogue on Kenya’s urbanization. Kenya has seen positive economic growth in tandem The review is laid out in three parts. The first looks at with increasing rates of urbanization, but the country some of the demographic, economic, and spatial trends of has not yet experienced an economic transformation. Kenya’s urban areas (Chapter 1). The second describes the Economic growth has created a growing middle class, but challenges or threats to a smooth urban transition: large, poverty reduction has been less than expected. To tackle growing informality and inequality within and between poverty requires policymakers to look across many sectors, urban areas, in three categories of access (Chapters  2, 3, issues, and locations. There are needs in rural areas and and 4). The third examines the modern institutions needed marginalized counties which merit attention as highlighted to address the challenges head on and to ensure that in other Bank studies. This comprehensive report focus Kenya’s cities have the opportunity to serve as true drivers on cities where today majority of urban residents live in of economic growth (Chapters 5, 6, and 7). informal conditions, with poor access to basic networked services and an increasing share of informal sector work. Urban Trends: An Urbanizing Middle- Income Kenya The country’s ambitious experiment in devolution should hold great promise and comes at an important period Kenya is an under-urbanized, middle-income in the economic and urban transformation. But aspects country with growth potential of the process may weaken urban centers at a time when Kenya had a gross national income (GNI) per capita of $1,280 they need to be strengthened. On balance, Kenya still has in 2014, putting it in the ranks of lower middle-income an opportunity to leverage urbanization to drive economic countries. Kenya’s Vision 2030 national development growth. It is in the early stages of urbanization, and evidence program set a goal for the country to join the ranks of upper suggests that cities can drive economic development— middle-income countries by 2030. These countries have especially where they are developed through a “system- GNIs per capita of between $4,126 and $12,736 (2015). of-cities” approach and where devolution empowers Attaining that status would mean improved living standards counties—a second tier of government—to develop strong for all Kenyans. On average, urban dwellers in upper middle- urban centers. income countries have 92 percent access to electricity, 97 1 percent access to improved water supplies and 87 percent channel is the “pull from industrial productivity,” where access to improved sanitation. These figures are far better economic transformation from agriculture to industry than Kenya’s current levels: only about 60 percent have attracts labor from the rural economy to cities’ industrial access to improved water sources, only 50 percent have sector. This process is marked by a high correlation access to electricity and only 30 percent have access to between urbanization and the share of industry in GDP. A improved sanitation in urban areas. These countries are third channel is seen in countries whose growth emanates also mostly urbanized and have much lower poverty rates from natural resource wealth. The rising incomes from than Kenya’s, while Kenya has a low urbanization rate of natural resource exports spur urbanization by increasing less than 30 percent and high levels of poverty. demand for goods and services produced in urban areas, and by helping create urban jobs that lead to the growth of As a rural country, Kenya’s poverty reduction and economic consumption cities. For such cities there is no corresponding growth strategies must include a focus on agriculture, rise in the share of industry in GDP (Freire, Lall, and Leipziger and on locations where poverty rates are high, including 2014; Jedwab 2013). “marginalized” counties. But fundamentally this must be complemented by heightened attention to the fact that Kenya is urbanizing rapidly but is under-urbanized, meaning urbanization and better access to urban areas can reduce that it still can leverage the benefits of urbanization and rural as well as urban poverty in the long term. The majority attain its goal of becoming an upper middle-income of Kenya’s poor live in rural areas: 90 percent of Kenyans country by 2030. Based on a correlation of GDP per capita in the bottom 40 percent of the income distribution live in and urbanization for several countries, about 40 percent of rural areas. Hence, incomes of the rural poor would have Kenyans (given their current GDP of US$1,200) should be to rise to make a big dent in poverty. Because the poor in living in urban areas, against the actual 27 percent. On this Kenya depend primarily on labor income, the key to raising measure, Kenya is an underperformer on urbanization, with their incomes is to provide them with job opportunities. a rate similar to Mozambique, Bangladesh, and Zimbabwe, Rural poverty declined from 42.3 percent in 2000 to 37.6 whose per capita incomes are far lower. At the same time, percent in 2007, primarily as a result of rural workers doing Kenya is urbanizing faster than countries like Vietnam and non-farming work. Households that escaped poverty were India, which have a similar population share in urban areas more likely to have better educated members, more land but higher per capita incomes. Kenya’s under-urbanization under cultivation, and more non-land assets—that is, more is unique in Africa, where most countries have urbanization diversified income sources. This implies that diversifying rates that far outpace their economic performance, creating income beyond farming is an effective poverty reduction consumption cities. strategy. And education helps rural Kenyans to obtain the While Kenya may not exhibit classic consumption city skills to perform wage work or to become self-employed. characteristics, it has not yet used its urbanization to leverage Since most of the rural poor live relatively close to the largest economic transformation. Economic growth averaged 4.5 urban centers, promoting internal mobility—through percent over 2003–13. Agriculture retains the largest share better transport links, public goods, access to credit, and of the economy, contributing a quarter of GDP. The share land tenure—holds promise to reduce rural poverty (World of manufacturing in GDP declined from 13 percent in 2006 Bank, 2015). and is now about 10 percent. Growth is driven mainly by the Thus urbanization has the potential to improve economic services sector, which has a large informal share of labor. opportunities and living conditions for all Kenyans. There Over 2000–11, the services sector expanded by 2.1 percent, is a strong positive relationship between urbanization agriculture 1.1 percent, and industry 0.7 percent annually. and economic growth. The two processes reinforce each Formal sector jobs are scarce and unemployment is higher other through several potential channels: “agricultural in urban areas. Each year the working age population push,” “industrial pull,” and “consumption cities.” Rising increases by some 800,000 but the economy creates only agriculture productivity, which in the early stages drives about 50,000 modern sector wage jobs. Unemployment in economic growth, releases excess labor that migrates to urban areas is about 13 percent for Kenyans between the cities seeking better opportunities in the modern sector— ages of 20 and 24, and underemployment is prevalent in often referred to as the “push from agriculture.” The second rural areas. Kenya’s urbanization thus seems to be driven by 2 Kenya Urbanization Review agricultural push rather than industrial pull, but with some better business environment, are able to create more jobs, elements of the consumption cities channel.Fortunately, and can benefit from a sufficiently large pool of better Kenya is at an early stage of urbanization, but by 2050 educated people who can migrate from rural areas to about half of the population will be living in cities. Around take these jobs. But growth will be weaker if uneducated 27 percent of Kenyans live in urban areas, and Kenya is migrants are forced to leave rural areas for the city by a urbanizing at about 4.3 percent a year (Figure 1). This pace combination of rapidly growing population density and has the potential to drive economic growth. Urbanization scarcity of agricultural land. will strongly drive economic growth if urban firms have a Figure 1: Projections of urban population and urban–rural population split Percentage of urban populaƟon Urban-rural share of populaƟon 70% 100% 90% 60% 80% 50% 70% 40% 60% 50% 30% 40% 20% 30% 20% 10% 10% 0% 0% 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Africa East Africa Kenya Rural Urban Source: United Nations Department of Social and Economic Affairs, Population Division (2014). East Asia urbanized with economic transformation driven connectivity, as well as its connectivity to other regions and primarily through investment in infrastructure and with cities. Good transport infrastructure enables companies industrialization. For Kenya to reach a GDP per capita and people in a region or city to increase production and comparable to East Asia’s when that region reached the 50 consumption levels due to lowered logistical costs and percent urban population mark, its economy would have access to larger supply and labor markets. Other factors are to show real GDP growth of 8.9 percent a year from now equally important to economic growth of a region, including to 2050—but Kenya has hit 7 percent only four times in population growth, agglomeration of firms, education levels the past 40 years. Although the relationship between GDP of residents, and quality of life. Good connectivity (and growth and urbanization is stronger in Kenya than in most other infrastructure), along with strong institutions and of Sub-Saharan Africa, it is still not as strong as in East Asia, targeted interventions, are essential to reap the benefits of yet Kenya’s urbanization will require even higher sustained urban economic agglomeration. levels of growth. This is why its under-urbanization relative to its GNI per capita is important. The task of simultaneously Kenya has developed good connective infrastructure that speeding up growth and urbanization will not be easy. can better develop its portfolio of cities. Urban economic growth has been established around population centers and Kenya’s connective infrastructure can facilitate an productive agricultural regions, with most urban dwellers economically vibrant portfolio of cities living near the Northern Corridor, which connects Mombasa Port through Nairobi to Malaba, with a branch line to Urbanization is more than the development of individual Kisumu in the west. Less than 14 percent of urban dwellers cities, and Kenya’s well-connected system of cities can live in remote towns farther than 35 kilometers from the help to drive economic development. Different city types Northern Corridor. In total, 76 percent and 85 percent of play different roles in a country’s development based on urban dwellers live within 15 kilometers and 35 kilometers their size, density, and location. The economic development of this corridor, respectively, underscoring its importance of a city or its wider region is closely linked to its internal to urbanization. The concentration of population along 3 the Northern Corridor has led to the development of three Recent attempts to use night-lights data to calculate important hubs: the coastal hub around Mombasa, the county-level GDP confirm the economic strength of the central hub around Nairobi, and the western hub around Nairobi metropolitan area. This region comprises Nairobi the urban centers of Kisumu, Eldoret, Kericho, and Nakuru. City County and the counties of Kajiado, Kiambu, Machakos, and Murang’a. Of these counties, Nairobi has the largest Kenya’s system of cities will develop primarily around these county-level GDP, and Kiambu County the second largest. three hubs, which have among the fastest-growing urban Kajiado, Machakos, and Murang’a are estimated to have populations and generate a substantial share of GDP. The the sixth, seventh, and eighth largest county economies, Nairobi metropolitan area in particular will see rapid growth. and all are in the Nairobi metropolitan area. Combined, Nairobi can expect to become a city of more than 6 million the six-county region (urban and rural) accounts for about by around 2030 (Figure 2), up from its currently estimated 4 35  percent (2005 $9.36 billion) of Kenya’s total GDP, as million. Good connectivity between Nairobi and its satellite determined using night-lights data.1 towns remains the main driver of population and economic Kenya’s system of cities is likely to develop around its growth in its metropolitan area. Of the 25 largest urban metropolitan regions. A system of this type will require the areas in Kenya, 10 (including Nairobi itself) are within this country to develop a multilevel governance framework that metropolitan area. These 10 cities have about 5.77 million allows urban areas in a region to collaborate and provides people and nearly 40 percent of Kenya’s urban population. incentives for local authorities to set up mechanisms to Of these 10 cities, three—Thika, Juja, and Kitengela—were Figure 2: Concentration of the urban population jointly deliver infrastructure and public services, along with a metropolitan area–wide planning framework. A poorly functioning land sector is a binding constraint to urbanization Informality, low densities, and sprawl are common characteristics across Kenya’s urban areas and are exacerbated by poorly functioning land markets and land institutions. Land use planning and how effectively land markets work determines how cities develop and grow. In well-regulated and well-functioning land markets, urban expansion is led through government land use planning and regulations, but this is not strictly the case in Kenya. Historical factors underpinning land ownership have led to urban land market distortions and today, these markets are having difficulty supporting sustainable urbanization. Due to the surge in informal and illegal allocation of land of the 1980s and 1990s, there is virtually no vacant government- owned land in Kenyan cities, and the formal (and informal) urban land market is now almost entirely in the hands of the private sector, limiting the ability of the public sector to regulate land development and to make land available for public development purposes. Source: Based on data from Kenya National Bureau of Statistics (2009) Yet it is critical that the formal market starts to work well. High costs, high risks of forged land documents, and among the 10 fastest-urbanizing areas in Kenya, and four long delays tied to land transactions contribute to poor others—Mavoko, Ngong, Ongata Rongai, and Ruiru—were functioning of urban land markets. Under the formal market in the top 25 fastest-urbanizing areas. system, it takes an average of 72 days and 4.3 percent of a 4 Kenya Urbanization Review property’s value to register it. This, with the high risks of ownership), and laws governing titling and land registration corruption in the sale and issue of title deeds, forces many have been rationalized. But the policy hardly mentions to obtain land through informal channels so that only urban land, focusing instead on rural and agricultural land. a small fraction of land transactions are registered. The But the implementation of these laws has not resulted informal market therefore has become a way for most poor in the expected changes, as the contestation of land and nonpoor urban residents to access land for housing. management and planning functions impedes progress This leads to a lack of infrastructure and services in poor by devolved units of government. The most important informal settlements, as in many cases land set aside for challenge facing real reform in the land sector has been public utilities is used for housing. the jurisdictional uncertainties between the National Poorly functioning urban land markets and institutions Land Commission and the Ministry of Lands, Housing are not a new phenomenon. Over decades institutional and Urban Development (MLHUD). Since the National structures have been over-centralized, and land Land Commission was established under The National management practices have tended to be technocratic, not Land Commission Act, 2012, there has been uncertainty always well-organized, and with too many opportunities on the roles of the Ministry and the NLC in administering for corruption in the system. The colonial period saw the functions such as land registration and the renewal of introduction of private property, the establishment of strong leases. The institutional dispute is now in the courts after central administration over land, and the preparation of mediation appears to have failed.1 The continuing lack of urban plans intended for European, not African, cities. This clarity between these two actors undermines the prospects period saw the consolidation of corruption and poor efficacy for better and more equitable planning, urban land of land institutions, resulting in planning, land registration, management, and fiscal performance of counties under and administration systems that are opaque, unreliable, devolution. The poor functioning of urban land markets and costly, and in need of reform. Before the 2010 constitution institutions, combined with low incomes, continues to drive and implementation of the National Land Policy of 2009, a the informality of Kenya’s cities even under devolution. complex set of land laws resulted in overly complex processes to administer land. Laws required different registries to be Urban Challenges: Ensuring a Livable Urban set up under each law. These were maintained at district Kenya for All and national levels, and it was not clear that the registries were connected. This system allowed graft. Parallel title Urban services have not kept pace with and deeds systems further complicated the system (Walley urbanization 2011). Likewise, planning systems were mostly ineffective, Kenya’s new constitution guarantees access to basic as reflected in unplanned city growth and unauthorized services such as water, sanitation, and a clean environment development. as a basic right for all Kenyans. Despite this formal recognition, investment in network infrastructure has not Devolution has the potential to reverse this yet been upgraded fully in rural areas which are the lowest underperformance, as national institutions for land served, although some improvements are being seen. But management have been dramatically changed to enhance even more surprising perhaps, the investment in network transparency and accountability. The National Land infrastructure is failing to keep up with demand in urban Policy adopted by Parliament in 2009 was intended to end areas, generating a large infrastructure deficit (Figure  3). inequality in land allocation. This policy laid out for the first In Kenya’s two major cities—Nairobi and Mombasa— time a comprehensive vision for the country’s management water demand exceeds supply by more than 150,000 and of land. The legislation that followed—including the 100,000 cubic meters per day, respectively. Only about 18 2010 constitution, the 2012 Land Act, the 2012 Land percent of the total urban population has access to a sewer Registration Act, and the 2012 National Land Commission Act—made significant improvements in land governance: 1 Since this report was finalized, a Supreme Court ruling made on De- tenure types have been changed to recognize different cember 2, 2015 determined that issuance of title deeds was under the jurisdiction of the Ministry but that the two entities should work in con- legal options for land ownership (such as communal sultation and cooperation in matters of land registration more broadly. 5 system, 70 percent rely on septic tanks and pit latrines, untreated effluents. No urban area in the country has a and the rest have access to no sanitation services at all. In properly engineered sanitary landfill, and most solid waste addition, existing wastewater treatment systems operate is dumped in open dump sites or other undesignated areas, at very low efficiencies (about 16 percent of design capacity or burned. for 15 plants assessed in 2010), leading to discharge of Figure 3: Access to water and sanitation (left) and to electricity (right) in Kenya 1 70% 0.9 0.8 60% 0.7 50% 0.6 40% 0.5 30% 0.4 20% 0.3 10% 0.2 0% 0.1 1990 2000 2010 1990 2000 2012 Urban Rural Total Urban water Rural water Source: WHO/UNICEF Joint Monitoring Program (2014) and Kenya Power (2014). There is great variability in access to basic services between with international trends, as larger urban areas tend to urban areas of different population sizes. Access to services have better access to finance (though less so in Kenya after such as water, sanitation, and electricity is generally better devolution) and lower levels of urban poverty than smaller in more populous urban areas (Figure 4). This is consistent urban areas. Figure 4: Access to water and electricity by population of urban area 80% Proportion of the population with access 70% 60% 50% 40% 30% 20% 10% 0% above 500,000 250,000-500,000 100,000-250,000 less than 100,000 Water Electricity Source: Based on Kenya National Bureau of Statistics (2009). But a convergence of living standards is possible across urban areas given adequate investment and policies aimed 6 Kenya Urbanization Review at equalizing services. Colombia provides an example of levels are above 85 percent for all city sizes. Vietnam saw how gaps in access to services across city sizes can narrow an even more dramatic trend over a much shorter period considerably over time. In 1964, Colombia’s largest cities (Figure 5). Kenya’s Vision 2030 holds out these countries as had very high (88 percent) levels of access to water, but middle-income comparators. low levels (37 percent) for the smallest cities. Today, access Figure 5: Access to water by city size in Colombia (left) and Vietnam (right) Note: Special cities are Hanoi and Ho Chi Minh City. City class 1 is largest and class 4 is smallest. Source: World Bank (2011). Although smaller urban areas have universally worse respectively. The nonpoor spend on average 2 percent and access to basic services, larger urban areas show greater 3.2 percent, respectively.2 Spending so much on services divergence in access between formal and informal areas. (and on food and transport) leaves little money for housing, In Nairobi, for example, 84 percent of formal households often contributing to informality. Measures could include have access to a piped water connection within the house, lowering the costs of connecting to networked services a figure that drops to 36 percent for households in informal by connecting all at once, offering loans for connections settlements. This disparity holds for all other network and that can be repaid over time, and providing subsidies to infrastructure services, including sanitation, electricity, solid residents of poor neighborhoods. But the challenge must be waste collection, and access roads. It also holds across urban viewed in the context of devolution, which has brought new areas, with some variations. For non-network services such institutions with new responsibilities but often neither the as health and education, there is much less disparity on capacities, clear mandates, nor resources to introduce the access (although this says nothing about quality) between policies and other interventions that are needed (discussed formal and informal areas. So the formal/informal disparity in the section “Strong Institutions Required for Pro-Growth in access to basic networked services may have much to do and People-Centered Urbanization”). with the legacy of policies that make it difficult to invest in infrastructure services in informal settlements. At the same time, it is important that utilities properly price their services to achieve cost recovery. For example, urban Because the poor spend proportionally more on services water is underpriced, covering on average only 80 percent than the non-poor, increasing services to the poor will of operations and maintenance costs. This does not produce require special efforts to improve affordability. Households sufficient revenue to finance the capital investments for in the lowest income quintile, for example, spend 12 percent infrastructure rehabilitation or expansion that are essential and 18 percent of their incomes on water and electricity, to sustain the system and enable the public sector to meet 7 Box 1: Devolution and former institutional roles in water supply and sanitation sector in Kenya Under the system evolved through water sector reform since 2002, WSBs (owned by the national government)have been responsible for providing water services and are authorized to do so through a license issued by WASREB (Sections 53 and 47 of the Water Act of 2002). But the actual delivery of water services is to be done by an agent of the WSBs—except where this is not possible or practical, in which case the WSB can provide the services itself (Section 55(2)). These agents are the water service providers that still deliver WSS under a contract with the WSB. The WSB is the owner of the assets (or was intended to be the owner), while the service providers are the asset operators. These licensing and contractual arrangements have largely remained since the counties came into being in 2013, but they have been controversial. Although the counties with substantial urban areas have largely adopted service providers as service-provision vehicles, a number of counties have not been comfortable with the WSBs, which they see as instruments of national government that are insufficiently sensitive to county priorities and concerns. Some have argued that since devolution allocates responsibility for WSS provision to counties, the WSBs have become redundant. These issues remain on the agenda for several counties. In counties where bulk water and other interjurisdictional issues are prominent, such as the coast region, this has been intertwined with calls for a new bulk water arrangement, with the role of the Coast WSB—which provided bulk water services before devolution—to be renegotiated. its constitutional mandate of universal access. Ideally, tariffs Informality is the de facto housing solution for a should generate enough revenues to cover operations majority of urban Kenyans and maintenance costs, subsidies to the poor, and, where feasible, investment costs. The electricity sector sets a good The formal–informal dichotomy carries through beyond example of this, because its retail tariffs are set at levels that basic services to housing choice and conditions (Figure 6). reflect the capital, operations, and maintenance costs of Roughly 60 percent of Kenya’s urban households live providing services. And both the electricity and water and in housing that would be defined as a slum under the sanitation sectors provide good examples of subsidy policies Millennium Development Goals. Formal housing supply and programs to increase access for the poor. The electricity is not keeping pace with the growing urban population. sector, because of its centralized institutional structure, has Informal housing has become the only housing choice for made a more concerted effort to increase access to the poor, most urban Kenyans. There are indications that households while the more decentralized and complex institutional compromise on living conditions to remain within structure of services such as water and sanitation make reasonable travel times of their jobs. universal-access subsidy programs more difficult. The demand for urban housing will continue to grow as Devolution poses a particular challenge for provision of Kenya urbanizes. In 2010 the demand for urban housing some urban services, at least in the short term. This is was estimated at around 80,000 units a year, with demand in part because most counties are predominantly rural projected to increase to nearly 300,000 units a year by 2050. and have less incentive to invest in urban areas. And By comparison, in 2013 only 15,000 housing construction although urban centers produce most county own-source permits were issued in Nairobi, where most demand exists, revenues, counties may channel their investments to rural and most of these were for high-income apartments. Only 2 areas. Some counties may also see urban utilities such percent of formally constructed houses are targeted to the as water companies as a potential source of revenue to lower income segments of the market, which account for divert to other areas, rather than keeping the revenues the largest share of demand. Furthermore, these estimates for investment in the water sector. Institutional, legal, and of housing demand are for new housing only and do not financing frameworks vary widely for the electricity, solid speak to the high qualitative housing deficit in Kenya, as waste management, and water and sanitation sectors in manifested in the high level of informality. The high cost of Kenya. formal housing means that home ownership is out of reach for most urban Kenyans—renting, mostly in the informal market, is more accessible and affordable. The vast majority of urban Kenyans find housing through rental markets (91 8 Kenya Urbanization Review percent in Nairobi). Few can afford mortgages (there are policy makers will need to focus on all segments of the fewer than 20,000 mortgages in Kenya), and still fewer can housing market. Internationally, most governments play only access even the cheapest housing units produced by the a small role in providing housing. Most housing is provided formal market—worth about $15,300 in 2012—because the by the formal or informal private sector, such as civil society average urban household can afford to spend only about groups and individual households, and informal developers $74 a month on housing. yet government housing policy is largely unresponsive to the Figure 6: Living conditions in formal and informal urban areas 67.0% Having four key indicators of adequate housing 18.9% Toilet shared with fewer than 20 people 89.8% 45.2% Private water tap in unit Formal 52.4% 12.6% Informal Percentage of adult household members with 35.2% formal employment 17.8% Household income over 22,500 69.5% Ksh 16.8% Source: World Bank (2014) conditions and modes of operation in the sector at large in Kenya. Responsive policies would include enabling creative The high cost of land in Kenya is a binding constraint on ways to reduce land costs and the costs of other inputs housing affordability. Land usually makes up 60  percent such as finance and construction materials. Facilitating of the cost of housing in urban areas—and even more in access to microfinance—not just mortgage finance—and Nairobi. Reducing the cost of land through market and other innovations that accommodate the incremental policy reforms can reduce the overall cost of housing. approach to housing used by most low-income households The dysfunctional land markets and institutions described will be required. In addition, government policies will need previously are largely responsible for the high cost of land to recognize the large share of urban dwellers who rent in Kenya. Land costs are also raised by high land stamp housing, rather than focus primarily on increasing home costs (2 to 4 percent of land value) and legal and survey ownership. fees. Taxation policy for rental income (taxed at 30 percent) is a disincentive to producing formal rental housing, and Poor urban access hurts productivity and livability outdated building codes can add as much as 60 percent to construction costs. Large minimum lot size standards Nairobi faces a daunting access challenge that may be the (around 160 square meters) also drive up the cost of land. future for other urban areas of Kenya. Mobility patterns High financial and transaction costs for surveying and in Nairobi and other Kenyan cities do not differ drastically, registering properties, inappropriate tax policies, outdated making Nairobi’s intracity connectivity partly representative building regulations, and the high cost of construction of all Kenyan cities. Sixty-nine percent of trips in Nairobi materials keep costs high, keep the construction sector are made on foot or by matatu,3 80 percent if buses are from maturing, and keep informal development growing. included (Figure  7). Yet only 11 percent to 20 percent of formal commercial or industrial employment opportunities To increase access and reduce the cost of quality housing, can be reached by the average household within an hour 9 using one of these modes. This lack of overall access matatu commuting speeds down to 14 and 13.5 kilometers is associated with—and in part caused by—crippling per hour, respectively. congestion that has brought average door-to-door car and Figure 7: Transport mode share comparison p 60 50 40 % 30 20 Kenyan ciƟes 10 Nairobi City County 0 Note: A boda boda is a two-wheeled East African bicycle or motorcycle taxi. Nairobi is the only city with an effective municipal bus service. Source: JICA (2013) and World Bank (2014). This poor access hurts productivity. On the production at lower middle-income status and average incomes and side, it holds down the size of the labor market, preventing wages rising, the value of time lost to commuting is likely workforce–employer sorting and hampering the potential to soar and increase demand for effective policy responses for agglomeration economies. Firms must therefore from government. offer higher wages. Although higher wages can benefit households with skilled workers, they might impede Given the high inertia and path dependencies that reaping the full benefits of productivity gains and entering characterize urban settings, decisions on land use and international markets. From the household perspective, mobility will shape the future of Kenya’s cities for this constraint may be manageable in the short run, but as decades. Nairobi in particular is at a crossroad and can go the nature of employment shifts from nontradable services down one of two main routes. It can try to build its way to manufacturing and tradable services, and from informal out of congestion by investing in more roads to serve to formal, demands for metropolitan area–wide access are the increasing motorization rate, while managing traffic likely to increase rapidly. through regulation and pricing mechanisms. Alternatively, it can invest in public transport networks with careful land Poor access also undermines livability. Households are use planning to promote a more compact and transit- ready to compromise on living conditions to remain within oriented urban area. Either way, the fundamental priority reasonable travel times of jobs. In Nairobi, most residents is to avoid a trade-off between access and sustainability, of informal settlements have jobs and comparatively high locking cities into highly land-consuming and car- levels of education relative to those living in formal housing, dependent development patterns. Nairobi’s is a cautionary yet their living conditions remain basic. This probably tale for cities that are smaller, but growing. reflects the premium already placed on access. With Kenya 10 Kenya Urbanization Review Strong Institutions Required for Pro- are realized through the emphasis on a single unconditional Growth and People-Centered Urbanization transfer, the county equitable share, which is allocated among county governments on the basis of a formula Kenya’s devolved system of governance will impact that is decided every five years by the Senate, the house urbanization. of Parliament that represents the counties. Though that system is designed to address inequities, particularly the Kenya’s urbanization is taking place within a major shift long-standing urban bias, the equitable share formula, as toward political, fiscal, and administrative devolution. discussed later, creates potential financing problems for Kenya’s 2010 Constitution, which came into full effect more urbanized counties. Urban areas are also challenged in March 2013, provides for two autonomous but under devolution to put in place robust urban management interdependent levels of government; national and institutions. county. At the county level, 47 counties were established with mainly elected assemblies, elected governors, and A key task during preparation for devolution was to design governor-appointed cabinets ratified by the assembly. The a system of governance and management of urban areas Constitution provides for national and county governments as required by Article 184 of the Constitution. The previous to be distinct and interdependent. The national government system of elected local councils has been abolished and is has limited capacity to change the system of county expected to be replaced with a system of appointed boards. government, because the key elements of the devolved The Urban Areas and Cities Act provides for a three tiered structure are enshrined in the Constitution and can only be system of city and municipal boards, and town committees changed by referendum. (Figure 8). The County Governments Act provided for Box 2: Local government before devolution Implementing devolution was complicated by the need to transition from the system that was in place before devolution, to the new system mandated by the laws passed between 2010 and 2012. Before devolution, Kenya had one of the oldest continuous systems of local government on the African continent. It involved elected municipal, town and county councils, but they were subject to much greater control and oversight by national government than is the case for county governments. National supervision was carried out by the Ministry of Local Government, part of which was absorbed into the Ministry of Lands Housing and Urban Development after the 2013 election. One hundred and seventy-five local authorities were created under the 1963 Local Government Act, covering the whole of the Kenyan land mass. They were classified into four categories; one city council (Nairobi), 45 municipal councils, 62 town councils and 67 county councils. Local councils were responsible for most of the urban functions that were assigned to county governments under the Constitution. A number of county councils had significant urban functions in areas where a town or municipality had not been formally established, including the tourist township of Diani in Kwale County, with an urban population of around 60,000. Local authorities were financed partly by their own revenues, which were very similar to those now assigned to county governments, and by the Local Authorities Transfer Fund (LATF) which channeled national transfers to the local authorities based on a formula. The LATF transfer fund formula was heavily weighted to urban population, so it resulted in a spatial distribution of resources that favored large urban areas. Addressing long-standing spatial inequality is a key existing local councils to be abolished immediately after the objective for devolution, as was ensuring maximum new county governments were elected. . autonomy for county governments. These twin objectives 11 Figure 8: System of governance and management of urban areas 47 county governments 45 municipal councils 62 town councils 67 county councils Nairobi City Council Urban management is not automatic under devolution Most countries provide for a third tier of government for increasingly important role of urbanization and sustainable jurisdictions of around 30,000–150,000 residents. Even if urban areas for economic growth and social development. local government is not provided for in the Constitution, Kenya’s urban areas may not receive the attention needed it is usually established under ordinary national laws or to manage the urbanization process effectively, because state laws. Increasingly, even federal countries like India, of the way urban populations are distributed across Mexico, and Australia have sought to formally recognize counties. Although urbanization is rising, few counties are local government in the Constitution, recognizing the predominantly urban (Figure 9). Figure 9: Percentage of county population living in urban areas, by county 120% 100% 80% 60% 40% 20% .9% Elgeyo Maraket Tharaka Nithi Uasin Gishu Taita Taveta Trans Nzoia West Pokot Nyandarua Tana River Kakamega Machakos Mombasa Murang’a Homabay Bungoma Kirinyaga Mandera Samburu Marsabit Makueni Nyamira Turkana Baringo Kiambu Laikipia Kericho Kajiado Kisumu Nairobi Nakuru Bomet Migori Garisa Vihiga Narok Kwale Nandi Embu Meru Lamu Busia Isiolo Nyeri Wajir Siaya Kitui Kilifi Kisii Source: Kenya National Bureau of Statistics population census (2009). It was envisaged that the Urban Areas and Cities Act would criteria for establishing a municipality include a minimum provide a framework for the counties to establish their population of 500,000. Only three urban areas outside own systems of urban management but this likely not Nairobi and Mombasa satisfy this criterion. Currently, the sufficient for robust urban management. In fact, few have only option open to county governments in other urban done so, probably as the result of two factors. First, the areas is to establish town committees. Town committees 12 Kenya Urbanization Review have less power than municipal boards, which have The National Land Policy of 2009 created a road map for separate legal status. Neither boards nor committees will institutional reform and rationalized laws on land tenure, provide the managerial autonomy needed for robust urban titling, and registration. But clarity is needed regarding the management. The result is a potential urban management roles of the National Land Commission and the Ministry of deficit at a time when Kenya will need strong urban Lands, Housing and Urban Development (MLHUD) in land management institutions to manage its urban transition. management and planning. It bears repeating that because disputes over land management and planning functions are Kenya’s prospects for delivering sustained economic impeding progress by devolved units, the most immediate growth to its fast-growing urban population depends concern is to resolve the division of power (and functional crucially on urban infrastructure. How urban areas are responsibilities) between the two agencies. governed will likely determine how sustainable Kenya’s growth will prove under fundamentally changed urban Commitment to development control and public governance arrangements brought about by devolution. participation are critical for good planning. Development Establishing an urban board does not guarantee it will have control was one of the central weaknesses in Kenya’s either the autonomy or the finances to manage an urban planning system before devolution. Historically, it has area. Clear delegation and assignment of financial resources been very ineffective, with much development proceeding by the county government are needed. without oversight and in contravention of prepared physical development plans (Figure  10). There is widespread Planning institutions need reform to be effective acceptance of informal and extra-legal development throughout the country. Planning institutions will need to Devolution provides an opportunity to reform urban strengthen development control to increase efficacy and planning and land management institutions. Effective reduce opportunities for politicization and graft. Other institutions in these areas are integral to Kenya’s economic weaknesses in planning have been a lack of stakeholder development goals. But the rapid pace of urbanization involvement and broader community understanding of presents daunting challenges for them, because for almost the objectives, methods, and legality of planning. The new 50 years they have been centralized, technocratic, and institutional framework mandates public participation in nonparticipatory, reducing their efficacy and rendering devolved governance and requires county authorities to urban planning ineffective. design and promote civic education. But public participation is still weak and risks being no more than one-way listening, with little impact on goal setting and actual decision making. 13 Figure 10: The case for development control—building codes are evaded and residential structures collapse and kill residents Source: REUTERS/Noor Khamis. Nairobi, December 17, 2014 Vision 2030 acknowledges the centrality of well- prioritize issues of economic growth and job creation. Many functioning cities and metropolitan regions to the young people are moving to cities—and will continue doing country’s economic future. It has identified a program of so—in search of jobs, inundating urban regions until the investment in six potential metropolitan regions to spur private sector develops. While central government should economic expansion, facilitate regional equity, conserve provide greater support in overcoming the challenges of land and natural resources, and distribute population the transition process, county governments should focus on growth. Despite Nairobi’s importance as an economic economic development to make the most of the resources center, growth and development in the Nairobi metropolitan at hand. area are uncoordinated and unplanned. Yet the institutional framework exists for voluntary cooperative arrangements County integrated development plans (CIDPs) could be a between counties, and some counties are already seeing potent tool to identify the challenges and opportunities the benefits of working together. The national government of devolution, especially once updated to eliminate their also recognizes the importance of metropolitan regions and weaknesses. All counties are required to develop a CIDP. can help enable cooperative arrangements at county level. These are meant to combine economic, spatial, and sector plans and inform county budgets over five years. CIDPs are Better local economic planning can foster local also expected to define priorities and provide lists of flagship economic development investment projects. The CIDPs offer an opportunity for counties to organize their economic development efforts, Counties need to embrace devolution as an opportunity to but counties and the national government need to improve drive growth. But recent anecdotal evidence suggests that, the current CIDP model. Too many of the first round of facing resource shortages, they give economic growth and CIDPs were unrealistic and unimplementable. competitiveness low priority. Urban counties in particular are grappling with fewer resources for development yet higher wage and service-delivery burdens. Counties need to 14 Kenya Urbanization Review Lack of urban financing threatens progress of resources from heavily urban counties with their large inherited costs, resulting in a revenue deficit in urban areas. Urban financing is central to the success of devolution, Narrow county own-source revenue bases mean these especially for larger counties with major cities and fast- counties have limited scope to increase their resources by growing medium towns—the country’s growth hubs. mobilizing revenues (Figure  11). Property tax rates offer Rapid urbanization means that adequate financing of the most scope to increase revenues, but counties face urban services and infrastructure investment are essential political and information challenges to updating their fiscal to sustaining growth and delivering living standards cadasters and developing modern systems of collection and commensurate with the country’s lower middle-income enforcement. status. Without proper financing, there is a risk that urban services will be underfunded, deteriorating service delivery The combination of low fiscal surpluses and fiscal in the short term and the urban asset base over the longer conservatism in the emerging county-borrowing framework run. Globally, financing of livable, well-functioning cities could also play into an urban investment deficit. Because is increasingly recognized as paramount for economic urban counties’ budgets can barely cover their inherited growth, and institutional arrangements around the world recurrent expenditures and liabilities, they struggle to run are structured accordingly. But lack of clarity on how urban the operating surpluses to finance infrastructure investment. areas will be managed raises the risk that urban services will Yet the demand for urban infrastructure requires increased not be adequately financed in a context of competition with investment finance. Predominantly urban counties have rural areas within the same county. the largest infrastructure needs because they support far larger populations and greater economic activity and Measures to increase county revenues and manage costs therefore will need the largest loans. Appraising the options are urgently needed. Recurrent financing of ongoing to address these needs should balance their impact on service delivery and maintenance of assets is proving a fiscal risk against their contribution to growth and social fiscal challenge in predominantly urban counties. The welfare. Ultimately, if counties cannot secure established spatial redistribution of resources under the equitable share and legitimate avenues for investment financing, they will formula approved by the Senate (which favors counties find nontransparent and possibly unsustainable ways to with small populations) and was introduced in July 2013 circumvent the national borrowing framework, increasing with no provision for gradual adjustment), has led to a shift their fiscal risks. 15 Figure 11: County own-source revenues and fiscal surpluses (% of 2013/14 revenues) 100% 80% 70% 80% 60% Own source revenue as % total revenue 60% OperaƟng surplus as % revenue 50% 40% 40% 20% 30% 0% 20% -20% 10% -40% 0% OperaƟng surplus as % of revenue [LHS] Own source revenue as % of revenues [RHS] Source: World Bank staff calculations.4 Toward Developing Policy Priorities for policy makers to effectively address these challenges as Urbanization well. Of the immediate policy priority areas, we recommend three that policy makers should put at the top of their agendas if Kenya is to make the most of its urban future. Therefore, the immediate policy agenda should focus These include ensuring effective urban management and on the institutional priorities required for urban areas to governance structures, modernizing land and planning flourish under devolution and the new constitution. The institutions, and ensuring a sustainable urban financing priority areas would thus include an immediate focus on the framework to finance the urban services and infrastructure three-legged strategy of urban management, urban land agenda. In short, it means prioritizing the institutional governance, and urban finance. agenda as laid out in the earlier chapters of this report. Ensuring that these institutions function well will help Ensuring effective urban management and governance structures Kenya address its excess of informal housing, its large urban infrastructure gap, and the congestion problems caused by Devolution has given county governments far more poor land-use/transport planning and management. That responsibility for infrastructure and service delivery is not to say that policy priorities for housing, basic urban functions. But though the Urban Areas and Cities Act services, transport, and local economic development are envisages major duties for urban boards (if they have been not also important, for these too need to be addressed. formed), because they are not a level of government, But developing the basic institutions required for effective boards will depend on county governments for function urban management and effective urbanization will enable assignments and funding. 16 Kenya Urbanization Review Review and revision of the Urban Areas and Cities Act of the National Land Policy. should therefore be a priority. At a minimum, policy priorities should focus on developing a formal process for counties to Ensuring a sustainable financing framework delegate their urban functions to urban boards. To ensure clarity of accountability, urban boards must be empowered Expanded investment in urban infrastructure and services through a formal process of assignment or delegation, will be fundamental to Kenya’s growth prospects and social which could be included in a regulation under the County outcomes. By way of example, estimates suggest that each Government Act (which requires that each county prepare US$1 Kenya spends on water and sanitation infrastructure investment plans and budgets for development of county can generate US$8 in saved time, increased productivity, and mandated services) or the Urban Areas and Cities Act. reduced health costs. Inadequate sanitation infrastructure costs the country roughly US$324 million annually—roughly Modernizing land and planning institutions 1.0 percent of GDP.5 Similarly, investments in transport infrastructure can generate savings in the long run. Another priority should be to advance the policy and administrative reforms already started in the land sector. Increasing travel speeds could save more than US$50 In the short term, the roles of the MLHUD and the National million a year, the current cost of congestion in Nairobi. Land Commission need clarifying. Although the role and The value of time lost to travel in Nairobi is estimated at function of the National Land Commission have been the between US$0.8 million and US$4 million per month, based subject of explicit enabling legislation, and the transfer of on the 47 minutes’ travel time of an average trip in Nairobi. functions out of the pre-devolution Ministry of Lands into Daily time costs per capita, valued as a share of household the National Land Commission has been enumerated in income,6 come to some $0.25–4.00. both the Constitution and the National Land Commission County governments need adequate recurrent revenues Act, the remaining role for the ministry has received less and access to capital to finance infrastructure. But the attention. The resulting uncertainty has led to confusion on costs of financing and maintaining urban infrastructure the administering functions like land registration.2 are not well understood, and this may have contributed The MLHUD needs to undertake a strategic planning to underestimation of the new formula’s impact. Although process through which it determines how to restructure the laws implementing devolution mandated a costing of its departments and redeploy its personnel. Plans created county functions, it has not been done. A National Treasury at county level could be submitted to the ministry for review “costing” exercise conducted just before devolution was and approval to ensure they are consistent with the National based on analysis only of national budget allocation to Land Policy, the (still draft) National Spatial Plan, and other devolved functions in 2012/13. It did not fully calculate the forthcoming policies. While the National Construction cost of urban services, which were only partly funded from Authority, established in 2011 to oversee the construction the national budget, and excluded urban costs met from local industry, has expertise on the quality of buildings and their authorities’ own revenues. Analysis from the United States inspection, its primary role is to vet and register contractors. suggests that the unit costs of delivering urban services rise Its role in permitting and building inspection needs to be as city size and density increase (Ladd 1992). While there clarified, but the authority could provide training and are no data on this relationship for Kenya, it makes intuitive technical assistance to county government personnel in sense. Connective infrastructure (roads, public transport, permitting processes, inspections, and final approvals. In the sewerage, and water) become far more expensive in areas medium term, a comprehensive review of land legislation of higher population density. Kenya’s urban areas also have and the National Land Policy is required to determine to meet the services and infrastructure demands of informal overlaps and gaps and to ensure consistency across all settlements and of residents from neighboring counties who legislation. This would include completing implementation come to urban areas to work, trade, and access services. 2 Since this report was finalized, a Supreme Court ruling made on De- cember 2, 2015 determined that issuance of title deeds was under the The government has four main courses of action by which jurisdiction of the Ministry but that the two entities should work in con- to ensure adequate financing for urban areas and manage sultation and cooperation in matters of land registration more broadly. 17 urban counties’ fiscal stress. The first is to increase spending and restructure inherited county debt. In the medium term for urban functions. In the short term this would include the government needs to build a framework for counties establishing urban entities such as management boards, and to address the problem of unaffordable inherited wage bills in the medium term benchmarking of cost-of-area functions and consider more closely the needs of urban areas in the in selected urban counties (to establish the true costs). next generation of the equitable share formula. In addition, county governments should establish asset inventories and develop asset maintenance and renewal Fourth, unlock urban finance. In the short term this step plans. In the long term, conditional grant instruments could should include revisiting county borrowing limits to let be set up with matching funds from counties. them borrow adequately and to reward fiscally responsible counties. It must include a review of different models for Second, address the urban revenue deficit. In the short financing urban investments. term this would include supporting counties to modernize property tax legal and administrative frameworks. It could Additional policy considerations include assignment of some additional tax authority to counties. Of course it is incumbent on counties to use This report outlines policy considerations in each chapter: any tax and revenue-raising powers responsibly—taking Access to Basic Services in Urban Areas, Access to Affordable care not to overburden businesses and inadvertently lose Housing in Urban Areas, Connectivity for Access and competitiveness, and to avoid regressive tax burdens that Economic Growth, Land Management, and Urban Planning fall on the poor. An evaluation is needed to check if the and Financing Urban Services. These recommendations impacts of county revenue raising are currently efficient, consider short- and medium- to longer-term actions that legally based, equitable, and sound in multiple dimensions. can be taken at the national and subnational level to resolve In the medium term the government should include allow the constraints in these sectors that prevent a smooth urban counties to rebuild their fiscal cadasters. In the long term it transition in Kenya. It is by no means an exhaustive list but should evaluate wider policy options to broaden the county rather is meant to provoke a deeper policy discussion on tax base. these important issues. These policy considerations are summarized in Figures 12–14. Third, help fiscally stressed counties to adjust. This includes developing and implementing a framework to monitor county fiscal stress in the short term and to review Figure 12: Land, planning, and connectivity Short Term • Ensure the establishment of urban and rural planning offices at the county level (subnational). • Provide web-based access to doing laws, maps, building codes, and standards to the general public (national and •subnational). • Facilitate inter-jurisdictional cooperation by county governments for planning, services, land use, and economic development (national enabling, subnational implementing). • Clarify the policy role of the Ministry of Land, Housing and Urban Development, especially as it pertains to urban planning and land management and administration (national). • Clarify the role of the National Construction Authority relative to building inspection and support skills development in this area among county staff (national). • Issue one unified set of guidelines for county integrated development plans (CIDPs), aligned to international best practice (national). • Ensure CIDPs emphasize issues of economic development (subnational). • Continue and accelerate efforts to make the matatu system more responsive to user needs (national and subnational). • Implement effective traffic management measures (subnational). • Develop and use parking policies as a way of managing transport demand (subnational). 18 Kenya Urbanization Review Medium to Long Term • Strengthen county level participatory planning capacity (subnational). • Develop model legislation for zoning by-laws, development controls, and decision making approval processes. • Finalize, adopt and distribute the national spatial plan (national). • Complete the development of the National Data Infrastructure Database (national). • Establish county-specific land information systems (subnational with national support). Develop and implement civic education about planning and development control on private land (national). • Support third-party development-control watchdogs that are community based (subnational). Conduct a comprehensive review of land legislation and national land policy and continue with improvements to the property registration system (national). • Adopt legislation that aligns sector operations (such as water and sanitary services) with the Constitution and other relevant legislation (national). • Ensure counties use data from monitoring and evaluation systems to prepare county investment plans (subnational with national support). • Continue to enhance efforts to roll out mass transport systems based on BRT options (national and subnational). • Develop multimodal, hierarchically integrated mass transportation systems (subnational with national support). • Develop and implement policies that direct growth towards specific polycentric centers beyond the central business district (subnational). • Gradually reorganize land uses that will enhance accessibility even in the absence of effective transport improvements (subnational). • Promote more compact and transit oriented design (subnational and national in metro regions). Acknowledge and continue to foster the interconnectivity of Kenya’s portfolio of cities, especially noting the importance of international connector cities like Nairobi, Mombasa, and Kisumu (national). • Promote the connectivity of Kenya’s urban hubs/metropolitan areas through better connectivity linked to better land-use and transport planning (national and subnational). Figure 13: Basic services and housing Short Term • Plan for and provide basic urban services (water, sanitation, electricity, solid waste management) on business principles (national enabling, subnational implementation). • Undertake a thorough and comprehensive assessment of the capacity of counties to deliver basic services (national). • Adopt legislation that aligns sector operations with the Constitution and other laws. • Strengthen the current systems for monitoring and evaluating service providers to improve regulation (national). • Host a national forum to discuss possibility of establishing a dedicated fund to subsidize the costs of connections for urban services in informal settlements (national). • Encourage inter-jurisdictional cooperation for service provision (solid waste management, water). • Review and revise legislation that supports small-scale housing rental options formally (national and subnational). • Review and revise building and development codes that can formalize some informal housing and reduce the cost of providing housing (national and subnational). 19 Medium to Long Term • Develop mechanisms that support incremental housing and community led housing initiatives (subnational with national enabling support). • Investigate ways to reduce land costs closer to urban centers (national). • Reduce construction costs through programs with the private sector (national). • Develop mechanisms that better target access to housing financing options to include the urban poor, including subsidy policies (national). • Establish a subsidy fund for basic urban services for the poor (National). Figure 14: Urban governance and finance Short Term • Revise/reduce the thresholds for determining urban classifications. • Develop a formal process for counties to delegate their functions to urban boards •Prioritize urban governance (national). • Modernize legal and administrative framework for property rates (national and subnational). •Assign hotel bed tax and agricultural cess taxing powers to county governments (national). • Evaluate the impacts of county revenue raising (national). • Develop and implement a framework to monitor county fiscal stress (national). • Review and restructure inheritied county debt (national). • Revisit county borrowing limits to enable adequate county borrowing and reward fiscally responsible counties (national). • Investigate different models for financing much needed urban investments (national). Medium to Long Term • Undertake benchmark costing of urban functions in selected counties (national). • Explore conditional grant instruments, with matching funds from counties, to help ensure urban functions are adequately funded (national). • Establish county asset inventories, and develop asset maintenance and renewal (national and subnational). • Rebuild fiscal cadasters at the county level (subnational with national support). • Evaluate wider policy options to broaden taxes bases, for example through piggy-backing (national). • Develop a framework for counties to address the problem of unaffordable inherited wage bills (national). • Take urban areas into account in the next generation of the equitable share formula (national). 20 Kenya Urbanization Review Bibliography Freire, Maria, Somik Lall, and Danny Leipziger. 2014. “Africa’s Urbanization: Challenges and Opportunities.” Working Paper No. 7, The Growth Dialogue, Washington, DC. Jedwab, Rémi. 2013. ”Urbanization without Structural Transformation: Evidence from Consumption Cities in Africa.” Working Paper, George Washington University, Washington, DC. Walley, Simon. 2011. “Developing Kenya’s Mortgage Market.” Report No. 63391-KE, World Bank, Washington, DC. United Nations Department of Economic and Social Affairs, Population Division. 2014. World Urbanization Prospects: The 2014 Revision, Highlights. ST/ESA/SER.A/352. New York. World Bank. 2011. Vietnam Urbanization Review: Technical Assistance Report, Figure 4.5: Convergence of living standards is possible. Washington, DC. World Bank. 2014. Kenya State of the Cities Baseline Survey. World Bank. 2003. Kenya: A Policy Agenda to Restore Growth. Washington, DC: World Bank. https://openknowledge.worldbank.org/ handle/10986/14363. 21 22 Kenya Urbanization Review Chapter 1 Trends: An Urbanizing, Middle-Income Kenya 23 Introduction 1. How Kenya manages its urbanization processes growth. Its urbanization and devolution processes are will determine whether it can maximize the benefits of still in early stages. Evidence suggests that cities can drive its transition to a middle-income country, building on economic growth, especially through a “system-of-cities” a story of optimism. Kenya has seen positive economic approach, and that devolution can empower counties to growth in tandem with increasing rates of urbanization, develop strong urban centers. though the country has not yet experienced an economic 2. Kenya has a gross national income (GNI) per transformation. Economic growth has created a growing capita of $1,280 (2014), putting it in the ranks of lower middle class, but poverty remains stubbornly high, and a middle-income countries. Kenya’s Vision 2030 national majority of urban residents live in informal conditions, with development program sets a goal for Kenya to join the poor access to basic networked services. An increasing ranks of upper middle-income countries by 2030.7 This share of employment is in the informal sector. The country’s comprises a group of countries with a GNI per capita of radical experiment in devolution holds great promise and between $4,126 and $12,736 (in 2015). Attaining that status comes at an important period in Kenya’s economic and would mean improved living standards for all Kenyans. On urban transformation, but there are aspects of it that average, those living in such countries have 92 percent may weaken urban centers at a time when they need to access to electricity, 97 percent access to improved water be strengthened. But on balance Kenya still has a great supplies, and 87 percent access to improved sanitation in opportunity to leverage urbanization to drive economic urban areas—far better than Kenya’s levels. Table 1.1: Selected comparative development indicators with other middle-income countries Population Population with access to im- Population with access to Poverty head Country GNI per /capita ($) (millions) proved water source (%) improved sanitation (%) count (%) Kenya 45.5 1,280 62 30 45.9 Ivory Coast 20.8 1,550 80 22 40.2 Vietnam 90.7 1,900 95 75 17.0 Tunisia 11.0 4,210 97 90 15.5 Peru 30.7 6,410 87 73 23.9 South Africa 54.0 6,800 95 74 9 Malaysia 30.2 10,660 100 96 2 Source: World Bank, World Development Indicators (2015). The Demographic Picture: Kenya is within urban boundaries, Kenya’s urban population would Urbanizing Rapidly, but Not Too Rapidly have been 34 percent in 1999 and slipped to 32 percent in 2009. 3. For this Kenya Urbanization Review, the urban population is defined as “core urban,” and the urbanization 4. Based on these estimates, Kenya is rapidly rate is established at 25 percent in 2014, a rate used for urbanizing, albeit not as quickly as much of the rest of consistency with estimates from the United Nations World Sub-Saharan Africa. The United Nations has calculated the Urbanization Prospects. But determining the urbanization actual and expected rate of change in the urban population rate is not easy, with uncertainty over including “peri- from 1950 to 2050 (Table 1.2 and Figure 1.1). Kenya’s urban” as part of the urban population, because beginning urbanization rates are expected to remain high, but are also in 1999 and continuing in 2009, Kenya’s census classified forecast to decrease over the next 35 years, more or less the urban population to include core urban, peri-urban, keeping pace with the averages for East Africa. As Kenya’s and some rural population living in urban centers. Counting National Bureau of Statistics has not made urbanization only the core urban population, Kenya would have had an projections of its own, the Kenya Urbanization Review uses urban population of 18.9 percent in 1999, climbing sharply the projections prepared by the United Nations. Based to 23.1 percent by 2009—the measure used here. But if we on these, Kenya is projected to become an urban country consider the peri-urban population and the rural population (at least 50% of the population living in urban areas) only 24 Kenya Urbanization Review around 2050. Estimates of the Kenya Urbanization Review pace of urbanization is arguably manageable, the country put the urban population at slightly more than 14 million must prepare for the rural to urban transition. people. By 2030 Kenya can expect to have over 22 million urban dwellers, and by 2050 about 40 million. Though the Table 1.2: Rate of change in the urban population, selected East African countries Country Decade 1950–60 1960–70 1970–80 1980–90 1990–2000 2000–10 2010–20 2020–30 2030–40 2040–50 Burundi 3.45 3.34 7.61 6.73 4.03 5.29 4.34 3.77 3.41 3.15 Ethiopia 5.37 5.39 3.94 5.03 4.60 3.63 3.57 3.56 3.25 2.74 Kenya 5.64 6.63 7.83 4.83 4.59 4.29 4.30 3.99 3.74 3.32 Rwanda 5.78 5.87 7.14 4.54 10.64* 5.83 4.45 4.20 4.01 3.62 Tanzania 6.83 7.04 9.34 5.71 4.56 4.39 4.79 4.64 4.34 3.91 Uganda 7.23 7.42 4.16 7.20* 4.00 5.49 5.61 5.08 4.56 4.02 East Africa 5.41 6.02 6.24 4.88 4.14 3.83 4.13 4.00 3.76 3.39 *Conflict period. Source: UN-Habitat (2010). Figure 1.1: Projected urban–rural percentage population split Percentage of urban populaƟon Urban and rural share of populaƟon 70% 100% 90% 60% 80% 50% 70% 40% 60% 50% 30% 40% 20% 30% 20% 10% 10% 0% 0% 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Africa East Africa Kenya Rural Urban Source: United Nations Department of Social and Economic Affairs, Population Division (2014). 5. As in much of Sub-Saharan Africa, the urban than 1 million) and medium cities are thus expected to landscape in Kenya demonstrates urban primacy, with remain the primary location for urban residents. Over Nairobi three times larger than Mombasa, the next- 1999–2009 cities with populations of between 100,000 largest urban center. But most urban Kenyans live in urban and 250,000 had the fastest urban population growth settlements of less than 1 million people. Smaller urban rates. By 2030 it is forecast that Kenya will have five cities areas, particularly medium cities, are important and are with populations greater than 500,000 and 31 cities with expected to remain so. Urban population projections 100,000 to 250,000 (up from 23 in 2014 (Figure 1.2). suggest that while Nairobi’s population is likely to increase to 6 million by 2030, Nairobi’s share of the urban population is not expected to rise. Kenya is likely to see a Urbanization and Kenya’s Economy larger share of the urban population living in medium cities (between 100,000 and 1 million), especially in cities with 6. Kenya is under-urbanized given its per capita income. 500,000 to 1 million, while the number living in towns A correlation of GDP per capita and urbanization for several of less than 50,000 is expected to decline. Large (greater countries shows that Kenya’s urbanization rate is below the 25 predicted level. Figure 1.3 (left panel) shows that at an income per a hybrid but exhibits some of these characteristics. capita of US$1,200 (at the top of the curve for Kenya, with a log value of 7.1, more than 30 percent of Kenyans would be living in 8. Kenya has yet to leverage urbanization for urban areas; the right panel compares Kenya’s income per capita economic transformation. There is a strong positive with countries that are at a similar rate of urbanization. relationship between urbanization and economic growth, Kenya has an urbanization rate similar to countries income and no country has reached high-income status without per capita is less than Kenya’s (Mozambique, Bangladesh, urbanizing. The two processes are mutually reinforcing and Zimbabwe), while it is urbanizing faster than countries through several possible channels; agricultural push, with a similar share of population in urban areas but have industrial pull and consumption cities. In the first, rising higher incomes per capita (Kenya is urbanizing at around 4 agricultural productivity, which drives economic growth, percent a year, against 3 percent for Vietnam and 2 percent releases excess labor that migrates to cities, seeking for India). better employment opportunities in the modern sector. In the second, economic transformation from agriculture Figure 1.2: Share of urban population and number of urban centers. 40% <50K 35% 30% 50K to 100K 25% 100K to 250K 20% 250K to 500K 15% 500K to 1M 10% 5% >1M 0% 0 10 20 30 40 50 60 >1M 500K to 1M 250K to 500K 100K to 250K 50K to 100K <50K 2030 2014 2014 2030 Source: Based on Kenya National Bureau of Statistics (2009). to industry attracts labor from the rural economy to the cities’ industrial sector. This process is marked by a high 7. Kenya’s under-urbanization is unique in Sub- correlation between urbanization and the share of industry Saharan Africa. Many Sub-Saharan African countries have in GDP. The third can be observed in countries where growth economies that are underperforming relative to urbanization. emanates from natural resource wealth and exports. These Côte d’Ivoire, for example, with an urban population of 50 spur urbanization to outpace economic transformation, percent should have a GNI per capita of around $2,700 because the rent generated by resource-intensive sectors according to economic theory, but it is just $1,550. Many is consumed in cities by workers involved in nontradable other Sub-Saharan African countries are similar. Aggregate (typically informal) services sectors. For consumption cities numbers indicate that the correlation between urbanization there is no corresponding rise in the share of industry in and per capita GNI in Africa is weak. Countries in other GDP (Freire, Lall, and Leipziger 2014; Jedwab, 2013). continents passed the 40 percent urbanization mark with a GNI per capita above $1,800, while in the aggregate, Sub- Saharan African countries passed it at just $1,000.9 The low economic performance of these countries would seem to support the theory of consumption vs. production cities (next paragraph) developed by Glaser (2001) and Jedwab (2013). Kenya’s urbanization process appears to be more of 26 Kenya Urbanization Review Figure 1.3: Kenya’s urbanization is below the predicted level compared to income per capita UrbanizaƟon rate versus GDP per capita, global benchmarks 100 Selected countries with 32% urban populaƟon, 2013 y = 99.037l n(x) - 155.03 2,500 90 GDP per capita in 2013 (current US$) 80 2,000 1,911 70 UrbanizaƟon rate, % 60 1,498 50 1,500 1,246 40 958 953 30 1,000 20 605 10 500 0 4 5 6 7 8 9 10 11 12 Log per capita GDP, constant 2005 $ - Vietnam India Kenya Bangladesh Zimbabwe Mozambique Kenya 1960-2013 All countries, 2013 Log. (All countries, 2013) Note: African countries are represented by green dots. Source: Based on United Nations Department of Social and Economic Affairs, Population Division (2014) and Penn World Table.8 9. Kenya’s growth has accelerated in recent years 10. Kenya’s urbanization seems driven more by in line with the average for Sub-Saharan Africa but has rural push than industry pull, and has elements of seen little structural transformation. Growth averaged consumption cities. The correlation between urbanization 4.5 percent for 2003–13. Agriculture remains the largest and manufacturing and services as a share of GDP shows sector with one-fourth of GDP. The share of manufacturing that Kenya’s performance is below predicted levels, with its declined from 13 percent in 2006 to about 10 percent. trend line below the global trend line (Figure 1.4, left panel). Growth is driven by services, with its large informal share. The share of the urban population increased between 2010 Over 2000–11, services expanded by 2.1 percent a year, and 2013 but the share in GDP of industry and services agriculture 1.1 percent and industry 0.7 percent. Agriculture remained stable at 60 percent. Earnings in Kenyan cities are is still the largest employer and accounts for 45 percent of driven by community and personal services, contributing total employment. Current estimates indicate that of the about 40 percent. The share of earnings from industry 14.3 million who are employed, 6.5 million are engaged in declined from 20 percent in 2008 to just under 10 percent family farming, 2.7 million are self-employed in nonfarm in recent years. The share of earnings from transport and work, and 5.1 million are in wage work. communication is now much larger than industry (Figure 1.4, right panel). Figure 1.4: Kenya’s urbanization is driven by services rather than industry Note: GAB (Gabon); NGA (Nigeria), TZA (Tanzania), BDI (Burundi), ETH (Ethiopia). Quadratic line equation: Urbanization = 83.02 – 1.87; Manufacturing and services + 0.02 squared (Manufacturing and services); R squared = 0.18. Source: World Bank, World Development Indicators 27 Figure 1.5: Industry performance is lackluster and formal jobs are scarce Sectoral contribuƟon to growth, Average (2000 - 2011) Job creaƟon: Annual average (2000-2011), '000 Informal Sector 466 Services 2.1 Services 28 Agriculture 1.1 Industry 8 Industry 0.7 Agriculture 3 0 100 200 300 400 500 0.0 0.5 1.0 1.5 2.0 2.5 '000 Percent Source: Fengler and Kiringai (2013). to cities to be absorbed into the labor pool, primarily in the 11. The urban economy is increasingly informal as informal economy. formal sector jobs are scarce. Kenya’s formal sector is not generating enough jobs to absorb the growing labor 12. Led by Nairobi and Mombasa, cities account for force. Estimates show that the working age population is about half of national earnings.10 Analysis of 49 Kenyan increasing by 800,000 a year but the economy creates only towns shows that they contribute about 60 percent of about 50,000 formal sector wage jobs annually (Figure 1.5), labor earnings, concentrated in seven cities (Figure 1.6, versus 500,000 in the informal sector. Of the 5.1 million top panels) that together contribute about 50 percent of in wage work only 40 percent (2 million) are in the formal total earnings.11 Cities’ shares in earnings are rising, as sector; the rest are in the informal sector. Unemployment is expected in line with higher levels of urbanization, starting higher in urban areas, estimated at about 13 percent among in 2011 (Figure 1.6, bottom panel). Earnings in towns are those aged 20–24, and underemployment is prevalent in concentrated in services. rural areas. Many (especially younger) people are migrating 13. Kenya still has the opportunity to leverage Figure 1.6: Seven cities contribute half of the earnings in the economy, and their share is rising as the country urbanizes Cummulative Cities' Contribution to Earnings Cities' Contribution to labour earnings (%) average 2007-12 Nakuru, 1.5 70.0 Thika, 1.2 Eldoret , 1.7 others towns, 9 Kericho , 1.9 60.0 Kisumu, 2.5 50.0 40.0 Mombasa , 10.9 30.0 20.0 10.0 Nairobi, 30.9 - Cities' contribution to earnings % 62 61 60 59 58 57 56 2007 2008 2009 2010 2011 2012* Source: Based on Kenya National Bureau of Statistics data from Statistical Abstracts, 2007–2012. 28 Kenya Urbanization Review urbanization for economic transformation, but has to start into effect. The Constitution mandated that a number of now. The country is at an early stage of urbanization, but implementing laws had to be passed within timelines fixed by 2050 about half of the population will be living in cities. in a constitutional annex and overseen by a Commission For Kenya to reach a GDP per capita comparable to that of on Implementation of the Constitution (CIC). During the 30 East Asia when it reached the 50 percent urban population months after the approval of the new constitution leading mark, it will have to show real GDP per capita annual growth up to the 2013 election, laws were passed that provided a of 6.2  percent (aggregate growth of 8.9  percent alongside detailed framework for devolved government: projected population growth of 2.7 percent) from now to 2050. • The County Governments Act deals with composition, (East Asia’s economic transformation was driven primarily election, and powers of county assemblies, executives, by industrialization and by investment in infrastructure and and public service boards and sets out a detailed planning education.) But it has achieved annual GDP growth of 7 percent framework and a framework for public participation. or more only four times in the past 40 years (Box 1.1). Still, it • The Urban Areas and Cities Act provides for a system of has the tailwind of being under-urbanized for its level of GNI managerial boards and committees to manage urban per capita. areas. • The Public Finances Management Act establishes a 14. The correlation between urbanization and single public financial management system for the whole economic growth in Kenya depends on a combination country, applying to both the National Government of of factors. It will be stronger if urban firms have a better County Governments. business environment, are able to create more jobs, and • The Transition to Devolved Government Act established a can benefit from a sufficiently large pool of better-educated transitional authority to oversee the devolution process, people who can migrate from rural areas to take these jobs. determine when and how functions, staff, assets, and It will be weaker if uneducated migrants leave rural areas liabilities would be transferred to county governments, for cities by necessity, forced by a combination of rapidly and advise on the cost of those functions (among other growing population density and scarcity of agricultural responsibilities). land. It will also be stronger with a solid system of land use planning. Local government before devolution Urbanization and Devolution 17. Implementing devolution was complicated by the need to transition from the system that was in place before 15. Kenya’s process of political, fiscal, and functional devolution, to the new system mandated by the laws passed devolution could have profound effects on all aspects between 2010 and 2012. Before devolution, Kenya had one of how the country urbanizes. Kenya’s Constitution, of the oldest continuous systems of local government on which came into full effect following the 2013 elections, the African continent. It involved elected municipal, town provides for two autonomous but interdependent levels and county councils, but they were subject to much greater of government: national and county. At county level, 47 control and oversight by national government than is the counties were established with mainly elected assemblies, case for county governments. National supervision was elected governors, and cabinets appointed by the governor carried out by the Ministry of Local Government, part of and ratified by the assembly. The Constitution provides which was absorbed into the Ministry of Lands Housing and for national and county governments to be distinct and Urban Development and part of which was absorbed by the interdependent. The national government has limited Ministry of Devolution and Planning after the 2013 election. capacity to change the system of county government, because the key elements of the devolved structure are 18. One hundred and seventy-five local authorities enshrined in the Constitution and can only be changed by were created under the 1963 Local Government Act, referendum. covering the whole of the Kenyan land mass. They were classified into four categories; one city council (Nairobi), 16. The first county governments were elected in March 45 municipal councils, 62 town councils and 67 county 2013, two and a half years after the new Constitution came councils. Local councils were responsible for most of the 29 urban functions that were assigned to county governments urban population of around 60,000. Local authorities were under the Constitution (see Table 5.1 in Annex 5 for a financed partly by their own revenues, which were very description of these functions). A number of county councils similar to those now assigned to county governments, Box 1.1: Scenarios for reaching GDP levels in three regions at 50 percent urbanization The Latin America, East Asia and Pacific, and Middle East and North Africa regions reached the 50 percent urban mark in different years with different levels of GDP per capita. Kenya’s actual level of urbanization and GDP per capita in 2014 were both much lower than these figures (box figure 1). For successful urbanization—for Kenya to target and reach similar levels of GDP per capita as these regions when they each reached that mark—it will have to grow at 6.6 percent, 7.5 percent, or 8.9 percent through 2050, when its urbanization is expected to reach 50% (box figure 2). Regardless of scenario, any of these rates will be difficult for Kenya to achieve on such a sustained basis. Box figure 1: GDP per capita at 50 percent urbanization rate for three comparator regions 100% 90% 80% Percentage urban population 70% 60% LAC, MNA, 1981 EAP, 2009 50% 40% 30% 20% Kenya 2014 10% 0% 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 GDP per capita (constant 2005 US$) Actual at 6.6% GDP growth at 7.5% GDP growth at 8.9% GDP growth Note: EAP = East Asia and Pacific, LAC = Latin America and Caribbean, MNA = Middle East and North Africa. GDP growth rates are those needed for Kenya to reach each GDP level by 2050 and are colored to match each associated target. Circle size indicates GDP per capita. Source: World Bank calculations. Box figure 2: Real GDP growth scenarios Real GDP growth scenarios 6,000 5,500 5,000 GDP per capita (constant 2005 4,500 4,000 3,500 3,000 2,500 US$) 2,000 1,500 1,000 500 - Kenya historic Scenario 6.6% Scenario 7.5% Scenario 8.9% Source: World Bank calculations. had significant urban functions in areas where a town or and by the Local Authorities Transfer Fund (LATF) which municipality had not been formally established, including channeled national transfers to the local authorities based the tourist township of Diani in Kwale County, with an on a formula. The LATF transfer fund formula was heavily 30 Kenya Urbanization Review weighted to urban population, so it resulted in a spatial outside Nairobi and Mombasa satisfy this criterion. So at distribution of resources that favored large urban areas. present the only option open to county governments in other urban areas is to establish town committees. Town Urban governance after devolution committees have less power than municipal boards, which have separate legal status (see Table 5.2 in Annex 5 for more 19. A key task during preparation for devolution was description of the respective powers of municipal boards to design a system of governance and management of and town committees). It seems doubtful if they could urban areas as required by Article 184 of the Constitution. provide the managerial autonomy needed for robust urban Following the recommendations of the Task Force on management. Devolved Government, it was decided that the existing system of elected local councils should be abolished and 21. The second obstacle to establishment of urban replaced with a system of appointed boards. The Urban boards appears to be political. Submitting proposed board Areas and Cities Act provides for a three tiered system of membership to the county assembly for ratification exposes city and municipal boards, and town committees (Figure governors to the need to negotiate support from an assembly 1.7). The County Governments Act provided for existing which they do not control. Interactions of this kind are proving local councils to be abolished immediately the new complex and difficult for many governors. Instead, governors county governments were elected. Very soon after the are choosing to simply absorb the apparatus of former local election county governments took over the staff of the authorities into their county administrations. In some counties, former local authorities along with their core systems of urban functions have become the responsibility of a single administration, including revenue. In some counties, the county department. In others, they are spread across different county government absorbed as many as 12 former local departments. Some counties have put land, housing and urban authorities. In many senses therefore, the immediate effect functions into a single department, mirroring the arrangement of devolution was recentralization of urban functions in all of the same functions at the national level. but the two largest urban centers, Nairobi and Mombasa. They were designated city counties and in some respects An urban governance deficit? have experienced relatively less change in governance arrangements as a result of devolution, since the Nairobi 22. The absence of directly elected representation at and Mombasa local councils were effectively transformed the urban level is unusual internationally. Most countries into county governments. provide for a third tier of government for jurisdictions with populations of at least 30,000-150,000. Even if local government is not provided for in the Constitution, it Figure 1.7: System of governance and management of is usually established under ordinary national laws or urban areas 47 county governments 45 municipal councils 62 town councils 67 county councils Nairobi City Council 20. It was envisaged that the Urban Areas and state laws. Increasingly, even federal countries like India, Cities Act would provide a framework for the counties Mexico and Australia have sought to formally recognize to establish their own systems of urban management. local government in the Constitution, in recognition of the The process of establishing a municipal board or town increasingly important role or urbanization and sustainable committee is initiated by the county government itself. In urban areas for economic growth and social development. fact few have done so, probably as the result of two factors. Kenya’s urban areas may not receive the attention that is First, the criteria for establishing a municipality include a needed to manage the urbanization process effectively, minimum population of 500,000. Only three urban areas because of the way urban populations are distributed across 31 counties. While urbanization is increasing, few counties are decided and defended by the Council of County Governors. predominantly urban. As in devolution processes in other countries, national ministries that gave up functions following devolution are Transferring national functions struggling to redefine their roles, and to separate their ongoing policy role from the service delivery role that has 23. The functions and revenues of county governments been devolved (see for example Chapters 3 and 6). They are enumerated in the Constitution. They include all the need to learn new techniques of intergovernmental policy functions that were carried out by 175 decentralized local management, and understand the real political limits authorities together with a number of functions which of trying to control what county governments do. Many were the responsibility of the national government (see countries find that attempting to influence the behavior Table 5.1 in Annex 5 for a full description). Those functions of state or provincial governments without the leverage had mainly been delivered through a de-concentrated of conditional financing can prove challenging. This is why network of national civil servants based in around 280 the structure of financing of county governments is so district administrative centers across the country. In important for urban management. some cases a role for national government to determine policy is retained. The Constitution was explicit as to the Intergovernmental fiscal relations process of transitioning to the new system of devolved government. Functions were intended to be transferred to 26. Addressing long-standing spatial inequality was a county governments gradually, as they developed capacity key objective for devolution, as was ensuring maximum to manage them. In the end this provision was overtaken autonomy for county governments. These twin objectives by political considerations, and almost all the functions are realized through the emphasis on a single unconditional were transferred by August 2013, less than 6 months transfer, the county equitable share, which is allocated after the county governments had been established. Soon among county governments on the basis of a formula that afterwards, around one third of the national public servants is decided every five years by the Senate, the house of at this level (excluding teachers, but including all health Parliament that represents the counties. The processes of workers) transferred to the county governments in which sharing revenue annually between the levels of government, they were located at the time of devolution. and periodically revising the formula, are informed by a consultative process that involves the Commission on 24. Inheriting staff of both former local authorities Revenue Allocation (an independent constitutional body and district administrations has burdened some county charged with providing recommendations on revenue governments with large wage bills – the most urbanized sharing) and the Intergovernmental Budget and Economic counties. Counties with large urban areas inherited Council, which provides a forum for consultation between particularly large workforces from the local authorities levels of government on matters of finance and funding. that had previously managed those urban areas. A Revenue sharing decisions are reflected in two annual laws; process of rationalization is underway that is attempting the Division of Revenue Act (which divides revenue between to rebalance the inequitable distribution of these former the levels of government) and the County Allocation of national public servants between counties, but for now Revenue Act (which allocates the county equitable share, counties are responsible for paying the wages of these and any other conditional grants, among the county staff regardless of whether they need them or not. governments). 27. The equitable share formula is currently being 25. Kenya’s counties enjoy considerably more revised. The Commission on Revenue Allocation has autonomy than any sub-national governments in Africa, recommended two additional factors but otherwise aside from those in federal systems. As devolution recommends that the formula remain fairly similar to is unfolding in practice, county governments have the first generation formula. The Development factor is demonstrated a powerful capacity to guard their autonomy a composite index of illiteracy, children not at school, jealously, particularly through joint positions that are 32 Kenya Urbanization Review immunization coverage, access to sanitation, electricity for example, the equitable share transfer for 2014/15 would and water, unpaved roads and total paved roads. While increase from Ksh 11.34 billion (using the first generation the personnel emoluments factor attempts to address formula) to Ksh 12.33 billion (using the second generation the inherited wage bill burdens of urban counties, the low formula; Figure 1.8). weight means the impact is likely to be limited. For Nairobi, Figure 1.8: First generation and proposed second generation formulas Population Basic equal Poverty Land Fiscal share area responsibility 45% 25% 20% 8% 2% Population Basic equal Poverty Land Fiscal Development Personal share area responsibility Factor emoluments factor 45% 25% 18% 8% 1% 1% 2% Source: Commission on Revenue Allocation (2014). urban areas. While in theory the spatial expansion of cities 28. The equitable share accounts for more than is led by government land use planning and regulations, eighty percent of county revenues. County governments this is not the case in Kenya. In addition, historical factors have a fairly limited revenue base consisting of property underpinning land ownership have led to urban land market tax and entertainment tax, and non-fiscal revenues from distortions, and today these markets are having difficulty fees charged for services. Some county governments supporting sustainable urbanization. are interpreting their power to charge fees very broadly, 31. Estimates suggest that urban land amounted through charges that may exceed the constitutional limits to a mere 0.7 percent of the total land area. The bulk of on county revenue raising powers. This may put counties this land was formally titled except for a few pockets of at risk of sudden revenue reductions, if these charges are unallocated government-owned land (UN-Habitat 2010).13 ruled to be unconstitutional in the future. Privately owned property accounted for 18 percent of the 29. Kenya has now completed three revenue-sharing total land base, trust land 69 percent,14 and government budget processes—for 2013/14, 2014/15 and 2015/16. land15 13 percent. Over this period the equitable share has remained fairly 32. The pre-devolution system of transferring public constant at around 22% of government revenue in the land to private ownership has led to a near-complete year to which the equitable share applies.12 Increases in absence of vacant government-controlled land in Kenya’s county funding have mainly come in the form of conditional cities (UN-Habitat 2010). From the colonial days to grants. In 2015/16 a total of Ksh 17.9 billion of government- the 1980s, the formal process for acquiring public land financed conditional grants for county governments was required the government to advertise plots for allocation included in the budget, compared with only Ksh 3.4 billion and development and invite applications to be submitted in 2013/14. Conditional grants are a logical way to channel to the Commissioner of Lands office in the Ministry of tied donor funds to counties in ways that respects both the Lands. Allocations were to be made on the basis of need national government’s role in setting policy and the county for the land for a certain use; allocations were conditional government’s role in execution. upon the actual use of the land for the identified purpose. Theoretically, this was to ensure the most advantageous Land Use Planning, Urban Management, and use of land while preventing speculation; proper allocation Institutions of land for planned purposes was a critical element in 30. Land use planning and the operations of urban implementing urban land use plans for the public good. land markets are the defining factors in the expansion of In reality, the centralized system of land allocation only 33 benefited a small number of well-connected people—plots are not land owners and can now only obtain land through were leased on terms very favorable to developers, with market mechanisms, not public allocation (UN-Habitat the land rent calculated on the basis of administrative costs 2010). In Nairobi, for example, 5 percent of the land base to the government rather than the higher market value houses 75 percent of the city’s population. But the World (UN-Habitat 2010). Throughout the 1980s and 1990s, illegal Bank (2008) showed that landlessness in itself is not a good land allocations—that is, allocations of land that did not proxy for poverty, as roughly equal shares of the poor have conform to the formal process detailed above—increased land—or don’t—and many of the nonpoor do not have land. dramatically. Allottees often had no interest in actually developing the land—instead, they “flipped” or sold the 34. In the 15 urban areas surveyed for the 2014 letters of allotment to others at a higher market-based Kenya State of the Cities Baseline Survey, only 12 percent price, thus capturing a windfall. While such sales were of respondents to a owned the land and structure on technically illegal, corruption at the Ministry of Lands was which they lived.18 This share was higher in formal areas widespread and all manner of scandals in the allocation of (15  percent) than in informal areas (5  percent) but was public land became the norm. (A high level commission, more evenly distributed across the poor and nonpoor and the Commission into the Illegal/Irregular Allocation of along gender lines (Table 1.3). Among owners, 78 percent Public Land—popularly known as the Ndung’u Report— had ownership documents, but these ranged widely from Table 1.3: Land tenure in 15 urban areas, 2013 Location Household poverty General (Informal) Informal Female- Formal areas Poor Non-poor Male- headed Characteristic All areas headed Parent of households that Total 100 100 100 100 100 100 100 Own the land only 0 0 0 0 0 0 0 Own structure only 2 1 2 2 2 1 3 Own land and structure 12 5 15 11 12 5 6 Rent 86 93 83 87 86 94 90 Squat 0 0 1 1 0 0 1 N 14,552 4,150 10,402 8,536 5,840 3,046 1,008 Percent of households that 87 81 84 84 84 80 80 feel secure in ownership N 2,710 381 2,329 1,730 1,730 264 107 Source: World Bank (2014b). investigated and detailed the extent of land corruption in formal titles to temporary occupancy licenses to letters this era). The result of decades of irregular allocations and from the former provincial administration (Table 1.4). Of rampant “land grabbing” is that virtually no unallocated these, only formal titles confer clear ownership rights. Not government land remains in Kenyan cities, and the formal surprisingly, informal area owners held a lower percentage urban land market is now almost entirely in private hands.16 of titles than formal area owners. Despite this, most respondents reported feeling secure in their tenure. 33. The land distribution pattern is therefore skewed. Kenya’s Gini coefficient for land ownership was 0.711 35. Urban areas are expanding into freehold (World Bank 2008)—high internationally17 and significantly agricultural land without any formal conversion to higher than that in South and East Asia. This value puts leasehold title. The Kenya State of the Cities Baseline Survey Kenya closer to inequality levels in Latin America, which is of urban areas revealed that most ownership documents renowned for its skewed land ownership. This inequality (60 percent) were freehold titles with no tenure limitation. worsened rapidly throughout most of the country between Historically, however, land converted to urban use should 1997 and 2004 (World Bank 2008), abetted by corruption be converted to a leasehold tenure. These documents not in the system for transferring public land to private hands only do not conform to the law but also indicate that no described above. Thus most city dwellers in the country formal conversion took place. This causes two difficulties in 34 Kenya Urbanization Review managing land for urban growth. First, the legal requirement and the squatter phenomenon” and “uncontrolled to convert all urban land from freehold to leasehold (of 99 development, urban squalor and environmental pollution.” years or less) has encouraged informal land transactions. It identified policy objectives, including more equitable Tenure conversion (from freehold to leasehold) takes place land distribution, environmentally sustainable land use, when the land owner formally requests a land administrative and more efficient land markets, and identified the legal task, such as a subdivision. As there is no incentive for the reforms and other mechanisms required for achieving land owner to convert to leasehold with its reduced tenure these objectives. The National Land Policy of 2009 derives security (since ownership is suddenly confined to a time much of its content from the 2004 Ndung’u Report of the period), the conversion requirement has incentivized land Commission of Inquiry into illegal and irregular allocation transactions on urban land to continue informally. Second, of land. where urban land has not been formally converted to leasehold, planners feel they have inadequate regulatory 37. The National Land Policy recommended de jure control over that land. This is contrary to the language of changes in land tenure institutions to rationalize the the 2010 constitution, which asserts regulatory power over system of land holding and provide different legal options land regardless of tenure status. Governments (at any level) for land ownership. Prior to the 2012 Land Act, the three are reluctant to provide urban infrastructure on freehold official tenure categories were private land, trust land, land because it is widely believed to be not covered by and government land. Pre-devolution land laws such as urban regulations. the Registered Land Act regarded customary rights as an anachronism—it was assumed that customary property National Land Policy of 2009—an opportunity would be eventually subdivided and titled as individual missed land holdings. Accordingly, local authorities entrusted with customary lands (that is, trust lands held by the former 36. The National Land Policy of 2009 was precipitated County Councils) abused their mandates and, like the by the 2004 Ndung’u Report of the Commission of Inquiry central government, illegally allocated this land to private into the Illegal and Irregular Allocation of Land. The National individuals. Pursuant to the National Land Policy, the 2010 Land Policy of 2009 was seen as an opportunity to address constitution reformed land tenure institutions into three inequality in land distribution as outlined in the Ndung’u new categories—public land, private land, and community Report—but inequality has been largely overlooked. This land. Public land includes unallocated government land, Table 1.4: Ownership by type of document Location Household poverty General (Informal) Informal Formal Characteristic All Poor Non-poor Male- headed Female headed areas areas Proportion of household owners by type of land possession document Total 100 100 100 100 100 100 100 None 22 33 20 28 17 27 46 Freehold title 60 47 63 57 64 48 44 Temporary occupation license 3 4 2 2 3 4 2 Share certificate 2 1 2 3 2 1 1 Government certificate of title b 7 9 7 5 9 9 6 Letter from chief (provincial 3 3 3 4 2 5 1 administration) Other 3 4 3 2 4 6 0 N 3,004 444 2,560 1,915 1,038 307 125 Note: Long term lease from City council/Government Source: World Bank landmark document was a radical departure, laying out forests, reserves, tidal lands, and so on; private land includes for the first time a comprehensive vision for the country’s all land held privately under freehold or leasehold tenures; management of land. It evaluated the myriad problems and community land includes pockets of unadjudicated19 associated with land in the country, including “landlessness rural land still held under customary rules as well as the 35 former trust land that was the tenure form for the group National Land Commission established by the Constitution. ranches set up for pastoral communities in the post-colonial period. Land owned by a community is now recognized as Land registration and administration—an a legal option.20 It also stipulated far-reaching changes to institutional dualism pricing out all but the wealthy private tenure. 41. Land registration and administration are 38. The policy aimed to rationalize laws governing opaque, unreliable, and costly and need reform. Since titling and registration. This recommendation was reflected independence in 1963 and before the reforms of 2012, a in Chapter Five of the Constitution. Pursuant to the passage complex set of land laws evolved—some of which were of the Constitution in 2010, seven land acts were repealed incompatible, resulting in overly complex processes to and two—the 2012 Land Act and the 2012 Land Registration administer land. The multiplicity of laws required a series of Act—were passed in their place.21 These two laws require different registries to be set up, each registering interests in the development of just one registration system and one land recorded under each law. Registries were maintained land registry. The Land Act changed the terminology related at district and national levels, and although these registries to titling to make tenure clearer: titles were to be called were under the authority of the pre-devolution Ministry of certificates of lease or certificates of title. The policy also Lands, it was not clear that they were connected, allowing called for an overhaul of the institutional framework for multiple interests in the same piece of land to be registered. land administration and management and identified three This opaque system opened the door to graft. Multiple laws new institutions: the National Land Commission, District also meant that a title system and a deeds system each ran Land Boards, and Community Land Boards. Functions in parallel, further complicating the system (Walley 2011). identified for the district and local authority level came 42. Given that most land is private, it is critical that under the purview of county government. The National the formal land market works well. Yet the market is Land Commission Act, however, does not establish county- distorted by a high risk of forged documents and corruption owned land institutions, since three to seven members are surrounding title deeds. Investors hesitate to buy land due appointed by the National Land Commission and only one to the opacity of land records and the high risks entailed. by the County. They are also put off by the high costs and long delays 39. The ambiguity in objectives underlying urban land linked to the mandatory bureaucratic processes: the nine legislation has led to poor management of urban land. steps to register property take on average 72 days and cost Despite a need for clear objectives to guide urban land 4.3 percent of the value of the property (Table 1.5). Kenya is management, the National Land Policy focused on rural, ranked 136 out of 189 economies on the ease of titling and agricultural land. As the country urbanizes, rural land is registering property in Doing Business. increasingly being used for urban uses without a clear vision 43. Securing approvals for subdivisions and change of how to handle conflicting priorities resulting from this of user is particularly cumbersome, as it involves informal conversion of land use. multiple government institutions. An application for an 40. Critics argue that subsequent legislation has not urban subdivision may take 29 months—going through reflected the deep land redistribution envisioned in the subnational and national government layers—before it Constitution and the National Land Policy. The National is approved. Slow processes also apply to applications Land Policy and the 2010 constitution were a break from for lease extensions (UN-Habitat 2010). The many the past because they made the link clearer between land professionals that have to be involved (lawyers, valuers/ and justice, but legislation failed to follow through as had appraisers, surveyors, planners, and so on) add to costs been hoped for. In particular, progress on the legislation to and delays. enact the community land provisions of the Constitution has 44. Thus only a fraction of land transactions are been halting; investigations into illegal allocations and land documented and registered, and given the weak state grabbing have been obstructed by jurisdictional struggles of the formal system many people turn to informal between the central government land ministry and the 36 Kenya Urbanization Review Table 1.5: Nine steps to register a property No Procedure Time to complete Associated costs Apply and obtain land rent clearance certificate from the 19 days (simultaneous with 1 No cost commissioner of lands procedures 2 and 3) Apply, pay and obtain rates clearance certificate from the Nairobi 5 days (simultaneous with procedure 2 KES 10,000 City Council 1 & 3) 3 days (simultaneous with procedure 3 Apply for a search on the title at the Lands office KES 500 1 and 2) Apply and obtain consent to transfer from the commissioner of 4 9 days KES 1,000 lands File the transfer instrument at the lands office and obtain 5 4 days KES 500 appointment for valuation Receive site inspection by government valuer and obtain 6 20 days No cost valuation report Endorsement of value for stamp duty purposes and assessment 7 4 days No cost of stamp duty KES 600 (charge for banker’s Payment of stamp duty at commercial bank and receive 8 4 days cheque) + 4% of property value confirmation of payment from Kenya revenue authority (stamp duty) Lodge stamped transfer document for registration and receive 9 12 days KES 500 duly registered documents Note: 1 USD = 87.77 KES as of the date table was published (June 1, 2014). Source: Doing Business (2014). land markets, creating additional tenure insecurity. The developments, favoring apartments (HassConsult 2013): in informal market is how the poor access urban land for Nairobi in 2013, for example, planning was approved for 628 housing. Access to public land for housing for the urban detached houses, 795 semi-detached houses, and 13,914 poor, although illegal (that is, both access and housing), apartments. is endorsed by public administrators who allocate parcels of land and grant people “temporary occupation permits.” 46. In Nairobi, the trend to more affordable residential These simple letters of agreement that allow occupancy units on the periphery hurts connectivity. Formal are witnessed by the local administration (such as former development of residential opportunities for Nairobi’s chiefs at subdistrict level) with an appropriate number of low-income populations is often proposed for the urban witnesses chosen by the parties. In other cases, informal periphery or in exurban areas such as Athi River and Mavoko, land transactions have no documentation, relying on some 25 kilometers away. The poor living in these locations social recognition of ownership and security of tenure incur substantial time and money costs when commuting to (UN-Habitat 2010). This “institutional dualism” reflects the work in the capital (UN-Habitat 2010). difficulty of owning land for all but the wealthy, which was 47. Misallocation of public land has also led to poor one of the problems that the 2009 National Land Policy access to basic network services and urban amenities for and subsequent legislation sought to combat. most urban residents. The irregular and illegal allocation Other land management issues of land in urban areas has led to many areas that were set aside for public utilities and amenities being lost to private 45. Affordable housing is scarce because of the current development such as private housing and commercial land distribution pattern and the way land is used. Poor properties. Misallocated land includes land that was set public land management has contributed to the spread aside for public parking, public toilets, public playgrounds, of informal settlements, as land suitable for low-income parks, and road reserves. housing development is scarce. Land averages 60  percent of the cost of housing in urban Kenya and even more in 48. Poor land information (such as accurate, Nairobi. The country still has very little serviced land, digitized cadasters) affects the efficacy of planning and meaning that developers often face infrastructure hurdles the potential of urban revenue generation. Planning when building a project. Driven by the rising cost of land and requires accurate information on the land base, including building materials, developers have shifted to high-density information on boundaries, parcel sizes, existing land uses 37 and improvements, ownership status, and past land use– 51. The economic development of a city or region is related approvals and permits. Clarity on parcel boundaries closely tied to its internal connectivity and its connectivity and ownership is particularly important for notification to other cities and regions. This is because good transport purposes and implementing a planning process informed infrastructure enables companies and people there to by citizen participation and stakeholder involvement. In increase production and consumption levels on lowered addition, the potential of property rates in urban Kenya as logistical costs and access to larger supply and labor a key source of urban financing will only be realized if the markets. Other important factors include population cadasters can be updated and maintained accurately. growth, agglomeration of firms, education levels of residents, and quality of life. Good connectivity (and other 49. Considerable political commitment will be needed infrastructure), along with strong institutions and targeted to carry out land management reform. Given that public interventions, are essential to reap the benefits of urban land is scarce and its underlying function—to provide public economic agglomeration. goods—is being undermined, a thorough inventory of 52. Kenya has much of the connective infrastructure remaining public land is needed. Public land management to develop a vibrant portfolio of cities. The backbone also needs to be strengthened. These objectives require of its transport network is the Northern Corridor, which support to counties to conduct proper audits of the land includes four major international roads connecting with transferred during devolution; establishment of the county Tanzania to the south and one each to Ethiopia and level land boards and clear institutional delineation of South Sudan to the north. The distribution of transport responsibilities between the pre-devolution and post- is skewed toward roads, mainly serving areas of high devolution subnational land management institutions; population density. Infrastructure also includes a seaport and the full implementation of the National Land Policy. at Mombasa; international and national urban and rural Because most of the land is in private hands, support in roads; international and national airports; a rail line from identifying cost-effective ways to transfer private land to the Mombasa through Nairobi to Uganda, with branch lines; state would also be critical. Until these issues are solved, a fuel pipeline from Mombasa through to Eldoret and many public utilities cannot expand their services, including Kisumu; and some inland waterways (Figure 1.9). There are connectivity, due to illegally settled land, blocking cities also plans for a new port at Lamu, railway construction on from becoming a single “portfolio.” the Kenya–Uganda railway line, and a range of investments from Lamu to Ethiopia and South Sudan. Kenya’s Portfolio of Cities 50. Urbanization is not just about the development of individual cities within a country; developing a portfolio of 53. Kenya’s portfolio of cities is increasingly diverse, cities is essential. Kenya should approach its urbanization with global gateway cities such as Nairobi and Mombasa, process as a system of cities within which different types of regional connectors such as Nakuru, Kisumu, and Eldoret, cities can play different roles in the country’s development, and small cities that anchor local economies and provide based on population size, location, and density. The World services to the area (Figure 1.10). Mombasa is a major Development Report 2009 identified such a portfolio in tourist destination and the main seaport serving Kenya which small cities facilitate internal economies like hosting a and the larger Great Lakes countries of Uganda, Rwanda, large firm to process agricultural products. Secondary cities Democratic Republic of Congo, and South Sudan. Nakuru is encourage localization economies through competition a populous town some 160 kilometers west of Nairobi in between firms operating in the same sector, while large the Great Rift Valley that is agriculturally rich. Its growth is cities boost urbanization economies through a diverse driven by agriculture, some industrial production, tourism, economic base that favors innovation. Developing the and services demands from communities working at two current portfolio of cities will be essential to leverage the national universities. Eldoret is about 400 kilometers west of benefits of urbanization and move Kenya to its Vision 2030 Nairobi, along the Northern Multimodal Transport Corridor. goal of becoming an upper middle-income country. It is also an agriculturally rich area and the country’s breadbasket. It has an international airport, rail line, fuel 38 Kenya Urbanization Review Figure 1.9: Transport infrastructure, Kenya Road traffic (avg annual daily traffic) Airports(000 Passengers per Annum) <750 750 - 5000 >5000 Unknown <100 100 - 300 300 -1000 >1000 Ports Road type & condiƟon Direct Direct & Transhipment Good Fair Poor Unknown Railroad (million traffic unit per annum) Paved Not <0.5 0.5-1 1-2 >2 UnPaved OperaƟng Source: Africa Infrastructure Country Diagnostic (2011). depot, and the two national universities. Kisumu lies on 35 kilometers of the corridor, respectively, underscoring the shores of Lake Victoria and within an agriculturally rich its importance. Furthermore, Kenya’s urban system and zone. It is connected by rail to Nairobi and Mombasa, with transport infrastructure are concentrated in the southern a harbor for lake transport between Kenya, Tanzania, and and western areas along the Northern Corridor, aligned Uganda and a fuel depot. A new international airport has with dense populations and areas of high urbanization and recently been completed. agricultural potential (Figure 1.11). 54. Urbanization is spatially concentrated along 55. The Northern Corridor has three hubs: the Coastal the Northern Corridor. Kenya’s transport infrastructure hub around Mombasa, with Kilifi and Malindi; the Central investment has reinforced urbanization patterns, and hub around Nairobi and Thika; and the Western hub, with Kenya’s urban and economic growth has been established a cluster of four leading towns: the three described just around population centers, with most urban dwellers above (Kisumu, Eldoret, and Nakuru) and Kericho. At the living near the Northern Corridor between Mombasa and heart of these hubs is good air and road connectivity. Each Malaba, with a branch line to Kisumu. In fact, less than has two airports and is also well connected by road. Rail, 14  percent of urban dwellers live in towns farther than however, carries only a small percentage of cargo. Despite 35 kilometers from that corridor. In total, 75  percent and this, construction has begun on a new standard-gauge rail 85 percent of urban dwellers live within 15 kilometers and line following a similar route.. 39 56. The portfolio will increasingly develop around and Sanghi 2015). Estimates suggest that about 39 percent metropolitan areas. Kenya’s policy makers are already of GDP is generated in the most urbanized counties in developing a system of cities by creating six metropolitan Kenya—those where at least 50 percent of the population Figure 1.10: Kenya’s transport infrastructure Major towns Passengers & freight >30,001 10,001 - 30,000 5,001 - 10,000 1,001 - 5000 <1,000 Railway Line Railway Line Water Bodies Source: Kenya Ministry of Transport (2009). regions: the Nairobi metropolitan area and five others is living in urban areas (Nairobi, Mombasa, Nakuru, (Table 1.6). Of these six, four are in the urban belt along the Kiambu, and Machakos). In addition, the two 100 percent Northern Corridor and combined account for 61 percent of urban counties—Nairobi and Mombasa—are estimated Kenya’s GDP per the night-lights study (Bundervoet, Maiyo, to generate about 16  percent of the country’s GDP and 40 Kenya Urbanization Review Table 1.6: Six envisioned metropolitan areas Percentage of total national Metropolitan area Area GDP in 2013 in constant 2005$ GDP Nairobi–Kajiado–Kiambu–Machakos–Murang’a 9,361,960,314 35 Mombasa–Kilifi–Kwale 2,801,259,764 10 Nakuru–Uasin Gishu 2,840,572,182 11 Kisumu–Kakamega 1,343,938,891 5 Kitui–Meru–Isiolo 1,282,578,660 5 Wajir–Garisa–Mandera 804,229,850 3 comprise about 12 percent of the country’s total population. the Nairobi metropolitan area, the Coastal region around Kenya’s cities have the potential to drive economic growth, Mombasa, and the linked metropolitan areas of Nakuru– especially in its metropolitan regions. Eldoret and Kisumu–Kakamega (both rich agricultural zones). Kenya is on the right track in improving connectivity among 57. Kenya’s system of cities is therefore likely to develop its portfolio of cities and in thinking about the development around metropolitan regions. The most important will be and roles of its metropolitan areas. This will require Kenya Figure 1.11: Urban concentration of population and earnings Source: Based on Kenya National Bureau of Statistics (2009) and Kenya National Bureau of Statistics data from Statistical Abstracts, 2007–2012 41 to develop a multilevel governance framework that allows is plentiful. urban areas in a single metropolitan area to collaborate and incentivizes local authorities to deliver infrastructure and 61. These are some of the transport challenges to public services jointly, along with a metropolitan area–wide planners and infrastructure providers. We revisit them in planning framework (see Chapter 6). more detail in Chapter 4, but before that in Chapters 2 and 3 we look at some of the more “static” challenges in access 58. The urban population will grow considerably to basic services and affordable urban housing. in the Nairobi metropolitan area. Nairobi is projected to become a city of more than 6 million by 2030, up from an estimated 4 million in 2015. Good connectivity between Nairobi and surrounding satellite towns remains the main driver of population and economic growth of the smaller towns in its metropolitan area. Of the 25 largest urban areas in Kenya, 10 (including Nairobi) are in the Nairobi metropolitan area. These 10 cities have about 5.77 million people and nearly 40 percent of Kenya’s urban population. Of these 10 cities, three—Thika, Juja, and Kitengela—were among the 10 fastest-urbanizing areas in Kenya, and four others—Mavoko, Ngong, Ongata Rongai, and Ruiru—other were in the top 25 fastest-urbanizing areas. 59. Recent attempts to use night-lights data to calculate county-level GDP confirm the economic strength of the Nairobi metropolitan area. The Nairobi metropolitan area comprises Nairobi City County and the counties of Kajiado, Kiambu, Machakos, and Murang’a. Of these counties, the authors estimate that Nairobi has the largest county GDP, with Kiambu County the second largest. Kajiado, Machakos, and Murang’a are estimated to have the sixth, seventh, and eighth largest county economies. Combined, the six-county region (urban and rural) is estimated to generate 35 percent ($9.36 billion in 2013$) of Kenya’s GDP.22 60. While the development of connective infrastructure is important to developing the portfolio of cities, planners and policy makers need to be careful to avoid further “peri- urbanizing.” Nairobi’s metropolitan area is a good example of this problem: new highway infrastructure has encouraged growth in peri-urban settlements and along major road corridors, pushing land prices higher and increasing rates of car ownership, further lengthening commutes to jobs in the urban core and adding to congestion. Residential areas have also developed beyond county boundaries in Thika, Ngong, Machakos, and other satellite communities, even though well-located privately-held land within urban areas 42 Kenya Urbanization Review Bibliography Africa Infrastructure Country Diagnostic. 2011. Kenya Interactive Infrastructure Atlas. African Development Bank Group, Abidjan and Tunis. http://www.infrastructureafrica.org/system/files/ken_new_ALL.pdf. Bundervoet, Tom, Laban Maiyo, Apurva Sanghi. 2015. Bright Lights, Big Cities: Measuring National and Subnational Economic Growth in Africa from Outer Space, with an Application to Kenya and Rwanda. Policy Research working paper WPS 7461. World Bank, Washington, DC. http://documents.worldbank.org/curated/en/2015/10/25221167/bright-lights- big-cities-measuring-national-subnational-economic-growth-africa-outer-space-application-kenya-rwanda. Commission on Revenue Allocation. 2014. Recommendations for sharing revenues for 15/16, 16/17 and 17/18. Nairobi. Fengler, Wolfgang, and Jane Kiringai. 2013. Achieving Shared Prosperity in Kenya. Washington DC: World Bank. http:// documents.worldbank.org/curated/en/2013/08/18523839/achieving-shared-prosperity-kenya. Freire, Maria, Somik Lall, and Danny Leipziger. 2014. “Africa’s Urbanization: Challenges and Opportunities.” Working Paper No. 7, The Growth Dialogue, Washington, DC. HassConsult Limited. 2013. Real Estate: State of Development. The Hass Property Index. Jedwab, Rémi. 2013. “Urbanization without Structural Transformation: Evidence from Consumption Cities in Africa.” Working Paper, George Washington University, Washington, DC. Kenya Ministry of Transport. 2009. Integrated National Transport Policy: Moving a Working Nation. Ministry of Transport, Government of Kenya, Nairobi. United Nations Department of Economic and Social Affairs, Population Division. 2014. World Urbanization Prospects: The 2014 Revision, Highlights. ST/ESA/SER.A/352. New York. UN-Habitat. 2010. The State of African Cities 2010: Governance, Inequality and Urban Land Markets. UN-Habitat, Nairobi. Walley, Simon. 2011. “Developing Kenya’s Mortgage Market.” Report No. 63391-KE, World Bank, Washington, DC. World Bank. 2014a. Kenya State of the Cities Baseline Survey. World Bank. 2014b. Doing Business 2015: Going Beyond Efficiency. Washington, DC: World Bank Group. http://www. doingbusiness.org/reports/global-reports/doing-business-2015. 43 44 Kenya Urbanization Review Chapter 2 Access to Basic Services in Urban Areas 45 Key Messages 1. Access to basic services is critical for livable cities nearly 40 percent of residents of the primary cities had and economic growth. Urban infrastructure and services— access to a sewer connection, while only 1 percent of those primarily transport, water supply and sanitation, electricity in the smallest cluster did. and solid waste management—are key to successful cities that attract and retain satisfied and productive residents. 4. Within urban areas there is considerable inequity, In its development blueprint—Kenya Vision 2030—the with formal settlements and wealthier households government recognized the need for good urban planning having better access. Although this is now changing, and infrastructure development to meet the anticipated Kenyan authorities and utilities have long avoided increase in urban population. The document gives special bringing infrastructure services to informal settlements, emphasis to expanding the access of the poor to basic either because of unclear land ownership or because it services. The 2010 constitution of Kenya further reinforces appeared unprofitable without subsidies or innovative this emphasis by making access to some basic services, like billing practices. Access to services is much less in informal water and sanitation and a clean environment, basic rights settlements, where most of the poor live, than in formal for all citizens. Universal access to improved sanitation could areas. In Nairobi, only about 36 percent of households reduce diarrhea-related morbidity by more than a third. Bulk living in informal settlements have access to piped water supply and trunk infrastructure can meet the requirements in the house or compound, while 84 percent of households of the poor as well as support urban economic growth. in formal areas do. With a few exceptions, the disparity holds for access to in-house electricity, access to solid waste 2. Few urban services are keeping pace with urban collection services, and quality of internal access roads. population growth. This has led to a huge infrastructure and service provision backlog, with demand for services 5. Unlike access, the quality of basic infrastructure far outstripping supply in most urban areas. In Kenya’s services does not vary much between formal and informal two major cities—Nairobi and Mombasa—current water areas. In eight of 15 cities, people with access to piped demand exceeds supply by more than 150,000 and 100,000 water in their homes or compounds who live in informal cubic meters per day, respectively. Only about 18 percent settlements have service for at least as many days a week of the urban population is covered by a sewer system, 70 as those living in formal areas. Generally, people living percent rely on septic tanks and pit latrines, and the rest have in informal settlements receive fewer hours per day of access to no sanitation services at all. Existing wastewater electricity service than people in formal areas, but the gap treatment systems operate at very low efficiencies (about 16 is not large. percent of design capacity for 15 plants assessed in 2010), 6. Poorer households spend a much larger proportion leading to discharge of untreated effluents. No urban area of their incomes on basic infrastructure services than do has a properly engineered sanitary landfill, and most solid the better off. The poor—most of them renters in informal waste is dumped in open dump sites or other undesignated areas with worse living conditions—are exactly the people areas, or burned. who lack access to formal networked services and pay 3. Larger urban areas have generally better access proportionally more for the services they have. Households to networked urban services. In 2009 Kenya had some in the lowest income quintile (earning KSh 6,000 per month 215 urban centers, of which only 14 had a population or less) spend 12 percent of their income on water and 18 above 100,000 according to the Kenya National Bureau percent on electricity (Figure 2.9 below). This contrasts with of Statistics. Consistent with international trends, access households in the highest income bracket (earning from to basic services is generally better in larger—those with KSh 22,500 to 100,000 per month), who spend an average populations over 500,000—than smaller urban areas. of 2 percent of their income on water and 3.2 percent on For example, rates for access to piped water, a sewer electricity. connection, and electricity were much higher in the largest urban centers than in any smaller centers. Thus in 2009, 46 Kenya Urbanization Review 7. Devolution poses a particular challenge for the levels and service providers will have to engage in dialogue provision of urban infrastructure and services. This is and experimentation to find the most effective institutional because most counties are predominantly rural and have structures to deliver services, which may entail much little incentive to invest in urban areas. Although urban areas political brinkmanship. produce most of county own-source revenues, counties may channel their investments to rural areas instead, 8. To rapidly increase services to the poor will require where most people live and where access to services is special measures to improve affordability. These could include poor. In addition, devolution has shifted responsibility for lowering the costs of connecting to networked services by provision of water and sanitation services (WSS) from the connecting all at once, offering loans for connections that can national government to county governments and for solid be repaid over time, and providing subsidies to residents of waste management from the former urban local authorities poor neighborhoods. But these issues need to be dealt with in to the counties. This increases the risk of underfunded the context of devolution, which has brought new institutions services in urban areas due to fiscal constraints and political with new responsibilities but often without the capacities, bias favoring investment in rural areas. Governments at all mandates, or resources to meet them. Figure 2.1: Access to piped water on premises across selected countries, 2012 100% 90% 80% Proportion of population 70% 60% 50% 40% 30% 20% 10% 0% Uganda Tanzania Indonesia Kenya India South Africa Colombia Malaysia Urban Rural Source: WHO/UNICEF Joint Monitoring Programme for Water Supply making access to some basic services—including water and and Sanitation (2014). sanitation and a clean environment—a basic right for all citizens. Assessment of Basic Services in Urban Centers 10. As in many developing countries, access to basic services in Kenya is better in urban than in rural areas. 9. Access to basic infrastructure services is critical for Kenyan urban residents benefit from the broader availability livable cities and for economic growth. Urban infrastructure of services associated with urban agglomeration. A huge and services—including transport, WSS, electricity, and disparity exists between access to services in urban and in solid waste management—are key to successful cities that rural areas, with urban residents experiencing far better attract and retain satisfied and productive residents. In access. About 44 percent of urban inhabitants had access to Kenya Vision 2030, the government recognized the need for piped water on their premises in 2012 compared with only adequate urban planning and infrastructure development 14 percent of rural dwellers (Figure 2.1); some 58 percent to meet the forecast increase in urban population. The of urban households had access to electricity in 2010, while document gives a special emphasis to expanding the access only 8 percent of rural households did (Figure 2.2). Although of the poor to basic services, including WSS and electricity. in general access to services in urban areas in Kenya is better The 2010 constitution further reinforces this emphasis by 47 than in its East African neighbors, access levels fall below Vision 2030, including South Africa, Colombia, and Malaysia those in the countries to which Kenya compares itself in (see Figure 2.1 and Figure 2.2). Figure 2.2: Access to electricity across selected countries, 2010 100% 90% 80% Proportion of population 70% 60% 50% 40% 30% 20% 10% 0% Uganda Tanzania Kenya India South Africa Colombia Indonesia Malaysia Urban Rural Source: World Development Indicators database. 9. Kenya’s urban infrastructure and service provision 55 percent. The proportion of the urban population with have not kept pace with its high urbanization rates. This access to improved sanitation, excluding shared sanitation, has created an infrastructure and service-provision backlog, increased by only 5 percentage points, from 26 percent to 31 with demand for services far outstripping supply in most percent over the same period, while the proportion of the urban areas. In Nairobi and Mombasa, water demand rural population enjoying access rose from 24 percent 29 exceeds supply by more than 150,000 and 100,000 cubic percent (Figure 2.3).25 High population growth—the urban meters per day, respectively. Only about 18 percent of the population rose from about 4 million in 1990 to 10.4 million total urban population has access to a sewer system, 70 in 201226— makes it harder to achieve the Millennium percent rely on septic tanks and pit latrines, and the rest Development Goal (MDG) 2015 target for proportion of have access to no sanitation services at all.23 Wastewater population with access. Continuing the current trend—a treatment systems operate at very low efficiencies (about 0.75 percentage point increase per year—would take more 16 percent of design capacity for 15 plants assessed in than 200 years to reach universal sanitation coverage.27 Thus 2010), leading to undertreated effluents. No urban area in the universal water and sanitation coverage as envisaged the country has a properly engineered sanitary landfill, and in Vision 2030 (Figure 2.4) will require huge investments, solid waste is generally dumped in open dump sites or other much improved operational efficiencies, and innovative undesignated areas, or burned. Authorities are unable to technologies—particularly for sanitation services, which keep pace with the growing demand because of inadequate have traditionally received less attention and financing than financing for capital investments; inadequate capacity for water services. They also are more fragmented: utilities are planning, operating, and maintaining urban infrastructure in charge of piped sewerage services, but households and and services; and institutional fragmentation that muddies firms are responsible for non-networked services such as mandates and hampers coordination of services. septic tanks. 10. Progress in expanding urban WSS access has been 11. Access to some basic services is improving, weak. The proportion of the urban population with access particularly in urban areas. The proportion of people to improved water sources declined from 92 percent in in urban areas with access to electricity climbed from a 1990 to 82 percent in 2012,24 while the proportion of the little over 42 percent in 1990 to over 58 percent in 2010 rural population gaining access rose from 32 percent to (Figure 2.5). Nevertheless, at this pace of improvement—16 48 Kenya Urbanization Review Figure 2.3: Access to improved water and sanitation in Kenya, 1990–2012 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1990 2000 2012 Urban water Urban sanitation Rural water Rural sanitation Source: WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation (2014). [Layout: Sentence cap variables] Figure 2.4: Current rate of access to sanitation and rate needed to achieve universal access by 2030 Source: World Bank (2013). percentage points in 20 years—it would take more than 50 12. There is great variability in access to basic services years to provide universal access to urban residents. But the between urban areas of different population sizes. Access push to provide access to electricity has accelerated in the to services such as water, sanitation, and electricity is past five years, with the number of connections in urban generally better in more populous urban areas (Figure 2.7). and rural areas doubling between 2009 and 2014, from This is consistent with international trends, as larger urban about 1.1 million to 2.2 million (Figure 2.6).28 The grid has areas tend to have better access to finance (though less so been extended to the majority of rural settlements with a in Kenya after devolution) and lower levels of urban poverty market and up to 1,000 residents. As of September 2015, than smaller urban areas. 91 percent of primary schools are connected to electricity services, and all secondary schools are scheduled to be connected by 2016. 49 Figure 2.5: A growing proportion of the population has access to electricity, especially in urban areas 70% ProporƟon of populaƟon with access 60% 50% 40% 30% 20% 10% 0% 1990 2000 2010 Urban Rural Total Source: World Development Indicators database. Figure 2.6: Electricity connections in urban and rural areas, 2009–2014 2,500,000 2,000,000 Number 1,500,000 1,000,000 500,000 0 2009 2010 2011 2012 2013 2014 Urban Rural Source: Kenya Power (2014). infrastructure, and economic profile of 15 of Kenya’s largest cities, it Access to Basic Services within and across covers 56 percent of all people living in urban areas. It collected data 15 Large Urban Areas from 14,581 households, focusing on living conditions in informal versus formal areas. For the purposes of this chapter, the services 13. Access to basic infrastructure and services in urban analyzed are WSS, electricity, solid waste collection, quality of centers varies greatly by formality of neighborhood of residence neighborhood roads, and attendance and completion of primary and by household poverty status. The Kenya State of the Cities school.29 Baseline Survey, completed in 2014, examined access to services in 15 urban centers (Figure 2.8). A study of the demographic, 50 Kenya Urbanization Review Figure 2.7: Access to water and electricity by population of urban area 80% Proportion of the population with access 70% 60% 50% 40% 30% 20% 10% 0% above 500,000 250,000-500,000 100,000-250,000 less than 100,000 Water Electricity Source: Based on Kenya National Bureau of Statistics (2009). informal settlements. As a result, access is much worse in 14. Access to basic infrastructure services is much informal settlements than in formal areas. In Nairobi, only better in formal than in informal areas. Although this is now about 36 percent of households in informal settlements changing, Kenyan authorities and utilities have long avoided have access to piped water in the house or he compound, bringing infrastructure services to informal settlements, while 84 percent of households in formal areas do. With a either because of unclear land ownership or because it few exceptions, the disparity holds for access to in-house appeared unprofitable without subsidies.30 Moreover, most electricity, access to solid waste collection services, and of the population growth in cities is in the underserved quality of internal access roads. Figure 2.8: Population of 15 urban areas 3,500,000 3,000,000 2,500,000 Population 2,000,000 1,500,000 1,000,000 500,000 0 Source: Kenya National Bureau of Statistics (2009). trust first and only then to encourage people to connect legally to services rather than obtain them through cartels 15. Providing networked services (water, sewerage, that connect illegally and charge more than formal service and electricity) to informal areas requires innovative providers would. Providing payment alternatives that mechanisms and capital investment. Service providers take into account income levels in informal settlements first need to work with local communities to earn their helps reduce defaults and service interruptions, and such 51 mechanisms are being piloted in the water and electricity location or poverty status. In eight of the 15 cities, a sectors. After extending water and sewer networks in one higher proportion of youths living in informal areas informal settlement, the Nairobi Water and Sewerage were attending school than those in formal areas. This is Company launched a mobile phone platform that enables consistent with data from the baseline survey that show no customers to report meter readings and to receive and difference by location of residence in access to a primary settle bills. This allows customers to pay their bills when and secondary school within a 20-minute walk of home. funds are available. Kenya Power provides each household Based on discussions with city officials and others, informal in an informal settlement (including tenant households) areas have many private schools and schools operated with a prepaid meter, allowing them to control exactly how by nongovernmental organizations (including faith-based much they spend on electricity each month—something organizations), providing opportunities for youths to attend that is not possible with cartel-provided service. school.32 Though not part of this analysis, it is likely that the quality of education for the poor in informal areas differs 16. Unlike access, the quality of basic infrastructure from that of the nonpoor in formal areas. services does not vary much according to whether people live in a formal or informal area. 31 In eight of the 15 cities 19. Access to basic infrastructure services in cities in the survey, people with access to piped water in their does not vary much by gender of household head. Female home or compound who live in informal settlements have headed households in eight cities are at least as likely service for at least as many days per week as those in to have piped water in the home or compound as male- formal areas. Water utilities operate an “equitable water headed households. This may be because the burden distribution program” that ensures all neighborhoods of fetching water traditionally falls primarily on women, receive water on a regular schedule. The Nairobi Water and having access to piped water frees women to pursue and Sewerage Company publishes its schedule in the local other activities—especially important for women heading newspapers and on its website. Generally, people living in a household. There is some variation in access to other informal settlements have access to fewer hours per day infrastructure services, with female-headed households of electricity service than people in formal areas, but the having better access in some cities and male-headed gap is not large. The biggest challenge is for the operators households in others. It is certainly not the case that to provide the network in informal areas. Once this is female-headed households are systematically worse off in achieved, the quality of the service provided will be similar, access to basic services than male-headed households. regardless of location. 20. Poorer households spend a much larger proportion 17. As expected, access to most basic infrastructure of their incomes on basic infrastructure services. services is much lower for the poor than the nonpoor. For Households in the lowest income quintile (earning up to example, over 70 percent of nonpoor households in Nairobi KSh  6,000 per month) spend 12 percent of their income have access to piped water in their house or compound, on water and 18 percent on electricity (Figure 2.9). This against just over 50 percent of poor households. This finding contrasts with households in the highest income bracket, holds across cities of all sizes and across most infrastructure earning from KSh 22,500 to 100,000 per month, who spend services. The main exception is for the quality of access an average of 2 percent of their income on water and 3.2 roads in several cities, where some newer housing estates percent on electricity. Since poor households have lower on the periphery of the city—which serve the nonpoor— connection rates to the public network, they resort to do not have access to networked services, according alternative sources, which are often more expensive and of to city officials. Because there is a close correlation lower quality than services from public utilities. In addition, between formality of neighborhood and poverty status, the cost of connection to services through public networks it is unsurprising that the nonpoor have better access to without any subsidies is unaffordable for households in infrastructure services than the poor. But some nonpoor lower income quintiles. For instance, the average cost for households reside in areas classified as informal. a standard water connection in Nairobi is about KSh 13,215 (US$140), which includes a domestic connection fee, costs 18. School attendance does not vary by household for piping and fittings, and a refundable meter rent.33 52 Kenya Urbanization Review Figure 2.9: Poor households spend a much larger proportion of their income on water and electricity than the nonpoor, 15 cities. 20% 18% 16% Proportion of income 14% 12% 10% 8% 6% 4% 2% 0% < or = 6,000 6,001-9,000 9,001-13,000 13,001-22,500 Above 22,500 Monthly income, Kshs On household water needs - Mean On household electricity needs - Mean Source: World Bank (2014). Institutional, Legal, and Financing is now a basic right and the responsible institutions need Framework for Selected Basic Services to demonstrate that they are upholding this right. This is complicated by the fact that devolution to county level has 21. Devolution poses a particular challenge for the shifted the ownership of mostly corporatized urban water provision of urban infrastructure and services.34 This is utilities (with ring-fenced accounts tied to urban water because most counties are predominantly rural and may service) from local governments to new political entities (the have little incentive to invest in urban areas. Although urban counties), some of which may not want utilities exclusively centers produce most of county own-source revenues, to serve urban areas. Devolution may also affect fiscal flows counties may choose to channel their investments to rural to water and sanitation as the new intergovernmental areas instead, where most people live and where access system unfolds. to services is poor. In addition, devolution has shifted responsibility for provision of some basic services from the 23. Water sector reforms since 2000 have left a national government to county governments, which raises supportive, reformist legacy for the transition now the risks that services will be underfunded. This section happening. The Water Act of 2002 still provides the legislative explores the institutional, legal, and financing frameworks framework for the sector (see Annex 2). It also encapsulates for provision of three basic services—WSS, electricity, and a supportive legacy to build on, having underpinned sector solid waste management—each of which operates under modernization (Figure 2.10): separation of the functions of unique institutional and financing arrangements. water resource management, water service delivery, policy, regulation, and financing; commercialization through the Water and sanitation services—institutional creation of autonomous urban and rural water service structure providers accountable to local governments, but clearly distinguished from the asset ownership and the investment 22. Urban WSS is a devolved function under the function of regional water services boards (WSBs); and the 2010 constitution, with pronounced implications for establishment of an independent Water Services Regulatory their governance, financing, and delivery. Access to them Board (WASREB). 53 Figure 2.10: Institutional setup under the Water Act of 2002 Water Appeal Board Water Services Trust Fund RegulaƟon FoundaƟon NaƟonal level Policy MWI Water Water Resources Services Management Regulatory Authority Board Regional level Catchment Areas Water Services Advisory Commitees Boards Provision Services Water Resources User Water Services Providers AssociaƟons Local Level Water Resources Management Water and Sewerage Service ConsumpƟon, Consumers, Users Use 24. The adoption of the 2010 constitution brought a time. If the logic of the reforms since 2000 is to be followed, need for new water legislation. A water policy was drafted this would imply a national regulatory function to monitor in 2011 and a national water bill has gone through several allocation of funding to the sector and the effectiveness renditions since 2012, but neither has been adopted. The with which this funding is used; set, monitor and regulate bill aims to clarify roles and responsibilities in the delivery minimum standards related to the provision of water; and and regulation of WSS, in line with the Constitution. It monitor and regulate the institutions providing the service encourages county governments to establish water service to ensure that these minimum standards are met. companies and contains enabling clauses for public–private partnerships. It also provides for a national regulator to set 26. WASREB has contributed in these regulatory areas and enforce standards for service delivery, monitor and over the past decade, bringing to the water sector greater report on services, and license water service providers. transparency and scrutiny of performance. But with the The potential regulatory role of counties has become an advent of devolution, there have been calls from some issue—it is now agreed that it is legally possible to share counties for the regulatory function to be devolved to county regulatory responsibility between the national and county level, though the draft water bill retains a national role for governments, but how such sharing would work has yet to the regulator. The case for having a national regulator is be resolved. that water service provision is a natural monopoly, so self- regulation is inappropriate. Public reporting though an 25. With a range of service delivery performance and independent institution should help ensure the integrity of price setting issues at stake, WASREB has an important information. role. Established in 2003 under the Water Act of 2002, it regulates eight WSBs and 103 water service providers with 27. The Water Bill will need to harmonize with other an annual budget of about US$150 million. Its role covers legislation. It especially should harmonize with the licensing providers and monitoring their performance, with County Government Act of 2012 and the Urban Areas the annual WASREB “impact” report providing a comparison and Cities  Act of 2011. The Constitution and the County of performance of each WSB and provider for the year under Government Act require that each county government review. Since 2009, WASREB has issued six such reports. The prepare investment plans and budgets for development of introduction of a constitutionally guaranteed right to water county mandated services. For water services this means provides a strong basis and rationale for regulation of the specifying how universal access to WSS will be achieved. In service to ensure that this right is progressively realized over setting out what this means for WSS institutions, the water 54 Kenya Urbanization Review bill must be consistent with other laws that affect planning, 29. Devolution has shifted the ownership of mostly tariff setting, monitoring, and other aspects of governance corporatized urban water utilities (with ring-fenced and service delivery beyond the sector.35 accounts) from local governments to county governments. Since the majority of counties include both urban and 28. After devolution, institutional roles are in rural areas, this means that urban water utilities may be transition. The shift from a centralized to a more required to also serve nonurban areas, affecting both their decentralized architecture poses considerable challenges operational models and their ability to cover their costs, to consistent and accountable service delivery. Although as pricing for rural water is significantly less than for urban much of the system that has emerged since 2002 is water. In addition, the principles and practices for ensuring likely to remain, devolution means that specific features water utilities’ ability to use water revenues in support of and relationships of these institutions are in transition. constitutional obligations to deliver these services have not An example is the considerable emphasis placed in the been firmly secured. Diverting water revenues from the decade before devolution on separating asset-holding sector could undermine service delivery. from operating functions (Box  2.1). (In the early 2000s, it was common for private operators to manage water 30. There has been some movement to cluster and systems.) This helped address public concerns about share capacity and resources, though many urban water private firms owning water assets and potentially depriving service providers remain intact. But stronger utilities are low-income households of services. Separate public asset- concerned that absorbing weaker ones would dilute their holding companies (the WSBs) were duly established with own capacities and financial positions, especially where the functions of planning and investing in assets. But the different tariff rates exist. In cases where one provider relevance of this approach in the current arrangement is serves more than one urban area in different counties, not self-evident. In most countries with public provision, some counties have concluded that a joint provider does the operator of a service is considered best able to plan not serve their best interests. The Kakamega-Busia Water for future investments, due to its superior knowledge Services Company, for example, supplies water to two (compared with an asset-holder) of the infrastructure urban areas in two counties (Kakamega in Kakamega system being operated and thus its presumed ability to county and Busia in Busia county). Since devolution, the make decisions on maintenance versus asset-rehabilitation two counties have pressured the company to split into or replacement spending. two, with each company focusing on its own county. The Box 2.1: Devolution and former institutional roles: Water boards and water service providers. Under the system evolved through water sector reform since 2002, WSBs (owned by the national government) have been responsible for providing water services and are authorized to do so through a license issued by WASREB (Sections 53 and 47 of the Water Act of 2002). But the actual delivery of water services is to be done by an agent of the WSBs—except where this is not possible or practical, in which case the WSB can provide the services itself (Section 55(2)). These agents are the water service providers that still deliver WSS under a contract with the WSB. The WSB is the owner of the assets (or was intended to be the owner), while the service providers are the asset operators. These licensing and contractual arrangements have largely remained since the counties came into being in 2013, but they have been controversial. Although the counties with substantial urban areas have largely adopted service providers as service-provision vehicles, a number of counties have not been comfortable with the WSBs, which they see as instruments of national government that are insufficiently sensitive to county priorities and concerns. Some have argued that since devolution allocates responsibility for WSS provision to counties, the WSBs have become redundant. These issues remain on the agenda for several counties. In counties where bulk water and other interjurisdictional issues are prominent, such as the coast region, this has been intertwined with calls for a new bulk water arrangement, with the role of the Coast WSB—which provided bulk water services before devolution—to be renegotiated. 55 counties argue that they have different needs and require of the former local authorities. These services dedicated institutions. The company has not yet been split. now fall under the counties in departments or agencies other than the water utilities. There may 31. Clarity is also needed on future institutional be a rationale for assigning potentially revenue- responsibility for planning, financing, and investing in generating functions like water supply to separate water services infrastructure. Under the 2002 reforms, eight agencies, but most cities no longer have clear regional WSBs have filled this role, both within and across platforms for coordinating these agencies and counties. The draft water policy and water bill anticipate their functions, and county administrations are that developing cross-county infrastructure will be taken overwhelmed trying to meet their huge new over by new waterworks development boards, which would responsibilities. It is a complex challenge, as the hand over new infrastructure to the counties on completion. case of storm water drainage demonstrates. In But several counties want to assume responsibility for the current system, this function typically resides investing in WSS infrastructure and argue that they have the with the county roads departments. While these constitutional right to do so. Therefore any future role of departments may (or may not) manage the risks of WSBs (or water works development boards) will have to be storm water away from roads, bridges, and the like, negotiated with the counties. Consideration may have to be they are not necessarily linked to the water sector given to a system of intergovernmental consultation, such institutions responsible for the safe disposal and as the joint national–provincial committees at political and treatment of storm water. technical levels that South Africa established after its own 33. Interjurisdictional issues have assumed new reforms in the 1990s. significance in the devolved system, as water-flows 32. Better integrated planning and coordination across county borders reinforce the need for planning remain major challenges, underscoring the importance and managing bulk water systems in some regions. The of coordinating platforms, from planning infrastructure to Constitution allows counties to develop institutional construction and operation: arrangements with other counties or the national government on interjurisdictional issues of common • Strategic planning across levels of government is concern. This is important because the flow of water across lacking. There is no system for cascaded strategic borders often is a complex and risky matter that may planning from national to county to provider levels. require special institutional arrangements stretching across This compromises the robustness of cross-sectoral jurisdictions. But the exact institutional form, status, and vision and implementation, so that infrastructure mandates of such institutions in the water sector are likely investment planning is often discretionary and to demand considerable bargaining over the next few years. devoid of clear criteria for appraising and prioritizing Kenya’s two largest urban counties, Mombasa and Nairobi, projects. both need to work with neighboring counties on water • Planning capacity within WSBs and providers resource management (Box 2.2). is inadequate. This has led to weak multiyear investment planning, so that the sector lacks comprehensive investment and financing. This not only weakens the capacity of the public sector to invest in urban services, but also discourages potential private financiers from investing in water infrastructure. • County responsibilities for urban infrastructure and services are fragmented. At county level, related urban services—storm water drainage, solid waste management, and all sanitary services other than waterborne sewerage—were the responsibility 56 Kenya Urbanization Review Box 2.2: Interjurisdictional water flows and bulk water in Kenya’s biggest urban centers Mombasa and Nairobi both need to work with neighboring counties on water resource management to assure water supplies to residents. But the solutions may not be the same for both cities. Mombasa City County is Kenya’s second-largest urban area, a major port, and one of the six counties that make up the Coast region. Water demand for the region has been projected to more than double by 2035, with half of that demand coming from Mombasa. Current water supply to the city meets less than half of its demand, leading to water rationing, with different areas of the city receiving water on scheduled days. With no water source of its own, the city relies on water from neighboring counties, delivered through an interconnected bulk water supply system. This system comprises four main water sources originating in Kwale, Kilifi, and Taita-Taveta counties and supplies these counties plus Mombasa—the other two counties in the region (Lamu and Tana River) have their own sources. The system is managed by the Coast WSB through a bulk water unit responsible for operating and maintaining the system and for selling bulk water to the counties through its providers. Several studies indicate that water resources are adequate to meet the Coast region’s demand until 2035, but substantial storage and augmentation are required for the long term. This requires suitable institutional arrangements that the counties can accept, both for infrastructure development and bulk water supply. Currently, some of the counties are concerned that the Coast WSB, as a national government institution, is not sufficiently responsive to their demands. Discussions are in progress on how to manage interjurisdictional issues. An answer may lie in the constitutional provision for cross-boundary institutions, but this will require effective mediation to accommodate the interests of the counties while maintaining effective service provision. Nairobi City County is more dominant in water supply in its regional intercounty context, but large parts of its bulk water system are in neighboring counties. The county sells only 2.5 percent of its bulk water to neighboring counties as a bulk supplier. The scale of this business is therefore very small relative to its total business, which makes a dedicated bulk water institution less viable. Also, there is little merit in setting up an intercounty water service provider to address small intercounty water issues, because the costs and complexities of establishing an intercounty provider far outweigh the benefits. This may change as the share of bulk water used by other counties increases. Water and sanitation services—financing 35. Achieving universal access to improved WSS requires huge capital expenditure. The National Water 34. Under the Water Act of 2002, WSBs were Master Plan 2030 estimates that about US$14 billion in responsible for planning, financing, and investing in water investment in water supply is needed over the next 15 and sewerage infrastructure. The national government was years, based on government projections (Figure 2.11). responsible for financing water and sewerage infrastructure Urban sewerage infrastructure is projected to cost about through regional WSBs, which also owned the assets. The US$5.2 billion, of which 96 percent is targeted for new WSBs entered into agreements with water service providers, sewer infrastructure and the remainder for rehabilitation. which are responsible for providing WSS in specified service Construction of new sewer systems will generate operation areas and for operating and maintaining the infrastructure. and maintenance costs, bringing the total financing needs to Because water revenues are ring-fenced, providers are about US$5.4 billion (KSh 500 billion). This points to funding expected to meet their operation and maintenance costs shortfalls of 56.6 percent for water supply investment and as well as remit to the WSB any administrative levies and 93.5 percent for urban sewerage (Table 2.1). Given that loan repayments for infrastructure financed through loans. development partners now contribute more than half of Since the institutional setup is in transition, the modalities financing, a sharp increase in mobilizing new financing will of financing capital investments are also changing. be required. 57 Figure 2.11: Financing gap to meet Vision 2030 targets (KShs) billions) 3000 2851.1 2500 2000 1500 1287.9 1246.8 1000 796.2 561.5 476.5 580.4 500 290.5 30.9 74 0 Water Supply Urban Sewerage IrrigaƟon Hydropower Total Required Investment Cost Available Government Budget Note: No urban–rural breakdown is available. Source: Kenya Ministry of Environment, Water and Natural Resources (2013). Table 2.1: Water supply and sanitation financing gap for Vision 2030 targets, KSh billion Central government resources Development Required investment Shortfall (2013/14–2030/31) Water supply 1,287.9 561.5 726.4 (56.6%) Urban sewerage 476.5 30.9 445.8 (93.5%) Source: Based on Kenya Ministry of Environment, Water and Natural Resources (2013) and historic annual investment figures. 36. Budgetary allocations for WSS have increased investment in WSS. In the total water sector budget, the steadily over the past decade. The total approved budget WSS subsector receives the highest allocation—65 percent for the water sector increased more than sixfold from in 2014) (Figure 2.13). Still, funds are far too low to deliver KSh  6.6 billion (US$82.5 million) in financial year 2005 to the services commensurate with middle-income status. To KSh 41.8 billion in 2014 (US$465 million) (Figure 2.12). The achieve Vision 2030 targets for universal WSS coverage, the budget for capital investment grew almost ninefold over national and county governments would need to double the same period. The total budget approved in 2013/14, their budget allocation for capital investments in water the first fiscal year after devolution, recorded a decline of supply, while that of urban sewerage would need to increase almost 30 percent from the previous year, partly because more than fifteen-fold. Additionally, the absorption capacity some of the funds previously allocated to the Ministry of of various sector institutions would need to improve to Water were given directly to counties to perform their avoid underutilization of approved budget. devolved functions. 38. Urban water supply is underpriced. Achieving 37. The actual expenditure has been lower than the a cost-recovery ratio of over 100 percent in urban areas approved budget over the years. For example, the budget is important because it allows capital investments to approved in financial year 2014 was KSh  29.3 billion, but rehabilitate and expand the system. This is essential to actual spending was KSh 21.4 billion. The reason provided sustainably increase access to services and enable county by the Ministry of Water for the difference was a low governments to meet their constitutional obligations. But absorption rate by the various water sector institutions. most service providers still operate below full cost recovery, Donors contribute some 69 percent of funds for capital continuing to operate largely on low margins or deficits even 58 Kenya Urbanization Review without factoring in capital investment costs. Operation and household—considered the minimum quantity required maintenance (O&M) cost coverage is the first step toward for basic needs—and increasingly more for higher levels of full cost coverage. Between 2005/06 and 2009/10 cost consumption. While the providers use rising block tariffs, recovery rates for O&M for 61 urban providers increased the maximum tariff for residential consumers remains low, from an average of only 80 percent to 120 percent. They which means even well-off households with swimming have since declined to 113 percent in 2012/13, mainly pools pay little for water. For example, at Nairobi Water because costs have risen more than revenues.36 Figure 2.12: Trends in approved budget for Water and Sanitation Services, 2005–14 45 40 35 30 25 Ksh billions 20 15 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Recurrent 2.4 2.3 3 4.2 4.7 4.5 5.8 6.2 6.1 4.4 Development 4.2 8.5 9.3 13.2 18.2 23.3 32.8 30.9 35.8 24.9 Total 6.6 10.9 12.3 17.4 22.9 27.8 38.6 37.1 41.8 29.3 Source: Ministry of Water data. Figure 2.13: Water sector budget allocation by subsector, 2011–14 35000 30000 25000 KSh millions 20000 15000 10000 5000 0 WSS RDA Storage WRM Min HQ LR 2011 2012 2013 2014 Notes: WSS= water supply and sanitation; RDA=Regional Development Authorities; WRM=water resources management; Min HQ=Ministry headquarters; LR=Land reclamation. Source: Kenya Ministry of Environment, Water and Natural Resources annual water sector review, 2014. 39. Ideally, tariffs should mobilize enough revenues to cover O&M costs, subsidies for the poor, and, where and Sewerage Company, the maximum tariff for residential, feasible, expansion of networks. But WASREB attempts to commercial, and industrial consumers, which starts for balance commercial and social interests in service provision consumption above 60 cubic meters, is only KSh  60 per through its tariff review process. To address concerns cubic meter, compared with the per cubic meter charge of about affordability of water services, providers can offer KSh 34 for the first six cubic meters for the same category a low price for the first six cubic meters per month per of consumers (flat rate of KSh 204 for 0 to 6 cubic meters). 59 40. In principle, WASREB guides a process of water service providers also require customers to provide land- pricing that is common among all utilities. Procedurally, ownership documents, or proof of guarantee of payment utilities periodically submit tariff proposals to the regulator. A by the landlord (such as lease provisions) to accompany regular tariff adjustment is typically set at three to five years, an application by a tenant. Where the distribution line is although the WSB or provider can request an extraordinary more than 50 meters away, the application must be made tariff adjustment for specific changes approved by the to the head office, when customers may even be required regulator. An extraordinary tariff adjustment can be granted to undertake or finance the necessary designs for extending only once a year and not less than 12 months before or the line. These additional requirements all act as powerful after a regular tariff adjustment takes effect. This implies disincentives for legal connections. that changes such as in the cost of fuel and exchange rates are normally not reflected in the tariff until the next tariff 43. Some urban water utilities have adopted social review, which for most providers comes three years after connection policies to reduce connection obstacles for the previous review. Once a final rate is agreed on, utilities poor households. The Nairobi, Eldoret, Malindi–Mombasa, consult with their stakeholders to obtain acceptance of the and Mumias WSS companies have adopted policies aimed set tariff levels. at expanding WSS services in informal settlements. Under the social connection policy, the companies created a fund 41. While WASREB has challenged utilities that that is to be used to bring water and sewer distribution proposed very low tariffs, it also advises utilities not networks to informal settlements. The companies have also to depend purely on tariff increases to improve their created credit facilities to pay initial connection costs over revenues. It urges them, foremost, to focus on efficiency 24–60 months. Some residents of informal settlements improvements, such as containing water losses (nonrevenue are benefiting from subsidies for WSS connections under water), ensuring optimal staff ratio per connection, and the Global Partnership on Output-Based Aid, which covers improving general management. But the tariff adjustment about 50 percent of the connection costs. process does not play out consistently. Not uncommonly, utilities miss the deadlines for proposing higher tariff levels Electricity—institutional structure to WASREB, which delays needed tariff increases. Some utilities also price water below the tariff levels approved 44. The 2010 constitution did not alter the institutional by the regulator after they have consulted with customers. or financing framework for delivery of electricity services, This severely affects the sustainability of service delivery. unlike as for WSS. Under current legislation (Energy Policy The slow process of adjusting tariffs for WSS is in contrast to 2004 and Energy Act 2006, discussed below), the national the practice in the electricity sector, in which tariffs change government is responsible for exploration, production, monthly to reflect changes in the price of fuel and other importation, exportation, and refining or processing of costs. fossil fuels; geothermal and other energy-based natural resources; transport, storage and bulk sales of fossil fuels and 42. The cost of connection to urban water and sewer their derivatives; and generation, transmission, distribution networks is too high for households. The cost of connection (including reticulation), and retail sale of electrical energy. to the water supply network—both in monetary terms and the steps involved—is an obstacle for households wanting to 45. The sector operates on commercial principles connect to the network. In Kenya, customers pay application supported by transparent financial relationships between fees, buy their own materials, and hire service providers utilities. The Kenya Electricity Generating Company (KenGen) for trenching, backfilling, and connecting the household and Kenya Power—both of which are majority owned and or compound to the water system. The average cost of controlled by the government through 50.1 percent direct connecting a household within 50 meters of the distribution equity interests—are listed on the stock exchange and are line is US$220, beyond the reach of many and especially of required to make profits and pay dividends. KenGen, the poor households. The cost of connecting is higher in urban leading electric power generation company in the country, areas, especially in densely populated cities where it could is responsible for generating electric power from various involve digging up and reestablishing paved areas. Some sources including hydro, geothermal, thermal, and wind. 60 Kenya Urbanization Review Kenya Power is the single buyer and sole distribution services. Fuel, foreign exchange, and other costs are passed company for all power produced in and imported into the through and recovered from customers, with tariffs adjusted country. It is the source of all the revenues of KenGen and annually. Kenya Power does not receive any subsidies all the existing and future independent power producers. (except for rural electrification) and its revenues are fully dependent on the regulated tariff and electricity sales/ 46. The policy and institutional framework for market demand. Maintaining cost recovery retail tariffs is electricity distribution is anchored on the Energy Policy critical for the short- and long-term financial sustainability 2004 and Energy Act 2006. Once vertically integrated, since of Kenya Power and the power producers. 2006 the sector is unbundled, with separate generation, transmission, and distribution companies. A semi- 49. The Energy Regulatory Commission is responsible autonomous regulatory agency, the Energy Regulatory for reviewing electricity tariffs. While the periodic tariff Commission, formulates, enforces, and reviews regulations, review has sometimes been challenging and faced delays, codes and standards and reviews and adjusts electric the tariff-setting process has not been subject to the same power tariffs and tariff structures. A special-purpose public degree of political interference as has the setting of tariffs company, Geothermal Development Company Limited, for WSS. This may be because electricity tariffs are set at the carries out geothermal resource development. The Kenya same level countrywide, while tariffs for WSS are set locally. Electricity Transmission Company Limited constructs Moreover, access to electricity, unlike water, is not regarded transmission lines. The Rural Electrification Authority as a basic right, because people have access to alternative constructs electricity infrastructure to connect rural centers, sources of energy, such as charcoal for cooking, to meet schools, and other public facilities. Kenya Power connects daily needs. households, businesses, and institutions to the electricity system and is responsible for retail distribution of electricity. 50. Increasing access to electricity in urban and rural areas—cost-effectively—is a national priority. 47. A draft Energy Policy and Energy Bill 2014 seek The government is revisiting the current approach to consolidate energy laws into one Act of Parliament to electrification with the preparation of a National and to align the energy sector’s legal and regulatory Electrification Strategy. The strategy will specify the most framework with the 2010 constitution. The Energy Bill cost-effective approaches to bringing electricity to all creates a national obligation to provide energy services people in Kenya. Such approaches include extending the at affordable prices to all areas of the country. It also grid from underused infrastructure (primarily medium- and establishes a national electrification program and a national low-voltage transformers) in rural and peri-urban areas electrification program fund to accelerate electrification. It to connect nearby households and promoting off-grid also clarifies the role of the county governments in preparing electrification (mini-grids and individual home systems) in county energy plans to be used as inputs into national remote regions. planning and policy making processes and in regulating and licensing retail energy suppliers and small-scale producers, Electricity—financing transporters, and distributors of biomass and charcoal products. Other key provisions of the 2014 draft Energy 51. Very large investments are needed to assure Policy and Bill are requiring a periodic review of electricity services to meet projected electricity demand after 2018. market competitiveness; establishing a committee to Capacity is expected to be sufficient to meet demand until advise the national government on licensing; providing 2017, and there is adequate reserve capacity. According open access over transmission and distribution networks to to the government’s least-cost power development plan, eligible parties; and introducing greater transparency and investment of almost US$45.3 billion will be required for an open competitive process in awarding concessions and generation and US$4.5 billion for transmission over 2012– licenses for exploitation of natural energy resources. 2030 to meet forecast electricity demand and improve 48. In contrast to WSS, electricity retail tariffs are set quality of services. Financing the investments will require at levels that reflect capital and O&M costs of providing long-term financial planning by Kenya Power and best use 61 of funding sources, including access to commercial financing Solid waste management services—institutional at lowest possible cost. structure 52. The government’s target of universal access 55. The 2010 constitution has shifted management of to electricity by 2020 requires additional investment solid waste collection, transport, and disposal from urban exceeding US$3 billion. Expanding the network to meet local authorities to county governments. Although this electrification targets needs a combination of a tariff levy shift is not as dramatic as that for WSS, it creates risks that on all customers, concessional funding of development counties will not adequately fund a service that primarily partners, and contributions from central government. serves urban areas. Universal access to electricity will require provision 56. Multiple solid waste management laws and of subsidies to cover costs of connecting low-income regulations need to be harmonized. These include the households. Recent experience shows that these should County Governments Act of 2012, the Environmental come from the central government’s budget rather Management and Coordination Act (EMCA) of 1999, the than Kenya Power’s funds. During 2011–2013, Kenya Urban Areas and Cities Act of 2011, the Physical Planning Power followed a government directive to connect rural Act of 1996, and the Public Health Act. The National households living within 500 meters of a transformer at Environment Management Authority (NEMA), established a fee of KSh 35,000 (US$400). This charge was well below under EMCA, is responsible for ensuring that solid waste the actual costs of a connection—about US$1,000—forcing management services are carried in an environmentally Kenya Power to borrow commercially and placing a heavy sound manner. The Environmental Management and burden on it. Kenya Power’s financial position deteriorated Coordination (Waste Management) Regulations of 2006 and it suspended participation in the rural electrification were enacted by NEMA to regulate the handling, transport, program in August 2013. Adding to these challenges, most and disposal of various types of waste. The National potential rural customers cannot afford the connection fee Environment Policy of 2013, prepared by NEMA, calls for a and opt to not connect, leaving the rural network underused national solid waste management strategy. and the costs of serving connected households very high. 57. As solid waste management services are a 53. In view of this experience, the government has devolved function, county governments are also drafting agreed to subsidize connections for low-income households legislation to provide legal frameworks in line with the in rural and peri-urban areas. This is in line with international 2010 constitution. But some provisions in the county practices for successful electrification programs. Funds for legislation appear to conflict with national legislation. the subsidies will come from development partners, a levy For example, Nairobi’s framework requires transporters on electricity charges, and other sources. It is expected that and operators of an incinerator, recycling, or composting once 60 percent to 70 percent of households are connected, facility to obtain licenses and permits from the county the levy will generate enough funds to cover the subsidies. administration. Yet under EMCA’s waste management 54. Kenya Power is running a slum electrification regulations, NEMA licenses transporters, incinerators, program aimed at connecting 40,000 households in landfills, composers, recyclers and transfer stations. Thus informal settlements to formal services by April 2016. the roles and responsibilities of entities regulating solid Households in informal settlements pay only about US$15 waste management services need to be clarified. to connect to a prepaid meter, with the rest of cost met 58. Different counties have differing laws governing with a grant from the Global Partnership on Output-Based solid waste management services. For example, under the Aid. The program has encouraged residents of informal Nairobi Solid Waste Management Act, services are financed settlements to connect to Kenya Power’s network instead through fees on users of services, permits, and incinerators, of relying on cartels. Kenya Power is taking measures to while the Nakuru County legislation establishes a solid greatly reduce the costs of connecting households. These waste management fund for payment of services to be include connecting all houses within a given area at once to financed with appropriations from the county assembly, benefit from economies of scale. 62 Kenya Urbanization Review with no mention of user fees. Nairobi City County manages about 600 collection vehicles (but not O&M costs) and the its services through the administration’s department of construction and operation of a new sanitary landfill. Fees environment, continuing the arrangements established collected from households and businesses are expected to under the previous city government. Nakuru has established cover only a fraction of the costs, with the remainder coming a solid waste management board to formulate policies, from the county’s own budget, development partners, and approve and monitor implementation of local waste other sources of revenue. management plans, and mobilize resources for efficient management of solid waste. 62. Nairobi is piloting a zoning and franchise system, following the recommendations of the masterplan. 59. Kenya does not have a single modern sanitary Under this system, Nairobi is divided into nine zones, landfill. Although most governors and other policy makers each with relatively well-off residential areas and informal refer to solid waste management as one of their top settlements. Franchisees are selected through bidding to priorities, all solid waste is deposited in open dumpsites. obtain exclusive rights to serve each zone. The company Some counties have identified sites for sanitary landfills, but is expected to collect enough revenues from households none so far has obtained clearance from the Civil Aviation and businesses in the well-off areas to provide services Authority, which is concerned that landfills will attract birds elsewhere in the zone at low charge. Each company is and pose a hazard to aviation. Efforts are underway to find also expected to remit 15 percent of its revenues to the sites in relatively sparsely populated areas to serve multiple county council for use in collecting market waste and road urban centers and towns. Approaches to reduce the waste sweepings and other waste management services. The destined for landfills are also being tried, including a zone and franchise system is expected to bring order to commercially operated incinerator in Naivasha that earns a the solid waste system by reducing the number of private profit by selling energy to the grid. waste collection companies from more than 50 unregulated operators to nine carefully monitored service providers. The Solid waste management services—financing city started a pilot in a single zone in early 2015. 60. Public funding of solid waste management 63. Nairobi’s new system is being challenged by the services has not kept pace with urbanization. Thus local private companies that would be put out of business. The governments provide services primarily to central business county has refused to license any private companies other districts, leaving residents and businesses outside this zone than the selected franchisees to operate in the selected to contract with private operators. Under this arrangement, pilot zone and have asked households and businesses not to high-income and some middle-income residential areas pay any company other than the franchisee. The companies receive good services, but poor areas often receive none at have in turn staged protests and filed a lawsuit on the all. Those that do receive services obtained them through grounds that the county has no right to interfere with their community-based organizations. Only about one third contracts with residents and businesses. Many people of Nairobi’s waste is collected and legally disposed of at who have contracted with these companies also say they the city’s only licensed dumpsite at Dandora.37 The rest is are happy with their current arrangements and refuse to burned or dumped illegally in unauthorized areas. Some 95 comply with the county’s directive. A court has stayed the percent of the waste collected and disposed of properly is county’s ban on private operators for the time being, so they handled by the private sector. continue to operate in the pilot zone. Despite the resistance to the new program, the county plans to implement the 61. The Nairobi Solid Waste Masterplan estimates the system in three additional zones starting in late 2015. funding gap for Nairobi. Completed in 2010 with support of the Japanese International Cooperation Agency, it estimates that some US$74.1 million is required for capital investment and O&M costs to properly collect, transport, and dispose of Nairobi City County’s waste between 2011 and 2030,38 or about US$4 million a year. The costs cover purchase of 63 Recommendations 1. Strengthen the financing frameworks for provision of basic services Provide basic services—water and sanitation, electricity, and Short term solid waste management services—on business principles Service providers and different levels of government need to greatly expand their investments in basic infrastructure and services. Funds will have to come from increased tariffs and user charges, central and county governments, and development partners. To provide services along business lines, service providers need to focus on five areas: asset creation, customer management, financial management, effective use of staff, and asset management and operations. Only Kenya Power operates on these principles. By contrast, water service providers must sharply improve their cost-recovery ratios by raising tariffs, reducing nonrevenue (wasted) water, and improving efficiency. Financing of solid waste services will have to come primarily from increased user fees. 2. Improve the institutional functioning of devolved services Short term Start with a thorough assessment of current capacity In WSS, government at all levels and water sector institutions such as the WSBs and water service providers must improve information on their capacities and critical areas for improvement. Better understanding of capacity is especially important in three areas: Service delivery outcomes, sustainability, and performance Budgets of water service providers—revenues, expenses, and capital budgets—as well as grants and loans for capital investment Experience and skills of staff of the providers to support county needs (such as for planning and budgeting). In solid waste management services, county governments need to review their capacity under the former local urban authorities and establish new institutional setups to maintain existing services before attempting to scale up. Medium term Adopt legislation that aligns sector operations with the Constitution and with other laws It is critical to adopt a revised Water Act and to harmonize it with other laws governing counties. 3. Consider providing subsidies to households in informal settlements to allow access to basic infrastructure services Host a national forum to discuss the possibility of establishing a dedicated fund to subsidize the costs Short term of water and sanitation connections for these households With the support of development partners, households in informal settlements in several urban areas are benefiting from subsidies for WSS connections and formal electricity supplies. These subsidies are set at levels that account for what poor households can afford. Consideration should be given to how the subsidies should be financed. Requiring service providers to finance subsidies would not work unless tariffs were significantly increased to cover the costs, which has proven difficult in the past. Instead, the government at central or county levels should consider establishing a dedicated fund to which it and partners contribute. Such a fund could be wound down once most households were connected. Medium term Establish the subsidy fund (or other subsidies mechanism) and start its operation The electricity sector offers an example of how funding for subsidies can be raised and managed. Expanding the network to meet electrification targets needs a combination of a tariff levy on all customers, concessional funding of development partners, and contributions from central government. It is expected that once 60 percent to 70 percent of households are connected, the levy will generate enough funds to cover the subsidies. 64 Kenya Urbanization Review 4. Establish accounting, monitoring, and reporting systems and processes Short term Strengthen systems of monitoring and evaluation To improve services demands, operating costs need to be known. In WSS, the regulator requires water operators to monitor and report on indicators such as nonrevenue water, staffing per connection, proportion of customers connected to a functioning meter, and proportion of bills paid. These data allow the water institutions and the regulator to assess the institutions’ performance relative to others, which is an essential first step in making improvements. The existing systems to collect and report on data need to be strengthened to ensure the accuracy and timeliness of the data collected. A real effort will be needed to build systems to monitor and assess the performance of solid waste management service providers, which are lagging those of the other two services. Medium term Encourage counties to use the information to prepare county investment plans Counties should use the data on service performance in preparing county investment plans and to determine tariffs, allocate budgets, and identify operational strengths and weaknesses along with ways to address them. 5. In devolved services, counties and their service providers must pay attention to interjurisdictional issues Counties that share a resource should enter into a dialogue among themselves and with the national Short term government on how best to manage interjurisdictional issues In WSS, where bulk water systems are integrated across counties, a regional body to plan and manage the bulk water system should be considered, though there are benefits to integrating the entire water supply chain into one entity. In solid waste management, counties should consider establishing landfills that can serve more than one county and working out an institutional structure to manage the relationship. Bibliography Kenya Ministry of Environment, Water and Natural Resources. 2013. National Water Master Plan 2030. Government of Kenya, Nairobi. Kenya National Bureau of Statistics. 2009. Kenya Population and Housing Census. Government of Kenya, Nairobi. http://knbs.or.ke/index. php?option=com_phocadownload&view=category&id=109:population-and-housing-census-2009&Itemid=599. Kenya Power. 2014. Annual Report and Financial Statements. Nairobi. WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation. 2014. Progress on Drinking Water and Sanitation—2014 update. World Health Organization and UNICEF. Geneva. http://www.wssinfo.org/fileadmin/user_upload/resources/JMP_report_2014_ webEng.pdf. World Bank. 2013. “Project Implementation Plan Report.” Internal document. Water and Sanitation Program, World Bank, Washington DC. World Bank. 2014. Kenya State of the Cities Baseline Survey. 65 66 Kenya Urbanization Review Chapter 3 Access to Affordable Housing in Urban Areas 67 Key Messages 1. The shortage of high-quality, affordable housing other innovations will be required that take into account in urban areas undermines livability for residents. The the incremental approach to housing used by most low- shortage is both quantitative and qualitative. As Kenya income households. Policies will also need to recognize the urbanizes, formal housing supply is not keeping pace large share of urban dwellers who rent housing as the most with the growing urban population, and informal housing affordable option rather than focus on increasing home construction fills the gap. While definitions of informality ownership. are not standard, most estimates suggest that not less than 50 percent of the urban population lives in informal Demand for Housing: Growing Urban settlements, and most studies suggest that this share is not Population with Low, Informal Incomes decreasing. Following the MDGs in defining a slum dwelling 4. Population growth in urban areas is set to continue by the absence of running water, permanent walls, a toilet raising demand for housing. Roughly 32 percent of Kenya’s shared by fewer than 20 people, or a sleeping room shared population lives in cities today, a figure expected to grow by fewer than three people, nearly 61 percent of urban to 50  percent around 2050.39 Urban areas are projected households occupy slum housing. There are indications to grow at 4.4 percent against a national rate of 2.7 that urban residents make trade-offs between housing percent. Projections in 2010 show that the annual housing conditions, proximity to jobs, and high food costs, opting to requirement that year was estimated at around 82,000 in stay in poorer living conditions to afford food and live closer urban areas (60 percent of the total) and would rise to over to jobs. 280,000 units by 2050, at which point all of the population 2. The main constraints to affordable housing are high growth and the quantitative housing requirements are in costs of land and of formal construction, poor access to urban areas (Figure 3.1). (This projection took into account housing finance, and inappropriate taxes and regulations. the core urban population only and assumed a household Home ownership is out of reach for most urban dwellers, size of four people, which means that projections would be and renting is more accessible and affordable. The majority higher if the core plus peri-urban population is used and the of the urban population, due to the level and informality Kenya National Bureau of Statistics (KNBS) 2012 household of their income, do not qualify for a mortgage. In Nakuru, size of 3.4 is employed.) These projections are for the for instance, only 15.7 percent of the population earns its quantitative gap only (the qualitative gap is discussed below income from formal employment. But more formal housing under Supply of Housing). is being built in the formal sector for upper-middle and high-income groups than for low-income families, even if they could qualify for a mortgage. The majority of people who live in cities are renters—91 percent, for instance, in Nairobi—and current approaches to ownership do not reach them. 3. To reduce the cost of housing and increase access, Kenya’s policy makers will need to focus at both ends of the housing market. Internationally, most governments play only a very limited role in housing provision. As most housing is provided by the formal or informal private sector or by civil society groups, housing policy needs to be responsive to the conditions and modes of operation in the sector at large. This will include finding ways to reduce land costs and the costs of other inputs to housing. Facilitating access to microfinance (not just mortgage finance) and 68 Kenya Urbanization Review Figure 3.1: Annual housing requirement, 1950–2050 300,000 250,000 Urban housing requirement 200,000 Rural housing requirement 150,000 100,000 50,000 0 Source: Walley (2011). 6. Interest rates are high—even when subsidized. The 5. Incomes are low and informal, putting home current interest rate for mortgages is approximately 18 ownership out of reach for most urban dwellers. To obtain percent—higher in some cases—for a 20-year amortization a mortgage on the lowest-priced property, a borrower would period. On these terms, a family at the 75th income need KSh 1 million a year of formal income (KSh 84,000 or percentile with a monthly income of KSh 22,500 per month US$1,024 a month).40 The average annual income in the could afford a mortgage with a principal of KSh 485,968 largest 15 urban areas is KSh  21,748 a month (US$265). (US$5,926) if they spend 30 percent of their income on This average income does not paint the full picture as the mortgage payments. In 2014, only 1 percent of properties distribution of income is weighted toward top income in Nairobi sold for less than KSh 2,000,000, more than earners (Table 3.1). A more accurate picture of income four times what the family at the 75th income percentile can be seen in that three-quarters of households earn less could afford. Even if the interest rate in the market was than KSh  22,500 a month ($257) or KSh  270,000 ($3,078) only 13 percent—the rate charged by the National Housing a year. A family earning KSh  22,500 a month (roughly the Corporation (NHC; the government agency for housing 75th income percentile) would only be able to afford a development)—the amount a borrower could mortgage mortgage of KSh 485,968 (US$5,926). This means that the would only increase to KSh 640,163 (US$7,806), well below family purchasing a low-cost house (KSh 2,000,000) would the price of the lowest-priced house on the market. But the need to earn well into the top income quintile. Thus as Paul vast majority of urban Kenyans cannot access mortgage Collier and Anthony Venables noted, “ordinary people live markets anyway, as most of the income they earn is through in informal housing which does not adhere to costly building casual or informal sources: salaried employment ranges standards” (Collier and Venables 2014.) from 14 percent in Kakamega to 23 percent in Nairobi.41 For these reasons, most urban Kenyans rent (Figure 3.2). Table 3.1: Annual income distribution in selected urban areas (%), 2013 KSh Kakamega Nairobi Nakuru < 6,000 28 11 23 6,001–9,000 17 12 18 9,001–13,000 15 17 19 13,001–22,500 19 26 24 Above 22,500 22 33 17 Source: World Bank (2014). 69 Figure 3.2: Renting vs. homeownership in cities Own structure; rent land Own structure and land RenƟng 100 91 90 86 87 88 90 84 78 80 73 70 71 67 66 68 70 61 62 60 50 38 40 35 28 28 30 23 23 20 22 18 20 14 12 10 11 7 7 9 10 5 5 3 3 46 0 1 1 1 0 1 1 0 0 Source: World Bank (2014). 7. Food costs are high, further reducing budgets for Kakamega (Figure 3.3). A recent World Bank study shows the housing. International benchmarks consider 30 percent of trade-offs families make in housing and other areas, such as income spent on housing the maximum affordable level, transport, when food as a share of income is high (Lozano- and 50 percent to be a severe burden.42 But even allocating Gracia and Young 2014).43 One example of these tradeoffs is 30 percent to housing is difficult because food prices place urban residents’ willingness to live in low-quality informal heavy pressure on household incomes. Food costs range housing. from 47.3 percent of income in Nairobi to 61.8 percent in Figure 3.3: Employment formality, income, and food costs, three urban areas 90.0% 83.1% 78.2% 80.0% 66.9% 70.0% 61.8% 59.9% 60.0% 47.3% Kakamega 50.0% Nairobi 40.0% Nakuru 30.0% 23.0% 20.0% 14.1% 15.7% 10.0% 0.0% Formal employment % Below 22,500 Food Costs Source: World Bank (2014). income—the international standard maximum for housing 8. Rental housing is more affordable and accessible. expenditure—means spending no more than KSh  6,524 The share of renting households ranges from a low of 61 ($74.38) a month. In the 15 urban areas, the average percent in Kitui to a high of 91 percent in Nairobi. For a monthly rent was KSh  4,482 ($51) for both formal and household earning the average income, 30  percent of its informal rentals. This equates to 20.3 percent of income, 70 Kenya Urbanization Review well within the 30 percent standard (Table  3.2). With rooms shared by fewer than three people. The share varies electricity and water, the proportion rises to 28.8 percent. by combination of conditions (Table 3.3). Kenya’s large share In informal areas, the average rent was KSh  2,753 ($31) on this metric is not unique—Africa has the highest rate of without water and electricity, and KSh  5,299 ($60) with informal conditions in the world, at 70 percent. these utilities. Interestingly, the percentage of income spent on rent in informal areas without utilities was very similar to 10. Quality of housing is uneven within urban areas. that in formal areas without utilities: 21.2 percent in formal Those in Nairobi who had formal tenure, whether through areas and 19.4 percent in informal ones. Most of the rental formal ownership or by a formal lease agreement, had properties are owned by landlords with demographics higher incomes and lived in better conditions (Figure 3.4). similar to their tenants’. Despite the affordability of rental They were twice as likely to have the majority of their income housing, this housing often lacks basic services and is in coming from formal employment and four times as likely poor condition, particularly when there is no formal rental to have incomes over KSh 22,500 (US$245) a month. These agreement. households were also likely to have twice the number of rooms and twice the unit size of those with informal tenure . Table 3.2: Rent levels and percentage of income spent on rent in urban areas   All 15 cities Nairobi Kakamega Nakuru For all urban households         Monthly household income in KSh—Mean 21,748 26,774 16,710 15,788 Household size—Mean 3.05 3.07 3.42 3.05 Monthly rent without water and electricity included in KSh—Mean 4,482 6,503 2,171 2,761 Monthly rent without water and electricity included as % of income—Mean 20.3 22.4 17.2 18.4 Monthly rent with water and electricity included in KSh—Mean 8,102 11,340 5,749 5,146 Monthly rent with water and electricity included as % of income—Mean 28.8 30.3 24.7 26.9 For urban households living in informal areas         Monthly household income in KSh—Mean 16,218 17,485 11,436 11,685 Household size—Mean 2.92 2.85 3.20 2.87 Monthly rent without water and electricity included in KSh—Mean 2,753 3,234 1,395 1,624 Monthly rent without water and electricity included as % of income—Mean 19.4 20.2 18.0 21.4 Monthly rent with water and electricity included in KSh—Mean 5,299 5,806 3,890 3,398 Monthly rent with water and electricity included as % of income—Mean 27.1 26.8 18.2 30.6 For urban households living in formal areas         Monthly household income in KSh—Mean 24,572 34,083 17,025 16,019 Household size—Mean 3.12 3.23 3.43 3.06 Monthly rent without water and electricity included in KSh—Mean 5,943 11,933 2,244 2,840 Monthly rent without water and electricity included as % of income—Mean 21.2 26.2 17.1 18.2 Monthly rent with water and electricity included in KSh—Mean 9,743 17,494 5,821 5,259 Monthly rent with water and electricity included as % of income—Mean 29.8 34.1 24.9 26.7 Source: World Bank (2014) Supply of Housing: Poor Conditions and status (Figure 3.5). Roughly 62 percent of urban households Inadequate Formal Supply lived in one-room units.44 Given that the average family size is 3.4 (KNBS), this indicates that overcrowding is common. 9. Nearly 61 percent of urban households live in housing that meets the MDGs’ definition of a slum. This proportion was determined by using the criteria for slum- like conditions developed for the MDGs and modified by the categories available in Kenya’s State of the Cities Baseline Survey of 15 cities. Such dwellings lack one or more of the following: running water in the unit or building, permanent walls, a toilet shared by fewer than 20 people, or sleeping 71 Table 3.3: Living conditions in Kenyan cities All 15-cities Nairobi Nakuru Kakamega Malindi Measure N Value N Value N Value N Value M Value Composite indices of living conditions Composite index #1(water + toilet + perm wall) % of households who has all three components 13490 37.8 1041 46.2 1092 36.6 925 31.9 955 33.8 % of households with none of the three components 13490 12.7 1041 17.9 1092 3.4 925 8.2 955 6.2 Composite index #2 (water + toilet + perm wall + road) and percentage of households with: % of households with all the four components 13482 22.2 1040 31.3 1092 14.8 925 14.8 955 15.1 % of households with none of the three components 13482 10.5 1040 15.4 1092 2.6 925 7.0 955 4.5 Composite index #3 (water + toilet + perm wall + persons/room <=2)and percentage of households with: % of households with all the four components 13482 29.1 1022 34.6 1052 27.5 919 26.5 941 26.2 % of households with none of the four components 13482 60. 1022 8.5 1052 1.2 919 3.7 941 2.1 Composite index #4 (water + toilet + perm wall + persons/room <=2) and percentage of households with: % of households with all the five components 13276 17.2 1021 23.7 1052 11.4 919 12.7 941 12.4 % of households with none of the five components 13276 5.1 1021 7.5 1052 1.0 919 2.8 941 1.5 Distribution of number of rooms occupied by 14201 11.8 1095 967 956 households in current residences % of households with 1 Room 60.3 61.7 62.0 38.0 62.7 % of households with 2 Rooms 18.2 15.7 20.3 29.1 18.6 % of households with 3 Rooms 12.0 12.5 9.5 19.6 9.8 % of households with 4 Rooms 4.1 4.0 3.9 9.1 3.8 % of households with 5 Rooms 2.5 3.3 1.6 2.6 1.8 % of households with 6 Rooms 1.0 1.1 1.5 0.9 1.1 % of households with more than 6 Rooms (7-15 1.9 1.7 1.2 0.8 2.2 rooms) Note1 All the estimated values are based on household sampling weight adjustments Source: Based on World Bank (2014). 11. Variations in population density and housing 12. Despite poor housing quality, families tend to materials also indicate spatial inequity. While the stay in place. On average, households have lived in their country’s overall population density is moderate, there is dwellings for a little over five years (5.1 years for informal significant overcrowding in urban areas. In Nairobi, density areas and 5.6 years for formal areas), and within their ranges from 4,51545 to 75,000 or more persons per square neighborhoods one or two years longer than that (6.6 years kilometer.46 An estimated 70 percent of the housing stock in informal areas and 7.2 years in formal areas). The highest is small shacks (10 feet by 10  feet) built with wood, tin, average number of years living in a dwelling is in Kitui (13.9 galvanized iron sheets, and latticed wooden strips covered years in formal areas) and the lowest in Naivasha (2.9 years with mud, which often contains cow dung (Ayani Inclusive in informal areas). Financial Sector Consultants 2013.). Roofing, generally galvanized tin, accounts for nearly half the total costs. 72 Kenya Urbanization Review Figure 3.4: Household incomes and living conditions by formality of tenure 67.0% Having four key indicators of adequate housing 18.9% Toilet shared with fewer than 20 people 89.8% 45.2% Private water tap in unit Formal 52.4% 12.6% Informal Percentage of adult household members with 35.2% formal employment 17.8% Household income over 22,500 69.5% Ksh 16.8% Source: Based on World Bank (2014). Figure 3.5: Indicators of overcrowding in informal areas: unit size and average number of rooms by formality of tenure Source: Based on World Bank (2014). 13. The government’s goal of increasing the formal was the industrial area, and the fourth was the central supply of affordable housing is not being met. Vision 2030 business district. set a goal of producing 200,000 units a year for all levels of income earners.47 Yet the government’s investment in 14. Property prices in the formal market have been housing brought forth only 3,000 units between 2009 and steadily increasing, creating an even greater affordability 2012. And despite a dynamic property market, even the gap. Prices in 2013 were nearly three times those in 2000, private sector is not producing anywhere near enough creating fewer opportunities for low- and middle-income housing. Nairobi has a public target of developing 150,000– families. The Knight Frank Prime Global Cities Index ranked 200,000 properties a year but planning applications in Nairobi as the highest priced city in Africa, followed by Cape 2013 were only 15,000, and 90 percent of these were Town.49 The lowest-price house built by a formal developer for apartments. More than 80 percent of supply is for cost KSh 1,342,106 ($15,300) in December 2012. But market upper-middle (48 percent) and high-income (35 percent) experts interviewed by the authors noted that there is very households, and only 2 percent for low income, despite the little on the market for less than KSh 4 million (US$43,956), far greater need.48 The gap is also seen geographically. Of especially in Nairobi. Much of this formal property market the top four areas in Nairobi receiving permits, two were is speculative, with 75 percent of apartment buyers doing the wealthy neighborhoods of Karen and Westlands, one so to rent out the apartments and 16 percent purchasing to “flip” them. The Haas Property Index50 shows that the 73 provision of infrastructure can have a dramatic increase in Constraint 2: High cost of formal construction prices. In one case, when a road was being developed in the areas of Ruiru and Juja, prices for one-eighth of an acre 17. The cost of construction materials varies greatly jumped from KSh 1.5 million to KSh 2.5 million in one year. between the informal and formal housing markets. Most These recent price rises are symptomatic of longer-term families who own their homes build informally because constraints on building affordable housing. they cannot afford formal housing. But there is a lack of systematic data on the contributors to housing costs and, Constraints on Affordable Housing more importantly, on the factors contributing to housing prices themselves, so that it is hard to identify the parts Constraint 1: High cost of land of the housing chain most easily addressed by policy interventions. To resolve this problem, small contractors, 15. The cost of land is a large part of high property builders, materials suppliers, and hardware shop owners costs. Vision 2030 notes an insufficient amount of serviced were consulted by the authors. The average material land and a pace of infrastructure provision that lags cost of constructing a shack, based on the 10 foot by 10 demand.51 Land generally constitutes the majority of the foot common standard described earlier, is KSh 100,000 cost of housing in urban areas and even more so in Nairobi. ($1,091), far less than the cost of a formally built home but Developers note that the high cost of land is largely due still out of range for most tenants, who pay monthly rents to infrastructure costs,52 and estimate that the price of a ranging from KSh 1,500 (US$16) for the least preferred units plot of serviced land accounts for up to 60 percent of total to KSh 3,500 (US$38) at the higher end. development costs. 18. In comparison, material costs in the formal market 16. The Kenyan property registration system—one of are high. Formal housing generally uses more cement than the world’s least efficient—also contributes to the high informal housing, both because of building size and because cost of land. The Doing Business Report 2014 ranks Kenya informal housing uses tin sheets for walls. Cement is also 163 out of 189 countries, a decline of two places from preferred by 83 percent of formal developers, whereas the prior year. The May 2014 land records audit in the informally built houses can have dirt floors. Kenya is the MLHUD that attempted to clean up land records discovered largest cement producer in East Africa and produced 4.7 10,000 records that had been lost.53 Police arrested several million tons of cement in 2012, up from 2.8 tons in 2008.56 employees for smuggling documents from the ministry.54 But it has the second highest prices, likely due to industry Even if the owner believes land is formally owned, there concentration. The top two producers control nearly two- is sometimes no documentation to prove the claim—with thirds of the market: Bamburi Cement with 40  percent serious implications for a person’s ability to borrow, as banks and East Africa Portland Cement Company Limited with will not lend without proper documentation. For example, 24  percent. Lafarge, the world’s largest cement company, an owner might have a sales receipt from a previous owner, has large investments in both these firms: 59  percent in but unless the property was duly registered and proof of that Bamburi and 41  percent in East Africa Portland Cement,57 registration can be found, a bank would likely not consider and the government has accused Lafarge of anticompetitive this proper documentation. This lack of documentation practices. The National Housing Survey 2012 noted that affects 24 percent of land-owning households in Nairobi, materials accounted for 40 percent of housing costs and 11 percent in Nakuru, and 8.6 percent in Kakamega. The that the cost of materials increased by nearly 40 percent uncertainty engendered by this inefficient and corrupt between 2007 and 2009.58 This steep increase is cited by system makes investors hesitate to invest. Despite efforts development professionals as one of the main challenges to improve the registration system through digitization, to affordable housing. reform has been slow. The difficulty of registering property has contributed to a growing informal housing supply in 19. The expense of building sound buildings is urban areas. Nearly 80 percent of property bought is not worsened by tax policies. Formal building construction formally registered.55 relies heavily on cement as a primary building material. An informally built 10 foot by 10 foot structure will use 96 bags 74 Kenya Urbanization Review of cement, but a formally built two-bedroom apartment of debt of $1,401,000,000. The base lending rate from the will use more than five times as much (Table 3.4). The central bank is 8.5 percent. Mortgage rates range between Ministry of Mining recently imposed taxes on cement of 15.5 percent and 28 percent, with an average of 18 percent.63 KSh  140 ($1.60) per ton. While the direct costs equate to Compared to this market, 1.4 million borrowers held an only KSh 7 per 50 kilogram bag, some companies, such as outstanding portfolio of $4.2 billion from 41 microfinance National Cement, have increased their prices by 25 KSh.59 institutions in 2013, of which the central bank formally Bulk prices for builders are now roughly KSh  625 per 50 licensed nine.64 The largest lender is Kenya Women Finance kilogram bag, though people buying smaller amounts for Trust, with a 53 percent market share in 2013.65 Interest incremental construction have been paying KSh  700–750 rates vary from NGO-subsidized rates for small loans of 10.1 per bag. The tax further increases building expenses and percent to nonsubsidized loans of over 70 percent, with the encourages local fundis (mixers) to mix cement with high majority of loans having rates of 30 percent to 50 percent.66 quantities of sand to reduce costs, heightening the risk of These institutions bring finance closer to low-income and weakened structures.60 Alternatively, if the structure of informal borrowers. the house is built with mud, costs decline to $350–400. Both approaches create weak and potentially dangerous 22. Microfinance is having an impact on the housing structures, particularly structures of more than one story. sector. Nearly 29 percent of microfinance institutions originate some type of loan for housing.67 A small share of Table 3.4: Cement costs by type of structure, 2014 these specializes in loans for housing microfinance, such as Jamii Bora Bank ($9.5 million) and Makao Mashinani Cost per Total cost Bags Total cost ($) ($412,000). Others, such as Rafiki Microfinance Bank bag (KSh) (KSh) 3-bedroom (with the fourth-largest market share of 7.7 percent) 958 625 598,750 6,825.75 house include housing microfinance loans for those with no 2-bedroom 546 625 341,250 3,890.25 deeds (maximum amount KSh 1 million, two-year term), apartment 10 ft. x 10 ft. lot purchase and incremental housing (maximum KSh 96 725 69,600 room 1.5 million, three year term), mortgage loans (maximum Source: Based on authors’ interviews and other reports. KSh 5 million, 20-year term), and multifamily housing (maximum KSh 7.5 million, five-year term). As an example 20. The inefficiency of the construction market and of the potential of microfinance for housing, the National the narrow capacity of firms have limited the country’s Cooperative Housing Union (NACHU) provides housing capacity to build housing on a large scale. While the loans at below-market rates thanks to subsidies from construction industry is one of the key economic drivers, international donors. Its loan terms are 14 percent for up concerns exist about other major construction projects. In to 10 years. 2013, the construction sector contributed 4.4 percent of GDP. But the government expressed concern that Kenyan Constraint 4: Inappropriate taxes and regulations firms are likely “incapable of efficiently executing the large scale projects anticipated within the Vision 2030,” 23. Taxes and fees affect affordability and whether and unless improvements were made major construction properties are formally registered. To formally purchase projects would be awarded to foreign firms.61 a plot of land in Nairobi, the buyer must pay for the land, stamp duties (ranging from 2 percent of the land value Constraint 3: Limited access to housing finance outside municipalities to 4 percent within municipalities), legal and survey costs (Ksh 2,450 to Ksh 15,000 per lot), and 21. The mortgage market is inaccessible to lower- appraisal fees. If the land is not serviced, the owner must income households, but microfinance institutions provide agree to follow all of the physical guidelines from several an opportunity for access, albeit at high interest rates. agencies and install all needed utilities. In 2013, Nairobi The mortgage market is underdeveloped, with the ratio of increased the construction permit fee by KSh  200–1,250, mortgage loans outstanding to GDP at 3.46 percent.62 Only from 0.001 to 0.006 percent of the cost of construction 19,180 outstanding mortgages account for a total amount to 1.25 percent. These increases improved revenue for 75 the county (an additional KSh  114 million, or 23 percent Box 3.1: The impact of large minimum lot sizes of the city council’s revenue),68 but somewhat reduced • Land is the major cost input to low-cost housing production affordability. in cities 24. Taxes on rental housing create a disincentive • In many developing-country cities, government-mandated for property owners to register and formally own it.69 minimum lot sizes can be very large (75 to 110 square Rental income is subject to a corporate tax of 30 percent meters) of taxable income for resident companies, after deducting • The poor often have no viable option but to illegally access expenses that are “wholly and exclusively incurred in the and subdivide land into very small land parcels, creating production of income,” such as maintenance, management slums costs, insurance, repairs and other items. Nonresidents are • Reducing the required minimum lot size may bring down not permitted to deduct any expenses. Individual Kenyan the overall cost of housing. property owners are given more favorable treatment: they can also deduct expenses and have a sliding scale (Table 3.5): 26. Existing regulations aimed at protecting tenants discourage landlords from providing formal low-income Table 3.5: Tax rates for Kenyan individual residential rental rentals. The Rent Restriction Act (Cap. 296) and the Landlord property owners, 2014 and Tenant Act provide protection for those households with From To KSh To $ Rate (%) rents at or below KSh 2,500 a month (US$27), such as notice 0 121,968 1,390 10 requirements and limits on rent increases. Unfortunately, 121,969 236,880 2,700 15 236,881 351,792 4,010 20 a side effect is that formal sector landlords avoid renting 351,793 466,704 5,320 25 apartments at or below this level. Moreover, since this rent 466,705 above above 30 level was set in the 1980s, this will only apply to very low- Source: iHR Consulting (2014). rent units, which are the most likely to be unregistered and informal. 25. Building codes keep housing out of the formal sector. The current code was passed in 1968 and is based Government Efforts to Address Constraints: on British building codes of 1926 and 1948. The code is Limited and Expensive prescriptive and specifically permits “the use of any type of material or any method of mixing or preparing materials or 27. The government’s budget for housing does not of applying, using or fixing materials, which conforms with reflect the constitutional commitment to adequate shelter. a British Standard or a British Code of Practice.” It prohibits The Constitution (Section 43 (1) (b)) grants that every the use of alternative technologies, such as interlocking person has the right to “accessible and adequate housing bricks or precast concrete. A former Permanent Secretary and reasonable standard of sanitation.” The budget for of Housing estimated that this adds roughly 60 percent to housing, which is combined with environmental protection the cost of housing construction.70 A new building code and water, is one of the smallest in the government.72 was promulgated in 2009 but has yet to be made law. Moreover, at 39 percent, the implementation rate is the The minimum lot size of 162 square meters71 also reduces lowest and one of only two functional areas scored below affordability (Box 3.1). 50 percent (Figure 3.6). 76 Kenya Urbanization Review Figure 3.6: Government of Kenya budget and implementation Source: Kenya Ministry of Land, Housing and Urban Development data. 28. Slum upgrades are expensive and inefficient. and pays all costs from rental housing management and the One large project in Kibera has used nearly three years Tenant Purchase program. of its national slum-upgrading budget. While no budget 30. In 2009, the then Ministry of Housing unveiled breakdown from MLHUD was available, officials from the incentives for developers to build at the lower end of the ministry noted that its main budget line item was for slum market, but developers have not taken them up. Developers upgrading, with a budget of KSh 1 billion (US$11,389,969) a cite two reasons for lack of uptake. First, construction at year. The project will house 2,452 people for a direct cost per the upper end of the market reaps profits high enough to beneficiary of KSh  1,182,708 (US$13,483).73 Comparisons justify forfeiting the incentives. Second, proper use of the from slum upgrading in other countries show that this per incentives is unclear and sometimes contradictory, and the beneficiary cost is extremely high. bureaucracy dissuades well-meaning developers from using them. 29. NHC housing units are not affordable for low- and moderate-income families.74 The NHC has built or provided sites and services for only 43,000 units since its inception in Private Sector and Civil Society Efforts to 1965. It has developed projects for rental, outright purchase, Address Constraints: Effective but Small and subsidized NHC financing, but its primary emphasis Scale is on units for purchase. The majority of its properties 31. The private sector is attempting to increase access are well out of the reach of most Kenyans, priced from to affordability with no government support. Incremental KSh 4.5 million (US$50,000) to KSh 13 million (US$142,857). building is the way the majority of urban Kenyans build, And of the four NHC projects with units for sale listed on spreading the cost of construction over many years. its website, three are sold out. As NHC financing is not Cooperative housing is also being developed, and the available on these properties, a buyer will need more than National Cooperative Housing Union (NACHU) is building housing along this model. In cooperation with Homeless six times the average income for a mortgage. Even under International (U.K.), it built 412 units at a cost of KSh 971,000 NHC’s Tenant Purchase program with NHC’s below-market ($11,068) each, partially subsidized by donors. It has financing, a buyer will need 2.3 times the average income also built simple homes in new projects for KSh  450,000 to afford the lowest-cost units. Here, the resident provides a ($5,130), which can then be expanded incrementally. These 10 percent down payment and NHC lends the balance at 13 are outside the urban core, but near places of employment percent interest for 20 years (the mortgage market average for residents. But NACHU’s capacity is limited to roughly is 18 percent). Most units in this program range from KSh 2 500 homes a year. NACHU notes that local property taxes million to 3.5 million (US$22,000–US$38,500). NHC has reduce affordability and that infrastructure services to the a strong incentive to build and sell higher-priced housing properties are not always provided, even when taxes are because it does not receive government operating subsidies paid. Developers typically bear the costs of infrastructure provision within a site, while the public sector provides 77 the trunk infrastructure. But often this infrastructure is not provided, forcing the developer to install wells, onsite wastewater treatment plants, generators, and so on. 32. Small community-savings and land-purchase programs have made housing accessible for lower-income people. For example, through working with the Akiba Mashinani Trust, groups of slum dwellers organized a savings program to buy property and secured a five-year bank loan worth KSh 55 million (US$653,600) with a 44 percent loan guarantee by the Gates Foundation. Some 2,200 slum dwellers contributed to paying off the loan in full 19 months later and saw a significant increase in the value of their property. The trust is developing 2,500 small units in Mukuru, a slum in east Nairobi, that can then be expanded incrementally. This type of housing can be paired with infrastructure upgrading. 78 Kenya Urbanization Review Recommendations 33. There is no one solution to make housing more affordable. What is needed is to take incremental steps that can together improve affordability. A great barrier to affordability is what people earn and how they earn it. Those with low, informal incomes will continue to have difficulty accessing formal markets. 1. Build on efforts—small and unsupported by government—to increase the supply of high-quality, affordable housing Short term Support rental options, particularly small units In South Africa, 10 percent of the population lives in 850,000 small rental units. Landlords often have this rental housing as their only source of income. The greatest challenge has been in encouraging policy solutions to promote this type of housing.75 Develop mechanisms that support incremental building, including community initiatives for improving Medium term neighborhood services and utilities As the majority of housing is built incrementally, solutions that build on this approach can strengthen and expand low-income housing. A recent study of Jinja, Uganda, and Babu Village, Philippines, by the World Bank76 outlined techniques to upgrade neighborhoods through skill building, land pooling, using locally produced materials, and providing temporary housing. Addressing WSS particularly is a key to improving living conditions. Cooperative housing and the community-savings and land-purchase programs should be paired with infrastructure upgrading. 2. Address the four constraints to housing affordability Constraint 1: High cost of land Medium term Continue with improvements to the property registration system Bring down the cost of property by improving the titling and registration systems. Improving property registration is a key to lowering land costs. Rwanda demonstrated that with a concentrated effort significant improvements could be made in the registration process in a short period of time. By making the process more efficient, including digitalizing the titles, Rwanda’s process was reduced to three steps: conduct a title search at the Office of the Registrar of Land Titles, notarize the sale agreement, and finalize the registration/obtain a new deed. The low cost of registration does not create a hindrance to registration at the full value. In Rwanda, the cost is now .02 percent of the property value in comparison to 9 percent in Sub-Saharan Africa and 4.4 percent in the OECD. Kenya could accomplish the same goal with a focused effort and cooperation between different ministries. Long term Investigate ways to reduce land costs closer to urban centers Countries trying to find ways to solve the affordable housing problem will often try to lower housing costs by providing land or building housing on a city’s periphery where land costs are lower, as has been done in countries as varied as Mexico, Chile, and China. Unfortunately, this can create additional problems, including urban congestion and abandonment of the housing. In Mexico, “the concrete sprawl around Mexico City and other big towns grew faster than demand. Commutes proved unbearable, and residents abandoned their homes.”77 To avoid this, Kenyan policy makers will need to consider other measures. Constraint 2: High cost of construction Medium term Reduce construction costs through programs with the private sector Mexico’s largest cement company, CEMEX, established Patrimonio Hoy (Property Now) as a way to expand its business by providing microfinancing to low-income families that had no access to credit. Patrimonio Hoy extends collateral-free loans to people who pay a fee to join the program and form groups with other customers and then finances the purchase of cement and other building materials. It also provides technical assistance in construction techniques. This enables families to build more quickly than they would ordinarily. For CEMEX, the Patrimonio Hoy customer base is now 265 million people. 78 Constraint 3: Regulatory obstacles Short term Identify and remove regulatory obstacles that encourage informal constructions at all levels of income Revise building codes and other development control regulations to encourage construction in the formal sector. While not quantified, an increasing pool of informal housing has good living conditions but does not comply with formal requirements by registering property or seeking construction permits, which pushes them into informality. Drawing this existing housing into formality may improve annual government figures for the supply of new units. The ongoing decade-long revision of the building code should be finalized and legislated. Constraint 4: Access to financing Medium term Develop mechanisms for proper targeting of access to financing Different population income levels will require different interventions to increase access to financing, and tiered housing subsidies are necessary for proper targeting. The majority of the urban population in Kenya falls into the lower income categories—they cannot afford to purchase a new constructed home, do not have access to formal mortgage finance, and do not have access to all basic services. They are most in need of safe and sound houses and neighborhoods. Those with incomes high enough to afford a home would benefit from private sector–oriented solutions that streamline regulations and make capital more accessible. Brazil’s housing policy contains different strategies and incentives for different income levels. At the upper income, the strategy is primarily aimed at improving the market. At middle income levels, subsidies are linked to mortgage credit. For low-income levels, Brazil uses urban upgrading, social support, and direct subsidies. 79 79 Bibliography Ayani Inclusive Financial Sector Consultants. 2013. “Kenya Housing Mapping and Value Chain Analysis.” Habitat for Humanity Center for Innovation in Shelter and Finance, Atlanta. http://www.housingfinanceafrica.org/wp-content/ uploads/2014/03/KENYA-HOUSING-MARKET-MAPPING-FINAL-_with-CISF-Logo.pdf. Collier, Paul, and Anthony Venables, A. 2014. “Housing and Urbanization in Africa: Unleashing a Formal Market Process.” Urban and Disaster Risk Management Department, Sustainable Development Network Policy Research Working Paper Number 6871. World Bank, Washington, DC. http://www-wds.worldbank.org/external/default/ WDSContentServer/IW3P/IB/2014/05/20/000158349_20140520091252/Rendered/PDF/WPS6871.pdf. iHR Consulting. 2014. “HSBC Worldwide Personal Tax Guide, 2013–2014.” Nairobi. http://www.ihr.co.ke/docs/income_ tax_guide.pdf. Walley, Simon. 2011. “Developing Kenya’s Mortgage Market.” Report No. 63391-KE, World Bank, Washington, DC. World Bank. 2014. Kenya State of the Cities Baseline Survey. 80 Kenya Urbanization Review Chapter 4 Connectivity for Access and Economic Growth: Mitigating Congestion, Enhancing Accessibility 81 Key Messages 1. Nairobi, the primary city of Kenya and its basic (Gulyani, Talukdar, and Jack 2010), probably reflecting principal economic driver, faces a daunting challenge in a premium already placed on access. With Kenya at lower accessibility.80 Some 69 percent of trips are made on foot middle-income status and average incomes and wages or by matatu81—80 percent if buses are included (Japanese increasing, the value of time lost to commuting for Kenyans, International Cooperation Agency [JICA] 2013)—yet only 11 and Nairobians in particular, is likely to increase sharply. percent to 20  percent of formal commercial or industrial employment opportunities can be reached by the average 5. Given the high inertia and path dependencies household within an hour using one of these modes. This that characterize urban settings, decisions made today poor accessibility is associated with and partly caused by will shape the future of Nairobi for decades. Nairobi is at a crippling congestion that has brought average door-to- crossroad and can follow one of two main paths. It can try door car and matatu commuting speeds down to about to build its way out of congestion by investing in more roads 14 kilometers per hour. Indeed, IBM ranked Nairobi fourth to serve the increasing motorization rate while managing highest in its 2011 “commuter pain” survey, given that the traffic through regulation and pricing mechanisms. Or it can city had one of the world’s longest average journey-to-work invest in public transport networks, using careful land use times. planning to promote a more compact and transit-oriented urban area. Either way, its priority should be to avoid a trade- 2. From an economic perspective, congestion poses off between access and sustainability that locks itself into a dilemma for the long-term health and competitiveness highly land-consuming and car-dependent development. of a metropolitan area. The city’s main rationale is bringing together people, ideas, and capital to generate Kenya Today—Spatial Development and agglomeration economies (Ciccone 2002). On the Mobility Patterns productive side, it limits the size of the labor market, thereby 6. The spatial distribution of Kenya’s cities is deeply preventing workforce–employer sorting and hampering the structured by its transport networks. The Northern potential for agglomeration economies (Duranton and Puga Corridor connects Mombasa on the Indian Ocean to Malaba, 2004). To attract skilled workers, firms must compensate for Uganda, with a branch line to Kisumu on Lake Victoria. their travel costs by offering higher wages. While this can Four major urban areas are located along this historical rail benefit skilled workers, it might also impede the country infrastructure: Nairobi (with 57  percent of Kenya’s urban generally from reaping full productivity gains and entering dwellers according to the 2009 census), Mombasa (with international markets. 12  percent), and Eldoret and Kisumu (sharing 7  percent). 3. From a household perspective, these constraints These high concentrations (Figure 4.1) indicate strong path may be manageable in the short run. As long as employment dependencies despite a steep fall in rail passenger and within low-wage, nontradable, and often informal service freight volumes in past decades (Jedwab, Kerby, and Moradi sector occupations dominates, the value lost is relatively 2014). Less than 14 percent of urban dwellers live in towns low. But as employment shifts from nontradable services farther than 35 kilometers from the Northern Corridor. In to manufacturing and tradable services and from informal all, 76 percent of urban dwellers live within 15 kilometers of to formal, the demands for metropolitan area–wide access this corridor, reflecting its importance. will no doubt jump. 4. Poor access also hurts livability. To remain within reasonable travel times of jobs, households may be ready to compromise on living conditions. In Nairobi, most residents of informal settlements have jobs and comparatively high levels of education relative to those living in formal housing, yet their living conditions remain 82 Kenya Urbanization Review Figure 4.1: Major transport corridors in Kenya showing the importance of rail infrastructure and the Northern Corridor Major towns Railway Line Kenya road corridors Western Kenya Northern Central Southern Sudan North Eastern Coastal Eastern Kenya CounƟes PopulaƟon density High : 1065 Low : 0 Water Bodies Source: Africa Infrastructure Country Diagnostic (2011). 7. Most people in cities (53.3 percent) walk to school international standards. Housing dominates this expenditure or work, and matatus (informal buses) are used for another as most trips are on foot, which is to be expected when many 37 percent of these trips. Cars account for only 3.2 percent people work in the informal sector and try to live near their of trips, and motorization rates, though growing, remain places of employment—often in informal settlements. low (5.4  percent of households own a car). The average journey to work or school takes 28.5 minutes across all 9. Transport mode patterns in Nairobi and other Kenyan surveyed cities (National Opinion Research Center [NORC] cities do not differ drastically. Overall conclusions drawn for at the University of Chicago 2013), far lower than Nairobi’s Nairobi are thus likely to be valid in all Kenyan urban settings, 47 minutes. This difference can be explained by not only although the specifics will differ by city (Figure 4.2). It can be the larger physical size but also the larger population size of seen from the figure that buses and matatus in Nairobi account Nairobi which, with about 3 million residents (KNBS 2009), is for 39% of mode share, very close to the 38% mode share for more than three times more populous than even Mombasa, matatus in other Kenyan cities. Cars have a much higher market Kenya’s second-largest city. share in Nairobi than elsewhere, with approximately 12% of all trips. This is to be expected in the largest and wealthiest city of 8. The average Kenyan household spends 21.7 percent Kenya. of its budget on housing and transport—very low by 83 Figure 4.2: Transport mode share comparison of Nairobi City County with all Kenyan cities 60 50 40 % 30 20 Kenyan ciƟes 10 Nairobi County 0 Note: A boda is a two-wheeled East African bicycle or motorcycle taxi. Nairobi is the only city with an effective municipal bus service. Source: JICA (2013) and World Bank (2014). [Layout: Use new Excel file] Nairobi Today—Spatial Development Nairobi metropolitan area) are likely to follow on the way to Patterns, Travel, and Accessibility. middle-income status in the absence of proactive policies and infrastructure investments to influence urban growth, 10. This analysis describes intracity connectivity in with higher average distances and travel times and higher Nairobi, highlighting the hurdles to providing Nairobians mode shares for cars. Second, detailed data for other with good access to economic opportunities. The focus cities limited the analysis in those cities. Achieving a better on Nairobi is justified on two counts. First, because of its understanding of the accessibility and mobility situation in primacy, Nairobi represents an urban growth trajectory Nairobi can also provide important lessons for other Kenyan that other Kenyan cities (both within and outside the cities, in particular on mistakes to avoid. Figure 4.3: Distribution of commercial, industrial, and public land uses, Nairobi City County, 2005 Nairobi City Hall Nairobi Sub-locaƟon Boundary Land Use Categories Commercial Industrial Public Purpose Source: Columbia University CSUD (2005) 84 Kenya Urbanization Review Urban form: monocentric and rapidly expanding in the central business district, with trips generally evenly distributed in each direction (JICA 2013). These patterns 11. Nairobi’s urban form is a dominantly monocentric are typical of monocentric cities with high employment structure associated with rapid spatial expansion. While concentration in the urban core and strong radial transport residential development is spread out, with clusters of high- networks. density pockets throughout the city, Nairobi’s employment arrangements follow a highly monocentric pattern. Land 13. Nairobi’s population is rapidly growing. Its use areas that are likely to host the most formal jobs, such population grew by 1 million over the past decade and as industrial, commercial, and public facilities, remain highly concentrated in the urban core (Figure 4.3), with only little is now about 3.8 million, up from 3.1 million people in activity in other emerging centers. the 2009 Census. In the populous central locations, the population grew by roughly 600,000, or 37 percent, while Figure 4.4: Trip distribution by mode, Nairobi City County Source: JICA (2013). 12. Nairobi’s high monocentricity is also evident peripheral areas within the city boundaries grew by nearly from the distribution of trips in the urban area. Of the half a million, or 55 percent. This rapid peripheral growth 2.7 million daily public transport trips, most pass through is driving an increasing rate of land cover conversion from the central business district (Figure 4.4). But trips are forest, farm, and grassland to urban land used for population more heavily concentrated in the eastern parts of the city, settlement, industry, roads, and other infrastructure (Figure where population densities are high and the development 4.5). From 2003 to 2014, the total urbanized land area pattern is more compact. For 900,000 private car trips, the in central locations grew by 16 square kilometers and in majority of origins and destinations are also concentrated peripheral locations by 77 square kilometers. 85 Figure 4.5: Changes in urbanized area between 2003 and 2014, Nairobi City County Source: U.S. Geological Survey (2013). 14. The city’s urbanized area is growing faster than 16. Rapid spatial expansion feeds a job–housing its population. Nairobi’s development pattern is generally imbalance outside the central business district. A characterized by low-density, noncontiguous residential consequence of the rapid urban expansion associated with settlements. Between 2003 and 2014, total urbanized land a highly monocentric formal job distribution pattern is the in Nairobi City County increased 29 percent more than its segregation of residences and formal jobs (Figure 4.7). Areas population. During this time, the ratio of land use per person that are balanced provide greater access for residents, rose by 20.5 percent (Kenya Population and Housing Census because many jobs are close to homes. Areas with more 2009). Most of the urbanized area growth is happening jobs than residents require many individuals commuting in the east of the city at very low densities, similar to the into that location, while areas with a lower number of jobs development patterns of past decades. But growth to the require residents to commute to other zones to work. The west of the center is occurring at much lower densities. In overall job–housing balance is increasingly made uneven by some peripheral areas to the west, urbanized area grew 300 urban peripheral growth. percent faster than the population (red areas, Figure 4.6), while in the east and central city (yellow areas), population growth was almost equal to the urbanized area change. 15. New highway infrastructure has further encouraged growth in peri-urban settlements and along major road corridors. New roads and highways, higher land prices, higher rates of car ownership, and other factors appear to be supporting fragmented and non- contiguous patterns of outward growth. Residential areas also developed beyond county boundaries in Thika, Ngong, Machakos, and other satellite communities, even though well-located land is plentiful within municipal boundaries. Longer commutes to jobs in the urban core contribute to the city’s daily congestion. 86 Kenya Urbanization Review Figure 4.6: Urbanized areas grew faster than the population in Nairobi City County between 2003 and 2014 <-25% 50%~100% Railroad -25~25% 100%~200% Major Roads 25%~50% >200% City Boundary Location Boundaries Source: U.S. Geological Survey (2013), Kenya National Bureau of Statistics (2009). 17. The geographic separation of jobs and housing is residents to access formal employment and other amenities found in many successful cities in developed countries. within limited transport time and spending budgets. In the This spatial pattern often reflects positive agglomeration absence of these, the job–housing imbalance causes high economies. But it requires efficient transport networks to commuting costs that make difficult the transitions from ensure that the segmentation of jobs and housing does informal to formal employment and from low- to high- not reduce access. An efficient transport system enables productivity jobs. Figure 4.7: Job–housing balance, Nairobi City County (1 kilometer2 grid cells) Job Housing Balance Legend Railroad Heavy Residential Dorminance Major Roads Residential Dorminance City Boundary Balanced Location Boundaries Jobs Dorm Heavy Dorminance Less than 1 Job or Population per Acre Source: JICA (2013); OpenStreetMap; Columbia University CSUD (2005). 87 Transport system and mobility characteristics: serves a small share of travelers, bus companies operate pedestrian and informal alongside matatus, often competing for passengers on the same routes. Increasing numbers of residents are acquiring 18. Several transport modes and networks coexist in cars and traveling on Nairobi’s road network.82 The potential Nairobi. Small, privately owned, and individually operated for congestion in the central business district is evident, buses and vans, known locally as matatus, form the because roads, rail, buses, and matatus all converge near backbone of public mass transport services in the Nairobi the center of the city (Figure 4.8). metropolitan area along with rail and bus. While rail only Figure 4.8: Existing transport infrastructure, Nairobi City County, including major roads, rail lines, and matatu routes Railroad Major roads City Boundary LocaƟon Boundaries Matatu Lines Source: Google Maps, OpenStreetMap, Digital Matatus (2015). makes the third largest number of daily trips (Figure 4.11). 19. Matatus and walking dominate transport mode The mode shares of motorcycle and public transport (buses shares. Eighty-three percent of all trips include walking and matatus) peak at a monthly income level of $116–464 as the primary or secondary mode of travel (Figure 4.9). (JICA 2013), which includes the income groups with the first Forty-one percent of all trips are walking only, and 42 and second largest number of daily trips. percent involve other modes, the vast majority of which 21. Motorization rates are growing, with Nairobi (63 percent) involve matatus. Only 17 percent of all trips experiencing a 67 percent increase in private automobiles are made without walking, among which more than half (54 (from 207,339 to 345,685) from 2004 to 2013. Car percent) are completed by passenger car and 13 percent ownership per household has increased from 0.23 to 0.30, by motorcycle (JICA 2013). Compared with other African and the ratio of private cars per 1,000 persons has increased primary cities, Nairobi has the largest share of walking trips from 78 to 96 (Figure 4.12) (JICA 2006, 2014). Against other (Figure 4.10). cities in Africa, Nairobi has a high number of private cars per 20. As incomes rise among Nairobi commuters, the 1,000 persons, although cars are only used for a small share mode share of walking generally decreases and the share of trips (Figure 4.13). of private car use rapidly increases. But the income group with the highest car use makes the smallest number of daily trips, while the lowest income group (which mostly walks or uses public transport but has the fourth highest car use) 88 Kenya Urbanization Review Figure 4.9: Trip mode shares, Nairobi City County, 2013 41% Walking Only 42% Walking with 17% Other Modes No Walking at All 63% 54% Matatu Passenger 13% 16% Car Motorcycle Others 21% 21% 33% Bus Bus Others Source: JICA (2013). Figure 4.10: Trip mode shares, selected African cities 44% 2% 15% 29% 9% 34% 11% 18% 27% 6% 22% 47% 19% 11% 12% 22% 52% 10% 30% 12% 20% 35% 26% 11% 61% Source: JICA (2006, 2014). Figure 4.11: Number and mode share of trips by income bracket, Nairobi City County, 2013 *Interpolated from 2004 and 2013 data. **14 African cities: Abidjan, Accra, Addis Ababa, Bamako, Conakry, Dakar, Dar es Salaam, Douala, Kampala, Kigali, Kinshasa, Lagos, Nairobi, and Ouagadougou. Source: JICA Master Plan (JICA 2006, 2014); Kumar and Barrett (2008).Source: JICA (2013). 89 Figure 4.12: Motorization rates, Nairobi, 2004 and 2013 Source: U.S. Geological Survey (2013). 4.14). Roughly 30 percent of low-income individuals walk more than 60 minutes a day (JICA 2013). Figure 4.13: Motorization rates, selected African cities. *Interpolated from 2004 and 2013 data. **14 African cities: Abidjan, Accra, Addis Ababa, Bamako, Conakry, Dakar, Dar es Salaam, Douala, Kampala, Kigali, Kinshasa, Lagos, Nairobi, and Ouagadougou. Source: JICA (2006, 2014); Kumar and Barrett (2008) Urban transport institutions in transition 23. Before devolution, much of the authority over 22. The overall average travel time per trip in Nairobi urban transport was centralized at the national level— City County is 47 minutes but differs by gender, age, personal but divided by partial and sometimes overlapping income level, mode, and trip purpose. The average travel and contradictory mandates and responsibilities. The time for trips made by men (49 minutes) is longer than that for institutional framework involved several entities, including women (44 minutes). Trips made by middle-aged adults (35–64) the Ministry of Roads, responsible for formulating national have the longest average travel time by age group (54 minutes). road policy and road subsector administration; the Ministry Higher earners generally make longer trips, while average travel of Transport, overseeing national transport policy and times for motorized modes hover between 54 and 60 minutes transport sector administration (including public transport per trip (excluding motorcycles, which average 38 minutes per services within cities); the Kenya National Highways trip). Home trips (that is, all trips returning home) and work trips Authority, developing and maintaining national roads, are longer than school trips and trips for other purposes (Figure Figure 4.14: Average travel times, Nairobi, 2013, by income, mode, and trip purpose Source: JICA (2006, 2014). 90 Kenya Urbanization Review including important arterials in urban areas; and the Kenya (Gonzales, Chavis, Li, and Daganzo 2009). While radial links Urban Roads Authority (KURA), developing and maintaining to the central business district are extensive, the arterial urban roads. There was also a national ministry for Nairobi (inter-district) network outside the central business district metropolitan development. In addition, local authorities is thin. Even connectivity between the central business had authority to manage some roads and streets within district and its immediate surroundings, such as the area their jurisdictions. The resulting tangled web confused south of the train station or Upper Hill, near the business ordinary citizens, diluted scarce financial resources, and led district, is limited. As a result, traffic management in the to chronic underinvestment in transport. metropolitan area is challenging. There are no signalized intersections outside the grid-like streets of the central 24. Since devolution, counties have more responsibility business district. Major intersections are typically managed for urban transport. Nationally, the Ministry of Transport with roundabouts that were not designed to accommodate and Infrastructure has replaced the former Ministries of the increased traffic volumes. When unexpected congestion Roads and Transport, and implementation of infrastructure occurs, or intersections near the central business district projects is still managed by the Kenya National Highways are unable to serve traffic demand, vehicles have no way to Authority and KURA. But county governments have bypass the congestion. Small and localized traffic incidents assumed responsibility for urban transport, and KURA’s role thus can have widespread and lasting effects. Congestion is expected to diminish steadily. In Nairobi, functions for also stems from inadequate off-street parking space and both development of infrastructure and jurisdiction over the lack of a formal addressing system, which increases services comprising the Nairobi Mass Rapid Transit System confusion as drivers attempt to find their destinations. will be entrusted to a Nairobi Metropolitan Transport Authority, currently being formed through interjurisdictional 27. In 2013, households in Nairobi City County spent agreement. In October 2014, the Ministry of Transport and on average US$2.5 million per day in travel costs. These Infrastructure and four counties—Nairobi, Kajiado, Kiambu, costs were examined by quantifying the out-of-pocket and Murang’a—signed a memorandum of understanding to costs of travel (fuel, public transport fares, and so on) as constitute the authority. well as the value of time (VOT) spent traveling. Of the aggregate passenger travel cost, 75  percent was spent on 25. The coordinated creation of an institution matatus, 20 percent on private vehicles, and the remaining for governance of urban transport among different 5 percent walking (VOT only). The average car driver jurisdictions is not globally unique, but is relatively new spent roughly twice as much per trip on transport as the for Kenya and for Africa. It is an innovative and welcome average matatu rider(US$2.93 versus US$1.44 according step in developing coherent institutional structures to to the Kenya State of the Cities survey; see table 4.1), but reflect important metropolitan needs. It might have been aggregate spending on matatu rides exceeded that spent simpler—in the short run—for either Nairobi City County on private cars by nearly four times. The aggregate value or the Ministry of Transport and Infrastructure to develop of the time component alone for matatu costs was nearly a mass transport authority on their own, and their mutual equal to the total aggregate travel cost of private vehicles recognition of the benefits of coordinating with other (Figure 4.15). jurisdictions in a rapidly growing metropolis is more complex in the short-run, but in the long-run may lead more successful outcomes. Crippling congestion costs in Nairobi 26. Traffic congestion is a growing problem, resulting from a rapidly increasing population and the crowding of motorized traffic onto a limited street network. For a city of close to 4 million inhabitants, Nairobi has far fewer streets to serve traffic demand relative to cities of similar size 91 Figure 4.15: Aggregate daily personal commuting costs, Nairobi City County Source: World Bank (2014). 28. The VOT lost to travel in Nairobi is estimated at over $4 million (JICA 2013) per workday. Commuters in US$0.8 million–US$4 million per workday. This is based on zones removed from the city center, especially those in the the 47-minute average travel time of a trip in Nairobi, daily relatively wealthy exurbs to the west, spend far more time time costs per capita, valued as a percentage of household traveling to the city center. But due to the larger population income,83 ranging from $0.25 to roughly $4.00. Depending concentrations near the city center, the combined value on the survey data used, estimates for total VOT spent of time spent traveling from central areas is considerably commuting range from $0.8 million (World Bank 2014) to higher than in the exurbs (Figure 4.16 and Figure 4.17). Figure 4.16: Per capita VOT spent traveling, Nairobi City County Source: Google Maps, OpenStreetMap, JICA (2013). 92 Kenya Urbanization Review Figure 4.17: Total VOT spent traveling, Nairobi City County Source: Google Maps, OpenStreetMap, JICA (2013). Table 4.1: Travel costs by mode, citywide and per trip, Nairobi Daily citywide travel cost (US$) Per capita cost per trip (US$) Out-of-pocket Value of time Mode Out-of-pocket cost Value of time lost Total cost lost Total Matatu 1,367,032 71% 563,724 29% 1,930,756 1.02 0.42 1.44 Walk 0 0% 134,094 100% 134,094 0 0.08 0.08 Own vehicle 392,093 77% 120,315 23% 512,408 2.24 0.69 2.93 Total ($USD) 1,759,126 818,132 2,577,258 Source: World Bank (2014). 29. Increasing travel speeds could save more than per hour, and home-based work trips in matatus average US$50 million per year, the current cost of congestion in 13.5 kilometers per hour.84 Increasing average travel speeds Nairobi. Costs can be assigned to congestion measured to 20 kilometers per hour would save $54.1 million a year against reasonably attainable travel speeds. In 2004, JICA and decrease time spent traveling by 30 percent. Increasing conducted a survey of travel speeds on 15 major Nairobi average travel speeds to 30 kilometers per hour would save roads, including two-, four-, and six-lane divided and $93.4 million a year and decrease time spent traveling by undivided highways. Eight of these roadways reported higher 54 percent. volumes than their planned capacity, and four reported a volume-to-capacity ratio above 1.2. Average recorded travel 30. Out-of-pocket costs are higher than VOT but speeds on these thoroughfares were 37 kilometers per barely affected by congestion. Out-of-pocket costs are hour, 77 percent of the designed free flow speeds (design the majority of travel costs in Nairobi. They totaled US$1.8 speeds varied between 40 and 60 kilometers per hour). This million per day in 2013. For drivers, the average out-of- difference means that 23 percent of time spent traveling pocket cost per trip equates to US$2.24, for matatu users on these roads is a result of congestion delays. On local US$1.02. Matatu fares are 71 percent of matatu user costs roads, which see the bulk of congestion in Nairobi, home- while vehicle ownership, parking, and fuel expenses are 77 based work trips in private vehicles average 14 kilometers percent of driver user costs. Pedestrians do not incur any out-of-pocket costs from travel (Table 4.1). As out-of-pocket 93 costs represent the bulk of overall travel costs, changes in and walking are massively favored—at 28  percent and speed have a small effect on overall travel costs. Drivers 41 percent, respectively (JICA 2013, 2014) (see Figure 4.9). receive the highest individual gain from changes in travel Although private car ownership rates are higher in Nairobi speed, but the aggregate saving for matatu passengers is than in other African cities, by world standards they remain much higher. low at around 84 cars per 1,000 persons (JICA 2006, 2014). These differences in accessibility by car versus matatu can Accessibility of employment opportunities today: be seen by comparing the respective panels of Figure 4.18. too few, too long, and unequal 32. Accessibility is spatially unequal in Nairobi City 31. The share of total employment opportunities that County whether using cars or walking and using matatus can be accessed in Nairobi in a given timeframe favors is the transport mode. Access to formal economic private car users. On average, car users within Nairobi opportunities within a given timeframe (here 30 minutes) is can access 31 percent, 58 percent, and 77 percent of total slightly less equally distributed throughout the urban area employment opportunities within 30, 45, and 60 minutes, of Nairobi for a combination of walking and matatus than respectively, when congestion occurs (Table 4.2). For matatu for cars (Figure 4.19).85 Because residents of Nairobi rely users the situation is drastically different as on average they much more on walking and matatus than they do on cars, can access only 4 percent, 10 percent, and 20 percent within and because of the inherently localized nature of informal these three timeframes. These figures suggest that Nairobi collective transport, access to employment opportunities in is better accessed by car, even though car use accounts for Nairobi City County is unevenly distributed. only 13  percent of trips for all purposes, while matatus Table 4.2: Average share (percentage) of Nairobi’s employment opportunities accessible within a given timeframe, by transport mode used and congestion status Cars Matatus + walking Walking only Uncongested Congested Congested Uncongested/Con- gested < 30 mins 57 31 4 3 < 45 mins 85 58 10 7 < 60 mins 96 77 20 11 Figure 4.18: Share of accessible employment opportunities within one hour of traveling for cars (left panel) and matatus (right panel) Source: Columbia University CSUD (2005); University of Nairobi C4DLab (2014), MIT Civic Data Design Lab; 2012 population density from Bright, Rose, and Urban (2013); car travel times computed from OpenStreetMap road layers. 94 Kenya Urbanization Review Figure 4.19: Lorenz curves showing spatial inequality in accessibility to employment opportunities in urban Nairobi City County 1 Share of accessible opportuniƟes within 0.9 0.8 0.7 0.6 30 minutes 0.5 0.4 0.3 0.2 0.1 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Share of populaƟon cars, GINI=0.29 matatus, GINI=0.36 45 degree line Source: Avner and Lall (Forthcoming). 33. Nairobi City County’s rapid urban population population of more than 1.8 million or over 50 percent of growth has led to land acquisition and speculation, Nairobi’s population. Many informal settlements are near forcing poorer residents to settle in dense communities the central business district (Figure 4.20). Sixty-nine percent dispersed throughout the city. By 2008, there were 150 of Nairobians work in employment centers outside their informal settlements in Nairobi, occupying just 5 percent neighborhoods, with those living in informal settlements of total residential land (Slum Dwellers International and more likely to walk and those residing in formal settlements Pamoja Trust 2009). These settlements had a combined more likely to use public transport services. Figure 4.20: Informal settlements, Nairobi City County Informal Settlement in Nairobi Legend Informal SeƩlement Railroad Major road City Boundary LocaƟon Boundary Source: Columbia University CSUD (2005); World Bank (2014); Slum Dwellers International and Pamoja Trust (2009). 95 34. Accessibility of public services and amenities is parks. important for livability but is poor in Nairobi. Access to schools, hospitals, and parks improves the quality of life. Toward Middle-income Status: Challenges Parks are farther than a 30-minute walk for 36 percent of and Opportunities Nairobi City County’s populace (Table 4.3). Schools have 35. To promote livability and productivity as Kenya the greatest aggregate accessibility, but are still beyond the reaches middle-income status, Nairobi needs both to 30-minute threshold for 16 percent of the population (a mitigate congestion and enhance access to jobs, public high percentage when factoring in the age of many children services, and amenities. The ability of a public transport walking to school). Hospitals, by the same measure, are system based on matatus to address these needs is limited. inaccessible for 25 percent of Nairobians, which carries Synergies are to be gained by tackling both issues at the numerous implications for health (Figure 4.21). Even same time, with a clear vision and systemic approach that considering the added accessibility provided by a 30-minute exploits the interplay between land use and transport. matatu ride, 14 percent of households are still unable to Sole reliance on one of these two components could even reach hospitals, with almost 20 percent unable to access Table 4.3: Number and share of Nairobi City County’s population with access to public services within 30 minutes, walking or by matatu Destination 30-minute walk 30 minutes by matatu Population with access Share (%) Population with access Share (%) Hospitals 2,955,473 74.8 3,387,962 85.7 Schools 3,335,202 84.4 3,942,722 99.8 Existing park 2,528,747 64.0 3,193,028 80.8 Proposed park 3,528,392 89.3 3,743,169 94.7 Source: Hospital locations, Google Maps; park and school locations, Columbia University CSUD (2005); population density, WorldPop; 30-minute accessibility calculated by Conveyal. Figure 4.21: Hospitals within a 30-minute matatu ride Source: Google Maps; Conveyal; OpenStreetMap. 96 Kenya Urbanization Review be detrimental. Construction of new roads is likely to minimize these through locational decisions). For high temporarily relieve congestion, but unless this is followed time sensitivities, the situation is reversed, and commuters up with careful planning and enforcement of land use value low transport times much more. The importance of regulations, it could backfire by incentivizing sprawl and time increases with income, and as economies develop decentralization, thus reducing accessibility of jobs and higher time sensitivities traditionally follow.89 Therefore, other economic opportunities while increasing motorization Nairobians’ willingness to travel will tend to fall unless their rates and vehicle-kilometers of travel. To have the greatest increased time sensitivity is countered by higher travel impact on the largest number of users, transport policies speeds. There are two possibilities for achieving this. The and investments should focus on shortening commutes first is the default: economic development accompanied for public transport riders rather than for traffic generally. by increasing motorization rates and some degree of Improvements that strengthen the mass transport network suburbanization. This pattern is made easier, and sometimes and ease congestion faced by public transport riders would caused by, investments in high-speed, high-capacity roads have a larger economic impact than improvements to (Baum-Snow 2007). The second option entails investing in reduce travel times for personal vehicles. high-capacity, high-speed mass public transit networks. 36. The spatial layout of Nairobi City County is the 38. The investments made today and in the near result of a complex self-organizing process. Households future in the urban transport system will commit Nairobi seek to locate within reasonable distances of jobs and public to an urban form and its associated travel patterns for amenities, maximizing accessibility within the constrained decades. Cities are characterized by high inertia and path environment of suboptimal transport investments, land-use dependencies as vast amounts of sunk capital are invested planning, and development control and enforcement. That in transport infrastructure and in residential or commercial said, this “self-organization” of spatial settlement patterns building stock with expected lifetimes over 100 years is far from optimal: major accessibility improvements can (Hallegatte 2009; Lecocq and Shalizi 2014; Philibert and be achieved through a coordinated process of structured, Pershing 2002). It is therefore important that the long-lasting accessibility-enhancement decision making. For example, consequences of these decisions are well understood to a hypothetical reorganization of land uses could result in a avoid unintended lock-in (Avner, Rentschler, and Hallegatte doubling of accessible formal jobs within an hour’s travel 2014). Investing heavily in radial road networks is likely using matatus even in the absence of additional investments to trigger urban sprawl and to lock Nairobi into a low- in transportation networks or building stocks.86 And as density spatial development pattern incompatible with the Nairobi grows and its economy restructures, accessibility subsequent introduction of mass transit options such as bus limitations and difficulties in reorganizing land use are rapid transit (Bertaud 2002). Given the relatively low yet also expected to drive additional investments in transport fast-rising motorization rate in Nairobi City County, these infrastructure and modification of the building stock by investments will provide benefits mainly to the wealthiest. increasing floor space close to opportunities and transport Conversely, investing early in public transit options can limit hubs. Both processes will require large investments. urban sprawl while providing most citizens with good access to opportunities. In facing this crossroad, decision makers 37. In a dynamic framework, as Kenya reaches middle- should recognize that the decisions they take today will income status and households’ incomes rise, so will their prove very difficult to reverse—that they are shaping the time sensitivity. The current average travel time (regardless city for decades to come. A major priority for Nairobi should of congestion) for a trip in Nairobi is 47 minutes and 60 be to avoid a trade-off between access and sustainability minutes for matatu and bus trips, respectively.87 Given that that locks it into a highly land-consuming and car-dependent most commuters travel by matatu, these figures indicate development pattern. Subsequent investment in radial that the time sensitivity of an average Nairobian is quite roads and highways can provide complementary options low.88 Households’ sensitivity to time is a main determinant and can decrowd the city. of commuting mode and times. For low time sensitivities, households are prepared to incur longer commutes to have access to opportunities (even though they try to 97 Recommendations 1. Orient transport policy, initiatives, and energy to strengthening public transport and developing mass transport networks Short term Continue efforts to make the matatu system more responsive to user needs Matatus may not be the way that transport planners would choose to design a transport system, but they account for 26 percent of all trips in Nairobi City County, nearly one and a half times as many people as cars and (conventional) buses combined. As Nairobi’s economic structure continues to transition from predominantly nontradable services toward more tradable services and manufacturing, demand for motorized mobility will increase, and with their flexibility and extreme demand responsiveness, matatus will be on the front line to respond. Traditionally, matatu operations are structured to reduce costs for the operator, but new information, communications, and social media applications are helping to make matatus responsive to user needs as well. Matatu route networks have been mapped in recent years, and the public sharing of that information has improved driver adherence. Crowdsourced reporting on driver behavior has demonstrably improved safety. Further efforts by Nairobi City County to advance use of this kind of social technology should be encouraged. The County should also work with relevant national authorities to craft concerted approaches to facilitate the renewal of the matatu vehicle fleet in the interests of road safety, passenger comfort, air quality, and limiting growth in energy consumption and greenhouse gas emissions. Models from elsewhere in Africa, such as a fleet renewal scheme in Dakar, should be considered. Medium term Continue and enhance efforts to roll out mass transport systems based on bus rapid transit Even if matatus will no doubt be the first point of response, their operational and capacity constraints require modes with greater throughput, and bus rapid transit is a critical mass transport mode that should be focused on for the medium term. Bus rapid transit uses key arterials to service areas of existing high demand. Bus rapid transit can provide a structuring effect on land markets, sending strong signals about where accessibility is being permanently enhanced. Thus bus rapid transit can begin to structure patterns of transport demand through land-market mechanisms in a way that matatu services cannot. Bus rapid transit can begin to create the transport conditions that allow the long-term land-use sorting that is critical for the transition to a manufacturing and tradable services economic base. But experience around the African continent suggests that bus rapid transit strategies are most successful when they are not seen uniquely as an infrastructure investment problem, but rather as an integrated solution requiring attention to a wide range of operational issues, including hierarchical integration of transport services, appropriate management of both bus rapid transit and non–bus rapid transit services, integrated services and operations planning, and appropriate fare-setting and subsidy policies. The move toward the creation of the Nairobi Metropolitan Transportation Authority is an important start. Long term Develop a multimodal, hierarchically integrated mass transport system Over the long term, mass transport system should be developed to help structure future metropolitan development. This means acknowledging that urban growth rates in Nairobi (and probably elsewhere in Kenya) are likely to remain high, and using the mass transport system to prevent a precipitous decline in net residential densities as the population grows. The rail network servicing the metropolitan region will need to expand substantially to facilitate passenger flows that are more commensurate with a region growing to 10 million than now (with daily flows in the hundreds of thousands, not thousands). There is already substantial underused capacity in existing rights of way, and these should be exploited where possible. The train station in the city center can become an important multimodal hub not only for the metropolitan region, but also for the nation as a whole, and not only helping to reinforce the role of the central business district while providing alternatives to road traffic congestion, but also helping to anchor central business district expansion and growth toward the southeast. Beyond these anchoring effects, however, a well-conceived, hierarchically integrated transport system can also help lubricate the development of a manufacturing sector within the metropolitan area, helping to link labor at all skill levels in the market with job opportunities. A key to the success of this “long-term” recommendation is to recognize that the “long term” is not that long after all. Urban growth rates in Kenya and Africa are among the fastest in the world, and urban development patterns, once formed, can lock urban residents into transport and consumption patterns with enormous implications for Kenya’s resource flows. So while development of an effective and integrated mass transport network can take decades, there is already a race to ensure that new urban settlements are accessible (to the rest of the metropolis) and sustainable. 2. Support the alignment of urban transport with effective management of the urban transport network Short term Implement effective traffic management measures 98 Kenya Urbanization Review The limited road network makes good traffic management particularly important, as the current transport infrastructure will only be successful in limiting congestion and enhancing accessibility if it is accompanied by effective traffic and demand management measures. This includes using the traffic signalization that has been implemented on major arterials in the last few years. Better signage and road structure would also help keep traffic flowing. By removing many of the ineffective T-junctions in the city and replacing them with acceleration and deceleration lanes, much of the congestion choking these intersections could be better mitigated. Such a solution requires land and resources—that is, commitment by political authorities. Short term Develop and use parking policies as a way of managing transport demand Parking policy should be understood as a key tool for helping to manage transport demand. This means approaching parking neither as an infrastructure problem nor as a source of revenue for the city but rather as an economically scarce commodity that needs to be correctly priced. This also means taking an integrated approach to both off- and on-street parking, and not over-specifying supply needs based on an assumption of immutable demand. 3. Using complementary approaches of adapting land uses and invest in public transport to enhance accessibility Develop and implement policies that direct growth toward select polycentric centers beyond the Medium to long term central business district Development of a hierarchically integrated mass transport network will help strengthen the position of the central business district while providing alternatives to the hypercongestion that characterizes current accessibility to the central business district. The mass transport network can also contribute over time to the reduction in intensity and duration of hypercongestion by facilitating a more polycentric development pattern (such as new jobs to settle outside the central business district in selected subcenters). The network can help locate these subcenters by creating access premiums at those locations, provided that these benefits are accompanied by measures to harmonize public and private sector actions to create the infrastructure and conditions for those subcenters to flourish. Although this option falls short of promoting one global labor market in Nairobi, it has the potential to address some access inequalities and to avoid the trade-offs some households make (access to employment opportunities versus living conditions). Analysis suggests that reducing the commuting distance through polycentric growth may reduce the need for private motorized travel and increase job access for low-income Nairobians. Effective planning and gradual reorganization of land uses can enhance access even without trans- Medium to long term port improvements The analysis shows that even in the absence of major investment in the mass transport system, there is value to improved land-use planning and implementation through better development control in producing outcomes with enhanced access. The careful coordination of land uses, such as the location of residential neighborhoods and of formal economic opportunities, can promote access in Nairobi City County even in the absence of necessary yet costly transport and building retrofitting investments. But doing so requires strong planning capabilities and good governance structures to facilitate implementation and enforcement. While there are clearly limits to how much access improvement can be accomplished without investments in transport networks, the analysis of this chapter suggests that some improvement is possible even without transport investment. Long term Promote more compact and transit-oriented development The aim is for Nairobi City County to perform as one labor market where all employment opportunities can be reached within a given timeframe. A more compact development pattern organized around selected subcenters has the potential to reduce commuting distances and times, promoting access. This option implies building more floor space around selected subcenters with high opportunity levels and therefore extra investments in residential structures or changing the residential building stock by, for example, investing in more floor space close to job opportunities or to transit stations that can link households to work quite quickly. 99 Bibliography Africa Infrastructure Country Diagnostic. 2011. Kenya Interactive Infrastructure Atlas. African Development Bank Group, Abidjan and Tunis. http://www.infrastructureafrica.org/system/files/ken_new_ALL.pdf. Avner, Paolo, and Somik V Lall. 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U.S. Geological Survey. 2013. “Landsat.” World Bank. 2014. Kenya State of the Cities Baseline Survey. Worldpop. 2013. “Population of Kenya, 2010.” http://www.worldpop.org.uk. 101 102 Kenya Urbanization Review Chapter 5 Land Management and Urban Planning Institutions, Before and Under Devolution 103 Key Messages 1. Since independence, Kenya’s institutional structure the centrality of well-functioning cities and metropolitan for land management has tended to be centralized, regions to the country’s economic future and has outlined technocratic, and nonparticipatory, reducing institutions’ a program of investment in six potential metropolitan efficacy and neutering urban planning. The devolved regions to spur economic expansion, facilitate regional structure touched on throughout this report (see Box 1.2) equity, conserve land and natural resources, and distribute presents an opportunity to update these institutions. population growth. Growth and development in the Nairobi The National Land Policy of 2009 created a road map for metropolitan area remain uncoordinated and unplanned institutional reform, and laws governing land tenure, titling, despite its economic importance. But some counties are and registration have been rationalized. Counties have starting to work together under an institutional framework shown commitment to linking physical planning to their for voluntary cooperative arrangements. county-level integrated development plans. Before Devolution 2. The respective land management and planning roles of the National Land Commission and the Ministry 6. For almost five decades, Kenya’s land-management of Land, Housing and Urban Development (MLHUD) need institutional structure was centralized, technocratic, not formal separation and clarification. With devolution having always organized, and with too many opportunities for begun only two years ago in 2013 with the establishment corruption. Kenya, like most former colonial countries of the county governments, much unfinished governance of Africa, saw its initial planning and land institutions reform remains to be done. The most immediate concern established according to the legal traditions and doctrines is to resolve the division of responsibilities and authority of its colonizer, Great Britain. The colonial period saw the between these two entities, ending their duplication of introduction of private property, the establishment of effort. strong central administration over land in a government lands ministry, and the preparation of the country’s first 3. Commitment to development control is the formal urban plans for cities intended for European—not single most critical factor for effective planning. Poor African—settlement. development control was one of the planning system’s central weaknesses before devolution, when much 7. This period established a basic paradigm of urban development proceeded without oversight and in planning with four key characteristics. First, planning contravention of prepared physical plans. But informal and was a spatial exercise with the primary purpose of illegal development is still prevalent. Planning institutions designating land uses in specified zones with standards must strengthen development control to broaden their for infrastructure and buildings; plans were regulatory efficacy and reduce opportunities for politicization and documents to which land owners were to conform. Second, graft. planning powers were centralized in the Ministry of Lands with physical planners attached to the ministry—the main 4. More public participation in planning is needed. preparers of plans on behalf of local governments. Third, Stakeholders were—and are—too little involved in planners were specially trained professionals who saw plan planning. The new institutional framework mandates public preparation as a primarily technical exercise; community participation in devolved governance and requires county participation in plan preparation was generally minimal. authorities to design and promote civic education. But And fourth, although plans were prepared centrally, plan actual public participation is still weak and risks being one- implementation was the responsibility of a local authority— way listening with little impact on goal-setting and decision urban, municipal, and county councils.90 making. 8. The efficacy of these institutions was poor and 5. Integrated, coherent metropolitan regions are vital corruption was common, reflected in unplanned city to Kenya’s economic expansion. Vision 2030 acknowledges growth and unauthorized development. At a macro scale, 104 Kenya Urbanization Review urban planning has failed to create a spatial framework tool under the National Land Policy—a planned repository for the judicious use of the country’s natural resources. of rationalized, integrated spatial data available to High-quality agricultural land has been converted to urban governmental bodies and sectoral agencies. uses, particularly in the northwestern part of greater Nairobi and in peri-urban Nakuru. Urban development— Under Devolution particularly formal sector high-income housing—has been 11. National institutions for land management have indiscriminate in its harm to environmentally sensitive changed dramatically in a quest to enhance transparency areas like steep slopes and wetlands.91 Rampant urban and accountability. The 2010 constitution and subsequent growth has destroyed critical habitat, particularly forests implementing legislation have radically reworked the and grasslands, and polluted common pool resources such previous institutional and administrative framework as water and air. for land management.92 Most important, legislation split 9. At local or municipal level, physical planning has national land management between two bodies: the failed to control land use or to ensure housing quality. National Land Commission and a national ministry with the Requirements to adhere to permitting processes and land portfolio (now the MLHUD). This split in function is ensure change of user and land subdivision proposals largely a reaction to the previous centralized framework— follow approved plans are often ignored with unapproved and the opportunities for corruption—at the Ministry of buildings erected haphazardly at high densities in locations Lands. By establishing an independent commission of closely with limited public access and services. Building codes are vetted professionals and localized bodies and processes for evaded and residential structures collapse and kill residents. land allocation, as well as titling and registration, it was Even in relation to government land—the type of land hoped that contentious and economically costly issues on tenure over which government had the most undisputed land could be resolved. control—planning failed to use land for important social 12. Legally, the National Land Commission is the lead uses like road reserves, public parks, and schools. This failure public land management agency, with a wide array of exacerbated social inequality and is perhaps most manifest responsibilities. A constitutionally mandated nine-member in the continuous growth of slum housing developments on independent body broadly charged with overseeing public public and private land in the major cities. The reasons for land management, it has multiple functions identified in the failure are many and include corruption at the central law (Constitution of Kenya 2010; National Land Commission Ministry of Lands and local authority level. An additional Act 2012; Land Registration Act 2012).93 Importantly for reason is lack of capacity, particularly of trained technical urban areas, it is responsible for public land allocation, personnel at local authority level who were needed to titling, and registration functions as well as oversight of implement plans and scrutinize development proposals. land use planning throughout the country.94 It also has 10. As described in Chapter 1 (National Land Policy of been tasked with developing and maintaining an effective 2009—an opportunity missed), the National Land Policy land information system, facilitating property taxation, created a road map for institutional reform but did not and addressing the historic land injustices arising from foresee the advent of county government. Two other past corrupt land practices identified in the 2004 Ndung’u initiatives created the foundation for institutional reform. Report of the Commission of Inquiry into Illegal/Irregular First, the draft National Spatial Plan, a long-delayed flagship Allocation of Land. Finally, it is charged with decentralizing project of Vision 2030, identifies goals for the national land administration to county level by setting up county land land base. This plan’s purpose is to guide the long-term management boards responsible for processing key land spatial development of the country, including preparation transactions: allocating public land, overseeing changes of of regional, county, and local spatial plans. As the guiding users, and subdividing land. Because the land transactions policy document on land, its principles and policies should processed by the county land management boards must be the basis of plan oversight and approvals conducted by follow physical planning and survey requirements, the the National Land Commission or the ministry. Second, the National Land Commission is a key body under the new National Spatial Data Infrastructure is a critical planning institutional framework. 105 13. The MLHUD is charged with, among other responsibilities, policy making and oversight The Kenyan Constitution does not delineate specific ministries and their mandate—it only identifies the minimum (14) and maximum (22) number of ministries that can be established by the executive branch (Article 152(1)(d)). The identified role of the land ministry in new constitutional order is best laid out in the 2009 National Land Policy. In Section 4.3.1, the ministry is given 10 specific functions. These include making policies on land and giving policy direction to the National Land Commission, mobilizing resources for the land sector, coordinating the National Spatial Data Infrastructure, monitoring and evaluating and sector performance with key stakeholders, and overseeing the statutory bodies that regulate land sector professions (such as the Kenya Institute of Planners, Architectural Association of Kenya, and Institution of Surveyors of Kenya). 14. Laws governing land tenure, titling and registration have been rationalized. The National Land Policy of 2009 called for the rationalization of laws regarding land titling and registration, and this recommendation was carried out in constitutional provisions (see National Land Policy of 2009—an opportunity missed). The goal was a streamlined, coherent land registration system to enhance tenure security, land market performance, and private investor confidence, all of which had been degraded by the Ministry of Lands.95 The potential benefits of these rationalizations have not yet been realized. 15. Planning is a devolved function that is central to the financing and management of county governments. Both the Constitution and the County Governments Act of 2012 enumerate mandatory plans that must be prepared by county governments. As discussed elsewhere, the most important plan—the county integrated development plan (CIDP)—serves as a financial instrument: no funds can be appropriated outside the planning framework. In mandating planning, the drafters of devolved government were quite prescriptive about content and approach. The County Governments Act enumerates laudable principles for county planning (such as protection of marginalized groups, protection of natural resources, pursuit of equity in resource allocation) and identifies 10 objectives for county planning from the broad “facilitate the development of a well-balanced system of settlements” to the very specific “tree cover of at least 10 percent of the land area of Kenya.” 16. Planning is mandatory with oversight at county and national level. The County Governments Act requires that counties set up technical planning units to prepare plans. These planning units should have a full complement of staff including a physical planning officer, an economic planner, and a county surveyor. The units are required to produce four distinct types of plans: the CIDP (five-year comprehensive plan); sectoral plans (subcomponents of CIDP for sectors such as housing and health); a county spatial plan (a geographic information system–based 10-year physical plan identifying desired patterns of land use as well as basic guidelines for a land use management system); and plans for cities and urban areas. 17. According to the County Governments Act, city or municipal plans will be the instrument for development facilitation and control within cities or municipalities. They are binding on all public entities and private citizens. Oversight of county planning is lodged in the county executive; the National Land Commission also has an oversight role for land use planning. Relative to urban areas, the county executive committee was given explicit powers relative to urban area or city planning (CGA, 2012, Section 37a-d). This same county executive committee is to monitor the process of planning, assist with formulation and adoption of the integrated development plan by a city or municipality, facilitate coordination of integrated urban development plans prepared by different cities or municipalities within the county, and resolve disputes. 18. Community participation in planning is mandated. Notable in the new framework is the mandate for public participation in devolved governance as well as a requirement for county authorities to design and promote civic education. Counties are required to provide unambiguous information on any planning matter under consideration. If taken seriously, this mandate could eliminate past weaknesses in Kenyan planning relating to stakeholder involvement in planning and broader community understanding of the objectives, methods, and legality of planning.96 Counties must set up structures to make participation easier (such as cell phone–based alerts, meeting agendas, notice boards). The role of the county assembly is limited—it only approves county development planning. 106 Kenya Urbanization Review Evaluation 21. CLack of clarity on the roles between these two land sector actors undermines the prospects for better 19. Contestation of land management and planning and more equitable planning, urban land management, functions is impeding progress by devolved units. and fiscal performance under devolution. While the land Devolution is complex, ambitious, and transformational. registry might appear tangential to planning, it is central. It is also young—though a transition period started with Planning requires accurate information on the land base a Constitutional referendum in August 2010, devolution including information on boundaries; parcel sizes; existing did not begin until the national elections of March 2013. land uses and improvements; ownership status; and past Since the National Land Commission was established under land use-related approvals and permits. Clarity on parcel The National Land Commission Act, 2012, there has been boundaries and ownership is particularly important for uncertainty on the roles of the Ministry and the NLC in notification purposes and implementing a planning process administering functions such as land registration and the informed by citizen participation. Likewise, insecurity about renewal of leases. The institutional dispute is now in the the state of leasehold tenures has a chilling effect on private courts after mediation appears to have failed. The most investment in property; a lack of secure leases affects some important priority is clarifying the division of functional 500,000 leaseholders in Nairobi City County alone.98 Lack of responsibilities between the two entities particularly on the access to records and registries is also a fiscal issue, as the land registration function. 3 inability to access this information prevents the updating of property tax rolls, collection of land rents, and levying of Jurisdictional disputes between the National Land land rates. Commission and MLHUD undermine prospects for reform 22. Oversight of the planning function. Clarity is also needed over the two entities’ roles in the oversight 20. The land registration function. The National of urban planning. In the Constitution and the National Land Commission was put in place to address the over- Land Commission Act, the National Land Commission was centralization of power over public land in the central assigned the function of overseeing land use planning government and the presidency, which culminated in throughout the country; implicit in this role is liaising with endemic corruption and poor land management at the the national and county governments. To that end, the then-Ministry of Lands. The creation and empowerment National Land Commission has recruited planning staff of the National Land Commission was not expected to be and established a directorate of land use planning.99 The an easy task. The National Land Commission, notably, was MLHUD, on the other hand, is charged with policy making only sworn into office following a High Court decision in for use of land resources. February 2013 mandating President Kibaki to gazette the names of the nine-member commission, which had been 23. The 2014 Physical Planning Bill, which has been approved by Parliament in August 2012. Since that time, drafted to replace the 1996 Physical Planning Act, muddies the National Land Commission has faced considerable the waters on the devolution of planning functions. challenges, including being grossly underfunded (its The Bill maintains the office of the Director of Physical 2013/14 budgetary allocation was only 6  percent of its Planning but now calls it the “Director-General of Physical request; 2014/15 allocation is even lower at 3  percent).97 Planning.” While much of its work is identified as being at The MLHUD continues to administer functions like land the national and regional level, the proposed legislation also registration and the renewal of leases that are not part of its enumerates powers over special area physical development constitutional role. The dispute is now in the court system, plans, development control, and advising the National Land as internal mediation appears to have failed. Commission and county governments. The draft legislation establishes a 12-member National Physical Planning Council, 3 Since this report was finalized, a Supreme Court ruling made on which claims oversight functions for physical, economic, and December 2, 2015 determined that issuance of title deeds was under sectoral planning. The council’s composition is weighted the jurisdiction of the Ministry but that the two entities should work in consultation and cooperation in matters of land registration more toward the national government. The bill also introduces a broadly. 107 “County Physical Development Plan,” distinct from the County likely to be problematic. Likewise, the other types of plans Spatial Plan mandated in the County Governments Act.101 enumerated in the County Governments Act (county spatial plans, city and urban area plans) require significant spatial Technical capacity begins to improve; planning and population data, analytical approaches, technical quality and public participation need support skills, and financial resources. Given the percentage of expenditure that is absorbed by the county wage bill coupled 24. Technical capacity for planning has begun to with revenue constraints, it is questionable whether the full improve at the county level, but the need for additional array of plans can be completed. Counties need to identify trained planners is acute. Most counties have a cohort their most pressing urban challenges (whether by sector of technical staff with appropriate credentials in place or geographic area) and prioritize their planning processes so the capacity constraint that plagued planning among accordingly. local authorities is being addressed. While many of these county personnel are the same officers as under the old 26. Public participation—a critical element of social district model (leaving some lingering issues of trust), some accountability—is still weak. Examinations of the public county public service boards have hired new planners, participation approaches in several counties raised and many have advertised their positions. Early concerns concern about processes for community involvement that planners—much like Ministry of Health medical and the extent to which community inputs were really personnel—would balk at working directly for county considered and valued. Some counties have embraced governments appear to be unfounded. But concerns the Internet in a way that helps foster citizen inputs into remain about whether there are enough trained planners government actions, including planning. to meet the needs of the devolved government units as they each seek to assemble a full complement of staff. 27. In its annual review of devolution, the Commission While university undergraduate and graduate education in for the Implementation of the Constitution, an independent planning has expanded in recent years with the addition of commission legally established in the Constitution as an new planning degree programs and additional institutions oversight agency charged with tracking progress toward with curricular offerings in planning, there is a shortage the implementation of the Constitution and devolved of professional planners countrywide. As of early 2015, governance, notes that counties have faced substantial there were only 208 registered planners in the country criticism on the relevance and depth of participation.102 (Physical Planners Registration Board March 2015) and of Some counties have passed acts structuring public these, 88 have practicing certificates that allow them to participation.103 But many are doing the minimum effort. operate private firms. More optimistically, counties are According to the Commission, units for civic education committed to linking physical planning to their CIDPs and have been established in only six counties; 17 counties have requested technical assistance and training from the have not developed any laws to conduct it. Perfunctory national government to do so. Counties are starting to public meetings are held and notices are published—but invest in equipment such as computers, GIS systems, and notices are in national papers and meetings are held during vehicles that are necessary to functioning planning offices daytime hours, when many potential stakeholders are charged with countywide responsibilities unable to attend. Some planners interviewed insisted they couldn’t hold evening meetings and felt that if members 25. Plan quality remains a concern. Some observers of the County Assembly were present then requirements are unimpressed by the level of analysis that went into the for participation were met. Other reasons given for poor initial set of CIDPs. Plans have been described as wish lists performance included costs of participation, lack of that do not reflect critical evaluation of resources and the capacity in the local administration, and absence of national appropriateness of planned projects and interventions. Thus guidelines.104 Participation is at risk of being reduced to there are concerns about the quality of the plans prepared listening sessions with little impact on goal setting and as well as how to address the backlog in plan preparation. actual decision making. While quality should improve in the next iteration of plans, the link between the plans and county budgeting is still 28. A unique and troubling feature of devolution is 108 Kenya Urbanization Review the manner in which it has categorized the country’s cities promulgated in 2009 (National Planning and Building Code and urban areas and effectively left most of them without 2009) following a multiyear, multistakeholder process directly elected representation at a subcounty (local) prompted by the 1996 collapse of the Sunbeam Building in council level. The biggest concern in public participation Nairobi.105 As a pre-devolution document, the code refers in governance and potential weaknesses in social to a nonexistent national authority (the National Planning accountability relate to the treatment of the residents of and Building Authority). It does not refer to the National cities and towns. Critical urban planning actions, namely Construction Authority, an existing body active in this realm, formulating an integrated development plan, controlling nor does it acknowledge counties. The 637-page code has land use and development, and making by-laws for that five volumes, including Volume 2-Physical Planning, Siting control, are the responsibility of county government or its and Site Preparation; Volume 3-Structure and Materials; appointed representatives. Of particular worry is that urban and Volume 4-Building Services. The document lays out in residents living in such places will not have their voices extensive detail the processes, requirements, and forms heard or needs met—both in planning processes and in needed for obtaining building approvals and certificates general service delivery—by a body presumably oriented of occupation. Section B lays out different types of toward the majority rural constituency. Counties appear to plans; it indicates minimum dimensional and circulation be delaying implementing the extant Urban Areas and Cities requirements. The final sections lay out engineering Act provisions for the few urban localities that have the requirements for buildings and foundations, among others. right to corporate boards (Nakuru, Eldoret, and Kisumu). In But counties’ enforcement capabilities are limited, and interviews county officials indicate that they are awaiting analysts looking at the sector conclude that the efficacy a revised act before doing so. A political assessment of the of the building code is low (Kioleoglou 2015; Erastus and delay might suggest, however, that there is little benefit for Wuchan 2014). This evaluation appears to be borne out by elected and appointed county officials to constituting these the continued collapse of structures in 2015 in Nairobi and boards. Kisumu.106 Development control falls short 31. The National Construction Authority is an additional dimension in this institutional framework. 29. The legal framework around development control Established in 2011, it was created to provide a single needs clarification and strengthening. While the primary body to provide regulatory oversight of the construction conflicts in the new institutional arrangement are between industry (National Construction Authority Act, No. 41 of actors at the national level, there is the potential for the 2011). Its primary role (as set forth in Part III of the act) is emergence of jurisdictional conflict related to planning to vet and register foreign and domestic contractors. Other and development between counties and the national roles include promoting the industry, conducting research government. The most evident potential for conflict relates related to the industry, and encouraging the standardization to the control of development—particularly ensuring and improvement of techniques and materials within the adherence to building codes and standards by private industry. While its enabling legislation also entitles the sector contractors and developers. Legally, planning for authority to “promote and ensure quality assurance in and controlling development within a county’s boundaries the construction industry,” the act does not explicitly give is the county’s responsibility. According to the County the authority the power to issue permits, including final Governments Act, city or municipal plans govern urban occupancy permits on buildings. The authority does have development. Development control within a city or the power to investigate work sites and evaluate the work municipality should be implemented by local government of individual contractors subsequent to a complaint. But personnel in accordance with “the national housing and since the collapse of an apartment building in Huruma building code framework” (County Governments Act 2012, Estate in Nairobi in January 2015, the National Construction Section 111 3(c)). Authority, under a presidential order, has been conducting inspections of completed buildings countrywide. While this 30. The prevailing framework is not harmonious action is being done to address a need—and serious quality with devolution. The newest national building code was defects in housing construction have been identified in 109 numerous localities—the inspectorate role legally appears and respect the process and comply with procedures and to be at county level. requirements. Developers must submit their architectural drawings and site and engineering plans for scrutiny and 32. Development control will remain a challenge, approval. Government must have enough personnel to even unified under the counties. Under the Physical advise land owners, provide timely approvals, and complete Planning Act of 1996, local physical development plans routine site and building inspections followed by final were prepared for local governments by physical planners permitting. But plans, codes, and conditions themselves working for the Ministry of Lands and Settlement (name must be reasonable and related to a clear public objective. of ministry has gone through several iterations since Contractors must adhere to material standards, provide 1996) but the implementation of plans through permitting safe working conditions, and follow other conditions placed processes and building inspections was the responsibility upon the permit approval. of local governments. For a variety of reasons—including insufficient cadres of technical personnel and political 35. The potential for alternative tools for land use interference—development control was very ineffective, planning has been under-explored. One constraint facing with much development proceeding without oversight and the implementation of the delayed National Spatial Plan as in contravention of prepared physical development plans. well as land use planning in general is that the “toolbox” Planning, development decision making, and enforcement is limited. Planning is still primarily about legal coercion of permits and building codes are now in the same hands—a and forcing owners to comply. There is little to no use of notable institutional improvement. incentives or market-based tools to influence land use outcomes. The potential of tools such as preferential 33. However, county governments may be no more taxation, infrastructure investment, co-investment through effective at controlling development than their local public–private partnerships, and transfer of development government predecessors. Without transparent and rights, to name a few, have not been explored. depoliticized approval and enforcement procedures, corruption is possible. The role of members of the 36. Regulating freehold within the current context county assemblies is unclear, as well as whether they will has not been easy. The 2010 constitution is clear on complicate land planning and development control. An managing freehold land within urban areas as Chapter 5, additional complicating factor is societal attitudes. There is 66 (1) states: “The State may regulate the use of any land, widespread acceptance of informal and illegal development or any interest in or right over any land, in the interest of throughout the country. Citizens still lack an understanding defense, public safety, public order, public morality, public of planning and county and national governments’ role in health, or land use planning.” Yet outside Nairobi City private land use. The economic significance of land and County, planners working at county level are very reluctant the politicization of land access create further problems to regulate private property held as freehold (as opposed for county enforcement of development regulations. to leasehold). They see the rights in land as strong and find Nairobi City County, for instance, reported that when its land owners unwilling to comply with zoning and other land development control officers attempted to enforce the law control regulations. The hardest issue is ancestral lands relative to road and riparian reserves they faced intimidation where there are multiple family interests in the land. and violence by well-armed land grabbers.107 37. Inappropriate planning standards delineated in 34. Current development control efforts are about the MLHUD’s Physical Planning Handbook (the technical compliance, inspections, and law enforcement, which handbook used by planners in the Ministry when preparing limits efficacy and provides opportunities for politicization various statutorily defined plans) and incorporated into and graft. Effective development control needs actors in the zoning by-laws undermine affordability in formal land development process—most importantly the government, and housing markets and contribute to social inequality. the land owner or developer, and development professionals The role that planning standards play in increasing the cost like architects, contractors, and surveyors—to understand of urban land and formal housing is well documented.108 110 Kenya Urbanization Review Among the problematic standards are large minimum parcel than fighting with each other, counties need to recognize sizes, generous setback requirements, wide street and lane the benefits of a regional approach to development. The widths, high minimum parking requirements and extensive sum can be greater than its parts, and counties should land set asides for public facilities like schools and parks. be encouraged to work together to support planning The Handbook, for instance, recommends an 18-meter (60 for regional economic growth. Accordingly, Vision 2030 foot) road reserve for minor roads and 0.03 hectare lot acknowledges the centrality of well-functioning cities and sizes (3,230 square feet) for high density residential. Plot metropolitan regions to the country’s economic future. It coverage can only run from 40 to 65 percent of the parcel; proposes investment in six potential metropolitan regions buildings categorized as low-cost housing must be set back as a method for spurring economic expansion, facilitating from side lot lines by 1.5 meters (5 feet), front lot lines by regional equity, conserving land and natural resources, and 3 meters (9.8 feet) and rear lot lines by 4.5 meters (14.7 distributing population growth. feet). These standards are violated in most residential construction today, which is largely informal. 40. Nairobi’s metropolitan growth is central to national development. The need for interjurisdictional 38. The legal requirements and processes of planning cooperation is most evident in the Nairobi metropolitan in Kenya have been hard to ascertain even by planning area, an urban agglomeration of roughly 5.6 million people professionals. Zoning by-laws are not readily available spread across four counties and encompassing 11 urban in printed or electronic form. Maps of existing zoning areas formerly categorized as municipalities or towns.110 designations in the major cities are sometimes on display According to estimates by JICA for the county’s integrated in county offices, but generally not available to the general urban development plan, Nairobi City County has an public and required procedures for development approvals estimated 1,813,000 formal and informal jobs. These jobs and permits can only be obtained by visits to government are not all held by city residents—an estimated 187,000 offices.109 This may be a reason that land owners and persons commute into Nairobi City County every day, and developers do not comply, since the burden for information some 41,000 city residents commute to outlying counties. gathering is so heavy. Despite the country’s strides and The vast majority of commuting is by public service vehicles aspirations relative to internet communication technology, (that is, matatus and buses) or private cars. But planning for no county government has a functional website for its growth and development in the Nairobi metropolitan area planning department that provides such needed information is uncoordinated, with potential pitfalls that could arise in for land owners, local residents, and would-be business other metropolitan regions (see Chapter 4). investors. Some counties have plans online, primarily to meet statutory requirements for public participation and International approaches community feedback. 41. Internationally, there is a diversity of approaches The Need for Interjurisdictional to interjurisdictional cooperation and metropolitan Cooperation and Metropolitan Planning planning. Metropolitan bodies occur in many nation-states but most commonly in Western Europe and North America. 39. Integrated, coherent metropolitan regions are Localities may have one or more metropolitan bodies,111 vital to economic expansion. A potential threat posed by with agencies often differentiated by a range of functional the new devolved system of government is parochialism— responsibilities (single or multisector entities); process of counties so focused on spurring economic development formation (voluntary associations or mandated bodies); and locally and serving their own small electorate that they level of authority (binding or simply advisory powers).112 threaten to undermine regional economic potential and Single-sector agencies focus on one area of need or service competitiveness (for example, fighting over airports and delivery (transit, ports); they plan for and provide services boundaries). Such parochialism could cost economies of for a metropolitan region to ensure comprehensive service scale in service provision. Inward-looking planning could coverage while achieving economies of scale. Multisector result in fragmented and inefficient land use patterns agencies tend to have broad planning functions (such as and uncoordinated infrastructure development. Rather transport, land use, economic development, or affordable 111 housing) as well as occasional responsibilities for managing seen as a potential area for regional cooperation, as patients regional facilities (such as conference centers, zoos, or were known to cross county boundaries in seeking health recycling plants). Metropolitan agencies may be mandated care. Other potential areas of metropolitan cooperation, by the central government, but more commonly they are like planning for housing, environmental protection, or voluntary—being formed by the constituent units through waste management were not identified as priority items by some form of legal agreement like a memorandum of the county officials consulted. understanding or charter. Representatives to such bodies are usually ex-officio members (like mayors) or appointees 44. Some counties are working together under chosen by the local units, although a few bodies have these legal terms. The most publicized example of county directly elected legislative councils.113 Finally, entities vary initiated cooperative arrangements is that of Jumuia ya on whether their plans are binding or simply advisory for Kaunti za Pwani (Coastal Counties Community). The leaders their lower units (cities, towns). Councils with binding of these six counties have come together to pursue a shared authority generally review the planning documents of regional economic development agenda. Institutionally, the subunits for consistency with metropolitan plans and goals. partnership is structured through an intercounty agreement built upon shared “Jumuia ya Kaunti za Pwani” legislation Kenyan approaches passed by each county’s assembly and a memorandum of understanding signed with area academic institutions 42. Kenya’s institutional framework expressly regarding education, training and technical assistance. facilitates cooperation, including voluntary associations The counties are pursuing the establishment of a regional between counties. The Intergovernmental Relations bank known as the Pwani (Coast) Development Bank with Act of 2012, the most important law on this matter, the Central Bank and the creation of their own tourism establishes a framework for “consultation and cooperation” development board.114 Intercounty cooperation is also between the national and county governments as well being investigated by the counties of the Lake Victoria Basin as among county governments (Articles 6 and 189 of the in western Kenya. Constitution). In relation to county-county cooperation, this legislation provides for establishment of a Council of County 45. Current county-initiated, voluntary cooperation Governors and delineates its functions, including oversight is a sensible approach. These two cooperative examples match of intercounty agreements on intercounty projects. The act the approach that many analysts consider best practice for allows either of the two constitutionally identified levels of regionalism (Savitch and Vogel 2000; Stephens and Wikstrom government (national and county) to transfer or delegate 2000). Such voluntary, lateral associations—often referred to as power to another level of government, joint committees, a “governance” approach to cooperation—are more flexible and authorities or entities; other decentralized units (that nimble than formally mandated, statutorily created “government” is, another county) and urban areas and cities if certain approaches. In governance arrangements, cooperative bodies are criteria are met (such as great competency in regional created out of existing governmental entities and work together service provision, Section 28 (a-e)). Delegation of authority under the terms delineated in agreements. These bodies thus requires a written agreement that identifies the function or can form and dissolve more fluidly in keeping with needs. Their responsibility transferred and the reason for the transfer terms of cooperation can be broadly or narrowly crafted or easily or delegation. It also requires that standards for measuring amended in accordance with adopted procedural rules (such performance must be established. as super majorities at annual general meetings). They are also more politically acceptable—they do not add another layer of 43. County officials are sensitized to the need for government or a competing body to which other governments cooperation in service delivery and planning. They must cede powers or fiscal autonomy. acknowledge the potential benefits of the management of key sectors, particularly transport, water, and health, at the 46. The national government does not have a statutory regional level. The leadership of Nairobi realizes that the city role in defining county-county cooperative arrangements. The bears a high burden relative to infrastructure provision, and current Medium Term Plan II (strategy to implement the Vision in the Eldoret metropolitan region health services were also 2030), however, calls for the formulation of a metropolitan policy 112 Kenya Urbanization Review and the passage of the draft Metropolitan Areas Bill, a bill that was introduced in 2011, building on work by the then Ministry of Nairobi Metropolitan Development. The bill establishes parameters for conferring metropolitan area status and organizing governance. It provides criteria for the establishment of metropolitan areas and defines their purpose. The bill also calls for metropolitan advisory councils with set functions; it assigns powers to the cabinet secretary and proposes several sectoral agencies at the metropolitan level.115 If reintroduced, this draft legislation would complicate the institutional landscape by injecting significant national government presence into the metropolitan level. The bill’s provisions would further exacerbate the existing problem facing devolution, namely a lack of clarity over roles and the split of functions between national and county governments. 47. There is an alternative direction. The national government can incentivize the formation of regional entities and the implementation of their agenda through its fiscal powers (awarding grants to regional entities; conditioning financial support on regional plans or approaches). Given the strong indications that counties are already thinking and acting regionally it appears unnecessary—and unwise—for the national government to mandate cooperative bodies or stipulate how they are formed and for which purposes. 113 Recommendations 1. Improve counties’ planning capacity and provide guidance for spatial planning Short term Support the full establishment of urban and rural planning offices at the county level Urban counties (Uasin Gishu, Nakuru) should be encouraged to establish two planning offices. One office would have a distinct urban focus; the second would be a rural planning unit focused on smaller trading centers. In Nakuru County, for example, there would be one unit with responsibility for Nakuru and Naivasha towns plus one unit for unincorporated areas that would cover the planning of urbanizing places such as Mau Mahiu and Gilgil. Medium term Strengthen planners’ and county executives’ capacity in participatory planning through training Successful community participation is critical to the future performance of planning. Community members must understand the why of planning; they must have an opportunity to define the plan’s vision and help define its goals and actions. Without such opportunities and understanding, it is unlikely there will be community support for implementation. Targeted assistance would be invaluable in training planners and county executives in community participation techniques, developing mobile phone–based interfaces, and supporting civic education materials in local languages. Develop model legislation for zoning by-laws and development controls and decision-making and Medium term approval processes There is a concern among professionals in the land sector, actors in the development community, and advocates for land reform that perhaps devolution might serve to decentralize corruption on land matters. Technical assistance could be provided to provide “model legislation” for by-laws on zoning and development review. On the codes themselves, devolution presents an opportunity for evaluating development standards like parcel sizes and road widths to make them appropriate and affordable. Kenya could investigate and test the adoption of a widespread approach to depoliticizing project approvals, namely citizen planning commissions. These citizen-led commissions, which are distinct from committees comprised of elected officials or committees comprised of technical officers, have been instituted in many political and legal contexts. They are charged with conducting development review in conjunction with professional planning staff and making recommendations to elected officials on land use actions (change of user, special permit approvals). Their deliberations are open to the public through meetings with televised coverage. Final approval of projects by elected officials is also in similarly open, broadcast public meetings. Devolution presents an opportunity to critically evaluate the planning standards in light of actual conditions on the ground. In some places, the volume of traffic has grown so much (central Nairobi; downtown Eldoret) that road and parking standards need to be revised in light of greater automobile ownership; in other places such as in many of the country’s informal settlements standards need to be relaxed to accommodate housing development (and redevelopment) that is affordable and attainable by city dwellers. These ideas have informed informal settlement upgrading projects in cities across Kenya—they should be reflected in new planning by-laws drafted and adopted by county governments. The potential of tools such as preferential taxation, infrastructure investment, co-investment through public–private partnerships, and transfer of development rights, to name a few, should be investigated to see if they are legally, fiscally, and politically viable. Medium term Finalize, adopt, and distribute the National Spatial Plan This plan’s purpose is to provide guidance for the long-term spatial development of the country. It identifies goals for the national land base that should guide preparation of regional, county, and local spatial plans. The plan thus should be completed, adopted, and disseminated as part of a coordinated program of support for land use planning from the national government. Medium term Complete development of the National Spatial Data Infrastructure The National Spatial Data Infrastructure is a critical tool for planning in the country; technical assistance to the ministry to finalize its development would be extremely beneficial for both national and devolved government units. 2. Use information and communications technology to instill transparency and predictability into zoning and development approvals Short term Put zoning by-laws, maps, and building codes and standards on the Internet The legal framework for planning and development in Kenya needs to be made transparent. A best practice globally is to place codes and maps on local government websites. Planning departments should have their own websites or distinct sections within county websites identifying chief planners and section heads. Likewise, adopted plans should be available for download. (This latter provision is taking place, particularly in the larger cities.) County and urban-area planning offices should have the ability to provide printed copies of codes and map summaries in Swahili and English for residents who do not have computer access or skills. Medium term Establish county-specific land information systems An accessible land information system that can be queried by planners, would-be investors, and the public will support development control as well as planning. In developing such a system, the county could hide ownership information from the public (assuming it is considered culturally unacceptable or too politically sensitive) but planners need topographical maps and existing land use maps for planning, while the public needs a system for neighborhood surveillance, including verifying that project approvals and permits have been issued. Both sides need a transparent system for knowing the contractors on projects and what they are supposed to be building. The move toward information and communications technology platforms for planning is starting in the country with Nairobi City County’s recently launched E-construction permit application system. 3. Create community understanding about the shared advantages and benefits of urban planning and 114 Kenya Urbanization Review development control Medium term Develop and implement civic education about planning and development control on private land Good civic education is critical to planning, particularly as cities continue to sprawl. Citizens need to understand their rights to participate in governance: preparation and dissemination of a citizens’ guide on public participation would be very helpful. Community members also need to understand why planning is required and why they need to be engaged in it, including development control. Enhancing community understanding of planning objectives, processes, and legal obligations is an important supportive action. A civic education curriculum that includes information on planning, land tenure and property rights, and the legal obligations of land owners could be adopted, especially as the requirement to address civic education at county level is lagging. It is imperative to address the perceived issue of legal limitations on managing freehold land within urban areas. Both planners and land owners need to be clear that this mandate is a constitutional requirement. Medium term Support the formation and training of neighborhood associations Even in well-resourced cities, the ability of local government to monitor development activity on the ground on a day-to-day basis is limited. Land owners everywhere try to evade regulations and the permit fees and time delays associated with approval processes. A key actor in effective development control is the immediate neighbor or property ownership association. Cities need to place development decisions and parameters of projects online so that neighbors can track what is happening in their neighborhoods and determine whether development actions are adhering to permits. This will work best in higher income and relatively organized and empowered neighborhoods. 4. Support county-initiated metropolitan area–level planning/interjurisdictional cooperation through model legal language and incentives Short term Facilitate interjurisdictional cooperation by county governments Technical assistance should be provided to the Council of Governors of Kenya to draft county-level enabling legislation that would facilitate formation of regional or metropolitan bodies to address issues such as transport and environmental protection. Legal templates or model contracts could be drafted and disseminated to counties. The formation of metropolitan bodies should be incentivized in national government and donor policy, that is, government and donors should only provide funding in certain sectors if projects are planned and implemented at metropolitan level by a multijurisdictional body. Funds from the national budget for road development, for instance, could be disbursed only if there is a properly prepared metropolitan transport plan created for a coherent geographic or economic unit with adequate technical staff. 5. Advance the policy and administrative reforms already started in the land sector Short term Clarify the policy role of MLHUD The role and function of the National Land Commission has been the subject of explicit enabling legislation, and the transfer of functions out of the Ministry of Lands into the National Land Commission has been enumerated in the Constitution and the National Land Commission Act. The remaining role for the (now) MLHUD—routinely referred to as a “policy role”—has had scant attention. The MLHUD needs to undertake a strategic planning process through which it determines how to restructure its departments and redeploy its personnel. Plans created at county level could be submitted to it for review and approval to ensure they are consistent with the National Land Policy, the (still draft) National Spatial Plan, and other forthcoming policies (such as the National Urban Development Policy). Clarify the role of the National Construction Authority relative to building inspection. Sup- Short term port skills development among county staff The role of the National Construction Authority in building inspection needs to be clarified. It could support training and technical assistance to county government personnel in permitting processes, inspections, and final approvals. 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Accessed on April 5, 2015 at http://nairobinews.co.ke/city-developers-in-limbo-as-ngilu-nlc-war-heats-up. 116 Kenya Urbanization Review Chapter 6 Planning for County Competitiveness 117 Key Messages 1. Urbanization can be an opportunity to put economic combine economic, spatial, and sectoral plans and growth on a higher path. Most countries grow richer as inform county budgets for five years. CIDPs offer an they urbanize, and urban areas may already contribute opportunity for counties to organize their economic as much as 70 percent of global GDP despite containing development efforts, but given the general lack of only half the world’s population. During the next 20 supporting analysis in many CIDPs—making them years, Kenya will experience a demographic dividend, resemble wish lists—counties need to make these plans with a large number of young entrants to the labor more realistic for their budgets. market, many of whom will be moving to cities in search of jobs. This is an opportunity to grow a productive, Introduction vibrant private sector. 5. Urbanization can propel economic growth. No country 2. However, devolution may slow the country’s growth has ever reached middle-income status without a engines—its cities. Facing resource shortages, significant population shift into cities, and most countries economic growth and competitiveness are low on grow richer as they urbanize (Figure 6.1). Various counties’ priorities. Urban counties in particular are estimates claim that urban areas already contribute grappling with fewer resources for development yet are as much as 70 percent of global GDP, with only half faced with higher wage and service-delivery burdens. the world’s population. In Kenya, national economic Even with differing priorities, counties are having a growth and expansion of the urban population have difficult time finding adequate resources. been closely linked over the last few decades (Figure 3. Kenyan counties need to prioritize issues of economic 6.2 and Figure 6.3). Evidence also suggests that Kenya’s growth and job creation. Setting priorities will be urban areas provide economic opportunity with higher doubly important, because urban areas without a economic densities (the number of jobs and economic growing and productive private sector will face youth activity per unit of area) in urbanized counties than in unemployment. Thus counties must also focus on rural ones. In the next 20 years, Kenya will experience economic development, while central government a demographic dividend, with a large number of young provides greater support on the devolution front. entrants to the labor market, many of whom will be moving to cities in search of jobs. This is an opportunity 4. County integrated development plans (CIDPs) could to grow a productive, vibrant private sector. become a potent tool once properly developed. All counties are required to develop CIDPs, intended to Figure 6.1: Most countries grow richer as they urbanize 120 % of urban populaƟon in 2013 100 80 60 40 20 Kenya 0 100 1000 10000 100000 Log of GDP per capita (current $) in 2013 Source: World Development Indicators. 118 Kenya Urbanization Review Figure 6.2: GDP growth and urbanization in Kenya seem to go hand in hand Source: World Development Indicators. Figure 6.3: Economic density (left) tends to be higher where county population is higher (right) Source: Kenya National Bureau of Statistics (2009). counties in Kenya is similar in direction, if not magnitude, 6. The ability of counties to exploit urbanization to to countries worldwide (Figure 6.4, left panel). Kenyan drive employment and growth will be the cornerstone of urbanization levels are still low, yet more urbanized counties Kenya’s economic development. Increasing urbanization is appear to be more prosperous (Figure 6.4, right panel), associated with falling levels of poverty, and this trend for pointing to scope for further gains from urban growth. 119 Figure 6.4: More urbanized countries and Kenyan counties are more prosperous 100 90 Countries Kenya CounƟes 80 Share of populaƟon living in urban areas (% of toatl) 70 % share of urban populaƟon 100 60 80 50 40 60 30 40 20 20 10 0 0 0 10 20 30 40 50 60 70 80 90 Poverty Rate % Source: World Development Indicators (poverty rate 2$/day, 2010), Kenya poverty rate (national definition). 7. Urbanization does not of course guarantee faster urbanization is not always associated with economic prosperity. Some countries (such as those in East Asia) have prosperity, after control for population growth (Figure 6.5). reaped the benefits of urbanization. Unfortunately, most Furthermore, the challenges associated with the devolution cities are also locations for poverty and unemployment. The transition may adversely affect the growth engines of the urban share of poverty in the developing world has jumped Kenyan economy—its cities. Recent anecdotal evidence from 17  percent to 28  percent in the past 10 years (IFAD suggests that some of the potential pitfalls of Kenyan 2011 Rural Poverty Report). Not all cities are harnessing decentralization that were identified early in the process fully their economic potential, because firms and industries (World Bank 2012) have become reality. As counties face are not as competitive (that is, as productive) as they could resource shortages, they place economic growth and be. In Kenya and other countries in Sub-Saharan Africa, competitiveness low on their priority lists. Figure 6.5: Urbanization and economic prosperity (per capita) do not always go hand in hand 60 70 Cameroon Malaysia 50 share of urban populaƟon, % share of urban populaƟon, % 60 Liberia Ghana 40 50 Indonesia Nigeria 40 Thailand 30 Guinea- China Bissau 30 20 Ethiopia 20 10 Burundi Zimbabwe Vietnam Kenya 10 0 80 800 8000 100 1000 GDP per capita, constant 2005 US $ GDP per capita, constant 2005 US $ Economic Landscape of Counties changing fortunes of industries over the previous five years, with some growing at average annual rates of 10 percent 8. The economic landscape in Kenya is diverse and to 20 percent (Figure 6.6). Two of the five fastest-growing dynamic. The Kenya Economic Survey (2014) illustrates the 120 Kenya Urbanization Review sectors are in higher value-added industries. The Kenya utilization is similar to that of their larger counterparts. Census of Industrial Production (CIP 2010) also recorded the year firms were established, allowing us to distinguish 9. Nairobi dominates the economic landscape. Alone between firms founded before 2004 (“existing firms”) from it commands a 50 percent average share in construction those founded after 2004 (“emerging firms”). Analysis of activities across the country and about 42 percent of all these two groups reveals that sectors such as apparel, agro- manufacturing activities (Figure 6.7). In the CIP, Nairobi business, food processing, and plastics tend to dominate accounts for almost half the firms in the sample; with the among emerging firms. Emerging firms are, on average, exception of Mombasa, most other counties in the list are half as large as existing firms and one-fourth as productive, physically close to the capital. While the share of exports but their performance on capital investment and capacity of Nairobi City County firms’ total sales averages a mere 10 percent, in 2010 Nairobi led, by an overwhelming margin, total exports from surveyed firms to the tune of roughly Figure 6.6: Kenyan industry is dynamic. Dairy products (19%) Pharmaceutical products (16%) Fastest Fabricated metal products (13%) Growing Basic metals (10%) Sectors Leather products (8%) Grain mill products (6%) Slowest Prepared and preserved fruit (5%) Growing Animal feed (5%) Sectors Plastic products (4%) Chemical products (4%) Fastest Wood products (-0%) Declining Wearing apparel (-3%) Processing and preserving of fish (-5%) Sectors Machinery and equipment (-5%) Refined petroleum products (-10%) Source: Kenya National Bureau of Statistics (2014), Chapter 11 121 Figure 6.7: Changing dynamism across counties Investment Sales Export Nairobi ExisƟng Firms The rest 17% The rest 29% 43% Nairobi The rest Kiambu 52% Nairobi 48% 13% Kajiado 58% Kericho 1% Kiambu 10% Nakuru Bomet 9% 1% Machakos 1% Mombasa Kiambu Kericho Kajiado Bomet 1% 1% 2% 2% 5% 7% Nakuru Nairobi Emerging Firms 0% The rest 16% Kiambu Machakos 23% The rest Nairobi 5% 1% 39% 40% The rest Mombasa 48% Kericho 0% Nairobi 20% 71% Kajiado Kiambu Kiambu 0% Bomet 5% Bomet 15% Kericho 13% 2% Kajiado 4% 0% Note: “Emerging firms” were established post-2004, and “existing firms” were established pre-2004. Source: Kenya National Bureau of Statistics (2010). KSh  56.8 billion (Kiambu County was a far second, with work in China (Zhu and Mukim 2015) demonstrates that KSh 17.5 billion in exports). increasing powers of subnational governments without commensurate increases in capacity can lead to adverse and 10. Some counties are gaining in competitiveness. unanticipated economic outcomes. Recent experience with Emerging firms tend to account for a large proportion of implementation of devolution in Kenya shows that pitfalls jobs in counties like Machakos, Kiambu, and Kisumu— can be plentiful and quick wins scarce. For example, transfer suggesting increasing job creation from the new generation of functions to decentralized units has been held back by lack of companies. On the other hand, existing firms in Mombasa, of clarity on the distribution of functions, difficulty of finding Nakuru, and Nairobi continue to account for the largest staff with technical skills, funding gaps, and tension between share of jobs. In some cases (such as investment) there is county and national government staff. Attempts to build the strong path dependence in outcomes, while in others (such capacity of county governments have stumbled over issues as sales and exports) emerging firms in counties other than such as rigidity and resistance to change, bloated wage Nairobi are beginning to increase their contribution (see bills and wide gaps in pay, lack of clarity on reporting and Figure 6.7). Many counties gaining in competitiveness are promotion, and poor and undersupplied offices (Commission close to the capital. for the Implementation of the Constitution 2014). Competition vs Collaboration under 12. In the transition to devolution, the economic Devolution growth agenda has been peripheral to the debate. The potential for private sector–led growth and job creation 11. Devolution in Kenya aims to equalize economic has been hit twice. First, by lack of targeted initiatives and development across the country, pulling up lagging regions support at a local level; second, by increased fiscal burdens and counties. Research in Ethiopia (Chaurey and Mukim imposed by counties to overcome budget constraints. A 2015) suggests that decentralization has the potential to significant source of worry is that within the fiscal constraints narrow spatial inequalities. But unbalanced devolution of the transition period counties might lose focus on issues may lead to divergence rather than convergence. Recent that will affect growth and competitiveness in the medium 122 Kenya Urbanization Review to the long term, which is especially disquieting as Kenya Table 6.1: Tax discounts as a result of competition between U.S. has a large youth bulge entering the labor market in the states next 20 years. Many of these young people will be moving RANK COMPANY SUBSIDY VALUE STATE to cities in search of jobs, and urban regions will lack jobs 1 Boeing(2013) $8,700,000,000 WA without a growing and productive private sector. 2 Alcoa(2007) $5,600,000,000 NY 3 Boeing (2003) $3,244,000,000 WA 13. Allowing counties to develop their own growth 4 Sempra Energy (2013) $2,194,868,648 LA 5 Nike (2012) $2,021,000,000 OR strategies may enhance competition between them. 6 tie Intel (2004) $2,000,000,000 NM Intercounty competition could have positive outcomes if counties are competing to provide greater enabling Source: Badger (2014). conditions and rivalry becomes a driver of improvements in the business environment. For instance, Machakos The CIDPs County has collaborated with Makueni and Meru counties 15. Counties could improve their CIDPs to prioritize in investment promotion campaigns and supply chain growth despite scarce resources and more immediate development. But competition can also lead to negative concerns. Improvements in the current model will be effects in a race to the bottom when counties compete needed, but CIDPs offer an opportunity for counties to in offering tax cuts and other discounts to businesses organize their economic development efforts. As a part of rather than investing in overall business environment devolution, all counties were required to develop a CIDP. improvements. This results in net losses for public sector The plans were meant to combine economic, spatial, and funding. Competition between states in the United States for sectoral plans and inform county budgets over a five-year attracting large employers has led to very large tax discounts horizon. CIDPs were also expected to define priorities and to incoming investors who gain vast bargaining power by provide lists of flagship investment projects for the county— threatening to relocate (Table 6.1). A similar scenario in but this largely has not been the case. But although it was Kenya is unlikely as counties do not control taxation, but imposed from above, the planning process has produced could unfold if counties start attracting investors by offering benefits: the exercise pushed counties to take a longer- land at discounted rates. term view of their development and in some cases led 14. Negative competition can also lead to failure to the initiation of detailed county diagnostics. It offered to capture the benefits of scale. When neighboring counties the opportunity to target growth and job creation jurisdictions duplicate similar initiatives, infrastructure strategically. Such positive experiences could be more investments, or development of the same supply chain, widespread across Kenya. inefficient use of resources results. Examples can be 16. But the conditions and incentives put in place by found in Kenya itself, where the greatest investments the devolution process has created problems. Counties needed are in primary health facilities,116 but several were pushed to submit the CIDPs within six months of their counties are seeking to upgrade their health facilities establishment. This required creating a new governance to referral (secondary or tertiary) status instead of structure, hiring staff with the relevant skills, researching using existing referral facilities in neighboring counties. the state of the freshly defined administrative units with very little data, and coming up with coherent strategies with detailed implementation and funding guidelines—all too much to ask of new units. CIDPs were meant to inform central government grant allocations, and indeed counties cannot raise funds for projects not in CIDPs. But this incentivized counties to come up with lengthy lists of priority projects and to exaggerate their funding needs, leading to unrealistic plans. Furthermore, three different sets of guidelines for developing CIDPs were circulated by different national 123 government entities, which was confusing. Counties lacked are not well established in many counties. This points to capacity to develop the CIDPs, and little technical assistance complexities of the system and lack of capacity. Specific was provided to them by the national government. CIDPs attention needs to be given to issues such as informality, were not positioned as exercises in strategic vision and which was not well covered in the CIDPs, and county economic development planning. Nor is the legal status capacity, which was covered in only some programs. of CIDPs certain, and it is unclear whether counties can be held accountable for not implementing their plans. 20. The reviewed CIDPs failed to present a clear picture of the extent of private sector participation. International 17. Most of the CIDPs produced did not promise a experience suggests that successful implementation of structured push for growth and competitiveness. CIDPs for an local economic development strategy relies on close Nairobi, Mombasa, Nakuru, and Machakos counties were engagement with the private sector throughout the design analyzed in detail by the research team. The content was and the implementation phase. Even though the guidelines compared with a checklist of characteristics of well-designed required counties to partner with local businesses in city strategies developed through extensive review of local developing the CIDP, such collaboration was limited to economic development literature. This review found that consultations—sometimes due to weakness of local success factors for strategies include a favorable institutional business communities, other times due to resource and environment, clear leadership, and an inclusive strategy time constraints of local governments. In addition, moves to development process; a strong analytical foundation and address informality were not well reflected in these plans, clear links between evidence and priority interventions; though such activity permeates much of the private sector. an ambitious vision formulated through clear measurable targets; a focus on economic outcomes; and clarity on the sources of funding for the strategy. The analysis revealed that Kenyan counties struggled to avoid the pitfalls into which city strategies often fall (Sivaev 2015).117 The four CIDPs were mainly descriptive, not analytical, and often lacked detail. Data were poor. The links between priority projects and analysis were not always clear. Some CIDPs had a weak focus on economic growth and job creation, particularly beyond the agricultural sector. 18. Interventions were not prioritized, nor were implementation strategies considered carefully. The CIDPs of these four counties lacked focus. Priority projects numbered in the hundreds, suggesting weak prioritization and dubious future implementation. Most CIDPs lacked targets and thorough monitoring and evaluation frameworks. The focus on implementation appeared insufficient, possibly owing to lack of resources, tight timelines, lack of capacity, and lack of support from the national government. The priority projects defined in most CIDPs were not linked to the budgeting process and in most cases did not present secure funding to back them. CIDPs thus appeared somewhat like wish lists rather than strategic plans to be used for implementation. 19. Anecdotal evidence suggests that the links between county sectoral plans, CIDPs, and annual plans 124 Kenya Urbanization Review Recommendations 1. Build on and strengthen the CIDP process Short term Issue one unified set of guidelines for CIDPs, aligned to international best practice (national government) The government should revisit the CIDP process and offer one set of guidelines, clarifying how CIDPs are factored into the process of grant allocation and aligning the incentives that counties are given when developing CIDPs with best practices for local economic development strategies. The guidelines should strictly require clear prioritization and clarity on funding strategies within the CIDPs. More scrutiny in costing exercises, and in monitoring and evaluation arrangements, is required. The government should also adjust incentives so that counties focus on implementable plans (require that at least 50 percent of priority projects have secured income streams or detailed fundraising plans, tighter requirements on costing of the prioritized initiatives, and so on). Short term Emphasize that substantial attention to be paid to issues of economic development (national government) The national guidelines should encourage CIDPs to pay substantial attention to issues of economic development. CIDPs by their nature are not limited to economic development and target a much broader array of issues, but it is important that, despite limitations, counties maintain focus on issues of economic growth and job creation. Given the changing demographic profile in Kenya, the analysis of economic growth opportunities should be given high priority, and the results of different analytical strands should be reconciled to identify a list of priority intervention areas, including cross-cutting initiatives and targeted development strategies that are fundamental for local development. These should aim to support specific aspects of the county development vision (grow certain industrial sectors, target some social issues, and so on). Strengthen local government capacity-building through reviewing the strength of economic development Medium term teams and assisting them in building analytical capacity (national government) The national government should engage more proactively in building county capacity to develop strong CIDPs. It can invest in collecting data across a wider range of economic indicators at sector and county level to inform better policy decisions. It can also facilitate creation of coalitions and knowledge-sharing networks of county governments. Medium term Use the required annual update of CIDPs to strengthen current plans (county government) CIDPs are subject to review on a yearly basis, so there will be opportunities to revisit the strategies and improve upon them. Given scarce resources, counties should focus on revising their CIDPs to be more targeted, realistic, and implementable. The CIDPs should put more emphasis on targeting economic growth and job creation opportunities; strengthen the analytical aspect of strategies; make sure that analysis follows the full cycle and that results are reflected in the prioritization framework for policy selection; limit the number of flagship initiatives; have detailed funding and implementation strategies for them; strengthen the link between priority initiatives and the budgeting process; and seek ways to engage the private sector more throughout the process. Priority interventions should be those with the highest payoff for jobs and growth, or highest urgency. The counties should also introduce regular revision of strategic priorities of economic development, based on a regular monitoring and evaluation framework. Short term Develop a clear prioritization framework (county government) The design and the practicality of CIDPs would be vastly improved if they used a clear prioritization framework. This should combine the developmental vision and aspirations of the county, analyze the key constraints associated with achieving the vision, and formulate ways to address the barriers. One possible approach is sector prioritization. This is not the only way to make CIDPs more focused and actionable, and this report does not recommend that all counties should adopt this approach in particular. But it offers a clear and structured way of addressing economic development challenges systematically within a strategic planning process.118 Medium term Proactively engage with the private sector (county government) The counties should seek ways to engage the private sector more throughout the process to define the right level of private sector engagement. International experience suggests that successful implementation of a local enterprise development strategy relies on close engagement with the sector, throughout the design and the implementation phase. This engagement allows private actors to communicate key constraints to growth to the county governments, and to strengthen their voice in decision-making. Early engagement allows key private players to share the ownership of the strategy and responsibility for implementation. 2. Address the immediate Issue of informality Initiate discussion on the ways to support and upgrade informal enterprises at county level Short term (national and county governments) 125 CIDPs do not explicitly discuss issues related to informal firms and employment. Since considerable data and analysis are usually based on surveys of formal businesses, it is unsurprising that counties have been unable to understand and target better the needs of their informal enterprises. But given the importance of the informal economy, especially to job creation, local governments should pay more attention to the constraints faced by informal firms and help target these firms’ upgrading. Creating employment opportunities in both the formal and informal sector will maximize the benefits of urbanization. Governments need to attract private enterprises that provide wage employment, but also need to focus on improving productivity in the traditional and informal sectors, as these will continue to absorb a majority of less-skilled labor market entrants. A balanced approach would help ensure that more Kenyans are connected to economic prosperity. Kenya can learn from approaches adopted elsewhere. 3. Take steps to avoid negative competition across counties Encourage further collaboration between counties to avoid negative competition Medium term (national and county government) Some counties have already taken the initiative to develop cross-boundary collaboration that is essential for maximizing the scale benefits of interventions. This cross-boundary collaboration should be encouraged further either at national or county level. At national level, nationwide coordination bodies can be an efficient way of avoiding a race to the bottom. A good example of such collaboration is the Scottish Cities Alliance in the United Kingdom—a body that coordinates economic development priorities of Scottish cities through recognizing their competitive advantages and helping them share assets to maximize growth potential. In fact, such collaborations in the United Kingdom have also been private sector–led (for example, local enterprise partnerships), shaped through negotiation between local authorities and business communities to reflect the natural economic geographies that cross administrative boundaries. Bibliography Badger, Emily. 2014. “Should we ban states and cities from offering tax breaks for jobs?” The Washington Post. September 15. http://www.washingtonpost.com/blogs/wonkblog/wp/2014/09/15/should-we-ban-states-and-cities- from-offering-big-tax-breaks-for-jobs. Chaurey, R. and Mukim, M. 2015. ”Decentralization in Ethiopia: Who benefits?” Competitive Cities Knowledge Base Working Paper. World Bank, Washington, DC. http://documents.worldbank.org/curated/en/2015/12/25658151/ decentralization-ethiopia-benefits Commission for the Implementation of the Constitution. (2014). Assessment of the implementation of the system of devolved government. http://www.cickenya.org/index.php/reports/item/440-april-june-2014#.VnrZ8vkrK70. Kenya National Bureau of Statistics. 2014. Economic Survey. Nairobi. http://www.knbs.or.ke/index.php?option=com_ph ocadownload&view=category&download=382:economic-survey-highlights-2014&id=16:economic-survey- highlights&Itemid=563. Kenya National Bureau of Statistics. 2010. Kenya Census of Industrial Production. KEN-KNBS-CIP-2010-v.1.0. Nairobi. http://statistics.knbs.or.ke/nada/index.php/catalog/81. Sivaev, D. (2015). “What Makes a Good City Strategy”, Competitive Cities Companion Paper No. 8, World Bank. http:// www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/12/09/090224b083c41295/1_0/ Rendered/PDF/What0makes0a0good0city0strategy0.pdf World Bank. 2012. Devolution without Disruption: Pathways to a Successful New Kenya. Kenya Fiscal Decentralization Knowledge Programme, World Bank, Nairobi. http://www-wds.worldbank.org/external/default/WDSContentServer/ WDSP/IB/2012/11/15/000333037_20121115230524/Rendered/PDF/NonAsciiFileName0.pdf Zhu, J and Mukim, M. 2015. ”Empowering Cities: Good for Growth? Evidence from China.” Competitive Cities Knowledge Base Working Paper. World Bank, Washington, DC. http://documents.worldbank.org/curated/en/2015/02/23984231/ empowering-cities-good-growth-evidence-china 126 Kenya Urbanization Review Chapter 7 Financing Urban Services: Challenges and Imperatives 127 Key Messages 1. Urban financing is central to the success of Kenya’s 5. Other financing alternatives need to be explored devolution, especially for the larger counties with major and weighed for their impact on fiscal risk and their cities and fast-growing medium-sized towns—the country’s contribution to growth and social welfare. These include growth hubs. Adequate financing of urban services and national government provision of conditional capital infrastructure investment is essential to sustain growth and grants and on-lending from donors, borrowing by county deliver living standards commensurate with Kenya’s lower corporations such as water service providers, and innovative middle-income status. Without proper financing, there municipal revenue sources such as betterment levies and is a risk that urban services will be underfunded, leading development fees. to service delivery deterioration in the short term and deterioration of the asset base over time. Introduction 2. Financing of livable, well-functioning cities is 6. Access to basic services is critical for livable increasingly recognized as paramount for economic cities and economic growth, and investment in urban growth. But Kenya’s devolution framework lacks clarity infrastructure and services will be absolutely fundamental on how urban areas will be managed and raises the risk to national growth prospects and social outcomes. that urban services will not be adequately financed. The Urban infrastructure and services—primarily transport, framework for urban management needs to be clarified water supply and sanitation, electricity and solid waste by developing a process for counties to formally delegate management—are the key to successful cities that attract their functions and revenue sources to urban boards, and and retain satisfied and productive residents. In Kenya, creating incentives for counties to adequately empower each US$1 spent on water and sanitation infrastructure can boards to perform their functions. generate US$8 in saved time, increased productivity, and reduced health costs. Inadequate sanitation infrastructure 3. Recurrent financing of service delivery and costs the country roughly US$324 million annually— maintenance of assets is a fiscal challenge in predominantly around 1.0 percent of GDP.119 In many African countries, urban counties. The spatial redistribution of resources governments could save 12 percent of public health under the equitable share formula shifted resources away spending and drastically cut child deaths by achieving from heavily urban counties virtually overnight. They now Millennium Development Goals targets on water and have urban revenue deficits due to their large inherited sanitation. Universal access to improved sanitation could costs. Urban counties’ narrow own-source revenue bases reduce diarrhea-related morbidity by more than a third. Bulk mean that their scope to increase resources by mobilizing supply and trunk infrastructure can meet the requirements revenue is limited. Measures to increase county revenues of the poor as well as support urban economic growth. and manage costs are urgently required. The former could include modernizing the legal and administrative framework 7. Under devolution, urban functions are for property tax rates, assigning additional tax bases to constitutionally assigned to county governments. The counties, or allowing counties to piggyback on national tax Urban Areas and Cities Act allows for the establishment of bases with counties. urban boards, but only county governments can empower urban boards to carry out these functions on the county 4. The combination of low fiscal surpluses and fiscal government’s behalf (see Chapter 1 for a description of conservatism in the emerging county borrowing framework urban governance arrangements). Nor are urban boards could also lead to an urban investment deficit. The budgets entitled to any revenue sources independent of the of these counties can barely cover significant inherited county government. Urban boards and committees would recurrent expenditures and liabilities, and so infrastructure therefore depend on county governments both for function investment is not a priority for them. Yet predominantly assignments and the funding to carry them out. urban counties have the largest infrastructure needs. 128 Kenya Urbanization Review 8. The mechanisms for empowering and resourcing who may feel that towns have been unduly privileged in the urban boards are unclear and may undermine past. accountability for service delivery. The Urban Areas and Cities Act refers to counties delegating functions to urban 11. A widespread perception that urban areas have boards but provides no clear procedure for doing so. Failing benefited in the past at the expense of rural areas may to specify who should delegate the functions or how it heighten the risk of an urban revenue deficit. Lack of should be done raises the risk of urban functions “falling transparency as to the cost of urban services may contribute between the cracks” with neither county nor urban board to this problem. Although the laws implementing devolution taking responsibility for them. One interpretation of the law mandated a costing of county functions (see Chapter 1 on is that any formal delegation of powers to a body outside Kenya’s ambitious devolution), this has not been done. the county executive should be approved by the county Just prior to devolution, the National Treasury attempted assembly. Another possible model is that, since it is the to estimate how much had been allocated to devolved executive that exercises these powers in practice, the county functions in the past, based on national budget allocations executive committee should be able to delegate them. to devolved functions across counties in the 2012/13 fiscal year. It did not fully calculate the cost of urban services, 9. How these functions will be financed is also which were only partly funded from the national budget unclear. The Public Finance Management Act120 suggests through transfers to local authorities. The urban costs that some approaches to the financing of urban areas.121 Counties had been met from local authorities’ own revenues were not are encouraged to seek the advice of the Commission on included in the estimates. For the larger urban centers like Revenue Allocation122 in developing an approach to financing Nairobi, Mombasa, and Kisumu, costs funded from their own urban areas. But counties are not obliged to follow this revenues were substantial. Analysis from the United States guidance. The Constitution makes clear that the equitable suggests that the unit costs of delivering urban services rise share is unconditional—national government cannot tell as city size and density increases (Ladd 1992). While there counties how much to spend on urban functions. As and is no data on this relationship for Kenya, this makes intuitive when boards are established, it seems most likely that they sense, as connective infrastructure such as roads, public will be financed by transfers (grants from the county to the transport, sewerage, and water become far more expensive urban body) rather than by assignment of revenue sources. in areas of higher population density. Kenya’s urban areas It seems unlikely that county governments will choose also experience the demands of providing services and to give away their own revenue sources to urban bodies, infrastructure to informal settlements. thus leaving the county government itself almost entirely dependent on transfers from national government. 12. Recurrent financing of service delivery and maintenance of assets raises very different issues from 10. For the immediate future, financing of urban financing for capital investment. The first part of the chapter functions likely will depend on decisions taken by county considers the sources of county recurrent revenues in the executives. Aside from the currently limited application of form of transfers and own-source revenues. The analysis the Urban Areas and Cities Act described in Chapter 1,123 the concludes that urban areas are vulnerable to an urban formation of urban boards is left up to county executives, and revenue deficit arising from the radical redistribution of so far no county has established and empowered an urban resources under the equitable share formula, which is biased board with powers and resources to manage an urban area in favor of geographically large counties with smaller, more independently. This urban governance deficit risks creating dispersed populations. There are signs that urban counties a corresponding urban revenue deficit. For now urban have not addressed the need for fiscal adjustment, meaning functions are being treated as a department of the county the problem may get worse before it gets better. Solutions government, financed from the county budget in the same include making the fiscal needs of urban infrastructure more way as other services. Financing of urban infrastructure and tangible, ring-fencing funding, and providing incentives for service delivery will depend on decisions taken as part of a county governments to give urban service delivery a higher county budgeting process, in which the priorities of urban priority. Urban counties need to begin the difficult process areas will be traded off against the wishes of rural residents, of fiscal adjustment, but the tools available to them are few. 129 Counties have little scope to reduce their largest expense— and actually spent 65  percent of that amount, or around the wage bill—and scant opportunity to increase revenues, US$1.9 billion. There was particularly poor execution because county revenue bases are narrow. of the development budget, which was only 36  percent implemented. The average county government spent 13. Issues of financing county infrastructure around US$41 million in 2013/14, with the largest county investment are considered in the second part of the (Nairobi) spending US$203 million and the smallest county chapter. Recurrent revenues are unlikely to be adequate to (Lamu) spending US$8 million (Table 7.1). finance the connective and social infrastructure expansion required to support the coming influx of residents to Kenya’s 16. Counties spent the largest share of their budgets urban areas, but it is not clear where the capital to finance on wages and salaries in 2013/14 at 46 percent, followed this expansion will come from. Because of the constitutional by operations and maintenance (31  percent) and requirement for national government to guarantee development (22 percent). The largest county (Nairobi) had county borrowing, the immediate focus is on regulating large inherited service delivery costs and consequently spent county borrowing to safeguard against threats to national above average on personnel emoluments (58 percent) and macroeconomic stability. The perilous fiscal situation of below average on development (11 percent). County wage most urban counties also means they are unlikely to be bills averaged US$19 million in 2013/14, ranging from US$4 able to borrow in the short term because they have no million in Lamu to US$117 million in Nairobi (Table 7.2). fiscal surpluses with which to service debt, and are already compromised by high levels of inherited debt. This may be County Revenues under Devolution leading some counties to look for creative alternatives in the form of public–private partnerships, which come with 17. County governments are financed by three sources their own risks. Given the infrastructure backlogs in urban of revenue: a large unconditional equitable share transfer, areas, simply putting off the question of financing for capital a number of very small conditional grants, and own-source development is not an option. Ultimately, a means must revenues collected locally. The most important single source be found to finance the significant backlogs in economic of financing for county governments is the unconditional and social infrastructure in Kenya’s cities. In the short equitable share, which provided 88 percent of county term, donors working through national government might revenue in 2013/14. An estimated 87  percent of county provide a stop-gap. revenues came from national transfers and 13  percent from own-source revenues in 2014/15 (Table 7.3). Kenya’s Brief Overview of County Governments’ constitution prescribes a revenue-sharing process in which Financing revenues collected nationally are divided annually between the county and national levels of government. The county 14. The urban population is concentrated in a equitable share must be at least 15  percent of national relatively small number of counties containing the largest revenue, based on the last audited accounts that have been cities. Nairobi City County accounts for 25  percent of the accepted by Parliament. Usually the base year is at least urban population with more than 3 million residents, and two years prior to the year to which the calculation applies. five counties (Nairobi, Kiambu, Mombasa, Nakuru, and In practice, equitable share allocations have far exceeded Machakos) account for 51  percent of urban residents the 15  percent constitutional minimum. In 2013/14 the (roughly 6.4 million people) (Figure 7.1). In percentage equitable share was equivalent to 31  percent of audited terms, five counties have majority urban populations base-year revenues, 43 percent in 2014/15, and 33 percent (Mombasa, Nairobi, Kiambu, Kisumu, and Machakos), and in 2015/16. The equitable share is allocated horizontally 13 counties have urban populations of at least 25 percent among the 47 counties by the equitable share formula. or more. Overall, urban residents account for around 27 percent of the population. 15. In their first full year of operation (2013/14), counties budgeted for around US$3.0 billion of expenditure 130 .% 100.% 120.% 20.% 40.% 60.% 80.% - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 Mombasa Nairobi Nairobi Kiambu Kiambu Kisumu Mombasa Machakos Nakuru Nakuru Machakos Isiolo Kisumu Kajiado Uasin Gishu Kericho Migori Urban population, % Uasin Gishu Bungoma Migori Kilifi Vihiga Kajiado Kilifi Kisii Laikipia Kakamega Nyeri Kericho Garissa Meru Taita Taveta Mandera Urban population, absolute numbers Marsabit Vihiga Bungoma Nyeri Kisii Trans Nzoia Trans Nzoia Garissa Lamu Murang'a Nyandarua Kitui Kwale Homa Bay Mandera Bomet Figure 7.1: Urban population distribution in Kenya Samburu Busia Busia Turkana Kwale Murang'a Nyandarua Embu Makueni Kirinyaga Nandi Kakamega Laikipia Tana River Source: Kenya National Bureau of Statistics population census (2009). Wajir Bomet Siaya Wajir Kirinyaga Elgeyo Marakwet Embu Homa Bay Nyamira Turkana Taita Taveta Nyamira Marsabit Kitui Isiolo Nandi Baringo Meru Narok Makueni Elgeyo Marakwet Baringo West Pokot Siaya Samburu West Pokot Tana River Narok Lamu Tharaka Nithi Tharaka Nithi 131 Kenya Urbanization Review Table 7.1: Size of county budgets and actual expenditures in 2013/14—average, largest, and smallest (US million)   Average County Nairobi City County Lamu County   Budget Actual Execution % Budget Actual Execution % Budget Actual Execution % Recurrent 39.0 32.2 83 200.6 181.3 90 12.5 6.9 55 Development 24.4 8.9 36 86.6 21.7 25 5.7 1.4 24   63.3 41.1 65 287.3 202.9 71 18.2 8.3 46 Source: Kenya Office of the Controller of Budget. Table 7.2: County spending in 2013/14 by economic classification—average, largest, and smallest Average County Nairobi City County Lamu County US$ Million % US$ Million % US$ Million % Debt repayment and pending bills 0.9 2.2 30.8 15.2 - 0.0 Operations and maintenance 12.5 30.5 33.1 16.3 2.6 30.9 Development 8.9 21.6 21.7 10.7 1.4 16.4 Personnel emoluments 18.8 45.7 117.4 57.9 4.4 52.7 Total 41.1 100.0 202.9 100.0 8.3 100.0 Source: Kenya Office of the Controller of Budget. Table 7.3: Counties are heavily reliant on transfers from national government to finance services Transfers as Equitable Total county Equitable share as % of Own-source Conditional trans- % of total share (KSh transfers (KSh audited revenues revenue Fiscal year fers (KSh billion) county reve- billion) billion) (base year in brackets) (KSh billion) nues 2013/14 190.0 3.4 193.4 31 (2010/11) 26.3 88 2014/15 226.7 3.3 230.0 43 (2009/10) 33.6 87 2015/16 258.0 17.9 283.7 33 (2012/13) n/a n/a * Division of Revenue Acts for respective years. urban counties—with relatively wealthier and more densely ** Conditional transfers shown were actually paid to county governments and managed by them, as allocated under the County Allocation of concentrated populations—fare less well under the formula Revenue Act. The County Allocation of Revenue Act also included in per capita terms. As a result, some counties have four donor-financed conditional transfers that were managed by national government, which are not included. times as much funding as others in per capita terms: the resources available to counties from both transfers and *** Own-source revenues are from Controller of Budget Annual own revenues varies from less than KSh 4,000 (US$46) per County Budget Implementation Review Reports for 2013/14 and Q3 2014/15 (pro rata projection). A report for 2015/16 has not capita in Meru to more than KSh 16,000 (US$182) in Isiolo yet been released and no alternative source of data is available. (Figure 7.2). This variation is not extreme by international Source: World Bank staff analysis. standards (the richest state in Nigeria, Bayelsa, receives more than 10 times per capita than the poorest, Kano). Nor The equitable share formula is it inappropriate; the equitable share transfer addresses 18. The equitable share formula is highly redistributive. both recurrent and capital service delivery needs, and (See Chapter 1 on Kenya’s ambitious devolution for details the counties in on Kenya’s periphery face significant of the formula). On a per capita basis the formula delivers infrastructure backlogs. But it does leave urban areas with considerably more to the counties considered marginalized insufficient funding to maintain inherited expenditure before devolution. This results from the relatively high levels. The Commission on Revenue Allocation has proposed weight given to equal shares and land area: the formula amendments to the formula to be decided on by the Senate favors counties with relatively smaller, poorer populations and National Assembly, but these are unlikely to address that have a large land area. By contrast, predominantly the impact of redistribution on urban areas.124 132 Kenya Urbanization Review Figure 7.2: County revenues per capita, all sources, 2013/14 25,000 20,000 15,000 10,000 5,000 - Equitable share Own source revenue Level 5 hospitals Source: Kenya Controller of Budget (2014). 19. The revenue redistribution formula has benefited costs on the fiscal capacity of county governments. At the the peripheral, less developed, and less urbanized125 areas far left end of the chart are Nairobi and Mombasa, whose but fails to address the significant inherited costs of major resources are not sufficient even to meet the cost of service cities. These cities have seen rapid population growth in delivery and inherited staffing costs (as indicated by the recent years, and have been investing in service provision. red line). A further seven counties do not have sufficient Several factors contribute to the high inherited costs of resources to both meet these inherited costs and allocate the more urbanized counties, including arguably bloated to development expenditure over the medium term the staffing. Figure 7.3 shows the impact of these inherited 30 percent required by Section 15(2) of the Public Finance Figure 7.3: Proportion of county resources absorbed by inherited costs and 30% development, 2013/14 Required 30% development spending At the red line, available revenues are exhausted Fiscal space for discreƟonary spending Source: World Bank staff calculations based on estimates of costs of former local authorities, devolved functions, and standard new position costs. 133 Management Act of 2012. The applicability of the 30 percent county revenue collections for 2013/14 by type of revenue, development rule and its potentially distorting effect on county governments are collecting very similar revenues to county budgeting behavior are discussed further below. those collected by the former local authorities. Property rates accounted for 19 percent to 26 percent of total local Own-source revenues authority revenues over nine years (2001/02—09/10), and single business permits for 15 percent to 20 percent. Parking 20. Own-source revenue collection is dominated by the fees were the next biggest source of revenue, increasing counties with the largest urban areas—Nairobi, Mombasa, from 5  percent in 2001/02 to 14  percent in 2009/10. The Nakuru, Kisumu, Uasin Gishu, Kiambu, and Machakos (Figure reason why more revenues are collected in urban areas is 7.4).126 The largest own-revenue sources for counties are that the revenue bases assigned to county governments property rates, followed by business licenses and parking under the Constitution are fairly narrow and revenue bases fees. While no data are yet available that break down are located mainly in urban areas. Figure 7.4: Distribution of own source revenues among the 47 counties, 2013/14 Other counƟes Nairobi 38% 29% Uasin Gishu 2% Nakuru Narok Mombasa Kisumu 7% 6% 7% 2% Machakos 4% Kiambu 5% Source: Kenya Controller of Budget (2014). 22. To fill the gap, counties have imposed charges that have negative impact on economic activity. The first 21. The Constitution assigns two tax bases to county year of devolution saw widespread objection to county governments—property and entertainment taxes—as well finance laws that sought to increase many county taxes as revenues from license fees and charges for services. and charges, particularly those affecting small businesses The county revenue base is fairly narrow—only one of and traders. The Kenya Chamber of Manufacturers raised the tax bases (property rates) is of any significance. Box specific concerns about revenue instruments placing an 7.1 sets out the relatively limited scope of existing county unfair burden on firms based in other counties.127 Many own-source revenue powers compared with those in other counties levy an agricultural cess that effectively functions countries. Some of the smaller charges for services are as a domestic customs duty—levying charges at border likely inefficient, prone to leakage (especially if collected in checkpoints as goods pass across county borders. These cash), and regressive in that they hit poor people as hard, taxes can be imposed on goods that travel some distance to if not harder, than those who are wealthy. The National market, burdening producers. In some counties, charges are Parliament can assign additional revenue bases to county also applied to goods that enter the county to be consumed governments (see Box 7.2), but so far has not done so. Some within the county. Article 209(5) of the Constitution counties are also pushing the envelope of their powers, prohibits county revenue-raising powers being exercised in raising revenue in ways that may not be supported by the a way that prejudices economic activities that cross county constitutional assignment of revenue powers (Box 7.2). This borders or the national mobility of goods and services, but places counties at risk of having revenues reduced overnight the National Treasury has not yet found a way to enforce if a court rules they are not entitled to collect them. 134 Kenya Urbanization Review it.128 County taxes on trade, particularly if applied more devolution (Figure 7.5). The four largest urban counties than once to the same goods, reduce the profitability of now have to manage devolved functions with only some economic activity. 60 percent of the resources allocated to them in 2012/13. Counties also now face large additional administrative The Fiscal Position of Urban Counties costs, for example relating to the county assemblies and executives, which were not part of the old system. They 23. The spatial redistribution of resources across are also required to meet significant mandatory costs counties has subjected predominantly urban counties to associated with servicing the debt they inherited, which are fiscal shock. Urban counties are now required to manage not factored into these calculations. devolved functions with fewer resources than before Figure 7.5: Urban counties suffered an overnight reduction in available resources, 2012/13–2013/14 -33.0% Mombasa Nairobi Nakuru Kisumu -34.0% % ReducƟon in resources in one year -35.0% -36.0% -37.0% -36.2% -38.0% -39.0% -40.0% -41.0% -41.0% -40.9% -42.0% -41.5% Source: World Bank staff calculations.129 Dealing with Fiscal Adjustment 24. The fiscal position of the three largest urban Early responses to fiscal shocks counties is worsened by their inherited debts and wage bills. Counties were assumed to have taken over the debt of 25. In their first budget year, many counties made the former local authorities and this was recently confirmed ambitious and optimistic estimations about how much by the High Court (although only in a single-judge decision). revenue they would raise. Actual revenue collections for Nairobi, Mombasa, and Kisumu inherited significant debt, 2013/14 reported by the Controller of Budget show that although some of this could be offset by amounts they are 21 counties raised less than 92  percent130 of the revenue owed, in particular by the national government. A process they had forecast in their original budgets. This shortfall of reconciling assets and liabilities is underway but a final was particularly pronounced in the counties that faced position is not yet available. Nevertheless, it seems clear the greatest challenge of fiscal adjustment following that Nairobi has inherited debt close to US$500 million, devolution—counties with large urban centers (highlighted which includes some commercial borrowing but mainly in red in Figure 7.6). Although counties had a much more arrears. Mombasa’s inherited debt is likely to be around accurate idea of realistic revenues by the time they KSh  4  billion–5 billion (US$44  million–55 million), and presented their 2014/15 budgets, many continued the same Kisumu’s around KSh 1 billion (US$11 million). trend of unrealistic revenue forecasting. The Controller of Budget’s first half-year report for 2014/15 indicates that although revenue collection is improving (compared with the same period last year) aggregate collections stood at 135 less than 21 percent of the budgeted figure halfway into the with Kenya’s counties, which have a “presidential” system fiscal year. with full separation of powers between legislature and executive. In this context, counties face a difficult choice 26. The political economy of capital spending may between three options in the short term: (1) divert funds be driving counties to inflate revenues rather than make from service delivery to capital spending (but this creates the necessary fiscal adjustments. Popular discourse more recurrent liabilities to operate and maintain the among Kenyan commentators has strongly emphasized new infrastructure); (2) ignore the 30  percent rule (likely capital spending, driven by a fiscal rule under the Public unacceptable to the county assembly); or (3) inflate Finance Management Act (S.15(2)) that requires county revenue estimates so as to appear to be following the governments to allocate at least 30  percent of their rule. As Figure 7.7 shows, it seems most have chosen the budgets to development expenditure over the medium third option. Since the budget cannot be fully financed, term. Proposals have been made in the Senate to increase an informal budgeting process must operate behind the this share to 40 percent and recent reports indicate these scenes to control expenditure according to what revenues amendments may soon be enacted.131 Budgets are political are realistic. This creates undesirable opportunities for rent- instruments in any setting, but more so when the executive seeking. has to bargain with the legislature to get them passed—as Figure 7.6: Urban counties were prone to overestimate the own revenue they would collect, 2013/14 90% 80% 78% 79% 79% 75% 71% 69% 70% 65% Revenue out turn as % of original forecast 58% 59% 60% 51% 50% 40% 30% 20% 10% 0% Mombasa Kiambu Narok Kisumu Kakamega Bungoma Laikipia Nairobi Uasin Gishu Kilifi Note: Urban counties shown in red. Source: Kenya Controller of Budget (2014). 27. The 30  percent rule may not be appropriate for generates a future liability to increase recurrent spending all counties, and counties under fiscal stress are currently for operations and maintenance. unable to follow it. Kenyan accounting rules require development spending to be focused on the creation of new assets. Better developed counties may not need new assets as much as they need to maintain what they have (which entails recurrent spending). In addition, capital spending 136 Kenya Urbanization Review Figure 7.7: Urban counties continue to budget for hidden deficits, 2014/15 400% 357% 350% 318% Projected increase in 14/15 revenue (%) 300% 250% 200% 169% 164% 150% 115% 108% 100% 77% 77% 50% 0% Kisumu Mombasa Kakamega Uasin Machakos Nyeri Nairobi Nakuru Gishu Source: Kenya Controller of Budget (2014).132 29. It is likely that fiscal adjustment is being made in less obvious, but potentially more damaging ways. Some 28. Urban counties are struggling to maintain and counties may be postponing expenditures like pension operationalize the assets they already have. The spatial contributions, remittance of income tax deducted from the redistribution brought about by the equitable share salaries of employees, and paying contracted payments as formula means that many counties cannot afford to budget they fall due, adding to their debt burdens. Some may be 30  percent for development spending (Figure 7.8). Once postponing capital spending. Most counties under-executed inherited service delivery costs are taken into account, two their capital budgets in 2013/14, with average development counties (Mombasa and Nairobi) had already exhausted budget execution rates of 34  percent. Execution rates their revenues in 2013/14 and were running structural fiscal were worse in counties with revenue shortfalls. No firm deficits. Seven other counties (Nyeri, Kirinyaga, Nakuru, conclusions can be drawn from these data yet, as many Kiambu, Kisumu, Embu, and Meru) could not afford to factors contributed to counties’ slow start in capital spending, meet both their inherited service delivery costs and the full including delays in release of the equitable share transfer133 30 percent rule within their resources. Since most counties and the need to set up complex procurement systems within have chosen a strategy of inflating revenue estimates the new county administrations. Nevertheless, it seems rather than undertaking more painful fiscal adjustment, it logical that counties dealing with a revenue shortfall will seems that the 30  percent rule is having the unintended choose to postpone capital spending, as this is the choice consequence of undermining the quality of county budgets. least likely to have an immediate impact on service delivery. 137 Figure 7.8: County development spending as a share of total spending, 2013/14 70% 60% 50% 40% 30% 20% 10% 0% Mura ng’a Isiolo Kericho Tharaka-Nithi Kisumu Samburu Garissa Kiambu Kajiado Marsabit Bungoma Nairobi City Embu Turkana Mandera Nyandarua Laikipia Machakos Mombasa Wajir Narok Tana River Trans Nzoia Makueni Kirinyaga Homa Bay Nandi Migori Baringo Uasin Gishu Vihiga Busia Kwale Elgeyo/ Marakwet Kitui West Pokot Nyeri Bomet Kakamega Lamu Kisii Nyamira Meru Nakuru Siaya Taita/ Taveta Kilifi Source: Kenya Controller of Budget (2014). to those county governments in which they were located at devolution. It seems likely most have too many staff 30. Postponing capital spending has long-term relative to their needs, while counties in more remote negative implications, including for renewing the urban parts of the country have too few. But there is a limited asset base. The national government is continuing to amount that counties themselves can do to reduce their spend in some urban areas that will bridge some of this wage bills, as the staff they inherited come with civil service gap. For example, although “county roads” were devolved employment conditions. Attempts by counties to shed under the Constitution, funding is continuing for the Kenya even casual workers have been overturned by the courts. A Urban Roads Authority to undertake major capital works in rationalization program began in January 2014 and a report Nairobi and elsewhere. Funds from the World Bank and the on recommendations was being finalized in mid-2015, but African Development Bank are financing urban, transport, as actual transfer of staff had not yet begun it is unlikely to and water sector projects in urban centers. In some urban deliver savings to county governments in the 2015/16 fiscal areas these projects may constitute the only substantial year. investment in the asset base. 32. Increased revenue could be achieved through Sustainable adjustment—reduce expenditure, improved administration, but substantial gains will almost increase revenue, or both certainly require a focus on property tax. The counties 31. Urban county governments’ reductions in inherited an outdated valuation and rating system that expenditure will almost certainly require cuts to salary has not been updated since the colonial period. It relies expenditure, which for many accounts for more than on individual valuations that can be subject to ratepayer 50  percent of recurrent spending. Urban counties in objection before the roll is finalized. A number of the particular inherited large wage bills as they absorbed large more urban counties have very outdated property rolls. workforces from former local authorities and some national In Mombasa, the property roll was last updated in 1992; ministries that had large staff complements in districts. In in Nairobi, in 1981. This has two impacts on the structure addition, larger urban centers housed regional facilities and coverage of property rates. First, tax is being levied on (like provincial hospitals) whose staffs were transferred the basis of very outdated values, which are a fraction of 138 Kenya Urbanization Review the current market value of urban property. Second, many 35. Effective communications, clever stakeholder properties are either not on the valuation roll or are on management, and political leadership will be needed. the roll as they were when the roll was produced and do Innovative approaches to reform could include applying not reflect the increased value derived from subdivisions. the new tax regime to some areas of a city first, with Attempts at revaluation over the last decade have routinely a proportion of revenues allocated to visible projects stalled, largely because of court cases that sought to stop that build trust and encourage taxpayer compliance, or the process. Without fundamental change to the valuation capping the annual increase in tax liability of any individual system, automation of an up-to-date valuation database to property to minimize adverse reactions. The Constitution facilitate billing, and an updated enforcement framework, has empowered counties to undertake the reform of it is unlikely that property rate revenues will increase to the valuation regime for themselves, which is relatively anywhere near their full potential. unusual in Africa. It would be undesirable if this results in a patchwork of inconsistent regimes; but on the other hand 33. In Nairobi a new approach to valuation is needed it does offer the benefit of allowing counties to experiment, to avoid a repeat of these legal challenges. The core task which may be more likely to lead to a system that is suitable is to reconstruct the fiscal cadaster (tax base) by building for Kenya. a new valuation roll. Options include using a calibrated area-based system, as is increasingly common in India, or 36. Given that fiscal adjustment will take time, to have valuations done on a self-assessment basis using counties may come under such severe fiscal stress in the a registered valuer, so the taxpayer has less motivation meantime that they will need to be bailed out by the to object. In a self-assessment system the role of county national government. The upside is that this may provide valuation officials would be to audit and set aside valuations the opportunity to leverage difficult reforms by making rather than to manage the valuation process. A third bail-outs conditional on reforms that address the structural option is to use value bands, where the same amount of weaknesses in the county fiscal framework and encourage a tax is applied to properties across a value band, rather greater focus on a sustainable long-term approach. But it is than individual parcel valuations. Efficient administration also important that national government routinely monitor of property rates depends on up-to-date records that county fiscal health, allowing time to prepare for bailouts accurately reflect changes in subdivisions and ownership. and avoid emergencies. The valuation roll needs to be constantly updated and information should flow automatically between the division 37. Embedding sound asset management practices will of the county responsible for subdivision and the national be of fundamental importance, especially for predominantly agency responsible for land titling. In Nairobi City County, an urban counties. In many cases—for example in the water alarming proportion of subdivisions have not been legally sector—it is not clear what assets the counties have inherited, approved, so tax is levied on an outdated understanding of as there was no clear asset inventory in the sector for water the properties’ boundaries. services boards to hand over to county governments. It will therefore be important for counties to build asset inventories 34. Considerable political commitment will be initially. This should be complemented by asset maintenance required to manage the politics of a reform process that and renewal plans developed by county governments with may take several years, and affect the interests of powerful support from the national government. These should be closely stakeholders. The history of illegal dealings in land means linked to CIDPs and budgets to ensure they are supported by that any reform that makes ownership more transparent resource allocations. They would identify both the life cycle will be politically fraught. The success of any reform process and maintenance requirements of existing assets, as well as will likely depend on how effectively the governor can requirements for new infrastructure to accommodate city manage engagement with different stakeholders, including population growth. convincing the poor and powerful alike that they will all benefit from a fairer and more equitable distribution of tax, to support infrastructure investments to make the city more livable. 139 Financing County Investment: Subnational Federation, Brazil, Mexico, Colombia, Peru, and India provide Borrowing and Public–Private Partnerships examples that could be useful for Kenya. Such frameworks should contain two complementary elements: forward 38. Capital for infrastructure investments, financed looking (“ex ante”) controls and regulations specifying by borrowing, is a vital component of any financing the purpose, types, and procedures of borrowing; and regime for urban areas. Unless people are to be crowded measures to fix debt problems after they arise (“ex post”)— into poorly serviced informal settlements, urbanization for example, in case a subnational government cannot pay requires investment in large-scale infrastructure to its debts, including subnational debt restructuring (often absorb the growing urban population. Borrowing helps described as “insolvency mechanisms”). The two measures local governments capture the benefits of infrastructure reinforce one another: insolvency mechanisms increase the immediately, rather than waiting until they have the savings pain of circumventing preventive regulations for lenders and to meet the cost from surplus recurrent revenues. It also subnational borrowers, thereby enhancing the effectiveness helps spread the cost of infrastructure production more of ex ante rules (Liu 2008). equitably across the future generations that will benefit from it (Canuto and Liu 2013). But subnational borrowing 41. Ex ante borrowing rules have three, sometimes also comes with significant fiscal risks for macroeconomic four, key elements (Liu and Waibel 2006). First, borrowing stability, as Argentina and Brazil experienced in the 1990s. is allowed only for long-term public capital investment; Their and other countries’ experiences have generated second, frameworks set limits on key fiscal variables, a body of good international practice on how to regulate including the fiscal deficit, the primary deficit, debt-service subnational borrowing to facilitate access to capital ratios, and ceilings on guarantees issued; and third, they while limiting risks to subnational governments and include a requirement that subnational governments have macroeconomic health. a medium-term fiscal framework enabling them to respond better to shocks and contingencies and a transparent 39. Good international practice suggests that budgetary process, requiring such measures as debates markets are the most effective at pricing risk of lending by the executive and legislative branches on spending to subnational governments, but this is unlikely to be priorities, funding sources, and required fiscal adjustments. effective for Kenya. The fundamental question that Fiscal transparency is also often part of these regulations, markets consider is the borrower’s capacity to repay. For including independent audit of subnational government subnational governments, this depends on being able to accounts, public disclosure of financial reports, and generate enough fiscal surpluses, beyond the needs of measures to address hidden or off-budget liabilities. Some recurrent expenditure, with which to service borrowing countries have also introduced credit rating systems for over time. In Kenya’s context, markets are unlikely to subnational governments and measures to make borrowing price the risk of non-repayment accurately, because the by those that do not have ratings much more expensive. Constitution provides for a mandatory sovereign guarantee of subnational borrowing.134 This means that a strong rules- 42. Ex post mechanisms—or insolvency mechanisms— based regulatory framework for subnational borrowing will come into effect when a subnational government can be essential. no longer pay its debts. Insolvency may be triggered by imprudent borrowing or by unforeseen external shocks and 40. Such frameworks have been introduced in many does not necessarily imply fiscal mismanagement. While developing countries in the last 20 years, often in response private companies that fail financially are allowed to go to subnational fiscal stress and debt crises. The Russian 140 Kenya Urbanization Review Box 7.1: County revenue autonomy: Comparison with other countries In developed countries, large urban centers like Madrid, Stockholm, Tokyo, and Toronto raise more than 70 percent of revenue themselves. Copenhagen raises almost 90 percent. The pattern in Kenya is not that different from other local governments in Sub-Saharan Africa, but the revenue autonomy of African state governments tends to be higher The revenue bases assigned to Kenya’s counties are relatively narrow against those in some African countries. In Nigeria, state and local governments collect personal income tax, vehicle license fees, radio and TV license fees, property rates, and a range of charges and levies. In Ethiopia, regional governments collect personal income tax of regional government employees and regional government enterprises; profit and sales tax from individual traders and regional government enterprises; taxes on income from inland water transport; and profit and income tax, royalties, and land rent from mining activities. It is common in African countries for central governments to share centrally collected taxes with subnational governments on a derivation basis, returning taxes to where they were raised. In Gabon, 25 percent of personal income tax is shared with cities; in Senegal 59 percent of vehicle taxes, 50 percent of surplus value of real estate, 60 percent of the combined income tax/business tax/value-added tax, and 60 percent of court fines are returned to the cities and local governments where they were collected. Nigeria shares 20  percent of value-added tax and 13  percent of oil revenues with the producing regions. Source: United Cities and Local Governments (2010) Box 7.2: Scope of Kenyan counties’ revenue powers Constitutional basis for counties’ own-revenue powers Article 209 of the Constitution deals with county revenue powers. It assigns two taxes to county governments: property taxes and an entertainment tax. Parliament can assign further taxing powers to county governments, except for income tax, value-added tax, import and export duties, and excise tax. Aside from taxes, county governments can impose charges for the services they provide and fees for licenses they issue. The Fourth Schedule of the Constitution refers to four specific licensing powers assigned to counties: trading, sale of food, dogs, and liquor outlets. But some other areas, including outdoor advertising, have traditionally been subject to charges that counties continue to impose. Legal issues concerning some county revenue powers Some counties seek to expand their revenue base in ways that may exceed those constitutional limits. These cases include Nairobi City County seeking to tax betting winnings, Kiambu’s tax on milk sales, Kakamega’s tax on slaughtering chickens, and Mombasa’s hotel bed levy. Many counties charge agricultural cess, although the Agriculture Act authorizes local authorities to impose it, not county governments. No court decision has comprehensively distinguished a tax from a “charge for a service.” Some increases in fees for physical planning approvals and public health permits may also be open to challenge, because these fees are regulated by national laws. But so far relatively little litigation has addressed these questions, and citizens are mainly challenging county revenue laws for failure to meet public participation requirements. Source: World Bank Staff ananlysis.. bankrupt, governments must continue to provide essential subnational debt restructuring is undertaken; improving services and cannot be allowed to go bankrupt. A public the subnational government’s creditworthiness to enable sector insolvency mechanism must therefore balance a it to re-enter the capital market; and protecting creditors’ number of objectives: maintaining essential services while rights as a way of protecting emerging debt markets. 141 43. Kenya has made good initial progress toward ensure are complied with: the loan is for a capital project; developing a rules-based framework for subnational the borrower is capable of repaying the loan, and paying any borrowing. Article 212 of the Constitution provides that interest or other amount payable in respect of it; and the borrowing by county governments may only be carried financial position of the borrower over the medium term is out with a national government guarantee as well as the likely to be “satisfactory.”135 The details of guarantees must approval of the county assembly. The Public Finance be shared with Parliament and published.136 A Public Debt Management Act in turn sets out the process for issuance Management Office has been established within the National of national guarantees, primarily designed to minimize Treasury to track all loans to “county governments and their aggregate risk posed to county and nationwide fiscal entities.”137 That office must help county governments with sustainability (Box  7.3). A set of ex ante controls are debt management and borrowing and can require county specified, which the Cabinet Secretary for Finance must governments to provide information on their borrowing. Box 7.3: Fiscal Responsibility Principles, Section 107 of the Public Finance Management Act 107. County Treasury to enforce fiscal responsibility principles (1) A County Treasury shall manage its public finances in accordance with the principles of fiscal responsibility set out in subsection (2), and shall not exceed the limits stated in the regulations. (2) In managing the county government’s public finances, the County Treasury shall enforce the following fiscal responsibility principles- a. the county government’s recurrent expenditure shall not exceed the county government’s total revenue; b. over the medium term [not defined] a minimum of thirty percent of the county government’s budget shall be allocated to the development expenditure; c. the county government’s expenditure on wages and benefits for its public officers shall not exceed a percentage of the county government’s total revenue as prescribed by the County Executive member for finance in regulations and approved by the County Assembly [the regulations go on to say the percentage cannot be more than 35 percent]; d. over the medium term, the government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure [suggesting counties can run recurrent fiscal deficits in the short term]; a. the county debt shall be maintained at a sustainable level [not defined] as approved by county assembly; b. the fiscal risks shall be managed prudently; and c. a reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future. Note: Authors’ observations contained in square brackets in italics. Source: Public Finance Management Act, 2012. 44. The relatively slow development of the borrowing any loans they take out. But as discussed earlier, many of framework may not be a bad thing, as most counties are not these counties face a severe urban revenue deficit and yet in a position to borrow. Availability of operating surpluses have structural deficits rather than operating surpluses— to service a loan is one of the most important criteria for especially once they have earmarked 30  percent of their determining a subnational government’s eligibility to funding for development projects. As a result, counties that borrow. In principle, counties responsible for the largest might have been the first and largest potential borrowers cities should have the greatest capacity to borrow for for infrastructure finance may need to go through a period infrastructure development, as they have relatively strong of fiscal adjustment before they will be in a position to take domestic revenue bases (see Figure 7.2 and thus should be on new debt (Figure 7.9). able to generate the operating surpluses required to service 142 Kenya Urbanization Review Figure 7.9: Both urban and rural counties are in a poor position to borrow, for different reasons County own source revenues and fiscal surpluses as % of 2013/14 revenues Source: World Bank staff calculations.138 45. Three elements of the subnational borrowing for subnational governments.140 Under the 20  percent framework are not yet fully developed: debt stock limits, threshold, Nairobi could afford to borrow up to KSh 2 billion county creditworthiness assessments, and the regime for in 2013/14 (US$23 million), which would be enough to managing counties under fiscal stress. Debt stock limits construct around 16 kilometers of a 7-meter-wide, two-lane have two components: overall debt limits to manage road. Kisumu would be entitled to borrow KSh 124 million aggregate fiscal risks for the country as a whole, and limits or US$1.4 million, enough to construct 1 kilometer of such a for individual counties, to protect their fiscal health. The road.141 If limits are too low, and financing for infrastructure National Treasury’s Framework for Domestic and External investment is not available from other sources, counties Borrowing by County Government joins these two concerns. may look for off-budget vehicles that are likely to be more It proposes an aggregate county public debt threshold at expensive and more difficult to regulate. 20 percent of the county government’s most recent audited revenue,139 which is in turn allocated among the 47 counties 47. Once inherited debts are taken into account, the in 20 percent proportions to their own local revenues. majority of counties are already in breach of the proposed borrowing threshold—only 10 counties would be eligible 46. The proposed county debt ceiling is quite low by for new borrowing. The exact levels of debt inherited by international standards, and may lead county governments to county governments from local authorities and districts are look for off-budget avenues to increase their access to finance. still being determined. Information from local authorities’ For example, subnational governments in Colombia are financial statements for 2011/12 suggests that the total limited to 80 percent of their debt-stock-to-current-revenue value of inherited debt from local authorities at that ratios, while Brazil’s Fiscal Responsibility Law initially set a time was around KSh  57 billion (US$653 million). Local limit of 200  percent of debt-to-net-current-revenue ratio authorities, anticipating their dissolution, may well have 143 accelerated the accumulation of debt in the run-up to in breach of the proposed 20 percent debt-to-local-revenue the March 2013 elections. Even using these conservative threshold (Figure 7.10). Only 10 counties would be eligible estimates, a simple comparison with 2013/14 county local for new borrowing without first paying down old debts revenues suggests that 37 of the 47 counties are already inherited from local authorities. Figure 7.10: Only 10 counties have room to borrow within the proposed 20% threshold, once inherited debts are considered Source: County revenues based on Kenya Controller of Budget (2014). 49. A formal regime for dealing with fiscal stress is needed to avoid the moral hazard associated with ad hoc 48. The emerging county borrowing framework could be discretionary bail outs. The rapid redistribution of resources structured to provide incentives for good fiscal management. across counties has left some in a position of fiscal stress. The Although debt stock limits are very low internationally, practice of inflating revenues may be concealing the extent even borrowing within those limits may not be affordable of their fiscal stress. If a county defaults on its debts, there is if a county does not have fiscal surpluses. Some countries likely to be political pressure for a bail-out. Larger counties have successfully introduced an element of “self-selection” that underpin much of Kenya’s GDP may be considered “too into the borrowing process, rewarding subnational big to fail” because of the economic impact on the country governments demonstrating a track record of responsible as a whole. The present ex post control framework is based fiscal management. Only those that have undertaken fiscal on intervening when counties are found to be in “serious and governance reforms and received a market-based material breach” of the Public Finance Management Act. credit rating can access the market for borrowing. Market- The framework focuses on partially halting the flow of funds based credit ratings could be used as the measure of to failing counties rather than helping them out of trouble whether a county is entitled to additional borrowing. While and may therefore be too blunt a tool to support county such market-based ratings are likely to be slow to develop fiscal recovery. A more proactive approach would involve initially, the national government could design an interim monitoring subnational fiscal stress, including the realism credit rating system to perform the same function (Liu and of county budgets (for example, comparing outturns against Pradelli 2012). the original budget), accumulation of arrears, rehabilitation 144 Kenya Urbanization Review and maintenance of assets (such as quality of county roads), possibly in the form of a ring-fenced conditional grant from and service delivery levels (frequency of pharmaceutical the national government. Counties may also be permitted stock-outs), to help identify short-term risks, including fiscal to contract KURA to manage construction and maintenance distress and possible default. of urban roads on their behalf, using such funds. 50. Commercial borrowing is not the only avenue 53. Another potential source of financing is through through which counties can create debt, and the combination county corporations. Based on experience in the water of low borrowing thresholds and fiscal stress may cause sector, county corporations may not be subject to the predominantly urban counties to contract debt by other same borrowing restrictions as county governments. Under means. Unhealthy and informal debt may be accumulating Article 212 of the Constitution, the county legal borrowing in counties in the form of pending bills (unpaid invoices framework applies to loans to be repaid by “public funds.” from suppliers) or unpaid statutory payments such as staff But in the water sector, tariffs collected by water service pensions. Counties may also be issuing guarantees that providers do not fall under “public funds” because tariffs constitute a contingent liability on their own books. It is not are collected under the contractual agreements between clear whether the annual financial reporting arrangements the regional WSBs and providers (Section 55(6) of the Act). are adequately capturing these contingent liabilities, To clarify to all parties that there is no obligation, either or whether these forms of debt are being adequately explicit or implicit, for county or national governments to monitored by the national government. bail out providers in the event of default, providers could sign an agreement or memorandum of understanding with 51. Policy on subnational borrowing should focus county governments and the National Treasury at the time on how to finance much-needed investment, as well as on of the loan agreement. This model may be generalizable the fiscal risks of contingent liabilities. Prevailing political beyond the water sector to county corporations in other incentives are pushing for resource allocations to historically sectors, although this would need to be subject to a detailed marginalized counties through the equitable share formula. legal review. As with county governments, providers would While the emerging borrowing framework rightly allocates still need to run operating surpluses to finance borrowing. debt ceilings in accordance with capacity to raise own- Water service providers are currently operating with low source revenues, the focus on fiscal risk (and hence a very margins or deficits before factoring in capital investment low overall limit) will constrain investment finance for costs, so that water tariffs in urban areas may need to be urban counties. Consequently there are very few potential raised to finance the investments required to keep pace sources of finance for targeted investments in urban growth with urban growth rates. centers to prepare for the imminent demographic transition to a majority urban country: the current and emerging 54. The pros and cons of innovative new county financing framework is very narrowly focused on formal borrowing. sources could be weighed, such as betterment levies and development fees. Betterment levies are charged on property 52. Other alternatives to finance urban investments owners who have benefited from increases in their property’s need to be weighed by their impact on fiscal risk as well as value because of nearby public infrastructure investment, by their contribution to growth and social welfare. The most such as transport infrastructure, water and sanitation, or likely sources of such alternative finance may come from street lighting. In Jordan for example, beneficiaries pay 50 the national government in the form of conditional capital percent of the cost of road development and pavement, grants and on-lending from donors. For example, during in cash advance or installments. Land development fees the transition period, KURA has managed investment and are the most important local revenues in many countries. maintenance of urban roads, financed through the road They require property developers to finance upgrades of maintenance levy. But under the forthcoming Kenya Roads trunk or water infrastructure when developing nearby Bill (2015), many urban roads will become the responsibility properties. But such fees must be considered carefully: if of county governments. It seems likely that funding from set too high they can undermine private sector businesses the road maintenance levy will be made available to and encourage illegal construction (Farvacque-Vitkovic and counties to finance this crucial urban roads maintenance, Kopanyi 2014). 145 55. Public–private partnerships are often hailed as a recent major transport public–private partnership in Kenya potential solution to county financing needs, but need to (Nairobi toll) has failed. But many counties appear to be be treated with great caution. The development of public– forging ahead and entering into public–private partnerships private partnerships in Kenya is at a very early stage, and the or quasi-public–private partnership arrangements with outlook is unclear. The most useful model of public–private private sector partners (Box 7.4), and this new reality should partnership for Kenya’s counties would be one in which be supported and managed appropriately. Kenya’s policy revenues generated cover the costs of the capital investment makers should take note: while public–private partnerships (and the various margins), and substantial returns on equity often appear highly attractive at first sight from both a will need to be generated to attract investor interest. There political and fiscal perspective, they are inherently difficult will also be limits on consumers’ willingness or ability to instruments over the medium to long term. But given pay. This is likely to be a key constraint on public–private their widespread prevalence at county level, a pragmatic partnerships in Kenya, as it has in the toll road cases of Lekki approach is needed that recognizes their use and helps (Lagos State in Nigeria) and Gauteng (in South Africa), both counties to understand and manage the associated fiscal of which have become deeply problematic. Indeed, the only risks. Box 7.4: Partial survey of county public–private partnerships and quasi-public–private partnership arrangements A partial survey of newspaper articles over a period of around 16 months from late 2013 to 2014 reveals extensive use of public– private partnerships by county governments. Many do not meet the formal definition of a public–private partnership, as the counties in question appear to be acting as purchasers, but in all cases there appears to be some form of partnership, joint venture, or agreement between a private company and the county government. Nearly half the counties (23) feature in this relatively selective dataset, suggesting that most or all counties are likely to be engaged in actively seeking partnerships with private sector firms for investment in social infrastructure or commercial enterprises. The subject matter of agreements ranges from small community social projects (water tanks in Bomet) to large scale commercial investment (film studios in Kiambu and a mining project in Tharaka Nithii). A number of public–private partnerships involve private provision of public goods like street lights, provision or renovation of public housing, waste management, or health services. In most cases the goods being provided are county responsibilities, but in one case, where the county of Murang’a is proposing to provide university student accommodation, the subject of the public–private partnership arguably goes well beyond the county government’s responsibility. In some cases, it seems likely that the county has contributed land (for a shopping mall in Nakuru, for example), while in other cases it seems the county may be a co-financier or has adopted revenue sharing, whereby the remuneration paid by the county is a proportion of the revenue raised on its behalf. 146 Kenya Urbanization Review Recommendations 1. Increase focus on spending for urban functions Develop a formal process for counties to delegate their functions to urban boards Short term (national government) To ensure clarity of accountability, it would be helpful to ensure that urban boards are empowered through a formal process of assignment or delegation. This could be included in a regulation under the County Government Act or the Urban Areas and Cities Act. Undertake benchmark costing of urban functions in selected counties Medium term (national and county governments) One way to mitigate the risk of unfunded urban mandates would be to benchmark what urban-specific functions would cost to deliver. This would require a realistic but normative assessment of these costs, something that has not been done to date under devolution. The costing exercise carried out by the National Treasury in 2012 only focused on historic expenditure on the functions that had been delivered by national ministries and did not consider whether these levels of funding were appropriate. Further, urban functions that had previously been the responsibility of local authorities were not covered, so there is presently no information even on what funding specific urban functions had historically received, let alone whether that level was appropriate. Explore conditional grant instruments, with matching funds from counties, Long term to help ensure urban functions are adequately funded (national and county governments) Underfunding of urban functions could in part be addressed through an urban conditional grant. This could be structured as transfers from national government to counties with large urban areas, including a component of matching funding (whereby national government matches what county allocates to urban functions) to encourage counties to spend more on urban functions, including maintenance of urban assets. Establish county asset inventories, and develop asset maintenance and renewal plans Medium term (county governments with support from national government) Counties need to build asset inventories as a starting point for better asset management, followed by asset maintenance and renewal plans. The plans would identify both the life cycle and maintenance requirements of existing assets, as well as requirements for new infrastructure to accommodate city population growth. 2. Measures to address the urban revenue deficit Modernize property rates legal and administrative framework (county governments with support from Short term national government) It is likely that greatest potential to increase county revenues will come from increasing the coverage of property tax rates. The current legal framework for property rates is cumbersome and outdated, having been inherited from the former British colonial government. Most counties do not have the resources to regularly update valuation rolls given what is required to maintain a single-parcel, land-only valuation approach. A simpler approach to valuation should be considered. A number of mass appraisal and nonvalue or hybrid approaches to assessing property for rating purposes are available and would be more suitable to the capacity of county governments. An important consideration for the future is how the national government will pay for the services to its properties located in counties. Even in some of the smaller subcounty headquarters as much as 50 percent of land belongs to national government. Since devolution the national government has not paid rates on any of that land. The pre- devolution practice of paying a cess in lieu of rates has been discontinued. Assign hotel bed tax and agricultural cess-taxing powers to Short term county governments (national government) County revenue bases could be expanded by delegation of additional taxing powers. A strategic approach would be to assign additional tax bases to counties. This will require legislation passed by the national Parliament. Two obvious taxes that could be assigned to county governments are hotel accommodation tax and agricultural cess (subject to addressing concerns about its potentially harmful economic impact). Some counties are already collecting both these taxes, although the legal basis for them to do so is far from certain. Evaluate the impacts of county revenue raising Short term (national and county governments) We know relatively little about the impact of county revenue collection. There is a need to undertake an evaluation of county revenue raising to better understand its impacts across the following dimensions: Is it efficient? Is it soundly based in law? What is the impact on the poor? What is the impact on economic activity? And is there an acceptable trade-off between increased taxes/charges and increased services? This analysis could then inform efforts to reform county revenue collection. Rebuild the fiscal cadaster at county level (county governments with support from national govern- Medium term ment) The fiscal cadaster is a land information system that collates and tracks up-to-date information on land parcels and informs the valuation and taxation of land. Modernizing the legal and administrative framework for property rates could make reconstructing valuation rolls simpler, reduce the incidence of objections, and increase the effectiveness of revenue collection. Basing valuation on land and buildings rather than land only is likely to reduce objections, because more comparative sales data are available and values can be more easily understood by property owners. Simplifying valuation methods would make the task of preparing a property roll less labor-intensive and technically complex. Introducing modern enforcement provisions and computerizing billing and collection would increase the percentage of billed tax actually collected. So far, county governments have mainly focused on introducing automated payment aggregation services that reduce cash-handling, but real efficiencies are likely to depend on more fundamental automation of information on tax bases, and of the process for generating bills and following up outstanding payments. 147 Evaluate wider policy options to broaden county tax bases, Long term for example through piggy-backing (national and county governments) Payment of taxes generates a healthy relationship of accountability between citizens and county governments. Citizens are more likely to be on the lookout for waste and corruption if they know it is their own taxes being wasted. Ultimately, some structural adjustment to county revenue bases could be considered. The current revenue bases are narrow compared with other countries’. But introduction of new taxes will need to be carefully managed to ensure they are both constitutionally valid and economically sound. Piggy-backing (or “tax-base sharing”), in which the central government allows subnational governments to benefit from revenue while determining its own tax rate, is one common approach that preserves local fiscal autonomy while minimizing the cost of local tax administration. County governments are also grappling with the need to engage citizens in discussion about how new tax instruments will affect them, and how to negotiate a social contract that strikes an appropriate balance between increased taxes and improved services. 3. Helping fiscally stressed counties to adjust Short term Develop and implement a framework to monitor county fiscal stress (national government) The government could consider a more proactive approach to monitoring subnational fiscal stress, including the realism of county budgets (comparing outturns against the original budget), accumulation of arrears, rehabilitation and maintenance of assets (quality of county roads), and service delivery levels (frequency of pharmaceutical stock outs), to help identify short-term risks, including fiscal distress and possible default. Review and restructure inherited county debt Short term (county governments with support from national government) Fiscal adjustment for counties must involve management of inherited debts. Some of the debt in the form of arrears is now comprised mainly of interest, which is accumulating at a compound rate. Counties therefore urgently need to review and restructure their inherited debt as part of their debt management strategies (which are a requirement under the Public Finance Management Act) to create fiscal space for much needed service delivery. Develop a framework for counties to address the problem of unaffordable Medium term inherited wage bills (national and county governments) Counties inherited large workforces from both former local authorities and some national ministries who had large staff complements in former districts. In the health sector for example, studies suggest that facilities in areas close to Nairobi may have too many staff, while those in remote areas have too few. But there is a limited amount that counties themselves can do to reduce their wage bills, as the staff they inherited come with civil service employment conditions. A rationalization program is underway, but is unlikely to deliver savings to county governments in the 2014/15 budget year. Take urban areas into account in the next generation equitable share formula Medium term (Commission on Revenue Allocation) The next-generation equitable share formula should strike an appropriate balance between redressing historical marginalization and adopting a more forward-looking approach suitable to the imminent and inevitable arrival of a majority-urban Kenya. The current formula favors counties with small populations, large land areas, and high levels of poverty. Heavily urbanized counties—which also tend to be more populous—receive relatively low per capita allocations under the equitable share formula, despite having to manage high levels of inherited costs and large inherited debts. The result is a redistribution of resources that fails to take into account Kenya’s urban future. 4. Unlocking urban finance Revisit county borrowing limits to enable adequate county borrowing and Short term reward fiscally responsible counties (national government) The county borrowing limit—currently proposed at 20 percent of total county own revenues—is restrictive by international standards and should be revised upward. The national government could also investigate the feasibility of introducing a more “self-selecting” process that rewards counties demonstrating a track record of responsible fiscal management. Market-based credit ratings could be used to allocate additional borrowing. If such ratings are slow to develop, the national government could design an interim credit rating system. Investigate different models for financing much needed urban investments Short term (national government, county governments, county corporations, private finance institutions) Fiscally stressed urban counties cannot afford to wait for painful and slow fiscal readjustments before being able to finance the required infrastructure investments. Other alternatives need to be explored and weighed in relation to their impact on fiscal risk and their contribution to growth and social welfare: • National government provision of conditional capital grants and on-lending from donors. • Borrowing by county corporations, which may not be subject to the same borrowing restrictions as county governments. Water tariffs in urban areas may need to be increased to finance the investments required. • Betterment levies and development fees. • Public–private partnerships, balancing the need to treat them with great caution with the fact that they are already in extensive use by counties. 148 Kenya Urbanization Review Bibliography Canuto, Otaviano, and Lili Liu, eds. 2013. Until Debt Do Us Part. Subnational Debt, Insolvency, and Markets. Washington, DC: World Bank. Controller of Budget. 2014. Annual County Budget Implementation Review Report 2013-2014. Nairobi, Kenya. Farvacque-Vitkovic, Catherine, and Mohaly Kopanyi, eds. 2014. Municipal Finances. A Handbook for Local Governments. Washington, DC: World Bank. Ladd, H. 1992. “Population Growth, Density, and the Cost of Providing Urban Services.” Urban Studies 29(2): 273–295. Liu, Lili. 2008. “Creating a Regulatory Framework for Managing Subnational Borrowing.” In Public Finance in China: Reform and Growth for a Harmonious Society, edited by J. Lou and S. Wang. Washington DC: World Bank. Liu, Lili, and Michael Waibel. 2008. Subnational Insolvency: Cross-Country Experiences and Lessons. World Bank Poverty Reduction and Economic Management Network Policy and Debt Department Policy Research Working Paper 4496, Washington, DC. Liu, L. and Juan Pradelli. 2012. Financing Infrastructure and Monitoring Fiscal Risks at the Subnational Level. World Bank Poverty Reduction and Economic Management Network Policy and Debt Department Policy Research Working Paper 6069, Washington, DC. Kenya Controller of Budget. 2014. Annual County Budget Implementation Review Report 2013–2014. Nairobi. United Cities and Local Governments. 2010. GOLD II: Local Government Finance: The Challenges of the 21st Century. Second Global Report on Decentralization and Local Democracy. Barcelona: United Cities and Local Governments. 149 Annexes Annex 1: Access to Basic Services (based on data from the Kenya State of the Cities Baseline Survey)142 Access to basic services in 15 urban centers by formality of neighborhood of residence Annex Figure 1.1: Access to piped water in the compound or at the house by location of residence 100 90 80 Proportion of population 70 60 50 40 30 20 10 0 Formal Informal Annex Figure 1.2: Access to in-house electricity 100 90 Proportion of the population 80 70 60 50 40 30 20 10 0 Formal Informal 150 Kenya Urbanization Review Annex Figure 1.3: Access to solid waste collection services 90.0 80.0 Proportion of the population 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Formal Informal Annex Figure 1.4: Households whose internal access road is unpaved 120.0 100.0 Proportion of the population 80.0 60.0 40.0 20.0 0.0 Formal Informal 151 Annex Figure 1.5: Youths ages 5–14 years old currently attending school, by location of residence 120 100 Proportion of youths 80 60 40 20 0 Formal Informal Quality of basic infrastructure services in 15 urban centers by formality of neighborhood of residence Annex Figure 1.6: Water: Days per week of service for households with access to piped water in the house or compound 8 7 6 Days per week 5 4 3 2 1 0 Formal Informal 152 Kenya Urbanization Review Annex Figure 1.7: Electricity: Hours per day of service 30.0 25.0 20.0 Hours per day 15.0 10.0 5.0 0.0 Formal Informal Access to basic services in 15 urban centers by poverty status Annex Figure 1.8: Access to piped water in the compound or at the house 120 100 Proportion of population 80 60 40 20 0 Nonpoor Poor 153 Annex Figure 1.9: Access to in-house electricity 100 90 80 Proportion of population 70 60 50 40 30 20 10 0 Nonpoor Poor Annex Figure 1.10: Access to solid waste collection services 80 70 Proportion of population 60 50 40 30 20 10 0 Nonpoor Poor 154 Kenya Urbanization Review Annex Figure 1.11: Households whose internal access road is unpaved 100.0 90.0 80.0 Proportion of population 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Nonpoor Poor Annex Figure 1.12: Youths ages 5–14 years old currently attending school by household poverty status 100 90 80 70 60 50 40 30 20 10 0 Nonpoor Poor Access to basic infrastructure services in 15 urban centers by household head gender 155 Annex Figure 1.13: Access to piped water in the compound or at the house 100 90 80 Proportion of households 70 60 50 40 30 20 10 0 Male headed households Female headed households Annex Figure 1.14: Access to electricity at the house 90 80 70 Proportion of households 60 50 40 30 20 10 0 Male headed households Female headed households 156 Kenya Urbanization Review Annex Figure 1.15: Access to solid waste collection services 90 80 70 Proportion of households 60 50 40 30 20 10 0 Male headed households Female headed households 157 Annex 2: Water and Solid Waste Management Legislation Annex Table 2.1: Sector-specific and other legislation relevant to the water sector County Government Act 2012 The Act requires county plans and budgeting to achieve the progressive realization of the rights guaranteed under the Constitution of Kenya 2010. County plans are to include an integrated development plan; sector plans for the Planning and budgeting provision of water, sanitation, and solid waste management services; a spatial plan; and urban plans in terms of the Urban Areas and Cities Act. The Act gives county governments the mandate to establish tariff policies for services delivered Tariffs within the county. Section 120 of the County Government Act outlines specific guidelines for estab- lishing tariffs, with a strong focus on equity and financial sustainability. Public–private partnerships Section 6 enables counties to delegate the management and delivery of specific services to the private sector “…in accordance with the provisions of any law relating to public or private partnerships for any work, service or function within its area of jurisdiction.” Section 47 assigns responsibility for a performance management plan to the County Executive Committee to evaluate county public services and the implementation of county policies. The national government must provide Monitoring and reporting support to county governments to enable them to perform their functions, including performance and capacity assessments. If assessments demonstrate an inability to perform functions, the cabinet secretary can call for national intervention, even performing the functions with approval of Parliament. County public service Section 56 and 57 of the County Government Act establish county public service units. The specific role and purpose of these units, however, is not clarified. Under Section 48 the functions and provisions of services within each county are decentralized to the urban areas and cities within the county established in accordance with the Urban Areas and Cities Act of 2011. County Decentralized urban services governments should therefore be aware of the specific duties and responsibilities on urban water supply and sanitation. Section 54 requires the establishment of a County Intergovernmental Forum that includes the heads of all national Intergovernmental departments rendering services in the county. This forum provides a critical platform for coordination between coordination county and national government. Water Act of 2002 The current Water Act remains in force until the bill is passed by Parliament. While the 2002 Act assigned significant Separating sector functions responsibility on the Minister in charge of the water portfolio, it also separated key functions within the sector, and responsibilities widely acknowledged as a catalyst for increased funding and improvements in service delivery. The post-2002 reforms encouraged formation of water companies, under the Companies Act, professionally Establishing water companies managed, governed under a board of directors, regulated, and able to recover the costs of operations and contribute funding to capital costs. Urban Areas and Cities Act of 2011 The Urban Areas and Cities Act of 2011 provides for the definition of and principles of governance Overview and management for urban areas and cities in each county. The Urban Areas and Cities Act states that: “The management of a city or a municipality shall be vested in the county government and administered on its behalf by a board with the mandate to develop and adopt policies, City and municipal boards plans, strategies and programs, and may set targets for delivery of services. They serve as the agents responsible for urban water, sanitation, sewerage, and solid waste management services.” Integrated development The Urban Areas and Cities Act of 2011 requires integrated development planning, including deliv- planning ery of basic water and solid waste management services. Other Other significant legislations that county governments should be familiar with include the Public Other legislation Health, Environmental Management, and the Coastal Development Authority acts. Source: County Government Act 2012; Water Act 2002; Urban Areas and Cities Act 2011. 158 Kenya Urbanization Review Annex Table 2.2: Summary policy, legal and regulatory framework for solid waste management Policy/legislation/regulation Provision/requirement Institution Confers the right to a healthy and clean environment to every Kenyan citizen (article The Kenyan Constitution 2010 42); Transition Authority Assigns solid waste management as a function of the counties (Fourth Schedule). A guiding framework on the management of National Environmental Policy National Environment Council solid waste (Section 6.3) Kenya Vision 2030 A blue print for development in Kenya for Kenya Vision 2030 2008–30. A framework for management of the environ- Environmental Management and National Environment Management ment and provide for implementation of article Coordination Act 42 of the Kenyan Constitution, 2010 Authority (NEMA) Environmental Management Defines waste types; duties of a waste National Environment Management and Coordination (Waste generator; licensing requirements for Authority (NEMA) Management) Regulations 2006 transport and disposal of waste nationally. Urban Area and Cities Act 2011 County governments Physical Planning Act 1996 County governments Public Health Act County Governments Act 2012 County governments 159 Annex 3: Planning for County Competitiveness Analysis of CIDPs for Nairobi, Mombasa, Nakuru, and Machakos County integrated development plans (CIDPs) for Nairobi, Mombasa, Nakuru, and Machakos counties were analyzed in detail. These CIDPs struggled to address the key questions identified by the review of international best practice in local enterprise development (LED): 1. What analytical tools to use? International experience suggests that good analytics for an LED strategy do not require use of specific techniques. Instead, it is far more important to follow the full cycle of analysis—data collection, data processing and analysis, data interpretation—and reflecting it in the prioritization of interventions. Analysis presented in the CIDPs was mostly descriptive and often lacking detail; data availability was poor and insufficient for in-depth analysis. The link between the priority projects and analytics was not always clear. Nairobi City County’s CIDP is an exception. The document offers detailed data-driven analysis of every major sector of urban development and uses a multi-criteria technique to identify projects of highest priority. This can be used as an example for CIDPs for other Kenyan counties. 2. Which interventions to prioritize and how to ensure their implementation? Good strategies are defined by a balance between wide thematic coverage and clear focus on a limited number of interventions. While there are certain themes and issues that are addressed in most LED strategies, it is not the types of interventions selected that define the quality of the strategy but rather the extent to which they reflect the local context: for instance, challenges faced by the private sector, the capacity of the local government, and so on. Actionable strategies are defined by clearly defined priorities reflected in realistic yet ambitious targets. {{ The CIDPs seemed to lack focus—priority projects number in the hundreds, suggesting weak prioritization frameworks and unlikely future implementation. Nakuru County’s CIDP contains 100 pages of lists of suggested projects; Mombasa County’s CIDP lists 30 main targets for the county that it plans to achieve by implementing projects that are listed on 110 pages. Nairobi City County’s CIDP offers a more systematic approach to prioritization, but a very large number of projects are listed as priorities. {{ Most CIDPs lack clear targets and thorough monitoring and evaluation frameworks. In general the focus on implementation appears insufficient. Mombasa and Nakuru Counties’ CIDPs include large chapters that list clear targets for all projects and identify the parties re- sponsible for implementation. But even in the most thoroughly developed CIDPs the implementation framework appears very loose, costing techniques are not substantiated, and the level of accountability of the responsible parties is not clear. {{ Some CIDPs appear to have a relatively weak focus on economic growth and job creation, particularly beyond the agricultural sector. Nakuru County’s CIDP has over a 100 projects identified within various subsectors of the agricultural sector, and only six for tourism and seven for manufacturing. {{ The legal status of CIDPs is not clear. Can counties be held accountable for not implementing plans? Anecdotal evidence suggests that the links between county sectoral plans, CIDPs, and annual plans are not well established in many counties, which points at both complexities of the system and lack of capacity. 3. How to fund priority interventions defined within the LED strategy? LED strategies differ drastically across countries and regions in terms of their sources of funding. In European countries EU funding plays an important role; in lower- income countries donors make an important contribution. Depending on the level of centralization of government functions and budgets the role of locally raised revenues or national grants varies. But what is important is not the source of funding, but the fact that the funding streams for priority projects should be secured and reflected in the budgeting process for the duration of the strategy implementation for at least a medium-term horizon. 160 Kenya Urbanization Review Unfortunately the priority projects defined in most CIDPs are not linked to the budgeting process and in most cases do not have secure funding to back them. CIDPs thus appear somewhat like wish lists rather than strategic plans that can be used for implementation. Mombasa County’s CIDP offers a detailed description of key projects, including evaluated costs and sources of funding. The CIDP also offers a framework for resource mobilization. But it is not clear to what extend the suggested sources of funding are secured. Nairobi City County’s CIDP lists donor organizations as a source of funding in many instances, although the actual avail- ability of these funds remains uncertain. 4. How to define the right level of private sector engagement? International experience suggests that successful implementation of an LED strategy relies on close engagement with the private sector throughout the design and the implementation phase. Ensuring early engagement with the private sector allows key private sector players to share ownership of the strategy and responsibility for its implementation. There are examples in international practice when successful LED initiatives were driven exclusively by the private sector. The CIDPs reviewed did not offer a clear picture of the extent of private sector participation. Even though the guidelines require counties to partner with local businesses in developing the CIDP, it appears that such collaboration is limited to consultations. In some cases this may be explained by weakness of local business communities; in others this reflects the resource and time constraints that local governments were facing when developing CIDPs. But it is important that when CIDPs are updated greater attention is given to private sector engagement, and the local business community should be involved in planning and implementation of the CIDPs. Annex Table 3.1: What to ask when developing a good LED strategy? Key decision Potential pitfalls Nairobi Mombasa Nakuru Machakos Which analytics to Not following the full Relatively Predominantly Analytics are Descriptive + SWOT use? cycle advanced descriptive, some predominantly (strengths–weaknesses– industry level analysis descriptive, weak link to opportunities–threats), the initiatives very basic Which interventions Selected interventions Good prioritization Priorities are not clear 100-page list of priority 50 pages of priority to choose? need to reflect local framework, but 30 targets identified programs and projects. initiatives conditions still too many 110-page list of projects projects How to define Limiting private sector Extent of Extent of engagement is Private sector Extent of engagement is the right amount engagement engagement is not not clear engagement appears to not clear. of private sector clear be extremely limited. engagement? How to go about Lack of secured A lot of projects Offers revenue raising High dependence Nothing offered on the funding the funding rely on donor strategies, but no link on raising additional subject strategy? funding between that and revenue projects Lessons from international best practice in LED should be used to improve the CIDP process. The CIDP process so far raises two main concerns: the way the CIDP process was designed at a national level, and the way the CIDPs were prepared and now are being implemented at a county level. At the county level more attention should be given to making plans more realistic and implementable. Given scarce resources, counties should focus on identifying key bottlenecks in each sector, thus shortening the list of priority projects, with clear and detailed implementation strategies and funding streams. To strengthen the CIDPs, counties should: • Put more emphasis on targeting economic growth and job creation opportunities. • Strengthen the analytical aspect of strategies, and make sure that analysis follows the full cycle and that results are reflected in the prioritization framework for policy selection. • Limit the number of flagship initiatives. And have detailed funding and implementation strategies for them. • Strengthen the link between priority initiatives and budgeting process. • Seek ways to engage private sector more throughout the process. In order to strengthen the potential of CIDPs as a tool for economic development, the national government should also 161 adjust the requirements and the incentives counties are facing when developing CIDPs. • Help counties build capacity needed to develop high quality CIDPs. • Offer one clear set of guidelines. • Clarify the way CIDPs are factored into grant allocation. • Strictly require clear prioritization and clarity on funding strategies within the CIDPs. • Require more scrutiny in costing exercises, and monitoring and evaluation arrangements. CIDPs are subject to review on a yearly basis, so there will be opportunities to revisit the strategies and improve upon them. One way of improving the CIDPs would be by adopting a systematic framework for identifying economic development bottlenecks and prioritizing interventions that would support economic growth and competitiveness. In the next chapter we present a methodology that can be used to address this challenge. Prioritization for economic growth and job creation The design and the practicality of CIDPs would be vastly improved if they used a clear prioritization framework. Such a framework should combine the developmental vision and aspirations of the county, analyze the key constraints associated with achieving the vision and formulate ways to address the barriers. One possible approach to this problem is sector prioritization. This is not the only way to make CIDPs more focused and actionable, and this report does not recommend that all counties should adopt this approach in particular. But the approach offers a clear and structured way of addressing economic development challenges systematically within a strategic planning process. The approach to sector prioritization has pros and cons. The main strength of such an approach is the in-depth analysis of the constraints that a sector is facing in the local economy and the design of specific, actionable and targeted interventions to address them. The main challenge however is associated with the difficulty of selection of the priority industrial sectors. A number of techniques can be used to assist local government in sector prioritization, but no one exercise can give a precise answer. In addition, prioritizing one industry over others also carries its own risks. In this chapter priority sectors for case-study counties were selected by means of reviewing sectors that counties identified within their CIDPs as those with high potential and verification of the selection through consultations and (where possible) data analysis. More rigorous selection techniques can be applied if better data on the structure of output, employment, and export become available at the county level. The prioritization process starts with general high level analysis of the state of the economy and then gradually zooms into specific sectors and issues. The process (described in Annex Figure 3.1) starts with mapping of the economic landscape of the county and identification of its competitive position within the national context. The next stage entails identification of possible sectoral bets and analysis of the competitive advantages that justify the sector’s potential. The last stage focuses on identification of priority interventions, which requires in-depth analysis of constraints associated with a specific sector, understanding possible solutions and strategies to address the challenges, learning from international experience of implementing similar strategies and designing an implementation strategy on this basis. 162 Kenya Urbanization Review Annex Figure 3.1: The stages of industry prioritization approach to economic planning. A description of the national, sectoral, and county-specific economic landscape yields interesting insights. Nairobi City County continues to account for the largest share of GDP and employment in Kenya, and given the performance of nearby counties, it continues to be an engine of growth for the economy as a whole. At the same time, being the capital and an East African hub, and being accustomed to large outlays for recurrent and capital expenditures, it might be better suited to deal with devolution and its opportunities and challenges. Mombasa County enjoys terrific natural and economic advantages, owing to its location and infrastructure. Yet, its economic performance is lagging far behind its potential, and private sector firms describe facing increased challenges to doing business. Nakuru County is an interesting case because although it has a large potential for growth, it appears to be losing competitiveness. It has also had to deal with the pressures of sudden increases in population, which could hinder or help growth depending on the county’s strategic priorities and implementation. And lastly, Machakos County has already received much attention in the press owing to its clear focus on growing its economy. At the same time, possibly owing to its proximity to Nairobi or its strategic guidance, it seems to be growing in competitiveness, outperforming its potential. In conversations with private sector and county officials elsewhere, it was repeatedly mentioned as a county whose experience others were keen to know more about. The reality check consists of accounting for three main questions: (1) does the sector have potential, (2) has it been identified as strategic nationally, and (3) has it been identified as a strategic bet within the CIDP? In this case, we also took into account the availability of existing data sources on different industries, given the timelines for the study. We also chose diverse sectors, so as to illustrate the range of analysis that would support this exercise. In other words, the industries selected for each county meet the three reality checks, but also help demonstrate the process and the usability of the prioritization framework. The following industries were selected for each county: Nairobi—Financial services: This is one of the most productive high-end service sectors that Nairobi aims to focus on, and one that has high potential for growth owing to Nairobi’s existing position as hosting an innovative banking sector in the East African region. Mombasa—Tourism: Tourism accounts for a large part of Mombasa County’s GDP and the sector has been struggling recently owing to security issues in the region. The CIDP emphasizes the county’s natural assets for tourism developments and aims to revive and diversify the industry. Nakuru—Textiles and apparel: Nakuru County has once been a powerhouse of the textiles sector. There remains an opportunity to exploit the benefits of an extension of the African Growth and Opportunity Act agreement, at the same time reviving the sector in ways that would have closer links to the local economy. 163 Machakos—Agro-processing: Machakos is a mostly rural county that has a potential to use its favorable location and transport links to neighboring Nairobi and the airport to stimulate agricultural development and speed-up industrialization. The prioritization process involves four distinct stages. We provide below an extremely condensed flavor of our findings at each stage for different counties. Stage 1: Analyze constraints to unleashing potential: We analyze data at the national, sector, and county-level to understand better the constraints to growth. For instance, Mombasa, being a seaside location was found to be well-placed to exploit the potential growth and employment opportunities for tourism. But tourism competitiveness in Kenya has been affected by a difficult security situation, poor quality of infrastructure and services, restrictive business environment and lack of skilled workers.143 In particular, Mombasa seems to have established itself as a cheap, mass-market resort, leading to low in-country expenditures and low value-added. This seemed to be further exacerbated by poor access to electricity, high tax rates and poor access to finance (World Bank Enterprise Survey 2013). Stage 2: Identify possible solutions that the county can affect: We look at the possible range of actions that could be taken to respond to the key obstacles that an industry is facing, and then identify solutions that could be implemented by counties. In the case of Nairobi’s financial services sector, the city’s potential as a financial hub for East Africa was clear. But the sector’s growth potential relied largely on factors that were beyond city’s control: political and macroeconomic stability, open trade and capital flows, contract and property rights enforcement. Looking more closely, there were some conditions that were well within the city’s remit (and which mattered to the sector): availability of skilled workers, favorable living conditions, and affordable office space. The county could target these interventions in the medium-to-long term, thinking systematically through the link between its objectives, resources and sequencing of investments. Stage 3: Identify role of county versus other stakeholders: At this stage we consider specific interventions that a county could initiate on its own or facilitate through partnerships with businesses, working with neighboring counties, or leveraging national initiatives. Nakuru County, for instance, could support its textile sector by marketing the opportunities to potential investors, developing quality assurance schemes to overcome distrust in supply chain, overcoming information barriers by linking apparel and textile producers and offering incentives to exporters who invest in building local supply chains. At the same time the county ought to help local businesses make the most of national initiatives that offer access to cheap credit, electricity network upgrades, and support for vocational technical training. And importantly, investments in local inputs for the textile supply chain ought to be coordinated with neighboring counties to maximize scale and spillovers. Stage 4: Implementation strategies and international experience: We identify examples of interventions from cities around the world that tackled similar issues in similar conditions and identify lessons that may inform strategy design for the county. For Machakos County, that has potential to grow an agro-processing sector through combining productivity upgrades in agriculture with luring in manufacturers, we looked at the experience of a World Bank Group–funded project in Gambia. The initiative combined efforts to improve productivity in mango growing through introduction of better practices with bringing in a foreign juice manufacturer, which simultaneously secured future demand for farmers who invested into producing better mangos and reliable inputs stream for the incoming investor. CDIPs could be a useful vehicle for prioritizing the economic development effort, and could be improved significantly to become potent instruments to encourage county competitiveness. In order to make CIDPs more actionable counties need to make them more focused and adopt prioritization frameworks that identify key growth opportunities and look for ways to maximize them. The Sector Prioritization framework offered in this report is one of the methodologies that could be used to achieve this goal. CIDPs should have a strong competitiveness component and this should be reflected in the analytical and prioritization methodologies. CIDPs by their nature are not limited to economic development and target a much broader array of issues, but it is important that despite all limitations counties maintain a focus on issues of economic growth and job creation. CIDP should similarly diagnose social issues, infrastructure needs and develop a coherent spatial framework. Two caveats should be kept in mind. Firstly, given the changing demographic profile in Kenya, the analysis of economic growth opportunities should be given high priority, and secondly, the results of different analytical strands should be reconciled to identify a list of priority intervention areas including cross-cutting initiatives that are fundamental for local development and targeted development strategies, that should aim to support achieving specific aspects of the county development 164 Kenya Urbanization Review vision (grow specific industrial sectors, target specific social issue, and so on) (Annex Figure 3.2). Annex Figure 3.2: Suggested prioritization process for CIDPs Annex 4: Intracity Connectivity in Nairobi Quantifying the cost of congestion The overall cost of congestion quantifies the difference between the cost of travel under current conditions and the cost of travel under acceptable service conditions. We assume that congestion does not affect out of pocket costs but only travel times. As a consequence the cost of congestion can be measured as follows: Cost of congestion = ((travel time * VOT) in congested conditions) - ((travel time * VOT) in desired/reasonably attainable conditions) Acceptable service conditions are commonly understood in the practice as equivalent to Level of Service “C.” The Texas Transportation Institute calculates the cost of congestion in its annual Urban Mobility Report in the United States by assuming that free flow speeds are the desired conditions, but this is likely unattainable in an East African context. As a result, the report chooses improvements to reasonably attainable travel speeds as a way to gauge congestion costs. It must be noted, however, that this estimate does not include the logistics (inventory) costs savings for freight transport or incremental vehicle operating costs associated with congestion (including the capital costs of additional vehicles required by public transport operators to maintain given service levels). Modelling optimal land use coordination The indicators presented in figures 4.18 and 4.19 and table 4.2 give us some information about accessibilities using either cars or matatus for the current spatial layout of Nairobi. But they do not provide information about more or less desirable spatial distribution patterns of jobs and households. To try to fill this gap and provide some information about the city’s performance, we conducted a first series of tests. Keeping constant the transport network and the overall building stock, we randomly re-shuffled all opportunities and population throughout the urban area and re-computed for each outcome some indicators of how the city performs in connecting households with employment opportunities. Proceeding in this manner, 10,000 different spatial distributions are produced. The main objective here is not to define the most efficient spatial organization. Rather the aim is to propose a metric that can 165 help stakeholders evaluate the performance of their current urban organization against a vast number of different random potential outcomes keeping the main features of the city constant (transport network, building stock, population, number of jobs). The results of the simulations described above indicate that Nairobi in its current spatial layout performs better than any144 of the 10,000 random counterfactual scenarios in providing overall access to opportunities to its residents. The conclusion that can be derived from this exercise is that businesses and households, when deciding where to locate within Nairobi, take into account the existing transport network and the location of opportunities. As a consequence, the current spatial layout of Nairobi, which is a result of millions of individual decisions, represents a best possible coping outcome for Nairobi and its population; given the constraints on capital investments in transport infrastructure and residential structures, and absent substantial coordinating planning controls, the current spatial arrangement optimizes accessibility, that is, it outperforms any random alternative spatial layout in providing accessibility to Nairobians. This result also shows that the current spatial layout of Nairobi is the outcome of an internal self-organization. These results, however, beg the question: if a coordination mechanism could be devised to selectively modify land-uses even in the absence of more substantial transport infrastructure investment, could a better or even “optimal” spatial pattern in terms of accessibility be achieved? A second exercise described attempted to answer this question. Annex Figure 4.1: Illustration of the exercise conducted for this study Note: All pixels are characterized by a population density and a number of economic opportunities (commercial, educational, and industrial floor space). 10,000 random permutation of these grid cells were performed to evaluate whether accessibility can be enhanced through changing the land use patterns (the location of population and opportunities). This second exercise aims to assess the most efficient spatial coordination of land uses, keeping, as previously, the transport network, population, number of jobs and building stock constant. The methodology relies on a hill-climbing optimization procedure which only switches grid cells 2-by-2 starting from the current spatial layout of Nairobi (instead of permuting all grid cells at once as in the previous exercise). When this permutation increases overall accessibility, the new spatial layout becomes the baseline and a new iteration is performed. If this permutation is not successful, the permutation is discarded and another one is tested. This process is repeated a number of times to try to converge to an optimum. Performing 100,000 iterations using this hill climbing procedure, it is shown that overall accessibility can increase substantially in Nairobi. Results indicate that alternative land use coordination patterns can increase overall accessibility by 15% for cars (from 77% to 92.5% of accessible opportunities) and can even double the share of economic opportunities which can be reached within an hour using matatus (from 20% to 42%). These conclusions indicate that even if Nairobi’s spatial layout performance is tolerable in connecting people to opportunities as demonstrated in the first exercise, there is still considerable room to increase accessibility through better land use coordination. Achieving such outcomes, however, will require very strong governance structures, enforcement policies and planning capabilities. Modeling monocentric vs polycentric growth patterns To examine the implications of monocentric vs polycentric different growth patterns, two scenarios of future development 166 Kenya Urbanization Review were constructed, with accessibility measures being compared between them. Both scenarios assume a 20 percent increase in employment (from 1.7 million to 2.1 million jobs). The first scenario perpetuates Nairobi’s current monocentric growth pattern, with the highest job growth rates occurring at the city center. The second scenario provides one possibility of what might transpire if the city implements policies that direct growth toward select polycentric centers, beyond the central business district. Reducing the commuting distance through polycentric growth may reduce the need for private motorized travel and increase job accessibility for low-income Nairobians. While the central business district contains the largest concentration of jobs, the map of job accessibility by walking indicates other areas exist that possess sufficient access to employment. A resident who is able to get to 50,000 jobs in 30 minutes is defined as featuring a high level of accessibility. Table 0.1 below indicates the number of people in each income bracket who can walk to at least 50,000 jobs in 30 minutes. Currently, 16 percent of the population can walk to more than 50,000 jobs. Holding congestion constant, this percentage increases to 22 percent as more jobs are added through the monocentric growth model; alternatively, the potential polycentric growth approach grants high employment access to 31 percent of the population. In both models and the current scenario, workers in lower income brackets are more likely to be able to walk to employment centers than high income earners. Employees in higher income brackets are more likely to commute by personal automobile or matatu, making close proximity to jobs a less important factor in choosing housing location. Annex Table 4.2: Individual access to 50,000 jobs within a 30-minute walk (number, percent) Income bracket Current jobs Monocentric growth Polycentric growth (2013 $US/month) < $58 US$ 153,063 22% 202,815 29% 242,477 34% $58 US$—$174 US$ 123,816 19% 166,753 25% 230,874 35% $175 US$—$348 US$ 67,876 14% 105,970 21% 163,784 33% > $348 US$ 49,528 9% 83,207 15% 119,675 22% Not reported 85,309 13% 118,795 18% 211,285 32% Total population 479,592 16% 677,540 22% 968,095 31% Source: Income and job location, JICA (2013). Population density, WorldPop (2013). 30-minute accessibility calculated by Conveyal. Overview of Kenya’s Transport System Road Network Nairobi’s street infrastructure consists primarily of paved roads emanating radially from the center of the city into surrounding neighborhoods. Few roads link the radials outside of the central business district. The city also contains eight “principal arterial” (17,000–18,000 average daily traffic) and three “minor arterial” roads (10,000–12,000 average daily traffic). So while arterial links to the central business district are extensive, the arterial network (interdistrict connectivity) outside the central business district is thin. Public and Mass Transport Nairobi was founded as a railway town, and its rail infrastructure remains well connected to the city center. Rift Valley Railways offers twice-daily service on five commuter rail routes in the Nairobi metropolitan area, averaging 2,300 to 6,900 passengers per route. Future connections are expected to connect Nairobi Railway Station to Jomo Kenyatta International Airport (22 kilometers) and the eastern suburb of Kayole, as well as a connection between the Embakasi Station and the airport (6.5 kilometers) (Kenya Railways Corporation 2015). While commuter rail is an economical mode of public transport, at present it serves only a tiny fraction of the daily commuting needs of the Nairobi public. Nairobians’ most commonly cited reasons for not using the system are concerns with safety and comfort, along with protracted travel times and difficult access to stations (Consulting Engineering Services (India) Private Limited 2010). Nairobi’s network of small, privately-owned, and privately operated buses and vans, known locally as matatus, forms the backbone of public mass transport services in the Nairobi metropolitan region. The matatu system is not regulated 167 by the Kenyan or Nairobian governments, so, while it is do not exist along their respective routes, while 86 percent successful in moving a large portion of the population indicated an absence of safe crossings as the biggest around the city, routes based on passenger demand problem for pedestrians (UNEP 2009). have not been coordinated to increase overall efficiency (Consulting Engineering Services (India) Private Limited Calculating average travel time 2010). Matatus are estimated to carry about 63 percent of daily urban commuter traffic, amounting to roughly three The average commuting time in the city is given by the million passenger trips per day, although a 2012 study for following formula: the Transport Licensing Board only found about 1.1 million passenger trips per weekday carried by matatu. That study found that about 9,500 matatus provide service along 138 different routes (Envag Associates 2012), though subsequent work mapping matatu routes digitally systematized services into 97 separate routes in 17 route groupings (Digital Matatus 2015). On major corridors,  matatus can make up anywhere from 15 percent to 50 percent of the vehicles 1 on the road. Frequency of  matatu  service is high when = ∑ ∑ compared to bus service, but fare amounts change based on time of day and weather conditions. Where is the average commuting time in the urban area, N represents the total population, is the population Buses operate on roughly 67 routes and carry a smaller residing in area , is the transport time between area percentage of the population than matatus (350,000– and area and is the probability of traveling to when 400,000 passengers per day). The ownership and residing in . The probability of traveling to j when residing operational model of buses in the metropolitan area has in can also be decomposed as follows: undergone considerable changes over the last 70 years, − with bus franchising recently becoming the favored model = of operation. Currently, 88 bus companies operate nearly ∑ − 900 buses in Nairobi, with Kenya Bus Service Management Where represents the number of opportunities in Limited (KBS) as the largest operator. KBS buses are collectively destination area and is a parameter that can be estimated to run a total of 9.64 million kilometers per year. calibrated and should be interpreted as time sensitivity— With competing companies, bus service is not provided in it measures how the attractiveness of a destination an efficient manner, maintenance suffers, and profitability decreases when the travel time to that destination margins are low. Contributing to the inefficiencies of the increases. It can be seen that the probability of traveling public transport system is the fact that many of these buses to destination area increase with the number of travel along the same routes as the matatus, competing opportunities in that area. But the probability of traveling for limited space in the already congested central business to destination area equally decreases with the travel district (Consulting Engineering Services (India) Private time to reach this destination. Limited 2010). Also complicating matters is that routes have been optimized to maximize efficiency for the operator and not coordinated to an efficient level in maximizing passenger comfort or convenience. Non-Motorized Transport Even though walking has the highest mode share (83 percent of trips contain some portion of walking) within the city, conditions for pedestrians are poor throughout Nairobi’s urbanized areas. Pedestrians must deal with limited or non-existent pedestrian infrastructure, exposing them to dangerous traffic conditions and vehicle exhaust such as particulate matter. Often, walking is not a choice but a necessity due to lack of access to public transport or inability to afford public transport (World Bank 2013). In a United Nations Environmental Program study, 81 percent of pedestrians indicated that adequate facilities for walking 168 Kenya Urbanization Review Annex Table 4.3: Impact of the time sensitivity parameter on the probability of commuting to a destination j when 20 minutes are added to the travel time and resulting average trip time using matatus Impact of a 20 minute increase in commuting time to reach j Value of λ 0.01 0.03 0.05 0.08 0.1 0.2 Probability of commuting to j –18% –45% –63% –80% –86% –98% Average travel time by matatu 81 62 45 29 22 8 (mins) Annex 5: Governance changes at devolution Annex Table 5.1: Constitutionally assigned urban functions of county governments Functions transferred from local authorities to county govern- Functions transferred from national government to ments county governments • Refuse removal, refuse dumps and solid waste disposal (Para 1) • County health services, including county health facilities, • Licensing and control of undertakings that sell food to the public pharmacies, ambulance services, provision of primary health (Para 2) care (Para 2) • Control of outdoor advertising and public nuisances (Para 3) • Liquor licensing (Para 4) • Libraries, museums, cinemas, video shows and hiring, and sports • Betting, casinos and other forms of gambling (Para 4) and cultural facilities (Para 4) • County roads (Para 5) • County parks, beaches and recreation facilities (Para 4) • Local tourism (Para 7) • Street lighting, traffic and parking (Para 5) • Cooperative societies (Para 7) • Public road transport (Para 5) • Fair trading practices (Para 7) • Animal control and welfare including dog licensing (Para 6) • County Planning and development including statistics, electricity • Regulation of markets (Para 7) and gas reticulation and energy regulation (Para 8) • Trade licenses (Para 7) • Pre-primary education, village polytechnics, home craft centers • Planning and development including land survey and mapping, and childcare facilities (Para 9) boundaries and fencing (Para 8) • County public works and services (Para 11) • Housing (Para 8) • Electricity and gas reticulation and energy reticulation (Para 8) • Storm water management systems in built-up areas • Water and sanitation services • Fire fighting Note: Paragraph numbers refer to the Fourth Schedule of the Constitution of Kenya. Source: Constitution of Kenya, Fourth Schedule, Distribution of Functions between the National Government and the County Governments, Part 2: County Governments. 169 Annex Table 5.2: Differences in the governance and management of cities, municipalities, and towns under the Urban Areas and Cities Act Population Establishment and gover- Classification Powers and functions Staffing Finance threshold nance City Over Status conferred by Body corporate with power to sue Manager Funds of a board 500,000 President on resolution of and be sued, acquire property, appointed by consist of transfers Senate (7) enter into contracts, borrow money county public from county assembly, Board of 11 part-time and make investments (12) service board (28) money accruing the members appointed Functions include developing Other staff board in the exercise by county executive integrated development plan, determined by of its functions, committee, 6 of whom control and subdivision of land, county public grants, and donations. appointed through monitor and regulate services service (12) (43) competitive process, 5 provided by other service providers, Requirement to nominated by stakeholder facilitate and regulate public produce budget bodies (13) transport (20). estimates to be Chair and vice-chair Make by-laws (21) approved by county elected by members (17) Other functions and executive assembly (45) Municipality Over Status conferred by powers delegated by county Audited accounts 250,000 governor on resolution of government, including collection of to be submitted to county assembly (9) rates (20, 21) county executive Board of 9 part-time Deliver services including through committee (46) members appointed partnerships, joint venture (31–35) by county executive Prepare integrated development committee, 5 of whom plan and submit to county executive appointed through for approval (39-42) competitive process, 4 nominated by stakeholder bodies (13) Chair and vice-chair elected by members (17) Town Over Status conferred by Not a body corporate (31) Administrator Requirement to 10,000 governor in consultation Deliver services as for municipality appointed in produce budget with town committee (10) ‘with necessary modifications’ same way as estimates to be (31–35) city/municipal approved by county Prepare integrated development manager (31) assembly (45) plan and submit to county executive Audited accounts for approval (39–42) to be submitted to county executive committee (46) Note: References in brackets are to section numbers in the Urban Areas and Cities Act. Source: Urban Areas and Cities Act 2012 as amended. 170 Kenya Urbanization Review Annex Table 5.3: Functions and powers of city and municipal boards Functions: • Oversee affairs of the city or municipality • Formulate an integrated development plan • Control land use and development, within framework of spatial plans as delegated by the county government • Promote infrastructure development and services as delegated by county government • Maintain an information system • Monitor and regulate city and municipal services provided by service providers other than the city or municipal board • Prepare budget for approval by county executive committee • Collect rates, taxes, levies, fees and surcharges as delegated by county government • Facilitate and regulate public transport • Such other functions as may be delegated by the county government Powers: • Exercise executive authority as delegated by the county government • Ensure provision of services to residents • Impose fees and charges as authorized by the county government for provision of services • Make bylaws • Such other powers as are delegated by the county executive committee Service Delivery: • Deliver services on behalf of the county government, as specified in national or county laws • Establish service delivery entities with the approval of the county executive committee to carry out its functions • Enter into a partnership with a utility for the provision of social infrastructure services, in consultation with the governor and with the approval of the county assembly • Contract a private entity to deliver a service with the approval of the county assembly. Source: Sections 20, 21, 31-and 33 Urban Areas and Cities Act 2012. 171 Annex 6: Overview of Spatial/Land Use Plans in Kenya (statutory basis and role) Term of Approving Name of Plan Brief Description Plan* Statutory Basis Planning Actor Body National Spatial Macro level plan to provide physical Not evident Physical Planning Act Physical Planning Director Plan planning policies to guide regional, of 1996 (PPA); also Department, Physical county and local spatial plans Articles 10, 60, 66 Ministry of Lands, Planning of 2010 constitution Housing and Urban are relevant; Flagship Development (MLHUD) Project from Kenya Vision 2030 Regional From 16(1): May be prepared by Varies from PPA; Part IV-A(16-22) Physical Planning Director Physical the Director with reference to any long to Department, Physical Development Government land, trust land or private short term Content detailed in PPA Ministry of Lands, Planning Plan land within the area of authority of First Schedule. Housing and Urban a county council for the purpose of Development (MLHUD) improving the land and providing for the proper physical development of such land, and securing suitable provision for transport, public purposes, utilities and services, commercial, industrial, residential and recreational areas, including parks, open spaces and reserves and also the making of suitable provision for the use of land for building or other purposes. Special Planning A plan induced by place characteristics. Varies PPA; Part IV-A(23) Department of Physical Director Areas (appears From the PPA: an area with unique Planning; MLHUD Physical a subset of the development potential or problems No content detailed in Planning regional plan) as a special planning area for the PPA schedules, however purpose of preparation of a physical may be the type of plan development plan irrespective of used for renewal or whether such an area lies within or redevelopment. outside the area of a local authority. Declaration puts a moratorium on development activity for a period of not more than 2 years. Local Physical May be a long or short term plan; Varies PPA; Part IV-B(24-28) Department of Physical Director Development has the general purpose of guiding Planning; MLHUD Physical Plan and coordinating development of Content detailed in the Planning infrastructural facilities and services Second Schedule for an area and for the specific control of the use and development of land or for the provision of any land in such area for public purposes. 172 Kenya Urbanization Review Name of plan Brief description Term of plan* Statutory basis Planning actor Approving body Part Type of short-term plan. PDPs Immediate effect Only found in the Department of D i re c to r, Development indicate precise sites for immediate definition sections Physical Planning; P h y s i c a l Plan implementation of specific projects of the PPA, 1996, district physical Planning or for alienation purposes if for a specifically part I planning officers public purpose. Part development preliminary. May be pre-devolution. plans are prepared from the main in one of the various development plan to accommodate repealed land acts. a specific development project and Anyone can do this forms the basis for land allocation. A type of plan, do not part development plan may also be need to be registered prepared to introduce minor changes planners (see Third to a development plan. Schedule, Section B) County Mandatory plan for all units; basis 5 year plan County Governments County Planning C o u n t y Integrated for budgeting and performance Act, 2012; Section XI Unit Assembly Development management (as are all plans). Plan Serves as guiding document for county level development County Sectoral Component parts of CIDP, program- 10 year plan; County Governments County Planning C o u n t y Plans based; common elements updated annually Act, 2012; Section XI Unit Assembly like housing, water, transport, environment, and so on. Must be reviewed every 5 years by county executive; county assembly approval; updated annually County Spatial Main task: to put into a spatial 10 year plan County Governments County Planning County Plan context the social and economic Act, 2012; Section XI Unit Assembly development programs of the county as articulated in the integrated county development plan; normative (desired spatial form, patterns of land use, infrastructure investment, and so on). Cities and Urban Plans focused on development 5 year plan County Governments County Planning U r b a n Areas Plans facilitation and development control; Act, 2012; Section XI Unit or subunit that Board and binding on all public entities and may be established County private citizens; must align with other with the urban Assembly county plans boards Urban Areas and Cities Act, 2011, Part V, 36- 42 Integrated Kisumu: classic comprehensive Kisumu (unclear; No clear statutory Urban Development U r b a n Spatial Urban plan—demographics, trends, land projections out basis that identifies Department chief Board and Development use, transport, housing, zoning 15 years); plan with that exact driver; plans County Plans recommendations, and so on. Used name. But JICA prepared in the Assembly term special planning areas for slums Nairobi—2015 to interpreted to be a past and currently and other areas. 2030 “Cities and Urban underway by Areas Plan” under the private consultants Urban Areas and Cities Act, 2011. 173 Bibliography Digital Matatus. 2015. Collaborative Mapping for Public Transit Everywhere. http://www.digitalmatatus.com. Envag Associates. 2012. “PSV Demand, Termini Capacities and Compliance Level with TLB Regulations in Nairobi Metropolitan Area: Final Report.” Kenyan Ministry of Transport, Transport Licensing Board, Nairobi. Kenya Railways Corporation. 2015. Projects: Nairobi Commuter Rail Service. http://krc.co.ke/?page_id=117 World Bank. 2014. Kenya State of the Cities Baseline Survey. End Notes 1 Bundervoet. Maiyo, and Sanghi (2015) 2 World Bank (2014). 3 Nairobi’s network of small, privately owned, and artisanally operated buses and vans forms the backbone of public mass transport services in the Nairobi Metropolitan Region. 4 The analysis that formed the basis for this chart computed inherited costs using the following data sources: salary costs based on data collected by the transition authority during early 2014; operations and maintenance costs related to devolved national functions based on budgetary allocations under the 2012/13 budget, disaggregated through a costing exercise undertaken by the National Treasury and published in June 2013 as the “Indicative County Allocations’ dataset”; and recurrent operations and maintenance costs relating to former local authority functions based on noncapital budget allocations by the former local authorities in 2009/10, the last year for which data are available. 5 Water and Sanitation Program, March 2012, http://www.wsp.org/sites/wsp.org/files/publications/WSP-ESI-Kenya-brochure.pdf. 6 The monthly household income range was converted into an hourly household wage rate (based on the assumption of 160 hours worked per month). Then, a percentage (15 percent for students, 30 percent for all others) was applied to each household income to determine the value of one hour of travel, based on the suggested approach of Gwilliam (1997) and Litman (2014). These values, multiplied by the time traveled to work or school, show the value of time lost through commuting. 7 A lower middle-income country is classified as having a GNI per capita of $1,045-$4,125 while an upper middle-income country is classified as having GNI per capita of $4,126-$12,736 (World Bank, 2015). 8 http://www.rug.nl/research/ggdc/data/pwt/?lang=en. 9 Sub-Saharan Africa is estimated to be 40 percent urbanized. 10 In the absence of spatially disaggregated GDP data, this section uses earnings as a proxy for economic activity. This review is based on earnings in 49 towns whose data is consistently provided in statistical publications. See Annex 1. 11 Annex 2 shows the spatial concentration of Kenyan cities and their contribution to earnings. 12 Comparing the equitable share as a proportion of revenue in the year to which it applies is different from the base year calculation specified in the Constitution. But it is a more meaningful basis for assessing the intention of government to respect the spirit of the revenue sharing provisions. 13 There is no reliable source of data on land ownership in Kenya. 14 Trust land is held by rural local authorities for residents of the area for customary land practices. Under current legislation, trust land is to be converted to community land, aimed to make clearer boundaries and provide clarity on legitimate claims on the land. 15 Land reserved for use by public bodies, or forests, national parks, game reserves, water bodies, mineral lands, and any land in respect of which no individual or community ownership can be established by any legal process. 16 The Ndung’u Report, the final report of the Commission of Inquiry into Illegal/Irregular Allocation of Land 2004, recommended that public and trust lands that have been illegally or irregularly allocated should be reclaimed. This has not happened. 17 Higher in fact than the observed inequality in consumption and earnings. 18 The share of households that owned land only is less than 1 percent and is therefore shown as 0 percent. 19 Adjudication was the process in the post-colonial period by which the Ministry of Lands went into the former rural reserves and tried to determined who owned what to issue individual titles. The need was great but the process was slow, and a fair amount of land still is held without adjudication and under community rules. 20 Questions, however, remain on what constitutes a community. 21 Repealed: The Indian Transfer of Property Act, 1882; The Government Lands Act, The Registration of Titles Act, The Land Titles Act, The Registered Lands Act, The Wayleaves Act, and The Land Acquisition Act. 22 Bundervoet. Maiyo, and Sanghi (2015). 23 Kenya Ministry of Environment, Water and Natural Resources. (2013). 24 Improved drinking water sources include: piped water into dwelling, plot or yard; public tap/standpipe; tube well/borehole; protected dug well; protected spring and rainwater collection. 25 Improved sanitation facilities include flush or pour-flush to -piped sewer system, -septic tank, -pit latrine; ventilated improved pit latrine; and pit latrine with slab and composting toilet. 26 Calculated from JMP figures. JMP does not include shared sanitation in its definition of improved sanitation, whereas shared sanitation is acceptable by Kenyan standards. In Kenya, shared sanitation accounted for 48 percent of urban and 19 percent of rural sanitation services. 27 Water and Sanitation Program 2003. 28 Kenya Power 2014. 174 Kenya Urbanization Review 29 Detailed findings are in Annex 1. 30 A formal area is defined by the National Bureau of Statistics as one for which a part development plan has been approved and which receives official services. Informal/formal status was defined at the enumeration area level by the Kenya National Bureau of Statistics during the 2009 Census. 31 For water and electricity services, this analysis measures quality by the number of hours of service. 32 This analysis does not attempt to assess the quality of the schools in the formal versus the informal areas. 33 https://www.wsp.org/sites/wsp.org/files/publications/WSP-Innovation-in-Scaling-up-Water-Sanitation-Services-Kenya.pdf. 34 Issues of devolution are discussed in greater detail in Chapter 5. 35 Table 2 in Annex 1 outlines key links and issues related to such harmonization. 36 Unpublished preliminary analysis by Ernst & Young/Atkins consortium for WSP analysis of environment for private sector financing of WSS. 37 http://open_jicareport.jica.go.jp/pdf/12005443.pdf. 38 http://open_jicareport.jica.go.jp/pdf/12005443.pdf. 39 United Nations Department of Economic and Social Affairs, Population Division (2014). 40 This assumes an interest rate of 18 percent, a 20-year amortization period, and a debt-to-income ratio of 33 percent. 41 Data analysis by Talukdar, D., based on World Bank (2013). 42 This is based on a World Bank estimate of GNI per person per year, times an average family size of 4.4. 43 https://www.openknowledge.worldbank.org/bitstream/handle/10986/20653/WPS7112.pdf?sequence=1. 44 World Bank (2014). 45 http://countryoffice.unfpa.org/kenya/drive/FINALPSAREPORT.pdf. 46 https://data.hdx.rwlabs.org/dataset/kenya-population-households-and-density-by-sublocations-2009. 47 The original target was 150,000, but was subsequently adjusted to 200,000. See file:///C:/Users/cdiguest/Downloads/ Vision_202030_20progress_20report.pdf and http://espas.eu/orbis/sites/default/files/generated/document/en/KENYA2030.pdf. 48 http://espas.eu/orbis/sites/default/files/generated/document/en/KENYA2030.pdf. 49 Knight Frank Prime Global Cities Index, 2013. 50 http://www.hassconsult.co.ke/images/Q42013/Press%20Release%20KPDA.pdf. 51 http://www.vision2030.go.ke/wp-content/uploads/2015/06/Vision2030_Popular_version_final2.pdf. 52 Developer interviews, March–May, 2014. 53 http://www.standardmedia.co.ke/article/2000119779/10-000-files-missing-at-lands-registry-audit. 54 http://www.standardmedia.co.ke/article/2000120998/lands-ministry-staff-caught-sneaking-out-title-deed. 55 Ayani Inclusive Financial Sector Consultants (2013). 56 Kenya National Bureau of Statistics. 57 EAPC 2012 Annual Report and Dyer & Blair. The others listed are Athi River Mining Ltd (ARM), Mombasa Cement Ltd (MCL) and National Cement Co. Ltd (NCC). 58 Ministry of Land, Housing and Urban Development, “2012/2013 Kenya National Housing Survey,” Republic of Kenya, 2015. 59 National Cement noted that this was also to compensate for value-added tax and power tariffs. 60 Ayani Inclusive Financial Sector Consultants (2013). 61 Construction Review, Kenya Chapter, “Authority Set To Blacklist Unregistered Contractors,” Construction Review, Nairobi, Kenya, 2013. 62 Central Bank of Kenya. 63 “High Cost Finance Makes Mortgages Unaffordable: Urgent Action Needed,” Haas Consulting, Nairobi, Kenya, 2013. 64 Central Bank of Kenya, Bank Supervision Division Report, 2013. 65 Central Bank of Kenya, Bank Supervision Division Report, 2013. 66 MFtransparency.org. 67 AMFI Kenya, “2012 Annual Report on Microfinance Sector in Kenya,” AMFI Kenya and MicroFinanza Rating, 2012 . 68 Kenya Property Developers Association and Haas Consulting, State of Development Report, 2014. 69 Section 3(2) (a) (iii) of the Income Tax Act, Cap 470 Laws of Kenya. Also see Kenya Revenue Authority, Real Estate and Rental Income Taxation, 2008. 70 Gachiri, J, “New Building Code Promises Poor Kenyans Decent Homes,” Business Daily, September 2, 2009. 71 “Africa Housing Finance Yearbook 2013,” Center for Affordable Housing Finance in Africa, Finmark Trust, 2013. 72 This was prior to the consolidation of four ministries. 73 Since this project also included infrastructure upgrading, shops and other facilities, it will also have an indirect multiplier effect. 74 National Housing Corporation website. 75 http://www.urbanlandmark.org/downloads/tm2011_02.pdf. 76 http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/ EXTDECPROSPECTS/0,,contentMDK:23394669~pagePK:64165401~piPK:64165026~theSitePK:476883,00.html and “http://www.citiesalliance.org/ sites/citiesalliance.org/files/CA_TSUPU_Brochure_0.pdf. 77 Burnett, V., “They Built it. People Came. Now They Go,” New York Times, September 8, 2014. 78 “Treasure at the Bottom of the Pyramid,” Business Today, December 11, 2011. 79 See: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2011/02/24/000356161_20110224002738/ Rendered/PDF/582270PGD0P1221OFFICIAL0USE0ONLY191.pdf. 80 Acknowledgment: This chapter has been developed in large part on the basis of analytical and quantitative work undertaken by students in the City and Regional Planning Masters’ Program at the University of North Carolina, United States, under the guidance of Professor Daniel Rodriguez, as part of a semester-long “capstone” course coordinated between Professor Rodriguez and the World Bank as part of this urbanization review. The students were: Nate Baker, Scott Boone, Jesse Cohn, Walker Freer, Steven Keith, Yijun Ma, Melanie Morgan, Nathan Page, and Shiyong Qiu. The Urbanization Review team thanks Professor Rodriguez and the students, who received school credit but no remuneration for this input, for their hard work. The datasets used in the analysis were compiled and harmonized by William High, another student at the University of North Carolina working with Professor Rodriguez, under a contract to the World Bank. 175 81 Nairobi’s network of small, privately owned, and artisanally operated buses and vans forms the backbone of public mass transport services in the Nairobi Metropolitan Region. 82 Annex 3 presents a detailed description of the transport systems and characteristics. 83 The monthly household income range was converted into an hourly household wage rate (based on the assumption of 160 hours worked per month). Then, a percentage (15 percent for students, 30 percent for all others) was applied to each household income to determine the value of one hour of travel, based on the suggested approach of Gwilliam (1997) and Litman (2014). These values, multiplied by the time traveled to work or school, show the value of time lost through commuting. 84 Both of these values consider door-to-door trip times rather than just the in-vehicle portion of the trip, suggesting that actual in-vehicle travel speeds may be slightly higher for matatus than private vehicles. 85 To determine whether accessibilities levels in Nairobi are evenly distributed or whether on the contrary they are very unequally distributed spatially, Lorenz curves were produced and the attached Gini coefficient calculated. The resulting Gini coefficient associated with matatus is 0.36 and with cars 0.29, when congestion is accounted for. While this measure has mostly been used to characterize income distribution patterns, it can be of use to look at accessibility spatial disparities. 86 See Annex 4 for details on the simulations. 87 JICA (2013). 88 See Annex 4 for details on the assessment method for time sensitivities. 89 Time costs can be understood as opportunity costs, and relate to income. 90 As no new planning legislation has been passed, the Physical Planning Act of 1996 (Laws of Kenya, Chapter 286), which details the powers of the Director of Physical Planning, defines the various types of physical plans and their attributes, and establishes processes for the control of development, remains in force. Annex 6 provides an overview of the array of official plans by statutory basis. 91 A recent article (May 7, 2015) in The Standard (http://www.standardmedia.co.ke/lifestyle/article/2000161293/nairobi-s-wetlands- disappearing) notes that there are no official statistics on Nairobi’s wetland; Mairura Omwenga, chairman of the Town and County Planners Association of Kenya, however, noted that encroachment of wetlands is widespread. 92 Ghai and Ghai (2011). 93 The Constitution identifies nine functions for the National Land Commission; the National Land Commission Act of 2012 identifies twelve functions; the Land Registration Act, 2012 identifies six functions. See National Land Commission, 2014—Final Progress Report. 94 The National Land Commission’s enabling legislation requires that it complete the registration of all unregistered land in the country within 10 years of the commencement of the act. 95 Kenya Property Developers Association 2010. 96 While the Physical Planning Act of 1996 did include requirements for community participation in planning these requirements were largely ignored or perfunctorily followed. 97 National Land Commission (2014: 44–45). 98 Wachira (2015). 99 The National Land Commission has prepared a bill called the Land Use Planning Bill of 2015 that delineates the role of the National Land Commission in planning oversight. It can be seen as a rival to the new Physical Planning Bill. Notably the National Land Commission bill keeps the role of the Cabinet Secretary and the land ministry strictly in the area of policy, professional oversight, and planning at the national level. 100 There are currently at least four competing versions of bills to replace the Physical Planning Act of 1996 in circulation amongst the Kenyan planning community (for example, Kenya Institute of Planners, Town and County Planners Association of Kenya). The version evaluated in this paper is the version available through the website of the Commission to Implement the Constitution (CIC). This bill is entitled the “Draft Physical Planning Bill, 2014” and was presented to the Attorney General. There is a bill circulating called the “Physical Planning Bill, 2015” which may or may not be an update of the CIC bill. (It appears different at the outset judging from the definitions section.) Finally there is a bill called the Spatial Planning Bill, 2014 (AKA “the Kisumu draft.”) It is unclear at this point in time which bill is actually going to be in front of Parliament and if, and when, it will be debated. The existence of myriad bills is just another indicator of the reigning confusion in land institutions and administration at the present time. 101 The competition between these actors is reflected in confusion amongst ordinary Kenyans about the country’s land reforms. A recent survey by the Land Development and Governance Institute showed that 68% of respondents did not know the mandate and functions of the National Land Commission and could not differentiate between the functions of the Ministry and the National Land Commission (Land Development and Governance Institute 2014). 102 Commission on Implementation of the Constitution 2014: 33. http://www.cickenya.org. 103 Seven counties websites yield these laws easily upon a Google search. The Kenya Law Reform Commission has formulated a model law for counties on the topic. But it is not available on their website. 104 Kenya School of Government (2015). Kenya Devolution Working Paper 1 “Building Public Participation in Kenya’s Devolved Government: Overview of key challenges and opportunities for enhancing participation in newly devolved institutions and systems: A summary of the working paper series.” Kenya School of Government, Working Paper Series, February 2015, Nairobi. 105 The 1968 (revised 1997) building code is also available on line. This code, however, was a regulation under the old Local Governments Act so it would appear to be invalid pursuant to the repeal of that act. 106 There is another draft code on-line called “National Building Regulations, 2014” issued by the “Building Authority of Kenya.” The printer lists the old Ministry of Housing as the central government authority. The document looks very similar to the 2009 code, but a section-by-section comparison has not been conducted. This Authority does not exist. 107 See Daily Nation, October 25, 2014. http://www.nation.co.ke/news/The-deadly-business-of-gangs-at-centre-of-urban-land-grabbing-/- /1056/2499736/-/10h8esd/-/index.html. 108 Glasser 2014; Berrisford 2011; Bertaud 2004. 109 The city of Nairobi has only one publicly accessible but undated document entitled “A Guide of City Development Ordinances and Zones.” Prepared while Tom Odongo was the Director of City Planning, the document provides tabular information regarding ground cover and plot coverage as well as types of development allowed. But the base map through which an owner might know where his or her parcel is situated in the codes is only accessible upon request. Similar documents for other counties or cities were not found. 110 Ministry of Nairobi Metropolitan Development (2008). 176 Kenya Urbanization Review 111 Picorelli et al. (2009). 112 Salet, Thornley and Kreukels, 2003; Seltzer and Carbonell, 2011. Some cities (such as Los Angeles) have formed neighborhood associations across the entire city; the associations are multifaceted, addressing not only development control but also crime and safety and maintenance of neighborhood assets like parks. 113 In the United States of America, for instance, agencies called metropolitan planning organizations must be formed to conduct mandated regional transportation planning. These are the bodies that receive transportation funding for their proposed capital projects from the U.S. federal government; funds are not remitted to individual cities and their departments of transportation. Additionally, some places in the USA have Councils of Government (COGs), which are voluntary organizations representing constituent units. COGs may be merely consultative or they may implement programs that fund actions like urban redevelopment. COGs may also act as metropolitan planning organizations—but not necessarily. 114 See their website for documentation of the initiative: http://jumuiayapwani.org/index.php. 115 Kenya Institute for Public Policy Research and Analysis (2014). “Leveraging on the Metropolitan Dividend in the Context of Devolved Government in Kenya.” Draft Unpublished Report. KIPPRA, Nairobi. 116 Many counties have expanded the networks of primary health centers and dispensaries and tried to upgrade the hospital at county headquarters to a county referral hospital. But there were challenges with staffing and operationalizing these facilities. Limited effort was made to network and optimize existing hospital infrastructure, especially the existing eight provincial hospitals, which continue to have heavy workload and compensation from the national conditional grants. Recently some counties entered in to memorandums of understanding for the establishment of specialized facilities for cancer treatment (based on conversations with country and sector colleagues). 117 More details on the review of the CIDPS of the four counties are in Annex 3. 118 Annex 3 contains more on sector prioritization. 119 Water and Sanitation Programme, March 2012, http://www.wsp.org/sites/wsp.org/files/publications/WSP-ESI-Kenya-brochure.pdf. 120 The Public Finances Management Act sets out the framework of public finance for both levels of government (see Chapter 1). 121 Section 173 of the Public Finance (Management) Act 2012 proposes that counties should allocate funds to urban areas based on transparent criteria, including population, (geographic) area, poverty, revenue collection by the urban area, the differential cost of service delivery in urban areas, together with two other criteria—one a minimum amount to ensure delivery of essential services, and the other incentives to encourage prudent financial management. 122 The Commission on Revenue Allocation is an independent constitutional body responsible for advising on intergovernmental financing arrangements (see Chapter 1). 123 The population limits for formation of municipal boards mean that there will be one city board (Kisumu, which is deemed by the Act to be a city) and two municipal boards—Nakuru and Eldoret. Town committees can be formed for other urban areas over 10,000, but they are given less managerial autonomy than the municipal and city boards, and appear to serve a mainly advisory function. 124 The main difference between the two formulas is the addition of two new factors. The development factor is a composite index of illiteracy, children not at school, immunization coverage, access to sanitation, electricity and water, unpaved roads and total paved roads. If adopted, the new formula will deliver some additional resources for the larger urban counties with big wage bills. For Nairobi, for example, the equitable share transfer for 2014/15 would increase by 8.7% from KSh 11.34 billion (US$129 million) using the first generation formula to KSh 12.33 billion (US$141 million) using the second generation formula. 125 The level of urbanization refers to the proportion of the county population in urban areas. 126 Based on Controller of Budget report on counties for 2013/14. The exception is Narok, a rural county in Kenya’s southwest, which raises most of its revenue in fees collected at the internationally renowned Masai Mara game park. 127 The issues raised by the Kenya Association of Manufacturers relate to the use of outdoor advertising regulation powers to charge trucks travelling through a county a “branding permit” for the signage on the truck, and the requirement for visiting salesmen from a firm based in another county to pay for a single business permit. The Local Government Act provided for a SBP issued by one local authority to be valid across the whole country, but this Act has now been repealed. 128 Section 161 of the Public Finance Management Act 2012 directs county governments to observe this provision, and to seek the advice of the Cabinet Secretary for Finance and the Commission on Revenue Allocation before imposing any revenue raising measures. It is believed this provision is not being adhered to, but it is also likely that both National Treasury and the Commission on Revenue Allocation lack the capacity to provide comprehensive advice on all county finance laws. 129 2012/13, based on National Treasury ‘Indicative County Allocation’ dataset, which includes actual data on salary expenditure, and estimated data for operations and maintenance and capital in respect of devolved national functions, and 2009/10 LATF reports for local authorities. 2013/14 based on Controller of Budget Annual County Budget Implementation Review Report 2013/14. 130 The figure of 92% is significant, because a revenue outturn of below 92% would score a “D,” the lowest score possible, on the indicator PI-3 in the Public Expenditure and Financial Management Assessment framework. 131 Through the Public Financial Management (Amendment) Bill 2014 that originated in the Senate, proposals have been made for counties to increase the development:recurrent ratio to 40:60. 132 Based on Controller of Budget County Budget Implementation Review Reports: Q1 2013/14 report for original budgeted revenue for 2013/14, Annual 2013/14 Report for revenue budgeted and outturn revenue for 2013/14, and Q1 2014/15 report for 2014/15 for budgeted revenue for 2014/15. Note that successive 2013/14 Controller of Budget Reports show slightly different budgeted own source revenues for counties for the 2013/14 year. The Q1 report for 2013/14 reported total budgeted own source revenues as KSh 67.388 billion. In the half year report, total budgeted own source revenues was reported as KSh 67.831 billion and in the Q3 report as 60.948 billion. By the release of the Q4 (annual) report for 2013/14 the county own source revenues target had been reduced to 54.207 billion. 133 One-sixth of the national transfers were released on June 30, too late to be spent. 134 Article 212 of the Constitution states that: “A county government may borrow only— (a) if the national government guarantees the loan; and (b) with the approval of the county government’s assembly.” 135 Section 58, Public Finance (Management) Act 2012. 136 Section 59, Public Finance (Management) Act 2012. 137 Section 63, Public Finance (Management) Act 2012. 138 The analysis that formed the basis for this chart computed inherited costs using the following data sources: salary costs based on data 177 collected by the transition authority during early 2014; operations and maintenance costs related to devolved national functions based on budgetary allocations under the 2012/13 budget, disaggregated through a costing exercise undertaken by the National Treasury and published in June 2013 as the “Indicative County Allocations dataset”; and recurrent operations and maintenance costs relating to former local authority functions based on noncapital budget allocations by the former local authorities in 2009/10, the last year for which data are available. 139 The threshold is officially defined as 20% of the county government’s most recent audited revenue or 2% percent of the national GDP, whichever is lower. In practice the revenue threshold is far lower: using unaudited 2013/14 county revenues of KSh 26 billion (US$300 million), 20% of the revenues is KSh 5 billion (US$60 million) equivalent to 0.1% of GDP. 140 Higher borrowing limits, however, create problems of their own. In Brazil some states and municipalities well below the threshold believed that they could borrow up to 200% without problems, taking the threshold as a floor rather than a ceiling (Liu and Pradelli 2012). 141 Assuming a unit cost of US$1.4 million per km. 142 World Bank (2014). 143 See http://www.wttc.org/%20-/media/files/reports/economic%20impact%20research/country%20reports/kenya2014.pdf; http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/06/08/000427087_20120608153022/Rendered/ PDF/696870ESW0P1020e0Jewel0final0report.pdf; http://www.commerce.go.ke/downloads/National%20Tourism%20Srategy%202013_2018.pdf. 144 There is a very limited number of counterfactual spatial outcomes (5–10 out of 10,000 at most) that can yield equal or slightly higher overall accessibility figures depending on the simulation conducted. In any case the gain is extremely limited and tends to reinforce the conclusion that the current spatial layout of Nairobi is reasonably efficient given the capital constraints of the transport network and the residential, industrial, and commercial stock. 178