EXECUTIVE OFFICE OF THE PRESIDENT

QUARTERLY PROGRESS REPORT ON PARASTATAL REFORMS

REPUBLIC OF KENYA

MEMBERS OF THE PARASTAL REFORM IMPLEMENTATION COMMITTEE

H
.E. The President appointed a Taskforce
on Parastatal Reforms on 23rd July 2013
tasked with the responsibility of reviewing
and recommending policies on management
and governance of State Corporations. This was
to ensure that they contribute to the National
Development Goals, including compliance
and alignment with the requirements of the
Constitution of Kenya, 2010. The underlying
philosophy of the reforms was the urgent need,
inter alia, for scaling up efficiency, effectiveness
and accountability of parastatals by re-clustering
institutional activities of every sector into policy,
development and promotion, regulation, and Hon. Abdikadir Mohamed Mr. Issac Awuondo Ms. Jane Mugambi
research. Senior Advisor to the Group Managing SOEs EXPOSURE TO CORRUPTION
Director, Secretary, SCAC/
The findings and recommendations of the President and Head Commercial Bank of Africa,
Ten critical
Implementation Committee
policy challenges for State Owned Entities
Taskforce and the new Policy on Management of Constitutional and Co-Chair of the Task Force LINKAGE TO

Government Owned Entities were presented by Legislative Affairs office, MANDATE NATIONAL
DEVELOPMENT
DEFINITION COORDINATION GOVERNANCE

the Taskforce and adopted by H.E. The President, Co-Chair of the Task Force Lack of clarity on Poor linkage of Conflicting Poor coordination Poor governance
Mr. Joseph Kinyua, CBS., the mandates of SOEs to national definition of SOEs & multiplicity of in SOEs coupled
consequently upon the receipt of the report:- SOEs EXPOSURE TO CORRUPTION development in the the SOEs oversight with Weak and/or
Chief of Staff and Head of goals
Ten critical policy issues for State Corporations
Kenyan/Global institutions ineffective Boards
i. Issued the policy on Governance and context

The Public Service Chairman of the Ten critical policy challenges for State Owned Entities
Management of Government Owned Entities,
Implementation Committee
and MANDATE
LINKAGE TO
NATIONAL DEFINITION COORDINATION GOVERNANCE COMPETITIVENESS
INSTITUTIONAL
CAPACITY
POLICY
ESTABLISHMENT/
DISSOLUTION
PERFORMANCE
MANAGEMENT

ii. Appointed the Implementation Committee

DEVELOPMENT

Lack of clarity on Poor linkage of Conflicting Poor coordination Poor governance Inhibitive laws & Weak human Lack of coherent Lack of clarity / Inadequate
(Chaired by the undersigned) to implement the mandates of
the SOEs
SOEs to national definition of SOEs & multiplicity of in SOEs coupled regulations
relating to
resource and lack
of other resources
government
policy
abuse in process
of establishment /
performance
management
development in the oversight with Weak and/or
the new policy on GOEs and realize the goals Kenyan/Global
context
institutions ineffective Boards procurement &
disposal.
dissolution of
SOEs
framework

recommendations of the Taskforce. Friday, May 15, 2015 2

INSTITUTIONAL ESTABLISHMENT/ PERFORMANCE

COMPETITIVENESS POLICY
CAPACITY DISSOLUTION MANAGEMENT

REFORM Transfer of • Three (3) GOEs have had their functions 4. Kenya Investment Corporation (KIC)
DELIVERABLE PROGRESS / COMMENTS Inhibitive laws & Weak human Lack of coherent Lack of clarity / Inadequate
AREA Functions transferred
regulations back toand
resource the
lackrelevant State
government abuse in process performance i. Kenya Tourism Board
Legal & The • The final draft Bill is ready, having undergone Departments,
relating to
procurement &
namely the South-South
of other resources policy of establishment /
dissolution of
management
framework
ii. Brand Kenya
Policy Government stakeholder consultations including CIC Centre,disposal. National Council for Children’s SOEs iii. Export Promotion Council
Framework Owned Entities roundtable discussions. Services and the Kenya Tsetse and
Friday, May 15, 2015 2
iv. Kenya Year Book and
Bill, 2015 • The Bill is before Cabinet for approval and Trypanosomiasis Eradication Council. v. KenInvest
thereafter will progressed to the National • The transfer of functions for a further four (4) 5. Intellectual Property Office of Kenya (IPOK)
Assembly. GOEs await the enactment of the GOE Bill, i. Kenya Industrial Property Institute
Linking • The GOEs have been reclassified and 2015 and consequential Amendments. ii. Anti-Counterfeit Agency and
the State categorized in a manner that they link with the iii. Kenya Copyright Board
Corporations National Development agenda. Institutions • Consultations are ongoing between the 6. Financial Services Authority (FSA)
with National • The new classification of GOEs is as follows; for further National Government, County Governments i. Insurance Regulatory Authority
Development i. State Corporations which include Commercial consultations and the Transitional Authority (TA) in respect ii. Retirement Benefits Authority
Goals and Strategic Commercial entities of State Corporations which fully or partially iii. Sacco Societies Regulatory Authority
ii. State Agencies which includes Regulators, perform devolved functions as defined in iv. Capital Markets Authority
Research institutions, Training and Schedule 4 of the Constitution of Kenya, 2010 7. Kenya Plant Health and Biosafety Service
Educational institutions and Executive and will be subjected to the prevailing Inter- (KEPHABS)
Agencies Governmental and Transition Framework. i. Kenya Plant Health Inspectorate Service and
iii. County Corporations - Commercial and • These include; regional development ii. National Biosafety Authority
Strategic Commercial institutions in the authorities, water boards, LAPFund and Concluded 1. Kenya Agriculture and Livestock Research
Counties LAPTrust. mergers in Organization (KALRO)
iv. County agencies Agriculture i. Kenya Agricultural Research Institute
Streamlin- Establishment • The new framework establishes the Consolidation • The Committee has rationalized the need to Sector ii. Kenya Sugar Research Foundation
ing of the of the Government Investment Corporation (GIC) of Government consolidate Government Owned Banks in iii. Tea Research Foundation
Oversight Government as an investment holding company to exercise Owned Banks order to; iv. Coffee Research Foundation
framework Investment ownership and management oversight over i. Give policy leadership to increase size, scale,
Company (GIC) commercial State Corporations on behalf of efficiency and effectiveness, 2. Agriculture, Food and Fisheries Authority
the National Treasury. ii. Reform the distribution and market impact (AFFA)
of Government securities, justifying Primary i. Kenya Sugar Board
Establishment • The new Framework provides for ii. Tea Board of Kenya
dealerships and creation of a wider secondary
of the National establishment of the National and County iii. Coffee Board of Kenya
market, thus guiding market interest rates.
and County Agencies Oversight Office (NACAOO) to iv. Pyrethrum Board of Kenya
iii. Enhance the ability of Kenyan banks to
Agencies exercise oversight on all GOEs v. Cotton Development Authority
participate in flagship projects of Vision 2030.
Oversight vi. Coconut Development Authority
iv. Help position Kenya as a Regional Financial
Office Hub and support establishment of Nairobi vii. Sisal Board of Kenya
(NACAOO) International Financial Centre (NIFC) viii. Horticultural Crops Development Authority
Gover- Development • A Code of Governance for GOEs Hither to: Status of • To prepare the roadmap for the mergers,
nance of of a Code of (Mwongozo) has been developed by the • The Committee has examined all the State Reform harmonization of the legal regime is critical.
Govern- Governance Implementation Committee, in conjunction Owned Banks, undertaken reviews and Merger Bills To this end, the Committee has prepared the
ment with State Corporations Advisory Committee come up with options for consolidation of the and attendant following in readiness for mergers:
Owned (SCAC). Government Banks
amendments • Bills ready for Discussion with Merged
Entities • Mwongozo is based on the Constitution of • Consultations are still underway
Institutions Legal Teams;
(GOEs) Kenya, 2010 and draws from similar codes i. The Kenya Plant Health and Biosafety
including King III Report on Corporate Rational- Institutions to • To objectively undertake rationalization of SCs, Services Bill
Governance, the Malaysian Code of ization of be merged the Implementation Committee went through ii. The Kenya Wildlife and Forest Service Bill
governance and OECD Guidelines amongst State Cor- a consultative process by forming merger • Bills undergoing Drafting;
others. porations teams consisting of the Committee members, i. The Securities, Investments And Derivatives
• It provides a framework embodying Board Secretariat and the affected institutions. Bill
charters, Codes of conduct, professional • Each cluster of SCs targeted for reform has ii. The Retirement Benefits Standards Bill
ethics, and performance management. developed a merger road map as follows:- iii. The Insurance Bill
The Code further addresses matters of 1. Kenya Development Bank (KDB) iv. The Sacco Societies Bill
effectiveness of Boards, transparency and i. Industrial and Commercial Development v. Intellectual Property Office of Kenya Bill
disclosure, accountability, risk management, Corporation vi. Kenya Export, Investment and Tourism
internal controls, ethical leadership and good ii. Kenya Tourism Development Corporation / Agency Bill
corporate citizenship. Tourism • Bills ready to be progressed to CIC roundtable
• MWONGOZO will ensure that sustainability, iii. Finance Corporation, and discussions;
performance and excellence become the iv. IDB Capital i. Financial Services Bills
hallmark of our Government Owned Entities
(GOEs). 2. Kenya Forestry and Wildlife Service (KFWS) Legal The National • The Jubilee Manifesto, building on Vision 2030
• An Implementation roadmap for Mwongozo is i. Kenya Wildlife Service Framework Sovereign objectives, declared the goal of establishing
in place and will be soon rolled out by SCAC ii. Kenya Forestry Service for extrac- Wealth Fund “an in-country SWF based upon global
with support of development partners. iii. Nyayo Tea Zones Development Corporation tive indus- Bill, 2015 best practice to secure an income from the
iv. Kenya Water Towers Agency try. resources of today for future generations of
Rational- Establishment • Two (2) State Corporations (AFFA & KALRO) Kenyans”.
ization of of New GOEs in the Agricultural sector created from merger • The Implementation Committee has submitted
the Para- of Twelve (12) GOEs. 3. Biashara Kenya
i. Kenya Industrial Estates the National Sovereign Wealth Fund
statals These are; (NSWF) Bill, 2015 to the Commission on
i. Crops Development and Promotion Agency, ii. Women Enterprise Development Fund
iii. Youth Enterprise Development Fund Implementation of the Constitution (CIC) for
ii. Fisheries Development and Promotion Agency, stakeholder and round table consultations.
iii. Livestock Development and Promotion iv. UWEZO Fund, and
v. Micro and Small Enterprises Authority • The Bill will be tabled at the Cabinet for
Agency, approval and thereafter progressed to
iv. Health Services Regulatory Authority, and Parliament for enactment.
v. Mining Regulatory Services.
 EXECUTIVE OFFICE OF THE PRESIDENT

QUARTERLY PROGRESS REPORT ON PARASTATAL REFORMS

REPUBLIC OF KENYA

MWONGOZO; THE CODE OF GOVERNANCE FOR STATE CORPORATIONS

vi) Public Enterprises Reforms and Privatization in The Code also draws from the Public Officers and
July 1992. Ethics Act (2003), State Corporations Advisory
vii) Kipkulei Report on Harmonization of T&C of Committee Guidelines (2004) as well as Global best
Service for Public officers. practices including the King III Code and OECD
viii) The Presidential Committee chaired by Dr. Sally Guidelines on Corporate Governance of State
Kosgei in 2002. Owned Enterprises (2005).
ix) The Abdikadir, Awuondo report on Parastatal The Code recognizes that as Mwongozo is
reforms of 2013. implemented, State Corporations are at different
In addition, in 2003, the government developed levels of compliance with corporate governance
a policy paper for development; the Economic norms. Consequently, the governance principle of
Recovery Strategy for Wealth and Employment ‘COMPLY OR EXPLAIN’ has been embedded in the
Creation (ERS). The strategy acknowledged the role application and implementation mechanisms of
State Corporations play in wealth and employment the Board. This approach will allow organizations
creation and therefore advocates reforms to ensure time to fully comply at a pace that is realistic in their
“fit for purpose’ public service institutions. circumstances and to learn from the experience of
Other reform initiatives were introduced under the others, whilst at the same time taking responsibility
ERC to enhance governance in management of and ownership for any non-compliance.
public institutions including; the enactment of Public While full compliance is expected, the approach
Officers Ethics Act in 2004, the Public Procurement positively recognizes that a satisfactory
and Disposal Act in 2005, Privatization Act in 2005 and explanation, coupled with a roadmap to full
various executive orders. compliance will, in certain circumstances be
The above efforts culminated in to similar acceptable. This requires that the disclosures for
recommendations to a great extent. The difference is non-compliance will need to be detailed and
H.E.The President with the Reform Implementation Committee members during the
that with the conclusion of the Abdikadir, Awuondo Boards will be held to account for any explanations
insuance of Executive Order NO. 7 on implementation of Mwongozo on 25th March 2015
report, H.E. The President soon after appointed given.
Background of the Code an Implementation Committee, chaired by the
The Presidential Taskforce on Parastatal Chief of staff and Head of the Public Service, Mr. Progress on Mwongozo
Reforms report that the performance of State Joseph Kinyua, CBS, to implement the policy and i) The Code has already been jointly published
Corporations depended to a large extent on realise the recommendations. This is the highest and issued by the Public Service Commission
the capabilities and performance of their executive level in Government and the aim is to and the State Corporations Advisory
Boards. The Taskforce therefore recommended ensure unfettered implementation of the reforms. Committee
a uniform code of governance to provide a Challenges of implementation of the policy and the ii) H.E The President issued Executive Order No.
firm foundation for good corporate governance recommendations notwithstanding, the committee 7 requiring full compliance of Mwongozo by
and be applicable across all State Corporations has made great strides in a short time. These include respective Government Agencies
as a means of strengthening the roles and a draft single over-arching Bill (the GOE Bill, 2015) iii) Circulars have been issued by the Chief of Staff
responsibilities of the Board. for the sector which is ready for consideration by and Head of Public Service to implementing
Based on these recommendations, the Parliament and Mwongozo, the Code of Governance Agencies requiring them to adhere to the
reform Implementation Committee through for State Corporations. Code’s provisions
the State Corporations Advisory Committee iv) Partners have been identified to provide
and in consultations with the Public Service Challenges addressed by Mwongozo technical support to ensure expeditious
Commission developed a Code of Governance The Presidential Taskforce recognized that the implementation of the Code and capacity
for all State Corporations dubbed Mwongozo. effective implementation of Kenya’s Vision 20130 building of implementing Agencies
Lexically, “Mwongozo” is a Swahili word loosely would require a transformational mindset in the way v) SCAC as the oversight Agency for all State
translated to denote Leadership or guidance. H.E. The President officially unveils business is conducted. It is against this background Corporations has been directed to ensure
The term was carefully selected to affirm the Mwongozo the code of Governance for that Mwongozo, the Code of Governance for State compliance and enforcement of the Code’s
leadership responsibilities vested on the Boards State Coporations Corporations has been developed. It addresses provisions
of State Corporations generally and specifically governance challenges that impede effective
to as “King III Code of Governance for South Africa”. governance and management of Boards. These Salient Features of Mwongozo
to the respective chairpersons and Chief Kenya has received global recognition in the effort
Executive Officers. include: Mwongozo provides for, among others:-
to inform corporate governance in SCs. Since last i. Absence of a clear framework for recruitment, yy Appointment criteria for Boards
Mwongozo is geared towards providing a year, Kenya has been admitted to the OECD network
harmonized approach on matters of governance selection, appointment and inductions of boards yy Gazettement of all Board members by name
for Africa. This network provides a platform where of State Corporations; including Government representatives
in State Corporations with the aim of addressing countries exchange experience, ideas and information
challenges identified in the Taskforce report ii. Lack of uniformity in the application of yy Composition, proper mix and size of the
on effective governance of SOEs thereby benefiting appointment procedures, not least in respect of Boards
but also to enhance the performance of State from collective wisdom of member countries and
Corporations towards achievement of the State Corporations; yy Roles of the Boards, Chairpersons, Board
creating synergy for addressing common regional iii. Inadequate induction, training and development members and CEOs
national development goals. priorities. of Board members; yy The position of Company/Corporation
In Kenya, the State Corporations Sector remains iv. Lack of an efficient and standardized Board Secretary in all Boards
Global Best Practice strategic to the socio-economic development of the
The management of State Owned Enterprises evaluation/appraisal process; yy Tenure limit for Board members and CEOs
country as outlined in the Kenya Vision 2030. Presently, v. Lack of proper skills mix and bloated Boards yy Maximum number of Boards any one person
(SOEs) has been evolving globally leading to the sector is implementing 84 flagship projects under
principles and practices that have come to apply vi. Ambiguity in the role of Company/Corporation can serve in
the Kenya Vision 2030. These institutions have come Secretaries; yy Guidelines on Board Committees
generally in different countries. The principles under sustained attack for wasting public resources
are driven primarily by the global pursuit of good vii. Shortcomings in the process of appointment or yy Board induction and Evaluation mechanisms
with a number operating on financial deficits thereby reappointment of Chief Executive Officers; yy Succession planning and strategies
corporate governance necessary for viability and increasingly being over dependent on the exchequer
sustainability. The Organization for Economic viii. Lack of clarity on rewards and sanctions for yy Regulation of ethical conduct in Boards
as well as domestic and foreign credit. The level of Boards; yy Requirement for Governance audits
Development and Co-operation (OECD) is these demands is still related to low productivity and
credited with spearheading the development yy Fit and proper tests
profitability, inefficiency, low performance and low Basis of Mwongozo
of governance principles for State Owned employment creation. This is to a great extent directly
Enterprises. With time these have been adopted The Code of Governance is anchored on the STATUS OF THE REFORMS
related to poor governance. Constitution of Kenya, 2010 - specifically the following
and domesticated by different countries within Since independence, the Government acknowledges PROPOSED WAY FORWARD:
and outside the OECD. Articles: To realize the reforms in a timely and affordable
the importance of State Corporations in socio i. Article 10 – Entrenches national values and
A review of management practices of State economic development. This manifests itself through manner, the Implementation Committee has
Corporations in Singapore, Australia, New principles of governance outlined the following activities;
various reforms made by different Governments since ii. Article 73 - Places emphasis on public trust, honor
Zealand, South Africa, China and within OECD independence. Examples include; i. Fast tracking of enactment of the Government
reveals that they are guided by a code of and dignity of public offices. Owned Entities Bill, 2015
i) Sessional Paper No. 10 of 1965 establishing State iii. Article 232 – Reinforces personal integrity, and
governance. For example, South Africa which Corporations ii. Fast tracking of enactment of the National
is a member of OECD had domesticated OECD values and principles of public service, which Sovereign Wealth Fund Bill, 2015
ii) Duncan Ndegwa report of 1971, also provides for efficiency, effectiveness and
Guidelines on governance of State Owned iii) Phillip Ndegwa Report of 1982 iii. Fast tracking enactment of all the other
Enterprises to address local challenges. economic use of resources. enabling legislations
iv) Sessional paper No. 1 of 1986 iv. Chapter Six of the Constitution on Leadership and
Instructively they have come up with a code of v) Sessional paper No. 4 of 1991 iv. Capacity building of Boards on the Code of
governance for South Africa commonly referred Integrity. Governance; Mwongozo provisions