In the last two months, the Kenyan Senate has failed to pass a formula to be used in the division of revenue among county governments. For a record six times, the Senate has adjourned sittings to debate on the 3^rd generation formula developed by the Commission for Revenue Allocation (CRA) but with amendments by the Senate committee on Finance and Budget. Failure to agree on the formula has resulted to a cash crunch in the counties as the National Treasury has no basis to send money to them. The bone of contention with this formula is that it places more weight on the population variable as opposed to previous formulas which placed more weight on geographic factors.

Given that the amount of money to be sent to counties in this financial year remains the same as that of the last financial year, calculations show that if the new proposed formula is adopted 28 counties will get a comparatively increased share of revenue as compared to the previous allocation while 19 counties will lose a portion of the revenue they got in the last financial year. This has pitted leaders from the 19 counties against those from the remaining 28 counties, with both factions openly coming out to voice their sentiments. The opponents are using the “past marginalization” card while proponents of the formula argue that resources should follow services based on the number of people and have thus referred to themselves as champions of the “One Man One Shilling” ideology. This is because ideally, services are offered to people. For instance, health care is one of the devolved services and the higher the population in a certain county, the higher the number of health facilities required. This automatically implies that more resources are needed to put up these facilities. This is also true for such services as water, sanitary provision and services related to agriculture among others.

This argument, even though controversial, has received support from key leaders across the political divide and there is intense lobbying by the government side to have the Senators pass the formula. If the Senate finally approves the formula, the 19 counties (mainly from the Coast and North Eastern regions of the country) will suffer a huge revenue setback. Consequently, they will have to go back to the drawing board and plan on how to allocate the reduced revenue to their unlimited needs. This will not be a walk in the park given that these counties have already gotten used to drawing budgets based on higher revenue projections. On this backdrop, these counties need to rethink how they will continue offering the same or almost similar services to their constituents just as they did before the revenue shortfall. Otherwise, they will continue being even more marginalized.

Common aspects of the 19 counties include high levels of poverty, large sizes in terms of land area but with sparse populations. Can agglomeration be a long-term solution? I strongly believe that it can be. Agglomeration involves having people concentrate in designated areas. This makes it easier to provide social amenities as opposed to when they are widely dispersed.  This is because the cost of the social amenities infrastructure per household is high when the population is widely spread as opposed to when the population is concentrated in certain areas. Besides making it cheaper to provide social amenities to people in designated settlement areas, agglomeration economics has several other benefits. First, businesses ranging from SMEs to large firms will be established in such areas. This will provide the residents with a wide range of goods and services which they would otherwise have not obtained due to large transport costs required to access them. Residents will also be well placed to get jobs in these establishments. Furthermore, they will benefit from corporate social responsibilities (CSR) that often come with industries. Such include bursaries to the needy but bright students, cleaning of the environment and community medical services among others. Given that firms will now find their markets near them, they are likely to incur less transport cost such that their goods and services will now be relatively cheaper. As a result, the consumer surplus will expand consequently leading to improvement in welfare.

Second, agglomeration is likely to lead to high property prices in adjacent areas which also implies that owners of the property will enjoy higher rents. With high property prices, such owners will now be able to acquire better financial services such as loans as the high-priced property can provide high valued security for loans. Further, they could also sell the high priced property and use the proceedings to invest in more viable ventures. Third, agglomeration will be helpful in reducing rural-urban migration. One of the reasons for the low population in the counties losing revenue is that most of the residents migrate to urban areas in other counties where the likelihood of getting a better living is high. Therefore, by agglomeration, people will no longer move to other counties as jobs will be readily available in their localities. This will not only solve the problem of high unemployment in highly populated urban centers but will also put the “sparsely populated” counties at a better position to get a higher revenue share as they will now have a higher population. Finally, agglomeration helps in setting aside land for agriculture. It also becomes easier for governments to plan on agricultural support systems such as irrigation. Therefore, by availing more land for farming and by providing proper exploitation of it, agglomeration will be key in ensuring food security. It is probable that the said marginalized areas could even prove to be more productive than areas that are traditionally believed to be more productive.

For such agglomeration plan to be successful, a well laid plan should be set. For instance, selected settlement areas should be strategic enough to attract investors. Additionally, property rights should be well defined to prevent frequent disputes among locals. It also creates confidence to investors as the well-defined collaterals offer a form of foreseeable security for the establishments.