Non-Governmental Organisations as catalysts of economic growth

Introduction Non-Governmental Organisations (NGOs) play an important role in promoting economic growth, developing society, improving communities and promoting citizen participation. NGOs are particularly critical to the socioeconomic development of countries where government capacity and revenues are limited. According to Kenya’s Vision 2030 Third Medium Term Plan (MTP III) 2018 – 2022, strong partnerships with NGOs and other not-for-profit organisations like trade unions and foundations will strengthen the implementation of the MTP and enhance socio-economic development. The annual NGO sector report published by the NGO Coordination Board in January 2020 similarly indicates that Kenya’s NGO sector makes significant contributions and complements the government’s development efforts in line with the Sustainable Development Goals (SDGs), Kenya Vision 2030 and other development plans. The NGO Coordination Board’s report documents that for the year 2018/2019, a total of 1,026 NGOs contributed a total of KES 34.9 billion as they implemented projects related to the government’s ‘Big Four’ agenda. NGOs spent a total of KES 30.8 billion on health-related projects, KES 3.8 billion on food security and nutrition, KES 352.6 million on projects related to manufacturing and KES 19.6 million on housing and settlement as well as providing employment opportunities for many Kenyans. Kenya’s economic development and growth derive from factors like capital, labour, natural resources and technology. Clearly, NGOs contribute to these and other factors and in some cases can even function as catalysts bringing about positive change. What role do NGOs play in economic growth and development? NGOs play a critical role in economic development, trade facilitation and building healthy communities through the provision of critical services. The rapid growth and expansion of NGOs worldwide attests to their growing role in the development process. NGOs offer a broad spectrum of services across multiple fields, ranging from finance, livelihood interventions and health and education services to more specific areas, such as emergency response, democracy building, conflict resolution, human rights, environmental management, and policy analysis. Some NGOs provide access to micro credit or micro finance facilities, positively impacting micro enterprises as well as enabling individual households to start income-generating activities. Other NGOs provide micro loans without requiring any collateral or mortgage with the aim of assisting the less privileged in society. They offer opportunities for people to develop initiatives in business or agriculture that generate earnings offsetting the debt over time. What skills do NGOs help to develop? A skilled, well-trained workforce is more productive and will produce high-quality output efficiently, contributing to economic growth whereas a shortage of skilled labour can deter economic growth and lead to higher unemployment. NGOs play a critical role in developing Kenya’s human resources such as by carrying out direct capacity building activities and sponsoring students to attend various learning institutions. NGOs also help to train local people in different trades and to develop learning materials for those trades. Kenya’s ongoing development requires good governance and education and awareness about citizens’ rights and duties. NGOs can research and publish information on a wide variety of issues, documenting abuses of rights, corruption and policy failures, and helping people to seek justice through the courts where their rights have been abused.

"In an era of growing needs and shrinking government resources, NGOs are being asked to do even more with less, placing additional strain on their already limited resources."

What can the Government do to strengthen the impact of NGOs? In an era of growing needs and shrinking government resources, NGOs are being asked to do even more with less, placing additional strain on their already limited resources. Accordingly, the Government should provide additional tax incentives that help to attract more donor funding to the NGO sector. Whereas an NGO’s income is generally exempt from income tax (subject to an application being made to the KRA), most NGOs are faced with additional costs arising from Value Added Tax (VAT) input tax charged by suppliers of various taxable goods and services. It’s worth noting that the current VAT Act provides for zero rating of goods and services imported or supplied for (and for the official use of) donor agencies and international and regional organisations with diplomatic accreditation or bilateral or multilateral agreements with Kenya. In other words, only organisations that have diplomatic accreditation or multilateral agreements with Kenya are eligible to apply for these exemptions. The Government should consider extending the same to NGOs, many of which are critical to implementing donor projects.

Conclusion Clearly, NGOs have become increasingly important to the promotion of sustainable development in Kenya. They play a major role in Kenya’s political, economic and social development and help to assess and address challenges at national and international levels including threats to growth, democracy, health and the environment. Joint partnerships between governments, NGOs and the private sector are crucial to Kenya’s development trajectory.

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Mwangi Karanja

PwC Partner, Assurance T: +254 20 285 5150 E:

Gideon Rotich

Senior Manager, Tax T: +254 20 285 5659 E:

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