A Schumpeterian Analysis of the Eurobond Scandal through Rothbard’s Cui Bono

Joseph Schumpeter, in Capitalism, Socialism and Democracy (1942), offered a starkly realistic definition of democracy: it is not the rule of the people by the people, but “that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote.” In this view, democracy functions as an elite contest, politicians and their coalitions vie for office, much like firms compete in a market. Once victorious, they wield state power not primarily for the public good but to reward supporters, secure reelection, and extract rents. Kenya’s post-1992 multiparty system embodies this Schumpeterian reality: competitive elections occur, yet governance remains “politicians’ rule,” where the apparatus of the state serves the victors’ networks rather than the electorate.

Nowhere is this clearer than in the 2014 Eurobond scandal, the country’s debut sovereign bond issuance. Profiling the episode through Murray Rothbard’s famous question cui bono? (“who benefits?”) reveals an empirical pattern of elite capture. Billions flowed offshore, audits flagged massive discrepancies, investigations were blocked, and no one was held accountable, while ordinary Kenyans inherited a heavier debt burden with scant traceable development. The scandal synthesizes why Kenya operates under politicians’ rule, not popular sovereignty, and hints at what “Kenya without politicians’ rule” might require: institutional constraints that limit the competitive victors’ access to unchecked borrowing and spending.

The Empirical Facts of the Eurobond Scandal

In June 2014, less than 18 months after Uhuru Kenyatta’s election victory in March 2013, the Jubilee administration (Kenyatta as President, William Ruto as Deputy) issued Kenya’s first Eurobond. The initial tranche raised $2 billion (approximately Ksh 176 billion at prevailing rates), followed by a second raising $815 million, for a combined $2.75–2.8 billion (roughly Ksh 250 billion). The stated purposes were budget support, infrastructure development, and reducing domestic borrowing to lower interest rates and crowd in private investment.

The funds were deposited in an offshore account at JP Morgan Chase in New York. Two primary transactions followed: approximately $604 million (Ksh 53 billion) repaid a pending syndicated loan, and $394 million (Ksh 35 billion) was transferred to the Kenyan exchequer. This left roughly $1.002 billion (about Ksh 88–100 billion, depending on exchange rates) unaccounted for in the offshore vehicle.

Subsequent government explanations collapsed under scrutiny. Officials claimed up to Ksh 120 billion had funded pending road contractor bills and budget support. Yet the 2014/15 recurrent budget figures contradict this: domestic revenues covered nearly the entire national government allocation (Ksh 897 billion required versus Ksh 877 billion available after county transfers), rendering massive Eurobond supplementation implausible. Ministries later admitted they could not trace whether disbursements originated from taxes, domestic borrowing, or the Eurobond—effectively rendering the funds fungible and untraceable.

Auditor-General Edward Ouko’s office repeatedly flagged the anomalies. In special audits and annual reports, he noted that Ksh 215.47 billion in net proceeds could not be satisfactorily accounted for or traced to specific projects within the domestic economy. The Public Finance Management Act (2012) requires all such receipts to enter the Consolidated Fund with parliamentary oversight; this was not done for the bulk of the offshore balance. Ouko’s attempted forensic audit, coordinating with JP Morgan, the New York Federal Reserve, and other banks, was reportedly blocked by President Kenyatta, who framed it as implying improper collusion. By 2019 (and with echoes in later audits), the accuracy of expenditures remained unascertained. IMF reports highlighted inconsistencies in domestic borrowing figures (initially reported at Ksh 110 billion, later revised to Ksh 251 billion), further muddying the trail.

The scandal also intertwined with the earlier Anglo-Leasing ghost contracts. To burnish Kenya’s creditworthiness ahead of the Eurobond launch, the government paid Ksh 1.4 billion to two Anglo-Leasing-linked shell companies (First Mercantile Securities and Universal Satspace) following a Geneva arbitration loss, despite a 2006 Kenyan audit and 2012 High Court ruling exposing the contracts as fraudulent and non-existent. Additional payments, including $16.4 million to businessman Deepak Kamani (purportedly to “facilitate” the bond) and demands for Ksh 3.05 billion more from Anura Perera, surfaced. Selective prosecutions in 2015 targeted some Anglo-Leasing figures but produced no convictions and conveniently spared Kenyatta-linked actors.

Later Eurobond issuances (2018, 2019, and even 2025 under the Ruto administration) followed similar patterns of opacity, with fresh audit concerns over diverted proceeds (Ksh 110 billion questioned in 2025). Yet the 2014 episode remains the archetype: billions borrowed in the people’s name, vanishing into untraceable channels.

Cui Bono? Rothbardian Beneficiaries in Schumpeter’s Competitive Struggle

Rothbard’s cui bono asks who gains from state action, especially when cloaked in public-purpose rhetoric. In the Eurobond case, the winners align precisely with Schumpeter’s political competitors:

The ruling political elite: Kenyatta’s Jubilee coalition secured office in 2013 through competitive vote struggle. The bond provided discretionary resources, fungible cash outside tight domestic scrutiny, for patronage, pending bills to politically connected contractors, and maintaining fiscal appearances. No major prosecutions followed; investigations were stymied. Power was preserved and transferred (Ruto succeeded Kenyatta in 2022).Connected insiders and rent-seekers: Payments to Anglo-Leasing remnants and facilitators (Kamani, Perera) suggest kickbacks or debt-clearing for allies. Inflated energy-sector projects (e.g., rural electrification ballooning from Ksh 9.9 billion to Ksh 34 billion) created plausible cover for overruns benefiting cronies.International financial actors: Banks earned fees on issuance and transfers. Creditors (old syndicated loans) were repaid. Kenya’s debt stock exploded; annual servicing now crowds out development spending. Lenders benefit from interest on what was effectively recycled or untraceable borrowing.The political class broadly: Competitive democracy rewards those who master the “struggle for the vote.” Eurobond proceeds helped suppress domestic borrowing spikes, masking fiscal profligacy during re-election cycles. Ordinary voters saw no proportional infrastructure boom; instead, they face higher taxes, inflation, and a debt-to-GDP ratio that has since surpassed 70 percent with limited visible returns.

The losers? Kenyan taxpayers and future generations. As Rothbard would note, the state’s monopoly on borrowing socializes costs while privatizing gains to the connected. Auditor-General reports confirm the funds were neither deposited nor expended per constitutional requirements. Public participation and accountability, hallmarks of genuine popular rule, were absent.

Synthesizing Kenya Without Politicians’ Rule

Schumpeter reminds us that democracy is a method, not a guarantee of the common good. Kenya’s Eurobond saga empirically demonstrates the method’s predictable outcome under weak constraints: politicians compete, win, and rule in their own interest. The competitive struggle produced a government capable of raising $2.8 billion with minimal immediate voter backlash, then dissipating accountability through offshore opacity, blocked audits, and narrative deflection.

A Kenya without politicians’ rule would therefore require moving beyond Schumpeter’s method alone. It demands hard institutional fetters, strict debt-ceiling rules, mandatory real-time exchequer tracing, independent forensic audits immune to executive interference, and perhaps fiscal referenda for mega-borrowing. Only then might the “people’s vote” translate into genuine popular sovereignty rather than a mere license for elite extraction. Until such reforms, the Eurobond scandal stands as Exhibit A: in Kenya’s democracy, cui bono answers not the people, but the politicians who win the struggle. The debt remains; the benefits accrued elsewhere.