Kenya - International University of Japan · 2007-07-23 · Kibaki, and Mr Moi™s protØgØ, 41-year-old Uhuru Kenyatta, the son of Kenya™s first leader and a political novice

Country Profile 2002

KenyaThis Country Profile is a reference work, analysing thecountry�s history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit�s Country Reports analyse current trends and provide atwo-year forecast.

The full publishing schedule for Country Profiles is nowavailable on our website at http://www.eiu.com/schedule

The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom

The Economist Intelligence Unit

The Economist Intelligence Unit is a specialist publisher serving companies establishing and managingoperations across national borders. For over 50 years it has been a source of information on businessdevelopments, economic and political trends, government regulations and corporate practice worldwide.

The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where itslatest analysis is updated daily; through printed subscription products ranging from newsletters to annualreference works; through research reports; and by organising seminars and presentations. The firm is amember of The Economist Group.

LondonThe Economist Intelligence Unit15 Regent StLondonSW1Y 4LRUnited KingdomTel: (44.20) 7830 1007Fax: (44.20) 7830 1023E-mail: [email protected]

New YorkThe Economist Intelligence UnitThe Economist Building111 West 57th StreetNew YorkNY 10019, USTel: (1.212) 554 0600Fax: (1.212) 586 0248E-mail: [email protected]

Hong KongThe Economist Intelligence Unit60/F, Central Plaza18 Harbour RoadWanchaiHong KongTel: (852) 2585 3888Fax: (852) 2802 7638E-mail: [email protected]

Website: www.eiu.com

Electronic deliveryThis publication can be viewed by subscribing online at www.store.eiu.com

Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databasesand as direct feeds to corporate intranets. For further information, please contact your nearest EconomistIntelligence Unit office

Copyright© 2002 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication norany part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means,electronic, mechanical, photocopying, recording or otherwise, without the prior permissionof The Economist Intelligence Unit Limited.

All information in this report is verified to the best of the author's and the publisher's ability. However, theEconomist Intelligence Unit does not accept responsibility for any loss arising from reliance on it.

ISSN 0269-4530

Symbols for tables�n/a� means not available; �� means not applicable

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

© The Economist Intelligence Unit Limited 2002 www.eiu.com Country Profile 2002

Kenya 1


Contents

3 Basic data

4 Politics4 Political background5 Recent political developments7 Constitution, institutions and administration8 Political forces14 International relations and defence

17 Resources and infrastructure17 Population19 Education20 Health22 Natural resources and the environment22 Transport, communications and the Internet25 Energy provision

26 The economy26 Economic structure28 Economic policy33 Economic performance

34 Economic sectors34 Agriculture37 Mining and semi-processing37 Manufacturing39 Construction39 Financial services41 Other services

42 The external sector42 Trade in goods44 Invisibles and the current account45 Capital flows and foreign debt46 Foreign reserves and the exchange rate

47 Appendices47 Membership of regional organisations53 Sources of information55 Reference tables55 Population55 Labour force55 Transport and communications56 National energy statisticsa56 Government financesa57 Government revenue and expenditure57 Money supply and credit58 Interest rates58 Gross domestic product at factor cost58 Gross domestic product by expenditure59 Gross domestic product by sector

2 Kenya


59 Consumer pricesa59 Average wage earnings per employee59 Agricultural production60 Forestry and fishing61 Minerals production61 Industrial production61 Construction statistics61 Banking statistics62 Tourism statistics62 Import and export prices63 Exports by value63 Main exports by volume64 Imports by value64 Main trading partners65 Balance of payments65 External debt, World Bank series66 Net official development assistancea66 Foreign reserves66 Exchange rates

Kenya 3


Kenya

Basic data

569,259 sq km

28.7m (1999 national census), 30m (2001 provisional estimate)

Population in �000, 1999 census

Nairobi (capital) 1,346Mombasa 465Kisumu 185Nakuru 163

Tropical

Hottest month, February, 13-28°C; coldest month, July, 11-23°C; driest month,August, 24 mm average rainfall; wettest month, April, 266 mm average rainfall

English, Swahili and local languages

Metric system

Kenya shilling (KSh)=100 cents. KSh20=1 Kenya pound (K£). Average exchangerate in 2001: KSh76.56:US$1. Exchange rate on November 1st 2002: KSh79.42:US$1

July 1st-June 30th

3 hours ahead of GMT

January 1st; Good Friday; Easter Monday; May 1st; June 1st; Eid ul Fitr; Christmasholiday, December 25th-26th

Land area

Population

Main towns

Weather in Nairobi (altitude1,820 metres)

Climate

Languages

Measures

Currency

Fiscal year

Time

Public holidays

4 Kenya

Country Profile 2002 www.eiu.com © The Economist Intelligence Unit Limited 2002

Politics

Kenya's 10.4m voters will go to the polls on December 27th 2002 to elect a newpresident and parliament, marking the end of the 24-year rule of Daniel arapMoi, who is constitutionally barred from seeking another term. On October 25th2002, much earlier than expected, President Moi dissolved Kenya�s NationalAssembly (parliament), triggering the election. He also announced plans todissolve the Constitution of Kenya Review Commission, which was establishedin 2001 to draft a new constitution to replace the one created at independence in1963. This process was meant to pave the way for the country�s presidential andlegislative elections. However, the constitutional review team, headed byProfessor Yash Pal Ghai, has vowed to press ahead with its mandate, despite thepresident�s announcement. The election is shaping up as a contest between theopposition�s chosen candidate, the 71-year-old former vice-president, MwaiKibaki, and Mr Moi�s protégé, 41-year-old Uhuru Kenyatta, the son of Kenya�sfirst leader and a political novice who was defeated when he attempted to wina parliamentary seat in 1997. Given that both Mr Kenyatta and Mr Kibaki aremembers of Kenya's largest tribe, the Kikuyu, the contest promises to be close.

Political background

The coastal region of what is now modern Kenya has developed through morethan five centuries of Indian Ocean trade, evolving into a sophisticated Swahiliculture with strong Arabic influences. In the mid-19th century trade to theinterior opened up the tribal lands of the Kikuyu, Luhya, Luo, Kalenjin andKamba, which remain the five largest ethnic groups. Kenya was declared aBritish protectorate in 1895, and white settlement started in the early 1900s.

The first genuine African nationalist movement, the Kenya African Union (KAU),was established in 1944, with Jomo Kenyatta, a Kikuyu, as its president. In 1952the Mau Mau, a secret society made up largely of Kikuyus, launched a guerrillacampaign against white settlers in the fertile Central Highlands. Of the manythousands who died during the Mau Mau rebellion, which lasted until 1956,fewer than 50 were white settlers. A constitutional conference was held inLondon in 1960, leading to a transitional constitution permitting the formationof political parties and giving Africans a comfortable majority on the LegislativeCouncil. The Kenya African National Union (KANU) was formed, dominated bythe Kikuyu and the Luo�although Mr Kenyatta, who had been imprisoned in1953, remained in detention. Other politicians, wary of Kikuyu-Luo hegemony,formed the Kenya African Democratic Union (KADU). Mr Kenyatta was releasedin August 1961, led KANU to victory in the legislative election of May 1963, andwas appointed prime minister. A formal declaration of independence followedin December 1963.

Kenya became a republic in December 1964, with Mr Kenyatta as its firstpresident. The entire KADU membership had earlier defected to KANU, thusturning Kenya into a de facto one-party state. Mr Kenyatta was elected unop-posed for a third presidential term in September 1974. He died in August 1978 atthe age of 82. The presidency passed to Daniel arap Moi, a former teacher and a

Before independence

Early years of independence

Kenya 5

© The Economist Intelligence Unit Limited 2002 EIU Country Profile September 2002

member of the Kalenjin group of pastoral tribes from the Rift Valley region ofcentral and northern Kenya. In 1982 a constitutional amendment officially madeKenya a one-party state. A coup attempt led by air force personnel, apparentlywith strong Luo backing, was foiled later that year.

During the 1980s the government became increasingly intolerant of politicaldissent, and constitutional amendments substantially increased the president�spowers. The Kalenjin increasingly came to dominate top government andpublic-sector posts. In 1988 Mr Moi was re-elected for a third term, butwidespread irregularities in voting for the legislature served to discredit the one-party system further.

Recent political developments

Until 1990 opposition to the increasingly authoritarian government was limited,partly as a consequence of relative economic prosperity. However, in February1990 the murder of the foreign minister, Robert Ouko, in circumstances thatimplicated members of the political elite, acted as a trigger. Three months later aninformal grouping of churchmen, lawyers and disgruntled politicians called formultiparty government. Members of the group were detained, leading in July1990 to protests in Nairobi which were violently suppressed by the securityservices. Following strong pressure from donors, including the suspension of aid,the government relented. In December 1991 parliament repealed Section 2a of theconstitution, which had made Kenya a one-party state.

National Assembly seats1992 election 1997 election 2001

KANU 112 113 117Democratic Party 23 41 40

National Development Party - 22 22Ford-Kenya 31 18 18

Social Democratic Party - 16 14SAFINA - - 5Ford-Asili 31 1 1

Ford-People - - 3Others 3 11 2

Total 200 222 222

Source: Kenyan press reports.

Despite widespread initial support for the new opposition parties, politicalrivalry and internal division in the run-up to both the 1992 and 1997 electionsdestroyed their chances of defeating KANU. The government also made sure ofwinning by massive public spending and by encouraging division among theopposition through financial and political inducements. The widespread inter-tribal violence that erupted in the Rift Valley in 1992 and 1997 was widelyperceived as having been provoked by KANU representatives to drive potentialopposition voters out of marginal constituencies. The balance was tipped furtherin the government�s favour by near-monopoly coverage of KANU campaigningby the state-run media, and by the electoral commission, appointed bypresidential decree. By these means, Mr Moi and KANU won both elections fairlyeasily. The opposition vote, although large, was hopelessly split.

Pressure towards multipartydemocracy

The multiparty era

6 Kenya


Important recent events

1995

The largest fraud trial in Kenyan history begins: the director of GoldenbergInternational, together with senior Central Bank of Kenya (CBK) officials, is accusedof defrauding the government of more than US$100m. The case remains unresolved.

1997

Multiparty elections are won by Daniel arap Moi and the Kenya African NationalUnion (KANU), but with a substantially reduced majority. The poll is marred bycommunal violence on the coast and in the Rift Valley before and after voting.

2000

At the end of July the IMF announces a resumption of funds, following a three-yearfreeze. The new poverty reduction and growth facility agreed between the IMF andthe Kenyan government includes some of the most detailed performance targets everset under an IMF lending programme. However, by the end of the year Kenya�s aidprogramme with the Fund comes unstuck after the government fails to meet severalof its commitments on governance and is seen to be backtracking on fundamentalperformance criteria.

2001

The departure in April of Richard Leakey, the head of the civil service, together withfour key members of his economic recovery team, including Micah Cheserem, thecentral bank governor, puts the civil service firmly in the hands of the ruling eliteonce more.Mr Moi�s decision to appoint Raila Odinga and three other members of the NationalDevelopment Party (NDP) to the government on June 11th sets the stage for the firstcoalition government in Kenya�s post-independence history.

March 2002

KANU merges with the NDP on March 18th, during KANU�s national delegatesconference at Kasarani.

July 2002

Mr Moi finally picks the man to succeed him: Uhuru Kenyatta, aged 41, a politicallyinexperienced nominated member of the National Assembly (parliament) and localgovernment minister, and the son of Kenya�s leader at independence, Jomo Kenyatta.

August 2002

Following the announcement of Mr Kenyatta as Mr Moi�s preferred successor, KANUis faced with internal dissent. A splinter group, the Rainbow Alliance, is formed,comprising former NDP members within KANU together with other leading seniorparty members.

October 2002

The Rainbow Alliance formally breaks away from KANU, transforms itself into theLiberal Democratic Party (LDP) and merges with Ford-People to form the NationalRainbow Coalition (Narc).On October 25th Mr Moi dissolves parliament and announces that the presidentialand legislative elections will take place on December 27th.

Kenya 7


Constitution, institutions and administration

Under the current constitution a president can serve for two five-year terms only.The present constitution was drawn up at independence and draws heavily onEnglish law, although it has been amended more than 30 times. The constitutiongives the president extensive power and is not adapted to multiparty politics,despite the repeal in December 1991 of Section 2a, which had formalised theone-party state. Judges are appointed by the president, and although they havesecurity of tenure and should therefore be relatively immune to politicalpressure, there is evidence that the legal process is hamstrung by heavy-handedpolitical interference. The full cabinet meets infrequently, and government policyis directed almost exclusively through the office of the president, which has thelargest departmental budget and directly controls key areas of security anddefence. Where ministers have shown independence of mind in the direction ofgovernment policy, they have invariably been removed from their posts.

Following sustained pressure from the opposition and from internationaldonors, limited constitutional reforms which marginally reduced the president�spowers were enacted through the initiative of the Inter-Parties ParliamentaryGroup (IPPG) in the run-up to the 1997 elections. This was followed in 1998 bythe president�s approval of the Constitutional Review Act. The act set the agendafor a thorough review of the constitution. In November 2000 the appointmentof the eminently well-qualified Professor Yash Pal Ghai to chair the Constitutionof Kenya Review Commission (CKRC) was unanimously welcomed bypoliticians and business people. Following his appointment Professor Ghai tookthe daring decision to merge the commission with the parallel constitutionalreview process, the Ufungamano or People�s Commission of Kenya initiative,which is championed by religious and opposition groups. The parallel bodiesagreed in principle on a common constitutional review process and to thesetting up of a joint drafting committee to draw up amendments to theConstitutional Review Act, after which parliament would be convened toamend and entrench the act. Since then, however, the CKRC has beenhampered by controversy, political interference and accusations of impropriety,and has failed to meet its rescheduled deadlines.

Although the CKRC was due to debate, amend and adopt the draft constitutionat the end of October in order to enable the elections to be held in December,the president has ordered the dissolution of the commission, which has so farcost US$5.1m. It is now clear that there will be no constitutional reforms beforethe forthcoming elections.

The president has wide-ranging powers

Planned reforms are throwninto doubt

8 Kenya


Highlights of the draft constitution, October 2002

The president

• The presidency, with its monopoly over the appointment of judges, cabinetministers and many other government and parastatal heads, will be trimmedand made to share its powers with the National Assembly (parliament)

• The president will be joined by a vice-president, and the cabinet will belimited to 15 ministers, each with a deputy

• Parliament will also vet appointments of cabinet ministers, who will not beMPs, ambassadors or high commissioners

• The president will become the symbol of the nation, and the holder of theoffice will promote national unity, protect Kenya�s sovereignty, uphold theconstitution and guarantee human rights.

Prime minister

• New posts of prime minister and two deputy prime ministers will becreated, to be voted into office by parliament

• The prime minister will run the day-to-day affairs of government and willoversee the relationship between parliament and the civil service.

Parliament

• Kenya will have a two-chamber parliament; it will consist of the current210-member National Assembly elected from constituencies, together with anew 100-member upper house�to be called the National Council�whosemembers will be elected from among district and provincial representatives

• Parliament will be empowered to impeach the president and sack a poorlyperforming prime minister

• Parliament is to be given greater powers to control the budget, approvepresidential appointees and monitor government operations

• Constituents will be empowered to impeach incompetent or corruptmembers of parliament.

Political forces

On March 18th 2002, in an important development for Kenya, the ruling party,KANU, formally merged with the opposition NDP party to form �New KANU�.At a carefully orchestrated conference, officials were �elected� in uncontestedballots to positions within the new party hierarchy. To no one�s surprise, thepresident, Mr Moi, remained in his position as party chairman; moreimportantly, though, he gained increased powers under the new partyconstitution. The next parliamentary and presidential elections are due to takeplace on December 27th 2002.

KANU and the NDP merge

Kenya 9


The merger was accompanied by a shift in the balance of power within KANUtowards the �Young Turks� at the expense of the old guard. The presidentpromoted the sons of several former colleagues, hoping to revitalise the partyand appeal to younger voters. The most prominent victim of the changes wasthe former KANU vice-president, George Saitoti. Not only was his post replacedby four new vice-chairmanships (for which he was not allowed to stand), but hewas also publicly humiliated by Mr Moi. A leading beneficiary was the ministerof trade and industry, Nicholas Biwott, who reportedly played a key part innegotiating the merger. His appointment as organising secretary placed him inone of the most powerful positions in the party.

The restructuring of KANU was directly linked to the party�s strategy forwinning the next elections. By bringing the NDP on board, KANU was making aclear attempt to win support among Ralia Ondigo�s Luo ethnic group. It washoped that the simultaneous restructuring of the party leadership would winover the ethnic constituencies represented by its four new vice-chairmen,Mr Kenyatta (Kikuyu), Musalia Mudavadi (Luhya), Katana Ngala(Giriama/coastal) and Kalonzo Musyoka (Kamba), and thereby ensure thatKANU�s presidential candidate wins at least 25% of the vote in five of Kenya�seight provinces, as required by the constitution. However, there is more on theagenda than winning the election: recent changes suggest another motive, thatof protecting Mr Moi�s powerful inner circle.

A retirement package for Mr Moi

The retirement of the president, Daniel arap Moi, will not end his influence. Heexpects to retain the chairmanship of the Kenya African National Union (KANU), tospend time touring the country, to give political guidance and to continue to play apart in regional peace initiatives. In August the attorney-general, Amos Wako,presented a bill in the National Assembly detailing the proposed retirement packagefor the president. The bill indicates a luxurious lifestyle for the ex-president includinga 12-bedroom house, a fleet of six cars (including two limousines), 34 servants,healthcare, and fully funded domestic and foreign travel. Several MPs complainedthat the retirement package was extravagant for a country in Kenya�s economicstraits. Opponents of the bill, mainly among the opposition, also argued that theburden of maintaining the retirement scheme might eventually prove too heavy,particularly if successive retiring presidents demanded the similar packages.

Having kept everyone guessing about his choice of a successor, Mr Moi finallypicked the man to succeed him: Uhuru Kenyatta, a nominated member ofparliament and minister of local government, and the 41-year-old son of theKenya�s leader at independence, Jomo Kenyatta. However, a caucus of KANUofficials and senior cabinet ministers including Mr Odinga, Mr Saitoti, KalonzoMusyoka, William Ole Ntimama, and a former party secretary-general, JosephKamotho, started a campaign to oppose Uhuru Kenyatta�s candidacy. Theyformed an alliance calling itself the KANU Rainbow Alliance, opposing the partychairman�s choice of Mr Kenyatta. In the face of the growing crisis within KANU,Mr Moi removed Mr Saitoti from his positions as vice-president and minister forhome affairs, and subsequently also dismissed Joseph Kamotho, Fred Gumo,

The balance of power shifts tothe next generation

A strategy for electoral victory

Après Moi

10 Kenya


George Khaniri and Peter Odoyo from the cabinet in August, replacing themwith MPs favourable towards Mr Kenyatta.

Despite the sackings, the disaffection within the party continued, and onOctober 14th 2002 the leading members of KANU Rainbow Alliance, includingMr Odinga (minister for energy), Mr Musyoka (minister for tourism),Mr Ntimama (office of the president) and Adhu Awiti (minister for planning),resigned from the government and formed the Liberal Democratic Party (LDP).The LDP then joined more than 12 opposition parties to form the NationalRainbow Coalition (Narc). This was quickly followed by the announcement ofthe 71-year-0ld former vice-president, Mwai Kibaki, as Narc�s presidentialcandidate for the forthcoming election. This means in effect that the election willbe an all-Kikuyu affair. The power-sharing formula worked out by Narcproposes Kijana Wamalwa as vice-president; depending on whether the newconstitution is adopted before the elections, it also proposes Mr Odinga as thenew prime minister and Mr Musyoka as second vice-president. Meanwhile theleader of the Ford People-Safina alliance, Simeon Nyachae, has hinted that he maynow stand as an independent candidate. However, Mr Nyachae�s tribal supportbase is narrow, so that he would have to create a broad alliance to even come closeto winning the presidency.

Key political figures

Daniel arap Moi

Mr Moi, a Kalenjin from the Tugen sub-tribe, is one of Africa�s longest-servingpresidents (he has held office since 1978) and has been in active politics since 1952.He is serving his last term in office under the current constitution, and will bestepping down after 24 years in power, leaving something of a vacuum. However, hehas made it clear that after handing over the presidency he would like to continue toserve Kenya in a number of capacities, besides retaining his position as the KenyaAfrican National Union (KANU) national chairman. He therefore clearly intends toremain an important political player behind the scenes.

Uhuru Kenyatta

Mr Kenyatta, the 41-year-old son of Kenya�s first president, Jomo Kenyatta, has beenchosen as the successor to Mr Moi. Although he is politically inexperienced,Mr Kenyatta�s rise to prominence has been rapid, and in the past year he has beennominated to the National Assembly (parliament) and given a high-ranking cabinetpost. His appointment in April 2002 as one of the four new vice-chairmen of KANUwas a relatively straightforward affair in comparison with the complex power-broking associated with the appointments to the other three posts. As a successfulbusinessman in his own right, and backed by his family fortune, he has spared noexpense in winning over supporters�he reportedly donated KSh200m (US$2.6m) tohelp pay for the KANU-NDP merger conference. Mr Kenyatta�s main appeal to theMoi regime is his potential ability to deliver the Kikuyu vote and rid KANU of itsanti-Kikuyu image.

Mwai Kibaki

Following the resignation of Kenneth Matiba from active politics, Mr Kibaki�sDemocratic Party (DP) has emerged as the dominant party of the Kikuyu, the most

Kenya 11


numerous and prosperous tribe in Kenya. The DP is at present the official�and alsothe largest�opposition party, and has 40 seats in parliament. Since the KANU-NDPmerger Mr Kibaki has put together an opposition alliance, initially made up ofestablished political groups, and more recently incorporating a large group of leadingKANU members who defected in protest at Mr Moi�s choice of Mr Kenyatta as hissuccessor. Mr Kibaki has subsequently been named as the presidential candidate forthe National Rainbow Coalition (Narc) at the next election. An economist bytraining, Mr Kibaki is a former vice-president and minister for finance, and is seen ashonest. Mr Kibaki is a popular politician and enjoys strong support among theKikuyu, but he is unlikely to receive much support from the smaller ethnic groups,which fear marginalisation under a Kikuyu presidency.

Simeon Nyachae

A former finance minister who resigned from the cabinet following his appointmentto another ministerial portfolio, Mr Nyachae is an ethnic Kisii who impressedinternational donors with his commitment to the economic reform programme. Heenjoys considerable support in the private sector and among young professionals, aswell as from donors. He leads the Ford People-Safina alliance, also known as thePeople�s Coalition. Although the alliance has few seats in the current parliament,Mr Nyachae has assembled a formidable campaign infrastructure including over 100new Land Rovers and five light aircraft. Mr Nyachae is perhaps the harshest critic ofthe present regime. He is also the only political leader proposing a transitionalgovernment of national unity in the post-Moi era.

Raila Odinga

A son of the late Jaramogi Oginga Odinga, the father of opposition politics in Kenya,Mr Odinga commands considerable (if not total) support amongst Luo voters, whoare estimated to number 750,000. He resigned from his post as KANU vice-chairmanand minister for energy in mid-October 2002 to form the Liberal Democratic Party(LDP), and joined the coalition alliance, Narc. The power-sharing formula workedout by Narc proposes Mr Odinga as the new prime minister.

Nicholas Biwott

Mr Biwott is credited with most of the major political manoeuvres of the Moiregime; these include the ousting of the attorney-general, Charles Njonjo, in 1983, thedropping of Mr Kibaki as vice-president in 1988, the short-lived tenure of JosephatKaranja as vice-president, and the speedy rise of the hitherto unknown GeorgeSaitoti from nominated MP in 1983 to vice-president in 1989. Mr Biwott left thegovernment after being mentioned by the judicial commission of inquiry into themurder of the foreign minister, Robert Ouko, in 1990. He returned to the cabinet in1997. Even as a backbencher, it was clear that he still wielded enormous power. Inrecent years he has appeared to be watching from the sidelines as the successionstruggle in KANU has played itself out.

Gideon Moi

The youngest son of President Moi, he has come to be the most powerful, wellknown and most controversial of them all. Born in 1964, Gideon Moi is known forhis staggering array of business interests. A close friend of Uhuru Kenyatta, he isexpected to succeed his father as MP for Baringo Central.

12 Kenya


The Corruption Control bill and the Public Officer Ethics bill were finally passedby parliament in early May 2002. They are redrafted versions of the Anti-Corruption and Economic Crimes bill, and the Code of Ethics bill. The newcorruption bill provides for the revival of the Kenya Corruption ControlAuthority, which was abolished as unconstitutional by the High Court inDecember 2000. In accordance with a specific IMF demand, public servants willnow be suspended from their jobs immediately if charged with corruption. Thebills have not yet become law, however. They first need to be approved at aspecial parliamentary sitting (which could introduce minor amendments) beforegoing to the president for final assent. The passage of the two bills is animportant step towards meeting the IMF governance requirements�althoughone key condition, actual prosecutions of major cases by the Anti-CorruptionPolice Unit, has still to be met. The Fund is also unhappy at the prospect of thenew special corruption courts being run by magistrates rather than by reputablejudges, but Kenya�s chief justice has refused to back down on this issue. TheIMF�s director in charge of Africa, Menachem Katz, recently criticised the policeand judiciary as being the most corrupt institutions in the country, claiming thatthey fail to prosecute serious cases and take bribes. Mr Katz also said thatcorruption has been increasing, and he no doubt hopes that the new laws willreverse this trend.

Corruption perceptions index, 2002Country 2002 ranking 2002 score Earliest score % change a

Botswana 24 6.4 6.1 4.9

Namibia 28 5.7 5.3 7.5South Africa 36 4.8 5.6 -14.3

Tunisia 36 4.8 5.0 -4.0Mauritius 40 4.5 5.0 -10.0Ghana 50 3.8 3.3 15.2

Morocco 52 3.7 4.1 -9.8Ethiopia 59 3.5 - -

Senegal 66 3.1 3.3 -6.1Malawi 68 2.9 4.1 -78.0Côte d�Ivoire 71 2.7 3.1 -13.0

Tanzania 71 2.7 1.9 42.1Zimbabwe 71 2.7 4.2 -35.8

Zambia 77 2.6 3.5 -25.7Cameroon 89 2.2 2.5 -12.0

Uganda 93 2.1 2.7 -22.2Kenya 96 1.9 2.2 -13.6Angola 98 1.7 - -

Madagascar 98 1.7 - -Nigeria 101 1.6 0.7 128.6

Average - 3.4 -8.7 -

a From earliest score to 2002 score.

Source: Transparency International.

High-level corruption is widely pervasive. Political appointments in state sectors,the civil service, and financial institutions (including the central bank) reduce theeffectiveness of the organisations concerned. According to the 2002 CorruptionPerceptions Index, published by the Berlin-based organisation Transparency

New corruption laws arefinally passed

Kenya�s corruption ratingremains high

Kenya 13


International, Kenya is still seen as one of the most corrupt countries in theworld in which to do business: in a survey of 102 countries, Kenya is ranked96th. Despite pressure from donors to combat corruption, the situation is notexpected to change radically in the short to medium term.

Corruption in KenyaIndex score

(out of 100 max)Average size of

bribe (KSh)Police 68.7 Ministry of Public Works 37,500

Ministry of Public Works 41.0 Embassies & international organisations 36,800Immigration Department 36.1 Immigration Department 11,900

Ministry of Lands 34.8 Judiciary 10,300Nairobi city council 33.0 Kenya Ports Authority 9,700

Judiciary 32.3 Ministry of Lands 7,500Mombasa municipal council 32.1 Kenya Revenue Authority 6,600Other local authorities 31.5 Kenya Commercial Bank 5,300

Provincial administration 29.5 Kenya Bureau of Standards 4,065Prisons Department 29.4 Other state corporations 3,900

Kenya Ports Authority 29.3 Kenya Railways 3,900Registrar of persons 28.4 National Social Security Fund 3,840

Source: Transparency International, Kenya chapter, Urban Bribery Index.

In early 2002 the Kenyan chapter of Transparency International published itsreport on corruption in Kenya. The Kenya Urban Bribery Index is based onsurveys conducted in March and April 2001 in Nairobi and five other towns,Eldoret, Kisumu, Machakos, Mombasa and Nyeri. Ordinary Kenyans, whoreported their daily encounters with corruption, were asked whom they had tobribe, the size of each bribe and what its purpose was. Respondents were alsoasked how many times they had to bribe officials in the public and privatesectors before being served, and whether the service sought was delivered ifbribes were not paid or the quality of service diminished with a refusal to pay. Itshould be stressed that the method of collecting data was not entirelysatisfactory, and that any conclusions drawn from the surveys should be treatedwith caution. Some of the main findings of the survey are as follows.

• The police top Kenya�s bribery league. According to the survey, mostpeople seeking help from the police have to pay a bribe. In fact, only one in tenpeople who regularly deal with the police can expect to receive a proper servicewithout paying. The bribes are small, however, averaging KSh631 (US$8). Thepolice are followed in the bribery rankings by the Ministry of Public Works andthe Immigration Department.

• The Central Bank of Kenya (CBK) is ranked as the least corruptorganisation, scoring better than foreign embassies and even than the privatesector. Only 0.2% of respondents said they had received demands for bribeswhen dealing with the CBK, compared with 5.6% who said they had been askedto bribe officials in the private sector and 22.4% who had to bribe the staff ofinternational organisations and embassies in order to be served. CBK employeesare among the best-paid public officers.

• Employees at the Ministry of Public Works demand the biggest bribes�averaging KSh37,500 (US$475) a deal�followed by officials at embassies and

A detailed local survey ofcorruption is published

14 Kenya


international organisations, who demand an average of KSh36,800. Localgovernment officials take the smallest bribes, at only KSh110 on average. Notablein the overall bribery list is the judiciary, which ranks sixth among the mostbribery-prone institutions.

• The report estimates that if corruption could be eliminated in Kenya thesalaries of Kenyans would increase by around 30%. Another interesting findingis that more money is spent on petty bribery than is stolen from public funds, afigure confirmed by the comptroller and the auditor-general.

International relations and defence

The East African Community, which broke up in 1977�mainly because ofpersonal and ideological differences between the heads of state of its members,Kenya, Uganda and Tanzania�has received a new lease of life. A new treatybetween the three countries was signed on November 30th 1999, establishingthe East African Community (EAC). Subsequently, the presidents of Kenya,Tanzania and Uganda�Mr Moi, Benjamin Mkapa and Yoweri Museveni�officially launched the new East African Community (EAC) on January 15th2001. There is broad agreement on the need to establish commissions for co-operation, joint railways operations, the harmonisation of revenue collectionmethods and greater economic integration. But negotiations on furtherliberalisation of the three markets, and on the specific details of this process, willcontinue for up to four years. This is a consequence of Tanzanian and Ugandanconcerns that moving quickly to a zero-tariff policy within the EAC would leadto Kenyan manufacturers undermining the much weaker industrial bases of theother two countries, as 30% of Kenya�s exports currently go to its twoneighbours. Although the EAC treaty requires Kenya to dismantle tariffs morerapidly than Tanzania and Uganda, it appears to be dragging its feet.

All the EAC countries agree on three basic tariff groups: Category A (forimmediate liberalisation), Category B (for gradual liberalisation) and Category C(not to be liberalised). But they have been unable to agree on the categories inwhich various goods should be placed, or on the timetable for tariff reductions.Similarly, though all three countries have agreed on a common external tariff,ranging from 0% for raw materials and 10% for intermediate goods to 20% forfinished products, disagreement persists over the exact composition of thedifferent bands. The lack of progress illustrates the technical difficultiesassociated with the establishment of free-trade areas, even relatively small onessuch as the EAC. The three national leaders continue to express political supportfor economic integration, and high-level political intervention will be necessaryto push the process forward.

After the September 11th 2001 attacks on the US, the Kenyan government statedcategorically its support for the war against terrorism. Mr Moi has emphasisedthat the government of Kenya is committed to working with the USadministration and other governments to respond firmly and decisively to actsof terrorism. Suspected associates of the head of the militant al-Qaida group,Osama bin Laden, who are thought to be working with some Kenyan non-governmental organisations, have been under surveillance. Other anti-terrorism

The EAC is relaunched after23 years

Kenya supports the fightagainst terrorism

Kenya 15


measures have involved the expulsion of foreigners without proper documentsand tighter security at locations such as airports, power stations, and police andmilitary bases.

Political and military tensions between the three economic powers of East Africahave long been strained as a result of personal animosity between their leaders.Mr Moi and Mr Museveni in particular have been mistrustful of each other�sideological styles: Tanzania�s disastrous brush with African socialism was aworld apart from Kenya�s pro-Western economic policies. However, theseanimosities are now largely a thing of the past. In 1998, as a demonstration ofthe new spirit of co-operation between the three countries, 1,500 soldiers fromKenya, Uganda and Tanzania took part in a joint training exercise in the desertterrain of northern Kenya. The month-long exercise, code-named Natural Fire,was undertaken with the assistance of the US army.

Regular military forces, mid-2001Army 20,000Navy 1,400

Air force 3,000Total 24,400

Source: International Institute for Strategic Studies, The Military Balance, 2001/02.

Apart from the attempted coup by the air force in 1982, Kenya�s armed forceshave not sought to dictate to politicians. In addition to the regular armed forcesthe government can call upon a special security force, the 5,000-strong GeneralService Unit, which it frequently does in order to control demonstrations andpolitical rallies. General Daudi Tonje, a member of the same small Tugensubgroup of the Kalenjin as Mr Moi, was appointed Chief of the General Staff inNovember 1996.

Security risk in Kenya

Terrorism

In 1998 Nairobi was the site of one of the most serious attacks on American interestsoutside the US itself, when almost 250 people (most of them Kenyans) were killed ina car bomb attack on the US embassy. At least two of those suspected of organisingthe Kenyan bombing have yet to be apprehended, and there have been reports thatthe leader of the militant al-Qaida group, Osama bin Laden�who allegedly directedboth the Kenyan and US attacks�has visited both Kenya and neighbouring Somalia.Furthermore, if the US�s search for Mr Bin Laden is broadened beyond Afghanistan,Kenya is expected to be used as a base for anti-terrorist strikes on Somalia. In thelight of these factors, there is bound to be concern that both domestic and foreigninterests in Kenya will be vulnerable to further terrorist attacks.

However, although there were a number of hoax bomb-threats in the wake of theattacks in the US, such anxiety is probably misplaced. Clearly there is a risk that,with the inevitable tightening of security at North American and European sites,business interests in the developing world will be perceived as soft targets. The harshtruth, however, is that attacks on foreign-owned businesses in Africa do not have theshock�or publicity�value of assaults on developed-world sites. Nor is Kenya

No threat from the Kenyansecurity forces

Regional security co-operation

16 Kenya


particularly likely to experience a violent Islamist-inspired reaction to possible US-ledmilitary strikes, despite the fact that the country has a substantial Muslim minority(just over 5% of the population), based mainly around Mombasa. There hasnevertheless been a noticeable increase in tension in the Mombasa area, in partbecause of the government�s decision to tighten security controls on Kenyans ofAsian and Arab descent. The government attempted to introduce security restrictionsin mid-2001, but was forced to rethink following demonstrations by thousands ofMuslims. Attacks on a number of churches in the north-east of the country havebeen blamed on Islamic extremists, but there is nothing to suggest that foreign-owned interests will be targeted in any unrest.

Crime

In January 2001 the UN downgraded its security-condition rating for Nairobi from�B� to �C�, giving the Kenyan capital a worse overall security rating than eitherBogotá or Jerusalem. The reasons behind the rating�which assesses securityconditions and the quality of life for the UN's own personnel�are clear enough.Crime is a serious and growing problem in Kenya, particularly in Nairobi. Accordingto the Nairobi Central Business Association, the proliferation of homeless families inthe capital has led to a rise in street crime. Although much of this crime isopportunistic and low-level, there is also a substantial risk of more serious attacks.These include daytime �car-jackings� at traffic lights in central city areas�in early2001 employees of the Eastern Africa Management Institute were car-jacked andforced to withdraw money from an ATM before being released�as well as groupraids on houses and, on occasion, direct armed attacks on businesspeople at theirworkplaces. Recent examples include raids on businesses in which raiders armedwith handguns and semi-automatic rifles held staff members hostage and stole atotal of more than KSh4m.

The authorities have sought to tackle the surge in armed crime, and measures takenhave included a major security crackdown in Nairobi. However, their efforts havebeen largely unsuccessful so far: the rate of violent crime and burglaries remainsamong the worst in the continent, and there is evidence of police involvement incrime. Worryingly, there is also evidence that Kenya is being used as a base byforeign criminal gangs; in particular, a number of US businessmen have been heldhostage after falling for advance-fee frauds. With warnings about fraud nowwidespread, it would seem that Nigerian criminals are moving further afield to targetthe credulous.

In most instances, foreign business people would have to be unlucky�or foolish�tobe affected by serious crime, but there is little doubt that the overall political andsecurity environment in Kenya is set to deteriorate further. There are a number ofelements to this, as described below.

Corruption

Kenya is one of the world's most corrupt states. In its 2002 survey of corruptionperceptions, the German-based anti-corruption organisation TransparencyInternational ranked Kenya joint-96th out of 102 countries covered�on a par withIndonesia, and above only Angola, Madagascar, Paraguay, Nigeria and Bangladesh.This high level of corruption affects business directly, through demands for bribes,

Kenya 17


and also indirectly, since it contributes to the widening gap between rich and poor,and thus to crime and social breakdown.

Ethnic violence

Before both the 1992 and 1997 elections there was an upsurge of inter-tribal violence.This is widely perceived to have been provoked by KANU representatives in order todrive potential opposition voters out of marginal constituencies. However, genuineethnic tensions exist: in September 2001, for example, clashes between the Wardeyand Pokomo communities in the east of the country resulted in a number of deaths.Further clashes are almost inevitable, and tension will increase as the elections, dueto take place on December 27th 2002, approach. There will be no direct threat toforeign interests, but incidental damage is possible.

Perhaps the greatest threat to foreign businesspeople arises from car use. Kenya hasthe highest rates of road accidents in the world, with 510 fatal accidents per 100,000vehicles. Second-ranked South Africa has 260 fatal accidents per 100,000 vehicles;the UK figure is just 20. In comparison, the terrorist threat is negligible.

Coup threat

Kenya�s political situation is fraught with uncertainty, to the detriment of theeconomy. But the worst-case scenario is even gloomier. KANU is clearly intent onretaining power and will use all means possible, including vote rigging, to win theforthcoming elections. If it nevertheless fail to do so, it may turn to the army. Thepresent military leaders are not keen to become involved, but rumours arecirculating of imminent changes to ensure that the �right� people are in control,should the military option become necessary. Such a development would destabiliseKenya and, quite possibly, the whole of East Africa.

Resources and infrastructure

Population

During the 1970s and 1980s Kenya had one of the fastest-growing populations inthe world. The 1979 census revealed an astonishing annual growth rate of 4.1%.Ten years later the census determined that the rate had slowed to 3.3%, still arapid rate of growth. However, since the beginning of the 1990s the populationgrowth rate has continued to fall, partly as a result of a successful familyplanning awareness campaign.

The results of the 1999 population census were released on February 29th 2000,and put the Kenyan population at 28.7m. However, if the previous census is aguide, these results probably underestimate the population by around 5%: in thecase of the 1989 census, the original figure of 21.4m was later revised to 23m.Based on a reasonable underestimate of 5.6%, the 1999 figure would be 30.5m.This is close to earlier population forecasts which took into account the impactof AIDS. The spread of AIDS was declared a national disaster by the president,Daniel arap Moi, in late 1999, and the disease will have claimed up to 8m livesby end-2002. The rapid decrease in fertility, as revealed in the 1998 demographicand health survey, is another factor contributing to the expectedly low 1999census result.

Population growth below 2.5%

The provisional populationcensus is released

18 Kenya


Population indicators, 2000Population (mid-year; m) 31.2Population growth rate (%) 2.3Fertility rate (children per woman) 4.7

Life expectancy (years) 52Urbanisation (%; 1995) 32

Projected population in 2025 (m)a 50.2

a Economist Intelligence Unit estimate.

Source: Ministry of National Planning and Development, Statistical Abstract.

In the 1970s there was substantial Asian emigration from Kenya, mainly to theUK, but the Asian population has now stabilised. The 1989 census showed anAsian population of 89,000 (down from 139,000 in 1969). The community has adisproportionately great economic influence, having a marked presence infinance, retail trade, light manufacturing and distribution. A small minority ofprominent Asian businessmen work closely with members of the Kenya AfricanNational Union (KANU) elite.

Development indicators, 2000Country HDI rank a HDI index a Life expectancyb Adult literacy c GDP per head d

Norway 1 0.942 78.5 99.0 29,918UK 13 0.928 77.7 99.0 23,509South Africa 107 0.695 52.1 52.1 9,401

Kenya 134 0.513 50.8 82.4 1,022Uganda 150 0.444 44.0 67.1 1,208

Tanzania 151 0.440 51.1 75.1 523

a Human development index of the UN Development Programme. b At birth in years. c % of population aged 15 and above. d US$ at purchasingpower parity.

Source: UNDP, Human Development Report, 2002.

Kenya�s population is heavily concentrated in the central and western regions.These contain the fertile agricultural areas of the Central Highlands and theproductive sugar- and tea-producing regions to the west. The semi-arid anddesert regions of the north-east, with their nomadic pastoral communities,occupy 22% of the land area but support just 1.7% of the population. Kenyansociety is also characterised by wide income disparities. In 1994 the poorest 20%of the rural population received only 3.5% of rural income. In urban areas thesituation was marginally better, the poorest 20% receiving 5.4% of total income.The richest 20% of the population controlled 61% of rural and 51% of urbanincome. The data also indicate that these disparities widened in both urban andrural areas between 1982 and 1994. (See Reference tables 1-2 for historical data onpopulation and employment.)

Distribution of population, 2000a

Province �000 % of totalRift Valley 6,991 24.4

Eastern 4,643 16.2Nyanza 4,397 15.3

Central 3,705 12.9Western 3,354 11.6Coast 2,491 8.7

Wide regional and incomedisparities

Kenya 19


Nairobi 2,137 7.5

North-eastern 961 3.4Total 28,679 100.0

a Provisional estimates.

Source: Ministry of Planning and National Development, Population Census Report.

Education

Despite the high levels of government spending on education (8% of GDP), mostindicators show a declining trend in educational standards in recent years. Inparticular, falling rates of enrolment and completion in both primary andsecondary education are moving the country further away from its goal of equalaccess to basic education for all. Primary school enrolment declined from5,919,600 in 1998 to 5,867,800 in 1999, while secondary school enrolment fellfrom 700,509 to 638,509. This downturn in school enrolment, the first sinceindependence, is attributed to a combination of factors including increasingpoverty and the introduction of user charges (cost-sharing)�both of which arelimiting access to education by poor families�as well as a substantial number ofAIDS-related drop-outs and an overall economic downturn. Fewer than one-halfof those who enrol complete their primary education. One major reason forpoor school attendance is the large proportion of parents who are unable to paycompulsory school fees. Because of the large size of families in Kenya, often onlythe eldest one or two children (generally the boys) are sent to school. The restremain at home as productive members of the family.

Education facts

Primary school completion rate

44%�well below national (70%) and UN (80%) targets.

National literacy rate

75% in 1994 (83% for men, compared with only 67% for women) against a UN globaltarget of 85%.

Large regional disparities in basic education

Enrolment rate in North-eastern province only 20%, compared with 90% in Westernand Central provinces.

Average performance

In most subjects at Certificate of Primary Education level, average performancedeclined between 1991 and 1994. Poorest performance was in mathematics, scienceand agriculture subjects, with average scores below 50% since 1990.

Post-secondary education

More than 200 non-university or middle-level colleges offer vocational trainingcourses; no increase in enrolment between 1992 and 1996.

Higher education institutions

30 training colleges, three polytechnics, five public and 12 private universities. In 1996only 29% of students in the five public universities were women.

Falling standards despite highexpenditure levels

20 Kenya


Although government spending on education remains high (education accountsfor 23.2.% of total public expenditure), the system experiences great inefficienciesand ineffectiveness. Gross enrolment ratios at primary and secondary schoollevels stand at only 88% and 23.2% respectively, notably lower than in 1990, andthere are wide regional and gender disparities. The net enrolment ratio�themost important indicator of progress towards the goal of universal publiceducation�is estimated to be about 55-60% at primary level. Many children whoenrol in primary school in Kenya, particularly girls, do not stay long enough tocomplete it, nor do they proceed to further education. Completion at primarylevel has remained at 47% for the past ten years.

Health

The government currently spends around 2% of GDP on healthcare. The privatesector, through insurance and direct household payments, contributes a similaramount. In 1989 the Ministry of Health introduced a cost-sharing programme,which established the payment of fees at hospitals and health centres andwhich now accounts for around 7% of all non-personnel expenditure in thesector. In 1998 the health service employed 51,000 medically trained personnelof whom 4,300 were doctors.

By the mid-1990s improvements in the health sector had been stalled anderoded to the point of gross inefficiency, as illustrated by:

• skewed expenditure in favour of salaries and wages (leaving only 30% ofrecurrent spending to cover operations and the repair and maintenance ofhospital machines and equipment) and curative care (only 30% of healthministry spending is directed towards preventive measures); and

• the poor performance of the National Health Insurance Fund, whichprovides limited coverage (serving only 25% of the population), and remainsunaccountable to its members and unresponsive to their needs; its paymentmechanisms create incentives for the expansion of private bed capacity but notfor quality improvements.

In the prevailing circumstances, serious concerns exist regarding poverty andhealth: about one-half of the population are living in poverty, 40% of the ruralpopulation have no access to health services, and one-quarter of households arelocated more than 8 km from any health facility. Moreover, the introduction ofuser fees in public facilities, although well-intentioned, has adversely affectedthe access of vulnerable groups to appropriate healthcare.

HIV trends(% of population infected)

1997 1998 1999 2000 2001Urban 16.9 18.1 17.8 17.5 17.0Rural 11.9 13.0 13.0 13.0 13.0

National 12.8 13.9 13.5 13.5 13.0

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2002.

Paying for health andproviding primary care

Kenya 21


The rapid spread of the HIV/AIDS pandemic poses grave health problems, andhas damaging macroeconomic consequences such as reduced savings, fallinglabour productivity and the loss of experienced workers. Around 700 people diedaily in Kenya from HIV/AIDS, which has been declared a national disaster andaccounts for the majority of in-patients in the country�s hospitals. About 2.2mpeople are infected, 700,000 of whom have full-blown AIDS status and requireurgent treatment in public healthcare facilities. The number of HIV/AIDSorphans is estimated to have reached 1.1m, making Kenya the third worstaffected country in the world. The high rate of sexual transmission among 15-24-year-olds is expected to increase the number of those dying from AIDS daily to1,400 in the next five years.

The national healthcare system is consequently becoming overstretched, asHIV/AIDS patients now occupy 90% of hospital beds. However, more than 250Voluntary Counselling Centres are being set up across the country to enableKenyans to undergo voluntary counselling and testing. The project, which hasalready put in place 85 centres, is being funded by the World Bank. The high costof AIDS care and the loss of earnings for patients� families reduces their access tobasic needs, such as healthcare and education. The government, meanwhile,faces difficult policy decisions in balancing care for AIDS patients against otherhealth demands.

Kenya embarks on an AIDS strategy

The UN has estimated that more than 21m people worldwide have died of AIDSsince the disease was identified two decades ago, and 36.1m are now infected withHIV. Sub-Saharan Africa remains the main home of the epidemic, with 25.3m HIVpatients; in Kenya at least 2.1m people are infected. In Uganda at least 820,000people carry the HIV virus, while in Tanzania the figure is above 1.3m.

According to the International Labour Organisation the loss of workers to the AIDSepidemic in Africa, and its eventual impact on the continent�s fragile economies, willprobably be far worse than predicted even six months ago. Five Southern Africancountries, for instance, will lose between one-quarter and one-third of their workersby 2020: Botswana is forecast to lose 30.8%, Mozambique 24.9%, Namibia 35.1%,South Africa 24.9% and Zimbabwe 29.4%. East Africa fares only marginally better. Inthe same period it is projected that Kenya will lose 20.2% of its workforce, Uganda15.8% and Tanzania 14.6%.

The Kenyan government and international donor agencies have pledged KSh14bn(US$200m) to help fight the spread of HIV infection in Kenya in the next five years.The National AIDS Control Council, a state corporation established in November2000, will provide the policy and strategic framework for mobilising and co-ordinating resources for HIV/AIDS prevention and for the provision of care andsupport to affected people.

The chairman of the Microsoft Corporation, Bill Gates, has pledged US$100m to anAIDS vaccine project being carried out in Kenya. The vaccine, which has beenundergoing trials since August 2001 in Oxford, England, was developed after it wasfound that a group of prostitutes in Nairobi failed to contract HIV despite repeated

The growing threat from AIDS

22 Kenya


exposure to infection. It is one of around 25 HIV vaccines being tested on humansaround the world, but is the first to target the �A� strain of the virus prevalent in Sub-Saharan Africa. It is likely that a vaccine of at least limited efficacy will be readywithin a decade, and it could take as little as four or five years.

Natural resources and the environment

In the past two decades Kenya has experienced accelerating deforestation, soilerosion, depletion of mineral resources, and domestic and industrial pollution.In the past five years the output of the fishing, forestry and mining industrieshas declined substantially. These factors have prompted the government toannounce that sustainable policies towards the country�s natural resources arenow a priority.

Kenya�s forests are fast diminishing. Overexploitation during the past 30 yearshas reduced the country�s timber resources by one-half. At present only 3% ofthe land is forested and it is estimated that 5,000 ha of forest are lost each year,not only to provide wood fuel but also as a result of clearance for agriculture,construction, tourism and industrial activities.

An increase in soil erosion is affecting agricultural productivity as well ascontributing to the silting of dams. The gradual conversion of land use toagriculture and other economic activities is also rapidly reducing the country�swide biodiversity (there are 35,000 known species of animals, plants and micro-organisms in Kenya).

Water resources are under pressure owing to overuse, not only for agriculturaland domestic consumption but also for hydroelectric power. Ecologicaldisruption of inland lakes, particularly Lake Victoria, is a major concern for thefishing industry. Pollution, overfishing and the use of unauthorised fishingequipment have led to falling catches and have endangered local fish species.

Transport, communications and the Internet

Kenya has an extensive network of about 95,000 miles of roads connecting mostparts of the country, and over 80% of all passenger and freight traffic uses roadtransport. However, the extremely poor condition of the country�s roads is amajor concern. A chronic lack of investment and widespread corruption haveled to the present situation. A report by the comptroller and auditor-generalissued in late 1999, produced at the insistence of road project donors, confirmedthe existence of false contracts authorised by the Ministry of Public Works. Thereport uncovered cases of embezzlement, which it attributed to the inadequatesupervision or improper execution of projects. It also listed work not carried outand contracts awarded without being put out to tender; one company was givena contract worth KSh100m (US$1.3m) without any document to verify that thework had been carried out.

However, total government expenditure on roads is estimated to have increasedsignificantly, from KSh9.32bn (US$118.6m) in fiscal year 2000/01 (July-June) toKSh13.7bn in 2001/02, reflecting recognition of the importance of improving theroad network through regular maintenance and repair. In addition, the Roads

Poor state of roads

Kenya 23


2000 Programme has been established to address the chronic problems withroads in a number of different parts of the country. The programme is estimatedto cost KSh4bn and is currently being implemented in 29 districts; a further 44districts will be incorporated into the programme between 2001 and 2006.These additional projects will be funded by the World Bank, USAID, the AfricanDevelopment Bank and the German Bank for International Development Aid.

Kenya has three international airports, Nairobi�s Jomo Kenyatta InternationalAirport (JKIA), Mombasa�s Moi International Airport and Eldoret InternationalAirport. Other airports are Wilson in Nairobi, Malindi, Kakuma and Kisumu,and there are also more than 300 airstrips throughout the country. Kenya�ssingle-track railway system, which runs from Mombasa through Nairobi to theUgandan border, is managed by Kenya Railway Corporation.

Kenya�s main seaport, Mombasa, has a deep-water port with 21 berths and anannual capacity if 22 m tonnes, and serves most of the East and Central Africancountries as well as international shipping lines. The port has extensive facilitiesincluding cold storage, warehousing and container terminals. The Kenya PortsAuthority manages the port and inland container depots in Nairobi, Eldoret, andKisumu, while the terminals are managed by a private international firm on acontractual basis.

Kenya�s telephone system is inefficient and in a state of disrepair, owing to weakmanagement, lack of investment, widespread government involvement and thepoor financial condition of the state-owned telecommunications company,Telkom Kenya. In contrast, demand for mobile-telephone licensing has made thisKenya�s fastest growing industry in 2000-02, putting the country on a par withsuch markets as Côte d�Ivoire and Cameroon and creating a very competitivemarket. Mobile telephone use and Internet access are increasingly becomingnecessities for daily business transactions and, according to recent World Bankdata, although mobile telephone penetration was low in 1999, Kenya is makingnotable progress in access to Internet services. This trend is likely to continue forthe next few years, but the high price of mobile services may eventually leadmany telephone subscribers back to the fixed-line network.

Africa: access to the Internet and mobile telephones, 1999(per 10,000 people)

Country Internet users Mobile phonesCôte d'Ivoire 12.9 177.2Ghana 10.7 35.5

Kenya 11.9 8.1Mozambique 8.7 6.3Tanzania 7.6 15.6

Zambia 25.3 26.1Zimbabwe 12.6 31.4

Source: World Bank, World Development Indicators, 2002.

The government says that it is committed to privatising Telkom Kenya, andindeed this is one of the main conditions for resumed IMF lending. However,the communications minister, Musalia Mudavadi, has confirmed that a deal is

Ports

Sale of Telkom remains on theagenda

Airports and railways

Telecommunications

24 Kenya


unlikely to be made soon. This follows the collapse of talks with Mount KenyaConsortium, whose main shareholder is the Zimbabwean company Econet, inearly 2002. The privatisation of Telkom Kenya is seen by the IMF as a test ofKenya�s commitment to economic reform; the sale originally went out to tenderin April 2000. The government does have an excuse for the lack of progress:because of the global downturn in the telecommunications industry, it wouldnot get as good a price for Telkom Kenya now as it would have done even 12months ago. The problem for the IMF is in establishing whether the governmentreally is committed in principle to the sale, as Mr Mudavadi claims, or whether itis using the downturn in the world telecoms market simply as a reason to stallthe sale. Most local analysts argue the latter, claiming that the privatisation ofTelkom Kenya has been deliberately delayed because of government reluctanceto cede control to the private sector. (See Reference table 3 for historical data ontransport and communications.)

During the 1980s and early 1990s the press received heavy-handed treatmentfrom the authorities. Journalists willing to air opposition views were dealt withruthlessly, frequently being thrown into jail for their efforts. Since the advent ofmultiparty democracy and more open, adversarial politics there has been arapid expansion in the number of newspapers and magazines published. Manypublications, whose quality varies widely, are closely allied to oppositionpolitical groupings. Apart from one failed effort by the government in 1998 toban a group of opposition newspapers which it referred to as the �gutter press�,there has been a considerable relaxation in the attitude of the authoritiestowards the media in general. Two independent national newspapers, the DailyNation and the Standard, maintain a high quality of reporting, as does a highlyrespected weekly, The East African, which is published in Nairobi, Dar es Salaamand Kampala. The Nation Group was awarded a broadcasting licence in 2001and subsequently launched a successful television station, joining two otherterrestrial channels, one state-owned (KBC) and the other independent (KTN).

However, the diversity of independent English-language media available in themajor urban centres disguises the dominant influence of the strongly pro-government KBC radio and television among the vast majority of the Swahili-speaking population. Although there are no reliable figures for viewing or

There is a relatively free press

Kenya 25


listening audiences, it is clear that these services constitute a major source ofnews information for most ordinary people. The heavy pro-government bias ofKBC during the 1997 elections was strongly criticised by election monitors. Anumber of private radio stations, mainly broadcasting in local languages,including Kameme FM (Kikuyu), Metro East FM (Hindu) and FM (Kalenjin), haverecently been established.

Energy provision

Kenya has a fairly well-established power generation network consisting ofhydroelectric and geothermal power. Wood fuel provides more than 70% ofKenya�s total domestic energy demands and provides more than 90% of ruralhousehold energy.

Kenya has no exploited oil, gas or coal reserves, although a Mombasa-basedcompany, Kenya Petroleum Refineries, operates the country�s sole oil refineryand provides 60% of Kenya�s petroleum products. The rest is imported as refinedfuels, and imports of crude and refined petroleum products accounted for about26% of the country's total import bill in 2001. Although petroleum prices weredecontrolled in 1994, the government imposed a road maintenance tax ongasoline and diesel, which replaces all taxes except those at the internationalborders. Oil exploration, carried out for more than 30 years, has not yielded anycommercially viable petroleum deposits in Kenya. In 1997 Tornado Resources ofCanada signed two agreements for oil and gas exploration, one onshore near theborder with Ethiopia and the other offshore near Tanzania. At the end of 2001the government concluded negotiations with two foreign companies for oilexploration. Dana Petroleum, a British company, secured an offshore explorationblock to the north of Malindi, and Affrex, an Australian company, has beenassigned three exploration blocks situated along the coast. In addition Block 11,situated in Turkana district, has attracted interest from an American company,and negotiations are in progress. The government hopes that these efforts willeventually lead to the discovery of hydrocarbon deposits of commercial value. Atotal of 30 exploratory wells have been drilled in Kenya with promisinggeological results, justifying further exploration.

Energy balance, 2001(m tonnes oil equivalent)

Oil Gas Coal Electricity Other TotalPrimary supplyProduction 0.00 0.00 0.00 0.62a 12.00 12.62Imports 3.10 0.00 0.04 0.06a 0.00 3.20Exports -0.40 0.00 0.00 0.00 0.00 -0.40Stock change 0.00 0.00 0.00 0.00 0.00 0.00Total 2.70 0.00 0.04 0.68a 12.00 15.42Processing & transformationLosses & transfers -0.70 0.00 0.00 -0.76 -3.40 -4.86Net transformationb 0.00 0.00 0.00 0.39c 0.00 0.39Final consumption 2.00 0.00 0.04 0.31c 8.60 10.95

a Expressed as input equivalents on an assumed generating efficiency of 33%. b Transformation input and output, plus energy industry fuel andlosses. c Output basis.

Source: Energy Data Associates.

26 Kenya


Total power supply in 2000 was 4,179 gwh, including 146 gwh imported fromUganda. Kenya had an installed capacity of 1,147 mw, 283 mw more than in 1998,supported by the development of a third unit at Gitaru power station, theOlkaria III geothermal station. But the sector continued to suffer from asubstantial decline in actual power generation, largely as a result of a drop ofmore than 41% in hydroelectric power generation.

Demand for electricity is growing at an estimated 5% a year, and the governmentis keen to develop both thermal and geothermal power sources to supplementhydropower generation. The Kenya Power and Lighting Corporation (KPLC) ispursuing an ambitious expansion programme, and there are also plans for twodiesel plants in Mombasa and two geothermal stations near Naivasha. Two newdiesel power stations, with a combined capacity of 110 mw, are to be built inNakuru and Eldoret. However, in late 2000 multilateral and bilateral donorssuspended funding for power generation projects, in response to mismanage-ment and corruption. Kenya continues to suffer from power rationing as a resultof production problems at its existing plants. Renewable energy sources remainlargely untapped, and the country depends on imports for a supply of solarpanels. Biomass, though cheap and in plentiful supply in rural Kenya, remainsunexploited.

In March 2002 the Electricity Regulatory Board announced new electricity tariff.This was the first review of tariffs since August 1st 1999. The electricitydistributor, KPLC, and the Kenya Electricity Generating Company (KenGen), havepresented their views on the new tariff structure, representing the interests ofsuppliers. The exercise was intended, among other things, to review the much-criticised retail tariff and to rationalise the bulk tariff agreement between KPLCand KenGen under the Interim Power Purchase Agreement. KPLC claims that ituses 92% of its revenue to pay power costs, which is an unsustainable situation.The new proposals also included the possible establishment of a DroughtReserve Fund to cover the extra costs incurred during a drought, as in 2000 and2001, which contributed to the huge losses borne by KPLC in the last financialyear. (See Reference table 4 for historical national energy statistics.)

The economy

Economic structureMain economic indicators, 2001a

Real GDP growth at factor cost (%) 1.2Consumer price inflation (%)b 0.8

Current-account balance (US$ m)b -318Total external debt (US$ bn) 5.9Average exchange rate (KSh:US$)b 78.56

Population (m) 30.7

a Official estimates. b Actual.

Sources: Economist Intelligence Unit, CountryData; Central Bureau of Statistics, Ministry of Finance and Planning, Economic

Survey, 2002.

Demand for energy is high

New power tariffs introducedin March 2002

Kenya 27


The share of GDP generated by agriculture has declined steadily during the pastfour decades. However, the sector still dominates the economy, both in terms ofits size and in terms of the number of people working in agriculture and relatedindustries. Farming output is diverse, consisting of various food crops and cashcrops as well as livestock, forestry and fishing. The most productive of Kenya�sfarmlands are situated in the fertile central and western regions, while therearing of livestock predominates in the semi-arid regions to the north and east.

Origins of gross domestic product, 2001a

(% of total; constant 1982 prices)

Agriculture, forestry & fishing 24.1Manufacturing 13.0

Trade, restaurants & hotels 12.7Transport, storage & communications 6.2

Government services 14.7Other 29.3

a Provisional.


The government sees industrialisation as the main development challenge. Sinceindependence the share of manufacturing in GDP has remained relativelyunchanged, at around 10%. Industrial activity is concentrated around the threelargest urban centres, Nairobi, Mombasa and Kisumu. Manufacturing isdominated by food-processing industries such as grain milling, beer productionand sugarcane crushing. Kenya also has an oil refinery supplying petroleumproducts, mainly to the domestic market.

The service sector is dominated by tourism, the second largest export revenueearner after tea. Kenya�s coastline and game parks provide the main attractionsfor tourists. However, periodic security concerns and the deteriorating transportinfrastructure have led to a severe slump in the industry in the past few years.

Comparative economic indicators, 2001a

Kenya Uganda Tanzania South AfricaGDP (US$ bn) 10.2 5.7 9.1 156.9GDP per head (US$) 332 240 263 2,890

Consumer price inflation (av; %) 0.8 2.0 5.1 5.3Current-account balance (US$ bn) -0.3 -0.4 -0.7 -0.5Merchandise exports fob (US$ bn) 1.9 0.5 0.8 31.4

Merchandise imports fob (US$ bn) 3.2 1.1 1.7 27.2Total external debt (US$ bn) 5.9 3.1 7.0 25.4

Debt-service ratio (%) 14.4 20.9 13.1 12.9

a Economist Intelligence Unit estimates.

Source: Economist Intelligence Unit, CountryData.

Kenya has the largest economy in East Africa (although, per head, it is on a parwith Uganda). However, owing to impressive recent economic growth inUganda and the adoption of liberalising economic reforms in Tanzania, Kenyanow has serious competition in the subregion. Kenya is also losing out on donorfunding as a result of its poor record in tackling government corruption, whereasTanzania and Uganda both receive substantial bilateral and multilateral donor

Economy still dominated byagriculture

A growing challenge fromwithin the region

28 Kenya


funding. The combined GDP of these three East African Community countries isequal to only 19% of that of South Africa, the economic powerhouse of thecontinent, and only 1.8% of that of the UK, the former colonial power.

Economic policy

The latest Article IV consultation, published in April 2002, is generally critical ofthe Kenyan authorities. The IMF blames erratic macroeconomic policies and theslow pace of structural reform for below-potential economic performance overthe past decade. Real income per head is lower now than in 1990, and poverty ismore widespread. The government was praised for achieving a degree ofmacroeconomic stability in recent years despite the rising social and economicburden of HIV/AIDS, among other difficulties. Nevertheless, the macroeconomicand financial situation is still fragile, and investor confidence remains low. TheIMF�s executive board highlighted the continuing problems affecting governance,and stressed that anti-corruption measures were an integral part of the effort toboost income per head. Kenya�s flexible exchange-rate policy remains appro-priate, and recent exchange-rate stability will lower currency risk premiums andinterest rates. The exchange rate is not the cause of poor external competitive-ness; the problem is, rather, a consequence of the high cost of doing business,amplified by structural bottlenecks�a situation that can be remedied onlythrough the vigorous implementation of structural reforms. However, Kenya�srelationship with the IMF and foreign donors has been poor, and itscommitment to reform has frequently wavered.

On August 4th 2000 the executive board of the IMF approved a credit ofSDR150m (US$198m) to support Kenya�s three-year poverty reduction andgrowth facility (PRGF) programme. Under the PRGF arrangement, the firstannual loan of about US$18m became available immediately. This was followedby a Paris Club rescheduling of Kenya�s external debt at the end of August 2000.However, following its failure to meet several of its commitments on govern-ance, the government was seen to be backtracking on fundamental performancecriteria, and Kenya�s aid programme with the IMF was suspended at the end of2000. Attempts by the Kenyan government to meet the IMF�s conditions with aview to the resumption of donor support in 2001 and into 2002 have beenunsuccessful.

Although the government has made progress on a number of issues, it needs todo more work on the revised anti-corruption bills and to make further progresson privatisation and civil service reform. Specifically, the IMF wants the anti-corruption institutions to be strengthened and cases of corruption to be broughtto court in a timely fashion. Progress in the privatisation of Telkom Kenya, theKenya Railways Corporation and the Kenya Ports Authority is anotherrequirement that must be met before the IMF and the World Bank will agree toresume aid. Given the political implications, however, it is unlikely that Telkomand other parastatals will be privatised before the elections, which arescheduled for December 27th 2002. It is therefore also unlikely that aid will beresumed as quickly as the government appears to expect, as suggested by thetotal of grants it has included in the budget for fiscal year 2002/03 (July-June).

The IMF criticises governmentpolicy

IMF funding comes unstuck

Kenya 29


The IMF recommended a tightening of fiscal policy so as not to jeopardisebudgetary and external conditions. In particular, the board called for a loweringof the net domestic debt/GDP ratio, which rose to 21.5% at the end of 2001, from19.9% a year earlier. However, the Kenya Revenue Authority was praised formaintaining the revenue/GDP ratio at around 24%. Critically, the IMF says thatfuture budgets should reflect the priorities of the PRGF, including cutting wagesas a proportion of GDP. On average, civil service wages continue to account for38% of recurrent spending�a comparatively high figure.

Performance conditions attached to the PRGF

The poverty reduction and growth facility (PRGF) agreed between the IMFand the Kenyan government contains some of the most detailed performancetargets ever set under an IMF lending programme. As well as macroeconomictargets, the agreement sets out a list of performance criteria and structuralbenchmarks against which progress will be judged. These include:

• an amended and expanded code of ethics for public servants;

• an anti-corruption and economic crimes bill, enacted and published in theKenya Gazette, which is similar to that proposed by the parliamentary selectcommittee on anti-corruption;

• reforms of the civil service and completion of the current reform of thejudiciary;

• greater powers for watchdog institutions such as the Kenya Anti-corruptionAuthority, and the comptroller and auditor-general;

• the privatisation of key government-owned institutions, including KenyaCommercial Bank, Telkom Kenya and Kenya Railways;

• the completion of amendments to the Banking Act to eliminate recklesslending and define clear prudential regulations for all banking activities; and

• progress towards eliminating the import exemptions awarded to the publicsector.

The presentation of the 2002/03 budget by the finance minister, Chris Obure,on June 14th 2002 was set against the background of a stagnant economy andpossible delays in donor disbursements. According to government projections,tax collection will increase by KSh12.7bn (US$161.8m), a rise of 7.3%, to equal22.2% of GDP, which is high for an African economy. But this may beoveroptimistic. In 2001/02, revenue collection from import duty and income taxactually declined, forcing the government to lower its targets for these sources byKSh8.5bn and KSh7.8bn respectively. Although there may be a rebound in2002/03, it is unlikely to be as large as projected in the budget, which includesan increase of 7.6% in income tax and of 8.4% in customs and excise tax.

The IMF recommends tighterfiscal policy

Budget for 2002/03

30 Kenya


The government will also probably fail to increase the total of value-added tax(VAT) it collects by the projected 6%. This is especially likely owing to the factthat, since the budget was presented, the government has withdrawn itsproposal to impose 18% VAT on bread. The finance minister told parliament thatthe government had decided to remove the new tax, and asked bakers to revertto the old prices. Following the introduction of VAT on bread, bakers hadimposed a KSh5 price increase on a 400-g loaf, pushing the price up to KSh29.Since bread is one of the staple foods of Kenya�s urban population, theimposition of VAT caused a public outcry. Bakers protested that it would lead toreduced demand and the loss of hundreds of jobs. This has not been thegovernment�s only recent policy reversal; it has also removed the 20% levy oncertain classes of scrap metals as well as hides and skins. Treasury sourcesindicate that the government has forgone around KSh8bn in revenue in2002/03. The government appears to be giving in to the demands of lobbyistsand its actions may prove hard to justify to the IMF on economic grounds.

Government finances(KSh m)

2001/02 2002/03Revised budget Budget % change

Revenue 215,266 218,927 1.7 Tax 172,417 185,066 7.3 Other revenue 14,050 13,565 -3.5 Local authorities transfer fund 3,087 3,267 5.8 Fuel levy & toll charges 8,112 8,444 4.1 Other recurrent appropriations in aid 8,677 6,778 -21.9 Local appropriations in aid 8,923 1,807 -79.8Expenditure 313,988 324,186 3.3 Consolidated fund services 107,462 110,467 2.8 Recurrent expenditure 162,949 167,250 2.6 Development expenditure 43,577 46,469 6.6

Deficit (excl grants)a -98,722 -105,259 6.6Grants 10,368 15,865 53.0

Deficit (incl grants)a -88,354 -89,394 1.2FinancingProgramme & project loans 17,915 16,394 -8.5Privatisation proceeds 955 3,500 266.5External budgetary support 0 0 -Disposal of government housesb 0 2,000 -Rescheduled debt 6,300 0 -100.0Change in arrears -6,200 0 -100.0Domestic financing 69,384 67,500 -2.7Domestic debt redemptions due, but rolled over 38,458 36,897 -4.1Additional domestic debt 30,926 30,603 -1.0

a Commitments basis. b Not in printed estimates.

Source: Ministry of Finance and Development Planning.

In the light of the poor outlook for revenue, even according to optimisticforecasts, the minister of finance has tried to restrain expenditure growth, andtotal spending is forecast to grow by only 3.3%, to KSh324.2bn (US$4.14bn), in2002/03. This is quite an achievement in view of government forecasts thatinterest payments on domestic debt will increase by 12.3%, to KSh29.8bn or 9%

Expenditure growth isconstrained

Kenya 31


of total expenditure. The budget included a large increase in capital expenditure,which rises by 6.6% to KSh46.5bn. If donor funding does not materialise during2002/03, or if revenue collection is much lower than forecast, this spending islikely to be cut back. However, in the event that the additional funds do come in,higher development expenditure in an election year is likely to be welcomed bythe president, Daniel arap Moi.

The impact of the forthcoming elections can also be seen in increased alloca-tions to a range of (largely inefficient) public enterprises such as AgriculturalFinance Corporation (KSh260m), Kenya National Assurance (KSh1.7bn), KenyaRailways (KSh1.5bn) and the moribund Kenya Meat Commission (KSh200m).During his budget speech Mr Obure brought confusion to the overall expend-iture picture by promising allocations to various projects which lack corres-ponding allocations in the expenditure estimates; examples include thesecondary schools� bursary fund (KSh740m), the micro-finance fund (KSh300m)and the rural electrification fund (KSh200m).

The overall result of these developments is a forecast increase in the budgetdeficit (before grants) from KSh98.7bn (US$1.25bn) to KSh105.3bn. Assuming thatgrants increase by more than 50% in 2002/03, however, this will leave broadlyunchanged the deficit needing to be financed after grants have been taken intoaccount. The deficit will rise only modestly, from KSh88.4bn to KSh89.4bn(around 5% of GDP), and will have to be met largely by domestic borrowing�although the finance minister has assumed a large increase in privatisationreceipts, up from only KSh955m in 2001/02 to KSh3.5bn in 2002/03, and asubstantial windfall from the sale of government housing stock, which isexpected to provide KSh2bn. Because of these two large projected increases, theminister was able to lower his forecast for domestic borrowing to KSh67.5bn.However, if either of these sources of finance fails to provide the anticipatedfunds, the financing requirement is expected to increase substantially. The delaysin reaching agreement with the IMF and World Bank are also likely to delay theCentral Bank of Kenya�s ambitious programme for stabilising interest andexchange rates by converting short-term into long-term debt.

Since most privatisation receipts will come from the sale of the state�s remaining35% stake in Kenya Commercial Bank and its reinsurance business, it is quitepossible that the government�s revenue target will be achieved. There was noattempt to include in it any possible revenue from the sale of the government�s49% stake in Telkom Kenya: the previous sale attempt in 2001 failed, and a salewould be inappropriate at present in view of the poor global market conditionsfor telecommunications companies and also political pressures before theelections. However, Mr Obure did say that the government was consideringother options, including an initial public offering for Telkom. Whether the sale ofhousing stock can be achieved within the timeframe is less clear but, as it islikely to be a popular measure, it may move ahead quickly in an election year.(See Reference tables 5-6 for historical data on government finances.)

In 1996 an amendment to the Central Bank of Kenya Act accorded greatercontrol of the country�s monetary policy to the Central Bank of Kenya, whichhas aimed to maintain price stability and administer the financial sector. Tight

Monetary policy

Financing depends on a largeincrease in grants

32 Kenya


monetary policy exercised by the bank has helped to reduce the country�saverage inflation rate from 46% in 1993 to only 0.8% in 2001, but higherborrowing by the government on the domestic market to finance the fiscaldeficit has resulted in persistently high interest rates in recent years. However,interest rates on 91-day Treasury bills fell from 20.5% in 1999 to 11.6% in 2001, andto 7.4% in June 2002, reflecting the effect of the excess liquidity in the market onaccount of low demand for bank credit. Financial sector regulation has resultedin the imposition of a foreign-exchange exposure limit on 20% of the bank�scapital. Despite a tightening of regulations and the implementation of reforms,including the closure of a number of banks in recent years, the financial sectorsuffers from the problem of non-performing loans, which account for about 41%of the total loan portfolio.

The Central Bank of Kenya (Amendment) Bill�also known as the Donde billafter its sponsor, an opposition MP�was killed off in parliament in late April2002 when the speaker allowed the spoiling bill of the attorney-general, AmosWako, to be debated first. Joe Donde had earlier sought to resurrect his bill�which had been struck out by the High Court in January on the grounds that itimposed retrospective criminal penalties�by moving to have a new commence-ment date set. As the attorney-general�s bill takes precedence and has passed itsfirst reading, the Donde bill is unlikely to survive, much to the relief of thebanking industry and the Bretton Woods institutions. The bill would pegcommercial bank lending and borrowing rates to the benchmark 91-day T-billrate, in a misguided attempt to lower interest rates. The bill also seeks to preventbanks from charging accumulated interest beyond the term of the original loan.It is clear that the bill would limit credit for small and medium-sized companies,thus weakening private-sector investment, and could have a damaging impacton the fragile banking system. The new Wako bill is an amendment of theDonde bill; crucially, it removes the interest rate peg and the ban onaccumulated charging. According to its sponsor �such controls are consideredundesirable as they are contrary to the policy of economic liberalisation adoptedby the government�. (See Reference table 7 for historical data on money supplyand credit; see Reference table 8 for historical data on interest rates.)

Monetary Policy Advisory Committee

As well as dropping the most controversial features of the Donde bill, the newcentral bank bill drastically alters the membership, and expands the functions, of theproposed Monetary Policy Advisory Committee (MPAC), holding out the hope ofmore efficient policy formulation and implementation. Civil servants will have amore prominent role in the committee: the permanent secretary at the Ministry ofFinance, the economic secretary and the director of fiscal and monetary planningwill all sit as ex-officio members. Furthermore, the minister of finance will beallowed to appoint five other financial �experts� after consultation with the CentralBank of Kenya, whose governor will remain the chairman of the MPAC. Thecommittee�s functions will be to advise the central bank and perform other functionsat the request of the finance minister. It will not be mandatory for the committee tosubmit half-yearly reports to the National Assembly (as the Donde bill required),which will make it more difficult to judge its effectiveness.

The Donde bill falls

Kenya 33


Economic performance

From the mid-1980s until 1990 real GDP grew by more than 4% a year, leading toa rise in income per head. However, the freeze by donors on quick-disbursingaid, the drought in 1992 and poor management of the economy all contributedto a sharp slowdown in 1991-93, when annual real growth averaged 0.9%. Poorharvests, especially of food crops, played their part: real agricultural outputshrank by 3.7% in 1992 and by a further 3.3% in 1993. The influence of agricultureon overall growth is clear from the fact that, although real output in the fiveother main sectors expanded in 1993, GDP grew by just 0.4% as a result of thecontraction in agricultural production. Improved harvests, the opening of theEast African Community market to well-placed Kenyan manufacturers, and thedevelopment of service industries all contributed to improved overall growthafter 1993, to a peak of 4.6% in 1995.

Gross domestic product(% real change, year on year)

1999 2000 2001a

Agriculture 1.2 -2.1 1.2Manufacturing 1.0 -1.4 0.8

Trade, restaurants & hotels 2.0 1.0 1.3Financial services 2.0 0.4 1.0Government services 0.7 0.7 0.7

GDP incl others 1.4 -0.3 1.2

a Provisional.


Real GDP is officially estimated to have increased by 1.2% in 2001, significantlylower than the official target of 2%. Agriculture, which accounts for 24% of GDP,grew by 1.2%, following the drought in 2000; trade, restaurants and hotels (13%of GDP) increased by a modest 1.9%. New investment in telecommunicationsservices, higher textile production and the improved power supply also helpedthe mild recovery. However, a general industrial recovery is hampered by theshortage of credit available to the private sector. Real GDP growth was a distinctimprovement on the 0.3% contraction that occurred in 2000�the worstperformance since independence in 1963. (See Reference tables 9-11 for historicalGDP data.)

Inflation fell steadily in 2001, averaging only 0.8% for the year, compared withan average rate of 6.2% in 2000. The low rate of inflation was caused mainly bythe slump in food prices, subdued domestic demand and continued tightmonetary policy. Although year-on-year inflation rose to 2.8% in June 2002, from1.7% in May, this was mainly a reflection of seasonal increases in food prices,which account for 50.5% of the index. When food is excluded, underlying year-on-year inflation declined from 3.5% to 2.9% over the same period, partly owingto the cut in power tariffs in the 2002/03 budget which more than compensatedfor the increased duty on kerosene. Average annual inflation fell steadily duringthe first half of the year: it was 4.8% in the year to January 2002, but had fallento 2.3% in the year to June. (See Reference tables 12-13 for historical data onconsumer prices and wages.)

A modest upturn in 2001

Low inflation

34 Kenya


Economic sectors

Agriculture

Farming and cattle rearing are still the most important economic activities inKenya, accounting (with forestry and fishing) for around 24% of GDP and 18% ofwage employment in the formal sector in 2001 (agriculture is the main source ofemployment in the informal sector). Almost one-half of all agricultural output isfor subsistence and is therefore not marketed. Tea, coffee and horticulturalproduce provide just over 50% of total merchandise export revenue. The govern-ment aims to achieve self-sufficiency in major staples such as maize by 2010, butthe production of such crops has fluctuated widely, owing to highly variableclimatic conditions. Droughts in 1993-94 and in 1997 were followed by wide-spread flooding at the end of 1997 and into 1998, a result of the El Niño weatherphenomenon. Kenya suffered another severe drought in 2000, but improvedweather conditions in 2001 and into 2002 helped agricultural output to rise. Theperformance of the sector was mixed during the first half of 2002: horticulturalproduction increased by 5.1%, while sugarcane output grew by as much as 24%.However, output of tea, coffee, pyrethrum and sisal declined, by 7.5%, 15.4%,29.7% and 2.3% respectively, during the same period. (See Reference tables 14-15for historical data on agriculture, forestry and fishing.)

Kenya�s population is heavily concentrated in areas of fertile land in the centreand west of the country. The resulting competition for productive areas hasfrequently been a source of ethnic tension. An estimated 75% of the populationoccupies the 13% of the total land area rated as �high potential� (with annualaverage rainfall of at least 900 mm), while the balance occupies the remaining�marginal� land area. Although there are large tea and coffee estates inoperation, smallholders supplied 60% of tea output and co-operatives produced60% of coffee output in 2001.

Structure of land ownership in the tea industry, 2001Area

(�000 ha)Production

(�000 tonnes)Average yield

(kg/ha)Smallholders 88.36 181.72 2,147

Estates 40.81 112.90 3,453Total 129.17 294.62 2,560

Source: Kenya Tea Manufacturers� Association.

The economic liberalisation programme has been extended to agriculture,bringing to an end the monopolies enjoyed by most commodity marketingboards. The government continues to make slow progress towards the deregul-ation of the food crops subsector, citing the need to protect small-scale farmersfrom the highly unpredictable harvests that result from climatic variations. Afterseveral changes in policy and disagreements with donors, the president, Danielarap Moi, announced in September 1995 that the National Cereals and ProduceBoard (NCPB) would only trade in maize at market prices. The NCPB is alsoresponsible for managing the National Strategic Food Reserve, a mechanism forcushioning Kenyans against food shortages. The reserve has been unable tooperate effectively, however, owing to excessive exports of food commodities

An economy dominated byagriculture

Pressure on fertile land is high

Liberalisation of agriculturehas been patchy

Kenya 35


without proper assessment of the needs of the population before and afterharvests.

Output of key sectors(% change, year on year)

Year Jan-Jun2000 2001 2001 2002

Tea -5.0 25.0 42.6 -7.5Horticulture 0.2 -4.0 3.4 5.1

Coffee 52.4 -44.2 -38.6 -15.4Sugarcane -10.7 -10.1 -24.8 24.0Pyrethrum -5.0 5.2 88.3 -29.7

Sisal -2.3 8.2 5.4 -2.3

Sources: Central Bureau of Statistics; Kenya Sugar Authority; Sisal Board of Kenya; Pyrethrum Board of Kenya.

After considerable delay, the liberalisation of the lucrative coffee marketingbusiness moved towards a conclusion in June 2002, when the minister ofagriculture, Bonaya Adhi Godana, implemented the provisions of the newCoffee Act (2001). He wound up the old Coffee Board of Kenya�a primeexample of mismanagement and corruption, which had monopolised marketingsince the 1930s�and replaced it with a new, slimmed-down organisationresponsible only for regulation. The main aim of the changes is to give farmersgreater control over the industry (by allowing them to choose betweenmarketing agents) and to improve their earnings (by reducing deductions andensuring prompt payment). Under the former system, farmers had to waitseveral months to be paid and typically received less than 20% of the realmarket value of their produce. This contributed to a rapid decline in coffeeproduction, which fell by around 50% to 51,700 tonnes in the 2000/01 season(October-September) compared with the previous season�s output.

As with other liberalisation initiatives in Kenya, the transition to the new coffeemarketing regime was far from smooth. More than 100 farmers� co-operativeschallenged the agriculture minister in court over his appointment of thecountry�s main coffee millers, Kenya Planters Co-operative Union, Thika CoffeeMills and Socfinaf, as interim marketing agents. According to the farmers, theyhad not been consulted over the appointments, in violation of the new law. Aninitial judgement went in their favour, threatening to suspend the operation ofthe Nairobi Coffee Auction, but this was overturned a week later followingrepresentations from the government. However, the minister moved to appeasefarmers� groups by gazetting new regulations stipulating that millers mustestablish separate companies if they wish to operate as marketing agents.Further controversy is expected over the selection of permanent marketingagents. Twelve groups are competing for licences, including the three millers, twofarmers� organisations and other unidentified concerns thought to be linked tothe former coffee monopoly.

It is too early to say whether the new marketing system will achieve its aim ofrevitalising coffee production, especially given the low world prices, althoughoutput in 2001/02 appears to be edging up after last season�s trough. Accordingto the Central Bank of Kenya, production in the first four months of 2002 was

Coffee marketing is liberalised

36 Kenya


20,530 tonnes, 3.7% higher than in the same period of 2001, and the CoffeeBoard has forecast a slight increase for the season as a whole.

The tea industry is by far the largest export earner, and Kenya is now the world�sleading supplier of black teas. Throughout the 1990s revenue from tea expandedrapidly, and the El Niño rains of 1997/98 resulted in a record harvest of 264,000tonnes. According to the Tea Board of Kenya, the present low world prices haveso far had only a limited impact on the country�s tea production, as the crop hasbeen recovering from the poor weather conditions in 2000 (ranging from frost todrought), which pushed production and exports down. The country�s totalproduction in 2001 was estimated at 295m kg, a 25% year-on-year increase, andthis translated into exports of 270.5m kg. But at the low average price ofKSh128/kg (a substantial drop on the 2000 price, when the Kenyan productionshortfall pushed up prices), total tea export earnings are estimated at KSh35.4bn(US$450m) in 2001, only slightly higher than the KSh35.2bn recorded in 2000.

Tea exports1997 1998 1999 2000 2001a

Volume (m kg) 199.2 263.8 260.2 217.3 270.5

Average price (KSh/kg) 121 125 127 162 128

a Tea Board of Kenya estimates.

Sources: Ministry of Planning and National Development, Economic Survey 2002; Tea Board of Kenya.

Horticulture has seen spectacular growth since the mid-1980s, exporting to meetoff-season demand for fresh fruit, vegetables and flowers in Europe: Kenyacurrently meets 25% of European demand, while Colombia supplies 17% andIsrael 16%. Kenya�s success in this area reflects the efforts made by members ofthe Kenya Flower Council, who account for 65% of national production, tocomply with international standards. The value of production doubled between1995 and 2001, and in 1998 horticultural exports for the first time earned moreforeign exchange than coffee, at US$230m. The industry is important because ofits ability to create jobs quickly, and it has become a good example of private-sector expansion with limited government intervention. Kenyan horticultureachieved a public relations coup by overtaking Israel in 1996 to become theleading supplier of cut flowers to the Dutch auctions.

However, Kenyan flower growers are threatened by an international boycottover alleged poor labour practices. The Kenya Human Rights Commission(KHRC) launched the international campaign for a boycott in mid-May at ameeting in Nairobi attended by trade union representatives from (among otherregions) Europe and Latin America. According to the KHRC�s executive director,Willy Mutunga, the campaign will be modelled on the one mounted againstDelMonte Kenya, a pineapple producer, in 2001. A Dutch representative at themeeting appealed against targeting all flower farms, citing the threat this wouldpose to the 50,000 workers employed in the industry, but Mr Mutungacountered that most farm managers had refused to enter into negotiations withworkers� groups.

Tea production reboundsin 2001

Horticulture becomes a majorgrowth area

Kenya 37


Exports of fresh horticultural produce1997 1998 1999 2000 2001

Volume (�000 tonnes) 84.2 78.4 99.0 99.2 95.2Value (KSh bn) 8.7 9.7 14.2 13.9 23.5

Source: Horticultural Crop Development Authority (HCDA).

Mining and semi-processing

The mining and quarrying sector accounts for only 0.14% of GDP, the majorityof which is contributed by the soda ash operation at Lake Magadi. Both sodaash and fluorspar are exported, but stagnant world prices have had a negativeimpact on the sector in recent years. The depressed state of the domesticeconomy has also led to a fall in demand for industrial inputs. Producers havealso blamed much of the decline on cheap imports as a result of liberalisationand the removal of tariffs.

Mineral production, 2001a

�000 tonnesSoda ash 298

Fluorspar 119Salt 6Limestone productsb 32

Total (incl others) 675

a Provisional. b Excluding limestone used in cement production.


The largest mining venture since independence moved a step nearer in earlyJuly 2002, when the government finally granted an environment permit to aCanadian company, Tiomin, for the development of a titanium mine at Kwale,near Mombasa. This followed an High Court decision in March, rejectingrequests by local residents for higher compensation and lifting an injunction thathad prevented fieldwork. The government intends to buy the land and chargeTiomin rent. Provided the company can negotiate the required 21-year lease(which is likely to be granted), the US$120m-140m project will begin by early2003, with production scheduled to start in the third quarter of 2004�althoughdirect action by the 5,000 people who will be displaced by the mine couldcause delays. The concession covers four separate deposits estimated to total5.6m tonnes, equivalent to 10% of world reserves, and could generatecumulative gross revenue of US$635m. (See Reference table 16 for historical dataon minerals production.)

Manufacturing

Although Kenya is the most industrially developed country in East Africa,manufacturing still accounts for only 13% of GDP. Expansion of the sector wasinitially rapid after independence but has slowed since the 1980s. Importsubstitution was the official policy in early years, and Kenya quickly developeda number of subsectors with an emphasis on consumer goods: beverages andtobacco, textiles, miscellaneous food products, petroleum products, electrical

The Kwale titanium mine getsthe go-ahead

Liberalisation of the sector

38 Kenya


appliances and machinery, printing, paper products, and sugar andconfectionery.

Towards the end of the 1980s industrial policy shifted from import substitutionto trade liberalisation and export promotion. Import tariffs were substantiallyreduced across the board but remain an instrument of policy in some sectors,particularly the sugar industry. However, these changes, which were intended toestablish a level playing field for importers and manufacturers, have failed to doso. This is mainly because of very widespread evasion of duties, and particularlyof those on sugar and maize. Strenuous recent efforts by the Kenya RevenueAuthority to clamp down on this have had some success, but the majorfraudsters continue to operate with relative impunity, often with the protectionof senior officials. In order to strengthen the performance of the sector thegovernment has in the past five years signed several trade agreements, includingthe African Growth and Opportunity Act (AGOA), a US government initiative. Ithas also introduced favourable tax measures (including the removal of duty oncapital equipment and other raw materials) in the budget for fiscal year 2002/03.

Towards the end of the 1990s industrial performance was severely constrainedby structural factors. The poor state of the country�s infrastructure, particularlythe road network, has served to increase freight costs and extend delivery times.The El Niño rains of 1997-98 caused severe damage to transport infrastructure,and highlighted the inadequacy of the government�s repair and maintenancepolicy. In 2000 manufacturing declined by 1.4%, comparing unfavourably withthe government�s target of 7.8% growth as contained in the NationalDevelopment Plan and with an average growth rate of 2.4% in 1990-99.However, the sector recorded a modest expansion of 0.8% in 2001, benefitingfrom an improved supply of raw materials and a stable power supply.

There is also a substantial informal sector involved in small-scale manufacturing.Jua kali (literally �hot sun�) industries operate in fields as diverse as thefabrication of household goods, motor vehicle parts and farming implements.Evidence suggests that this sector is expanding rapidly and accounts for asignificant proportion of domestic manufacturing, and that it contributesperhaps 18% of GDP. However, there are no reliable statistics on the contributionof the jua kali sector.

Kenya�s industrialisation drive experienced a setback in May 2002 when themodern Thika brewery, opened by South African Breweries International (SABI)in 1998 after an investment of US$35m, was closed. The closure was part of acomplicated share swap involving Tanzania Breweries (TB), in which SABI has a67% stake, and Kenya�s dominant brewer, East African Breweries (EAB), in whichGuinness has a 50% stake. Under the terms of the arrangement, EAB acquiredthe Thika plant (known as Castle Breweries Kenya) from SABI in return for a20% shareholding in EAB. At the same time, SABI took over EAB�s Kibo breweryin Tanzania in return for a 20% stake in TB. Neither Thika nor Kibo will continueto function as going concerns.

The move brought to an end four years of fierce competition between Guinnessand SAB for control of the Kenyan and Tanzanian beer markets, and constituteda return to the former situation of monopolistic control. Faced with declining

Thika brewery closes in ashake-up of the industry

Kenya 39


profits, both companies opted to cut their losses. The main problem has beenthe decline in consumption of Western style beers�despite extensive price-cutting and advertising�in favour of traditional products. Beer consumption inKenya has declined from 3.6 hectolitres per head in 1996 to around 2.4hectolitres, largely because of the recession in the Kenyan economy. (SeeReference table 17 for historical data on industrial production.)

Construction

The construction industry enjoyed short-lived prosperity in 1990-92 owing to anoffice-building boom in Nairobi. Parastatals and private-sector groups such as theBritish company Lonrho embarked on prestigious projects such as theconstruction of head offices, which have altered the skyline of the capital.However, central government spending on roads, housing and other buildingwork has been constrained not only by fiscal limitations but also by somequestionable policy choices. The recent economic downturn has furtherdampened construction industry activity, although central Nairobi has under-gone major rebuilding following the terrorist bombing in 1998.

The overall performance of the building and construction sector remainedsubdued in 2000-01, mainly because of depressed public- and private-sectorinvestment. The sector also suffered from reduced state spending�a con-sequence of the government�s financial austerity measures�and the suspensionof donor funds. Government expenditure on roads increased in 2001, but allother parts of the sector continued to decline. Employment in the constructionindustry also declined marginally, from 78,700 in 1999 to 76,700 in 2001.Construction activity remained depressed through the first half of 2002,reflecting budgetary constraints and the slow pace of economic recovery. (SeeReference table 18 for historical construction statistics.)

Expenditure on roads(KSh m)

2000/01 2001/02a

Development Trunk roads 711 2,360 Primary roads 505 867 Secondary roads 1,131 2,116 Miscellaneous roads 277 264

Recurrent (maintenance & repair) 6,696 8,042Total 9,320 13,651

a Provisional.


Financial services

At the end of July 2002, Kenya�s banking system comprised 46 commercialbanks (down from 48 in 2001), three non-bank financial institutions, twomortgage finance companies, four building societies and 48 foreign-exchangebureaux. The decline in the number of institutions from 59 in July 2001 to 55 inJuly 2002 was the result of merger, liquidation and the voluntary winding-up ofcertain institutions. The increase in the number of foreign-exchange bureaux

Structure of the financialsystem

40 Kenya


from 47 to 48 resulted from the reopening of one forex bureau. In 2001 the sectorcontinued to be dominated by eight banks, which accounted for 72% of totaldeposits held by commercial banks compared with 70.8% in 2000.

Financial sector(No. of institutions)

2000 2001 Jul 2002Commercial banks 50 48 46Building societies 4 4 4

Mortgage financial companies 2 2 2Non-bank financial institutions 7 4 3Foreign-exchange bureaux 47 47 48

Source: Economist Intelligence Unit.

The overall share of non-performing loans (NPLs) rose from 30% of totaladvances in 1999 to 33% in 2001, and recent Central Bank figures show a risefrom 37.9% in February 2001 to 39.4% in February 2002. Two-thirds of all NPLsare with public-sector banks. The IMF has consequently recommended that veryweak institutions ought to be allowed to close and that the remainder should beprivatised, and in particular that the state�s remaining share in KenyaCommercial Bank should be sold to a strategic investor. In addition, the Fundcriticises the legal and judicial system for contributing to the problems of thebanking sector, arguing that inefficiency and political interference in thecommercial courts have hampered banks, creditors and liquidators in theirefforts to enforce contracts, collect loans and realise collateral.

Banking indicators(KSh bn unless otherwise indicated; Jul)

2001 2002 % changeTotal assets 431.1 449.9 4.4 Loans 253.6 246.8 -2.7 Government securities 79.4 94.1 18.6Non-performing loans 78.6 73.1 -7.0 % of total advances 31.0 29.6 -

Source: Central Bank of Kenya, Monthly Economic Review, September 2002.

Barclays Bank has reported a 42% fall in net profits in the first half of 2002, toKSh1.2bn (US$15.3m). In contrast, Standard Chartered has reported a 3% rise infirst-half pre-tax profits, to KSh1.65bn, underpinned by a 1% increase in interestincome, to KSh1.9bn. The bank attributed the improvement to a timely switchfrom Treasury bills to Treasury bonds and a decline in NPLs to 7.4% of totaladvances, far better than the industry average. Kenya Commercial Bank reportedits first full-year profits in 2001, after two years of losses, owing to a rise in non-interest income and reduced provision for bad debts. During its recentassessment of the economy the IMF again called for the sale of thegovernment�s remaining 35% share of the bank to a strategic investor. This isnow unlikely to take place before mid-2003, but the bank�s return to profitabilitywill nevertheless make it a more attractive proposition.

The Nairobi Stock Exchange (NSE) had another difficult year in 2001, reflectingthe depressed state of the economy. The overall performance of the stockmarket

The banking system remainsfragile

The big banks report mixedresults

Another difficult year forthe stock exchange

Kenya 41


was poor: the benchmark NSE 20 Index fell by 29.2% in local-currency terms. Anumber of listed companies reported further falls in earnings in the year.However, some listed companies, such as East African Breweries, UchumiSupermarkets and Kenya Airways, made notable price gains. On many Africanstockmarkets in recent years, high interest rates on government T-bills have putbanking shares among the star performers. Growth was registered on bothgovernment and corporate issues: a total of KSh47.1bn-worth of T-bonds wasraised, constituting an increase of 64.1%. Participation by foreign investors hasdeclined from 36% of the total market in 1997 to 12.5% in 2001.

According to a credit card company, Visa, the use of debit and credit cards inAfrica is growing rapidly as banks broaden their services to the mass market.The number of debit and credit cards issued in Kenya increased by 125% in theyear to March 2002, and this upward trend is expected to continue in the shortto medium term. The biggest increase was in Namibia (226%), followed byKenya, and then Botswana (106%), South Africa (48%) and Zimbabwe (24%). Visais the world�s largest credit card company, with an estimated 57% of the globalmarket. (See Reference table 19 for historical banking statistics.)

Other services

Tourism accounts for 20% of GDP and is a major employer; it is also Kenya�sthird largest foreign-exchange earner after tea and horticulture. Against abackground of tribal clashes, negative publicity, crumbling infrastructure,inadequate marketing and increased competition from destinations such asTanzania, Mauritius and South Africa, the sector registered an unprecedenteddecline between 1995 and 2000. During this period annual tourist arrivalsdeclined by 1.5% and receipts fell by 19.5%. Tanzania is increasingly marketingitself as a tourism destination and privatising many of its facilities. It will betherefore be hard for the Kenyan government to reverse the decline of its ownindustry, as many tourists are likely to spend part of their holiday in Kenya andpart in Tanzania, especially in the parks around Mount Kilimanjaro and theNgoro Ngoro crater, which are close to the Kenyan border.

Tourism, 2001a

�000 bed-nights % change 2001/2000Visitors from: Europe 1,935.4 -7.1 Africa 990.0 -6.4 America 215.8 -23.9 Asia 142.2 -15.5 Australia & New Zealand 20.6 -23.4

Total incl others 3,355.0 -9.0

a Provisional.


The use of credit cards isincreasing

Tourism is picking up after adeep trough

42 Kenya


In 2001 the tourism sector�s performance was mixed. The global recession,coupled with the aftermath of September 11th terrorist attacks on the US, didnot augur well. A gentle pick-up in tourism activity in the first half of 2001 wasquickly reversed in the second half of the year. According to the government�sEconomic Survey, the numbers of tourist arrivals dropped by 4.1%. Moreworrying for the government was the fact that in 2001 tourists spent less time inKenya: the average length of stay fell to 8.4 days, from 8.7 days in 2000. Hotelcapacity also declined, by 11.2% in terms of bed-nights available and by 9% interms of bed-nights occupied, owing to the closure of a number of hotels forrenovations during the low season. On a more positive note, the number ofvisitors to game parks increased marginally (by 0.3%), and visits to museums andother historic sites rose by 15.5%. This contributed to a rise in total tourismreceipts from KSh21.55bn (US$305m) in 2000 to KSh24.24bn in 2001, the fall inthe number of visitors notwithstanding. (See Reference table 20 for historicaltourism statistics.)

The external sector

Trade in goods

Kenya has traditionally run a trade deficit. Recent data indicate a narrowing ofthe trade gap to US$1.3bn in 2001. Imports for 2001 increased by 4.3% toUS$3.2bn, whereas exports increased by 6.2% to US$1.9bn. The unfavourableterms of trade recorded in the last two years worsened in 2001. Although exportprice indices for all items rose by 2.7%, and those for non-oil items rose by 0.8%,import price indices for all imports and for non-oil imports increased by a hefty9.2% and 13.8% respectively. In 2001 imports continued to be dominated by non-food industrial supplies and transport equipment, accounting for some 49% oftotal imports.

Foreign trade, 2001a

(KSh m)

Total exports (incl re-exports) fob 121,434 Tea 34,485 Horticulture 19,846 Coffee 7,460 Petroleum products 12,345 Cement 1,031

Total imports cif -290,108 Industrial & electrical machinery 37,933 Refined petroleum products 26,035 Crude petroleum 31,179 Motor vehicles & chassis 14,524

Trade balance -168,674

a Provisional.

Source: Central Bureau of Statistics, Ministry of Planning and National Development, Economic Survey 2002.

Tea, coffee, petroleum products and horticulture account for more than one-halfof all Kenya�s merchandise exports. The strength of the export sector is therefore

Kenya runs a trade deficit

Exports dominated byagriculture

Kenya 43


strongly influenced by fluctuations in world prices for these commodities. In2001 the value of coffee and horticulture exports fell, owing to a thirdconsecutive year of unfavourable world prices. Similarly, the volume of teaexported rose by an impressive 24.5%, but a 21.2% drop in tea prices neverthelessresulted in marginally lower export receipts.

Such fluctuations demonstrate the vulnerability of Kenya�s export sector toswings in primary commodity prices. Substantial falls in both coffee and teaprices are expected in 2003, which will put further strain on the trade balance.Kenya�s manufacturers are hopeful that the expansion of East African regionalmarkets will provide increased opportunities for industrial exports. Other thanpetroleum products, cement (in fifth place) is the only industrial commodity inthe ten leading exports. (See Reference tables 21-24 for historical data on importsand exports.)

Direction and composition of trade, 2000(US$ m)

Exports fob UK Uganda Pakistan Tanzania TotalFood 210.7 14.2 127.6 12.9 878.0 Fruit & vegetables & preparations 87.0 0.6 0.0 0.1 176.9 Coffee, tea & spices 119.4 1.1 127.6 1.3 618.5Live trees & plants 23.1 0.4 0.0 0.0 99.8Mineral fuels 0.0 67.9 0.0 18.5 127.4Chemicalsa 0.5 41.1 0.6 22.2 112.8Metals & manufacturesb 0.4 24.8 0.0 15.8 59.5Total incl others 244.0 226.3 130.8 114.6 1,571.0

Imports cif UAE UK South Africa Saudi Arabia TotalFood, beverages & tobacco 5.5 36.5 55.7 2.3 296.6 Cereals & preparations 1.5 22.2 30.4 1.9 193.6Mineral fuels 343.5 4.8 20.3 140.2 643.2Chemicalsa 9.9 56.2 47.5 31.4 463.0Textile fibres, yarn, cloth & manufactures 1.4 17.7 5.5 0.2 99.4Iron & steel & manufacturesb 1.1 9.2 16.3 0.3 143.6Other metals & manufacturesb 3.2 7.7 14.2 0.1 63.9Machinery incl electric 22.9 98.5 18.2 0.6 558.4Road vehicles & tractors 9.5 20.0 9.2 0.1 172.3Aircraft 0.3 23.2 6.1 0.0 70.3Total incl others 405.9 315.5 216.6 177.2 2,891.4

a Including crude fertilisers, manufactures of plastics, photographic goods. b Including scrap.

Source: Global Trade Information Services, Global Trade Atlas.

Since 1995 the Common Market for Eastern and Southern Africa (Comesa) hasovertaken the EU as the main destination for Kenya's exports. The country�sexports to Comesa as a proportion of total exports are estimated to haveincreased from 43% in 1997 to 46% in 2001. Kenya's exports to the East AfricanCommunity (EAC) have also increased tremendously over the last few years,from KSh32bn in 1997 to KSh44bn in 2001 (an increase of about 40%). Kenya'strade with Comesa and the EAC is dominated by manufactured goods�unlikeits trade with the European Union, which is dominated by primary products.The expansion of regional markets has also created a wider market for goodsproduced in Kenya and is therefore important for foreign direct investment,

Africa rivals EU as Kenya�smain trading partner

44 Kenya


which is looking for a platform from which to supply wider markets. (SeeReference table 25 for historical data on main trading partners.)

Main trading partners, 2001a

(% of total)

ExportsUganda 20.4UK 11.1Tanzania 9.2Netherlands 6.7ImportsUAE 14.5UK 7.5Japan 5.0India 4.4

a Provisional.

Source: Ministry of Planning and National Development, Economic Survey, 2002.

Invisibles and the current account

In recent years Kenya�s current account has remained firmly in deficit as importshave exceeded exports and earnings on services such as tourism (which alonegenerates around 20% of all foreign-exchange revenue) have declined. Theshortfall on the current account has been offset by net investment inflows,which has kept the overall balance of payments in surplus. But this surplus hassteadily declined, and is in danger of moving into deficit as financial inflowsdecline. This change can be traced back to a collapse in investor confidence inthe second half of 1997, following the suspension of IMF structural funding inJuly and fears over political stability during the elections later the same year.Despite high domestic rates of interest in 1998, the net outflow of capitalcontinued; it then accelerated as interest rates fell from late 1998 and continuedto do so during 1999-2001, pushing down the balance-of-payments surplus.

Kenya has run a consistent surplus on its invisibles balance, owing mainly toearnings from tourism and to donor funding. However, a disastrous few yearsfor the tourist industry have had a damaging impact on invisible earnings. Theother principal component of the current account, net current transfers, shows aregular surplus as a result of donor grants and private transfers, althoughinterruptions to large-scale bilateral aid following the suspension of the IMFstructural loan in mid-1997 and again at end-2000 have had a significantnegative impact.

Kenya�s current-account deficit widened slightly in the 12 months to May 2002,from US$353m to US$372m (equivalent to 3.5% of GDP). Exports remainedroughly stable while imports edged downwards (owing to lower oil prices andsubdued domestic demand), so that the merchandise trade deficit narrowed by9% to US$1.47bn. But this was offset by a 13% fall in the invisibles trade surplusto US$1.09bn, as net current transfers fell by 30% to US$604m and net incomeoutflows rose by 28% to US$152m (including US$124m in official interestpayments). Net inflows from non-factor services increased by 23% to US$642m,

Structural imbalances in thebalance of payments

Kenya 45


owing to higher earnings from transport and, to a lesser extent, tourism (up byUS$10m, to US$292m); this was insufficient to compensate, however.

Despite the widening current-account deficit, the overall balance of paymentsrecorded a US$65m surplus in the year to May 2002 because of a sharp rise innet capital inflows to US$437m. This reflected the turnaround in net mediumand long-term private flows from a deficit of US$36m to a surplus of US$151m(owing mainly to the activities of commercial banks). At the same time, netoutflows of official medium- and long-term capital fell from US$215m toUS$194m, while net short-term capital inflows (including errors and omissions)rose by US$15m to US$408m. (See Reference table 26 for historical data on thebalance of payments.)

Balance of payments(US$ m; year to end-May)

2001 2002 % changeMerchandise exports fob 1,868 1,899 1.7Merchandise imports cif -3,483 -3,364 -3.4

Trade balance -1,615 -1,465 -9.3Invisible trade (net) 1,262 1,093 -13.4

Current-account balance -353 -372 5.4Capital account 309 437 41.4

Overall balance -44 65 -

Source: Central Bank of Kenya, Monthly Economic Review, September 2002.

Capital flows and foreign debt

Net inflows of short-term capital have sustained a healthy capital-accountsurplus in recent years. High yields on government securities ensured the arrivalof new foreign speculative investment. However, a turnaround occurred in mid-1997, when IMF funding was suspended and investor confidence consequentlycollapsed. Political and economic uncertainty at the time of the elections in late1997 created a further disincentive to investors.

It was hoped that as the political outlook stabilised during 1998-99 the �hotmoney� would return. However, for the first time since early 1995 the capitalaccount registered a net outflow in the middle of 1998, reflecting an ominousand continued fall in foreign investor confidence. The level of long-term privateinvestment has also been disappointing. Government data indicate net outflowsthroughout 1993-2001. This suggests that foreign companies are not only holdingback from capital investment in Kenya, but that some are divesting themselvesof longer-term commitments. The implication is that foreign investors, whetherspeculative or long-term, are waiting to see whether the political and economicclimate improves before they take advantage of any investment opportunities.

According to the World Bank�s recently published Global Development Finance,Kenya�s debt stock continued to fall from just under US$6.5bn in 1999 toUS$6.3bn in 2000. This reflected the fact that new credit inflows into Kenya havelargely dried up, while debt repayments have continued broadly in line withhistorical norms. By the Bank�s reckoning, external debt amounted to 61.6% ofgross national income (GNI) in 2000, compared with 70.9% of GNI for Sub-

Investors are losing confidence

New data confirm Kenya�slimited access to funds

46 Kenya


Saharan Africa as a whole. The ratio of total debt to exports of goods andservices stood at 226%, compared with 178.8% for the region as a whole.

On November 15th 2000, before the crisis with the IMF emerged, the Kenyangovernment agreed a new external debt repayment schedule at a meeting heldin France with representatives of the Paris Club. The two sides negotiated therescheduling of US$300m of debt arrears, repayment of which was supposed tobe made during the 2000/01 financial year (July-June). However, Kenya is still along way from qualifying for the kind of debt relief available under the IMF-World Bank�s heavily indebted poor countries (HIPC) initiative. It is extremelyunlikely that Kenya will be considered for HIPC until it can demonstrate acommitment to economic reform and good governance and convince donorsthat any debt write-off will be used to alleviate poverty. (See Reference table 27for historical data on the external debt; see Reference table 28 for data on netofficial development assistance.)

Foreign reserves and the exchange rate

The government is trying to maintain three months� import cover in its reserves,and at the end of July 2002 they stood at US$1.11bn or just under three months�cover. Of this total, two-thirds of reserves are held by the central bank and one-third by commercial banks.

The abolition of the official exchange rate for the Kenya shilling in October 1993,and the dismantling of the Central Bank of Kenya�s controls on the foreign-exchange market, were widely expected to lead to a rapid depreciation of thecurrency on the interbank market. In fact the reverse happened, and the shillinghas shown remarkable resilience. The Kenya shilling has remained stable in2002 at around KSh78.3:US$1, similar to the rate during the past two years. Suchstability should exert downward pressure on currency risk premiums andinterest rates. According to currency traders, the shilling will remain immune toworries about donor inflows until the funds actually materialise. Exchange-ratestability has also been fostered by the maintenance of fairly tight monetarypolicy, and by healthy reserves resulting from higher export earnings. (SeeReference tables 29-30 for historical data on foreign reserves and exchange rates.)

Agreement is reached with theParis Club

Reserves provide threemonths� import cover

Kenya 47


Appendices

Membership of regional organisations

The EAC is the regional intergovernmental organisation of Kenya, Tanzania andUganda, and is the successor to the defunct East African Community whichcollapsed, amid great acrimony, in 1977. Renewed discussion on how to pursueregional co-operation led to agreement to establish a Permanent TripartiteCommission for East Africa in 1993, although full operation of a permanentsecretariat in Arusha, Tanzania, did not begin until March 1996. Further work ona framework for regional co-operation led to a treaty for the establishment of theEast African Community in November 1999, and the EAC was formallylaunched on January 15th 2001.

The EAC focuses on the harmonisation of members� policies in priority sectors,the creation of a common market, and the promotion of regional trade andinvestment. This includes currency convertibility, the progressive reduction oftariffs, various regional infrastructure projects, and regional co-operation inresearch, human resources and technology. The EAC also envisages theestablishment of a common travel document, easing border controls andpromoting the free movement of people. Other objectives include theharmonisation of fiscal and monetary policies and of those on investment,traffic, the environment and security. Progress has begun in some of these areas,and sectoral councils to co-ordinate joint action have been established. A secondEast African Community Development Strategy for 2001-05, covering theseobjectives, was approved by heads of state on April 24th 2001. Longer-term goalsinclude a monetary and customs union and ultimately a political federation.There are continuing discussions on the EAC�s relationship with rival,overlapping regional trade blocks. These include the Southern AfricanDevelopment Community (SADC) and the moribund Common Market forEastern and Southern Africa (Comesa).

The timetable and scale of tariff-barrier reductions within the new economicgrouping is being negotiated; the treaty calls for common external tariffs and theelimination of internal tariffs. The issue was complicated by economicdisparities between EAC members, since Tanzania and Uganda are concernedthat they would be unable to compete with Kenyan goods following theopening of their own markets. It has therefore been agreed that tariff reductionson internal trade will be asymmetrical: Kenya will reduce its tariffs by 90%,while Tanzania and Uganda will reduce theirs by 80%. Intra-regional trade,which is currently below US$1bn a year, is dominated by exports from Kenya.Some tripartite agreements have already been executed, including theestablishment of an independent East African trade regime, and theharmonisation of standards and specifications of goods produced within theregion. Already 207 regional standards have been harmonised, of which 91 EACstandards have been adopted and notified to the World Trade Organisation.

Since the signing of the co-operation agreement Kenya, Uganda and Tanzaniahave tried to harmonise their fiscal and monetary policies, including measuresfor avoiding double taxation and preventing tax evasion. Other harmonisation

East African Community (EAC)

48 Kenya


measures include the convertibility of the three currencies, pre- and post-budgetconsultation between finance ministers, synchronisation of budget day in thethree countries, the establishment of a Monetary Affairs Committee of the threecentral banks, and co-operation in capital and securities regulation. In order topromote trade and investment, the East African Business Council has beenestablished, drawing members from private-sector organisations in the region.Lawyers have formed their own forum, the East African Law Society, and theEast African Securities Regulatory Authority has also been established.

The three countries are considering joint projects in energy and also in road andrail transport. These include the extension of the Mombasa oil pipeline toUganda and a joint secretariat for railways; they also include a digitaltelecommunications transmission system costing US$69m, with finance fromthe telecommunications authorities of the three countries as well as from theEuropean Investment Bank and the East African Development Bank.

The eventual expansion of the EAC has been mooted. Rwanda and Burundihave applied to join, and discussions are continuing, although there isopposition to their joining while their internal conflicts persist. Expansion couldeventually include Ethiopia and even the Democratic Republic of Congo.

Based in Lusaka, Zambia, Comesa is the successor organisation to the regionalPreferential Trading Area (PTA), and came into existence on December 8th 1994following the ratification of the integration treaty by the 12 member states.Comesa, a weaker rival to the Southern African Development Community(SADC), now has 20 members: Angola, Burundi, Comoros, Democratic Republicof Congo (DRC), Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi,Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambiaand Zimbabwe. The Comesa region has a total population of around 385m anda combined estimated GDP of US$165bn. Mozambique and Lesotho withdrewfrom Comesa in 1997 to concentrate on their membership of the SADC, andTanzania withdrew in 2000. South Africa�s decision not to join Comesa hasgiven the SADC the stronger hand.

The original PTA, launched in 1981, aimed to liberalise trade and encourage co-operation in industry, agriculture, transport and communications. Comesa�sprincipal aims build on these ideals: its main goals are to eliminate the structuraland institutional weaknesses of member states and to promote the politicalsecurity and stability necessary for sustained development, both individuallyand collectively as a regional bloc. These aims are to be achieved throughmonetary union with a single currency and a common central bank. Thecreation of a free-trade zone on October 31st 2000 was to be a major steptowards achieving these goals. However, by the end of 2001 only nine of the 20members (Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan,Zambia and Zimbabwe) had agreed to participate fully. They have removed allbarriers to intra-regional trade, though they retain tariffs on imports from outsideComesa. A customs union is to be created by 2004, and full monetary unionimplemented by 2025.

The most recent figures, for 1998, give total trade within Comesa asUS$4.2bn;trade within Comesa as a proportion of members� total trade ranged from 3.2%

Common Market for Easternand Southern Africa (Comesa)

Kenya 49


for the Seychelles to 17.1% for Kenya. Over the past 30 years the share of intra-regional trade in total exports has actually fallen, from 9% in 1970 to 7.7% in 1998(although these figures do not capture the high levels of illegal crossbordertrade), which is lower than the overall African average of 10.5%. Reasons for thelow level of intra-Comesa trade include a lack of political commitment andweak balance-of-payments and foreign-reserves positions. In some cases thereare hardly any official trade links between member states; and Kenya, Malawi,Uganda, Zambia and Zimbabwe accounted for 58% of the total trade betweenmembers of Comesa in 1998.

As industry and manufacturing are generally poorly developed, many membersare unwilling to reduce tariffs further for fear of undermining local industries�Tanzania�s main reason for leaving�or fiscal revenue. A further constraint hasbeen the strict and cumbersome rules of origin, which are open to conflictinginterpretations and are not due to be harmonised until 2004. In addition tothese impediments, progress towards free trade will be further hampered bypolitical tensions between member states.

Regional free-trade areas such as Comesa aim to increase intra-regionalcommerce, leading to higher economic growth rates. However, they attractcriticism from many who feel that this cannot be achieved while supply-sideconstraints�including poor infrastructure, inefficient transport links, loweducation and skills levels, and cumbersome bureaucracy�remain. Comesa hasconcentrated on trade integration, but the lack of uniformity in investment codesand regulatory arrangements has been an obstacle to crossborder trade andinvestment. It is hoped that a trade and investment framework agreement signedwith the US in late 2001 will help the free-trade area to run more smoothly. Butthe commitment to Comesa of many of its members is weak: the administrationbudget is heavily dependent on Kenya and Zimbabwe, and meetings arefrequently cancelled. Moreover, attempts at promoting crossborder investmentand monetary harmonisation have been superseded by initiatives from the EastAfrican Community (EAC) and the SADC.

Under the old PTA system, a multilateral clearing facility was established and aPTA unit of account (UAPTA), equivalent to the IMF�s SDR, was used to settledebts between members every two months, the balance being payable in USdollars. In 1997 the UAPTA was replaced by the Comesa dollar, which is peggedto the US dollar. A Comesa court was officially opened in March 2001, althoughit had been established three years earlier. In theory the court, which aims to bean independent arbitrator in trade-related disputes, has jurisdiction over nationalcourts, but in practice it lacks the powers required to enforce its rulings. Comesaalso set up the African Trade Insurance Agency (ATI) in 2001. Funded by aUS$5m start-up loan from the World Bank, the ATI aims to provide political riskcover for investors in all member countries. Other institutions are the ComesaTrade and Development Bank, formerly the PTA Trade and Development Bank,and the PTA Reinsurance Company.

The Inter-governmental Authority on Drought and Development (IGADD), thebrainchild of the president of Djibouti, Hassan Gouled Aptidon, was establishedin January 1986 with six East African members: Djibouti (where the secretariat is

Inter-governmental Authorityon Development (IGAD)

50 Kenya


based), Ethiopia, Kenya, Somalia, Sudan and Uganda. Its aim was to co-ordinateand channel funding into agricultural development and the alleviation ofdrought and desertification. Progress on development and environmentalprojects was slow, but the organisation made headway as a forum for regionalpolitics and facilitated the reconciliation of Somalia and Ethiopia in 1988.However, regional events in 1991 undermined IGADD: the presidents of Ethiopiaand Somalia were overthrown, Eritrea gained independence, and the self-proclaimed Somaliland Republic declared its own independence.

Although IGADD gained a seventh member, Eritrea, in September 1993, it hadlittle success in its attempts to help resolve internal conflicts in Sudan andSomalia. Thus in March 1996, at a summit in Nairobi, IGADD renamed itself theInter-governmental Authority on Development (IGAD) and adopted a newcharter proclaiming conflict resolution to be its priority. IGAD also pledged topay more attention to economic integration. However, the organisation wasseverely handicapped in the late 1990s by the outbreak of war between Ethiopiaand Eritrea in May 1998, by Sudan�s increasingly tense relations with both Eritreaand Uganda, and by the support given by Ethiopia and Eritrea to variousfactions in the civil conflict in Somalia.

IGAD�s fortunes improved slightly in 2000 with the establishment of atransitional government in Somalia�in a deal brokered by Djibouti rather thanby IGAD�and the uneasy, UN-monitored peace between Ethiopia and Eritrea.However, the prospect for long-term reconciliation is not good in either case, andEthiopian military activity continues in Somalia. The organisation contains twocountries, Somalia and Sudan, suspected of having links with internationalterrorism, and its most recent summit, in Sudan in January 2002, pledged topush forward reconciliation efforts in both these countries� civil conflicts. In July2002 the Sudanese government and the Sudan People�s Liberation Army (SPLA)signed a memorandum of understanding (MoU) following seven rounds of talkssponsored by IGAD. The MoU included agreement on a referendum to be heldin the south of Sudan, and led to exploratory talks on a ceasefire and on powerand resource sharing. There are regular IGAD discussions on economicintegration and infrastructural co-operation; given the tensions between groupmembers, however, they are unlikely to produce substantive action.

The African Union (AU) has superseded the 39-year-old Organisation of AfricanUnity (OAU), based in the Ethiopian capital, Addis Ababa. The AU was formallylaunched in July 2002 at a meeting of African heads of state in the South Africancity of Durban. This marked the end of a one-year transitional period followingratification of the constitutive act of the AU by two-thirds of member states inMay 2001, and came two years after formation of the new organisation was firstagreed to in Togo in July 2000. The AU is modelled on the EU and includesambitious plans for a parliament, a central bank, a single currency, a court ofjustice and an investment bank. With the exception of the parliament, however,none of these is likely to be established in the foreseeable future. The AU alsoaims to establish common defence, foreign and communications policies, basedloosely on those of the EU.

The African Union (AU)

Kenya 51


The OAU was criticised for its ineffectiveness�little useful action resulted fromits policy decisions�and it is not clear how the AU will differ. Many of theproposed new institutions and policy co-ordination mechanisms will cost morethan can be funded from current resource allocations. A shortage of fundshindered the old OAU, which suffered from a failure by many members to paytheir membership dues. Like its predecessor, the success of the AU will dependon the individual performances of its 52 member states, many of which sufferfrom governance�or even state�failure. The new organisation�s priority shouldbe to encourage progress in these areas, rather than to pursue grand newschemes. Less costly initiatives for improving African unity include tradeintegration (particularly the rationalisation of the many overlapping regionaltrade blocs), regulatory harmonisation, promoting the rule of law, and measuresto improve macroeconomic stability.

The AU�s founding statements did not announce the end of the OAU�s principleof non-interference. This principle has been a major hindrance to the resolutionof conflicts in Africa, but is strongly supported by member governments. TheAU proposes a new Peace and Security Council, which will replace the OAU�sMechanism for Conflict Prevention, Management and Resolution.

The OAU was founded in Addis Ababa in May 1963 by 32 African nations inorder to promote solidarity and higher living standards, defend the sovereigntyof member states and eliminate colonialism. A further 21 signatoriessubsequently joined, the last being South Africa in 1994. Morocco left in 1985,following the admittance to the OAU of the disputed state of Western Sahara in1984. The OAU�s general secretariat had an annual budget of around US$31m,which the AU will inherit. As before, the foreign ministers of member states willmeet twice a year to discuss implementation of the organisation�s accords. Theissues raised are dealt with at the annual assembly of heads of state, whichmeets in June or July. The annual conference is hosted by the member state thatis due to hold the chairmanship of the organisation for the coming year. TheAU�s secretary-general is Amara Essy, Côte d�Ivoire�s foreign minister for most ofthe 1990s, who replaced Salim Ahmed Salim in September 2001.

The OAU held three extraordinary conferences of heads of state during itslifetime. The first, in 1970, was held to discuss the Angolan crisis; the second, in1980, sought to address the continent�s economic problems; and the third, in1990, attempted to address the problem of African external debt. The AU carriesforward the aims of the OAU, which included the creation of an Africaneconomic community (AEC) in accordance with the Lagos Plan of Action drawnup in 1980. This was originally due to be in place by 2000, but at the 27thsummit of heads of state in Abuja, Nigeria, in June 1991, the target wasrescheduled to 2025. The AEC treaty signed at the summit outlined six stages,including the removal of tariff and non-tariff barriers to trade and theestablishment of a continent-wide customs union by 2004. A commitment wasalso made to establish an African common market, with a central bank and asingle currency, by 2031.

The possibility of establishing a military force to observe and monitor ceasefiresnegotiated by the OAU has been considered. Although the OAU never deployedpeacekeeping forces, it undertook observer missions, as the AU is also expected

52 Kenya


to do. Conflict resolution came to dominate the annual summit of OAU headsof state from the mid-1990s onwards, in response to the crises in the Great Lakes,the Democratic Republic of Congo (DRC), Somalia, Sierra Leone, and Ethiopiaand Eritrea. From 1999 the OAU was involved in conflict mediation in Somalia,Ethiopia and Eritrea, Comoros, and the DRC (where four member states�sevenat the height of the fighting�are involved in the conflict). During 2002 theorganisation also became involved in mediating in the disputed election inMadagascar. Although the OAU did not intervene during the genocide inRwanda in 1994, it was the only international institution to recognise quickly thegravity of the crisis and to condemn events openly at an early stage.

The initiative to form the IOR-ARC was launched at an inter-governmentalmeeting in 1995. In 1997 the association�s charter was signed in Port Louis,Mauritius. The IOR-ARC aims to promote regional economic co-operationthrough trade liberalisation, investment, and the development of infrastructureand tourism. The organisation�s 19 full members are Australia, Bangladesh, India,Indonesia, Iran, Kenya, Madagascar, Malaysia, Mauritius, Mozambique, Oman,Seychelles, Singapore, South Africa, Sri Lanka, Tanzania, Thailand, United ArabEmirates and Yemen. Dialogue members (countries which may attend meetingsand which have trading interests in the region) are China, Egypt, Japan, Franceand the UK. Oman�s minister for foreign affairs, Youssef bin Alawi bin Abdullah,was appointed to the association�s two-year rotating presidency in March 2001.The IOR-ARC is concerned solely with opportunities to promote trade andinvestment, and deliberately avoids issues with political ramifications.

A new convention offering a group of 77 African, Caribbean and Pacific (ACP)countries preferential trade and aid links with the EU was signed in June 2000in Cotonou, Benin. It replaced Lomé IV, a convention which was signed in 1989and which replaced earlier agreements signed in 1975, 1979 and 1984.

The new agreement, which is to last 20 years, has a strong political dimension.As well as respect for human rights, democratic principles and the rule of law�all of which were essential components of Lomé IV�the ACP countries haveagreed to promote good governance, combat corruption and try to preventillegal immigration into the EU.

Under previous conventions, ACP products (whether agricultural or industrial)entered the EU duty-free, although four agricultural products�beef, sugar,bananas and rum�were subject to a more restrictive system of tariff quotas. Thenew agreement offers a negotiating framework for tailor-made regional free-trade agreements under which ACP countries, preferably within existingeconomic groupings, will gradually open their domestic markets to Europeanproducts. In view of the adjustment costs involved, a preparatory period of eightyears has been agreed during which the old system of preferences will continueto apply. A total of 33 African countries classified as �least developed countries�will have the option of entering the EU generalised system of preferences (GSP).Unlike the Lomé Convention, the GSP�which benefits all developing countries�complies with the rules of the World Trade Organisation because it is based onthe twin principles of non-reciprocity and non-discrimination.

Indian Ocean Rim Associationfor Regional Co-operation

(IOR-ARC)

The Cotonou Convention

Kenya 53


The European Development Fund (EDF) will remain the main source ofmultilateral EU aid to the ACP countries. Under the new convention, EDFinstruments have been regrouped and rationalised into two programmes: one toprovide grants for long-term development schemes being carried out at eithernational or regional level, with additional support available in the event of a fallin export earnings; and the other to finance risk-capital and loans to the privatesector. The ninth EDF will total €13.5bn (US$12.9bn). In addition, about €10bnleft undisbursed from previous programmes will remain available until 2007,and €1.7bn will be provided by the European Investment Bank.

Sources of information

Central Bank of Kenya, Monthly Economic Review

Central Bank of Kenya, Annual Report

Ministry of Planning and National Development, Development Plan 1998-2002

Ministry of Planning and National Development, Economic Survey (annual)

Ministry of Planning and National Development, Statistical Abstract (annual)

The Economic Survey is the most comprehensive of the national publications. Itis produced each year in June or July and brings together a wide range ofstatistical data relevant to the economy, on both the macroeconomic and thesectoral levels. In most cases, the Economic Survey presents five years of figuresup to the last full year before publication. It contains more than 200 separatetables and, although not always presented in a readily accessible form, mostrequired data can eventually be retrieved from these. Some sections, such asthose on energy and manufacturing, are notably weaker than others. Thepublication�s one big drawback is that it is difficult to judge the reliability of thedata given, particularly at the sectoral level, and it is usually not possible to referback to the source of the data.

The Monthly Economic Review, produced by the Central Bank of Kenya, is a well-presented and up-to-date source for a wide range of monetary data on thedomestic economy. It includes tables and charts on exchange rates and interestrates, money supply, domestic debt, bank ratios, public finances and the balanceof payments. It is available on the Internet at www.africaonline.co.ke/cbk/.

The Statistical Abstract, published each year, presents a wide range of nationaldata over a longer timeframe than the Economic Survey. Much of the data ispresented in ten-year time series.

It is often said that international statistics on African countries are in some wayssuperior to national data. However, this overlooks the fact that the principalinternational sources, such as the IMF�s International Financial Statistics, drawalmost exclusively on national sources. This is unavoidable, since they do nothave the resources or the remit to gather and collate their own figures ondomestic money supply, credit, public finances and trade. It is therefore notsurprising that international and national sources tend to tell the same story(with a few exceptions, such as Nigeria, where the volume of oil exports is

National statistical sources

International statistical sources

54 Kenya


disputed, and Angola, where 20 years of civil war have created an enormousparallel non-oil economy that dwarfs the formal sector). One furthercomplication is that the IMF and the World Bank produce internal documentswhich can sometimes be obtained informally at their regional offices; theseoften form the basis for lending decisions by the institutions� boards of directors,and tend to diverge more widely from national data than do the statistics whichthey release to the general public.

For Kenya, divergence is not generally a problem. The main international sourcesother than International Financial Statistics are three annual publications fromthe World Bank, Global Development Finance, World Tables and Trends inDeveloping Economies, and the OECD�s Geographical Distribution of FinancialFlows to Aid Recipients. For information on the financial sector (such as balance-sheet totals, net profit, board directors and shareholdings in institutions), theGeneva-based Sifida Investment Company produces the useful African BankingDirectory. Data on energy provision can be obtained from Energy DataAssociates, Bishops Walk House, 19-23 High Street, Pinner, Middlesex HA5 5PJ.

Daily Nation, Nairobi (www.nationaudio.com/News/DailyNation/Today/)

East African Standard (daily), Nairobi

The People (daily), Nairobi

The East African (weekly), Nairobi, Kampala and Dar es Salaam(www.nationaudio.com/News/EastAfrican/Current/index.htm)

Finance (weekly), Nairobi

East African Alternatives (bi-monthly), Nairobi

IMF, Kenya: Selected Issues and Statistical Appendix, August 1998

UN, Common Country Assessment for Kenya, March 1998

Republic of Kenya, National Poverty Eradication Plan, 1998

World Bank, Kenya Poverty Assessment, March 1995

Jonah Anguka, Absolute Power: The Ouko Murder Mystery, Pen Press,London, 1998

Diana Hunt, The Impending Crisis in Kenya: The Case for Land Reform, Gower,Aldershot, 1984

International Institute for Strategic Studies, The Military Balance, London

Andrew Morton, Moi: The Making of an African Statesman, Michael O�MaraBooks, London, 1998 (currently the subject of a libel action by Richard Kwach)

Smith Hempstone, Rogue Ambassador, University of the South Press, Sewanee,Tennessee, 1997

Chester Stern, Dr Iain West�s Casebook, Little, Brown, London, 1996 (the chapteron the Ouko murder is currently the subject of a libel action by Nicholas Biwott)

Select bibliography andwebsites

Kenya 55


David Throup and Charles Hornsby, Multiparty Politics in Kenya, J. Currey,Oxford, EAEP, Nairobi, and Ohio University Press, Athens, Ohio, 1998

Reference tables

These reference tables provide the most up-to-date statistics available at the time ofpublication.

Reference table 1

Population(m unless otherwise indicated)

1996 a 1997 1998 1999 2000Total 31.80 28.41 29.34 30.03 30.67 % change 4.2 -10.7 3.3 2.4 2.1

a Break in series data.

Source: IMF, International Financial Statistics.

Reference table 2

Labour force(�000 unless otherwise indicated)

1997 1998 1999 2000 2001 a

Informal sector 2,986.9 3,353.5 3,738.8 4,150.9 4,624.4Private sector 946.8 967.2 990.3 1,002.9 1,018.7 Agriculture & forestry 240.6 245.2 249.6 251.3 254.7 Manufacturing 177.1 180.8 184.0 182.9 183.1 Community, social & personal services 221.6 229.3 239.4 247.8 256.5 Trade, restaurants & hotels 141.7 144.3 147.3 149.1 150.8

Public sectorb 697.1 711.2 698.8 692.5 658.4 Community, social & personal services 478.5 492.8 486.3 485.3 463.1 Agriculture & forestry 64.4 64.6 62.9 60.9 57.8 Transport & communications 42.4 42.6 40.9 39.7 38.1 Manufacturing 37.1 36.7 36.3 35.8 33.5

Self-employed & unpaid family workers 64.1 64.8 65.1 65.3 65.4Total 4,698.4 5,096.7 5,492.6 5,911.6 6,366.9 % of male workforce (wage employment) 71.3 70.8 71.5 70.5 74.7

a Provisional. b Revision of public-sector employment.


Reference table 3

Transport and communications1997 1998 1999 2000 2001 a

RailPassengers carried (�000) 1,981 2,843 4,700 4,200 6,500Freight carried (�000 tonnes) 1,621 1,688 2,200 2,400 2,300RoadNew motor vehicle registrations 29,893 31,718 27,892 20,236 26,024ShippingFreight handled at Mombasa port (�000 tonnes) 9,785 9,688 9,498 10,580 12,717

56 Kenya


Air (Nairobi & Mombasa)Passengers carried (�000) 3,416 3,163 3,558 3,846 3,819Freight carried (�000 tonnes) 80,600 120,844 128,997 143,383 143,109CommunicationsNew radios sold & licensed (�000) 172 75 104 85 66New television sets sold & licensed (�000) 44 28 43 38 30Average daily newspaper circulation (�000) 299.5 292.1 298.5 309.8 249.9

a Provisional.


Reference table 4

National energy statisticsa

(�000 tonnes oil equivalent unless otherwise indicated)

1997 1998 1999 2000 2001 b

Total net imports 1,171 1,509 1,508 2,006 1,493

Local energy production 309 322 283 167 194 Hydro power 277 289 251 135 155 Geothermal power 32 33 33 32 39

Stock changes & production losses 195 �612 �361 �341 -238Total energy consumption 2,589 2,606 2,679 2,700 2,655 Coal & coke 92 73 72 66 66 Liquid fuels 2,175 2,199 2,312 2,448 2,385 Hydro & geothermal 322 334 296 186 204

Local production (% of total consumption) 12 12 11 6 7Energy consumption per head (kg oil equivalent) 96 93 93 94 91

a Excluding fuel wood and charcoal. b Provisional.


Reference table 5

Government financesa

(KSh m unless otherwise indicated)

1997/98 1998/99 b 1999/2000b 2000/01 b 2001/02 c

Current revenue 166,104 179,717 177,785 191,274 213,177Current expenditure 166,691 164,996 153,593 181,088 215,328

Current balance -588 14,721 24,192 10,187 -2,152Capital revenue 1,042 489 2,755 946 2,963

Capital expenditure 13,559 12,307 18,100 30,817 34,841Net lending 1,146 3,028 1,599 2,372 -1External grants 5,272 4,920 4,247 24,080 6,043

Overall balance -8,980 4,795 11,495 2,024 -27,986 % of GDP -1 1 2 0 -3

FinancingExternal loans (net) -16,523 -8,858 -18,087 -14,716 -19Total domestic borrowing 11,222 11,194 24,657 8,247 25,915 Long-term (net) 1,145 27,500 -9,135 -3,595 -3,901 Short-term (net) 10,077 -16,306 33,792 11,842 29,813Change in cash balances (- indicates increase) 4,892 1,011 -27,294 7,816 16,787

a Fiscal years starting July 1st. b Provisional. c Estimates.


Kenya 57


Reference table 6

Government revenue and expenditure(KSh m unless otherwise indicated)

1997/98 1998/99 a 1999/2000a 2000/01 a 2001/02 b

Revenue 167,146 179,951 180,541 192,221 216,140 Income tax 55,578 55,235 53,317 53,429 63,107 Sales tax/VAT 34,468 39,204 40,944 50,221 56,165 Customs & excise duties 55,549 57,177 57,098 57,122 62,891 Other licenses, fees, taxes & duties 2,298 3,912 3,121 5,143 6,427 Other revenue & income 19,253 24,423 26,061 26,306 27,549Expenditure 180,251 177,299 171,695 211,905 250,170 Current expenditure 166,692 165,525 153,594 181,088 215,329 Consumption of goods & services 71,663 72,831 65,065 79,276 100,947 Total interest payments (foreign & domestic) 39,813 36,090 28,918 24,426 34,932 Transfers & others 55,216 56,604 59,611 77,386 79,450 Capital expenditure 13,559 12,307 18,101 30,817 34,841 Gross fixed capital formation 13,272 12,043 15,745 28,475 33,666 Capital transfers 287 264 2,356 2,342 1,175

Key fiscal trends (% of GDP)Total government expenditure 50.5 35.2 30.1 33.9 35.0Total government revenue 26.6 26.0 24.0 24.0 23.8Overall deficit -1.4 0.6 1.6 25.0 -3.1

a Provisional. b Estimates.


Reference table 7

Money supply and credit(KSh m unless otherwise indicated; end-period)

1997 1998 1999 2000 2002Money (M3)a 294,052 303,750 312,116 314,686 322,326 % change, year on year 9.8 3.3 2.8 0.8 2.4

Total domestic credit 327,412 350,629 371,366 381,325 380,197 Central government & other public sector 82,665 90,067 86,656 83,789 100,383 Private sector 244,747 260,562 284,710 297,536 279,814

a The Central Bank of Kenya revised its monetary definitions in April 1998, resulting in a decrease in M3 of approximately 0.2%. Data for this newseries have been calculated back to 1995 by the Central Bank. The 1994 data have not been revised.


58 Kenya


Reference table 8

Interest rates(%; end-period unless otherwise indicated)

1997 1998 1999 2000 200191-day Treasury bills 26.4 11.1 20.5 13.5 11.6Interbank rate 18.7 9.4 13.0 9.8 10.6

Commercial bank loans plus advances (maximum;under 3 years) 30.4 27.1 25.2 19.6 19.4

Commercial bank savings deposits (av) 9.7 8.0 6.2 4.5 4.4Memorandum itemConsumer price inflation (annual average) 11.2 6.6 3.5 6.2 0.8


Reference table 9

Gross domestic product at factor cost1997 1998 1999 2000 2001a

Total (KSh m)At current prices 536,264 593,353 639,056 686,159 772,893At constant (1982) prices 100,473 102,253 103,701 103,446 104,697 Real change (%) 2.4 1.8 1.4 -0.3 1.2

Per head (KSh)b

At current prices 19,788 21,267 22,208 22,943 25,093At constant (1982) prices 3,707 3,665 3,613 3,527 3,399 Real change (%) -0.6 -1.1 -1.4 -2.4 -3.6

a Provisional. b Calculated using government population estimates.


Reference table 10

Gross domestic product by expenditure(KSh m; current prices)

1997 1998 1999 2000 2001a

Private consumption 453,176 510,130 539,058 609,938 695,472Government consumption 100,711 113,568 125,943 139,159 150,430Gross fixed capital formation 109,870 113,858 112,961 116,369 124,259

Change in stocks 5,400 6,210 7,141 6,142 5,282Exports of goods & services 174,846 171,895 189,265 211,433 234,213

Imports of goods & services -220,768 -224,772 -232,232 -287,067 -314,377GDP at market prices 623,235 690,889 742,136 795,972 895,278

a Provisional.


Kenya 59


Reference table 11

Gross domestic product by sector(KSh m; current prices)

1997 1998 1999 2000 2001 a

Agriculture, forestry & fishing 137,999 148,018 139,936 124,253 134,403Mining & quarrying 815 823 993 1,143 1,260

Manufacturing 54,607 66,006 79,121 88,715 96,969Electricity & water 4,840 5,444 5,822 6,332 6,982

Building & construction 18,771 21,404 24,470 26,466 30,025Trade, restaurants & hotels 109,804 123,453 138,031 162,391 194,611Transport, storage & communications 41,816 43,255 45,616 50,339 53,107

Finance, insurance, real estate & business services 68,747 75,010 76,078 69,750 75,731Ownership of dwellings 29,058 30,614 33,391 37,048 39,315

Domestic services 6,175 6,710 7,294 8,099 8,932Government services 70,382 83,075 88,909 95,144 106,486

Other services 19,973 23,721 27,790 31,986 36,178Imputed bank service charges -39,296 -47,127 -42,178 -30,758 -28,433GDP at factor cost (incl others) 536,264 539,456 639,056 686,159 772,893

a Provisional.


Reference table 12

Consumer pricesa

(Feb-Mar 1986=100 unless otherwise indicated; annual averages)

1997 1998 1999 2000 2001b

Lower-income index 569.4 602.5 618.4 654.6 653.0 % change 12.0 5.8 2.6 5.9 -0.2Middle-income index 592.7 647.9 687.4 736.5 761.0 % change 8.4 9.3 6.1 7.1 3.4Upper-income index 609.1 664.5 704.2 758.4 822.0 % change 10.9 9.1 6.0 7.7 8.4

Average (% change) 11.2 6.6 3.5 6.2 0.8

a Indices for Nairobi. b Provisional.


Reference table 13

Average wage earnings per employee(KSh per year unless otherwise indicated)

1997 1998 1999 2000a 2001a

Private sector 103,708 131,152 152,459 175,846 202,083 % change 20.2 26.5 16.2 15.3 14.9Public sector 104,940 132,136 147,279 168,956 193,831 % change 35.0 25.9 11.5 14.7 14.7

a Provisional.


60 Kenya


Reference table 14

Agricultural productiona

(KSh m unless otherwise indicated)

1997 1998 1999 2000 2001b

Cereals 6,295 6,780 5,414 5,617 8,752 Maize 2,809 2,800 3,098 2,915 5,187 �000 tonnes 204.6 218 223.5 201.2 376.5 Wheat 2,198 2,986 1,006 1,133 2,375 �000 tonnes 125.8 177.1 55.4 73.8 138.4

Other crops 50,058 63,912 52,854 59,209 56,596 Coffee 16,546 13,198 10,050 11,282 6,424 �000 tonnes 68.0 53.4 68.1 100.7 51.7 Tea 23,636 39,138 31,087 35,970 38,564 �000 tonnes 220.7 294.2 248.8 236.3 294.6 Sisal 786 796 874 810 957 �000 tonnes 20.1 18.1 21.9 21.4 23.2 Sugarcane 6,644 7,968 7,639 7,942 7,155 m tonnes 4.3 4.6 4.4 3.9 3.6

Livestock & products 14,780 14,110 15,043 13,949 15,151 Cattle & calves 8,714 8,878 8,886 8,040 9,079 �000 head 1,320 1,800 2,536 2,870 1,952 Dairy produce 2,862 1,946 2,693 2,051 1,920 m litres 197 126 180 137 148

Total 71,133 84,802 73,311 78,775 80,449

a Marketed. b Provisional.


Reference table 15

Forestry and fishing1997 1998 1999 2000 2001 a

Forestry (�000 ha)Area felledb 7.2 2.0 19.0 1.0 1.0Area plantedb 0.2 2.0 3.0 4.0 4.0Total area remainingc 159.3 147.2 141.9 147.2 120.0

Wood processed (�000 cu metres) 316.4 288.1 345.7 216.8 197.0Softwood 314.5 287.3 345.7 216.8 197.0Hardwood 1.9 0.4 0.0 0.0 0.0Fish landed (tonnes) 168,062 176,003 218,659 202,276 212,948Freshwater 157,838 164,081 209,441 197,742 207,347Marine 4,388 5,088 4,125 3,772 3,878Crustaceans 4,954 6,602 4,828 554 1,511Other marine products 882 232 265 208 212

a Provisional. b Plantation Area. c Overall forest.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2002

Kenya 61


Reference table 16

Minerals production1997 1998 1999 2000 2001a

Volume (�000 tonnes)Soda ash 257.6 242.9 245.7 238.1 297.8Fluorspar 68.7 60.9 93.6 100.1 118.8Salt 6.3 21.7 44.9 16.3 5.7Limestone products 32.7 32.0 32.0 32.0 32.0

Value (KSh m) 2,640 2,260 3,442 3,642 4,786Soda ash 1,894 1,473 1,848 1,955 2,716Fluorspar 331 341 651 628 727Salt 24 66 136 52 99Limestone products 31 32 32 32 32

a Provisional.


Reference table 17

Industrial production(�000 tonnes unless otherwise indicated)

1997 1998 1999 2000 2001 a

Refined petroleum products 1,761 1,722 1,786 1,909 1,825Cement 1,816 1,426 1,389 1,367 1,319

Sugar 389 449 471 402 377Maize meal 267 266 205 154 135

Wheat flour 227 230 225 189 181Rice 15.0 10.6 5.7 4.9 3.8Beer (m litres) 276 263 188 203 184

Spirits (�000 litres) 2,255 22,115 17,748 19,366 20,400Industrial output index (1976=100) 272.9 282.2 285.6 281.4 283.6 % change 1.4 3.4 1.2 -1.5 0.8

a Provisional.


Reference table 18

Construction statistics1997 1998 1999 2000 2001 a

Reported building work completed (KSh m)b

Private 1,672 1,589 1,324 1,341 1,007Public 44.0 31.2 26.2 16.0 27.0Government expenditure on roads (KSh m)c

New construction 2,766 2,870 863 2,624 5,609Maintenance & repair 4,708 4,682 5,922 6,696 8,042

Cement consumption (�000 tonnes) 1,137 1,071 1,111 1,067 1,089Employment in building & construction (�000) 79.8 79.3 78.7 78.6 76.7

a Provisional. b Nairobi, Mombasa, Nakuru, Kisumu and Malindi. c Fiscal years starting July 1st.


62 Kenya


Reference table 19

Banking statistics(KSh m unless otherwise indicated; year-end)

1997 1998 1999 2000 2001Central Bank assetsForeign exchange 43,437 45,989 56,550 69,934 82,238Advances to banks 9,124 1,140 904 4,884 1,362Advances to government 5,367 6,609 6,664 8,595 42,853Others (incl Treasury bills & bonds) 72,222 71,240 62,110 57,642 24,023

Central Bank liabilitiesCurrency 43,172 44,486 50,157 51,914 53,080Deposits 68,753 69,843 69,404 75,525 73,103Others 15,961 6,812 1,790 8,275 2,925Commercial banksDeposit liabilities 252,759 257,954 279,450 294,924 302,895Liquid assets 94,161 99,113 111,245 125,721 137,855Current liquidity ratio (%) 37 38 40 43 46


Reference table 20

Tourism statistics1997 1998 1999 2000 2001a

Tourist departures (�000) 744.3 672.9 746.5 772.2 742.0Average length of stay (days) 11.8 9.6 9.4 8.7 8.4Beds occupied (�000 bed-nights) Kenya 777 697 654 794 740 UK 956 516 399 559 606 Germany 1,135 419 536 605 541 France 268 123 138 213 181Beds available (�000 bed-nights) 9,517 7,976 8,711 9,382 8,328

Bed occupancy rate (%) 51.6 35.3 33.9 39.3 40.3

a Provisional.


Reference table 21

Import and export prices(Feb-Mar 1982=100 unless otherwise indicated; annual averages)

1997 1998 1999 2000a 2001a

Exports 608 615 576 620 637 % change 17.1 1.2 -6.3 7.6 2.7Imports 598 614 667 739 807 % change 6.8 2.7 8.6 10.7 9.2Terms of tradeAll items 102 100 86 84 79Non-oil items 108 96 90 89 79

a Provisional.


Kenya 63


Reference table 22

Exports by value(KSh m; fob)

1997 1998 1999 2000a 2001a

Tea 24,126 32,971 33,065 33,150 34,485Horticultural productsb 13,752 14,938 17,641 21,216 19,846

Coffee 16,856 12,817 12,029 11,707 7,460Petroleum products 7,156 9,127 9,555 9,429 12,345

Fish & fish products 3,076 2,791 2,267 2,953 3,858Cement 2,289 1,443 1,248 1,358 1,031Soda ash 1,325 1,236 1,280 1,440 1,993

Pyrethrum extract 1,371 716 656 704 993Sisal 723 689 636 606 728

Fluorspar 366 213 501 644 652Tobacco & tobacco products 1,725 1,607 1,554 2,167 2,887

Total incl others 114,459 114,445 115,406 119,764 121,434

a Provisional. b Include cut flowers, fruits and vegetables, both fresh and processed.


Reference table 23

Main exports by volume(�000 tonnes unless otherwise indicated)

1997 1998 1999 2000a 2001a

Cement 690 418 284 301 233Horticultural productsb 193 232 200 194 193Tea 199 264 246 217 270

Soda ash 213 214 213 236 274Coffee 70 52 72 87 64

Fish & fish products 17 14 16 17 19Petroleum products (m litres) 587 792 765 1,155 845

a Provisional. b Includes cut flowers, fruits and vegetables, both fresh and processed.


64 Kenya


Reference table 24

Imports by value(KSh m; cif)

1997 1998 1999 2000a 2001a

Industrial machinery 28,014 31,262 30,753 39,438 37,933Refined petroleum products 12,189 16,318 18,433 21,773 26,035

Crude petroleum 16,825 15,036 22,355 41,907 31,179Motor vehicles 14,312 14,681 11,906 9,659 14,524

Vegetable oils & fats 7,701 8,750 9,184 8,016 10,125Iron & steel 10,759 7,900 9,103 8,604 11,969Resin & plastics 7,337 7,128 7,083 8,446 9,131

Pharmaceuticals 5,563 6,559 6,373 5,976 7,188Wheat (unmilled) 4,204 4,794 5,899 6,989 7,515

Maize 12,619 4,758 906 4,664 3,342Sugar 1,421 4,232 1,468 2,730 6,648

Fertilisers 4,379 3,516 5,488 5,448 6,307Paper & paper products 2,556 2,536 2,305 2,613 3,978Total incl others 190,674 197,789 206,401 247,804 290,108

a Provisional.


Reference table 25

Main trading partners(KSh m)

1997 1998 1999 2000 2001a

Exports to:Uganda 16,571 19,466 21,189 24,186 30,040Tanzania 15,790 16,116 13,767 11,092 13,511UK 13,884 16,228 17,014 18,655 16,382Pakistan 5,172 8,276 9,020 9,986 8,877Germany 7,651 5,550 5,773 5,577 5,137EU 39,424 36,347 38,146 40,029 39,979

Imports from:UK 21,557 24,355 23,123 25,136 21,989UAE 19,012 17,810 25,529 48,212 41,465US 14,110 16,509 13,190 10,084 38,967Japan 14,360 15,675 15,336 12,514 14,436South Africa 21,753 14,198 17,134 16,586 7,636EU 61,989 64,385 62,971 75,653 77,461

a Provisional.


Kenya 65


Reference table 26

Balance of payments(US$ m)

1996 1997 1998 1999 2000Goods: exports fob 2,083 2,063 2,017 1,749 1,773Goods: imports fob -2,598 -2,948 -3,029 -2,732 -3,044

Trade balance -515 -886 -1,012 -983 -1,271Net services 82 89 136 364 743

Net income -221 -232 -174 -159 -133Net current transfers 580 573 574 681 922Current-account balance -74 -457 -475 -98 -261Net direct investment 12 18 11 14 111Portfolio investment assets 8 34 1 -8 -6

Other net investments 628 -54 -58 -90 -56Capital account (net) 0 77 84 55 50

Capital & financial balance 589 363 562 223 110Net errors & omissions -128 33 -89 -215 43Overall balance 387 16 83 -34 -36Financing (- indicates inflow)Movement of reserves -387 -16 -83 34 36Use of IMF credit & loans -25 -67 -63 -60 1Liabilities & exceptional financing 16 -19 -25 103 142


Reference table 27

External debt, World Bank series(US$ m unless otherwise indicated; debt stocks as at year-end)

1996 1997 1998 1999 2000Public medium- & long-term 5,685 5,225 5,561 5,323 5,180 Official creditors 5,106 4,745 5,007 4,801 4,659 Bilateral 2,164 1,890 2,008 1,917 1,828 Multilateral 2,943 2,855 2,999 2,884 2,831 Private creditors 578 480 554 522 521Private medium- & long-term 375 325 280 220 175

Short-term debt 534 803 844 812 813 Interest arrears 16 34 68 102 62Use of IMF credit 337 250 197 132 127

Total external debt 6,931 6,603 6,881 6,487 6,295Principal repayments 567 449 467 529 350

Interest payments 277 221 205 174 131 Short-term debt 30 30 39 40 41Total debt service (paid) 844 669 672 704 481Ratios (%)Total external debt/GDP 76.7 63.6 61.1 62.6 61.6Debt-service ratio, paida 27.8 22.3 23.3 25.9 17.3

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

66 Kenya


Reference table 28

Net official development assistancea

(US$ m)

1996 1997 1998 1999 2000Bilateral 345.7 301.0 275.8 253.7 293.0 Japan 92.8 68.8 52.6 58.6 66.9 Germany 53.5 43.7 39.0 37.2 38.4 UK 43.8 46.6 54.1 55.0 73.1 Netherlands 39.9 31.7 29.2 10.4 14.2 US 11.0 17.0 29.8 38.9 45.9Multilateral 247.5 164.9 200.8 77.4 214.5 IDA 145.5 72.3 108.4 55.1 141.7 EU 40.8 42.1 42.5 11.0 18.6 ADF 48.4 42.4 9.1 4.5 1.8Total 596.6 447.8 477.2 310.1 512.3 Grants 387.9 382.4 350.4 335.9 340.1

a Disbursements minus repayments. Official development assistance is defined as grants and loanswith at least a 25% grant element, provided by OECD and OPEC member countries and multilateralagencies, and administered with the aim of providing development and welfare in the recipientcountry.

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients, 2002.

Reference table 29

Foreign reserves(US$ m unless otherwise indicated; end-period)

1997 1998 1999 2000 2001Foreign exchange 770.0 765.0 772.0 881.0 1,048.0

SDRs 0.7 0.6 2.4 0.3 1.0Reserve position in IMF 16.7 17.5 17.1 16.2 15.8

Total reserves excl gold 787.9 783.1 791.6 897.7 1,064.9Golda 23.1 n/a n/a n/a n/aTotal reserves incl gold 811.0 n/a n/a n/a n/aMemorandum itemGold (m fine troy oz) 0.08 n/a n/a n/a n/a

a Valued at 75% of fourth-quarter average London price.


Reference table 30

Exchange rates(period averages unless otherwise indicated)

1997 1998 1999 2000 2001KSh:US$ 58.7 60.4 70.3 76.2 78.6

KSh:£ 96.1 100.0 113.8 115.5 113KSh:SDR (year-end) 89.9 87.2 100.1 101.67 98.78


Editors: Pratibha Thaker (editor); David Cowan (consulting editor)Editorial closing date: November 1st 2002

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

Documents

Kenya - International University of Japan · 2007-07-23 · Kibaki, and Mr Moi™s protØgØ, 41-year-old Uhuru Kenyatta, the son of Kenya™s first leader and a political novice