Below­par growthWeak governance isblamed for failureto reach economicand social potentialPage 2

Inside »

Mobile route toreduce povertyCentral bank chiefsets out to buildfinancial inclusionPage 3

Hunting groundPromise of bigfinds fuels searchfor oil, gas, coal,gold and mineralsPage 4

Infrastructure inneed of attentionChina will helpbuild and financebig projectsPage 5

Work in progressState cannot takecredit for nation’sbig achievements,says academicPage 6

FT SPECIAL REPORT

Kenya at 50Tuesday November 26 2013 www.ft.com/reports | @ftreports

There may be no better guideto Kenya 50 years after inde-pendence than the way itdealt with the fallout fromthe Westgate terror attack.

The most successful responses werecarried out in spite of the govern-ment, a state of affairs that character-ises much of Kenya’s society andeconomy today.

Civilian volunteers and plainclothes police ran into the Nairobimall regardless of their safety whenfour gunmen began a shooting spreeat Kenya’s premier shopping centreone Saturday lunchtime in September.

They saved hundreds of lives. Thosewho could lay their hands on weaponsincluded former British military andwell-connected Somali entrepreneurs,revealing the extent of gun ownershipin a city where people fear deadlycrime is growing.

Kenya’s sophisticated and wideembrace of technology meant thetrapped could text and tweet theirwhereabouts; the attackers werecaught on CCTV. So were the soldierswho looted during the four-day siege.

But it was the ethnic neighbour-hoods of Nairobi, led by one Indiancommunity, that immediately knewhow to organise themselves, donninghigh-visibility jackets, moving corpsesand marshalling first aid and fizzydrinks for the rescue effort.

The very existence of these groupsreveals a divided and unequal society– they exist partly to organise a

speedy defence against crime and eth-nically targeted threats because theycannot count on the state to do it.

“We must begin offering true serv-ice and be people of integrity in thisland,” said President Uhuru Kenyattain a day of admissions this month.

“The biggest corruption in Kenyaoccurs in the office of the president;the security-related agencies are thebasis of corruption in this country.”

Mr Kenyatta, son of the country’sfounding father Jomo Kenyatta, waselected in March this year amid much

controversy, winning just over 50 percent of the vote. A challenge to theresults by the runner-up, outgoingprime minister Raila Odinga, wasrejected after intense scrutiny byKenya’s supreme court.

The new president, Kenya’s fourth,

has appointed business-savvy techno-crats at the top of government, set upa website to report corruption, andbeaten the drum for national unity.

But the state has proved wanting.Soldiers shot at police inside the

mall, giving the attackers the upperhand; security agencies briefedagainst each other; bodies may still beleft in the rubble. The Islamist attack-ers, who said they wanted Kenya’smilitary to pull out of Somalia, spentnearly four months in Nairobi’sneglected Somali neighbourhood,another ethnic enclave that lackseven a police post.

Mr Kenyatta has sought to exploitinternational divisions and turn West-gate to his political advantage, shift-ing his role from robust internationalstatesman to fiery embattled indictee.

Along with his deputy WilliamRuto, he is accused by the Interna-tional Criminal Court of crimesagainst humanity for his alleged rolein 2008’s post-election violence. Morethan 1,600 people were killed, the lasttime the country’s deep ethnic andclass inequalities exploded.

Mr Kenyatta’s previously measuredspeeches have turned angry as thedate for his trial has approached,claiming the ICC, where he is due tostand trial in February, is the “toy ofdeclining imperial powers”.

When the UN Security Council didnot grant the president a deferral onaccount of Westgate, Kenya claimedall Africa had been humiliated, driv-ing a wedge between the continentand the court’s supporters and irritat-ing western partners that help fundeducation and health spending.

The hardline stance may isolateKenya from the west: “We are closerthan many would think to a Zim-babweanisation of Kenya,” says a sen-ior foreign official.

Continued on Page 6

Leaders found wanting by societyThe state recognises itmust work harder toheal historic divisionsand accelerate growth,saysKatrinaManson

Party time: the launch of Kenya’s 50 Years logo kicks off golden anniversary celebrations in Nairobi last month

2 ★ FINANCIAL TIMES TUESDAY NOVEMBER 26 2013

Kenya at 50 Economy

December 12 1963 Kenya gains itsindependence from the UK, withJomo Kenyatta (pictured right, withthe Duke of Edinburgh) becomingits first prime minister. A year later,the Republic of Kenya is formed,with Kenyatta as president andJaramogi Oginga Odinga becomingvice-president.

Timeline 1963-1972 >>

1963 The Shifta war, asecessionist conflict involvingethnic Somalis in the NorthernFrontier District of the country,begins. It is called Shifta afterthe Somali word for ‘bandit’. Thewar ends officially in 1967,although violent episodescontinue occasionally.

July 5 1969 Tom Mboya (left),who had been groomed byKenyatta as a potentialsuccessor, is assassinated by aKikuyu tribesman. This results inethnic unrest, and Kenyattabans the Kenya People’s Unionopposition party and arrests itsleader, Oginga Odinga.

There may be no betterindication of the effortto snare Kenya’s wallet-conscious middle-classspenders than popcornprices in the country’s lead-ing supermarket chain.

While imported popcorn,with glitzy photographs oncardboard packaging, costs370 shillings ($4.24) for 300g,a simple “Blue Label” plas-tic package on the shelfbeside it is 85 shillings($0.98) for 500g.

Nakumatt supermarketlaunched Blue Label, itsown-store brand, this year.Partly because the rangeincludes indulgences suchas popcorn and chilli lemoncrisps as well as essentialsincluding flour, sugar,pulses and householdbleach, it treads a linebetween aspirational appealand downright cheap.

Atul Shah, Nakumatt’smanaging director, says ofhis customers: “We changetheir lifestyle,” sidesteppingthe word “cheap” in rela-tion to his new brand.

Instead, he cites ambi-ence, product variety andthe euphemistic “value formoney”. The label alsoappeals to nationalist senti-ment by packaging onlylocally manufactured goods,and describes itself as deliv-ering “trusted quality atreal value” – all part of anappeal to the country’ssavvy spenders.

Marketers have grownincreasingly aware inrecent years that Kenyanbargain hunters place asmuch emphasis on qualityas pricing. When Kenyanmobile phone providersdropped their charges in anunsustainable price warthree years ago, customersultimately backed betterservice over free calls.

A 2012 report from Mc-Kinsey, the consultancy,says: “African consumersdemand quality productsand are brand-conscious,

belying the view that thecontinent is a backwaterwhere companies can sellsecond-rate merchandise.Urban African consumershave modern, sophisticatedtastes.”

In Nakumatt’s case, itappears to be working: thechain sells to 120,000 peoplea day in Kenya and fore-casts turnover of $650m thisyear from its 40-plus stores.It is extending its BlueLabel range with moreproducts in more stores.

Domestic consumption isat the heart of Kenya’seconomic expansion. Morethan a third of loans thisyear have gone to privatehouseholds. Purchases ofrefrigerators and televisionsare increasing. There areenough mobile phone sub-scriptions to account forevery adult in the country.

Nakumatt even sells carsin its supermarkets. In theabsence of rising exports ora flourishing extractive sec-tor, it is consumption thatdrives the economy.

“Private consumptioncontinues to underpinaggregate demand andgrowth,” says a World Bankreport this year. Followinga “massive credit squeeze”in 2012, the rate of lendingto the private sector haspicked up, as bank lendingconditions have slowlyeased.

But it has not been asimple year. Election jitters,the extension of valueadded tax and the Westgateshopping mall massacre

have suppressed demand.The hoped-for mass injec-tion of foreign direct invest-ment has failed to arrive inthe wake of March elec-tions.

Mr Shah says: “The costof living was supposed to begoing down after the newgovernment was in place,but the introduction of VATdid not help the lower-income bracket and therewas an effect. We felt apinch. Definitely, there is alittle squeeze [in spendingper capita], but then themarket is growing, so wedon’t feel it.”

Plans for shop openingsand more shopping mallssuggest that, even if indi-vidual pockets are tighter,investors are banking onMr Shah’s sense that morepunters are joining theranks of spenders.

Actis, a UK private equitycompany, is developing Gar-den City Mall, the largestshopping centre in eastAfrica. The $250m develop-ment on the Nairobi-Thikahighway is due to open latein 2014. When the finalphase is complete in 2017,the development will

include office space, homesand parks as well as themall, with Nakumattamong its anchor tenants.

Michael Turner, head ofActis east Africa, says: “Weare eventually building acommunity at very middle-class Kenyan price points.”He says target buyers aredouble-income parents whocan afford four-bedroomhouses selling for about20m shillings ($230,000).

As always, consumptionis concentrated in the capi-tal. The World Bank esti-mates 40 per cent of thecountry’s wage earningscome from Nairobi andMombasa.

“Nairobi is a large driverof economic growth; theprice of real estate in Nai-robi is crazily high, fuelledby land prices,” says MrTurner.

Consumption nationwideaverages an annual $1,526per capita; in Nairobi itreaches $2,827, according toMcKinsey.

But there may be limits.Loan defaults have startedto creep up. Kenya’s centralbank said in its Septembercredit survey, that itexpected loan defaults onconsumer loans to rise dur-ing the quarter ahead, “con-tinuing the trend witnessedin the first three quarters of2013”.

This is on top of a 17 percent increase in non-performing loans in 2012, athird of which derive frompersonal household loans.

Spenders also feel ham-strung by rising prices.Kenya’s consumer federa-tion predicts shoppers willchange their habits in thewake of the Westgateattack, avoiding family out-ings and the leisure-styleshopping that supportedWestgate’s social status.

But retailers are fightingback. Westgate shop-ownersare determined to reopensome stores within a fewmonths, with full renova-tion expected within threeyears.

And, while formal retail-ing remains a novelty insizeable African marketssuch as Algeria, Angola andNigeria, Kenya has themost developed retail mar-ket on the continent afterSouth Africa.

Popcorn is just the start.

From snacks to housing sales,consumers lead growth storySpending

Traders press aheadwith expansion inwake of the Westgatemall tragedy, reportsKatrina Manson

Artist’s impression of Garden City Mall, being built in Nairobi

‘There is definitely alittle squeeze, butthen the marketis growing, sowe don’t feel it’

Were Kenya to bundletogether all its disparatestate interests in privatecompanies from tele-coms to banking to

transport, they would amount to aportfolio worth $2bn.

“It’s nearly twice what Kenya’s try-ing to raise from a eurobond and oneand a half times the turnover of theNairobi Securities Exchange lastyear,” says Edward Burbidge, who isa member of a presidential task forceon parastatal reforms whose proposalsto overhaul the country’s cumber-some state agencies were approvedthis month.

The task force recommended theformation of a government holdingcompany, along the lines of the modeladopted in Singapore and for bankingin the UK, that could manage a portfo-lio comprising state shares in some ofthe country’s best listed companies,considering whether to divest on avalue basis.

Prize government assets include a35 per cent stake in Safaricom, 23 percent in Kenya Airways, 17.74 per centin Kenya Commercial Bank and 70 percent in KenGen, in a list thatstretches to about 40 commerciallyrun companies out of 291 existingstate or state-linked entities.

Business investment is one of sev-eral market-savvy approaches fosteredby the country’s leaders.

“Generally the government is seenas very business-friendly,” says MrBurbidge, a former UK investmentbanker who set up an advisory firm inNairobi in 2010.

The question, as always, is whetherthese initiatives will work. The WorldBank’s latest analysis of the Kenyaneconomy said that weak governancewas “the greatest single constraintpreventing Kenya from reaching itseconomic and social potential”.

Furthermore, the country is downseven places in the World Bank’s 2014Doing Business survey, which notes

that investor protection, electricitysupply and business registration haveall got worse.

But Kenya has registered somesuccesses. It is, for the first time,ranked among the world’s top 100most competitive economies by theWorld Economic Forum, making itAfrica’s top reformer. In the IbrahimIndex of African Governance, it isranked 21, up four places on last year.

But, despite that progress, it stillranks lower than neighbours in theregion.

“Doing business here could be muchbetter than it is today,” says AdanMohamed, Kenya’s industrialisationminister, who was previously regionalhead of Barclays Bank.

Several efforts are under way tospeed progress and reduce the scopefor corruption, including digitisingthe payment of state transactions andcreating one-stop public service shopsto cut bureaucracy in everything fromregistering a business to getting apassport. The aim is to boost transpar-ency and reduce the number of stagesinvolved in any activity.

“It’s the beginning of dealing withthe issue of corruption effectively,”says Bitange Ndemo, adviser to theUN’s Better Than Cash Alliance andformer permanent secretary at theministry of information and communi-cation. “We must automate.”

For now, Kenya ambles on at below-par growth for the region, although itimpresses observers with its new-found macroeconomic stability. Infla-tion has fallen after a period of way-ward monetary policy in 2011 and theshilling is stable. The country is alsostimulating the growth of credit withlower interest rates at 8.5 per centsince May, down from a high of 18 percent in late 2012, following the periodof loose monetary control that oneanalyst refers to as “that freak-out”.

The World Bank neverthelessremains forthright in its assessment:“The current levels and patterns ofgrowth are seriously inadequate,” itsays. Foreign direct investment islow, at $164m in 2012, up from $140min 2011. “Kenya’s performance inattracting foreign investment remains

limited compared to its peers,” saysthe Bank.

But Geoffrey Mwau, economic secre-tary at the ministry of finance, sayssome short-term capital flows shouldreally be understood as foreign directinvestment and the picture of under-performance is not as bad as it seems.

A government that spends half itsrevenues on wages also plans big, cap-ital-intensive projects in infrastruc-ture and energy. If it can realisethese, it believes it will ultimatelydeliver double-digit growth, comparedwith a likely 5.7 per cent increase inGDP this year. This overhaul wouldalso boost manufacturing and trans-form the economy.

That long-term aim could helptackle the other more intractable

problem – a large current account def-icit, which, at more than 10 per centof GDP, makes it hard for Kenya towithstand external shocks such as arise in oil prices or tumbling demandin foreign markets.

There too, Mr Mwau says, the highimport bill in fact reveals sign ofpromise. “The current account deficitis extremely high, but a lot of it is tobring in goods destined for infrastruc-ture – without that it’s about 7 percent and that’s why you find our shil-ling is still strengthening,” he says.

The import bill is also high,explains Mr Mwau, because oil explor-ers are bringing in heavy equipmentand, if the extractive sector ever paysoff, that is likely to boost the prevail-ing stagnant level of exports, too. Forindustrialist Vimal Shah, head ofKenya’s private sector association, thebigger looming problem is how toaccommodate a population growingby 1m people a year. “We need jobs,jobs, jobs,” he despairs.

Investment lagsbehind peersat expense ofjobs and growthGlobal rankingGovernance remains key issuein achieving potential, writesKatrinaManson

Economic growth

Sources: The Conference Board; IMF; Thomson Reuters Datastream

Real GDP (rebased) Kenyan GDP growth (%)

0

200

400

600

800

100

300

500

700

900

-2

0

2

4

6

8

10

12

14

1963 70 75 80 85 90 95 2000 05 10 13

Kenya Sub-Saharan Africa

PopulationMillion

0

10

20

30

40

1963 70 80 90 2000 13

Kenya: half a century in figures

Currency and inflationKenyan shilling againstthe dollar (shillings per $)

1980 85 90 95 2000 05 10 13

120

100

80

60

40

20

0

Inflation (annual %change in CPI)

0

10

20

30

40

50

‘We must automate.It’s the beginning ofdealing with the issue ofcorruption effectively’

FINANCIAL TIMES TUESDAY NOVEMBER 26 2013 ★ 3

August 22 1978 President JomoKenyatta, considered the country’sfounding father – and also father of thefourth and current president, UhuruKenyatta – dies. His successor isvice­president Daniel arap Moi (right),popularly known as ‘Nyayo’, Swahili for‘footsteps’, as he often said he wasfollowing in his predecessor’s footsteps.

Timeline 1973­1982

November 1980 Three thousandpeople die in the Garissa massacre,as Kenyan forces slaughter ethnicSomali residents in the Garissadistrict of North Eastern Province.The government forces say they areretaliating for the murder of severalcivil servants by a notorious banditknown as Abdi Madobe.

June 1982 The National Assemblyamends the constitution, makingKenya officially a one­party state.Two months later, the armysuppresses a coup attempt byelements in the air force. PrivateHezekiah Ochuka (left) rules for sixhours before fleeing. He is hangedin 1987.

When Kenya Airways cele-brated the delivery of a$300m Boeing aircraft fromthe US this month, UhuruKenyatta, the Kenyan presi-

dent, led the ceremony. So it was all themore remarkable that when Robert Godec,the US ambassador, arrived, there was nochair for him at the front.

Instead, he was seated at the back,while the chief executive of Kenya Air-ways berated the US for refusing it land-ing slots, even though the two countriesare in talks about this. Mr Kenyatta fol-lowed with a speech showering praise onthe Chinese ambassador, suggesting thatflying the Boeing thrice-weekly to Chinaoffered a more fruitful partnership.

The crowning joke came fromWilliam Ruto, deputy president. Hequipped that his shuttle to and from theInternational Criminal Court at TheHague – where he and Mr Kenyatta arefacing trial for crimes against humanityfor their alleged role in 2008’s post-electionviolence – was helping the Kenya Airwaysbalance sheet. Mr Kenyatta said thosetrips might not continue much longer, per-haps a reference to impending case col-lapse or a refusal to co-operate.

The politicians’ attempt to evade thedock has become all-consuming, dissolv-ing into a clunky diplomacy that hasenraged some of the country’s closest part-ners, hijacked the work of the state andheld up investment and reform.

Kenya has refused to accredit newambassadors from countries that also hap-pen to be prominent ICC funders, and crit-icised France, the UK and US for their“reckless abdication of global leadership”.

“Tactically, their decision to adopt ahardball tactic is having the oppositeeffect of what they think,” says a westernofficial, who argues Kenya could facelong-term fallout.

But, while Kenyan diplomacy is hardlyelegant, it might be effective. Mr Keny-atta’s focus on undermining the ICC maybe paying off, at least in the short term.

Despite the aggressive, personal

onslaught on western friends, Mr Ken-yatta’s team has played such a hard gamethat western interests are almost wed to hisown best-case scenario, that his thrice-de-layed trial, due to start at the beginning ofFebruary, will collapse.

“We need to be able to say due processhas been followed. We need to say thisthing has ended because of decisions incourt rooms, not decisions in cabinetrooms,” says a western official who regretsthe politicisation of the trial.

But cabinet rooms are involved, and inter-national justice is at stake. The prosecutor’steam says decisions made outside courtrooms are affecting the cases, citing witnessintimidation, bribery and even death. Thelatest three-month extension risks more wit-nesses dropping out.

Domestic rights campaigners are aghastthat Mr Kenyatta has been able to reframewhat he once described as “a personalissue” as the humiliation of all Africa. Hiscastigation of the ICC, with the support ofsome of Africa’s most prominent leaders, as“a fetid insult” to Africa and “the toy ofdeclining imperial powers” has roused hard-liners – none of them ICC members – in theAfrican Union around a cause they canchampion with glee.

“We are feeling defiant,” says a memberof Mr Kenyatta’s kitchen cabinet, who dis-misses arguments that western diplomatswill lose patience.

The vote at the UN Security Council,which failed to secure a one-year trialdeferral, is a case in point. Kenya saidveto-holders who abstained, a reference to

France, the UK and the US, “had showncontempt for the African position” andthat the Security Council “humiliated thecontinent”.

Officials say that, had Kenya onlycouched its approach better, it might havewon its request to defer the case in thewake of the Westgate atrocity.

But, while the UK said it was “disap-

pointed” that the draft resolution was“unnecessarily” put to a vote, it has alsoturned itself into Kenya’s ally – tabling anamendment to the Rome Statutes thatunderpin the ICC, so Mr Kenyatta canattend trial by video link. Short of the casecollapsing, or a further amendment thatspares sitting heads of state from having totake the stand, the UK might be about to

deliver the best available solution for MrKenyatta.

Human rights activists are smarting atthe development. “If a trial isn’t worthattending, then it isn’t worth holding,”says Gladwell Otieno, executive directorof the Africa Centre for Open Govern-ance. She argues it would be a victory forimpunity to reduce the requirements justbecause Mr Kenyatta became head ofstate after he was indicted – he won thepresidential election in March by a wafer-thin margin. The controversy that fol-lowed raised fears, which proved un-founded, of a repeat of the 2008 violence.

But, if Mr Kenyatta cannot secure hisescape route, undiplomatic seatingarrangements might be only the begin-ning. Mr Kenyatta has stopped short, sofar, of non co-operation or ducking out ofmembership of the Rome Statute, despitea convenient parliamentary vote urgingas much. That year-long process mightimperil aid agreements, widen the diplo-matic breach and turn Kenya into apariah state.

Some still worry about reaching break-ing point: “We are not entering into theprovocation game,” says a senior foreignofficial. “We have all manoeuvred our-selves into a situation where everybodystands to lose face. But Kenya stands tolose much more.”

Tough stance may keep president out of dockDiplomacy Collapse ofthe ICC case may be thebest solution for everyonebut the victims, writesKatrina Manson

Presidentialties: UhuruKenyatta andXi Jinping inBeijing

AFP/Getty

Njuguna Ndung’u,governor of the CentralBank of Kenya, has helpedestablish the country asone of the friendliest in theworld to mobile moneyplatforms. He wasconvinced early on thatthey would ultimatelyboost banks rather thanpose a threat to them.

Last year’s launch of M-Shwari, from the mobilephone operator Safaricomthat invented mobilemoney transfer system M-Pesa, has turned mobilephones into a cheap andeasy way to save, too. ProfNdung’u believes boostingsavings will be critical toimproving Kenya’s growthprospects.

FT How many Kenyans areleft out of the financialsystem?NN We started from almost60 per cent financiallyexcluded in 2006; today itis 25 per cent. So, Kenyahas quite a crediblefinancial sector –comparable to South Africain diversity and depth.

FT How important is thefinancial sector to theKenyan economy’s overallgrowth?NN When Kenya wasgrowing at 5.6 per cent, thefinancial sector startedgrowing at 9 per cent;when the financial sectordipped to 7.8 per cent, theeconomy grew at 4.2 per

cent. I have looked at anumber of years and Ihave seen that the growthof the financial sector ispulling the growth of theeconomy with it.

Financial inclusion hasreally helped and you cansee it is going to help howthe Kenyan economy isfuelled in terms of futuredevelopment.

FT What is the biggestbarrier to povertyreduction?NN We did a lot of studiesin Kenya in the 1990s onpoverty and its causes, andone of the things that Ifound is [the role of] accessto market. If you are cutoff from the market – be itbecause of physicaldistance, or irregularincome, or whatever – thenyou cannot sell yourlabour or your product.

FT How has mobile moneyhelped?NN We have beaten thephysical barriers togrowth. Many years ago Iused to drive to town tocome and draw money outon a Saturday. With the

[traffic] jam, the time, andthen you find that youhave spent 200 shillingsworth of petrol – 10 percent of the money you arewithdrawing would go oncost of travel.

Here in Kenya today,you pay cash foreverything by M-Pesa. Yougo to the taxi, he wants M-Pesa. You go to a bar atnight, they want M-Pesa.You go to the supermarket,you buy goods and youjust pay by M-Pesa.

FT What next?NN Now, the next level isto use it to save – becauseit is your savings that willhelp you. There’s no wayyou can eradicate povertyif people have low capitalaccumulation – the onlyway for you to realisecapital accumulation isthrough savings andaffordable credit.

Savings will contributeto growth. But evendurable goods – cows, hire-purchase fridges andtelevisions – are savings.

Now, I can sit here withthe phone and save – itdoesn’t matter whether it’s100 shillings a day or 50.

Those savings accounts,M-Kesho [from EquityBank in partnership withSafaricom] and M-Shwari,also attract positiveinterest rates.

You can receive credit onthe same platform andphone; you don’t have tovisit a bank or servicepoint, you are doing this inthe comfort of your hometransferring money – fiveseconds and it is there.What we have done is tocreate maybe the best,cost-effective access.

So you can see, we havebeaten [the problem of]access in a very significantway.

Mobile phones are routeto financial inclusion

Njuguna Ndung’u: ‘Beatingphysical barriers to growth’

Kenya at 50 Government

InterviewNjuguna Ndung’uCentral bank governor

Boosting savings willfuel growth, he tellsKatrina Manson

4 ★ FINANCIAL TIMES TUESDAY NOVEMBER 26 2013

Kenya at 50 Resources & Finance

February 1998 The mlongo system,a new way to select the ruling KenyaAfrican National Union candidates inprimary elections, is introduced. Itentails party members queuing(right) behind photographs of theirfavoured candidate. There areaccusations that the systemintimidates voters and is fraudulent.

Timeline 1983-1992 >>

June 1989 President Moireleases the Kenyans who havebeen detained under thecountry’s Public Security Act inthe aftermath of the attemptedcoup of 1982. They had beenheld without trial. Dissidentsliving in exile are also grantedamnesty.

August 1991 The Forum for theRestoration of Democracy,comprising six oppositionleaders, is formed. Moi arrestsits leaders and clamps down onactivists. International aid issuspended. Four months later,Kenya reintroduces a multipartypolitical system.

Karen Blixen, author of the Out ofAfrica memoir, is perhaps the mostfamous coffee grower in the history ofKenya.

She arrived in east Africa in 1914and tried her luck with the crop, even-tually falling victim to droughts, afire and low prices.

Fast-forward almost a century andthe problem of low prices is onceagain a major threat for the coffeefarmers of modern Kenya.

The price of arabica, the bean muchloved by espresso aficionados, hasplunged nearly 70 per cent over thepast two years. The drop – and fore-casts of further price falls – has putthe global coffee industry, from Brazilto Kenya, in danger.

“This is a worrying situation,” saysRobério Oliveira Silva, executivedirector of the London-based Interna-tional Coffee Organisation. “We arequickly reaching, or indeed havealready reached, the point where themarket price of coffee does not coverthe cost of production for many grow-ers.”

Coffee is no longer the mighty com-modity that makes or breaks Kenya’seconomy, as it was in the 1980s andearly 1990s, when the beans accountedfor more than a quarter of annual

exports. Indeed, tea overtook it as themain export in 1998.

But coffee remains important,accounting for nearly 5 per cent oftotal exports and earning roughly$250m in hard currency last year. Thesector employs about 250,000 people, asignificant chunk of whom are small-holders.

With arabica coffee prices hoveringjust above $1 per pound, comparedwith a 34-year high in 2011 of $3.08 perlb, traders and officials are expectinga tough time ahead.

Tea prices have also fallen to a five-year low, down 40 per cent since Janu-ary, raising further worries.

Williamson Tea Kenya, one of thecountry’s biggest tea growers, thismonth warned that falling tea priceswere “a matter of national concern”.Tea accounts for 20 per cent ofKenya’s exports.

In the coffee sector, many share theanxiety of the tea producers. BridgetCarrington, managing director of C.Dorman, one of the largest coffeeexporters in Kenya, says the next twoyears are going to be difficult.

“We are below the cost of produc-tion,” she says.

Kona Haque, soft commodities ana-lyst at Macquarie Bank in London,puts the cost of production in Kenyaat about $1.20 per lb, on a par withBrazil, the world’s top exporter, andhigher than prevalent market pricesfor regular arabica coffee.

The plunge in prices, coupled withrapidly rising production costs, are abig blow for Kenya’s once impressivecoffee industry, which has been indecline for more than a decadeas cities expand, engulfing planta-tions.

The International Coffee Organisa-tion puts Kenyan production at just767,000 60kg bags the 2012-13 cropseason, less than half the 1.66m bagsin 1995-96.

Yet the industry is far from dead.The current period of low prices

comes after several years of excep-tionally high prices, providing somecushion to farmers and traders.

Indeed, coffee output was expectedto rise in 2013-14 to an 11-year highbecause of the effect of higher prices,which triggered renewed interest inthe crop, better husbandry and higheruse of fertilisers.

Nairobi coffee traders put the2013-14 crop at about 800,000-850,000bags, the highest since 2002-3.

Also, Kenya continues to play acrucial role in the world of specialistand premium coffee. Traders say somevarieties could command prices up tothree times the average on NewYork’s coffee exchange.

Coffee traders say that demand forpremium and specialist coffees is sostrong that, with supply remaininglimited, prices remain high in spite ofthe drop in the rest of the market.

Farmers hitby plungein priceof coffeeAgriculture

Hope for industry lies withpopularity of specialistvarieties, reports Javier Blas

Share prices in Kenya have beenamong the biggest beneficiaries asinvestors attracted by strong eco-nomic growth pour billions of dollarsinto the frontier markets of Africa.

The Nairobi Securities Exchange’sAll Share index is up 50 per cent overthe past year, well above the 33 percent of the S&P Africa Frontier index,which tracks stocks in Botswana,Ivory Coast, Ghana, Kenya, Mauritius,Namibia, Nigeria and Zambia.

“The rally is driven by institutionalinvestors increasingly raising theirallocations to Africa from egregiouslylow levels,” says Aly-Khan Satchu, aKenyan investment analyst, echoinga widely held view among local andforeign investors. “This is not hotmoney – this is long-term institutionalinvestors buying Africa.”

Local factors are bolstering investorconfidence. Julie Dickson, head ofequities at Ashmore, the London-based emerging markets asset man-ager, says: “The economy is doingwell; the current account is undercontrol and inflation is down.” Theonly risk is political, she adds.

External factors, however, appear toweigh the most as investors redis-cover Africa, betting heavily on asmall selection of markets. Nairobi isone of only four African exchangesincluded in the closely tracked MSCIFrontier Markets index. The othersare those of Mauritius, Tunisia andNigeria.

Donald Ouma, director of marketsat the Nairobi Securities Exchange,says the combination of positive localand external factors has propelled themarket. “It is our best year in history:market capitalisation is at the highestever and share prices had been goingup since the beginning of the year,”he says.

The scramble for Africa – andKenyan stocks – may well continue,even if many are beginning to worryabout sky-high valuations, particu-larly in the much fancied consumergoods sector, according to investorsand bankers.

“There is pent-up demand for theblue-chips of Africa,” says MichaelTurner, a director of Actis, a privateequity group in Nairobi.

Attention is increasingly beingconcentrated on a few stocks whoseprice is rising rapidly relatively tothe rest of the market. The top threecompanies by market capitalisationon the Nairobi exchange constitute a

‘who’s who’ of foreign investors’ pref-erences in Africa: Safaricom in tele-coms, East African Breweries in con-sumer goods, and Kenya CommercialBank in financial services.

Indeed, of the 65-odd companieslisted on the exchange, just six orseven are liquid and large enough toattract foreign investors en masse.The rest receive the attention only ofspecialist funds.

As a result, local and foreign inves-tors worry that demand for Kenyancompanies will not keep pace withsupply.

The pipeline of initial public offer-ings for 2014 looks lacklustre, and thegovernment has yet to start a much-debated privatisation push that couldbring state-owned companies on tothe market.

James Mworia, chief executive ofCentum Investment Group, a locallisted holding company, says inves-tors are struggling to find attractivetargets. “There is a shortage of qual-ity companies,” he says.

Investors and bankers say twoobstacles stop more companies goingpublic. First, there are often differ-

ences among the family members thatstill own many of Kenya’s top compa-nies. Second are worries about thetransparency requirements once acompany goes public. Also, few pri-vate equity groups opt for a listing asan exit, instead preferring a sale toanother group.

Late last year, however, Actisfloated Umeme, the Ugandan powercompany that it bought from theKampala government in 2005, on theKenyan and Ugandan exchanges.

The Nairobi exchange is workinghard to bring new companies to mar-ket, beginning with itself, says MrOuma. “We want to list the exchangein 2014,” he explains. “We plan to usethe proceeds in part to pay down debtand in part to upgrade the tradingsystem.”

The Growth Enterprise Market Seg-ment, or Gems, which was launchedthis year, could provide a new sourceof flotations. Bankers and investorssay the new small-caps market is astrong development for the local mar-ket, but they caution that Gems-listedcompanies are unlikely to attract for-eign investors, because of their smallcapitalisation, poor liquidity and,above all, lack of disclosure.

Investors scramblefor blue-chip stocksStock market

Flow of foreign capital helpsto push Nairobi to its bestyear yet, writes Javier Blas

Coffee no longermakes or breaksKenya’s economy,but it still accountsfor 5 per cent ofexports andprovides work for250,000 people

‘This is not hot money –this is long-terminstitutional investorsbuying Africa’

For the first time, Kenya’s con-sumer-driven economy is fac-ing the possibility thatit could become a significantexporter of oil and minerals.

Wildcat explorers have turned toeast Africa as one of the last frontiersfor oil and gas, delivering seven out of10 of last year’s top finds. In theregion, Tanzania and Mozambiquehave found large quantities of gas andUganda is readying to start produc-tion from a big field.

“East Africa is seen as the hottestexploration in the world,” says KeithHill, chief executive of Africa Oil Cor-poration, which has licensed blocksacross the region, including six inKenya, five of them in partnershipwith UK operator Tullow Oil.

Kenya is the youngest among eastAfrica’s nascent resource prospects,but one of the most promising. Tullowannounced its first of five discoverieslast year, two years after entering thecountry. It is yet to confirm if theywill prove commercial but has sevenblocks where it can keep looking.

Drillers estimate the Rift valley,which runs through Kenya fromnorth to south, could yield 10bn bar-

rels of oil and explorers are accelerat-ing activities – companies areexpected to drill more than 12 wells inKenya next year, up from eight thisyear and two in 2012.

Kenya’s oil hunting grounds areparcelled out in more than 50 blocksover three main areas – offshore;along the coast reaching northtowards Somalia; and in the north-western Turkana area. Besides Tul-low, operators include Anadarko,Afren, BG Group, Ophir and Statoil –and the pressure is on.

“We are encouraging people to fol-low their production sharing contractobligations, to stick to timelines, sothat they drill quickly,” says MartinHeya, petroleum commissioner atKenya’s ministry of energy.

Bigger companies are likely to enterthe market, as explorers prove com-mercial finds. Mr Hill says: “Both weand Tullow have the idea that, oncewe’ve drilled, we’ll ask the industry tohelp us with our development pro-gramme.” He says the two companiescan cope alone until mid-2015, whenthey will need a bigger partner.

The country’s ministry of energyhas been working hard to ensure its

terms will be attractive to explorersand producers, which have manyalternatives elsewhere.

“Our terms are very competitive,”says Mr Heya, although he admitsKenya plans new signature bonusesas part of a legislative overhaul.

Lex Huurdeman, senior expert atthe World Bank’s oil, gas and miningpolicy unit, told a regional summit inNairobi last month that the existinglegal framework required substantialupdates to equip Kenya properly formanaging what might grow into athriving petroleum sector.

There are many factors besides leg-islation to manage. Soured commu-nity relations – something investorsprice into the risks of exploration –have brought Tullow to a halt. WhileNairobi has backed the company,

local relations proved difficult whenactivists in Turkana, Kenya’s poorestcounty, stopped short of violence butrallied enough support to bring opera-tions to a standstill. The shutdownlasted a fortnight and was resolvedthis month by an agreement with theministry of energy to ensure all par-ties work with local communities.

Central government was quick toback Tullow, which says it employs800 Turkana people in its 1,400-strongworkforce. “Companies have toensure they stay safe and in harmonywith the local community,” says MrHeya. “Issues will always arise, andhow they engage is most important.”

In mining, meanwhile, investorswere also spooked after the newadministration cancelled somelicences and proposed higher royaltiesand a bigger state share as part of adraft policy for the sector.

Kenya’s miners include gold explor-ers and producers in the west, as wellas coal prospects in the south andrare earths on the coast. The coun-try’s flagship project is run by Aus-tralia’s Base Resources. The titaniumventure at Kwale mineral sandsstarted production last month, with

first shipments due next year.But investors fear Kenya is taking a

hard line at a time when several Afri-can countries are adding their voicesto the cause of resource nationalism.

“There’s a vigorous debate in placessuch as Zambia, Mozambique now,”says Raj Kohli, head of mining andmetals investment banking at Stand-ard Bank. “It’s not a unique debatethat’s taking place in Kenya.”

But the bank is also aware that ashift in regulations could affectinvestment. Standard agreed a $418mproject finance facility with BaseResources based on the previous, sta-ble mining investment environment.

“There’s a finite amount of financ-ing for projects and different jurisdic-tions are in competition, so anychanges that are deemed to tip thebalance too far in one direction interms of higher royalty or tax struc-tures will have an impact on underly-ing availability to procure finance,”says Mr Kohli.

He adds: “Kenya’s mineral resourceheritage is not as significant or asdeep as, say, Tanzania’s, so it’s impor-tant for Kenya to go the extra mile toattract that funding.”

Oil and mineralprospects fireglobal interestExplorationNairobi will need to offer termsthat competewith rivals, saysKatrinaManson Hunting ground: a Tullow oil rig in Turkana county, northern Kenya, part of the promising Rift valley system

‘There’s a finite amountof financing for projectsand different jurisdictionsare in competition’

FINANCIAL TIMES TUESDAY NOVEMBER 26 2013 ★ 5

1997 Mass demonstrations call fordemocratic reform. The World Bankwithholds $5bn in structuraladjustment credit. In December, Moiwins a further term as president in awidely criticised election. His mainopponents are former vice-presidentMwai Kibaki and Raila Odinga, son ofOginga Odinga.

Timeline 1993-2002 >>

August 1998 Al-Qaeda bombsthe US embassy in Nairobi(left), killing 224 people andinjuring thousands more. Fouryears later, the terrorist grouporchestrates an attack on anIsraeli-owned hotel nearMombasa, killing 10 Kenyansand injuring three Israelis.

December 27 2002 Oppositionparties unite as the NationalRainbow Coalition (NARC) backingpresidential candidate Mwai Kibaki

(left), who wins with 62 percent of the vote, endingnearly 40 years of Kanu rule.The election was the mostpeaceful in Kenya’s history.

Katrina MansonEast Africa correspondent

Javier BlasAfrica Editor

Andrew BaxterCommissioning editor

Andy MearsPicture editor

Steven BirdDesigner

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tel +44 (0)20 7873 4880,email mark.carwardine@ft.comor Larry Kenney, tel +44(0)20 7873 4835, emaillarry.kenney@ft.com.

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Contributors »

Unreliable power supplyand poor roads have heldback economic growth inKenya for decades. Nairobihas launched a large infra-structure programme toaddress both problems –and it hopes that interna-tional investors will helppay for it.

Kenya is planning its firsthard-currency sovereignbond, raising as much as$1.5bn, as it seeks tobroaden its borrowingsources to pay for thou-sands of kilometres of newroads, several power sta-tions and other items suchas seaports.

Nairobi has hired JPMor-gan, Barclays and StandardBank to manage theeurobond issue, which offi-cials and investors expectin early 2014.

“The bond ison course,”says Geoffrey

Mwau, economic secretaryin the ministry of finance.“We are looking for a road-show in December/Janu-ary.”

In the past Kenya hasindicated that the bondwould be issued in the finalmonths of this year or earlynext year. The terror attackagainst the Westgate shop-ping mall has not derailedthe schedule.

If Nairobi goes aheadwith its $1.5bn maiden sov-ereign bond issue, it wouldbe the largest debut in sub-Saharan Africa, surpassingGabon, which set a recordin 2007 with a $1bn bond.

Other African countrieshave issued significantlysmaller maiden notes, withGhana, Nigeria, Senegaland Zambia opting for$500m-$750m issues.

Several African countrieshave issued their first USdollar-denominated sover-eign bonds in recentmonths at remarkably lowinterest rates and in spite ofthe risk, as investors flockinto African frontier mar-kets in search of growth.

Gardner Rusike, analystat Standard & Poor’s, a rat-ing agency, in Johannes-burg, said in a note this

month that “sub-SaharanAfrican sovereigns havebeen increasingly turningto eurobond issuance as anew source of funding” inan attempt to cover theirfiscal funding needs.

“African eurobond issu-ances have generally beenmet with strong investordemand throughout theyear,” he said.

Moody’s, the credit ratingagency, says north and sub-Saharan Africa countrieshave raised more than $8bnthis year through hard-currency sovereign bonds,above the previous recordof $7.2bn set for all of 2010,and far above the $1.2bnraised from sovereign bondsa decade ago.

The imminent launch ofthe Kenyan sovereign bondcomes at an awkwardjuncture, nonetheless.

Interest rates for dollar-denominated African sover-eign bonds, rock-bottom forthe past three years, havestarted to climb after theUS Federal Reserve in Maysignalled the beginning ofthe end for its ultra-loosemonetary policy.

JPMorgan’s NexgemAfrica index, which tracksthe bond market in theregion, is yielding 6.79 percent, up from its Januarylow of 5.3 per cent, butdown from a “taper tan-trum” peak of 7.9 per centin June. Yields moveinversely to prices. How-ever, interest rates for sov-

ereign issuers insub-Saharan Africa

remain well below thepeak of 14 per cent set

during the global financialcrisis in 2008.

Zambia’s debut last yearmarked the top for thesub-Saharan market, andraised $750m at a yield of

5.6 per cent. Since then,other countries have paidhigher amounts: Ghanapaid an interest rate of 7.85per cent in June, andNigeria paid 6.6 per cent.

Investors believe thatKenya will pay a coupon ofabout 8 per cent.

Kenya’s strong economicgrowth, the discovery of oiland a developed financialindustry will attract foreigninvestors to the bond, butanalysts caution that thecountry has one of the high-est debt-to-GDP ratios insub-Saharan Africa becauseit did not receive debt reliefin the mid-2000s.

The International Mone-tary Fund puts the ratio ofKenya’s gross governmentdebt to the size of its econ-omy at a high 49.4 per cent,significantly above the aver-age of 33.8 per cent for thesub-Saharan Africa region.

The higher ratio reflectsthe fact that Nairobi did notbenefit from the IMF-spon-sored Heavily Indebted PoorCountries and the WorldBank-backed MultilateralDebt Relief initiatives.

The timing of the bond isalso awkward, because itmay clash with the start ofthe trial of Kenya’s head ofstate.

President Uhuru Kenyattafaces the possibility of beingtied up for weeks with theInternational CriminalCourt in The Hague overaccusations that he mar-shalled and financed ethnichit squads after 2007’s dis-puted elections.

The trial is expected tostart in early February andMr Kenyatta plans to pleadnot guilty.

Kenyan officials believethe hearing will not dis-courage international inves-tors.

Sovereign debt debut aims fora $1.5bn sub-Saharan recordFunding plans

Investors expect ayield of 8 per centon the maiden issue,reports Javier Blas

On course: GeoffreyMwau, economicsecretary in theministry of finance

Every day, about 3,300 trucksleave the Kenyan port city ofMombasa carrying large con-tainers towards Nairobi andneighbouring countries as far

as Uganda, South Sudan, easternDemocratic Republic of Congo andsouthern Ethiopia.

Michael Kamau, Kenya’s transportminister, says the heavy traffic is abig problem. Using his smartphoneas a calculator, he estimates the flowof trucks every minute, saying: “Weare talking about one truck every 30seconds.”

The minister hopes the traffic jamswill disappear in the next few years,as the government launches a hugeprogramme of investment in railwaycapacity. “We need to put freight onto railways and empty the roads oftrucks,” says Mr Kamau.

Kenya has two big railway projectsunder way. The first involves upgrad-ing the old colonial line built by Brit-ish engineers a century ago that links

Mombasa with Kampala, the capital ofUganda, and further afield. A group ofprivate equity investors has a conces-sion to run the line.

The second, and far more ambitiousplan, is a new track linking Mombasaand Nairobi to be built by Chinesecompanies. In total, the projects areset to cost nearly $4.5bn, equal to 10per cent of Kenya’s GDP last year.

The two projects are part of a seriesof infrastructure large proposals intransportation and electricity genera-tion that the government of PresidentUhuru Kenyatta hopes will boosteconomic growth in the next fiveyears.

The other projects include a hugeincrease in power generation capacity;the expansion of Nairobi’s interna-tional airport; an upgrade for the portof Mombasa and the construction of anew port and transport hub in Lamu,near the border with Somalia. Thecountry is also pressing ahead withbuilding hundreds of kilometres of

roads and highways.The plans do not come cheap and

Nairobi hopes to tap foreign investorsthrough a hard currency sovereignbond (see article below), Chinese state-owned companies, and other privateinvestors to help foot the bill.

The plan to triple electricity genera-tion to 5,500bn megawatts in 40months will cost about $5.5bn alone,

according to Simon Ngure, managingdirector of KenGen, the state-control-led power company that accounts fornearly 80 per cent of electricity pro-duction.

For years, local businesspeople andforeign investors have complainedabout the high cost of business thatresults from shortages of electricityand transportation capacity.

Kenyan officials say the newprojects will ease those bottlenecks,boosting growth from the currentannual rate of about 6 per cent.

“Kenya should be growing at adouble-digit rate, [but isn’t] because ofthe bottlenecks,” says a local investor.

The new rail line from Mombasa toNairobi is the crown jewel of theinfrastructure projects. Costing about$4bn – including 700km of standard-gauge track, 33 stations and dozens ofwagons and locomotives – it will beone of the most expensive standalonetransportation projects in east Africa.

China is supporting the construc-tion of the line with a combination ofcommercial and soft loans, and sev-eral Chinese companies will build thebulk of the infrastructure.

Gabriel Negatu, Nairobi-basedregional director for east Africa at theAfrican Development Bank, says thenew railway will be a “game changer”for Kenya and the surroundingregion. “This is a lifeline” for trade,he says.

Critics, however, say that the newrailway is too expensive and Kenyashould have focused instead onupgrading the century-old networkthat stretches for nearly 2,500kmacross Kenya and Uganda. But thegovernment says the cost of the newrailroad is in line with those of simi-lar projects in mountainous countries.

The line would start in the coastand climb to reach Nairobi at morethan 1,600m above sea level. In addi-tion, it would cross nearly 80km ofnational parks, requiring the con-struction of several expensive bridgesto allow wildlife to cross the line.

Meanwhile Rift Valley Railways,which has the 25-year concession torun the colonial railway, is investing

nearly $300m in rebuilding severalsections of the line and buying newwagons and General Electric locomo-tives. Private equity firms CitadelCapital, based in Egypt, and Trans-Century of Kenya, are big investors inthe RVR, which also receives financialsupport from banks and internationallenders such as the World Bank.

“The lack of infrastructure is a bigopportunity,” says Darlan Fabio deDavid, the rail company’s chief execu-tive. “The demand [for freight trans-portation] is huge.”

The railways will do little to easetransport problems in Kenya if thegovernment does not also resolve bot-tlenecks at the ports.

Mr Kamau promises that this is allpart of the plan. “Mombasa [port] isset for a revolution,” he says. “Weneed more port capacity – we have

not invested in 20 years,” he adds.The minister not only pledges toexpand berth capacity, but also to cutred tape and endemic corruption.

Yet local businessmen are scepticalabout the promises, saying that, sofar, waiting time at the port hasimproved little.

But the government says it is tack-ling the silo mentality of the differentagencies in charge of processingtaxes, paper work and checking thecontainers at the port.

“There is a lot to be done,” concedesMr Kamau, but he adds: “We are mov-ing fast to improve efficiency.”

The port expansion plan includes anew terminal and berth area. When itis completed by 2015-2016, Mombasa islikely to see a 50 per cent increase incapacity, officials say. The new port atLamu could be ready to take sometraffic by then, too.

State harboursbig plans forports, power,rail and roadsInfrastructure Chinawill helpwith buildingand contribute to finance, says Javier Blas

Long and winding road: businesspeople and foreign investors havecomplained for years about high costscaused by shortages of power andtransportation capacity Alamy

‘There is a lot to be done.We are moving fast toimprove efficiency’

Michael Kamau,transport minister

Kenya at 50 Infrastructure

6 ★ FINANCIAL TIMES TUESDAY NOVEMBER 26 2013

December 2007-January 2008Kenya is plunged into chaos asMwai Kibaki is re-elected presidentdespite evidence of vote rigging.Violence ensues between rival ethnicgroups, and more than 1,600 peopleare killed. Three months later, thegovernment and opposition reach apower-sharing agreement.

Timeline 2003-2013

March 2013 Kenya’s supremecourt rejects challenges to thevictory of Uhuru Kenyatta, son ofJomo, in this year’s presidentialelection, despite evidence ofsome irregularities. MrKenyatta had gained 0.07 percent beyond the thresholdneeded to avoid a run-off.

September 2013 Somali al-Shabaabmilitants seize the Westgate mall inNairobi (right), killing up to 94 people,many of whom were reportedlytortured. More than 200 are injured.Al-Shabaab claims it is retribution forKenya’s involvement in Somalia.

Research: Benjamin Lazarus

The late Harry Thuku, oneof Kenya’s nationalistheroes, chose to mark thecountry’s independence onhis farm. The politiciandeclined an invitation toattend the officialceremony in Nairobi,instead spending theevening of December 111963 planting coffee.

He did so in defiance ofa ban imposed by a localadministrator who thoughtThuku’s farm unsuited tothe cultivation of the crop.

“So we celebrated ourpolitical and economicindependence by plantingsomething like 15,000 littletrees!” Thuku wrote inhis memoir. “It was afitting celebration ofindependence because Ihad been fighting forAfricans to grow coffeeever since 1921.”

Thuku had a particularunderstanding ofindependence. It was aboutfreedom to farm, to prosperand to accumulate.Underlying these ideas wasa basic understanding ofthe goal of independentrule that he shared withthe vast majority of hiscompatriots: development.

Thuku’s ideas aboutdevelopment and the roleof the state had much incommon with three of hiscontemporaries who servedas Kenya’s first presidentsafter independence. JomoKenyatta (1963-78), Danielarap Moi (1978-2002), andMwai Kibaki (2002-13) allunderstood the role of thestate to be the enabler ofgrowth and theaccumulation of wealth.

There are othersimilarities too. All threewere succeeded in anorderly fashion – Kenyattaafter his death and Moiand Kibaki following theirretirements – despite bleakwarnings of violenceaccompanying theirdeparture from office. Butsuch continuity has comeat a price.

All three presidentscompromised growth bytolerating corruption,exhibited autocratictendencies and

encouraged ethnic divisionas a way of clinging on topower.

Kenya must wait to seewhether the presidency ofUhuru Kenyatta, Jomo’sson, who is awaiting trialat the InternationalCriminal Court, will differto any great extent.

It is little wonder thatthe themes of political andeconomic continuitydominate most studies ofKenya’s recent history.

The sense of déjà vuseems particularly acutethis year. The presidential

election in March wascontested between UhuruKenyatta and Raila Odinga– the son of OgingaOdinga, the nationalistleader and JomoKenyatta’s great rival.

As in 1963, politics isdominated by strugglesprovoked by theimplementation of adevolved system ofgovernment by whichcentral government hassurrendered significantpowers to local authorities.

And, just as Kenyanindependence was swiftlyfollowed by the outbreak ofan irredentist campaign bySomali insurgents in

Kenya’s northeasternborderlands, so Kenyansthis year have endured ahigh-water mark in themore recent battle with al-Shabaab militants.

An emphasis oncontinuity can, however,hide much more aboutKenya than it reveals.

As Christopher Leo, apolitical scientist,remarked in 1984: “Anyone– African, European orAsian – who last lived inKenya’s highlands in theearly 1950s, would, uponreturning in the 1970s, notonly have failed torecognise many familiarplaces, but also have beenquite at a loss about howto behave. In less than20 years, this fertileagricultural regionunderwent a completetransformation in itspolitics, economy, society,and even to some extentits geography.”

Some of that change wasthe inevitable outcome ofthe transfer of land from asmall number of whitesettlers to a much largernumber of Kenyan farmers.But the sense of socialupheaval was also a greatdeal to do withdemographic change.

Since the mid-20thcentury, Kenyans havelived through what thehistorian John Iliffe terms“the most sudden andrapid population growththe world is ever likely tosee”. From less than 5mpeople in 1950, thepopulation of Kenyaincreased to nearly 40m by

the time of the lastcensus in 2009.

Nearly two-thirds ofKenyanstoday areunder 25.

Theyouthfulcharacter ofKenyan

society hashad many

effects.Ironically,the greatest

effect on politics has beento persuade conservativeelders to cling on to powerat almost any price.

Assassinations, theencouragement of ethnicviolence and the rigging ofelections have all beenpractised in an effort todistract and divert thepotential for concertedpolitical action by Kenya’syouth. But the youthfulpopulation is what givesKenya its tremendouscreative energy.

As writers, artists,entrepreneurs, academics,social activists and, ofcourse, athletes, Kenyanshave punched above theirweight on the global stage.But they have done so inspite of the state.

Take, for instance, thecountry’s two mostprominent figures, theauthor and Nobel laureate-in-waiting, Ngugi waThiong’o, and the lateenvironmentalist andactual Nobel laureate,Wangari Maathai. Theconsiderable achievementsof both were made in theface of opposition fromKenya’s political leaders.

The things worthcelebrating in Kenya’shistory since independenceare not those that the statecan lay claim to, whichexplains the modest officialcelebrations planned forthe anniversary.

Independence allowed forfreedom to write, to create,to innovate and to think.

But such things oftenseemed dangerous to thosein power and continue tobe considered as such.

Recent attempts torestrict the freedoms ofthe press and civil societysuggest Kenya’sexperiments withautocracy have not beencondemned to the past.

Uhuru na kazi (freedomand work) was the sloganof Kenyan independence.Fifty years on, both remainworks in progress.

Daniel Branch is aprofessor in history at theUK’s University ofWarwick, author of “Kenya:

Between Hope andDespair, 1963-2013” and

a columnist forKenya’s Saturday

Nation

State cannot claim the credit forachievements worth celebratingOpinionDANIEL BRANCH

The youthfulpopulation is whatgives Kenya itstremendouscreative energy

Daniel Branch:freedom is stilla work inprogress

The talk among guests at theexclusive cocktail eventweighed up Nairobi’s bestrestaurants and moved on tobusiness deals, boarding

schools and how to help the maid.Conversation at a party heralding

the opening of the capital’s latest pri-vate members’ club might hark backto the concerns of the old ruling colo-nial classes, but just as the nature ofKenya’s economy is changing, so toois its elite.

The Nairobi opening of the firstAfrica chapter of the Capital Club, aninvitation-only business club withbranches in Bahrain and Dubai,marks a shift from the moneyed oldworld of inheritance associated withthe colonial past to the prestige asso-ciated with success in business.

At its best, the club marks a shiftfrom the cronyism of political patron-age to a more meritocratic, if flashy,new generation. The members of thecity’s pinstriped elite signing up tothe new club are the chief executives,manufacturers, insurers, investors,lawyers and retailers who are gettingrich on Kenya’s tech-savvy, consumer-led growth.

“Kenya’s burgeoning economyand increasing global importancehave paved the way for a new waveof ‘elites’ – the professionals,”says Andrea Scheibler, an Oxford

university historian researching theemergence of Nairobi’s middle class.

“Young, educated, determined,many of these professional elites aredisillusioned with neopatrimonial pol-itics. Many have fought for andclaimed new ground on which to basetheir social standing and reputation,”she says.

For the club’s backers, this month’sopening is also a sign of Nairobi’sgrowing appeal as a regional hub forcorporate business. In recent years,global companies including GeneralElectric, Google, IBM, PwC and Sam-sung have established headquarters inthe city, hiring from the sophisticatedKenyan workforce.

“Whereas the Muthaiga CountryClub and the United Kenya Clubrelied on loyalty to the crown, itseems that business acumen is the

raison d’être of many new clubs,”says Ms Scheibler.

At the century-old Muthaiga Coun-try Club in a leafy Nairobi suburbpopulated by former ministers andambassadors, strictly upheld rulesban mobile telephones in the mainarea – as well as, in one bar, women.

Capital Club is by contrast a new-build on a busy highway recentlynicknamed the Wall Street of Nairobibecause international banks and thecountry’s stock exchange are relocat-ing there.

Like several new champagne andhigh-end whisky bars opening acrossthe city, Capital Club’s managementis keen to spur networking and is asproud of its dress-down policy as itstop-notch cuisine.

“The world has changed; we expectto see members on their phones; jeans

are fine,” says Andrew Christon, gen-eral manager of the club, which hasnine videoconference rooms for deal-making and a 180-seat roof terracewhere sultry sunset music beatsquicken throughout the evening tothe pace of a night-time disco. “Wewant it to be young and fun andvibrant.”

The enduring appeal of such clubs –whether old or new – exemplifies anattachment to elitism in a countrywhose progress and economic growthare held back by inequality. Kenyahas not undertaken a poverty surveysince 2005, much to the chagrin of theWorld Bank and others, but at thetime it emerged as one of the mostunequal countries in the region.

Not far from the rarefied privatemembers’ clubs, two-thirds of Nai-robi’s population endure living in 200or so city slums with bad sanitation,mud pools for roads and erratic powersupply. More than a third of thenation lives in poverty.

Meanwhile, aspirational middle-class car owners regularly run out ofmoney to fuel their vehicles beforetheir next monthly payslip arrives.

The gap may slowly begin to close ifKenya implements plans to devolvepolitical power – and budgets – across47 newly defined counties to boostneglected areas. Kenyan lawmakerslifted the minimum wage 14 per centthis year, well above single-digit infla-tion, although the extension of VATfour months later disproportionatelyaffected the poor.

“The most obvious risk of inequal-ity is instability,” says Wolfgang Fen-gler, former lead economist at theWorld Bank in Kenya. “But the mostfundamental economic argument isabout people not having a fair chanceat their future . . . You need to createsome social equality.”

Change and continuity in clublandElite society Newmoney is transformingNairobi but oldinequalities persist,saysKatrinaManson

Watering hole: Nairobi’s new Capital Club targets pinstriped professionals

Kenya is already looking to newpartners, with high-profile visits toChina, Russia and the Middle East,and is well aware its best partners –politically and economically – are nowresolutely African: Kenya exportstwice as much to Africa as to Europe.It imports three times as much fromAsia as from Europe.

It is also reassuring, perhaps, thatKenya’s economic swagger alwaysreturns, even after an event as seriousas the Westgate massacre. The mall’straders are already planning their reo-pening. In September at a conferenceheld jointly with the InternationalMonetary Fund, Mr Kenyatta admit-ted the country was underperforming,but said the outlook was “excellent”.

The economy has not, after all, suf-fered the serious blow it has experi-enced in previous election years –growth is likely to reach 5.7 per centthis year, according to the WorldBank. The 2013 polls, although con-tested, passed off largely peacefully.

The Bank expects growth to rise to6 per cent next year, the highest ratesince the 7 per cent achieved in 2007.The stock market, banking and tele-communications are doing very well,and there are hopes that huge infra-structure investment will transformthe way business and trading is done.

“Generally, I buy the take-off argu-ment and double-digit growth is do-able. The basic ingredients are therefor this country to be a powerhouse in20 years’ time,” says a western offi-cial.

But getting there has always beenKenya’s problem, and the obstaclehas tended to be a clique that hasdelivered success only to the elite.

The country’s leaders may be

Continued from Page 1sufficiently aware of that to do some-thing about it. They are now constitu-tionally compelled to devolve powerand budgets to counties and to safe-guard an independent judiciary. Butsome threats are returning – efforts tolimit the media and frustrate activistsmay soon carry legal force.

“We are deeply concerned about themedia bill and NGO amendments –ultimately Kenya needs space, diver-sity and prosperity to reach Vision2030,” says a western diplomat ofKenya’s ambition to become a middle-income country.

Despite growth, the economic trajec-tory looks tight. The government can-

not afford its wage bill, which sucksup half its revenues, people complainof empty pockets, exports are static,and agriculture – the biggestemployer – is perennially ignored.

“There’s growth, but it’s not liftingeverybody up,” says Gabriel Negatu,regional head at the African Develop-ment Bank.

For Njuguna Ndung’u, Kenya’s cen-tral bank governor, the best hope isthat a younger generation is armedwith what he terms an “instant coffeementality”.

“People are more impatient; theywant evolution yesterday and theywant it to be working,” he says.

The country’s elite may have a newforce to contend with: a demandingpublic with an appetite for success.

Leaders are foundwanting by society

6%Forecast for GDP growth next year

Kenya at 50 Society