Country Report 2Nd Quarter 1997 © the Economist Intelligence Unit Limited 1997

COUNTRY REPORT

Kenya

2nd quarter 1997

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 1997-98

8 Review 8 The political scene 12 The economy 15 Finance 17 Agriculture and fisheries 19 Mining and telecommunications 19 Transport and tourism 21 Regional cooperation, foreign trade and payments

22 Quarterly indicators and trade data

List of tables 7 Forecast summary (domestic) 8 Forecast summary (external) 15 Public finances 16 Pre-tax performance of leading parastatals 21 Current account, 1996 22 Quarterly indicators of economic activity 22 Trade with main partners 23 Direction of trade

List of figures 8 Gross domestic product 8 Kenya shilling real exchange rate 13 Interest rates and inflation

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997

Kenya 3

May 1, 1997 Summary

2nd quarter 1997

Outlook for 1997-98: The re-election of Mr Moi and his ruling KANU party in late 1997 is not seriously in doubt. The point of interest is the regrouping within the ruling party for the post-Moi era. Mr Biwott and KANU “B” appear to be in the ascendancy, although their plans for a new ethnic alliance of the Kalenjin and the Kikuyu are highly ambitious. Pre-election caution on the part of investors coupled with the effects of the drought are set to reduce GDP growth to 3.4% this year, with a return of confidence among consumers and investors pushing growth back up to 4.4% in 1998. A stronger trading performance will keep the current-account deficit manageable in both years.

The political scene: Divisions within the Kalenjin family of tribes have resurfaced. The KANU “B” faction is hoping to redraw the ethnic alliances underpinning the ruling party. The new police chief is under pressure following the death of a student activist. The electorate appears unenthusiastic about the forthcoming polls. The armed forces command has been restructured.

The economy and finance: The IMF has relaxed its stance on Kenya. Infla- tion has risen due to food shortages. The government has issued a policy paper aiming for industrialisation by 2000. Kenya Breweries is bracing itself for serious South African competition. Budget discipline has weakened gently. The government has successfully launched a first issue of one-year Treasury bonds, and has defended its record over privatisation. The attorney-general has published a bill increasing the autonomy of the National Social Security Fund.

Sectoral trends: The president has issued a disaster alert because of the famine. The Coffee Board has warned of a markedly lower crop in 1996/97. The horticulture industry is looking to expand into markets in the Middle East. The government is using beetles in a six-year programme to tackle the problem of water hyacinth in Lake Victoria. A Canadian company has discovered very large deposits of mineral sands near Kilifi. KPTC is to be broken up into four entities. Vested interests have gained the upper hand at Mombasa port, undermining the foreign managers of the container terminal and the executive chairman of the KPA.

Regional cooperation, foreign trade and payments: Services industries are exploiting the opportunities of the EAC, with the support of the secretariat in Arusha. The current-account deficit narrowed sharply in 1996, from $400m to under $50m, due to a stronger trading performance.

Editor: Mark Feige All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 4 Kenya

Political structure

Official name Republic of Kenya

Form of state Unitary republic

Legal system Based on English common law and the 1963 constitution

National legislature Unicameral National Assembly of 188 elected members, 12 presidential appointees, the attorney-general and the speaker. Section 2a of the constitution, under which the Kenya African National Union (KANU) was the sole authorised party, was repealed in December 1991

National elections December 1992 (presidential and legislative); next elections due by December 1997 (presidential and legislative)

Head of state President, elected by direct universal suffrage

National government The president and his appointed vice-president and cabinet; reshuffled January 1997, and composed entirely of KANU members

Main political parties KANU; Forum for the Restoration of Democracy (FORD)-Asili; FORD-Kenya; Democratic Party (DP); National Development Party of Kenya (NDPK)

President & commander-in-chief Daniel arap Moi Vice-president, minister for planning & national development George Saitoti

Key ministers Agriculture, livestock development & marketing Darius Mbela Commerce & industry Joshua Angatia Cooperative development Kamwithi Munyi Culture & social services Winfred Nyiva Mwendwa Education Joseph Kamotho Energy Kirugi M’mukindia Environment & natural resources Henry Kosgey Finance Wycliffe Musalia Mudavadi Foreign affairs & international cooperation Stephen Kalonzo Musyoka Health Jackson Mulinge Home affairs & national heritage William ole Ntimama Information & broadcasting Johnstone Makau Labour & manpower development Philip Masinde Land reclamation, regional & water development Simeon Nyachae Lands & settlement Noah Katana Ngala Local government Francis Lotodo Office of the president Nicholas Biwott Jackson Kalweo John Kipsang arap Koech Public works & housing Jonathan Ng’eno Research, training & technology Hussein Maalim Mohamed Tourism & wildlife Protas Momanyi Transport & communications Wilson Ndolo Ayah

Attorney-general Amos Wako

Central Bank governor Micah Cheserem

Head of the civil service Fares Kuidwa

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Kenya 5

Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at factor cost K£a m 10,986 13,509 16,304 19,456b n/a Real GDP growth % 0.5 0.2 3.0 4.9b 4.8b Consumer price inflation % 27.3 46.0 28.8 1.6 9.0 Population m 25.2 26.0 26.8 27.5 28.3 Exports fob $ m 1,109 1,263 1,537 1,914 2,050b Imports fob $ m 1,609 1,510 1,775 2,652 2,450c Current account $ m –180 71 98 –400 47b Reserves excl gold $ m 53 406 558 353 747 Total external debt $ bn 6.91 7.12 7.16 7.38 n/a External debt-service ratio % 30.9 26.9 32.7 25.7 n/a Manufacturing output index 1990=100 105.1 107.1 109.1 113.3 119.6c Marketed tea production ’000 tons 188.1 211.1 209.5 244.5b 260.0c Coffee productiond ’000 tons 75.1 79.9 95.8 97.6 78.0e Tourist departures ’000 515 536 676 503b 480.0c Exchange rate (av) KSh:$ 32.22 58.00 56.05 51.43 57.12

April 25, 1997 KSh55.23:$1

Origins of gross domestic product 1995b % of total Components of gross domestic product 1995b % of total Agriculture, forestry & fishing 29.7 Private consumption 69.4 Manufacturing 11.1 Government consumption 15.0 Trade, restaurants & hotels 15.5 Gross fixed capital formation 21.6 Transport, storage & communications 7.8 Change in stocks 0.4 Government services 14.8 Exports of goods & services 33.1 Other (net) 21.1 Imports of goods & services –39.5 GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports 1995b $ m Principal imports cif 1995b $ m Tea 350 Industrial machinery 507 Coffee 281 Motor vehicles & chassis 363 Horticulture 207 Crude petroleum 225 Petroleum products 85 Iron & steel 200 Cement 31 Resins & plastics 180 Pyrethrum extract 26 Refined petroleum products 163

Main destinations of exports 1995 % of total Main origins of imports 1995 % of total Uganda 15.8 UK 12.6 Tanzania 13.0 Japan 11.0 UK 10.0 Germany 6.8 Germany 7.6 UAE 6.7 a K£1:KSh20. b Provisional. c EIU estimates. d Crop years starting October 1. e Industry estimate.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 6 Kenya

Outlook for 1997-98

Another easy win beckons The president, Daniel arap Moi, and the ruling KANU appear to face few for Mr Moi— obstacles in their bid to be re-elected in the polls due by the end of this year. Under the rules of the constitution, Mr Moi needs only to come at the top of the ballot nationally, and secure at least 25% of the poll in five of Kenya’s eight provinces, to secure another term. In 1992 he won with 36% of the national poll, and will undoubtedly do better this time. The disintegration of the parliamentary opposition reinforces the ascendant position of KANU, and indeed many of the opposition’s supporters may decide not to bother to cast their votes.

—but the picture then The point of greater political interest is the preparation within the ruling party becomes clouded for the post-Moi era, as the constitution necessitates that the next term will be the president’s last. Two factions have emerged within KANU (A and B) which reflect not only ethnic alliances within the dominant Kalenjin family, but slight variations in policy stance (KANU “B” has a more nationalist tilt). A cabinet reshuffle on January 15 was clearly to the benefit of the KANU “B” faction, but it is unclear whether that grouping has a winning strategy. The thinking of a highly influential minister in the president’s office, Nicholas Biwott, and other leading lights in this grouping is that an ethnic alliance between the Kalenjin group (or family) of tribes (which includes Mr Moi and Mr Biwott) and the largely pro-opposition Kikuyu ethnic group will deliver a further period of rule to KANU in the post-Moi era. However, there appear to be two prominent flaws in this thinking. In the next legislative term, given the ill-health of Kenneth Matiba and the increasing age of Mwai Kibaki, the Kikuyu will be led in parliament by politicians who are not associated with the one-party era, but who will offer an approach to politics that is both more confrontational and more rational than that presently pursued by Mr Matiba and Mr Kibaki. Secondly, rural Kikuyu suffered badly from the ethnic killings which scarred Rift Valley Province from late 1991 into early 1994, and view the Kalenjin and their Maasai allies as the main perpetrators. Of course, there is no reason why KANU “B”, having travelled down this route without success, could not change tack and seek to rebuild the alliance of the Kalenjin and the rest of the significant tribes other than the Kikuyu and the Luo.

Economic reforms will be The government appears close to securing the disbursement of the second few this year tranche (of $37m) under the IMF’s $216m ESAF. Kenya has broadly met the Fund’s expectations on the monetary and fiscal targets, and pre-election macroeconomic irresponsibility on the scale of 1992 is most unlikely. On specific policy pledges (for example, privatisations) the government seems to have done just enough to satisfy the IMF. The attorney-general, Amos Wako, hastily published bills for the break-up of the Kenya Posts and Telecommunications Corporation and for increased autonomy for the National Social Security Fund shortly before the arrival of the IMF mission in April. However, with a substantial cushion of international reserves (which reduces the financial leverage of the donor community) there are legitimate doubts about the government’s commitment to the continuing reform process. The triumph of the KANU “B” faction in the reshuffle of January suggests more resistance to donor-approved

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reforms which threaten vested interests. Developments at the Kenya Ports Authority are a case in point. A sharp fall in reserves would boost donor leverage, and make conservatives more amenable to reforms. The EIU assumes that there will be one short run on the shilling before the elections, as some speculators take fright, but that short-term capital will be locked back in again by the time-honoured ploy of raising yields on Treasury instruments.

Forecast summary (domestic) (% real change, year on year) 1995a 1996b 1997c 1998c Agriculture 4.8 4.3 3.0 4.5 Manufacturing 3.9 5.5 3.4 4.3 Trade, restaurants & hotels 7.9 5.8 4.4 4.0 GDP at factor cost 4.9 4.8a 3.4 4.4 Consumer price inflation 1.6d 9.0d 13.0 16.0

a Provisional. b EIU estimates. c EIU forecasts. d Actual.

GDP growth will recover The official figure of 4.8% for GDP growth last year seems high in view of the in 1998— anecdotal evidence from many sectors of the economy of a marked slowdown in the second half of the year. It would suggest that the high level of real interest rates has had a limited impact. Nonetheless, the EIU is accepting it until advised to the contrary, not least because subsequent large revisions to the national accounts are rare in Kenya. For 1997 we had already assumed investor reticence ahead of the elections. Business has few doubts about the outcome of the polls but is concerned abut disruption ahead of voting and about delays to the reform programme. The new factor is the drought in the first quarter of this year. Rains have since come to the main growing areas, but there remain implications for consumer demand, for inflation and for government spending. We have trimmed our forecast for real growth to 3.4% in 1997. Looking ahead to 1998, we are assuming a better year for agriculture, with both consumer spending and investment picking up after the elections. GDP growth is now projected at 4.4% for 1998.

—with current-account On the external side, exports will continue their expansion this year on the pressures contained back of increased penetration of the East African Cooperation (EAC) and of other regional markets. In 1997 the growth will be in manufactures, while exports of Kenya’s traditional staples are set to decrease as the drought reduces tea and coffee crop levels. Next year exports are forecast at $2.32bn, with horticulture replacing coffee as the second merchandise export. Emergency food imports will push up import levels this year, and restocking and rehabil- itation by manufacturing after the election will lift the total further, to $2.69bn in 1998. Despite a poor performance from tourism and a limited contribution from public transfers (mostly donor grants), we see the current account remain- ing only modestly in deficit in both years. As already noted, the strength of the currency in the first four months of this year is expected to be balanced by a short run on the shilling, which the authorities will bring under control. The average exchange rate is forecast at KSh58:$1 this year and KSh63:$1 in 1998.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 8 Kenya

Forecast summary (external) ($ m unless otherwise indicated) 1995a 1996b 1997c 1998c Merchandise exports fob 1,914 2,050d 2,160 2,320 of which: tea 350d 325 280 320 horticulture 207d 240 270 300 coffee 281d 235 230 285 Merchandise imports fob2,652 2,450 2,560 2,690 Tourism revenue 486d 455 435 460 Current-account balance –400 –47d –80 –120 Average exchange rate (KSh:$) 51.4 57.1a 58.0 63.0

a Actual. b EIU estimates. c EIU forecasts. d Provisional.

Gross domestic product Kenya shilling real exchange rate (c) % change, year on year 1990=100 160 5

KSh:rand

4 140

3 KSh:$ 120

2 Kenya KSh:¥ Africa 100 1

80 0 1994 95 96(a) 97(b) 98(b) (a) Provisional. (b) EIU forecasts. (c) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic Outlook. 1990 91 92 93 94 95 96 97(b) 98(b)

Review

The political scene

The Kalenjin family has The government reshuffle of January 15 confirmed the ascendancy of the its squabbles— unofficial “B” faction of the ruling Kenya African National Union (KANU) and brought the return to the cabinet, after more than five years, of the former energy and industry minister, Nicholas Biwott (1st quarter 1997, pages 8-9). Despite the formidable political skills of Mr Biwott, referred to sometimes by his opponents as “Total Man”, the jostling for the succession to the president of the party and of the country, Daniel arap Moi, continues. This is particularly evident in the Kalenjin group of tribes, which include Mr Moi and Mr Biwott. A little-noticed beneficiary of the reshuffle was the KANU MP for Cherangani (Rift Valley Province), Kipruto arap Kirwa, who was appointed an assistant agriculture minister. Mr Kirwa attracted attention in March 1996 by telling journalists in Nairobi that Mr Moi was “not a democrat of any shade”. Mr Kirwa is a Nandi, the second largest Kalenjin grouping after the Kipsigis. His rise was paralleled by the sacking of a Kipsigis minister in the president’s office,

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The groups of the Kalenjin family

Kipsigis: prominent members are Kipkalia Kones, John Koech, Franklin Bett

Nandi: prominent members are Kipruto arap Kirwa, Henry Kosgey, Mark Too

Tugen: prominent members are Daniel arap Moi, General Daudi Tonje

Keiyo: prominent member is Nicholas Biwott

Pokot: prominent member is Francis Lotodo

Other groups: Marakwet, Sabaot, Nyangori, Sebei and Okiek

Source: Finance, July 31, 1992.

Kipkalia Kones, a prominent member of KANU “A”. It was also helped by his writing the president a letter of apology for his intemperate remarks. However, he has a strong opponent in the cabinet in the local government minister, Francis Lotodo, who told a rally in his Kapenguria (Rift Valley Province) constituency on March 1 that his Pokot group, one of the smaller in the Kalenjin family, was under attack from the Nandi. Mr Lotodo developed the argument that his group had missed out on opportunities for its advancement under the presidencies of Jomo Kenyatta and Mr Moi. His allies claimed that, if Mr Lotodo was dismissed, the Pokot would turn against other Kalenjin groups.

—and KANU has other While there remains little doubt that KANU and Mr Moi will be re-elected local difficulties— before the end of 1997, leading supporters of the ruling party in other commu- nities are failing to boost KANU’s electoral appeal. Western Province, which is dominated by the Luhya, was closely contested in the elections in December 1992, although a number of opposition MPs have since defected to the ruling party and won the ensuing by-elections. A successful presidential candidate has to win at least 25% of the vote in five of Kenya’s eight provinces, and KANU could conceivably be in difficulties in Western province. A “highly placed source” mischievously told The People (a Nairobi-based weekly) in mid-January that the Luhya attorney-general, Amos Wako, had lost respect and popular support since being given the most expensive Mercedes in Kenya. The same source claimed that the Luhya finance minister, Wycliffe Musalia Mudavadi, had alienated his community by allowing Asians the major business opportunities in his Sabatia constituency. The information clearly came from KANU. Yet it should be noted that The People is owned by the disputed head of the Forum for the Restoration of Democracy (FORD)-Asili, Kenneth Matiba, whose party has suffered most from the defections to KANU in Western Province, and that Mr Matiba is prone to anti-Asian comments.

KANU politicians know that the next presidential term will be Mr Moi’s last for constitutional reasons, and are consequently lobbying hard for influence. In Eastern Province its MPs from the Kamba community are divided between loyalty to the foreign affairs minister and MP for Kitui North, Stephen Kalonzo Musyoka, and support for the information and broadcasting minister,

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Johnstone Makau. At a fund-raising in Nairobi on March 23, it was significant that Mr Musyoka enjoyed the endorsement of Mr Biwott.

—but Mr Biwott has a One of the faults of KANU “A”, in the eyes of Mr Moi, was its association with post-Moi strategy calls for national party elections, which its critics considered to be an avoidable airing of the party’s internal differences. The leading lights of KANU “A” may, however, find themselves subjected to grassroots elections in a bid by KANU “B” to contain their influence as district chairmen of the party. Those vulnerable include the land reclamation, regional and water development minister, Simeon Nyachae. The long-term aim of KANU “B” is to form a broad Kikuyu-Kalenjin alliance which will underpin the party in the next presidential term. This cannot realistically be achieved before the forthcoming elections since prominent Kikuyu opposition leaders such as Mr Matiba and the chairman of the Democratic Party, Mwai Kibaki, will not stand aside. Before the following polls, however, they would have retired or been replaced. Looking ahead, Mr Biwott will seek to raise the profile of the vice-president, George Saitoti, who presents himself as a Maasai but is believed to be Kikuyu. This strategy will not work if it is limited to forming close ties with members of the community’s elite. It requires overcoming the strong anti-government sentiments of rural Kikuyu.

The new police chief is A new commissioner of police, Duncan Wachira, was appointed in mid- under pressure December in the wake of the deaths of three students in clashes with the police (1st quarter 1997, page 11). Now Mr Wachira has to assuage criticism following the death of a student activist, Solomon Muruli, on the Kikuyu campus of Nairobi University on February 23. Mr Muruli died in an unexplained fire in his dormitory. He had spoken of threats to his life to his doctor, to the university authorities and to the FORD-Kenya MP for Kimilili (Western Province), Mukhisa Kituyi, in whose home he had spent the night of February 21. Earlier he had reported that he had been kidnapped for one week and tortured by the police in mid-November, and that no action had been taken against a police officer he had pointed out in an identification parade. The university was temporarily closed after protests by students on the campus and in the centre of Nairobi. One week before the death of Mr Muruli, Mr Wachira had suspended four senior officers for a “lack of professionalism” in the disturbances that followed the deaths in December, and now finds himself under fresh pressure.

Elections fail to excite Mr Moi told a public rally in Eastern Province on April 3 that voter registration voters would start before the end of the month. The head of the government- appointed Electoral Commission, Zacchaeus Chesoni, hopes that 10 million Kenyans will hold the new-style identity cards (IDs)—without which they cannot register for the forthcoming elections—compared with 8 million for the 1992 polls. Election fever is not going to grip Kenya because there is little doubt about the outcome. KANU has not made any major changes to the less than level playing field it enjoyed in 1992, and is in a position to sit back while the opposition continues to fragment. It did not send any delegates to a constitutional conference in Limuru on April 4. The conference was attended by non-governmental organisations, church representatives, lawyers and opposition politicians. Mr Kibaki called for an independent Electoral Commission

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and judiciary, and argued that all Kenyans over the age of 18 should be free to vote with or without IDs. Some speakers called for a public campaign of protest to force changes, but the calls were little more than posturing. One gesture the government might make before the elections is to register Safina, a grouping launched in May 1995 by the FORD-Kenya MP for Kikuyu (Central Province), Paul Muite, and a well-known conservationist, Richard Leakey; this would serve to sharpen divisions within the opposition, and particularly its Kikuyu following.

Voters showed little enthusiasm for two by-elections in the past quarter. Having left FORD-Kenya for the National Development Party of Kenya (NDPK), Raila Odinga held his Lang’ata (Nairobi) seat on March 12. He won comfortably but the turnout was less than 7% of registered voters. The Kitutu-Chache seat (Nyanza Province) seat was held for KANU by Jimmy Angwenyi on January 22. The turnout was less than 25%.

Mr Wamalwa causes a stir The national delegates’ conference of FORD-Kenya unanimously elected in the assembly Michael Kijana Wamalwa as party chairman on January 26. Several Luo MPs from Nyanza Province were absent, apparently out of sympathy with Mr Odinga, and the proceedings attracted withering criticism from Mr Muite. Mr Wamalwa is also under criticism in his capacity of chairman of the Public Accounts Committee (PAC) of the National Assembly. In a letter in early December, he told a prominent Asian businessman, Ketan Somaia, that the latter did not need to appear before the committee to face questions about a deal to supply the Kenyan government with security equipment worth KSh400m ($7m). Mr Wamalwa did not consult the rest of the committee, but explained that the office of the president had informed him that Mr Somaia had provided 80% of the equipment, for which he is said to have been paid in full, and had produced a schedule for the delivery of the balance. The Dubai- based Mr Somaia, whose interests in Kenya span banking, paper manufacturing, sugar, tourism and vehicle imports, was subsequently summoned to appear before the PAC on April 4, but failed to appear for the fourth time. Mr Wamalwa’s letter to a businessman with close ties to members of the Kenyan government was clearly an error of judgement, and he sought to re- trieve the position by apologising to the other members of the committee.

The Nation Group again At a ceremony to inaugurate a $14m state-of-the-art printing press on the out- appeals for a TV licence skirts of Nairobi, the chairman of the Nation Group, Bedan Gecega, reminded the guest of honour, Mr Moi, that the group had applied in 1991 for radio and television licences, and was still waiting. The group publishes the Nairobi-based Daily Nation and the regional weekly, The EastAfrican, both of which are independent of the government. It may feel that this stance has undermined its applications, while other licences have been awarded. Stellavision, for example, runs a public television service, and is carrying out trials for a pay channel. Its chairman is the former editor of The Weekly Review, Hilary Ng’weno, who was feted in single-party Kenya before December 1991 as a balanced critic of the government working under difficult operating conditions.. Currently, pay-TV is offered by the official Kenya Broadcasting Corporation and the little-known Cable Television Network.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 12 Kenya

The armed forces are The chief of general staff (CGS), General Daudi Tonje, is introducing substantial restructured changes to the top of the armed forces. He is bringing the navy and airforce commands to Nairobi, and forming a new centralised high command at the Department of Defence in the capital. There are five new senior posts: a vice- CGS, three assistant vice-CGS and the head of a new National Defence College. There are plans to remove responsibility for procurement from civilian staff at army headquarters, and bring it under full military control. The new appoint- ments will report to the president through General Tonje, who was promoted from deputy CGS on the retirement of his predecessor in November.

The UK will maintain Interviewed in The EastAfrican in early April, a MP in the UK’s Labour Party, quiet diplomacy Tony Lloyd, was eager to dispel fears of a radical new stance in foreign policy on a change of government in London. Mr Lloyd, who is tipped for African responsibilities in the new UK government, insisted that he did “not intend to conduct diplomacy through a megaphone”. In a Kenyan context, this can be translated as meaning that he would persevere with discreet approaches in private to the government on human rights, transparency and economic management. Critics of this approach would argue that external pressure for changes in Kenya’s political system at the end of 1991 was successful because the donor community then enjoyed substantial financial leverage, and that the more effective diplomatic style was the combative and public manner practised by the then US ambassador, Smith Hempstone.

Indian Ocean nations Foreign ministers from 14 countries spanning three continents met in Port- unite Louis (Mauritius) on March 5-7 to sign a charter for closer regional ties. The text was proposed by South Africa and India, and seconded by Kenya and Australia. A motion by Madagascar for the use of French in the meetings of the new grouping was rejected. This latest addition to the circuits of international sum- mitry is called the Indian Ocean Rim Association for Regional Cooperation.

The economy

The IMF relaxes its An IMF visit to Kenya in mid-April, headed by Hiroyuki Hino, appears to have stance— been a success. Mr Hino told a press conference in Nairobi at the end of a two-week staff mission that he would propose the completion of the mid-term review to the Fund’s board. This should lead to the disbursement of the second tranche, of $37m, of the IMF’s $216m Enhanced Structural Adjustment Facility (ESAF), which was due in October. He noted that fiscal and monetary policy had been executed broadly on target, and that there had been progress in civil service reform. On Mr Hino’s arrival, such an outcome was said to be unlikely, with the Fund and other donors preoccupied with the slow pace of reforms pledged in the policy framework paper of February 1996. During the mission’s stay, the Central Bank (Amendment) Bill received presidential assent. This legislation gives the Central Bank of Kenya (CBK) more room for manoeuvre vis-à-vis the authorities, and caps government borrowing from the CBK at 5% of ordinary revenue shown in the latest audited accounts. The bill was published in July 1996, and its slow passage into law after receiving approval in the National Assembly was not convincingly explained until the arrival of

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Mr Hino. It is also clear that the mission found the government’s books in better order than on their previous visit in December.

—although bilateral However, the success of the mission is not likely to lead quickly to a meeting of donors have doubts the Consultative Group of donors. The government is looking for a gathering of the group in July but many bilateral donors have reservations in the political arena. There is a feeling among diplomats in Nairobi that the beleaguered Mr Wako has failed to deliver on even marginal legal reforms, evidenced by a joint statement from 14 missions in mid-April condemning police excesses and calling for the respect of freedom of speech. Mr Wako has been marginalised within the government, and the leverage of donors has diminished since the late 1980s and early 1990s. Kenya’s trade deficit is much reduced, and inflows of short-term capital have boosted foreign exchange reserves. The significance of a Consultative Group meeting lies more in the stamp of approval that it implies than in the resulting pledges of aid, nearly all of which are conditional on further reforms.

The government talks An acute shortage of rainfall, which led the president to declare a state of down growth— emergency (see Agriculture and fisheries), has been cited by the governor of the CBK, Micah Cheserem, as a factor undermining growth prospects for 1997. Real growth for last year is shown in the January issue of the CBK’s Monthly Economic

Interest rates and inflation Review at 4.8%, although a figure of 4.2% is in circulation among donor % sources. For this year the CBK projects a rate of 4.5%. At a press conference in Treasury bills Nairobi on March 4, Mr Cheserem noted investor concerns about corruption in Consumer price inflation government, the weakness of the judicial system, control of the inflation rate, 50 the political environment and the condition of the physical infrastructure. 40 Inadequate investment in roads, power and communications is a preoccup- ation of business. The country director at the World Bank, Harold Wackman, 30 has pointed out that these shortcomings result in higher production costs and 20 the loss of markets. He told a seminar of the Institute of Certified Public Accountants of Kenya in Nairobi on January 16 that investment in the infra- 10 structure of at least $5bn over the next five years is essential. Provided that the

0 government adopts appropriate policies, he hoped that the necessary funding 1992 93 94 95 96 would be provided by a combination of the Treasury, the private sector and Source: IMF. donors. In support of his analysis, Mr Wackman noted that 34% of the country’s roads were in a very poor condition, that only 75% of the urban population enjoyed access to clean water and that there was a backlog of 75,000 telephone connections.

—amid a rise in inflation Overall inflation accelerated year on year from 10.9% to 11.9% in February. Prices of basic commodities, notably maize, beans and kales, rose sharply due to shortages. The arrival of heavy rains in the main agricultural areas of Kenya in late March, and the delivery of emergency food imports from April are expected to contain inflation. However, there will be fiscal and monetary pressures on the price index arising from the elections, despite indications that the government is not going to embark on a spending and money-printing spree on the scale of 1992. The EIU expects average annual inflation of 13% this year, rising to 16% in 1998. The CBK is eager that macroeconomic analysis is based on its new underlying price index, which excludes food items and

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 14 Kenya

other seasonal factors. This measure may well be a useful tool in assessing the CBK’s management but business and labour will continue to need an index including seasonal factors.

A policy paper sets dizzy Sessional Paper No 2 of 1996, launched on February 20 by the new commerce heights— and industry minister, Joshua Angatia, is a restatement of policies which the government has sought to pursue since 1986. Entitled Industrialisation to the Year 2020, it should be seen in conjunction with the 1997-2001 Eighth National Development Plan (1st quarter 1997, pages 13-14). Since the aim of the paper is the achievement of a place among the ranks of newly industrialising countries (NICs), it was appropriate that the launch was attended by officials from the Kenya Association of Manufacturers (KAM), the Federation of Kenya Employers and the Kenya National Chamber of Commerce and Industry. The government’s consultations with the private sector are to be formalised with the creation of a new industrial development council. In view of the comments by Mr Cheserem and Mr Wackman, it was encouraging that the paper addresses the weaknesses of the infrastructure. The government pledges to construct a new port on the coast at Lamu by 2008, and plans a railway linking to Uganda through Kitui, Embu, Meru and Isiolo. The proposed line would have branches into Ethiopia, which is a growing market for Kenyan goods, and southern Sudan. Investment in Kisumu port on Lake Victoria is to be considered.

—which assume a The chairman of the KAM, Manu Chandaria, suggested that officials in the transformed public sector Ministry of Commerce and Industry should be seconded to the private sector to familiarise themselves with the workings of business. The paper accepts the need for massive changes in civil service thinking, highlighting “overwhelm- ing bureaucracy and corruption” as among the principal frustrations of entre- preneurs. Arguably corruption, at least at the lower levels, can only be tackled by substantial increases in public-sector pay. An improvement in the efficiency of the bureaucracy requires civil servants to work on the basis that they are servants of the public, including business. The Investment Promotion Centre is a case in point. Despite its obvious rationale, it has had a negligible impact on reducing the time required for a new investor to complete the necessary for- malities. The transformation of the public sector cannot start soon enough. Kenya is often cited as the country in sub-Saharan Africa with the potential to become its first NIC, not least because of its welcome to foreign business, its entrepreneurial tradition and its developing capital markets. However, it is in danger of being overtaken by Côte d’Ivoire and Ghana.

KBL prepares for serious One of the largest manufacturers, Kenya Breweries Limited (KBL), has sunk competition KSh1bn ($18m) into its Tusker plant in Nairobi. A new bottling line, imported from Germany, with the capacity of 80,000 bottles per hour is to be commis- sioned in May, and the company has also invested KSh200m in a programme of quality control to meet international standards. KBL anticipates increased demand from the relaunch of its Tusker brand in the USA. It also plans to start producing canned beer, opaque beer, alcoholic fruit juices and mineral water. KBL is bracing itself for stronger competition from South African Breweries (SAB), which has established itself in Tanzania as a partner of the government and is in talks with Kenyan investors based in Thika about the construction of

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Kenya 15

a new plant. In the opaque beer market, which is said to be four times that for clear beer, KBL would find itself in competition with Kuguru Foods of Nairobi.

Finance

Budget discipline slips The outturn for the first five months of the 1996/97 fiscal year (July-June) show gently — that the budget is on track. The deficit on a cash basis amounted to 1.4% of GDP, compared with a target of 1.5%. The government pursued its strategy of funding its requirements from domestic rather then external sources. More recent (partial) data show that in the first eight months the deficit (on a commitments basis) reached KSh7.5bn. This was KSh4.9bn above target, and equivalent to 1.6% of GDP. A little more slippage can be expected in view of the need for exceptional food imports but it should be said that, given the approach of the elections, the government’s record has been good. The IMF, on its mission in mid-April, appears to have approved the government’s accounts (see The economy).

Public financesa (KSh bn unless otherwise indicated) 1995/96 1996/97 Actual Actual Target Total revenue & grants 52.7 61.5 61.5 Total expenditure 60.1 68.1 66.9 Deficit (commitments basis) –7.4 –6.6 –5.4 Deficit (cash basis) –6.2 –6.4 –6.8 % of GDP –1.4 –1.4 –1.5 Financing 7.9 9.7 6.9 Domestic 10.5 11.9 8.9 Central Bank 23.5 5.2 n/a commercial banks –9.0 6.6 n/a other –4.0 0.1 n/a External –2.6 –2.2 –2.0 Float 1.7 3.3 0.1

a Five months, fiscal years starting July 1.

Source: Central Bank of Kenya, Monthly Economic Review, January 1997.

—and the CBK broadens The government has reduced it dependence on 91-day Treasury bills, with the its product mix issue of a one-year bond in late March. The bond has a floating interest rate, paying 0.25% above the 12-week moving average rate for 91-day paper. The CBK sought to raise KSh5bn, and is said to have attracted KSh2.8bn. It was particularly successful with foreign institutions. The bond is attractive because of the resilience of the shilling. The yield is also generous; the 91-day bills have yields of over 20%, although foreign institutions must pay a withholding tax of 12.5%. The minimum investment in the issue was KSh1bn at the CBK, or KSh50,000 at commercial banks or brokers at the Nairobi Stock Exchange (NSE), which offers a secondary market in the bonds. The CBK will make increasing use of medium- term bonds to meet the government’s funding requirements.

Mr Wako publishes a bill The much-criticised National Social Security Fund (NSSF) is scheduled for on the NSSF some basic changes to its statutes, following the publication of a bill by the

attorney-general on April 4. Mr Wako’s bill would make the fund, which currently reports to the Treasury and the Ministry of Labour, responsible to a new Retirement Benefits Authority. A proposed new board would include representatives of the banking and pensions industries. The NSSF has had a chequered history in real estate investment, and has been accused by the Public Investments Committee in the National Assembly of purchasing overvalued properties (3rd quarter 1996, page 15). In the view of some observers, the fund should be closed. The economic counsellor at the US embassy, Robert Godec, told a meeting of the Institute of Economic Affairs in Nairobi on March 27 that the scrapping of state pension funds in several countries had brought adminis- trative and investment gains.

The government funds The Ministry of Finance’s Quarterly Budget Review for October-December 1996 parastatal debt— shows that the government paid KSh907m ($17m) in foreign debt service on behalf of eight parastatal companies and the Nairobi City Council in the first half of 1996/97. The eight included Kenya Railways (KR), the Kenya Broadcasting Corporation and the Industrial Development Bank. KR posted a net loss of KSh200m in 1995/96, compared with a small profit of KSh400m in the previous year.

Pre-tax performance of leading parastatalsa (KSh bn) 1994/95 1995/96 Kenya Power and Lighting Company 1.5 4.1 Kenya Posts and Telecommunications Corporation 2.8 3.6 Kenya Ports Authority 0.8 1.2 National Cereals and Produce Board –2.2 –2.2 Kenya Railways 0.4 –0.2

a Fiscal years starting July 1.

Source: The EastAfrican.

—and defends itself on The coordinator of the divestiture programme in the Treasury, George Mitine, privatisation has refuted suggestions, made by the IMF and other donors, that privatisation has been implemented without enthusiasm and too slowly. This criticism was also aired in the Quarterly Budget Review for July-September 1996. Mr Mitine argued that analysis based on three months did not take account of the time required to prepare a company for sale. This is fair comment, but overlooks the political resistance to privatisation, which was officially launched by the then finance minister, George Saitoti, as long ago as July 1992. Mr Mitine put the lead time for a public flotation at nine months, and noted that negotiations over pre-emptive rights could continue for many months. In May 1996 Mr Mitine reported that the government had raised KSh8.7bn from the successful sale of 84 enterprises and 39 tea factories, and the partial sale of six large companies and seven of their subsidiaries. In the first seven months of 1996/97 the government has raised a further KSh1.1bn from the programme.

The NSE unveils its plans The chief executive of the regulatory Capital Markets Authority, Paul Melly, raised the prospect of ambitious reforms at the NSE when addressing a workshop in Nairobi in mid-March. He indicated that the ceiling on foreign ownership

would be reviewed shortly. At present, foreign investors cannot increase their combined equity ownership in the 16 foreign-owned, publicly quoted companies above 40%. He promised the completion of a study into an electronic trading system before the end of 1997, and the introduction of a central depository system. He hoped that a ratings agency would be formed to assist in the issue of corporate bonds, and looked to banks to expand their corporate finance and underwriting expertise. By 2000 Mr Melly expected the number of listed companies to increase from 60 to 75, market capitalisation to double and trading volumes to triple. He felt that the 20 existing brokers would be adequate for such an increase in business. The latest entrant to the NSE, which now has a website on the Internet, is Tourism Promotion Services (TPS). The government has sold a 23.3% stake in TPS through a public flotation and a further 10% to existing shareholders, the largest of which is the Aga Khan Fund for Economic Development. The principal assets of the company are the Serena Hotels in Kenya.

The NSE index has slipped in the past quarter, falling from 3,610.8 points at the time of our last report to 3,350.7 points on April 10.

Agriculture and fisheries

The president declares a Kenyan television announced on January 28 that Mr Moi had declared the disaster alert famine prevailing in parts of the country a national emergency, and that the finance minister had waived levies and value-added tax (VAT) on imports of basic food items such as maize, milk and rice. The arid eastern and north- eastern areas were most affected; in late March the main growing areas of Kenya finally saw heavy rainfall. The minister of agriculture, livestock development and marketing, Darius Mbela, said at the end of January that the shortages necessitated the import of 7.1m (90-kg) bags of maize, of which the private sector would be allowed to import 4.1m bags, and of 2.7m bags of beans. The ministry reported that wheat production fell by 9% last year to 3.1m bags. Maize production declined from 29m to 24m bags in 1996, and output of beans from 5m to 2.3m bags. The vice-president, George Saitoti, told a visiting EU delegation in early February that 2.5 million people would require famine relief for six months. The first large consignments of food imports arrived in Mombasa in early February.

The KSA defends its corner Interviewed by The People in mid-March, the chief executive of the Kenya Sugar Authority (KSA), Francis Chahonyo, provided a stout defence of his performance. He tackled the continuing criticism of cheap sugar imports well, pointing out that the Kenya Revenue Authority was responsible for collection of the appropriate taxes, and that the KSA only received data on how much sugar was unloaded from each ship docked. The non-payment and underpayment of levies on sugar imports has enriched many high-profile business people, and was raised by the chairman of the Federation of Kenya Employers, Solomon Anampiu, in a speech in Kisumu in late March. In October customs and port sources had claimed that KSh23bn ($418m) of sugar had been imported since the start of the year, ostensibly in transit to neighbouring countries, and that much of it had been diverted illegally to the local market.

Mr Chahonyo cited data to support his contention that the industry was recov- ering, and that Kenya would again be self-sufficient in sugar by the end of the decade. He claimed that production had risen from 303,000 tons in 1994 to 390,000 tons in 1996, and expected a further increase to 420,000 tons this year. He said that average yields had grown steeply from 60-70 tons/ha in 1994 to 100-120 tons/ha. Mr Chahonyo noted the criticism of some farmers that the industry depended too heavily on foreign expertise. He maintained that the best-managed companies were Mumias and Sony, both foreign-managed, and regretted that local managers had looted Nzoia company.

The Coffee Board warns of In mid-March the Coffee Board of Kenya made its fourth estimate for the lower output 1996/97 (October-September) crop. Its latest projection is for 78,000 tons, a 20% decline on the previous season. It highlighted the damage inflicted by drought, noting that trees in the principal growing areas were drying up. The incidence of coffee berry disease is also said to be increasing. Dollar prices at the Mombasa auctions have firmed, particularly for Kenya’s highest quality coffees. We now expect coffee export earnings of $230m this year, followed by $285m in 1998.

Horticulture looks for In a formal address to the Fresh Produce Exporters’ Association of Kenya new markets (FPEAK) on March 14, Mr Cheserem noted that its members had greatly bene- fited from liberalisation and stated that the government was committed to helping sustain the industry’s impressive growth. He conceded that the strength of the shilling could be harmful to exporters but there is little that the CBK can do to intervene. The government’s domestic funding requirements are largely met by the issue of high-yielding Treasury instruments; short-term speculative foreign capital is attracted by the high returns, which maintains demand for shillings and also shores up international reserves.

Mr Cheserem also advised the association to look for new markets. More than 90% of fresh fruit and vegetable exports are despatched to European markets, principally the UK, France and Germany, and only 3% to the Middle East. The European market is close to saturation, and entry is complicated by a steady increase in regulations. FPEAK has sent a number of missions to the Gulf, and several air carriers have increased their service between East Africa and the Gulf. Kenya is also much closer to these markets than its principal competitors in southern Africa and South America.

Beetles against the weed The alarming growth of the water hyacinth across Lake Victoria led to a large cargo ship becoming stuck for several weeks at the end of 1996 and is threaten- ing access to the port of Kisumu, which has become an important maritime centre for regional trade since the launch of the East African Cooperation (EAC). The three countries of the EAC are making a suitable research-driven response. The Kenyan government has started to release beetles into the lake to clear the weed. The minister for research, technical training and technology, Maalim Mohammed, told journalists in Nairobi on February 6 that the programme, which will involve the release of 60 million neochetina beetles into the lake, would bring “99.5% success within 36-60 months”.

Mining and telecommunications

Resources in the sand A highly successful mineral drilling programme in Kilifi district (Coast Province) by Tiomin Resources of Canada has both excited geologists and the industry press, and alarmed conservationists. On January 22 the company announced that it had located 1.2bn tons of sands at Sokoke, averaging 3% heavy minerals content. This amounted to 1.5m tons of rutile, 1.2m tons of zircon and more than 10m tons of ilmenite. Earlier tests at Mambrui had also been very promis- ing. The near-silence of the government on the drilling suggests that it had very little idea of the nature of the drilling. The company has expressed interest in the improvement of the nearby harbour facilities and estimated that the extraction of the deposits, which could run for up to 30 years, would create 600 jobs. This indicates that Tiomin envisages exporting the minerals for processing abroad, and that the jobs would be mostly unskilled and low-paid. The project is likely to run into opposition from conservationists, who fought for many years to stop ilmenite extraction in Madagascar.

The break-up of KPTC A bill published in the official Kenya Gazette by Mr Wako on March 20 proposes is expected the break-up of the Kenya Posts and Telecommunications Corporation (KPTC) into four bodies. The idea has the broad support of the World Bank and other donors. The bill envisages the creation of a regulatory Communications Corporation of Kenya, which would licence and supervise the flow of information; Telkom Kenya, which would be the operating company for telecommunications, including cellular systems and payphones; the Postal Corporation of Kenya; and the National Communications Secretariat, which would advise the government on security and safety implications. It is proposed that the assets and liabilities of the KPTC will initially be transferred to the Communications Corporation, which is likely to report to the Ministry of Transport and Communications or the office of the president. Two US multi- nationals, Microwave Communications International and AT&T, are lobbying the government for business, and it may be felt that the office of the president would be better equipped to handle the negotiations.

Transport and tourism

The Felixstowe team at Awarded a two-year contract to manage the container terminal at Mombasa KPA come under fire— (4th quarter 1996, page 20), the UK-based Felixstowe Port Consultants have been accused of failing to deliver. According to a critical report in Daily Nation, Felixstowe had pledged to reach a target of 375 crane lifts per day within the first six months of its contract, which became operational on September 1, but had achieved only 218 lifts in the first week of March. The Felixstowe- appointed general manager of the terminal, Geoffrey Bayley, has declined to comment on “misleading figures”, without saying whether he was referring to the reported target or outturn, or both. He has stressed that performance should only be judged once computerisation has been completed and the four ship-to-shore gantries are all functioning.

Unfavourable coverage of Felixstowe in the local media has been welcomed by local interests in Mombasa, which did not take kindly to the decision to

establish a KSh756m ($13.7m) float for the purchase of equipment and spares for the container terminal, rather than use a tendering system.

—as Mr Brenneisen The executive chairman of the Kenya Ports Authority (KPA), Bob Brenneisen, despairs has had a chequered term of office. Appointed to the post in January 1996 in the wake of many arrests of senior officials on grounds of alleged corruption, he was sidelined to non-executive status in December and then reinstated two weeks later during a tour of Coast Province by Mr Moi. His temporary demotion appeared to have been engineered by local interests angered by his reform of the tendering process throughout the port and by his removal of personnel for mismanagement. He was probably further disheartened on March 18 when a Mombasa court acquitted a former managing director of the KPA, Simeon Mkalla, on charges of defrauding the government, and is most unlikely to seek an extension of his contract. The general manager of the port, Lenny Mwangola, is a possible successor. Although associated with the reforms that were made under Mr Brenneisen, the detractors of Mr Mwangola maintain that he would not be able to withstand vested interest opposed to change.

KA reports strong Addressing a press conference in London in mid-March to mark the 20th anni- passenger growth versary of Kenya Airways (KA), the managing director, Brian Davies, said that in 12 months the carrier had achieved passenger growth of 18.5% on international routes, 11% on its African network and 3.5% in its domestic services. He said that KA would shortly acquire two Boeing B737-300 aircraft, with the possibility of two more by the end of the decade. Mr Davies was keen to signal the advantages of the tie-up with KLM Royal Dutch Airlines, which took a 26% stake in KA in January 1996. He noted that borrowing costs were significantly reduced, savings on fuel and insurance were substantial, and KA had access to a formidable worldwide network.

Tourism is undermarketed Kenya is in danger of seeing its market share continue to decline from a failure to invest in marketing and in the physical infrastructure. The Kenya Tourism Board (KTB) is almost one year old (3rd quarter 1996, pages 19-20) but still short of funds. In March it appealed to the government for $20m for overseas marketing to supplement the efforts of the private sector. The point has been made frequently, but the government needs to understand that fast-growing tourist destinations enjoy official support, that consumers have the choice where to take their holidays and that facilities have to be upgraded. The South African Tourism Board (Satour) is said to receive government backing of $25m per year. The slide of the rand has kept South African holidays competitive (while the strength of the Kenyan shilling has had the opposite effect) and the infrastructure is in far better condition than that in Kenya. It is little surprise that the South African tourism industry is booming. Satour reported in mid- April that tourist arrivals increased by 10.2% in 1996 to almost 5 million, and that conference business had performed particularly well. Kenya needs to invest heavily in marketing, although it still benefits from its appeal as an exotic destination. We estimate gross tourism earnings at $455m last year, falling to $435m in 1997 due to the strength of the shilling and to competition from South Africa.

Regional cooperation, foreign trade and payments

Services industries look The Kenya Commercial Bank has been licensed to operate in Tanzania, and has crossborder— bought premises in Peugeot House in Dar-es-Salaam. It follows Kenya’s Trust Bank, which received a licence two years ago, and hopes to open for business in the second half of 1997. In the tourism sector, the authorities in Tanzania have reduced the shortlist for the acquisition of a 75% stake in Kilimanjaro Hotel in Dar from 12 to three, including the Nairobi-based Serena Hotels. The provision of new government services also reflects crossborder thinking. The three postal services in the East African Cooperation (EAC) introduced an interstate money order service in early April, while in late March the three telephone operators launched a limited facility for crossborder calls at local rates.

—as a regional passport is The EAC secretariat in Arusha (Tanzania) is working on a standard regional planned passport and travel documents, and is anxious to harmonise the tariff for the temporary importation of vehicles from one member state to another. The passport is a good test of the official commitment to the EAC. Not only does it have domestic security implications but it should be recalled that relations between members have been tense for far longer than they have been amicable since independence. For many years, the Kenyan and Ugandan governments harboured one another’s enemies. Also, the three governments do not share an identical vision of how the turmoil in Central Africa, and Zaire in particular, can be halted.

The current-account Data from the Central Bank show the broad trend of falling imports and services deficit narrows receipts from June 1996 through to November 1996. There followed a change of direction in December. Cumulative inflows from services and transfers picked up, presumably due to the good bookings reported by coastal hoteliers at the peak of the high season. For 1996 as a whole, the current-account deficit shrunk from $400m to $47m. The trade deficit (fob:fob) declined as imports retreated gently and exports continued their steady rise, driven for the third successive year by increased penetration of the EAC and other regional markets such as Ethiopia and Rwanda. More detailed data on export products and destinations will become available in the 1997 edition of the annual Economic Survey from the Ministry of Planning and National Development, which should be published in late May or early June.

Current account, 1996 ($ m; cumulative on a 12-month basis) Jun Jul Aug Sep Oct Nov Deca Merchandise exports fob 1,978 1,904 1,881 1,884 1,850 1,818 2,050 Merchandise imports cif –2,789 –2,745 –2,618 –2,558 –2,515 –2,485 –2,919 Trade balance –811 –841 –737 –674 –665 –667 –869 Services & transfers (net) 755 714 651 614 603 643 822 Current account –56 –127 –86 –60 –62 –24 –47 a Provisional.

Source: Central Bank of Kenya, Monthly Economic Review, January and March 1997.

Quarterly indicators and trade data

Quarterly indicators of economic activity

1994 1995 1996 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Production Annual totals Tea ’000 tons ( 207a ) ( 230a ) ( n/a ) Coffee: unroasted “ ( 79a ) ( 90a ) ( n/a ) Prices Monthly av Consumer prices, Nairobi: 1990=100 293.2 283.3 290.6 293.0 295.7 297.8 306.1 314.8 328.6 331.4 change year on year % 21.0 8.6 0.1 –2.7 0.9 5.1 5.3 7.4 11.1 11.3 Money End-Qtr M1, seasonally adj: KSh bn 63.23 64.78 68.17 74.16 73.02 67.25 73.12 80.02 69.66 76.62 change year on year % 14.2 12.5 10.7 18.7 15.5 3.8 7.3 7.9 –4.6 13.9 Foreign trade Qtrly totals Exports fob KSh m 26,667 20,243 19,997 20,060 29,216 27,739 30,653 32,261 18,865b n/a Imports cif “ 29,727 27,762 30,705 30,716 52,196 36,012 41,913 38,949 29,256b n/a Exchange holdings End-Qtr Central Bank & govt: foreign exchange $ m 732.7 538.9 526.8 418.3 368.5 334.8 419.2 680.1 648.0 728.0c Exchange rate Market rate KSh:$ 48.01 44.84 43.55 54.63 55.47 55.85 58.39 57.42 56.11 55.02d

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Estimate. b Total for July-August. c End-January 1997, 695.5. d End-February 1997, 54.94.

Sources: FAO, Quarterly Bulletin of Statistics; IMF, International Financial Statistics.

Trade with main partners ($ ’000; monthly averages) Total importsa UKb Japanb Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports to Kenya fob 1992 1993 1995 1996 1994 1995 Food 17,023 12,715 955 723 8 1 of which: cereals & products 10,267 8,511 56 117 2 0 sugar & preparations 4,259 2,088 346 100 0 0 Textiles fibres & waste 1,233 1,914 1,654 1,907 46 45 Petroleum & products 36,285 20,152 57 173 0 4 Animal & vegetable oils & fats 8,224 5,895 22 22 0 0 Chemicals 22,705 28,881 4,791 4,468 265 315 Rubber manufactures 845 1,118 234 246 92 247 Paper & manufactures 2,135 2,300 559 608 4 7 Textile yarn, cloth & manufactures 2,348 3,087 361 299 182 134 Non-metallic mineral manufactures 1,441 1,490 255 358 44 110 Iron & steel 6,763 9,048 477 845 1,809 3,413 Other metals & manufactures 3,991 5,269 1,047 1,133 251 457 Machinery & transport equipment 35,684 37,903 16,642 15,763 11,915 17,093 of which: machinery incl electric 29,122 24,448 11,416 11,480 3,468 4,394 road vehicles 5,627 10,647 4,505 3,486 8,432 12,699 Scientific instruments etc 1,987 1,995 1,668 1,417 266 450 Total incl others 149,420 141,329 32,141 31,382 15,046 22,386 continued

Total exportsa UKb Germanyb Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports from Kenya cif 1992 1993 1995 1996 1994 1995 Fish & products 2,148 2,541 71 28 338 500 Fruit & vegetables 8,063 7,941 4,650 5,772 1,294 1,729 Coffee 10,527 16,236 1,993 1,322 8,115 11,768 Tea 24,143 28,073 11,159 12,899 254 343 Crude animal & vegetable materials 5,004 5,459 1,123 1,400 2,008 2,181 Petroleum products 12,667 10,736 16 10 0 0 Chemicals 3,641 4,835 101 98 3 0 Non-metallic mineral manufactures 1,737 3,450 27 43 167 187 Metals & manufactures 3,678 6,789 10 22 16 23 Precious jewellery, gold & silverware 24,617 6,977 262c 1,301c 06 Total incl others 113,475 115,991 21,335 24,892 12,899 17,463 a Figures from Kenya’s statistics; exports fob; direct imports cif. b Figures from partners’ trade accounts. c Including other miscellaneous manufactured articles.

Sources: UN, International Trade Statistics, yearbook; UK HM Customs & Excise, Business Monitor, MM20; UN, External Trade Statistics, series D.

Direction of tradea ($’000; monthly averages) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Total exports 1992 1993 1994b 1995b Direct imports 1992 1993 1994b 1995b UK 16,514 16,959 19,417 19,167 UK 17,505 17,310 27,583 35,550 Germany 5,862 7,695 11,750 14,917 UAE 24,942b 21,808b 22,667 25,417 Uganda 6,355 9,612 11,417 14,083 Japan 14,407 11,006 16,667 24,750 Tanzania 4,190 7,772 9,250 11,417 India 4,417b 3,917b 8,583 21,417 Pakistan 7,000b 7,333b 7,333 9,250 Germany 10,329 10,388 13,750 17,083 Netherlands 3,670 4,187 7,417 8,333 Italy 4,544 6,554 7,917 14,917 USA 3,274 3,942 8,833 8,167 France 8,016 6,105 7,833 11,750 Egypt 3,461 4,498 4,000 4,917 USA 13,965 7,713 15,500 10,417 Total incl others 115,089 112,494 138,167 162,467 Total incl others 151,668 145,297 228,250 277,267 a Figures from Kenya’s statistics; total exports fob; direct imports cif. b DOTS estimate.

Sources: National sources; IMF, Direction of Trade Statistics, yearly.