Country Profile 2001

COUNTRY PROFILE 2001

Kenya

This Country Profile is a reference work, analysing the country’s history, politics, infrastructure and economy. It is updated annually. The EIU’s Country Reports analyse current trends and provide a two-year forecast

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Comparative economic indicators, 2000

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Contents

3 Basic data

4 Politics 4 Political development 7 Constitution, institutions and administration 10 Political forces 15 International relations and defence

19 Resources and infrastructure 19 Population 21 Education 22 Health 24 Natural resources and the environment 25 Transport, communications and the Internet 27 Energy provision

29 The economy 29 Economic structure 31 Economic policy 33 Economic performance

35 Economic sectors 35 Agriculture and forestry 37 Mining and semi-processing 37 Manufacturing 38 Construction 39 Financial services 40 Other services

41 The external sector 44 Invisibles and the current account 45 Capital flows and foreign debt 46 Foreign reserves and the exchange rate

47 Appendices 47 Regional organisations 52 Sources of information 54 Reference tables 54 Population 55 Labour force 55 Transport and communications 56 National energy statistics 56 Government finances 57 Government revenue and expenditure 57 Money supply and credit 58 Interest rates 58 Gross domestic product at factor cost 58 Gross domestic product by expenditure 59 Gross domestic product by sector 59 Consumer prices 59 Real average wage earnings per employee

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60 Agricultural production 60 Forestry and fishing 61 Mineral production 61 Industrial production 61 Construction statistics 62 Tourism statistics 62 Banking statistics 62 Import and export prices 63 Exports by value 63 Main exports by volume 64 Imports by value 64 Main trading partners 65 Balance of payments, IMF estimates 66 External debt, World Bank estimates 66 Net official development assistance 67 Foreign reserves 67 Exchange rates

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Kenya

Basic data

Land area 569,259 sq km

Population 28.7m (1999 national census) 29.3 (2000 provisional estimate)

Main towns Population in ‘000, 1999 census

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

Climate Tropical

Weather in Nairobi Hottest month, February, 13-28°C; coldest month, July, 11-23°C; driest month, (altitude 1,820 metres) August, 24 mm average rainfall; wettest month, April, 266 mm average rainfall

Languages English, Swahili and local languages

Measures Metric system

Currency Kenya shilling (KSh)=100 cents. KSh20=1 Kenya pound (K£). Average exchange rate in 2000: KSh76.2:US$1. Exchange rate on November 1st 2001: KSh79:US$1

Fiscal year July 1st-June 30th

Time 3 hours ahead of GMT

Public holidays January 1st; Good Friday; Easter Monday; May 1st; June 1st; Eid ul Fitr; Christmas holiday, December 25th-26th

Politics

Daniel arap Moi, who was re-elected president in December 1997, is in his last term of office under the existing constitution. Following a prolonged period of uncertainty, Mr Moi formally announced on 20th October 2001 that he will step down and hand over to a younger person when the time is right. As head of state and government, Mr Moi has wide-ranging powers: he is responsible for the appointment of members of the cabinet (including the vice-president), senior civil servants and heads of parastatal organisations. The appointment of Raila Odinga and three of his National Development Party (NDP) colleagues to the cabinet in June 2001 has somewhat changed Kenya’s political landscape. The ruling party, the Kenya African National Union (KANU), controls a majority of the seats in parliament, and the combined strength of the two parties in parliament is now 140 seats out of a total of 222 seats (KANU has 118 seats; the NDP has 22 seats). The next presidential and parliamentary elections are due in December 2002.

Political development

Before independence The coastal region of what is now modern Kenya has developed through more than five centuries of Indian Ocean trade, evolving into a sophisticated Swahili culture with strong Arabic influences. In the mid-19th century trade to the interior opened up the tribal lands of the Kikuyu, Luhya, Luo, Kalenjin and Kamba, which remain the five largest ethnic groups. Kenya was declared a British protectorate in 1895, and white settlement started in the early 1900s. A Legislative Council for settlers was formed in 1907, and the first election was held in 1919. Local native councils were introduced in 1925.

The first genuine African nationalist movement, the Kenya African Union (KAU), was established in 1944, with Jomo Kenyatta, a Kikuyu, as its president. In 1952 the Mau Mau, a largely Kikuyu secret society, launched a guerrilla campaign against white settlers in the fertile Central Highlands. In 1953, following the declaration of a state of emergency the previous year, Mr Kenyatta was imprisoned and all nationalist political activity prohibited. Of the many thousands who died during the Mau Mau rebellion, which lasted until 1956, fewer than 50 were white settlers.

In 1957 African members were elected to the Legislative Council (LC) on a restricted franchise. A constitutional conference was held in London in 1960, leading to a transitional constitution permitting political parties and giving Africans a comfortable majority on the LC. KANU was formed, dominated by the Kikuyu and Luo, although Mr Kenyatta remained in detention. Other politicians, wary of Kikuyu-Luo hegemony, formed the Kenya African Democratic Union (KADU). Mr Kenyatta was released in August 1961, led KANU to victory in the legislative election of May 1963 and was appointed prime minister. A formal declaration of independence followed in December 1963.

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Early years of Kenya became a republic in December 1964, and Mr Kenyatta its first independence president. The entire KADU membership had earlier defected to KANU, turning Kenya into a de facto one-party state. Mr Kenyatta was elected unopposed for a third presidential term in September 1974. He died in August 1978 at the age of 82. The presidency passed to Daniel arap Moi, a former teacher and member of the Kalenjin group of pastoral tribes from the Rift Valley region of central and northern Kenya. In 1982 a constitutional amendment officially made Kenya a one-party state. A coup attempt led by air force personnel, who seemed to have strong Luo backing, was foiled later that year.

Throughout the 1980s the government became increasingly intolerant of political dissent, and constitutional amendments substantially increased the powers of the president. The Kalenjin increasingly dominated top government and public-sector posts. In 1988 Mr Moi was re-elected for a third term, but widespread irregularities in voting for the legislature served to discredit the one-party system further.

Pressure towards Until 1990 opposition to the increasingly authoritarian government was multiparty democracy limited, partly as a consequence of relative economic prosperity. However, in February 1990 the murder of the foreign minister, Robert Ouko, in circumstances that implicated members of the political elite, acted as a trigger. Three months later an informal grouping of churchmen, lawyers and disgruntled politicians called for multiparty government. Members of the group were detained, leading in July 1990 to protests in Nairobi, which were violently suppressed by the security services. Following strong pressure from donors, including the suspension of aid, the government relented. In December 1991 parliament repealed Section 2a of the constitution, which had made Kenya a one-party state.

National Assembly seats

1992 election 1997 election 2001 KANU 112 113 117 Democratic Party 23 41 40 National Development Party –2222 Ford-Kenya 31 18 18 Social Democratic Party – 16 14 SAFINA – – 5 Ford-Asili 31 1 1 Ford-People – – 3 Others 3 11 2 Total 200 222 222 Source: Kenyan press reports.

The multiparty era Despite widespread initial support for the new opposition parties, political rivalry and internal division in the run-up to the 1992 elections destroyed their chances of defeating KANU. The government also made sure of winning by massive public spending and by encouraging division among the opposition through financial and political inducements. The widespread inter-tribal violence that erupted in the Rift Valley in 1992 was widely perceived as having

been provoked by KANU representatives to drive potential opposition voters out of marginal constituencies. The balance was further tipped in the government’s favour by near-monopoly coverage of KANU campaign by the state-run media, and by the electoral commission appointed by presidential decree. By these means, Mr Moi and KANU won the December elections reasonably easily. The opposition vote, although impressive, was hopelessly split.

The 1997 elections followed a similar pattern. A united opposition had won limited political and constitutional concessions from the government, only to fracture once again in the run-up to the December poll. On this occasion the result was much closer, but Mr Moi retained the presidency and KANU managed to cling to a slender overall majority in parliament. Once again, the government had used almost identical tactics to ensure victory: it offered limited constitutional changes that divided the opposition and forced the more radical groups to call for a boycott of the poll; it encouraged inter-ethnic violence both on the coast and in the Rift Valley, displacing tens of thousands of potential opposition voters and ensuring a KANU victory in those areas; it ensured that radio and television coverage was weighted in favour of KANU; and an electoral commission, appointed by presidential decree, proved to be very incompetent, which resulted in widespread accusations of ballot-rigging.

Important recent events

1991 Donors impose what amounts to a freeze on quick-disbursing aid. Section 2A of the constitution is repealed to pave the way for a multiparty democracy.

1992 Violent clashes occur in the run-up to the first multiparty elections in December. The poll is won by Daniel arap Moi and the Kenya African National Union (KANU).

1993 Donors lift their freeze on aid.

1995 The largest fraud trial in Kenyan history begins: the director of Goldenberg International, along with senior central bank officials, is accused of defrauding the government of over US$100m. The case remains unresolved.

1997 The president’s acceptance of legal and electoral reforms is endorsed by most leading opposition MPs. Multiparty elections are won by Mr Moi and KANU, but with a substantially reduced majority. The poll is marred by communal violence on the coast and in the Rift Valley both before and after voting.

1998 A terrorist bomb in Nairobi destroys the US embassy and surrounding buildings. Almost 250 people are killed and over 5,000 injured.

1999 A crisis in the banking sector follows the disclosure of massive non-performing loans in two of the largest state-owned banks—the Kenya Commercial Bank

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and the National Bank of Kenya—by the finance minister, Simeon Nyachae, who is moved to the less influential industry portfolio and subsequently resigns.

In a radical move which takes political observers completely by surprise, Mr Moi appoints Richard Leakey as head of the civil service and secretary to the cabinet. Dr Leakey’s mandate is to remove inefficient and corrupt officials, and to carry out a major reduction in the 500,000-strong public-sector workforce.

2000 At the end of July, the IMF announces a resumption of funds, following a three- year freeze. The new poverty reduction and growth facility agreed between the IMF and the government of Kenya has some of the most detailed performance targets ever set under an IMF lending programme. However, by the end of the year, Kenya’s aid programme with the IMF comes unstuck after the government fails to meet several of its commitments on governance and is seen to be backtracking on fundamental performance criteria.

2001 The departure in April of Richard Leakey, the head of the civil service, and four key members of his economic recovery team, including Micah Cheserem, the central bank governor, puts the civil service firmly in the hands of the ruling elite once more.

President Moi’s decision to appoint Raila Odinga and three other members of the National Development Party (NDP) to government on June 11th sets the stage for a coalition-type government for the first time in Kenya’s post- independence history.

Constitution, institutions and administration

The president has wide- Under the current constitution a president can serve only two five-year terms. ranging powers Therefore, unless the constitution is amended, this will be Mr Moi’s last term in office and a presidential election will be held not later than December 2002. The present constitution was drawn up at independence and draws heavily on English law, although it has been amended more than 30 times. Amendments require a two-thirds majority in the unicameral National Assembly which consists of 210 directly elected members, 12 nominated members, the speaker and the attorney-general. The constitution gives the president extensive power and is not adapted to multiparty politics, despite the repeal in December 1991 of Section 2a, which had formalised the one-party state.

The president can declare a state of emergency and security zones, under which rights of assembly and movement can be severely curtailed. Judges continue to be appointed by the president, and although they have security of tenure and should therefore be relatively immune to political pressure, there is evidence that the legal process is hamstrung by heavy-handed political interference.

The full cabinet meets infrequently, and government policy is directed almost exclusively through the office of the president, which has the largest

departmental budget and directly controls key areas of security and defence. Where ministers have shown independence of mind in the direction of government policy, they have invariably been removed from their posts. One example is that of the former finance minister, Simeon Nyachae, who resigned in February 1999 following a cabinet reshuffle that moved him to a less influential portfolio in the industry ministry.

Planned reforms are Following sustained pressure from the opposition and from international thrown into doubt donors, limited constitutional reforms that marginally reduced the president’s powers were enacted through the initiative of the Inter-Parties Parliamentary Group (IPPG) in the run-up to the 1997 elections. This was followed by the approval of the Constitutional Review Act in 1998 by the president. The act has set the agenda for a thorough review of the constitution, which will be completed in advance of the next elections. It has called for the formation of a 25-member commission to be set up to canvass views across a wide range of political, church and human rights groups throughout the country. The act has also called on parliament to approve the new constitution at least one year before the next elections.

Although the president initially said that there would be no limits to the scope of the reforms and promised to take no part in the process, he subsequently reneged on this and announced in early 1999 that the entire process was “a waste of time and money” and that the new constitution should be debated by parliament alone.

In a bid to break the deadlock, in December 1999 Mr Moi convened inter-party talks to agree on the way forward and a possible amendment of the flawed act. Unable to reconcile KANU’s view that the National Assembly should review the act, and the opinion of the rest of the stakeholders’ that the constitutional review should be “people-driven”, KANU moved rapidly to support a proposal by the leader of the National Development Party (NDP), Raila Odinga, to form a parliamentary select committee to examine the amendment of the act. KANU’s influence in the review of the act was strengthened by the fact that a number of opposition legislators, notably those from the Democratic Party (DP) and the Social Democratic Party (SDP), did not take their seats on the committee. The committee, led by Mr Odinga, has already completed its work and has presented its recommendations to parliament. Once again, President Moi triumphed over those demanding a more pluralistic and inclusive approach to constitution making.

The parallel constitutional Subsequently, Mr Odinga’s committee appointed Professor Yash Pal Ghai to review processes merge chair the Constitution of Kenya Review Commission. The appointment of Professor Yash Pal Ghai to head the Review Commission was unanimously welcomed by politicians and business. Professor Ghai is eminently qualified to hold such a position and to lead the country’s rather delicate constitutional review process. After his appointment as chairman of the Review Commission in November 2000, Professor Ghai made a daring initiative to merge the Commission with the parallel constitutional review process—the Ufungamano or People’s Commission of Kenya initiative, which is championed by religious and opposition groups and by the NDP. After two years of deadlock in the

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constitutional review process, Professor Ghai achieved a breakthrough on January 26th 2001. The parallel parties agreed in principle on a common constitutional review process, and to set up a joint drafting committee to draft amendments to the Constitutional Review Act, after which parliament would be convened to amend and entrench the act. Following this breakthrough, Professor Ghai was finally sworn in as chairman of the Constitution of Kenya Review Commission.

Agreement between the parliamentary select committee for constitutional review and the Ufungamano group, January 2001

• The Constitution of Kenya Review Commission will undertake a comprehensive review of the constitution.

• The new constitution will be ratified by majority vote in a referendum, and 25% of the vote in at least five provinces.

• Additional members will be appointed to the Review Commission up to a total membership of 27.

• The composition of the National Constitutional Conference will be reviewed to ensure fair representation and a manageable size of membership.

• The decisions of the Review Commission and the National Constitutional Conference shall be by consensus, failing which decisions shall be by the vote of two-thirds of members.

• A political environment supportive of the review will be guaranteed through the strict observance of the Public Order and Code of Conduct in the Presidential and National Assembly Elections Act.

• All parties agree to respect the independence of the Review Commission and its members.

• The Review Commission will ensure that all groups and individuals are given the opportunity to express their views through its civic education programmes, meetings and other activities.

• The Review Commission will facilitate civic education and encourage the use of a common curriculum and teaching materials, but organisations will be free to conduct their own programmes in accordance with the law.

• The Kenya Constitution Review Act will be amended to reflect the agreement between the Review Commission and the Ufungamano group.

• The amended Kenya Constitution Review Act will be entrenched in the constitution.

In May 2001 parliament passed the bill enabling the merger of the Review Commission and the Ufungamano group. The Review Commission is being hampered by controversy and accusations of impropriety. Although it still enjoys widespread credibility, a feeling persists that it will not be able to carry

out its work without interference from KANU and the NDP, both of which are perceived as interested parties. Furthermore, the failure—or inability—of the Kenyan government to provide sufficient funds for the Review Commission casts doubt over whether the review process will be completed in time for the next elections in 2002. The chairman of the commission, Professor Ghai, has expressed fears that the limited time available, together with the shortage of funds, may force the Review Commission to ask for more time beyond the statutory 24 months. In an opportunistic development, an NDP MP, Otieno Kajwang, has introduced a bill into the National Assembly extending the life of the current parliament for up to five years, under the pretext of allowing time for a comprehensive review of the constitution.

This move has been widely criticised by the opposition and publicly by Raila Odinga and President Moi. According to Section 26 (2) of the Constitution of Kenya Review Act, the Review Commission may request parliament to extend its mandate after 12 months from the time it was legally constituted (October 2000), if it considers that it cannot complete its work within the allotted two years. However, Professor Ghai has expressed confidence that, given a favourable environment and adequate resources, the Review Commission is capable of producing a new constitution within 15 months. KANU fears any new constitutional arrangements that might prevent it from controlling the succession to Mr Moi. Despite these difficulties, the actual review has started and the commissioners are in the process of collecting views from the public in different parts of the country.

Once in motion, the constitutional debate will have to reach conclusions on some fundamental and extremely controversial issues, among which are electoral reform, the nature of presidential power and the country’s regional administrative structures. Progress is expected to be slow, and it is clear that hardliners in the government will continue to block any constitutional reforms that could weaken their dominant position at the next election. Nevertheless, there is a tight deadline to have the constitution in place a full year before the national elections, which are due at the end of 2002, but unless KANU MPs, opposition politicians and the various interest groups represented on the Review Commission adopt a more consensual approach, the debate will flounder amid recriminations and acrimony.

Political forces

KANU strengthened by The results of the 1997 election gave KANU only a slim overall majority in merger parliament. However, a series of by-elections and defections has now put the ruling party in a more comfortable position, and it is under less pressure to form alliances with opposition parties in order to tip the balance further in its favour. The appointment of Raila Odinga and three of his National Development Party (NDP) colleagues to the cabinet in June 2001 radically transformed Kenya’s political landscape. Co-operation between KANU and the NDP, which seemed to be running into problems earlier in the year over the apparent unwillingness of the NDP to support a motion to extend President Moi’s presidency for a third term, first moved to a more advanced level of

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partnership, with the appointment of Mr Odinga to the influential portfolio of minister of energy and of Adhu Awiti to the post of minister for planning and national development. Two other NDP MPs, Peter Odoyo and Joshua Ojode, were appointed as assistant minister for foreign affairs and assistant minister for education, science and technology respectively. The combined strength of the two parties in parliament is now 140 seats out of a total of 222 seats (KANU has 118 seats; the NDP has 22 seats).

The merger between KANU and the NDP gained momentum during 2001 following a decision by KANU’s National Executive Council, chaired by Mr Moi, to create nine new posts within the structure of the ruling party. The positions are first national vice-chairman; assistant national vice-chairman; deputy secretary-general; deputy national treasurer; two deputy national organising secretaries; and a secretary each for economic affairs, legal and constitutional affairs, publicity and international relations. The expansion of the structure of the ruling party—and its merger with the NDP—was agreed at a joint meeting of KANU and NDP national delegates in late August 2001. It is clear that the next joint KANU-NDP national delegate meeting will both ratify and fill all the positions. With the exception of the post of national chairman, which is reserved for Mr Moi, the other positions will be hotly contested and divided between the two parties. It is expected that the coveted position of secretary-general will change hands from J J Kamotho to Uhuru Kenyatta (the son of the late President Kenyatta), and Raila Odinga is expected to get the position of first national chairman. These changes will also be accompanied by a major cabinet reshuffle in which the vice-president, George Saitoti, and Joseph Kamotho are expected to be the highest-ranking casualties. In contrast, Raila Odinga and the so-called KANU Young Turks—including Uhuru Kenyatta, Julius Sunkuli and Musalia Mudavadi—are likely to do well in the reshuffle and gain a strong foothold in the succession to Mr Moi.

Mr Moi will continue to Mr Moi also hinted that he might not leave the political scene in 2002, and work with KANU after 2002 dismissed as “day-dreamers” those who have written him out of the country’s politics when his present term ends. This probably indicates his desire to continue influencing political developments from within KANU, although the amount of power wielded by him behind the scenes could quickly become a contentious issue.

Key players

Daniel Arap Moi: Mr Moi is one of Africa’s longest-serving presidents (he has held office since 1978) and has been in active politics since 1952. A Kalenjin from the Tugen sub-tribe, Mr Moi is serving his last term in office under the current constitution, which was amended in 1992 to allow political pluralism. However, it is not certain that Mr Moi will relinquish power. The recent entry of the NDP into government has further complicated the succession to Mr Moi. Mr Moi could easily manipulate a constitutional reform to enable him to run in 2002, or even to extend the life of parliament under the pretext of completing the constitutional review process itself. Such a move would face stiff opposition from donors, opposition parties and civil society groups.

Simeon Nyachae: A former finance minister who resigned from the cabinet following his appointment to another ministerial portfolio. Mr Nyachae is an ethnic Kisii who impressed donors with his commitment to the economic reform programme. He enjoys considerable support in the private sector and among young professionals and donors, and is considered a strong contender for the presidency in 2002. However, he has not publicly stated which party he might stand for. Mr Nyachae is perhaps the most ardent critic of the current regime and would be an asset to any opposition party that he allied himself with. He is the only political leader proposing a transitional government of national unity in the post-Moi era. Political analysts believe that any small mistake by President Moi in naming his successor would benefit Mr Nyachae.

Wycliffe Musalia Mudavadi: A former finance minister, he currently holds the portfolio of information, transport and communications. He has significant support within the reforming wing of KANU, and is a strong contender for his party’s presidential nomination in 2002. He belongs to the Luhya tribe, the second largest ethnic group in Kenya; his nomination would significantly influence the outcome of the presidential election, since it would swing the Luhya vote to KANU.

George Saitoti: The current vice-president and minister for home affairs, Mr Saitoti is still the front-runner to succeed President Moi. He is an intelligent politician whose survival as vice-president is largely attributed to his ability to organise and mobilise the party’s grass-roots. It will be interesting to watch how he brings his skills to bear in the succession race. However, he is unlikely to be President Moi’s first choice. Brought up in a Maasai region but of Kikuyu parentage, he has been unsuccessful in improving the links between KANU and the Kikuyu. A Saitoti candidacy could see KANU lose considerable support— particularly in Western province—to the chairman of the Forum for the Restoration of Democracy (Ford-Kenya), Kijana Wamalwa, since most voters are staying with KANU in the hope that Mr Mudavadi will be named the successor.

Raila Odinga: A son of the late Jaramogi Oginga Odinga, the father of opposition politics in Kenya, Mr Odinga commands considerable (if not total) support amongst Luo voters (estimated at 750,000). He is currently chairman of the NDP and was appointed to the government in June 2001 as minister for energy, following a small cabinet reshuffle in which President Moi appointed three other members of the NDP into the cabinet—bringing a coalition government to Kenya for the first time since independence. Mr Odinga’s ambitions to lead Kenya will largely depend on the results of the constitutional reform exercise that he chairs, and partly on the kind of deal he brokers with KANU (he does not enjoy a national constituency that would enable him to win the presidency under the current constitution).

Mwai Kibaki: Following the resignation of Kenneth Matiba from active politics, Mr Kibaki’s Democratic Party (DP) has emerged as the dominant party of the Kikuyu—the most populous and prosperous tribe in Kenya. The DP is currently the largest and official opposition party, and has 40 seats in parliament. An economist by training, Mr Kibaki is a former vice-president and minister for finance. Despite Mr Kibaki’s popularity among the Kikuyu, he is

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unlikely to get much support from the smaller ethnic groups, which fear marginalisation under a Kikuyu presidency.

James Orengo: A maverick opposition MP (Ford-Kenya). A Luo who has repeatedly challenged KANU in parliament and called for demonstrations against unjust policies. He has recently formed the Movement for Change (Muungano wa Magenzi).

KANU rebels are suspended On December 27th 2000 KANU’s governing council endorsed the suspension of six rebel MPs—including the influential former finance minister, Simeon Nyachae (who has indicated that he will run for the presidency in 2002), Kipkalya Kones, Kipruto arap Kirwa, Cyrus Jirongo and Jimmy Angwenyi. The suspensions came as little surprise, following a series of embarrassing parliamentary defeats during 2000, in which some KANU MPs voted with the opposition against the government. Although it is not known which party these MPs will now join, it is quite clear that they will not be standing for KANU at the next general election.

Key members of recovery In a radical move which took political observers completely by surprise, team dropped President Moi announced in August 1999 the appointment of Richard Leakey as head of the civil service and secretary to the cabinet. Despite his strong personal antipathy towards Dr Leakey, Mr Moi made the appointment owing to pressure from donors to take action against the government’s endemic inefficiency and corruption and steer the country towards economic recovery. Dr Leakey’s new team came to be called the “dream team” or the “economic recovery” team, and his mandate included the removal of inefficient and corrupt officials and the reduction of the 500,000-strong public-sector workforce. However, the team lacked the political backing to prevail over the many powerful vested interests who felt threatened by public-sector reforms and the disciplinary measures implemented by the team.

The dropping of the “dream team” came as little surprise. In the months before their departure, some politicians including the finance minister led a campaign to question their performance in the face of declining economic growth. Dr Leakey, in particular, suffered a serious setback when parliament halted the sacking of 25,783 civil servants and his sacking of a senior parastatal chief was ignored. Although the dream team’s performance had waned towards the end of 2000, it has been credited with reducing recurrent spending in the budget by half to KSh65bn (US$833m) during the first two months of 2000. The team has also been credited for the resumption of donor support at the end of July 2000 and for making considerable progress towards changing the culture of inefficiency within government ministries. The low economic growth seen during the group’s tenure can be attributed to drought and the power rationing crisis of 2000 (see Energy provision).

Dr Kosgei takes over as Dr Sally Kosgei—a confidante of Mr Moi and former permanent secretary at the head of the civil service Ministry of Foreign Affairs—has replaced Dr Leakey as head of the civil service and secretary to the cabinet, and Esther Koimett, Nicholas Biwott’s daughter and previously the deputy investment secretary, is the new investment secretary. Although Dr Kosgei’s new economic team have reconfirmed their

commitment to public-sector reforms and prudent economic policies, any progress is expected to be slow.

Micah Cheserem is replaced On April 4th Micah Cheserem was relieved of his duties as governor of the at the Central Bank Central Bank of Kenya and replaced by the former chief executive of the Retirements Benefit Authority, Nahashon Ngige Nyagah. Mr Nyagah, a career central banker and the son of a former minister, Jeremiah Nyagah, (also brother to the lands and settlement minister, Joseph Nyagah, and the opposition MP, Norman Nyagah) inherits a number of key problems, in particular how to deal with the weak financial institutions currently suffering from non-performing loans. Non-performing loans were estimated at KSh116.8bn, or 39.2% of gross loans advanced by financial institutions, at the end of December 2000. The formulation of a balanced budget and helping the government to restore relations with the IMF and the World Bank are also areas that will test the abilities of the new governor.

When Mr Cheserem took over from Eric Kotut as Kenya’s fifth Central Bank governor in 1993, the bank had virtually collapsed in the wake of the Goldenberg scandal. Mr Cheserem is credited with restoring discipline and repairing the reputation of the Central Bank, which had declined badly under Mr Kotut. Mr Cheserem also presided over historic changes in monetary policy, particularly the repeal of the Exchange Control Act, which floated the Kenya shilling and allowed the repatriation of dividends by foreigners. He also helped to bring inflation down to single digits: the hallmark of his economic policy.

A setback in the fight The fight against corruption in Kenya through the Kenya Anti-Corruption against corruption Authority (KACA) suffered a further setback on 27th December 2000, following a high court ruling that KACA was a constitutionally illegal body. The attorney- general, Amos Wako, stated that the government would respect the court’s ruling, but promised to intensify the fight against corruption. The attorney- general’s office took immediate steps towards restoring and entrenching KACA in the constitution with the help of legal draftsmen hired to modify the Anti- Corruption and Economic Crimes Bill, whose contracts were underwritten by the IMF and World Bank.

The government failed to obtain the 145 votes required to pass the Anti- Corruption and Economic Crimes Bill, in spite of days of intensive debate in parliament. The bill failed to win the mandatory two-thirds majority in parliament in the first week of August, prompting the speaker of the National Assembly to call for a second vote, which took place on 14th August. The second vote, for which President Moi turned up personally in parliament as an MP, also failed to win the necessary majority. This means that the bill will be temporarily thrown out of parliament and cannot be reintroduced for at least six months. The bill, which seeks to strengthen and entrench the now suspended KACA in the constitution, is a prerequisite for the resumption of Kenya’s programme with the IMF and World Bank. Rebel MPs within KANU and the NDP joined the opposition to vote against the bill, and it would seem that as long as the controversial amnesty clause remains in the bill the government will have difficulty in winning support for it. Subsequently,

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President Moi set up an anti-corruption unit within the police force which can be viewed as a rebuke to those who opposed the bill.

The proposed amnesty in the bill is for those who committed economic crimes before December 1st 1997—barring those already being investigated or prosecuted. This provision is widely perceived by many in parliament as a measure to protect certain corrupt individuals in the government from being prosecuted under the act. Although this may be the case, the IMF does not have an opinion on the matter; the Fund has made it clear that it considers the amnesty question to be a purely domestic issue although it thinks the government should encourage debate about it. Under the proposed bill, if any case being investigated or under prosecution were abandoned for whatever reason, the new KACA would not be able to reopen it.

Kenya’s corruption rating According to the 2001 Corruption Perceptions Index published by the Berlin- remains high based organisation Transparency International in June, Kenya is still perceived as one of the most corrupt places to do business in the world. In a survey of 91 countries Kenya is ranked 84th. Despite pressure from donors to combat corruption, the situation is not expected to change radically in the short to medium term.

Corruption perceptions index 2000 2001 Scorea Scorea % change Rankingb Botswana 6.0 6.0 0.0 26 Namibia 5.4 5.4 0.0 30 South Africa 5.0 4.8 –4.0 38 Mauritius 4.7 4.5 –4.3 40 Ghana 3.5 3.4 –2.9 59 Malawi 4.1 3.2 –22.0 61 Senegal 3.5 2.9 –17.1 65 Zimbabwe 3.0 2.9 –3.3 65 Zambia 3.4 2.6 –23.5 75 Côte d'Ivoire 2.7 2.4 –11.1 77 Tanzania 2.5 2.2 –12.0 82 Kenya 2.1 2.0 –4.8 84 Cameroon 2.0 2.0 0.0 84 Uganda 2.3 1.9 –17.4 88 Nigeria 1.2 1.0 –16.7 90

a Where 1=most corrupt and 10=most transparent. b In 2001; out of 91 countries.

Source: Transparency International.

International relations and defence

The EAC is relaunched after The East African Community, which broke up in 1977 mainly because of 23 years personal and ideological differences between the heads of state of its members—Kenya, Uganda and Tanzania—has received a new lease of life. A

new treaty between the three countries was signed on November 30th 1999, establishing the East African Co-operation (EAC). Subsequently, the presidents of Kenya, Tanzania and Uganda—Daniel arap Moi, Benjamin Mkapa and Yoweri Museveni—officially launched the new East African Community (EAC) on January 15th 2001. The ceremony was attended by Burundi’s president, Pierre Buyoya, and Rwanda’s president, Paul Kagame, whose countries have also expressed an interest in joining the EAC. The EAC will replace the Tripartite Commission for Co-operation, which was set up in 1994, in an attempt to achieve greater regional integration, following the collapse of the original EAC in 1977.

Progress in promoting However, progress will not be smooth. The most pressing problem at the trade will be slow moment is that Article 75(7) of the East African Community Treaty stipulates that within four years the three member countries should establish a customs union, with a uniform external tariff and zero tariff rates between members. The four year deadline is unrealistic, since there are still numerous issues to be negotiated. One such issue is the perception held by Uganda and Tanzania that Kenya’s more competitive economy, especially in manufacturing, will swamp their markets with export goods and drive their own manufacturers out of business. In their view, for the EAC to be sustainable, Tanzania and Uganda must raise the competitiveness of their domestic industries. Although existing trade patterns are certainly in Kenya’s favour—it current provides more than 40% of the manufactured goods imported by Uganda and Tanzania—and in the short run Kenya is likely to gain most from a free-trade agreement, there are many benefits that could accrue to the smaller states. These include access to the larger market for their own industries, the development of intra-country infrastructure and the general improvement in the attractiveness of the region to foreign investors.

Another problem facing the nascent EAC is that all three states are also members of overlapping and potentially conflicting trade blocs. At present Tanzania seems more committed to pushing ahead with closer economic co- operation with the Southern African Development Community (SADC), which could make it less interested in ensuring the success of the EAC––SADC has formally announced its own plans for lowering tariffs over a 10-year period, starting on September 1st 2000. Whereas Tanzania has now withdrawn from the Common Market for Eastern and Southern Africa (Comesa), Kenya is a founder member of the new Comesa free-trade area which was launched on November 1st 2000, and does not seem to be interested in seeking links with the SADC. Uganda, on the other hand, was not a signatory to the recent Comesa agreement, although it is a member of the organisation, but is apparently keen to join the SADC. Not only will such competing priorities affect where the three countries concentrate their limited resources in what are often complex negotiations, on a more practical level, such membership of separate trade blocs makes the harmonisation of the three countries’ customs tariffs, especially with regard to external trading partners, even more complex.

Progress on a number of However, there are signs that some progress is being made. First, the EAC fronts secretariat in Arusha will now be guided more actively following the

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inauguration of an East African Council of Ministers, which held its first meeting prior to the official inauguration ceremony. The ministers will now meet at least once every quarter to review progress. In addition, it has been announced that a regional parliament comprising nine representatives from each country will be launched on August 1st 2001, which should give impetus to the negotiations in the next few years. The three East African countries are also in the process of establishing the East African Court of Justice. As if to illustrate this new spirit of co-operation, subsequent to the official launch of the court the Kenyan minister of trade, Nicholas Biwott, accompanied by his counterparts, the Ugandan Gilbert Bukenya, and the Tanzanian Iddi Simba, announced that a raft of complaints and outstanding trade issues had been resolved after two days of consultation in early February held to discuss tariff and non-tariff barriers to trade. The meeting also resolved to curb dumping. The ministers agreed that transshipment is a major problem in the region. After a closed meeting, they announced that the secretariat would arrange further consultations and report to the Council of Ministers in March.

Regional security co- Political and military tensions between the three economic powers of East operation Africa have long been strained by personal animosity between their leaders. Mr Moi and Mr Museveni have been particularly mistrustful of each other’s style, and Tanzania’s disastrous brush with African socialism was a world apart from Kenya’s pro-Western economic policies. However, these animosities are mainly a thing of the past. In 1998, as a demonstration of the new spirit of co- operation, 1,500 soldiers from Kenya, Uganda and Tanzania took part in a joint training exercise in the desert terrain of northern Kenya. The one-month exercise, code-named Natural Fire, was undertaken with the assistance of the US army.

Regular military forces, mid-2000 Army 20,000 Navy 1,400 Air force 3,000 Total 24,400 Source: International Institute for Strategic Studies, The Military Balance, 2000/01.

Apart from the attempted coup by the air force in 1982, Kenya’s armed forces have not sought to dictate to politicians. In addition to the regular armed forces, the government can call upon the 5,000-strong General Service Unit, and it frequently does so to control demonstrations and political rallies. General Daudi Tonje, from the same small Tugen subgroup of the Kalenjin as Mr Moi, was appointed Chief of the General Staff in November 1996.

Security risk in Kenya

The recent terrorist attacks in New York and Washington will inevitably lead companies to reassess the risk of operations throughout the world. North African states including Algeria and Libya will be scrutinised particularly carefully, but a number of Sub-Saharan countries are also likely to be re- evaluated.

Kenya is likely to be high on the list—but probably for the wrong reasons. In 1998 Nairobi was the site of one of the most serious attacks on American interests outside the US itself, when almost 250 people (most of them Kenyans) were killed in a car bomb attack on the US embassy. Given that at least two of those suspected of organising the Kenyan bombing have yet to be apprehended—and in the light of reports that Osama Bin Laden, who allegedly directed both the Kenyan and US attacks, has visited both Kenya and neighbouring Somalia—there is bound to be concern that foreign interests in Kenya will be vulnerable to further terrorist attacks.

Although there were a number of hoax bomb threats in the wake of the US attacks, such concern is probably misplaced. Clearly there is a risk that with the inevitable tightening of security in North American and European sites, business interests in the developing world will be perceived as soft targets. The harsh truth, however, is that an attack on a foreign-owned business in Africa does not have the shock—or publicity—value of an assault on developed-world sites. Nor is Kenya particularly likely to experience a violent Islamist-led reaction to any US-led military action, although the country has a substantial Muslim minority, chiefly based around Mombasa. There has already been a noticeable increase in tension in the Mombasa area, in part because of the government’s decision to tighten security controls on Kenyans of Asian and Arab descent. The government attempted to introduce such restrictions in mid- 2001, but was forced to rethink following demonstrations by thousands of Muslims (who account for just over 5% of the population). Attacks on a number of churches in the north-east of the country have been blamed on Islamic extremists; however, there is nothing to suggest that foreign-owned interests will be targeted in any unrest.

“Worse than Bogotá”

However, operating in Kenya is not risk-free. In January, the UN downgraded its security condition rating for Nairobi from “B” to “C”, giving the Kenyan capital a worse overall security rating than either Bogotá or Jerusalem. The reasons behind the rating—which assesses security conditions and the quality of life for the UN's own personnel—are clear enough. Crime is a serious and growing problem, particularly in Nairobi. According to the Nairobi Central Business Association, the proliferation of homeless families in the capital has led to a rise in street crime. Although much of this crime is opportunistic and low-level, there is also a substantial risk of more serious attacks, including daytime car-jackings at traffic lights in central city areas—in early 2001, employees of the Eastern Africa Management Institute were car-jacked and forced to withdraw money from an ATM before being released—group raids on houses and, on occasion, direct armed attacks on businesspeople at their workplaces. Recent examples include raids on businesses in which raiders armed with both handguns and semi-automatic rifles held staff members hostage and stole upwards of KSh4m. The authorities have sought to tackle the upsurge of armed crime, launching a major security crackdown in Nairobi, for example, but without notable success so far; the rate of violent crime and burglaries remains among the worst in the continent, and there is evidence of police involvement in such crime. Worryingly, there is also evidence that

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Kenya is being used as a base by foreign criminal gangs. In particular, a number of US businessmen have been held hostage after falling for advance-fee frauds. With warnings about “419” fraud now widespread, it would seem that Nigerian conmen are moving further afield to target the credulous.

Unhealthy environment

In most instances, foreign businesspeople would have to be unlucky—or foolish—to be affected by serious crime, but there is little doubt that the overall political and security environment in Kenya is set to deteriorate further. There are a number of elements to this.

Corruption: Kenya is one of the world's most corrupt states. In its 2001 survey of corruption perceptions, the German-based, anti-corruption organisation Transparency International ranked it joint 84th of 91 countries covered—on a par with Bolivia and Azerbaijan, and above only Indonesia, Uganda, Nigeria and Bangladesh. This impacts business directly, through demands for bribes, and indirectly, since it contributes to the widening of the gap between rich and poor, and thus to crime and social breakdown.

Pre-election tension: In theory, Mr Moi is not eligible to stand again as president in 2002, but there is speculation that he does not intend to relinquish power. Since the opposition remains weak and unable to pose a serious threat to the ruling party, there is a clear risk of street violence should Mr Moi try to stand again. Foreign businesses will not be targeted directly, but both staff and premises may come under threat.

Ethnic violence: Before both the 1992 and 1997 elections there was an upsurge in inter-tribal violence. This is widely perceived to have been provoked by KANU representatives to drive potential opposition voters out of marginal constituencies, but there are genuine ethnic tensions too—in September, for example, clashes between the Wardey and Pokomo communities in the east of the country resulted in a number of deaths. Further clashes are almost inevitable, and tension will increase as the elections, which must be held by end-2002, approach. Again there will be no direct threat to foreign interests, but incidental damage is possible.

Perhaps the greatest threat to foreign businesspeople comes from a crucial business tool: the car. Kenya has the highest rates of road accidents in the world, with 510 fatal accidents per 100,000 vehicles. Second-ranked South Africa has 260 fatal accidents per 100,000 vehicles; the figure for the UK is just 20. In comparison, the terrorist threat is practically non-existent.

Resources and infrastructure

Population

Population growth During the 1970s and 1980s Kenya had one of the fastest-growing populations below 2.5% in the world. The 1979 census revealed an astonishing annual growth rate of 4.1%. Ten years later the census determined that the rate had slowed to a still

rapid 3.3%. However, since the beginning of the 1990s the population growth rate has continued to fall, partly as a result of a successful family planning awareness campaign.

The provisional population The provisional results of the 1999 population census were released on census is released February 29th 2000, putting the Kenyan population at 28.7m. However, if the previous census is a guide, these results probably underestimate the population by around 5%––in the case of the 1989 census, the original figure of 21.4m was subsequently revised to 23m. Taking a reasonable underestimate of 5.6%, the 1999 figure would be 30.5m. This is close to earlier population forecasts which took into account the impact of AIDS; the spread of the disease was declared a national disaster by the president, Daniel arap Moi, in late 1999, and is expected to have claimed up to 8m people by 2002. The rapid decrease in fertility, as shown in the 1998 demographic and health survey, also ties in with the expected result for 1999.

Population indicators, 2000

Population (mid-year; m) 31.2 Population growth rate (%) 2.3 Fertility rate (children per woman) 4.7 Life expectancy (years) 52.0 Urbanisation (%; 1995) 32.0 Projected population in 2025a (m) 50.2

a EIU estimate.

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

Disaggregated data is unavailable, so only broad conclusions can be drawn from the provisional data from the census. Probably the most important of these are as follows:

• the refugee influx into the north-eastern districts and North Rift is larger than expected;

• the growth of Nairobi was much less than expected, but this depends heavily on which of the surrounding suburbs are included in the data;

• decreasing fertility in Central Province—which was observed and commented on in the 1989 census—has continued, with a population growth rate of only 1.7%, compared with a national average of 2.9%; and

• there is a probable asymmetric underestimation of males because it is difficult to justify the observed differences of gender parity of 2.46%.

In the 1970s there was substantial Asian emigration from Kenya, mainly to the UK, but that population has now stabilised. The 1989 census showed an Asian population of 89,000 (down from 139,000 in 1969). The community has a disproportionate economic influence, having a marked presence in finance, retail trade, light manufacturing and distribution. A small minority of prominent Asian businessmen work closely with members of the Kenya African National Union (KANU) elite.

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Income inequality, 1989-97

Population below income poverty line (50% of median income; % of total) 52.3 Source: Welfare monitoring survey, 1996.

Wide regional and income Kenya’s population is heavily concentrated in its central and western regions. disparities These contain the fertile agricultural areas of the Central Highlands and the productive sugar- and tea-producing regions to the west. The semi-arid and desert regions of the north-east, with their nomadic pastoral communities, occupy 22% of the land area but contain just 1.7% of the population. Kenyan society is also characterised by wide income disparities. In 1994 the poorest 20% of the rural population received only 3.5% of rural income. In urban areas the situation was marginally better, the poorest 20% controlling 5.4% of the income. The richest 20% controlled 61% of rural and 51% of urban income. The data also indicate that these disparities widened in both urban and rural areas between 1982 and 1994. (For further data on population and employment, see Reference tables 1 and 2.)

Distribution of population, 2000

Province ‘000 % of total Rift Valley 6,991 24.4 Eastern 4,643 16.2 Nyanza 4,397 15.3 Central 3,705 12.9 Western 3,354 11.6 Coast 2,491 8.7 Nairobi 2,137 7.5 North-eastern 961 3.4 Total 28,679 100.0

a Provisional estimates.

Source: Ministry of Planning and National Development, population census report.

Education

Falling standards despite Despite the high levels of government spending on education (8% of GDP), high expenditure levels most indicators show a declining trend in educational standards in recent years. In particular, falling rates of enrolment and completion in both primary and secondary education are moving the country further away from its goal of equal access to basic education for all. Both primary and secondary school enrolment declined from 5,919,600 and 700,509 in 1998 to 5,867,800 and 638,509 in 1999, respectively. This downturn in school enrolment, the first since independence, is mainly attributed to a combination of factors including increasing poverty and the introduction of user-charges (cost-sharing)—both of which are limiting access to education by poor families; a substantial number of AIDS-related drop-outs; and overall economic downturn. Less than half of those who enrol complete their primary education. One main reason for poor school attendance is the large proportion of parents who are unable to pay

compulsory school fees. Because of the large size of families in Kenya, often only the eldest one or two children (probably the boys) are sent to school. The rest remain at home as productive members of the family.

Although government spending on education remains high (education accounts for 23.2.% of total public expenditure), the system experiences great inefficiencies and ineffectiveness. Gross enrolment ratios at primary and secondary school levels stand at only 88% and 23.2% respectively, significantly lower than in 1990. There are wide regional and gender disparities. The net enrolment ratio, which is the single most important indicator of progress towards the goal of universal public education, is estimated to be about 55- 60% at primary school level. Many children who enrol in primary school in Kenya, particularly girls, do not stay long enough to complete primary school, nor do they proceed to further education. Completion at primary level has remained at 47% for the past ten years.

Key education facts

Primary school completion rate: 44%—well below national (70%) and UN (80%) targets.

National literacy rate: 75% in 1994 against a UN global target of 85% (83% for men, compared with only 67% for women).

Large regional disparities in basic education: Enrolment rate in North-eastern province only 20%, compared with 90% in Western and Central provinces.

Average performance: In most subjects at Certificate of Primary Education level, this declined from 1991 to 1994. Poorest performance was in mathematics, science and agriculture subjects, with average scores below 50% since 1990.

Post-secondary education: Over 200 non-university or middle-level colleges offer vocational training courses; no increase in enrolment between 1992 and 1996.

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

Health

Paying for health and The government currently spends around 2% of GDP on health care. The providing primary care private sector, through insurance and direct household payments, accounts for a similar amount. In 1989 the Ministry of Health introduced a cost-sharing programme, which established the payment of fees at hospitals and health centres and currently raises around 7% of all non-personnel expenditure in the sector. In 1998 the health service employed 51,000 medically trained personnel, of whom 4,300 were doctors.

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

• skewed expenditure in favour of: salaries and wages—leaving only 30% of recurrent spending for operations and the repair and maintenance of hospital machines and equipment; and curative care—only 30% of the Ministry of Health’s spending is directed towards preventive measures;

• the poor performance of the National Health Insurance Fund. This institution provides limited coverage (25% of the population), and remains unaccountable to its members and even less responsive to their needs. Its payment mechanisms create incentives for the expansion of private bed capacity but not quality improvements.

In the prevailing circumstances, poverty concerns in health are real, especially considering that about half the population are living in poverty, 40% of the rural population have no access to health services, and one-quarter of households are located more than 8 km from any form of health facility. Moreover, the introduction of user fees in public facilities, although well- intentioned, has adversely affected the attempts of vulnerable groups to gain access to appropriate health care.

HIV infection (% of population) 1996 1997 1998 1999 2000 Urban 16.3 16.9 18.1 17.8 17.5 Rural 11.0 11.9 13.0 13.0 13.0 Total 11.9 12.8 13.9 13.5 13.5 Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

The growing threat The rapid spread of the HIV/AIDS pandemic poses grave health problems and from AIDS has negative macroeconomic consequences such as reduced savings, reduced labour productivity, and the loss of experienced workers. There are currently estimated to be more than 1.5m people with HIV/AIDS in Kenya (5% of the total population). The continued rise in HIV infection will put an already stretched healthcare system under severe strain. In 1996 AIDS patients occupied nearly 50% of all hospital beds. The high cost of AIDS care and the loss of earnings for patients’ families reduces their access to basic needs such as healthcare and education. The government faces major policy decisions in balancing care for AIDS patients against other health needs.

Kenya embarks on an AIDS strategy

According to the United Nations more than 21m people have already died of AIDS since it was identified two decades ago, while 36.1m are infected with HIV. Sub-Saharan Africa remains the main home of the epidemic, with 25.3m HIV patients; in Kenya at least 2.1m people are infected. In Uganda at least 820,000 people carry the HIV virus; in Tanzania over 1.3m people carry it.

According to the International Labour Organisation, the loss of workers to the AIDS epidemic in Africa, and its subsequent impact on the continent’s fragile economies, will probably be far worse than predicted even six months ago.

Five Southern African countries, for instance, will lose between one-quarter and one-third of their workers by 2020: Botswana is forecast to lose 30.8%, Mozambique 24.9%, Namibia 35.1%, South Africa 24.9% and Zimbabwe 29.4%. East Africa fares only marginally better. In the same period, it is projected that Kenya will lose 20.2% of its workforce, Uganda 15.8% and Tanzania 14.6%.

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

Constituencies are to be the main organisational focus. Committees of at least 15 members, equally balanced between men and women, have the task of drawing up programmes and overseeing spending. However, the NACC is concerned that MPs have positioned themselves as chairmen of these constituency committees and suspects that their supporters will pack the committees. This has heightened fears over the misuse of funds allocated to the national AIDS programme. Prompted by public concern over the issue, President Moi has called on MPs to stay away from the committees and stated that “it is unforgivable to drool over funds meant to help the afflicted and dying victims of AIDS”. However, it is not clear what impact his intervention will have.

The chairman of the Microsoft Corporation, Bill Gates, has pledged US$100m to an AIDS vaccine project being carried out in Kenya. The vaccine, which has been tested since August in Oxford, England, was developed after it was found that a group of prostitutes in Nairobi never contracted HIV, despite repeated exposure to infection. It is one of around 25 vaccines being tested on humans around the world, but is the first to target the “A” strain of the HIV virus prevalent in Sub-Saharan Africa. It is likely that a vaccine of at least limited efficacy will be ready within a decade; it could take as little as four or five years.

Natural resources and the environment

Over the past two decades Kenya has experienced accelerating deforestation, soil erosion, depletion of mineral resources, and domestic and industrial pollution. In the past five years the output of the fishing, forestry and mining industries has declined significantly. These factors have prompted the government to announce that sustainable policies towards the country’s natural resources are a priority.

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

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

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

Transport, communications and the Internet

Poor state of roads The extremely poor condition of the country’s roads is a major concern. A chronic lack of investment and widespread corruption have led to the current situation. A report by the controller and auditor-general issued in late 1999, carried out at the insistence of road project donors, confirmed the existence of false contracts authorised by the Ministry of Public Works. The audit examined the 1997/98 fiscal year (July-June) and noted that expenditure on road contracts, at KSh3.8bn (US$100m), was higher than revenue of KSh3.4bn. The report found cases of embezzlement, which it attributed to the inadequate supervision or improper execution of projects. It also listed work not carried out and contracts awarded without being put out to tender; one company was given a contract worth KSh100m without any document to verify that the work had been carried out. However, total government expenditure on roads is estimated to rise significantly from KSh6.8bn in 1999/2000 to KSh13.1bn in 2000/01, reflecting the importance given to improvement of the road network through regular maintenance and repair. Also, the Roads 2000 Programme has been established to address the chronic problems with roads in various parts of the country. The programme is estimated to cost KSh4bn and is currently being implemented in 29 districts; an additional 44 districts will be incorporated into the programme from 2001 to 2006. These additional programmes will be funded by the World Bank, USAID, the African Development Bank (ADB) and the German Bank for International Development Aid. (For data on transport and communications, see Reference table 3.)

Delays at Mombasa port Kenya’s main port, at Mombasa, has a history of overstaffing and poor compound the problem productivity. A chronic lack of investment and widespread corruption have been at the centre of the port’s failings. In 1996 the senior management of the Kenya Port Authority (KPA) was suspended. A new manager brought in to clear up the mess resigned after little more than a year, unable to overcome the obstacles placed in the path of necessary changes, and a private British company managing the container terminal pulled out mid-way through its contract, blaming major failings within the KPA. The government is now committed to privatisation of the container terminal and to allowing commercial operators to run individual berths as a means of revitalising activity at the port.

Bids for Telkom Kenya are In early December 2000 President Moi stated that the 49% stake in Telkom below expectations Kenya would not be sold unless foreign investors made what the government deemed to be reasonable bids. Up to that point, the bids had not reached the government’s target figure of US$500m. However, the international merchant bankers, Salomon, Smith and Barney have valued a 49% stake in Telkom Kenya at between US$220m and US$270m. This figure is based on standard international conventions for valuing telephone companies—the market capitalisation of the company is divided by the number of telephone lines— rather than the government’s belief about how much the company is worth. Offering US$240m for the 49% stake, the South Africa-based Mount Kenya Consortium was the highest bidder valuing Telkom Kenya at US$1,633 per line, which compares well with international norms. In its business plan Mount Kenya Consortium indicated that it would double the number of telephone lines in the network in 24 months, investing KSh8bn (US$100m) in the company over the initial 12-month period supported by KPN, the privatised Dutch telecoms company, which is Mount Kenya’s operating partner.

The cabinet finally approved the sale of 49% of Telkom Kenya to Mount Kenya Consortium on 23rd January 2001. As well as accepting the lower than hoped for price, which was believed to be around US$305m, the government made a number of important concessions. These included the following:

• a new, internationally recruited managing director is to be found for Telkom Kenya, although the government will make most of the appointments to the board;

• the strategic equity partner will control the company’s management; • a shareholders’ agreement specifying the rights and obligations of both the Kenyan government and the strategic investor is to be produced.

Protracted negotiations on In mid-July 2001 the Kenyan government rejected the offer by the Egyptian Telkom Kenya continue company, Orascom Telecom Holdings, to purchase a 49% shareholding in Telkom Kenya. Orascom has cellphone interests in 19 African and Middle Eastern countries. The deal reportedly fell through after Orascom was unable to raise a bank guarantee to cover its bid of US$350m. The failure of the Orascom bid now means that Mount Kenya Consortium is likely to acquire the 49% stake, after it increased its initial bid of US$350m by US$10m. Telkom Kenya has a five-year monopoly on fixed-line telephone services in Nairobi and owns a 60% stake of the cellphone operator Safaricom.

If accepted by the government, the new bid by Mount Kenya Consortium will be 10% less than the KSh27.3bn that the Treasury had hoped to raise in the sale of the parastatal. The investment bankers, Rothschild, valued Telkom Kenya at US$800m in 1999, when international investors still had considerable enthusiasm for technology and telecommunications, whereas the proposed new bid now values Telkom Kenya at US$630m. The additional US$10m demanded by the government seems reasonable given the growth of Safaricom’s cellular subscriber base in the last year and the strides made by the firm in capturing the short text messaging market.

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There is a relatively free Through the 1980s and early 1990s the press received heavy-handed treatment local press from the authorities. Journalists prepared to air opposition views were dealt with ruthlessly, frequently being thrown into jail for their efforts. With the advent of multiparty democracy and more open, adversarial politics, there has been a dramatic expansion of newspapers and magazines of widely varying quality, many of them closely allied to opposition political groupings. Apart from one failed effort by the government in 1998 to ban a group of opposition newspapers it referred to as the “gutter press”, there has been a substantial relaxation in its attitude towards the media in general. Two of the independent national dailies, the Daily Nation and the Standard, maintain a consistently high quality of reporting, as does a highly respected weekly, The East African, published in Nairobi, Dar es Salaam and Kampala. The Nation Group has been awarded a broadcasting licence, and if it ever gets past the legal obstacles being placed in its path, its television station will join two other terrestrial channels, one state-owned (KBC), the other independent (KTN).

However, the diversity of independent English-language media available in the major urban centres disguises the dominant influence of the strongly pro- government KBC radio and television among the vast majority of the Swahili- speaking population. Although there are no reliable figures for viewing or listening audiences, it is clear that these provide a major source of news information for most ordinary people in the country. The heavy pro- government bias of KBC during the 1997 elections was strongly criticised by election monitors. Subsequently a number of private radio stations mainly broadcasting in local languages, including Kameme FM (Kikuyu), Metro East FM (Hindu) and FM (Kalenjin), have been established.

Energy provision

Wood fuel provides over 70% of Kenya’s total domestic energy demands, and provides over 90% of rural household energy. Hydroelectric and geothermal stations provide around 27% of the country’s remaining energy requirement.

Kenya has no exploited oil, gas or coal reserves, although the Mombasa-based Kenya Petroleum Refineries operates the country’s sole oil refinery and provides 60% of Kenya’s petroleum products. The rest is imported as refined fuels. In 1997 Tornado Resources of Canada signed two agreements for oil and gas exploration, one onshore near the border with Ethiopia and one offshore near Tanzania.

The Kenya Power and Lighting Corporation (KPLC) is following an ambitious expansion programme. Two new diesel power stations are to be built in Nakuru and Eldoret with a combined capacity of 110 mw. These plants are part of an US$800m energy sector reform programme funded by the World Bank and other donors. The expansion programme also includes two diesel plants in Mombasa and two geothermal stations near Naivasha. Kenya continues to suffer from power rationing as a result of production problems at its existing plants. (For data on national energy estimates, see Reference table 4.)

Energy balance, 2000 (m tonnes oil equivalent) Elec- Oil Gas Coal tricity Other Total Primary supply Production 0.00 0.00 0.00 0.60a 11.0 11.60 Imports 3.40 0.00 0.04 0.05a 0.00 3.49 Exports –0.60 0.00 0.00 0.00 0.00 –0.60 Stock change 0.00 0.00 0.00 0.00 0.00 0.00 Total 2.80 0.00 0.04 0.65a 11.0 14.49 Processing & transformation Losses & transfers –0.75 0.00 0.00 –0.73 –3.10 –4.58 Net transformationb 0.00 0.00 0.00 0.38c 0.00 0.38 Final consumption 2.05 0.00 0.04 0.30c 7.90 10.29

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

Source: Energy Data Associates.

The energy situation On 26th January 2001 the then energy minister, Francis Masakhalia, improves dramatically announced that power rationing, which had been in operation since September 1999, was to cease immediately. He indicated that both industrial and private consumers would now receive uninterrupted power supplies. This measure ended 15 months of power cuts which badly damaged the Kenyan economy, especially after the failure of the long rains in April and May 2000 led to the intensification of the rationing from 10% to 35%. According to conservative estimates, Kenya had been losing US$68m per month as a result of power rationing. The minister’s announcement followed a rise in the water level at the main Seven Forks dam and the installation of emergency generators. As a result of the rationing, greater reliance was placed on diesel and thermal energy which led to an increase in electricity charges from 83 cents/kwh to KSh4/kwh. The energy minister announced that the charges would be reduced to KSh2.5/kwh by February and to less than KSh2/kwh when the emergency power supply ends. Since the emergency measures were adopted the estimated 190-mw shortfall of supply into the national grid has been reduced by the provision of an extra 151mw, including 100mw from an emergency plant. The situation will get better over the next two to three years as a 75-mw independent power producer diesel plant will be built at Kipevu, two more geothermal projects with a total capacity of 128mw will be finished at Olkaria and a 60-mw hydroelectric plant will be completed at Sondu Miriu. If all these projects go ahead as scheduled and the existing 100-mw emergency plant continues to be in place until June 2001, it is estimated that Kenya will have adequate hydroelectric and thermal plants to meet the total demand for electricity in the immediate future. However, it is also becoming clear that although independent power projects have created a temporary solution to the problem of power supplies, there has been a substantial cost owing to a large increase in fuel imports. The IMF’s suspension of aid and the subsequent slowdown in current transfers into the country will make it even harder to meet this cost.

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The World Bank halts Despite recent progress Kenya’s power sector faces a new crisis, following the KPLC’s funding World Bank’s decision to suspend financial assistance for the Emergency Power Supply Project in early April 2001. The World Bank’s vice-president for the Africa region said that the decision had been taken because of the failure of KPLC to implement the restructuring programme agreed with the World Bank in November 2000. This implies that KPLC is now prohibited from accessing the credit line of US$50m which it had been drawing on to meet electricity costs. If the crisis is not resolved, the country could face another spate of power cuts in the near future. The World Bank has given the government a two- month deadline ending on May 31st to fulfil the three conditions it had backtracked on before lending can be resumed. The three conditions are:

• satisfactory progress must be made in organisational and management restructuring;

• consultants must be appointed for the financial management study (a financial consultant was expected to have been appointed by February 20th, to have been followed by the appointment of a management consultant by the end of November 2001 to map out the company’s restructuring plan); and

• a request for proposals for power sector restructuring and a pre- privatisation study must be issued (a power consultant was to have been appointed by January 31st 2001 to advise on KPLC’s pre-privatisation plans).

The World Bank will consider progress on organisational and management restructuring to be satisfactory only after the number of divisions and managers at corporate headquarters has been reduced from 15 to seven, as suggested by the PricewaterhouseCoopers study of 1999. KPLC’s divisional managers as well as the regional managers will have to be selected on the basis of recommendations by the restructuring taskforce in a competitive and democratic process. Funding will only be released after the initial list of 600 management lay-offs has been drawn up and the redundancy costs computed. Hanging in the balance is KSh19bn that KenGen expected to receive from bilateral donors for the development of the Olkaria II geothermal plant, which was supposed to be completed in 2002, and for the Sondu Miriu II dam, which was expected to be completed by 2003.

The economy

Economic structure

Economy still dominated Although the share of GDP generated by agriculture has been steadily by agriculture declining over the past four decades, it still dominates the economy both in terms of its size and in terms of the number of people working in agriculture and agro-related industries. Farming output is diverse, consisting of varied food-crops and cash-crops as well as livestock, forestry and fishing. The most productive of Kenya’s farmlands are situated in the fertile regions of central and western Kenya. The rearing of livestock predominates in the semi-arid regions to the north and east.

Main economic indicators, 2000

Real GDP growth at factor cost (%) –0.3 Consumer price inflation (%) 5.8 Current-account balance (US$ m) –248 Total external debt (US$ bn) 6.1 Average exchange rate (KSh:US$) 70.3 Population (m) 29.3 Sources: EIU, CountryData; Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

The government sees industrialisation as the main development challenge. Since independence the share of manufacturing in GDP has remained relatively unchanged at around 10%. Industrial activity is concentrated around the three largest urban centres: Nairobi, Mombasa and Kisumu. Manufacturing is dominated by food-processing industries such as grain milling, beer production and sugarcane crushing. Kenya also has an oil refinery supplying petroleum products mainly to the domestic market.

The service sector is dominated by tourism, the second largest export revenue earner after tea. Kenya’s coastline and game parks provide the main attraction for tourists. However, periodic security concerns and the deteriorating transport infrastructure have resulted in a severe slump in the industry in the past few years.

Origins of gross domestic product, 2000a (% of total) Agriculture, forestry & fishing 26.3 Manufacturing 13.1 Trade, restaurants & hotels 12.7 Transport, storage & communications 6.1 Government services 14.7 Others 27.1

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

A growing challenge from Kenya has the largest economy in East Africa (although in per capita terms it is within the region on a par with Uganda). However, owing to impressive recent economic growth in Uganda and the adoption of liberalising economic reforms in Tanzania, Kenya now has serious competition in the subregion. Kenya is also losing out on donor funding, as a result of its poor record on tackling government corruption, whereas Tanzania and Uganda are both substantial recipients of bilateral and multilateral donor funding. The combined GDP of these three East African Co-operation (EAC) countries represents only 19% of that of South Africa, the economic powerhouse of the continent, and only 1.8% of that of the UK, the former colonial power.

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Comparative economic indicators, 2000

Kenya Uganda Tanzania GDP (US$ bn) 9.8 5.8 9.0 GDP per head (US$) 319 261 267 Consumer price inflation (av; %) 5.8 2.8 5.9 Current-account balance (US$ m) –248 –533 –371 Merchandise exports fob (US$ bn) 1,735 391 661 Merchandise imports fob (US$ bn) 2,997 1,191 1,335 Source: EIU, CountryData.

Economic policy

An urgent need for Kenya’s potential for development, which looked so promising in the early structural reform years of independence, has not been fulfilled in recent years. In 1996 the government estimated that a minimum growth rate of 6% per year would be needed to achieve significant reductions in unemployment and poverty. Economic performance has fallen well short of this target. From 1990 until 1998 economic growth averaged 2.2%, consistently below the increase in population, and living standards have fallen as a result (GDP per head fell from US$409 in 1998 to US$319 in 2000). Economic policy is now geared to reversing this trend through the vigorous implementation of structural reforms. However, Kenya’s relationship with the IMF and foreign donors has been poor and its commitment to reform has frequently wavered.

Performance conditions attached to the PRGF

The new poverty reduction and growth facility (PRGF) agreed between the IMF and the government of Kenya has some of the most detailed performance targets ever set under an IMF lending programme. As well as macroeconomic targets, the agreement sets out a list of performance criteria and structural benchmarks against which progress will be judged. These include:

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

• an anti-corruption and economic crimes bill, enacted and published in the Kenya Gazette, which is similar to the one proposed by the parliamentary select committee on anti-corruption;

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

• greater powers for watchdog institutions like the Kenya Anti-corruption Authority, and the controller and auditor-general;

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

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

• progress towards eliminating the import exemptions awarded to the public sector.

IMF funding comes unstuck On August 4th 2000 the executive board of the IMF approved a credit of SDR150m (US$198m) to support Kenya’s three-year poverty reduction and growth facility (PRGF) programme. Under the PRGF arrangement, the first annual loan of about US$18m was available immediately after the decision by the Fund. This was followed by a Paris Club rescheduling of Kenya’s external debt at the end of August 2000. However, following the government’s failure to meet several of its commitments on governance, it was seen to be backtracking on fundamental performance criteria and Kenya’s aid programme with the IMF came unstuck at the end of 2000. Specific areas of concern mentioned by the IMF include:

• the failure of parliament to enact the pending civil service code of ethics and the proposed economics crimes bill (the Civil Service Code of Conduct Bill was rejected at the committee stage for being a drastically watered down version of the proposals of the parliamentary select committee and for a variety of technical reasons, whereas the Anti-Corruption and Economic Crimes Bill has yet to be tabled;

• the stalled privatisation process; • concerns over civil service redundancies and the procurement system which, according to the World Bank, are not being carried out in accordance with the government’s previous pledges; and

• the Donde bill which aims to control interest rates.

Economic and financial targets of the PRGF (% of GDP unless otherwise indicated) 1999 2000 2001 2002 2003 2004 Real GDP (% growth) 1.4 1.5 3.1 4.4 5.5 6.0 Nominal GDP (KSh bn) 731 776 845 923 1,011 1,112 Inflation (%) 3.5 5.2 5.0 4.5 4.0 4.0 Total expenditure 24.5 26.3 26.0 25.6 25.5 25.5 Domestic revenue 23.9 24.8 25.0 25.1 25.1 25.1 Total grants 0.7 1.7 1.5 1.0 0.9 0.8 Privatisation receipts 0.8 0.9 0.5 0.5 0.3 0.0 Domestic debt (net) 21.4 19.2 17.3 15.0 12.6 10.6 Source: IMF press release, August 7th 2000.

Fiscal policy Guided by the government’s medium-term expenditure framework (MTEF) and poverty reduction strategy paper, the budget for the 2001/02 financial year (July-June) was presented on June 14th, against the backdrop of a declining economy. The minister of finance, Chris Okemo, highlighted the difficult economic position—that the economy, as represented by real GDP growth, had deteriorated steadily for the past five years and was estimated to have contracted by 0.3% in 2000. This slowdown was attributed not only to the drought and the decline in donor inflows—which has led to lower levels of investment in infrastructure and high real interest rates—but also to poor economic policy. Mr Okemo was brave enough to say that poor management of public expenditure and corruption were major problems. The press quickly described the budget as a public relations exercise, since it contained the usual

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well-rehearsed declarations of intent, such as financial support for a tourism promotion campaign and improved access to credit for small-scale industries, but offered few clear targets for realising those aims.

The budget was still broadly based on the government’s three-year MTEF. The MTEF is based on the premise that the private sector is more productive than the public, and its overarching objective is to reduce the government’s claim on national resources and its involvement in the economy. This is to be achieved by reducing the ratio of government revenue and expenditure to 22.1% of GDP by 2003/04, to attain a balanced budget, and by using privatisation receipts to reduce domestic debt to 15% of GDP.

Government expenditure (KSh m) 2000/01 2001/02 Outturn Budget % change % of total Discretionary expenditure 211,179 199,082 –5.73 64.9 Recurrent 153,807 157,445 3.37 51.4 Development 57,372 41,637 –27.43 13.6 Consolidated fund services 116,265 107,461 –7.57 35.1 Public debt 109,937 97,694 –11.14 31.9 Pensions & gratuities 5,902 9,398 59.23 3.1 Salaries & allowances 228 235 3.07 0.1 Subscriptions 199 133 –33.17 0.04 Total 327,444 306,543 –6.38 100.00 Source: Ministry of Finance.

The government will retain As well as presenting a reasonably tight fiscal policy in difficult economic a tight monetary policy circumstances, the minister of finance also highlighted that monetary policy will play an important role in ensuring price stability. The aim of the Central Bank of Kenya is to contain money supply growth at no more than 8% and credit to the private and public sectors at no more than 10%. However, it is a contentious issue in Kenya whether the government needs to maintain such a tight monetary policy at a time when the economy is going through a prolonged recession.

Government revenue (KSh bn) 2000/01 2001/02 Budget Estimates Budget Ordinary 182.3 178.2 194.8 Appropriations in aid 20.9 20.6 23.9 Total 203.3 198.8 218.6 Source: Ministry of Finance.

Economic performance

From the mid-1980s until 1990 real GDP grew by more than 4% per year, leading to a rise in per head incomes. However, the donor freeze on quick- disbursing aid, the drought in 1992 and the poor management of the economy

all contributed to a sharp slowdown in 1991-93, when annual real growth averaged 0.9%. Poor harvests, especially of food crops, played their part; real agricultural output shrank by 3.7% in 1992 and by a further 3.3% in 1993. The influence of agriculture on overall growth is clear, as real output in the five other main sectors expanded in 1993, but, because of the contraction in agricultural production, GDP grew by just 0.4%. Improved harvests, the opening of the East African Community market to well-placed Kenyan manufacturers and the development of service industries led to improved overall growth after 1993, peaking at 4.6% in 1995.

Gross domestic product (% real change, year on year) 1998 1999a 2000b Agriculture 1.6 1.2 –2.4 Manufacturing 1.3 1.0 –1.5 Trade, restaurants & hotels 2.3 2.0 1.0 Financial services 3.2 2.0 0.4 Government services 0.8 0.7 0.7 GDP incl others 1.8 1.4 –0.3

a Official estimates. b Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Real GDP falls in 2000, but According to the recently released Economic Survey, the Kenyan economy will edge up in 2001 registered a negative growth rate of 0.3% in 2000, agriculture and manufacturing suffering most. Agriculture contracted by 2.4%, and growth in manufacturing contracted by 1.5%. Both were adversely affected by the drought, which affected the manufacturing sector through the power rationing that was imposed for much of the year. The end of both the drought and power rationing are expected to bring a gradual recovery of the economy in the second half of 2001, as both agriculture and manufacturing pick up. Improved agricultural production has linkages to other sectors of the economy. The reduction of electricity tariffs and the tax reforms introduced in the budget in the 2001/02 financial year (July-June) will help to reduce production costs and increase the competitiveness of the manufacturing sector. The continued recovery of tourism in 2001 will also have a positive impact on economic growth. However, the recovery will be significantly slowed by the lack of donor support, which is now not likely to be resumed until the first half of 2002 at the earliest. This means that growth in the government sector will remain stagnant and business confidence in the economy will remain low.

However, despite the slowdown in overall GDP growth, income per head (not GDP per head) recorded a modest rise of 3.2% in 2000. This was partly driven by increases in the wages of employees in the private sector, where total remuneration per employee increased by 12% during the year.

Inflation is falling Inflation has continued its steady downward trend so far in 2001, reaching 7.2% in June. The decline has been caused by the lower rate of increase in food prices following the end of the drought, and this trend is expected to continue

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to the end of 2001. The downward trend will also be supported by the cautious monetary policy of the Central Bank (as outlined in the budget) and by the fact that the government’s fiscal position is constrained by the lack of donor support and its own high level of domestic borrowing. However, the real test for the monetary authorities will come when the economy starts to recover and supply constraints—such as the country’s poor transport infrastructure—exert renewed upward pressure on prices.

Economic sectors

Agriculture and forestry

An economy dominated by Farming and cattle rearing are still the most important economic activities in agriculture Kenya, accounting (with forestry and fishing) for 22.9% of GDP and 18% of wage employment in the formal sector in 1999 (agriculture is the main source of employment in the informal sector). Almost half of all agricultural output is for subsistence and not marketed. Tea, coffee and horticultural produce provided 52% of merchandise export revenue in 1999. The government’s goal is to achieve self-sufficiency in major staples such as maize by 2010. The production of such crops has fluctuated widely, owing to highly variable climatic conditions. Droughts in 1993/94 and in 1997 were followed by widespread flooding across the country at the end of 1997 and into 1998, as a result of the El Niño weather phenomenon. Kenya suffered another severe drought in 2000. (For data on agriculture, forestry and fishing, see Reference tables 14 and 15.)

Pressure on fertile land Kenya’s population is heavily concentrated in areas of fertile land in the centre is high and west of the country. This has frequently been a source of ethnic tension, as a result of the competition for productive areas. An estimated 75% of the population occupies the 13% of the land area rated as of “high potential” (with annual average rainfall of at least 900 mm), the balance occupying the remaining “marginal” land area. Although there are large tea and coffee estates in operation, smallholders supplied 60% of tea output and co-operatives produced 60% of coffee output in 2000.

Structure of land-ownership in the tea industry, 2000

Area Production Average yield (‘000 ha) (‘000 tonnes) (kg/ha) Smallholders 91.7 145.6 1,755.2 Estates 34.4 90.7 3,477.3 Total 126.1 236.3 5,232.5 Source: Kenya Tea Manufacturers’ Association.

Liberalisation of the sector The economic liberalisation programme has been extended to agriculture, has been patchy bringing to an end the monopolies held by most commodity marketing boards. The government is continuing to defer moves to deregulate the food

crops subsector, citing the need to protect small-scale farmers from highly unpredictable outputs as a result of climatic variations. After several changes in policy and disagreements with donors, the president, Daniel arap Moi, announced in September 1995 that the National Cereals and Produce Board (NCPB) would only trade in maize at market prices. The NCPB is also responsible for managing the National Strategic Food Reserve, a mechanism for cushioning Kenyans against food shortages. The reserve has been unable to operate effectively owing to excessive exports of food commodities without proper assessment of the needs of the population before and after harvests.

Tea production has The tea industry is by far the largest export earner, and Kenya is now the rocketed world’s leading supplier of black teas. Throughout the 1990s, revenue from tea expanded rapidly, the El Niño rains of 1997/98 resulting in record production of 264,000 tonnes. According to the Tea Board of Kenya (TBK), the country’s tea production rose sharply in the first half of 2001, to 154.9m kg in the January-June period, compared with 108.7m kg in January-June 2000. According to the TBK, the increase was the result of both good rains in the first half of the year and the improved application of inputs. However, the increase in production has pushed tea prices down on the tea trading floors, although the TBK was confident that prices would pick up marginally as production was held back in the second half of 2001 by drier weather conditions.

Horticulture becomes a Horticulture has experienced spectacular growth since the mid-1980s, growth area to watch exporting to meet off-season demand for fresh fruit, vegetables and flowers in Europe. The value of production doubled between 1995 and 2000. In 1998 horticultural exports for the first time earned more foreign exchange than coffee, at US$230m. The industry is important because of its ability to create jobs quickly and it has been a good example of private-sector expansion with limited government intervention. It scored a public relations coup by over- taking Israel in 1996 to become the leading supplier of cut flowers to the Dutch auctions. Increasingly strict EU regulations and competition from West African producers are proving to be obstacles for Kenyan exporters, who are attempting to break into newer markets, such as South Africa and the Gulf states.

Despite the drought in 2000, Kenya’s horticultural exports have held up well. Horticulture was the fastest-growing agricultural subsector in 2000 and exported 100,000 tonnes of fresh horticultural products. The leading markets were the UK (34%), the Netherlands (31%) and France (15%). According to official estimates exports of horticultural products in 2001 will reach 140,000 tonnes, led by the growth of cut flower exports. However, Kenya will be competing in a crowded market as African flower exports have increased rapidly in recent years according to the UN Conference on Trade and Development. They went up from 97.3m tonnes in 1997 to 101.3m tonnes in 1999, the latest year for which aggregate data are available. However, the current problems in Zimbabwe have disrupted the supply of flower exports in recent months, which creates a gap in the market that Kenyan growers can exploit. Nevertheless, as well as the normal constraints facing the sector— particularly poor infrastructure and expensive electricity—producers will also have to cope with the problem of meeting new EU requirements on pesticides.

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These requirements came into operation in July 2001 and will force producers to use new pesticides and to lower residue levels in export crops.

Mining and semi-processing

The mining and quarrying sector accounts for just 0.14% of GDP, the majority of which is provided by the soda ash operation at Lake Magadi. Both soda ash and fluorspar are exported, but stagnant world prices have had a negative impact on the sector in recent years. The depressed state of the domestic economy has also led to a fall in demand for industrial inputs. Producers have also blamed much of the decline on cheap imports as a result of liberalisation and the removal of tariffs. (For data on minerals production, see Reference table 16.)

Mineral production, 2000a (‘000 tonnes) Total 777.5 of which: soda ash 238.1 fluorspar 100.1 salt 16.3 limestone productsb 32.0

a Provisional. b Excluding limestone used in cement production.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

A project to mine titanium in Coast province has run into problems. Tiomin Resources of Canada intends to invest around US$100m to develop mineral deposits in Kilifi and Kwale districts, but there have been complaints about the compensation being given to local residents and the environmental impact of the processing plant. Tiomin says it plans to pay a commercial rate to lease the land, and that the original owners will be resettled once the 21-year mining project is completed. The company also expects to generate 200 jobs in the area and to improve the local infrastructure.

Manufacturing

Liberalisation has been Although Kenya is the most industrially developed country in East Africa, hampered by import fraud manufacturing still accounts for only 13% of GDP. Expansion of the sector was initially rapid after independence but has slowed since the 1980s. Import substitution was the official policy in early years, and Kenya quickly developed a number of subsectors with an emphasis on consumer goods: beverages and tobacco, textiles, miscellaneous food products, petroleum products, electrical appliances and machinery, printing, paper products, and sugar and confectionery. Total wage employment in manufacturing now stands at some 220,000 people, but may have declined further owing to generally depressed economic activity and the power rationing crisis in 2000.

Towards the end of the 1980s industrial policy shifted from import substitution to trade liberalisation and export promotion. Import tariffs were substantially reduced across the board but remain an instrument of policy in some sectors, particularly the sugar industry. However, these changes, which had been intended to establish a level playing field for importers and manufacturers, have failed to do so. This is mainly because of massive evasion of duties, particularly those on sugar and maize. Strenuous recent efforts by the Kenya Revenue Authority (KRA) to clamp down on such corruption have had some success, but the major fraudsters continue to operate with relative impunity, often with the protection of senior officials.

Towards the end of the 1990s industrial performance was severely constrained by structural factors. The poor state of the country’s infrastructure (particularly the road network) has served to increase freight costs and extend delivery times. The El Niño rains of 1997/98 caused severe damage and highlighted the inadequacy of the government’s repair and maintenance policy. In 2000 manufacturing declined by 1.5%, comparing unfavourably with the government’s target of 7.8% in the National Development Plan, and with an average growth rate of 2.4% in 1990-99. (For data on industrial production, see Reference table 17.)

There is also a substantial informal sector involved in small-scale manufacturing. Jua kali (literally “hot sun”) industries operate in fields as diverse as the fabrication of household goods, motor vehicle parts and farming implements. Evidence suggests that this sector is expanding rapidly and accounts for a significant proportion of domestic manufacturing. However, there are no reliable statistics about the contribution of the jua kali sector.

Construction

The construction industry enjoyed short-lived prosperity in 1990-92 owing to an office-building boom in Nairobi. Parastatals and private-sector groups such as the UK company Lonrho embarked on prestigious projects such as the construction of head offices, which have altered the skyline of the capital. Central government spending on roads, housing and building has been constrained not only by the government’s fiscal limitations, but also by some questionable policy choices. The recent downturn in economic activity has further dampened the construction industry, although central Nairobi has undergone major rebuilding following the 1998 bombing.

Overall, the performance of the building and construction sector remained subdued in 1999-2000, mainly because of depressed public- and private-sector investment and related activities. The sector also suffered from reduced government spending, as part of the government’s financial austerity measures, and the suspension of donor funds. With the exception of government expenditure on roads, all other sectors continued to post a further decline in 2000. Similarly, employment in the construction industry declined marginally, from 78,700 in 1999 to 78,000 in 2000.

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Expenditure on roads (KSh m) 1999/2000 2000/01a Development 863.0 6,703.8 Trunk roads 714.3 2,688.4 Primary roads 18.3 925.8 Secondary roads 5.8 618.9 Miscellaneous roads 124.6 2,470.7 Recurrent (maintenance & repair) 5,922.1 6,470.1 Total 6,785.1 13,173.9

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Financial services

Structure of the financial At the end of October 2001, the banking system comprised 48 commercial system banks, four non-banking financial institutions, two mortgage finance companies, four building societies and 47 foreign exchange bureaux. The decline in the number of institutions between October 2000 and October 2001 was due to mergers, liquidations and the voluntary winding up of a few institutions.

Financial sector, Oct 2000 2001 Commercial banks 50 48 Building societies 4 4 Mortgage financial companies 2 2 Non-bank financial institutions 7 4 Foreign-exchange bureaux 47 47

Bad debts reach 38.5% of The status of the banking sector’s non-performing loans has continued to be a gross loans major threat to the stability of the banking sector, accounting for 39.3% of the total loan portfolio at the end of 2000. The situation was exacerbated by unrealistic provisioning for bad loans by most commercial banks. The annual results of three of the leading commercial banks—Barclays Bank of Kenya, Kenya Commercial Bank (KCB) and National Bank of Kenya—show a marked decline in profitability in 2000. According to the Central Bank of Kenya’s Monthly Economic Review for November 2001, the non-performing advances stood at 38.5% by end-September 2001, compared with 39.4% of gross loans at end-September 2000. The provisions for bad and doubtful loans fell to KSh66bn during the period, from KSh67.7bn at end-September 2000. Concerned about the rising level of bad debts, in early March the Kenya Bankers’ Association proposed the formation of a government agency to buy out the banks’ bad debts. Such a venture would involve the setting up of a securitisation industry to allow asset-based securities to be floated on the Nairobi Stock Exchange (NSE).

The KCB sale is put on hold The planned sale of the government’s stake in KCB to a strategic investor has as profits rebound now been suspended. The sale of the 35% stake in KCB was reportedly put on hold to assess the impact of an ongoing restructuring exercise spearheaded by the managing director, Gareth George. However, it is uncertain how long the deal will remain on hold. KCB’s interim results for the first six months of the current financial year show a marginal profit of KSh100m (US$132m), compared with pre-tax losses of KSh795m in 2000 and KSh2.2bn in 1999.

A difficult year for the NSE The NSE had a difficult year in 2000, a trend which continued into 2001. Given the high interest rates and the poor economic fundamentals for most of 2000, it is not surprising that most listed companies have failed to report any major growth in profits in 2000, and, in fact, many companies did significantly worse. The share price of KCB, for example, lost more than 11% over the course of the year; Sasini Tea and Coffee was down more than 22%; and Firestone (East Africa) fell by around 25%. However, other listed companies, such as East African Breweries, Uchumi Supermarkets and Kenya Airways made some significant price gains. The overall performance of the stockmarket was poor: the benchmark NSE 20 Index fell by more than 13% in local currency terms over the year. Given the depreciation of the shilling against the US dollar, this translates into a decline of over 19% in US dollar terms between January and December 2000.

On many African stockmarkets in recent years, high interest rates on government Treasury bills have put banking shares among the star performers. However, in both Kenya and other African countries, this has also created resentment about the large profits enjoyed by banks, while their customers face interest rates of 20% and more. Although the banks are often blamed for the situation, the real cause of the problem is that most African governments do not follow complementary fiscal and monetary policies; the burden of controlling inflation falls on monetary policy and this causes high interest rates. In Kenya Joe Donde’s proposed finance bill, which seeks to control bank interest rates (see Economic policy), has dealt a further blow to an already limping stock exchange, and the once blue-chip banking shares have teetered on the verge of a downward slide—small banks in Kenya face imminent closure and bigger banks fear a drastic reduction in margins if a bill aimed at controlling interest rates were to take effect.

Other services

Tourism is picking up Tourism is Kenya’s second largest foreign-exchange earner after agriculture. It following a deep trough accounts for 20% of GDP and is a major employer. However, the sector has experienced a disastrous few years as result of concerns over security, poor weather in 1997/98, and a deteriorating infrastructure (principally the crumbling road network). Kenya is also facing increasingly strong competition from South Africa and Zimbabwe, as well as from the emerging tourist destinations of Tanzania and Uganda. However, tourism has continued to register marginal gains over the last two years. During 2000, the sector is estimated to have grown by 6.9%, compared with 8.4% in 1999; bed occupancy rose by 25% in 2000, mainly owing to concerted efforts by the

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Kenya 41

Ministry of Trade, Tourism and Industry and various industry stakeholders to promote the sector in Europe. However, this recovery is still considered marginal, compared with the peak of 1993 and 1994, when tourism accounted for 33-34% of Kenya’s export receipts—it currently contributes 17.5%. Against a background of tribal clashes, negative publicity, crumbling infrastructure, inadequate marketing and increased competition offered by destinations such as Tanzania, Mauritius, and South Africa, the sector registered an unprecedented decline between 1995 and 1998. During this period annual tourist arrivals declined by 1.5% and receipts fell by 19.5%. Currently, tourism is Kenya’s third largest foreign-exchange earner after tea and horticulture.

Tourism, 2000a

% change, ‘000 bed-nights year on year Visitors from: Europe 2,082.9 27.8 Africa 1,058.2 19.1 North America 283.4 35.0 Asia 168.3 26.9 Australia & New Zealand 26.9 26.8 Total incl others 3,687.8 25.0

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

According to the government’s Economic Survey, the number of tourist arrivals continued to grow in 2000, compared with 1999. However, although the number of visitor arrivals increased by 8.4% in 1999, the rate of increase was only 6.9% in 2000. More worrying for the government was the fact that, despite the increase in numbers, in 2000 tourists spent less time in Kenya—the average length of stay fell from 9.4 days in 1999 to only 8.7 days in 2000. This contributed to a fall in total tourism receipts from KSh21.37bn (US$305m) in 1999 to only KSh19.59bn in 2000. As Tanzania is increasingly marketing itself as a tourism destination and privatising many of its facilities, it will be hard for the Kenyan government to reverse this decline, since many tourists are likely to spend part of their holiday in Kenya and part in Tanzania, especially in the parks around Mount Kilimanjaro and the Ngoro Ngoro crater which are close to the Kenyan border.

The external sector

Kenya posts trade deficits Kenya traditionally runs a trade deficit, but the figure for 2000 of KSh113.3bn (US$1.49bn) indicates a substantial widening of the gap, and follows the trend of rising deficits over the past decade. Imports for 2000 increased by 20.1% compared with 1999, whereas exports increased by only 9.8%. Total exports continued to decline for the third consecutive year, owing to the depressed performance of the economy, the dilapidated infrastructure and weak world prices for the country’s main export commodities, tea and coffee.

The government introduces Imports are dominated by capital goods, industrial inputs and fuel, although in import tariffs years of drought large-scale food imports are required. The Kenyan motor industry, which assembles imported kits, is rudimentary and expensive, and has suffered badly under trade liberalisation. Recently, a dramatic rise in the value of imported processed food and beverages has caused the government to express serious concern. (For historical data on import and export prices and imports by value, see Reference tables 21 and 24.) In 1998 imports of these goods increased by 53% and this led to threats of retaliation against trading partners, particularly South Africa, who were perceived as unfairly “dumping” goods in Kenya in order to establish market share. In May 1999 at a summit in Nairobi of the Common Market for Eastern and Southern Africa (Comesa), the Kenyan trade minister called for trade barriers to limit the flood of imported products such as beer, fruit juice and fresh vegetables, which, the minister argued, could be produced competitively at home. In the 1999/2000 budget a range of import tariffs were introduced to protect threatened commodities, but there has been little sign of a concerted attempt to address the underlying structural weaknesses in these sectors. These protectionist attitudes come at a time when regional negotiations among East African Co-operation (EAC) countries and Comesa members are moving towards the phased removal of all tariff barriers.

Foreign trade, 2000a (KSh m) Total exports (incl re-exports) fob 134,527 of which: tea 35,150 horticulture 21,216 coffee 11,707 petroleum products 9,429 cement 1,358 Total imports cif 247,804 of which: industrial & electrical machinery 39,438 refined petroleum products 21,773 crude petroleum 41,907 motor vehicles & chassis 9,659 Trade balance –113,277

a Provisional.

Source: Ministry of Finance and Planning, Economic Survey, 2001.

Other import commodities also show disturbing trends. The value of imported sugar tripled in 1998, causing serious hardship for the domestic cane growing and processing sectors. This continued unabated into 2000, the government giving little indication that it is prepared to tackle the problem. This has contributed to the widespread belief that sugar importers, who are known to be evading heavy import duties, are operating with the protection of senior government officials.

Exports dominated by Tea, coffee and horticulture account for over half of all Kenya’s merchandise agriculture exports. The strength of the export sector is therefore strongly influenced by

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fluctuations in world prices for these commodities. In 2000 the value of both tea and horticulture exports increased, whereas the value of coffee exports fell owing to a second consecutive year of unfavourable world prices. (For historical data on exports by value, see Reference table 22; for exports by volume, see Reference table 23.)

The fluctuating fortunes of these sectors demonstrates the vulnerability of Kenya’s export sector to swings in primary commodity prices. Substantial falls in both coffee and tea prices are expected in 2001, which will put further strain on the trade balance. Kenya’s manufacturers are very hopeful that the expansion of East African regional markets will provide increased opportunities for industrial exports. Other than petroleum products, cement (in fifth place) is the only industrial commodity in the ten leading exports.

Direction and composition of trade,a 2000 (US$ m) Derived exports fob UK Netherlands US Fruit & vegetables & preparations 98,897 18,527 483 Coffee, tea & spices 125,438 20,550 23,608 Tobacco & manufactures 5,708 7,266 0 Live trees & plants 35,007 102,329 695 Textile fibres, yarn, cloth & manufactures 2,584 106 178 Metals & manufacturesb 1,291 174 826 Machinery & transport equipment 9,277 326 9,939 Clothing 1,236 46 43,864 Total incl others 294,864 162,581 109,544

Derived imports UK US South Africa Food, beverages & tobacco 11,527 18,145 62,315 Chemicalsc 38,016 26,423 41,217 Paper etc & manufactures 4,241 320 11,571 Textile fibres, yarn, cloth & manufactures 27,836 6,224 2,893 Iron & steel & manufacturesb 3,499 3,504 15,177 Other metals & manufacturesb 5,440 1,499 16,485 Machinery incl electric 90,831 33,380 21,914 Road vehicles & tractors 20,410 3,079 9,645 Aircraft 7,285 115,432 5,117 Scientific instruments etc 16,316 7,469 2,172 Total incl others 244,825 237,989 219,126

a Figures from partners’ trade accounts. b Including scrap. c Including crude fertilisers and manufactures of plastics.

Source: Global Trade Information Services, World Trade Atlas.

Africa rivals EU as Kenya’s As a trading bloc, the EU remains the leading source of imports (33%), main trading partner although Africa’s overall share of Kenya’s imports rose from 2% in 1993 to 32% in 2000, mainly because of South Africa’s trading expansion. The EU, for a long time the leading destination for Kenya’s export trade, was overtaken by the rapidly expanding Comesa, which accounted for 46% of all exports in 2000 (compared with 31% for the EU; for historical data on main trading partners, see Reference table 25.)

Main trading partners, 2000a (% of total) Exports Uganda 17.9 Tanzania 8.2 UK 13.9 Pakistan 7.4 Imports UK 10.1 UAE 19.5 Japan 5.1 US 4.1

a Provisional.

Source: Ministry of Planning and National Development, Economic Survey 2001.

Invisibles and the current account

Structural imbalances in Kenya has a well-developed export sector; tea, coffee and horticulture are the the balance of payments principal agricultural export commodities. However, over the past few years the current account has remained firmly in deficit as imports have exceeded exports and earnings on services such as tourism (which alone accounts for 20% of all foreign-exchange revenue) have declined. In recent years the shortfall on the current account has been offset by net investment inflows, which has kept the overall balance of payments in surplus. However, this surplus has steadily declined and is in danger of moving into deficit as financial inflows decline. The reversal in fortunes can be traced back to a collapse in investor confidence in the second half of 1997, following the suspension of IMF structural funding in July, and fears over political stability during elections later the same year. Despite high domestic rates of interest in 1998, net outflow of capital continued and then accelerated as interest rates fell towards the end of 1998 and into 1999-2000, putting downward pressure on the overall balance of payments. (For IMF estimates on the balance of payments, see Reference table 27.)

Kenya has run a consistent surplus on its invisibles balance, mainly owing to earnings from tourism and donor funding. However, a disastrous few years for the tourist industry have had a significant impact on invisible earnings. This is reflected in the foreign travel item of the current account, which fell by 46% in 1999. Although the current account moved into a small surplus of US$11m in 1999, thanks to the narrowing of the trade deficit and improved performance of the services sector, it returned to a deficit of an estimated US$213m in 2000.

The other principal component of the current account, net current transfers, shows a regular surplus as a result of donor grants and private transfers. However, the interruption of substantial bilateral aid following the suspension of the IMF structural loan in mid-1997 and end-2000 had a significant impact.

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Current account, 2000 (US$ m) Exports (fob) 1,764 Imports (fob) –3,246 Trade balance –1,482 Current-account balance –213 Source: Central Bank of Kenya, Monthly Economic Review, August 2001.

Capital flows and foreign debt

Investors are losing Net inflows of short-term capital have sustained a healthy capital account confidence surplus in recent years. High yields on government securities ensured the arrival of new foreign speculative investment. However, a turnaround occurred in mid-1997 with the suspension of IMF funding and a consequent collapse in investor confidence. Political and economic uncertainty at the time of the elections in late 1997 was a further disincentive to investors. It was hoped that as political events stabilised in 1998-99 the “hot money” would return.

However, for the first time since early 1995 the capital account registered a net outflow in the middle of 1998, reflecting an ominous and continued fall in foreign investor confidence. The level of long-term private investment has also been disappointing. Government data indicate net outflows throughout 1993- 2000. This suggests that foreign companies are not only holding back from capital investment in Kenya, but that some are divesting themselves of longer- term commitments. The implication is that foreign investors, whether speculative or long-term, are waiting to see whether the political and economic climate improves before they take advantage of any investment opportunities.

External debt indicators According to the World Bank’s recently published edition of Global Development are manageable Finance, Kenya’s total debt stock fell from just under US$7bn in 1998 to US$6.6bn in 1999. This reflects the fact that although relations with the IMF have been suspended, new debt inflows into Kenya have substantially dried up, while repayments have continued broadly in line with historical norms. Net flows into Kenya, therefore, turned strongly negative in 1998 and 1999 (see Reference table 27; for details on net official development assistance, see Reference table 28.)

Agreement is reached with On 15th November 2000, before the crisis with the IMF emerged, the Kenyan the Paris Club government agreed a new external debt repayment schedule at a meeting held with representatives of the Paris Club in France. The two sides negotiated the rescheduling of US$300m of debt arrears, repayment of which was supposed to be made during the 2000/01 financial year (July-June). However, Kenya is still a long way from qualifying for any form of debt relief such as that on offer under the IMF-World Bank’s heavily indebted poor countries (HIPC) initiative. It is extremely unlikely that Kenya will be considered eligible for HIPC until it can demonstrate a commitment to economic reform and good governance and convince donors that any debt write-off will be used to alleviate poverty.

Foreign reserves and the exchange rate

Low reserves threaten The abolition of the official exchange rate for the Kenya shilling in October depreciation 1993 and the dismantling of the Central Bank of Kenya’s controls on the foreign-exchange market were widely expected to lead to a rapid depreciation of the shilling on the interbank market. The reverse actually happened, and the shilling has shown remarkable resilience. However, a continued decline in the balance of payments in 2000 and the first half of 2001, and limited access to external funds is once again putting some downward pressure on the shilling, and between January and October 2001 the currency fell by 6.5% against the US dollar. (For historical data on foreign reserves, see Reference table 30; for exchange rates, see Reference table 31.)

The government is trying to maintain three months’ import cover in its reserves, and at the end of August 2001 the level stood at US$987m or three months’ cover. Of this figure, two-thirds are held by the Central Bank and one- third by commercial banks.

Appendices

Regional organisations

Tripartite Commission for Established in May 1996, the EAC succeeded the defunct East African East African Co-operation Community (1967-77). Its three members are Kenya, Tanzania and Uganda. (EAC) Unlike the old East African Community, which attempted to impose supranational control over all areas of government, the new EAC focuses on the harmonisation of policies and the creation of a common market. When the EAC was formed, a common travel document, a joint secretariat for railways, and the dismantling of borders for the free movement of people were all envisaged. Other measures to be tackled include the harmonisation of fiscal and monetary policies and policies on traffic, the environment and security. Progress has begun in some of these areas, and the EAC is now looking at developing a regional economic infrastructure and promoting trade and investment. The EAC was not intended to create a common monetary union, although this may be a long-term possibility. Discussions on broadening its membership to include Rwanda and Burundi continue, as does the question of the EAC’s relationship with the moribund Common Market for Eastern and Southern Africa (Comesa) and the thriving Southern African Development Community (SADC).

At their first anniversary meeting in Arusha, Tanzania, in May 1997, the three member states moved closer to establishing an economic and political federation when they adopted a common passport and flag, laying the ground- work for co-operation through a formal treaty. The original co-operation agreement, with a life span of ten years, was upgraded to a treaty for East African Co-operation; this will establish a common market and a monetary union, and also, in the long run, a political federation. The treaty was signed by the heads of state of the three member countries on November 30th 1999. Agreement over the timetable and scale of tariff-barrier reductions within the new economic grouping are to be negotiated in the next four years. This long transition period reflects the Tanzanian and Ugandan business sectors’ concerns that they would be unable to compete with Kenyan goods following any opening of their own markets.

Issues to be resolved include how best to share the benefits of common investment and services, and how to increase intra-regional trade (which is currently less than US$1bn, and is skewed heavily towards Kenyan exports). Since the co-operation agreement was signed, Kenya, Uganda and Tanzania have tried to harmonise their fiscal and monetary policies; one measure includes avoidance of double taxation. The agreement also provides for joint measures to prevent tax evasion. Other achievements include the convertibility of the currencies of the three states, pre- and post-budget consultation between the finance ministers, synchronisation of budget day in the three countries, establishment of a Monetary Affairs Committee between the central banks, and co-operation in capital and securities regulation. In an attempt to promote trade and investment, the East African Business Council has been established, drawing members from national private-sector organisations in the region. Lawyers

have formed their own forum, the East African Law Society, and the East African Securities Regulatory Authority has also been established.

In January 2001 the three member states formalised the EAC treaty to prepare the way for an economic and, ultimately, political union of the three countries. There are still some sticking points in the treaty, and these are being addressed. Tariffs remain a difficult issue; the treaty calls for common external tariffs and the elimination of international tariffs, but because of the economic disparities between EAC members it is difficult to see how this can be implemented. An East African legislative assembly and customs union have yet to be established.

Some tripartite agreements have already been executed, including the elimination of internal tariffs by the year 2000; the establishment of an independent East African Co-operation trade regime; the harmonisation of standards and specifications of goods produced within the region (of 107 agreed regional standards, 42 standards have already been harmonised and the process of harmonising the remaining 65 is well advanced); and the extension of an oil pipeline from Mombasa to Kampala.

The three countries are considering joint projects in power, road and rail transport. A digital transmission system costing US$69m is at an advanced stage of implementation; it is being financed by the telecommunications authorities of the three countries, together with the European Investment Bank and the East African Development Bank.

The eventual expansion of the EAC has been mooted, with Rwanda and perhaps eventually Burundi, Ethiopia and even the Democratic Republic of Congo as possible new members.

Common Market for Based in Lusaka, Zambia, Comesa is the successor organisation to the regional Eastern and Southern Preferential Trading Area (PTA), and came into force on December 8th 1994 Africa (Comesa) after the 12 member states ratified the integration treaty. Comesa, a weaker rival to the Southern African Development Community (SADC), includes Angola, Burundi, Comoros, Democratic Republic of Congo (DRC), Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. The 20 members have a total population of around 385m and a combined estimated GDP of US$165bn. Mozambique and Lesotho withdrew from Comesa in 1997 to concentrate on their membership of the SADC. Tanzania, which belongs to both the SADC and the East African Community (EAC), also formally withdrew on September 1st 2000. South Africa’s decision not to join the organisation, which aims to liberalise trade between the member countries, has given the SADC the stronger hand.

The original PTA, launched in 1981, aimed to liberalise trade and encourage co- operation in industry, agriculture, transport and communications. Comesa’s principal aims build on these ideals; its main goals are to help eliminate the structural and institutional weaknesses of member states and to promote peace, security and stability so as to enable states to attain sustained development, both individually and collectively as a regional bloc. These aims are to be delivered, in time, through the formation of a monetary union with its own

single currency and a common central bank. A common external tariff (the creation of a customs union) is envisaged by 2001, to be followed by full monetary union by 2025.

The creation of a free-trade zone on October 31st 2000 was a major step towards achieving these goals. However, only nine of the 20 members agreed to participate fully (Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe). They have removed all barriers on intra- regional trade, though they retain tariffs on imports from non-Comesa sources. Burundi, Comoros Eritrea, Rwanda, Seychelles and Uganda are expected to join in the next wave; Angola, the DRC and Ethiopia have given no indication that they will reduce tariffs in the near future.

The most recent figures, for 1998 (which are provisional), show that the total of intra-Comesa trade stood at US$4.2bn, and trade between members varied from the Seychelles’ 3.2% of its total trade (US$15m) to Kenya’s 17.1% (US$894m). Disappointingly, over the past 30 years the share of intra-regional trade in total exports has fallen from 9% in 1970 to 7.7% in 1998 (although these figures do not take into consideration high levels of illegal crossborder trade). Nevertheless, this is below the 10.5% average in 1998 for the whole continent. Reasons for the low level of intra-Comesa trade include a lack of political commitment and weak balance-of-payments and foreign reserve positions. In some cases there are hardly any official trade links between member states—Kenya, Malawi, Uganda, Zambia and Zimbabwe accounted for 58% of the total trade between members of Comesa in 1998 (68% including the former member, Tanzania).

As industrial and manufacturing development is generally at a low level, many members are loth to reduce tariffs further for fear of undermining local industries (this was Tanzania’s main reason for leaving) or fiscal revenue. A further constraint has been the strict and cumbersome “rules of origin” criteria, which stipulate that preferential treatment may be granted only to goods that have been either wholly produced within Comesa, contain an import content of no more than 60% cif value of the total cost of materials used, contain no less than 45% ex-factory value added, or contain no less than 25% value added if the product is significantly important to the economic development of a member state. In addition to these impediments, progress towards free trade will be further hampered while five Comesa members remain engaged in supporting different sides in the DRC conflict and Ethiopia and Eritrea rebuild relations after concluding a two-year war in mid-December 2000. However, some countries, such as Zambia, are factoring the reduction in tariff revenue associated with the removal of tariff barriers into their budgetary calculations for 2001.

Regional free-trade areas like Comesa aim to increase intra-regional commerce, leading to higher economic growth rates; but they attract criticism from many who feel that this cannot be achieved while supply-side constraints—such as poor infrastructure, inefficient transport links, weak education and skill levels, and cumbersome bureaucracy—remain. In addition, because of a general lack of domestic institutional capability and vested interests, commitment to the organisation and its financing is frail. The administration budget is heavily

dependent on Kenya and Zimbabwe, and meetings are frequently cancelled. Further attempts at crossborder investment promotion and monetary harmonisation have been superseded by initiatives from EAC and SADC.

Under the old PTA system, a multilateral clearing facility was established in Harare, Zimbabwe, in February 1984. A PTA monetary unit of account (UAPTA), equivalent to the IMF’s special drawing right, was used to settle debts between members every two months, the balance being payable in dollars. The UAPTA was replaced by the Comesa dollar, which is fixed to the US dollar, in 1997. Comesa has founded two organisations since its inception. The PTA Trade and Development Bank was established in November 1985 but only became operational in 1989. It was renamed the Comesa Trade and Development Bank, and its headquarters were moved to Nairobi, Kenya, from Bujumbura, Burundi. As well as the African Development Bank, 14 Comesa members hold shares in the bank; total share capital was increased to US$5bn in June 1999. The PTA Reinsurance Company was established in November 1990, and officially launched in September 1992 with a capital stock of US$27bn. It is also based in Nairobi; 13 Comesa members hold shares.

Inter-governmental The Inter-governmental Authority on Drought and Development (IGADD), the Authority on Drought and brainchild of then president of Djibouti, Hassan Gouled Aptidon, was Development (IGADD) established in January 1986 with six East African members: Djibouti (where the secretariat is based), Ethiopia, Kenya, Somalia, Sudan and Uganda. Its aim was to co-ordinate and channel funding into agricultural development and the alleviation of drought and desertification. Progress on development and environmental projects was slow, but the organisation made headway as a forum for regional politics and facilitated the successful reconciliation of Somalia and Ethiopia in 1988. However, regional events in 1991 undermined IGADD: the presidents of Ethiopia and Somalia were overthrown, Eritrea gained independence, and the self-proclaimed Somaliland Republic emerged.

Although IGADD gained a seventh member, Eritrea, in September 1993, it had little success in its attempts to help resolve internal conflicts in Sudan and Somalia. Thus in March 1996, at a summit in Nairobi, IGADD renamed itself the Inter-governmental Authority on Development (IGAD) and adopted a new charter proclaiming conflict resolution to be its priority. IGAD also pledged to pay more attention to economic integration. However, with the outbreak of war between Ethiopia and Eritrea in May 1998, Sudan’s increasingly tense relations with both Eritrea and Uganda, and Ethiopia and Eritrea supporting various factions in the civil conflict in Somalia, the organisation was severely handicapped in the late 1990s.

IGAD’s fortunes improved slightly in 2000 with the establishment of a transitional government in Somalia—a deal brokered by Djibouti rather than by IGAD—and the uneasy, UN-monitored peace between Ethiopia and Eritrea. However, the prospect for long-term reconciliation in both cases is not good, and Ethiopian troop activity continues in Somalia. At present, the main item on IGAD’s agenda is pushing forward the peace process in Sudan; under its auspices, rebels and the government have conducted direct negotiations since 1997 but have made little practical progress. Regional economic integration

and the improvement of infrastructural links are regularly discussed, but— given the tension between the group members—these plans are unlikely to be followed by substantive action. The same fate appears likely for a parliament IGAD members are trying to set up, formalities for which are supposed to be completed at a meeting in Khartoum in early 2002.

Organisation of African The 37th annual assembly of heads of state and government of the Unity (OAU) Organisation of African Unity (OAU) was held in the Zambian capital, Lusaka, on July 2nd-11th 2001. The Zambian president, Frederick Chiluba, took over the chairmanship of the organisation from President Gnassingbé Eyadéma of Togo. The assembly formally implemented the Constitutive Act of the African Union (AU), following Nigeria’s ratification of the Act on April 26th, allowing the Act to enter into force 30 days after the deposit of the instruments of ratification. The formation of the AU had been agreed at the 36th annual assembly of the OAU, held in Togo in July 2000, and the AU was to replace the OAU following ratification of the act by the parliaments of two-thirds of the member states.

The OAU’s outgoing secretary-general, Salim Ahmed Salim (completing his last four-year term), has said that there will be a transitional period of around one year to allow the AU to become fully operational. Amara Essy, Côte d’Ivoire’s foreign minister for most of the 1990s, replaced Mr Salim in September, having been elected interim secretary-general, but he is mandated to serve only until May 2002. The AU is expected to have an executive council of ministers and an assembly comprising the heads of member states, and it is to remain headquartered in Addis Ababa, the Ethiopian capital. The creation of the AU will lead eventually to the formation of: a pan-African parliament; a Union Court of Justice: an African central bank; an African monetary fund; and an African investment bank.

In addition to closer economic ties, common defence, foreign and communications policies will also be established, based loosely on those of the EU. However, the AU’s founding statements stopped short of ending the OAU’s principle of non-interference, which has been a major hindrance in the resolution of conflicts on the continent. Like some members of the EU, some African states are wary of losing their sovereignty to a super-state.

The OAU was founded in Addis Ababa in May 1963 by 32 African nations to promote solidarity and higher living standards, to defend the sovereignty of member states, and to eliminate colonialism. Another 21 signatories joined subsequently, the last being South Africa in 1994. Morocco left in 1985, following the admittance of the disputed state of Western Sahara as a member in 1984. The OAU’s general secretariat had an annual budget of roughly US$30m, which the AU will inherit. As with the OAU, the foreign ministers of the member states of the AU will meet twice a year to discuss the implementation of the organisation’s accords. The issues raised are dealt with at the annual assembly of heads of state, which meets in June or July. The annual conference is hosted by the member state that is due to hold the chairmanship of the organisation for the next year. The OAU held three extraordinary conferences of heads of state: the first was in 1970 to discuss the

Angolan crisis; the second, in 1980, sought to address the continent’s economic problems; and the third, in 1990, attempted to address the problem of African external debt.

The AU carries forward the aims of the OAU, which included the creation of an African economic community (AEC) according to the Lagos Plan of Action drawn up in 1980. Originally this was scheduled to be in place by 2000, but at the 27th summit of heads of state in Abuja, Nigeria, in June 1991, this target was postponed to 2025. The AEC treaty, signed at the summit, outlined six stages, including the removal of tariff and non-tariff barriers to trade and the establishment of a continent-wide customs union by 2004. A commitment was also made to establish an African common market, with a central bank and single currency, by 2031.

The possibility of establishing a military force to observe and monitor ceasefires negotiated by the OAU has been considered. Although the OAU never reached an agreement to deploy peacekeeping forces, it did undertake observer missions—something the AU is expected to do where necessary. Conflict resolution came to dominate the annual summit of OAU heads of state from the mid-1990s, with the crises in the Great Lakes, Democratic Republic of Congo (DRC), Somalia, Sierra Leone and Ethiopia and Eritrea. From 1999 until its transformation into the AU, the OAU was involved in conflict mediation in Somalia, Ethiopia and Eritrea, Comoros and DRC (where seven member states are involved as direct combatants).

The OAU was criticised as being ineffectual—little real action resulted from its policy decisions—and for years it was hampered by severe budgetary difficulties. These problems are likely to continue under the AU, and (despite the change of name) it is unclear how the AU’s institutions will be any more effective than those of the OAU.

Sources of information

National statistical sources Central Bank of Kenya, Monthly Economic Review

Central Bank of Kenya, Annual Report

Ministry of Planning and National Development, Development Plan 1997-2001

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

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

The Economic Survey is the most comprehensive of the national publications. It is produced each year in June or July and brings together a wide range of statistical data relevant to the economy both on a macro and on a sectoral level. In most cases, the Economic Survey presents five years of figures up to the last full year before publication. Although not always presented in a readily accessible form, most required data can eventually be retrieved from its more than 200 separate tables. Some sections, such as those on energy and manufacturing, are notably weaker than others. Its one big drawback is that it

is difficult to judge the reliability of the data given, particularly at the sectoral level, and it is usually not possible to refer back to the source of the data.

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

The Statistical Abstract, published each year, presents a wide range of national data over a longer time-frame than the Economic Survey. Much of the data is presented in ten-year time series.

International statistical It is often said that international statistics on African countries are in some sources ways superior to national data. However, this overlooks the fact that the principal international sources, such as the IMF’s International Financial Statistics, draw almost exclusively on national sources. They have no choice since they do not have the resources or the remit to gather and collate their own figures on domestic money supply, credit, public finances and trade. In consequence, it is not surprising that international and national sources tend to tell the same story, with a few exceptions such as Nigeria, where the volume of oil exports is disputed, and Angola, where 20 years of civil war have created an enormous parallel non-oil economy that dwarfs the formal sector. One further complication is that the IMF and the World Bank produce internal documents which can sometimes be obtained informally at their regional offices; these often form the basis for lending decisions by the institutions’ boards of directors and tend to diverge from national data rather more than their own statistics released to the general public.

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

Newspapers and magazines Daily Nation, Nairobi (http://www.nationaudio.com/News/DailyNation/Today/)

East African Standard (daily), Nairobi

The People (daily), Nairobi

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

Finance (weekly), Nairobi

East African Alternatives (bi-monthly), Nairobi

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

UN, Common Country Assessment for Kenya, March 1998

Republic of Kenya, National Poverty Eradication Plan, 1998

World Bank, Kenya Poverty Assessment, March 1995

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

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

International Institute for Strategic Studies, The Military Balance, London

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

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

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

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

Reference tables

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

Reference table 1 Populationa (m) 1996 1997 1998 1999 2000 Total 26.3 27.1 27.9 28.7 29.3 % change 4.4 3.0 3.0 2.9 2.1

a Break in series data.

Source: IMF, International Financial Statistics.

Reference table 2 Labour force (‘000) 1996 1997 1998 1999 2000a Informal sector 2,643.8 2,986.9 3,353.5 3,738.8 4,150.9 Private sector 917.9 946.8 967.2 990.3 1,002.9 of which: agriculture & forestry 236.6 240.6 245.2 249.6 251.3 manufacturing 172.3 177.1 180.8 184.0 182.9 community, social & personal services 213.8 221.6 229.3 239.4 247.8 trade, restaurants & hotels 136.2 141.7 144.3 147.3 149.1 Public sector 700.9 700.6 697.7 683.3 673.9 of which: community, social & personal services 474.2 480.2 482.8 474.8 417.1 agriculture & forestry 66.4 65.0 63.6 61.7 59.6 transport & communications 44.8 42.7 41.9 40.1 38.9 manufacturing 38.2 37.4 36.1 35.6 35.0 Self-employed & unpaid family workers 63.2 64.1 64.8 65.1 65.3 Total 4,325.8 4,698.4 5,083.2 5,477.5 5,893.0 % of male workforce (wage employment) 71.5 71.3 70.8 71.5 70.5 a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 3 Transport and communications 1996 1997 1998 1999 2000a Rail Passengers carried (‘000) 2,379 1,981 2,843 4,700 4,200 Freight carried (‘000 tonnes) 1,827 1,621 1,688 2,200 2,400 Road New motor vehicle registrations 28,664 29,893 31,718 27,892 20,236 Shipping Freight handled at Mombasa port (‘000 tonnes) 8,694 8,442 8,559 8,284 8,837 Air (Nairobi & Mombasa) Passengers carried (‘000) 2,691 2,835 2,873 3,557 3,990 Freight carried (‘000 tonnes) 65.5 67.2 62.9 130.6 145.4 Communications New radios sold & licensed (‘000) 163.1 172.1 74.6 95.1 99.2 New television sets sold & licensed (‘000) 35.8 44.3 28.4 35.4 38.1 Average daily newspaper circulation (‘000) 263.1 299.5 292.1 298.5 309.8 a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 4 National energy statisticsa (‘000 tonnes oil equivalent unless otherwise indicated) 1996 1997 1998 1999 2000b Total net imports 1,103 1,791 1,590 1,690 2,201 Local energy production 326 309 322 283 167 Hydro power 292 277 289 251 135 Geothermal power 34 32 33 33 32 Stock changes & production losses 407 195 –612 –361 –341 Total energy consumption 2,657 2,589 2,606 2,679 3,382 Coal & coke 89 92 73 72 66 Liquid fuels 2,231 2,175 2,199 2,312 3,129 Hydro & geothermal 338 322 334 296 186 Local production (% of total consumption) 12 12 12 11 5 Energy consumption per head (kg oil equivalent) 101 96 93 93 94

a Excluding fuel wood and charcoal. b Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 5 Government financesa (KSh m unless otherwise indicated) 1996/97 1997/98 1998/99b 1999/2000b 2000/01c Current revenue 145,503 166,104 179,717 177,785 199,287 Current expenditure 138,534 166,691 164,996 153,593 218,181 Current balance 6,968 –588 14,721 24,192 –18,894 Capital revenue 1,580 1,042 489 2,755 1,051 Capital expenditure 15,648 13,559 12,307 18,100 27,653 Net lending 3,087 1,146 3,028 1,599 1,953 External grants 5,783 5,272 4,920 4,247 21,133 Overall balance –4,404 –8,980 4,795 11,495 –26,317 % of GDP –0.8 –1.4 0.7 1.6 –3.3 Financing External loans (net) –6,634 –7,135 –16,523 –8,858 –28,762 Total domestic borrowing 19,102 11,222 11,194 24,657 –2,448 Long-term (net) –4,121 1,145 27,500 –9,135 –6,814 Short-term (net) 23,223 10,077 –16,306 33,792 4,366 Change in cash balances (– indicates increase) –8,064 4,892 534 –27,294 57,526 a Fiscal years starting July 1st. b Provisional. c Estimates.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 6 Government revenue and expenditure (KSh m unless otherwise indicated) 1996/97 1997/98 1998/99a 1999/2000a 2000/01b Revenue 147,084 167,146 179,952 180,541 200,339 Income tax 48,375 55,578 55,235 53,317 54,796 Sales tax/VAT 29,850 34,468 39,204 40,944 51,590 Customs & excise duties 46,281 55,549 57,177 57,098 63,372 Other licenses, fees, taxes & duties 2,523 2,298 3,912 3,121 3,820 Other revenue & income 20,055 19,253 24,423 26,061 26,759 Expenditure 154,183 180,251 177,299 171,694 245,835 Current expenditure 138,535 166,692 164,992 153,594 218,181 of which: consumption of goods & services 62,568 71,663 72,800 65,065 109,644 total interest payments (foreign and domestic) 33,645 39,813 36,089 28,917 31,128 transfers & others 42,321 55,155 56,064 53,410 77,209 Capital expenditure 15,648 13,559 12,307 18,101 27,654 Gross fixed capital formation 14,206 13,272 12,043 15,745 24,025 Capital transfers 1,441 287 264 2,356 3,628 Selected services (% of total expenditure) Education 18.2 14.7 19.5 21.2 15.5 Health 5.7 4.1 4.3 4.5 4.1 Housing 2.0 1.1 1.6 1.2 1.0 Roads, transport & communications 5.5 1.8 1.2 1.1 1.1 a Provisional. b Estimates.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 7 Money supply and credit (KSh m unless otherwise indicated; end-period) 1996 1997 1998 1999 2000 Moneya (M3) 267,828 294,052 303,750 312,116 314,686 % change, year on year 16.0 9.8 3.3 2.8 0.8 Total domestic credit 279,235 327,412 350,629 371,366 381,325 Central government & other public sector 73,761 82,665 90,067 86,656 83,789 Private sector 205,474 244,747 260,562 284,710 297,536

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

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 8 Interest rates (%; end-period unless otherwise indicated) 1996 1997 1998 1999 2000 91-day Treasury bills 21.5 26.4 11.1 20.5 13.5 Interbank rate 16.0 18.7 9.4 13.0 9.8 Commercial bank loans plus advances (maximum; under 3 years) 28.9 30.4 27.1 25.2 19.6 Commercial bank savings deposits (av) 11.2 9.7 8.0 6.2 4.5 Memorandum item Consumer price inflation (annual average) 9.0 11.2 6.6 3.5 6.2 Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 9 Gross domestic product at factor cost 1996 1997 1998 1999 2000a Total (KSh m) At current prices 449,621 536,264 593,353 637,362 672,219 At constant (1982) prices 98,152 100,473 102,253 103,701 103,357 Real change (%) 4.6 2.4 1.8 1.4 –0.3 Per headb (KSh) At current prices 17,095 19,788 21,267 22,208 22,943 At constant (1982) prices 3,732 3,707 3,665 3,613 3,527 Real change (%) 0.4 –0.6 –1.1 –1.4 –2.4

a Provisional. b Calculated using government population estimates.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 10 Gross domestic product by expenditure (KSh m; current prices) 1996 1997 1998 1999 2000a Private consumption 359,442 453,176 510,083 537,862 602,353 Government consumption 84,523 100,711 113,568 125,943 142,133 Gross fixed capital formation 104,469 109,870 113,858 112,923 116,555 Change in stocks 3,000 5,400 6,210 7,141 6,142 Exports of goods & services 172,459 174,846 171,895 188,693 208,800 Imports of goods & services –195,155 –220,768 –224,772 –232,232 –287,067 GDP at market prices 528,738 623,235 690,842 740,330 788,916

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 11 Gross domestic product by sector (KSh m; current prices) 1996 1997 1998 1999 2000a Agriculture, forestry & fishing 132,304 146,642 156,953 149,179 134,007 Mining & quarrying 741 815 823 993 1,143 Manufacturing 47,758 54,607 65,971 78,535 87,974 Electricity & water 4,400 4,840 5,444 5,756 5,913 Building & construction 20,014 21,263 23,933 27,070 29,134 Trade, restaurants & hotels 82,895 109,804 123,453 137,316 150,253 Transport, storage & communications 35,471 41,816 43,255 45,616 49,892 Finance, insurance, real estate & business services 55,719 68,747 75,010 76,078 69,750 Ownership of dwellings 26,132 29,058 30,614 33,391 37,048 Domestic services 5,683 6,175 6,710 7,294 7,929 Government services 56,884 70,382 83,075 88,909 95,071 Other services 16,372 19,973 23,721 27,790 33,152 Imputed bank service charges –36,107 –39,296 –47,127 –42,178 –30,758 GDP at factor cost (incl others) 449,621 536,264 593,353 637,362 672,219 a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 12 Consumer pricesa (Feb-Mar 1986=100 unless otherwise indicated; annual averages) 1996 1997 1998 1999 2000b Lower-income index 508.3 569.4 602.5 618.4 654.6 % change 8.8 12.0 5.8 2.6 5.9 Middle-income index 546.6 592.7 647.9 687.4 736.5 % change 9.8 8.4 9.3 6.1 7.1 Upper-income index 549.4 609.1 664.5 704.2 758.4 % change 8.9 10.9 9.1 6.0 7.7 Average (% change) 9.0 11.2 6.6 3.5 6.2

a Indices for Nairobi. b Provisional. Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 13 Real average wage earnings per employeea (KSh per year unless otherwise indicated) 1996 1997 1998 1999 2000b Private sector 86,268 103,708 124,933 146,051 168,300 % change n/a 20.2 20.4 17.0 15.2 Public sector 77,762 104,940 134,151 147,367 157,077 % change n/a 35.0 28.0 9.8 6.6

a Average current earnings adjusted for the rise in consumer prices. Based on January-June 1986. b Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 14 Agricultural productiona (KSh m unless otherwise indicated) 1996 1997 1998 1999 2000b Cereals 6,596 6,295 6,780 5,414 5,617 of which: maize 3,118 2,809 2,800 3,098 2,915 ‘000 tonnes 295.5 204.6 218.0 223.5 201.2 wheat 2,114 2,198 2,986 1,006 1,133 ‘000 tonnes 130.0 124.2 176.7 52.9 70.5 Other crops 44,214 50,058 63,912 52,854 59,209 of which: coffee 14,358 16,546 13,198 10,050 11,282 ‘000 tonnes 103.2 68.0 51.3 64.3 98.0 tea 20,336 23,636 39,138 31,087 35,970 ‘000 tonnes 257.2 220.7 294.2 248.8 236.3 sisal 546 786 796 874 810 ‘000 tonnes 28.1 20.1 18.1 21.9 21.4 sugarcane 7,126 6,644 7,968 7,639 7,942 m tonnes 3.9 4.3 4.6 4.4 3.9 Livestock & products 14,236 14,780 14,110 15,043 13,949 of which: cattle & calves 7,262 8,714 8,878 8,886 8,040 ‘000 head 1,219 1,320 1,800 1,805 1,908 dairy produce 3,864 2,862 1,946 2,693 2,051 m litres 257 197 126 180 137 Total 65,046 71,133 84,802 73,311 78,775

a Marketed. b Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 15 Forestry and fishing 1996 1997 1998 1999 2000a Forestry (‘000 ha) Area felled 0.6 7.2 5.6 5.5 n/a Area planted 0.2 0.2 0.2 0.2 n/a Total area remaining 159.6 152.6 147.2 141.9 n/a Wood processed (‘000 cu metres) 202.4 316.4 288.1 345.7 216.8 Softwood 193.7 314.5 287.3 345.7 216.8 Hardwood 8.7 1.9 0.4 0.0 0.0 Fish landed (tonnes) 181,334 178,913 172,845 213,396 209,916 Freshwater 175,071 172,784 167,847 208,164 204,430 Marine 4,915 4,790 3,966 4,090 4,261 Crustaceans 461 458 800 880 927 Other marine products 887 881 232 262 298

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 16 Mineral production 1996 1997 1998 1999 2000a Volume (‘000 tonnes) Soda ash 223.0 257.6 242.9 245.7 238.1 Fluorspar 83.0 68.7 60.9 93.6 100.1 Salt 41.0 6.3 21.7 44.9 16.3 Limestone products 31.9 32.7 32.0 32.0 32.0 Value (KSh m) 2,610 2,640 2,260 3,442 3,642 of which: soda ash 1,702 1,894 1,473 1,848 1,955 fluorspar 416 331 341 651 628 salt 31 24 66 136 52 limestone products 30 31 32 32 32

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 17 Industrial production (‘000 tonnes unless otherwise indicated) 1996 1997 1998 1999 2000a Refined petroleum products 1,761 1,647 1,722 1,786 1,909 Cement 1,816 1,507 1,426 1,291 1,145 Sugar 389 401 449 471 402 Maize meal 267 273 266 272 154 Wheat flour 227 245 230 225 189 Rice 15.0 10.9 10.6 5.7 4.9 Cigarettes (m) 8,436 8,898 7,599 7,231 n/a Beer (m litres) 276 270 263 188 203 Mineral water (m litres) 140 131 n/a n/a n/a Spirits (‘000 litres) 2,255 22,115 n/a 17,748 19,366 Industrial output index (1976=100) 272.9 278.1 282.2 285.6 281.4 % change 3.4 1.9 1.4 1.2 –1.5 Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 18 Construction statistics 1996 1997 1998 1999 2000a Reported building work completedb (KSh m) Private 1,465 1,610 1,530 1,275 994 Public 45.8 44.0 31.2 26.2 16.0 Government expenditure on roadsc (KSh m) New construction 3,990 2,766 2,870 2,686 5,908 Maintenance & repair 3,556 4,708 4,682 5,074 6,302 Cement consumption (‘000 tonnes) 1,161 1,137 1,071 1,014 846 Employment in building & construction (‘000) 78.8 79.8 79.3 78.7 78.0 a Provisional. b Nairobi, Mombasa, Nakuru, Kisumu and Malindi. c Fiscal years starting July 1st.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 19 Tourism statistics 1996 1997 1998 1999 2000a Tourist departures (‘000) 800.5 744.3 672.9 746.5 772.2 Average length of stay (days) 14.2 11.8 9.6 9.4 8.7 Beds occupied (‘000 bed-nights) 5,061 4,910 2,813 2,951 3,687 of which: Kenya 783 777 697 654 794 UK 934 956 516 399 559 Germany 1,276 1,135 419 536 605 France 278 268 123 138 213 Beds available (‘000 bed-nights) 11,355 9,517 7,976 8,711 9,382 Bed occupancy rate (%) 44.6 51.6 35.3 33.9 39.3

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 20 Banking statistics (KSh m unless otherwise indicated; year-end) 1996 1997 1998 1999 2000 Central Bank assets Foreign exchange 46,269 43,437 45,989 56,550 69,934 Advances to banks 9,056 9,124 1,140 904 4,884 Advances to government 29,993 5,367 6,609 6,664 8,595 Others (incl Treasury bills & bonds) 31,290 72,222 71,240 62,110 57,642 Central Bank liabilities Currency 36,338 43,172 44,486 50,157 51,914 Deposits 66,870 68,753 69,843 69,404 75,525 Others 11,728 15,961 6,812 1,790 8,275 Commercial banks Deposit liabilities 207,669 252,759 257,954 279,450 294,924 Liquid assets 89,213 94,161 99,113 111,245 125,721 Current liquidity ratio (%) 42 37 38 40 43 Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 21 Import and export prices (Feb-Mar 1982=100 unless otherwise indicated; annual averages) 1996 1997 1998 1999 2000a Exports 519 608 615 576 620 % change 6.1 17.1 1.2 –6.3 7.6 Imports 560 598 614 667 739 % change 9.2 6.8 2.7 8.6 10.7 Terms of trade All items 93 102 100 86 84 Non-oil items 95 108 96 90 89

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 22 Exports by value (KSh m; fob) 1996 1997 1998 1999 2000a Tea 22,705 24,126 32,971 33,065 33,150 Horticultural productsb 13,631 13,752 14,938 17,641 21,216 Coffee 16,427 16,856 12,817 12,029 11,707 Petroleum products 7,018 7,156 9,127 9,555 9,429 Fish & fish products 3,293 3,076 2,791 2,267 2,953 Cement 2,544 2,289 1,443 1,248 1,358 Soda ash 1,155 1,325 1,236 1,280 1,440 Pyrethrum extract 1,595 1,371 716 656 704 Sisal 814 723 689 636 606 Fluorspar 358 366 213 501 644 Tobacco & tobacco products 1,774 1,725 1,607 1,554 2,167 Total incl others 113,926 114,459 114,445 115,406 119,764

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

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 23 Main exports by volume (‘000 tonnes unless otherwise indicated) 1996 1997 1998 1999 2000a Cement 662 690 418 284 301 Horticultural productsb 304 193 232 200 194 Tea 262 199 264 246 217 Soda ash 197 213 214 213 236 Coffee 117 70 52 72 87 Fish & fish products 18 17 14 16 17 Petroleum products (m litres) 567 587 792 765 1,155

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

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 24 Imports by value (KSh m; cif) 1996 1997 1998 1999 2000a Industrial machinery 26,464 28,014 31,262 30,753 39,438 Refined petroleum products 12,964 12,189 16,318 18,433 21,773 Crude petroleum 13,504 16,825 15,036 22,355 41,907 Motor vehicles 16,485 14,312 14,681 11,906 9,659 Vegetable oils & fats 8,344 7,701 8,750 9,184 8,016 Iron & steel 9,634 10,759 7,900 9,103 8,604 Resin & plastics 7,281 7,337 7,128 7,083 8,446 Pharmaceuticals 5,157 5,563 6,559 6,373 5,976 Wheat (unmilled) 6,378 4,204 4,794 5,899 6,989 Maize 73 12,619 4,758 906 4,664 Sugar 1,733 1,421 4,232 1,468 2,730 Fertilisers 4,827 4,379 3,516 5,488 5,448 Paper & paper products 2,706 2,556 2,536 2,305 2,613 Total incl others 168,486 190,674 197,789 206,401 247,804

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 25 Main trading partners (KSh m) 1996 1997 1998 1999 2000a Exports to: Uganda 17,730 16,571 19,466 21,189 24,186 Tanzania 15,508 15,790 16,116 13,767 11,092 UK 12,332 13,884 16,228 17,014 18,655 Pakistan 5,258 5,172 8,276 9,020 9,986 Germany 8,820 7,651 5,550 5,773 5,577 EU 39,076 39,424 36,347 38,146 40,029 Imports from: UK 22,265 21,557 24,355 23,123 25,136 UAE 13,860 19,012 17,810 25,529 48,212 US 8,802 14,110 16,509 13,190 10,084 Japan 12,508 14,360 15,675 15,336 12,514 South Africa 12,773 21,753 14,198 17,134 16,586 EU 63,797 61,989 64,385 62,971 75,653

a Provisional.

Source: Central Bureau of Statistics, Ministry of Finance and Planning, Economic Survey, 2001.

Reference table 26 Balance of payments, IMF estimates (US$ m) 1995 1996 1997 1998 1999 Goods: exports fob 1,924 2,083 2,063 2,013 1,741 Goods: imports fob –2,674 –2,598 –2,948 –3,029 –2,570 Trade balance –750 –515 –886 –1,016 –829 Net services 156 82 91 172 329 Net income –325 –221 –232 –173 –163 Net current transfers 518 580 649 654 674 Current-account balance –401 –73 –377 –363 11 Net direct investment 33 13 18 11 11 Portfolio investment assets 6 8 34 1 –8 Other net investments 209 568 311 549 119 Capital account (net) 000055 Capital & financial balance 248 589 363 562 177 Net errors & omissions 11 –128 135 –126 –105 Overall balance –142 387 120 83 87 Financing (– indicates inflow) Movement of reserves 174 –378 –120 –74 –87 Use of IMF credit & loans –39 –25 –67 –63 –60 Liabilities & exceptional financing 7 16 –19 –25 103 Source: IMF, International Financial Statistics.

Reference table 27 External debt, World Bank estimates (US$ m unless otherwise indicated; debt stocks as at year-end) 1995 1996 1997 1998 1999 Public medium- & long-term 5,960 5,685 5,225 5,608 5,385 Official creditors 5,252 5,106 4,745 5,055 4,857 Bilateral 2,333 2,164 1,890 2,055 1,973 Multilateral 2,919 2,943 2,855 2,999 2,884 Private creditors 708 578 480 554 527 Private medium- & long-term 445 375 325 280 280 Short-term debt 634 534 803 859 826 of which: interest arrears 32163482116 Use of IMF credit 374 337 250 197 132 Total external debt 7,412 6,931 6,603 6,943 6,562 Principal repayments 600 567 449 421 541 Interest payments 301 277 221 191 175 of which: short-term debt 36 30 30 39 40 Total debt service (paid) 901 844 669 612 716 Ratios (%) Total external debt/GDP 85.3 77.3 64.0 61.5 62.6 Debt-service ratio, paida 30.3 27.8 22.3 21.2 26.7

Note. Long-term debt is defined as having original maturity of more than one year. a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, World Debt Tables.

Reference table 28 Net official development assistancea (US$ m) 1995 1996 1997 1998 1999 Bilateral 458.7 345.7 301.0 275.8 253.7 of which: Japan 198.4 92.8 68.8 52.6 58.6 Germany 52.3 53.5 43.7 39.0 37.2 UK 34.8 43.8 46.6 54.1 55.0 Netherlands 36.4 39.9 31.7 29.2 10.4 US 36.0 11.0 17.0 29.8 38.9 Multilateral 270.3 247.5 144.9 200.8 53.2 of which: IDA 149.6 145.5 72.3 108.4 55.1 EU 61.8 40.8 42.1 42.5 11.0 ADF 45.2 48.4 42.4 9.1 4.5 Total 730.6 590.6 444.6 474.7 308.0 of which: grants 462.4 387.7 381.0 348.0 333.8

a Disbursements minus repayments. Official development assistance is defined as grants and loans with at least a 25% grant element, provided by OECD and OPEC member countries and multilateral agencies, and administered with the aim of providing development and welfare in the recipient country. Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Reference table 29 Foreign reserves (US$ m unless otherwise indicated; end-period) 1996 1997 1998 1999 2000 Foreign exchange 728.0 770.6 765.0 772.2 881.2 SDRs 0.8 0.7 0.6 2.4 0.3 Reserve position in IMF 17.7 16.7 17.5 17.1 16.2 Total reserves excl gold 746.5 787.9 783.1 791.6 897.7 Golda 14.8 23.1 n/a n/a n/a Total reserves incl gold 761.3 811.0 n/a n/a n/a Memorandum item Gold (m fine troy oz) 0.08 0.08 n/a n/a n/a

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

Source: IMF, International Financial Statistics.

Reference table 30 Exchange rates (period averages unless otherwise indicated) 1996 1997 1998 1999 2000 KSh:US$ 57.1 56.4 60.4 70.3 76.2 KSh:£ 88.5 92.2 100.0 113.8 115.0 KSh:SDRa 79.2 89.9 87.2 100.1 101.67

a Year-end.

Source: IMF, International Financial Statistics.

Editors: Pratibha Thaker (editor); David Cowan (consulting editor) Editorial closing date: November 1st 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]