Country Report 2Nd Quarter 1998 © the Economist Intelligence Unit Limited 1998
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COUNTRY REPORT Kenya 2nd quarter 1998 The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. 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ISSN 0269-4239 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Kenya 1 Contents 3 Summary 4 Political structure 5 Economic structure 6 Outlook for 1998-99 8 Review 8 The political scene 13 The economy 16 Finance 19 Agriculture 20 Energy, transport and tourism 21 Regional co-operation and foreign debt 23 Quarterly indicators and trade data List of tables 7 Forecast summary (domestic) 8 Forecast summary (external) 17 Kenyan budget developments 22 External debt 23 Quarterly indicators of economic activity 24 Trade with main partners 25 Direction of trade List of figures 8 Gross domestic product 8 Kenya shilling real exchange rate 15 Monetary indicators EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Kenya 3 June 1st 1998 Summary 2nd quarter 1998 Outlook for 1998-99: The government has set out a prescription for economic recovery, but it can be successfully implemented only if President Moi manages to keep the lid on tensions within his own cabinet. The continued vacancy in the vice-presidency will ensure that the succession issue dominates the political scene. The IMF will reach agreement on a renegotiated ESAF loan by the end of the year, despite shortcomings on governance reform. Economic confidence will be restored only if tough plans for reducing government spend- ing are put into practice. Real GDP growth should improve marginally in 1998 and 1999 after recovering from the disastrous impact of the El Niño rains. The current account will remain in substantial deficit but will be easing over the two-year period thanks to depreciation in the shilling and improved food production. The political scene: Tensions are rising within KANU. President Moi faced his first open rebellion by party members in 20 years in office over his manage- ment of the economy. At the same time, one possible successor, the finance minister, Simeon Nyachae, has in turn earned disfavour with the president over his handling of economic policy. Other contenders for the presidency, including George Saitoti and Musalia Mudavadi, have kept out of trouble, although the Goldenberg financial scandal, hearings on which have resumed, may yet be Mr Saitoti’s downfall. The president has encountered criticism for his failure to restore order in the Rift Valley. The economy and finance: Mr Nyachae has signalled his intention to reduce budget spending, including the cancellation of pay rises awarded last year, notably to teachers who were promised an increase of 150-200% over five years. The unions have made it clear they will protest. The government’s heavy dom- estic borrowing to finance the deficit has reached unsustainable levels and severely crowded out private investment. Tight monetary policy is keeping inflation at manageable levels. The auditor-general has reported malpractice and negligence within virtually every government department. Agriculture, energy, transport and tourism: Almost one-quarter of the harvests of grain, wheat and beans has been lost because of heavy rains, but the tea harvest is at a record high. Delays at Mombasa port have forced three major shipping lines to impose surcharges on their customers. Energy-sector reforms are scheduled with financial assistance from the World Bank. The Serena Hotels group estimates its tourist revenues are down 30-40%. Regional co-operation and foreign debt: Kenya, Uganda and Tanzania are to harmonise their fiscal years by producing budgets on June 11th. Kenya’s attempts at conflict resolution in Somalia and Sudan produced little tangible progress. External-debt service has been falling and the government is broadly meeting its repayment commitments. Editor: James Walker All queries: Tel: (44.171) 830 1040 Fax: (44.171) 830 1083 EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 4 Kenya Political structure Official name Republic of Kenya Form of state Unitary republic Legal system Based on English common law and the 1963 constitution National legislature Unicameral National Assembly of 210 elected members, 12 presidential appointees, the attorney-general and the speaker. Multiparty system introduced in December 1991 National elections December 1997 (presidential and legislative); next elections due by January 2003 (presidential and legislative) Head of state President, elected by direct universal suffrage National government The president and his cabinet; the present government was appointed January/February 1998 and is composed entirely of members of the ruling Kenya African National Union (KANU) Main political parties KANU (113 seats); Democratic Party (DP, 41 seats); National Development Party (NDP, 22 seats); Forum for the Restoration of Democracy (Ford)-Asili (1 seat); Ford-Kenya (18 seats); Ford-People (3 seats); Social Democratic Party (SDP, 16 seats); Safina (6 seats) President & commander-in-chief Daniel arap Moi Vice-president vacant Key ministers Agriculture Wycliffe Musalia Mudavadi Co-operative development Frederick Amukowa Anangwe East African & regional co-operation Nicholas Biwott Education & human resources Stephen Kalonzo Musyoka Energy Chrysanthus Okemo Environmental conservation Francis Nyenze Finance Simeon Nyachae Foreign affairs Bonaya Adhi Godana Health Jackson Kalweo Home Affairs Shariff Nassir Industrial development Yekoyada Masakhalia Information & broadcasting Joseph Nyagah Labour Joseph Ngutu Lands & settlement Noah Katana Ngala Local authorities Samson Ongeri Natural resources Francis Lotodo Office of the president Gideon Ndambuki Marsden Madoka Planning & national development George Saitoti Public works & housing Kipkalia Kones Regional development Hussein Maalim Mohamed Research, training & technology Andrew Kiptoon Tourism Henry Kosgey Trade Joseph Kamotho Transport & communications William ole Ntimama Water resources Kipng’eno arap N’geny Attorney-general Amod Wako Head of the civil service Fares Kuindwa Central Bank governor Micah Cheserem EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Kenya 5 Economic structure Latest available figures Economic indicators 1993 1994 1995 1996 1997a GDP at market prices (KSh bn) 333.6 400.7 455.7 517.9b 541.2 Real GDP growth (%) 0.4 2.7 4.4 4.6 2.9 Consumer price inflation (%) 45.8 29.0 0.8 8.8 12.0c Population (m) 25.3 26.1 27.0 27.8 28.7 Exports fob ($ m) 1,263 1,537 1,914 2,071 2,062 Imports fob ($ m) 1,511 1,776 2,653 2,582 2,724 Current account ($ m) 71 98 –480 –166 –458 Reserves excl gold ($ m) 406 558 353 747 580 Total external debt ($ bn) 7.12 7.15 7.35 6.89 6.77 External debt-service ratio, paid (%) 26.9 32.8 30.2 27.6 25.1 Industrial output index (1990=100) 107.1 109.1 113.1 117.2 120.7 Marketed tea production (’000 tonnes) 211.1 209.5 244.5 257.2 220.0 Coffee productiond (’000 tonnes) 79.9 95.4 97.0 82.9 65.0 Tourist departures (’000) 536 676 503 555 420 Exchange rate (av; KSh:$) 58.00 56.05 51.43 57.12 58.73c June 1st 1998 KSh62.775:$1 Origins of gross