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Country Report Kenya at a Glance

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Country Report Kenya at a Glance Country Report November 2003 Kenya Kenya at a glance: 2004-05 OVERVIEW The honeymoon period enjoyed by the president, Mwai Kibaki, and his National Rainbow Coalition (NARC) coalition is well and truly over, and the president’s political skills will be sorely tested as he struggles to keep the fragile alliance together and kick-start the economy. The appointment of the respected but elderly Moody Awori as vice-president will help to cement party unity, particularly as he hails from the Liberal Democratic Party (LDP), the most fractious coalition member. Provided Mr Kibaki can hold the coalition together, NARC will be judged mainly on its performance in the economic arena. Key changes from last month Political outlook • Tension within NARC has declined following the decision by the LDP leader, Raila Odinga, to drop his quest to become prime minister, but inter- party scheming and jostling for advantage will continue throughout the forecast period. Economic policy outlook • The IMF has postponed a final decision for Kenya’s new, three-year, US$250m poverty reduction and growth facility (PRGF), from 5th November to 21st November, in order to conduct “further technical analysis”. The main problem is that in January 2003 the government negotiated with individual banks to secure new terms on commercial debt, rather than with the London Club as a whole, which violated the principle of equal treatment for all creditors. However, Kenya has made progress on a number of IMF demands and the Economist Intelligence Unit now expects the government to secure a new IMF agreement by the end of 2003, although it is likely to come with strict conditionalities attached and initial funds will not be disbursed until early 2004. Economic forecast • The resumption of donor support will provide the necessary boost to investor confidence, but the government’s ability to significantly stimulate demand via fiscal and monetary policy will be fairly limited: real GDP growth is forecast to rise from a low of 1.7% in 2003 to just over 3% per year in 2004-05. November 2003 The Economist Intelligence Unit 15 Regent St, 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 Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2003 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 0269-4239 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. Kenya 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2004-05 7 Political outlook 8 Economic policy outlook 10 Economic forecast 12 The political scene 19 Economic policy 23 The domestic economy 23 Economic trends 27 Agriculture and horticulture 28 Industry 29 Finance 30 Transport and communications 32 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 23 Gross domestic product by sector 24 Government finances 25 Government domestic debt, 2003 26 Monetary indicators 27 Exchange rate, 2003 28 Cash crop production 32 Balance of payments 33 FDI inflows into East Africa List of figures 12 Gross domestic product 12 Consumer price inflation 27 Inflation weights Country Report November 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 Kenya 3 Summary November 2003 Outlook for 2004-05 The honeymoon period enjoyed by the president, Mwai Kibaki, and his National Rainbow Coalition (NARC) coalition is well and truly over, and the president’s political skills will be sorely tested as he struggles to keep the fragile alliance together and kick-start the economy. The appointment of the respected but elderly Moody Awori as vice-president will help to cement party unity, particularly as he hails from the Liberal Democratic Party (LDP), the most fractious coalition member. Relations with donors should be normalised before the end of 2003, although a resumption of funds is not expected until early 2004. Combined with a favourable harvest, and provided that the economy makes gradual progress on a number of fronts, this should ensure real GDP growth of over 3% per year in 2004-05. The political scene The constitutional review has failed to make any progress, following the murder of the committee chairman, Crispin Odhiambo Mbai. Mr Kibaki has suspended half of Kenya’s top judges in one of the most significant steps to date in the fight against high-level corruption. The UN has warned of further terrorist attacks in East Africa. Economic policy The IMF had been expected to conclude a new three-year PRGF programme with Kenya in early November, but a final announcement was put on hold until later in the month pending the outcome of a debt sustainability study. An IMF agreement would facilitate the release of other donor funds and allow for a new round of debt rescheduling with official Paris Club creditors. Kenya’s position as one of the most corrupt countries in the world remains unchanged, according to a recent report by Transparency International. Tackling graft remains one of the government’s top priorities. The domestic economy Economic growth remained lacklustre in the first seven months of 2003, with real GDP growing by 1.4% (annualised), reflecting severe financial constraints, a downturn in tourism and low investor confidence. Inflation subsided between May and September but picked up again in October owing to the pre-harvest rise in cereal prices. Kenya has awarded a third mobile phone licence but the deal remains on hold pending legal action by a failed bidder. Foreign trade and payments Kenya’s current-account deficit is reported to have widened to US$126m in the year to July 2003, despite an improved surplus on invisible trade, as imports grew more strongly than exports. Tourism earnings have suffered a new setback with the suspension of flights to Mombasa by Europe’s leading charter company. According to UNCTAD, FDI inflows into Kenya remained muted in 2002 because of the high level of corruption, the suspension of donor funding and uncertainty in the run-up to the end-2002 election. Editors: Pratibha Thaker (editor); David Cowan (consulting editor) Editorial closing date: November 14th 2003 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report November 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 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; the draft of a new constitution was published in September 2002 National legislature Unicameral National Assembly of 210 elected members plus 12 nominated members, the attorney-general and the speaker; a multiparty system was introduced in December 1991 National elections Next presidential and legislative elections are to be held in December 2007 Head of state President, directly elected by simple majority and at least 25% of the vote in five of Kenya’s eight provinces National government The president and his cabinet, composed entirely of members of the National Rainbow Coalition (NARC) Political parties in parliament National Rainbow Coalition (NARC, 125 seats); Kenya African National Union (KANU, 64 seats); Forum for the Restoration of Democracy-People (Ford-People, 14 seats); Safina (2 seats); Ford-Asili (2 seats); Sisi Kwa Sisi (2 seats); Shirikisho (1 seat) President & commander-in-chief Emilio Mwai Kibaki Vice-president Moody Awori Key ministries Agriculture Kipruto Arap Kirwa Attorney-general
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