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COUNTRY REPORT Kenya Kenya at a glance: 2001-02 OVERVIEW Political stability in Kenya is not expected to improve greatly during the forecast period, when electoral pressures will intensify internal conflicts within the ruling Kenya African National Union and the opposition parties. Relations with the IMF will remain difficult, and the government’s hope for a resumption of donor support is highly unlikely to be fulfilled in 2001. Although economic reforms will continue to shape policy, divestment of state assets and retrenchment of the public sector will make only slow, if any, progress. The rate of real GDP growth is forecast to edge up gently to 2% in 2001 and accelerate to 3.5% in 2002, supported by higher agricultural and industrial output. However, lower external pressures on inflation, combined with fairly tight fiscal and monetary policy, should allow the inflation rate to fall in 2001-02. Key changes from last month Political outlook • The Kenyan government’s failure to push an anti-corruption bill—a crucial prerequisite for the resumption of IMF-World Bank support— through parliament on August 14th does not bode well for the country. Economic policy outlook • The current impasse between the IMF-World Bank and the Kenyan government is not expected to change for the remainder of this year. • Since access to external funds will be extremely limited, spending in the 2001/02 fiscal year will be subject to some cuts and the fiscal deficit will continue to be financed domestically. Economic forecast • The current-account deficit is now expected to widen from an estimated 1.3% of GDP in 2000 to 2.4% of GDP in 2001 and to 2.7% of GDP in 2002, largely because of smaller inflows of net transfers. August 2001 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 EIU delivers its information in four ways: through our digital portfolio, where our 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 © 2001 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 EIU does not accept responsibility for any loss arising from reliance on it. ISSN 0269-4239 Symbols in 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 2001-02 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 17 Economic policy 22 The domestic economy 22 Economic trends 23 Agriculture 24 Tourism 25 Energy 25 Infrastructure 26 Foreign trade and payments List of tables 10 International assumptions summary 11 Forecast summary 15 Corruption perceptions index 18 Government expenditure 19 Development expenditure, 2001/02 20 Government revenue 22 Gross domestic product 22 Monetary indicators 23 Proposed sugar import quotas 24 Tea production 25 Tourism statistics © The Economist Intelligence Unit Limited 2001 EIU Country Report August 2001 2 Kenya List of figures 12 Gross domestic product 12 Kenya shilling real exchange rates 20 Gross domestic product and manufacturing output EIU Country Report August 2001 © The Economist Intelligence Unit Limited 2001 Kenya 3 Summary August 2001 Outlook for 2001-02 Political instability in Kenya is not expected to improve greatly during the forecast period, when electoral pressures will intensify internal conflicts within the ruling Kenya African National Union and within the opposition parties. Relations with the IMF will remain difficult, and the Kenyan government’s hope for a resumption of donor support is unlikely to be fulfilled in 2001. Although economic reform will continue to shape policy, divestment of state assets and retrenchment of the public sector will make slow, if any, progress. The rate of real GDP growth is forecast to edge up gently, to 2% in 2001 and 3.5% in 2002, thanks to higher agricultural and industrial output. However, lower external pressure on inflation, combined with fairly tight fiscal and monetary policy, should allow the inflation rate to fall in 2001-02. The current- account deficit is forecast to increase slightly, owing to lower net transfers. The political scene President Moi’s decision to appoint members of the National Development Party to government has set the stage for a coalition-type government for the first time in Kenya’s post-independence history. Meanwhile, in mid-August the government failed to obtain the necessary two-thirds majority in parliament to pass the Anti-Corruption and Economic Crimes Bill. If passed, the bill would have led to the establishment of an anti-corruption authority, and paved the way for the resumption of donor support in September. Economic policy The government’s commitment to economic reform has been confirmed with the announcement of the budget for the 2001/02 fiscal year. But limited access to external funds will force the government to cut fiscal spending and continue to tap the domestic market to meet its financing needs. The domestic economy Real GDP is estimated to have contracted by 0.3% in 2000, with agriculture and manufacturing being most adversely affected. Inflation has continued its steady downward trend so far in 2001, and reached 7.2% in June owing to a substantial drop in food prices. The Kenya government has rejected an offer by the Egyptian company, Orascom, to purchase a 49% share in Telkom Kenya. A concerted effort by the government to promote tourism yielded positive results in the first half of 2001. Foreign trade and payments Trade relations between the United States and Kenya have improved significantly, following the introduction of the Africa Growth And Opportunity Act. This has been particularly beneficial for the textile industry in Kenya, which now enjoys duty-free access to the US market. The lifting of the ban on local fish by the EU has increased Kenyan fish exports. Editors: Pratibha Thaker (editor); David Cowan (consulting editor) Editorial closing date: August 14th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule © The Economist Intelligence Unit Limited 2001 EIU Country Report August 2001 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; a new constitution is expected to be in place by December 2001 National legislature Unicameral National Assembly of 210 elected members, 12 nominated members, the attorney-general and the speaker; a multiparty system was introduced in December 1991 National elections December 1997 (presidential and legislative); next elections due by end-2002 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 ruling Kenya African National Union (KANU); last major reshuffle in September 1999, when the number of ministries was reduced from 27 to 15 Political parties in parliament KANU (117 seats); Democratic Party (DP, 40 seats); National Development Party (NDP, 22 seats); Forum for the Restoration of Democracy (Ford-Kenya; 18 seats); Social Democratic Party (SDP, 14 seats); Safina (5 seats); Ford-People (3 seats); Ford-Asili (1 seat); Kenya Social Congress (KSC, 1 seat); Shirikisho (1 seat) President & commander-in-chief Daniel arap Moi Vice-president George Saitoti Key ministers Agriculture, livestock Bonaya Adhi Godana, & rural development Hussein Maalim Mohammed Education, science & technology Henry Kosgey Energy Raila Odinga Environment & natural resources Kipng’eno arap N’geny, Francis Nyenze, Jackson Kalweo Finance & planning Chrysanthus
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