COUNTRY REPORT Kenya Kenya at a glance: 2002-03 OVERVIEW Kenya’s political instability will increase as the main parties prepare for the country’s presidential and parliamentary elections at end-2002. The imminent merger of the ruling party, Kenya African National Union (KANU), and the National Development Party (NDP) will secure the ruling party’s position at the elections. Uncertainty over who will succeed the president, Daniel arap Moi, will dominate domestic politics. The Economist Intelligence Unit expects that the government will continue to broadly follow the commitments it made to secure an IMF poverty reduction and growth facility. Real GDP is forecast to recover gently provided that donor funding is resumed. The overall current-account deficit is forecast to improve from 3% of GDP in 2002 to 2.6% of GDP in 2003, thanks to rising exports, net transfers and tourism receipts. Key changes from last month Political outlook • Recent developments indicate that KANU has launched a covert operation to reduce the influence of some of its key members. The campaign to dislodge the old guard and put the party on an election footing will continue to be championed by the party’s Young Turks. Opposition parties will continue to form alliances to increase their electoral prospects at the next general election. Economic policy outlook • We expect that in 2002-03 the government will continue broadly to follow the commitments it made to secure an IMF poverty reduction and growth facility. Economic forecast • In line with the recent official estimate of 0.8% real GDP growth in 2001, we have lowered our forecasts for growth in 2002 and 2003 to 1.4% and 2.8% respectively. February 2002 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 © 2002 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 2002-03 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 17 Economic policy 20 The domestic economy 20 Economic trends 21 Agriculture 24 Infrastructure 25 Foreign trade and payments List of tables 10 International assumptions summary 11 Forecast summary 19 Corruption in Kenya 21 Government domestic debt structure 22 Coffee production 23 Tea exports 23 Flower exports List of figures 12 Gross domestic product 12 Kenya shilling real exchange rates 21 Government domestic debt 22 Coffee prices EIU Country Report February 2002 © The Economist Intelligence Unit Limited 2002 Kenya 3 Summary February 2002 Outlook for 2002-03 Political instability will increase in Kenya as the parties prepare for the country’s presidential and parliamentary elections at end-2002. The imminent merger of the ruling party, Kenya African National Union (KANU), and the National Development Party (NDP) will secure the ruling party’s position at the elections. Uncertainty over who will succeed the president, Daniel arap Moi, will dominate domestic politics. We expect the government to continue broadly to follow the commitments it made to secure an IMF poverty reduction and growth facility. Real GDP is forecast to recover gently, provided donor funding is resumed. Private-sector activity and investment should also increase as the government makes progress with its long-delayed privatisation programme. The overall current-account deficit is forecast to improve from 3% of GDP in 2002 to 2.6% of GDP in 2003, thanks to rising exports, net transfers and tourism receipts. The political scene Plans for the imminent merger of KANU-NDP, which is backed by the large Luo tribe, have been announced. In the complex equation of Kenya’s tribally based politics, the move has improved the government’s prospects of retaining power in the next elections. Opposition parties have been forming alliances to improve their electoral prospects. Economic policy Mr Moi has recently appointed a team of international experts to find new ways to fight corruption in the government’s latest attempt to win back donor funds. The High Court’s decision to annul the controversial Donde act has been welcomed by the country’s banks and businesses. The domestic economy Real GDP is estimated to have expanded by only 0.8% in 2001, confirming that the economy is recovering at a much slower rate than the Central Bank of Kenya had hoped. The government has continued to finance the budget deficit virtually entirely by borrowing on the domestic market. As international coffee prices remain at a record low, the European Commission has released a second payment of KSh500m (US$6.3m) to compensate coffee farmers. Tea and horticultural production were strong in 2001. The privatisation of Telkom Kenya has fallen behind schedule. Foreign trade and payments The East African trade agreement has failed to make any progress, as both the Ugandan and Tanzanian governments have complained that Kenya’s strong economic position would harm their regional trading prospects. Kenya’s clothing exports have benefited strongly from the US’s Africa Growth and Opportunity Act. Editors: Pratibha Thaker (editor); David Cowan (consulting editor) Editorial closing date: February 11th 2002 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule EIU Country Report February 2002 © The Economist Intelligence Unit Limited 2002 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 Energy Chrysanthus Okemo Environment & natural resources Kipng’eno arap N’geny, Jackson Kalweo, Joseph Kamotho Finance & planning Chris Obure Foreign affairs & international co-operation Marsden Madoka Public health Sam Ongeri Home affairs, heritage & sport Noah Katana Ngala Transport & communications Musalia Mudavadi Labour & human resource development Isaac Ruto, Joseph Ngutu Lands & settlement Joseph Nyagah Local government Uhuru Kenyatta Office of the president Julius Sunkuli, Shariff Nassir, William ole Ntimama, Joseph Nyaga Roads & public works William Morogo Rural development