NAIROBI INPUT FOR 2006 PRESIDENT'S REPORT ON AGOA

UNCLAS SECTION 01 OF 02 NAIROBI 001048

SIPDIS

DEPT FOR AF/E, AF/EPS, AF/PD
USAID FOR AFR/EA

E.O. 12958: N/A
TAGS: ETRD ECON EAID PREL KE
SUBJECT: NAIROBI INPUT FOR 2006 PRESIDENT'S REPORT ON AGOA

REF: STATE 26707


1. In response to reftel, please find at para 2 Post's
input for the President's report to Congress on Kenya's
political and economic climate as it relates to AGOA
eligibility. This text has also been sent by e-mail to
AF/EPS and AF/E. In addition, please note that this
mission, through USAID-Kenya, and USAID's Regional Economic
Development Services Office (REDSO) fund programs designed
to facilitate the expansion and diversity of AGOA exports
from Kenya. Information on these programs was also
included in the e-mail to AF.


2. Begin Text of Post's Draft:
Status: AGOA eligible, including for textile and apparel
benefits.

AGOA Trade and Investment: [Trade figures to be updated by
USTR.] Kenya's 2003 exports under AGOA and its GSP
provisions, mostly apparel, were valued at $184 million,
representing 74 percent of total Kenyan exports to the
United States. The government reports that AGOA-related
employment was over 37,000 by 2003 but this had declined to
32,000 in 2004. There are credible reports of textile
factories shutting down and additional lay-offs as a result
of the January 1, 2005 end of global quotas for most
textile trade.

Market Economy/Economic Reform/Elimination of Barriers to
U.S. Trade: The government has made limited progress on
economic and market reform. Despite a bloated public
sector, Kenya has a fairly diversified economy for domestic
production and services. Kenya's major foreign currency
earners are tea, horticulture, and tourism. A new
Privatization Act entered into force in November 2005 to
accelerate the long-delayed privatization of state-owned
enterprises. The Kenyan government is expected to publish
a comprehensive list of firms to be privatized in the
coming years. The state owned railways will be
concessioned in 2006, and two significant parastals -
Telekom Kenya, the monopoly fixed-line telephone company,
and the Kenya Power and Light Company, the monopoly power
distribution firm, will likely take steps towards partial
privatization, as well. The East African Community's
Customs Union began enforcing common external tariffs on
January 1, 2005, and has begun efforts to harmonize some
business and industry regulations, including those covering
civil aviation. Kenya does not participate in the HIPC
program, and despite official appeals for relief, the
country's external debt is manageable. U.S. investment in
Kenya is modest, but includes the manufacture of consumer
goods, automobile assembly, and processed agriculture
items, as well as participation in the tourism sector. The
enforcement of intellectual property rights (IPR) remains
weak, but the government is working to amend existing laws
and to empower police and other law enforcement agencies to
better protect IPR. In 2005, the Kenya Bureau of Standards
contracted with two private companies to institute a new
Pre-shipment Inspection regime. Following the introduction
of the program some importers have complained that the GOK
continues to charge Import Documentation Form fees in
addition to fees paid directly to the two contract
companies, viewing this as a form of "double taxation."

Political Pluralism/Rule of Law/Anti-Corruption: In
December 2002, Kenya held presidential and parliamentary
elections that the international community judged free and
fair. A new coalition government, headed by now-President
Mwai Kibaki was formed. National elections, in which some
70 political parties are expected to present candidates for
local and national offices, are next scheduled for December

2007. The official opposition is active and can influence
policy debates. In November 2005, Kenyans rejected a
proposed new constitution, which was supported by President
Kibaki. Kenya is making some progress toward improving the
rule of law. The Judiciary is mostly free from executive
branch influence. Corruption remains a significant problem
in Kenya. In January 2006, a former Permanent Secretary in
charge of Governance and Ethics released documents
detailing corruption and cover up at the highest echelons
of the Kibaki administration. As a result, three
implicated ministers resigned in February. A 2005
Transparency International Kenya survey found that, while
incidents of petty bribery were on the decline, large-scale
graft was on the increase. The Kenya Anti-Corruption
Commission has begun to take investigatory action against
senior government officials who fail to accurately account
for their assets. In November 2005 the Public Procurement
and Disposal Act became law. It is designed to close
loopholes for graft in the government procurement of goods
and services, one of the most widely exploited avenues for
large scale corruption throughout Kenya's history. Much
needed and long-delayed anti-money laundering legislation
could be presented to Parliament in 2006.

Poverty Alleviation: Kenya remains a very poor country,
with 56% of the population living on a dollar a day or
less. The government has a mixed record of implementing
its pro-poor Economic Recovery Strategy, which was designed
jointly with the World Bank and IMF in 2003. The
introduction of universal, free public primary education in
January 2003 remains one of the government's most notable
achievements, but primary education remains seriously under
funded and secondary education is beyond the means of many
Kenyan families. Kenyans in a number of regions will face
the continuation of a serious, three-year drought, which
will reduce real incomes and erase meager assets for
millions of Kenya's poor. In 2005 Kenya's civil service
received pay raises, but the income disparity between low
income and middle to upper income earners is wide and
increasing.

Labor/ Child Labor/ Human Rights: Kenya's overall human
rights record remains mixed. Freedom of expression and
political participation continues to expand, and
politically-motivated violence has diminished in recent
years. However, trafficking in persons, child labor, and
sex tourism remain problematic. Though prison conditions
have improved over the last two years, they remain harsh
and life-threatening. Police continued arbitrarily to
arrest and detain persons; however, unlike in previous
years, there were no reports that security forces arrested
political activists. The government has arrested and
prosecuted a number of police officers for abuses; however,
most police who committed abuses were neither investigated
nor punished. Lengthy pretrial detention is a problem. In
2005, violence marred some political campaigns and on a few
occasions, the government restricted freedom of speech,
press, assembly, and association. Police disrupted public
meetings and forcibly dispersed demonstrators and
protesters. Violence and discrimination against women and
abuse of children remain serious problems. The government
has not moved forward revisions to the labor law, as
expected since 2003. However, some steps have been made in
the past year to improve the sometimes-poor working
conditions in the Export Processing Zones (EPZs). Kenya
has ratified ILO conventions 29 on forced labor, 105 on
prohibitions on forced or compulsory labor, and 182 on the
worst forms of child labor. Kenya has not ratified the ILO
convention No. 87 on freedom of association and protection
of the rights to organize nor convention No. 98 on the
right to organize and collective bargaining. Cases of
forced labor have also been documented. Child labor is a
problem in the informal sector, including child
prostitution. International Labor
Organization/International Program on the Elimination of
Child Labor (ILO/IPEC) programs have been launched to
address the child labor problem in several specific
economic sectors. Child employment is prohibited by Kenyan
law, but enforcement is not vigorous, and children continue
to be employed in informal sector and as domestic workers.
All children are required to attend primary school (grades
1-8).

End Text.

BELLAMY