GOVERNANCE REPORT HELPS CRYSTALIZE DONOR CONSENSUS ON THE

UNCLAS SECTION 01 OF 03 NAIROBI 000871 SIPDIS SENSITIVE SIPDIS DEPT FOR AF/E, AF/EPS, EB/IFD/OMA USAID FOR AFR/DP WADE WARREN, AFR/EA JEFF BORNS AND JULIA ESCALONA TREASURY FOR VIRGINIA BRANDON LONDON AND PARIS FOR AFRICA WATCHERS E.O. 12958: N/A TAGS: ECON EAID EFIN KCOR PGOV KE SUBJECT: GOVERNANCE REPORT HELPS CRYSTALIZE DONOR CONSENSUS ON THE WAY FORWARD IN KENYA NAIROBI 00000871 001.2 OF 003 ¶1. (SBU) Summary: A comprehensive World Bank assessment of governance in Kenya, still in draft, concludes that the control of corruption in Kenya improved in the early years of the Kibaki administration, but has since stagnated. Graft has not, however, returned to the levels seen under previous Kenyan regimes. Moreover, the so-called Kaufmann report makes a number of level-headed recommendations for improving governance in Kenya. Just as important, it provides an organized intellectual framework for a new and evolving consensus among Kenya's major donors, including the World Bank and the United States, on how to engage with Kenya on governance more generally. This new consensus acknowledges that serious deficiencies in "political will" remain at the leadership level. But it also recognizes that there are important underlying positive changes underway in Kenya, and that these are worthy of targeted donor support. End summary. -------------- The World Bank Assesses Governance in Kenya -------------- ¶2. (SBU) At the request of the Government of Kenya (GOK) for an empirical evaluation of the country's governance performance, the World Bank launched a governance assessment mission to the country in June-July 2006. The mission was led by Dr. Dani Kaufmann, Director of Global Programs at the World Bank Institute, and a leading world expert on governance and anti-corruption. ¶3. (SBU) The mission subsequently produced an exhaustive 170-page report, "An Initial Governance Assessment for Kenya" (aka the Kaufmann report),which was handed over to the GOK leadership in October for comment and input. While the Bank waits for this, the document remains in draft and is not for public dissemination. However, prior to a February 13 donor meeting which featured a briefing by the visiting Kaufmann, the Bank circulated the draft assessment and related documents to donor missions in Nairobi. This cable draws from the assessment and puts it into the context of an emerging new consensus in the donor community in Kenya on how best to engage with the country in light of ongoing governance concerns and deficiencies. -------------- Summary Conclusions of the Kaufmann Report -------------- ¶4. (SBU) The Kaufmann report comes to the following conclusions, in outline: -- Stagnating governance: Corruption declined "somewhat" in 2003-2004, after the NARC administration came to power, but since then, corruption control appears to have stagnated, or worse. Empirical data suggests deterioration in bribery in the judiciary and in procurement. That said, there has not been a full reversal to the extremely high levels of corruption prevailing under previous regimes. -- Prioritization, Implementation, Leadership Lagging: The GOK'S recently launched Governance Action Plan (GAP) does well by identifying many needed actions on the corruption and governance fronts, and it illustrates the good technical skills of the GOK bureaucracy in drafting such plans and strategies. But plans such as the GAP also negatively illustrate the inability to prioritize, with little distinction between "first-order" measures and other actions. Moreover, "decisive implementation" is often subpar. This "underperformance" is not due to capacity constraints, but is more often the result of entrenched vested interests, distorted incentives, and "leadership constraints." -- Leadership, Transparency and Accountability: Kenya faces deficiencies in each one of these areas. Reforms in the institutions of accountability, such as the judiciary, are especially hard when vested interests are entrenched. But reforms are possible with dedicated focus, a clear strategy, and leadership by "champions of change." -------------- There's Hope -- and a List of Recommendations -------------- ¶5. (SBU) Following on this last point, the Kaufmann report points out the possibility for positive change in Kenya, even in the short-term context of election-year politics. It recommends the following broad areas in which specific measures to improve NAIROBI 00000871 002.2 OF 003 governance and combat corruption in Kenya can and should be taken. Later in the report, it provides a list of concrete actions the GOK can and should take in the short-term, drawn from it's own Governance Action Plan: -- Procurement Reforms: Kenya's new law and regulations for government procurement, an area extremely vulnerable to corruption, should be implemented quickly and effectively. -- Reform of the full "judiciary chainQ Kenya's justice system is weak throughout the whole judiciary chain, from investigation, to prosecution, to the court process. The report lists a number of specific measures the judiciary can and should take to improve its performance in delivering justice. -- Transparency: A number of concrete transparency reforms, which could be easily implemented administratively offer promise in the short term, "in spite of the prevailing political realities." These transparency-related reforms should include adoption and implementation of a Freedom of Information Act and greater public disclosure of assets by public officials and legislators. -- Independence of Key Institutions: The GOK can and should ensure the full autonomy, independence, and adequate funding of key oversight institutions, including the Human Rights and Electoral commissions, and the Central Bank of Kenya. It should also ensure the independence and protection of the media. -- Regulatory Reform: The GOK can and should accelerate progress in deregulating the economy in light of the extensive burden of red tape that stifles business investment and breeds corruption. It should also renew and accelerate privatization efforts. -- Sectoral Focus: The GOK should give priority to particular sectors, such as health and transport sectors, traditionally vulnerable to graft, in order to improve safeguards for projects and investments in these key sectors. -------------- -- Donors Agree: Lack of Leadership is the Problem -------------- -- ¶6. (SBU) In the ensuing open discussion, an unspoken consensus formed around some of the key conclusions of the Kaufmann report. Ambassadors from several major donor countries expressed ongoing frustration with Kenya's unmet potential, lamenting not so much lack of capacity, but lack of what some called "political will"; others called it "leadership," or "commitment." Kaufmann agreed, saying "Kenya is not where it should be," even in comparison with the rest of sub-Saharan Africa. World Bank Country Director Colin Bruce urged donor colleagues to forget about regional comparisons and to push a common theme in discussions with the Kenyan political leadership. That theme: That the leadership is not doing as well as it could, nor as well as Kenyans themselves expect. -------------- World Bank: Realistic But Upbeat -------------- ¶7. (SBU) At the same time, Bruce and others emphasized in this and previous Nairobi-based donor discussions that because the GOK is not monolithic under the current administration, there exist many opportunities to engage in Kenya with reform-minded officials and with civil society to advance the cause of anti-corruption and improved governance. In a lunch the same day with the Ambassador, Bruce noted that the Bank is likely to approve additional loans before June to bring total disbursements for 2006-2007 up to $600 million. New credits would be in the areas of governance, health, including HIV/AIDS, community development, flood infrastructure in Western Kenya, and additional support for the Northern Transport Corridor. To this will added another $400 million in new project loans between June 2007 and June 2008. (Note: All of this would be on top of the Bank's current loan portfolio of $675 million in Kenya as of February 2007. End note) ¶8. (SBU) While striking, this imminent activity doesn't represent a significant ramping up of Bank engagement, Bruce said, but rather the clearing out of projects that were already in the pipeline, but delayed due to earlier Bank concerns about governance and corruption in Kenya, both at the macro and project levels. (Note: The Bank did not bring a single credit proposal for Kenya to its board between October 2004 and January 2006. End note). After much NAIROBI 00000871 003.2 OF 003 soul-searching and many internal audits, the Bank has decided to move ahead in Kenya, but on a selective basis, investing where it thinks money will be well spent and accounted for by its Kenyan partners. -------------- World Bank and U.S. on Same Page -------------- ¶9. (SBU) In this light, Bruce remarked that his thinking parallels exactly that of the U.S. Mission, as captured in the Ambassador's November 2006 policy address to the American Chamber of Commerce in Kenya. The message there: Despite serious governance challenges in Kenya, the overall direction of change is positive; Kenya's international friends and partners must therefore support the country in ways that advance these positive long-term trends. Bruce liked the speech so much he e-mailed excerpts to World Bank President Paul Wolfowitz. -------------- Comment: A New Consensus on Engagement -------------- ¶10. (SBU) What is striking here is the emergence of a new consensus on engagement in Kenya on the part of the country's key development partners, including two of the biggest, the U.S. and the World Bank. Twelve months ago in the midst of graphic public revelations documenting high-level corruption in the Kibaki administration, the debate among donors was simpler, but more heated and polemical: Should we stay or should we go? Since then, the debate has slowly become more nuanced, and it has now been given a strong intellectual footing in the analysis and recommendations found in the Kaufmann report. This new consensus is still tinged with frustration over the country's leadership deficit and Kenya's consequent underperformance. But it is sober, realistic, and balanced. It takes into account two important facts: First, that there are important positive changes occurring in the country quite apart from the self-serving maneuverings of the political elite. Second, donors now increasingly see that these positive changes can and should be reinforced and encouraged by carefully targeted support from Kenya's friends in the international donor community. ¶11. (SBU) Finally, we note that the recently approved Millennium Challenge Account Threshold Program for Kenya is in perfect synch with several of the conclusions and recommendations of the Kaufmann report. The Threshold Program for Kenya partners the U.S. with carefully selected champions of change, focuses on government procurement, and targets procurement in health, a developmentally important sector, but one traditionally vulnerable to graft. Ranneberger