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

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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.

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The World Bank Assesses Governance in Kenya
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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.

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Summary Conclusions of the Kaufmann Report
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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."

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There's Hope -- and a List of Recommendations
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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

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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.

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Donors Agree: Lack of Leadership is the Problem
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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.

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World Bank: Realistic But Upbeat
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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

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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.

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World Bank and U.S. on Same Page
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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.

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Comment: A New Consensus on Engagement
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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