EXPANDED KENYAN CABINET MIGHT COST EXTRA $600 MILLION A

UNCLAS NAIROBI 001227

SENSITIVE

DEPT FOR AF/E, AF/EPS, EEB/IFD/OMA
DEPT ALSO PASS TO USTR FOR BILL JACKSON
TREASURY FOR VIRGINIA BRANDON
COMMERCE FOR BECKY ERKUL

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV ELAB KE
SUBJECT: EXPANDED KENYAN CABINET MIGHT COST EXTRA $600 MILLION A
YEAR

SENSITIVE BUT UNCLASSIFIED. FOR USG USE ONLY.

REFS: A) NAIROBI 1126, B),NAIROBI 1041, C) NAIROBI 355

Summary
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1. (SBU) The new 92-person Kenyan Cabinet represents 42% of
Parliament and is the largest, most expensive in Kenya's history.
The Grand Coalition Cabinet and government could cost Kenyan
taxpayers up to $5.82 billion/year, about $594 million more than the
previous one. This extra cost is probably manageable, but it adds
fiscal strain at a time when the Government also needs resources for
post-crisis reconstruction. Ordinary Kenyans, while glad to have
peace, are angered at the high price paid in the form of a bloated
cabinet. End summary.

Grand Coalition Government Biggest Ever...
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2. (U) On April 13, Kenyan President Mwai Kibaki named the Grand
Coalition Cabinet worked out with opposition leader Raila Odinga
under the agreement brokered by Kofi Annan and enacted under the
National Reconciliation Accord Act. Kibaki named one Prime Minister
(PM),two Deputy PMs, 39 Cabinet Ministers, an Attorney General and
52 Assistant Ministers. The government was expanded by splitting up
five ministries, creating four new ministries, and by redistributing
the functions formerly carried out by 35 agencies (refs A and B).
Of the 222 Members of Parliament, 92 (about 42%) are Cabinet
members, making this the largest, and almost certainly the most
expensive government in Kenya's history. The new Coalition Cabinet
is evenly divided between the Party of the National Unity (PNU - an
umbrella of several parties that support Kibaki) and the Orange
Democratic Movement (ODM) coalition that supports PM Raila Odinga.
The Coalition Cabinet was sworn into office on April 17. On April
21, President Kibaki appointed a head of civil service, 43 Permanent
Secretaries (PS),and 21 Secretaries, 11 of whose positions were
newly created.

Cabinet Costs Up 19%
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3. (U) In 2007, the Cabinet was comprised of a Vice President, 33
Cabinet Ministers, 50 Assistant Ministers, 34 Permanent Secretaries
and 10 Secretaries, and was considered large. Using existing data
on government salaries and benefits, we believe that if one includes
the Cabinet members' pre-existing base salaries as Members of
Parliament, the Cabinet itself cost Sh1.53 billion/year, or $24.2
million. Using the standard set of allowances and perks for each
level, we believe the new National Coalition Cabinet of a Vice
President, one Prime Minister, two Deputy Prime Ministers, 39
Cabinet Ministers, 52 Assistant Ministers, 43 Permanent Secretaries
and 21 Secretaries will cost Sh1.8 billion/year ($28.7 million),a
$4.5 million, or 18.6%, increase.

Guesstimated Cost of New Government Up 10.5%
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4. (U) Calculating the greater total cost of government is far more
problematic, because in several cases, "new" ministries are simply
existing bureaucracies that will be hived off of other ministries.
Underlying salary costs thus may not increase substantially. But it
is likely administrative costs will increase as new ministries
replicate administrative functions previously handled under single
ministries, and buy new vehicles and furnish new offices for the new
Ministers and their assistants. In the 2007-08 budget, the total
operating cost of the previous government of 34 Ministries was
Sh315.8 billion/year or $5 billion, an average of Sh9.3 billion or
$147.4 million/Ministry (ref C). If one assumes (admittedly
somewhat arbitrarily) that the eight new and/or divided ministries
will cost only half of this average cost, then the total cost of the
new government would be KSh353 billion ($5.6 billion),which would
be a 10.5% increase of $589.8 million. Together with the additional
Cabinet costs, the total Coalition government will cost an
additional Sh37.5 billion ($594 million) or so more than the
previous government.

The Public Reacts
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5. (U) Whether one considers this increase reasonable, obscene, or
something in between, context and perceptions matter. Civil society
groups have criticized the Coalition Cabinet as bloated, saying the
number of ministers is unjustified in a country where 46% were
living on less than $1 a day even before the crisis tipped many more
into poverty, and where about 350,000 internally displaced persons
desperately need assistance in rebuilding their lives. Civil

society activists and the media had called on Kibaki and Odinga to
name a 24-member cabinet comprised of a Prime Minister, two
deputies, a Vice President, 20 Ministers and 24 Assistant Ministers.
We estimate such a lean cabinet would have cost Sh960 million/year
or $15.2 million -- 47% less than the estimated cost of the
Coalition Cabinet.

Can the GOK Afford It?
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6. (U) In addition to the added costs of the new, larger government,
the GOK also estimates it needs $479 million for reconstruction
following the two months of violence that displaced about 350,000
people. This will add to a FY 2008-08 budget that was already
forecasting a KSh 109 billion deficit. In response, Finance
Minister Kimunya on April 29 asked Parliament to approve an
additional Sh27 billion ($429 million) supplemental for the
FY2007-08 budget. A total of Sh19.6 billion ($311 million),
including Sh4 billion from other previously budgeted funds, will be
for the expanded Government's operating costs. The revisions will
raise the FY07-08 budget from Sh537.6 billion in planned spending to
Sh559.2 billion.


7. (U) The Kenya Revenue Authority (KRA) reported collecting $4.6
billion in the first three quarters of FY2007-08, 1.8% above the
target of $4.5 billion. KRA Commissioner-General Michael Waweru
insisted that revenue collections were on target, despite the
economic aftermath of the crisis. Anecdotal evidence suggests this
might not be the case, but only time will tell whether KRA will
continue to meet revenue targets to help defray the cost of a larger
government and help the country rebuild. Meanwhile, the sale of
Telkom Kenya to France Telecom in December brought in $390 million
(about Sh27 billion at the then-exchange rate of Sh70/$),and the
initial public offering of cell phone giant Safaricom, which is
ongoing, is expected to net Sh50 billion, much higher than the
budgeted Sh34 billion. Because money is fungible, the proceeds of
these successful privatizations will help cover the higher cost of
the new government, but they can only do so in the first year.
After that, Kenyan taxpayers will have to bear the cost.

Comment
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8. (SBU) Our guesstimate of the added costs of a larger cabinet and
civil service is just that - an attempt to quantify something which
only over time will become more precisely measurable. While Kenyan
civil society and media accepted the reconciliation deal, they have
criticized the bloated cabinet as a high price to pay for peace.
The appearance of 42% of already-well paid MPs receiving extra
allowances and benefits while hundreds of thousands of displaced
persons suffer and hundreds of thousands more lose jobs and slip
into poverty rankles Kenyans deeply, and for good reason.
Ranneberger