KENYA'S ELECTORAL CRISIS - THE ROLE OF THE

C O N F I D E N T I A L SECTION 01 OF 07 NAIROBI 000240

SIPDIS

SIPDIS

FOR AF A/S FRAZER FROM THE AMBASSADOR

E.O. 12958: DECL: 01/21/2018
TAGS: PREL PHUM PGOV KDEM KE
SUBJECT: KENYA'S ELECTORAL CRISIS - THE ROLE OF THE
BUSINESS COMMUNITY

REF: NAIROBI 192

Classified By: Ambassador Ranneberger for Reasons 1.4(b,d)

Summary
--------------

1. (U) With the election crisis taking an ever greater toll
on business interests (see reftel),the business community
has become increasingly engaged in lobbying for a political
solution. While it is hard to determine precisely what
impact this will have, the voice of the business community
is being heard clearly by both sides. End Summary.


2. (U) On January 18, representatives of the main Kenyan
business association, the Kenya Private Sector Alliance
(KEPSA),met separately with President Kibaki and Raila
Odinga. They made the following presentation. Begin text.

Memorandum of the Business Community to the H.E. the
President on the Occasion of the Meeting on 18th January,
2008

Representing the interests of more than 8,000,000 working
Kenyans from the formal and informal business sectors
through member associations of the Kenya Private Sector
Alliance.

Background:
--------------


1. The Business Community is part and parcel of the
Kenyan Society. It participated actively in Elections and
was proud of the conduct of Kenyans then.


2. The Post election events are very distressing to
all. The Kenyan Business Community pleads for urgent
resolution of the same to prevent further loss of life,
loss of property and the destruction of the environment for
doing business.


3. The Business Community expresses deep concern and
regret for the loss of life and property arising out of the
December 27 Elections result announcements. The resultant
violence and disruption are symptoms of other tensions that
have been brought to the fore by the elections. It is
important for the country to address this.

Estimation of the cost of the Post Election Violence on
Kenyan Business

-------------- --------------

The Loss to Business is expressed in terms of Loss of
Staff, Loss of Property, Loss of Business Opportunities and
Loss of Confidence.


1. Loss of Staff: Business lost staff to the
crisis. Especially in areas affected by the violence, e.g.
the Tea Estates and the towns affected. We had people
fleeing to Uganda to escape the violence.


2. Ethnic Tension in the Workplace. For those who
have reopened, we are losing harmony in the workplace and
see tensions between persons of different communities.


3. Physical losses: Many businesses have lost
property especially in the trouble spots of Eldoret, Kisumu
and Kericho where business were targeted for physical
destruction, e.g. burning and looting. Many small
businesses in informal settlements have also been badly hit
with loss of premises and inventory. We are continuing to
receive information from businesses on physical damage.
We currently have estimates of at least KSH 2 billion in
property loss.


4. Loss of customers and supply outlets. The
businesses destroyed in Eldoret, Kisumu, Kericho - both
formal and informal settlements were key parts of the
distribution chain for many businesses. The Western Kenya
circuit represents about 35 percent of the market share of

NAIROBI 00000240 002 OF 007


many in FMCG businesses. The informal settlements of
Nairobi have also been hard hit with losses. We estimate
that at least 40 per cent of the Kenya market has been
disrupted and continues to be. While there will be some
semblance of recovery, it will not attain the previous
levels because of the displacement of persons, losses of
property and difficulties of movement. Government estimates
put the number of displaced persons at more than 250,000.


5. Loss of confidence:

a. Local investors and business owners in Kisumu and
Eldoret have lost confidence and are expressing desires to
relocate. In Kisumu some of the operators have already left
for other countries. Others in Eldoret are ready to put up
businesses for sale.

b. Loss of Confidence of external investors.
Consistent negative international pressure has led to
revisions of visions by foreign investors. Thos who we have
spoken to express extreme caution about Kenya and it will
take a while to resume the confidence levels.

c. Our workforces now have fear as part of their
daily lives.


6. Loss of Government Revenue. Estimate at loss of
tax revenue by government of KSH 2 billion a day. This
translates to loss of business and related activity
amounting to KSH 10 billion a day. Therefore, with at
least 10 days of non-operations, estimate loss of at least
KSH 100 billion of productivity in addition to loss of
property for January.


7. Loss of Economic Activity: Most businesses are
now expecting a depressed first half of the 2008 year. In
terms of loss over the next 6 months, anticipate a total
loss of 20 per cent of economic activity, which translates
to at least KSH 266 billion (even if there was no more
disruption).

a. Tourism estimates loss of KSH 20 billion in
first quarter. Sector has lost 12 of the 15 regular
bi-weekly charters. It represents 80 per cent of all
business. Cancellations are up to middle of year and no new
bookings for the year have been received.

b. Manufacturing estimates losses of at least KSH
10 billion

c. Transport and Communication estimates losses of
Ksh 30bln

d. Loss of Employment of at least 400,000 jobs.
COTU (note: Confederation of Trade Unions) estimates at
least 500,000 job losses.

e. The SMEs make up the final link in the
distribution chain. They have borne the brunt of destroyed
property, e.g. kiosks and shops in urban areas. We estimate
losses of more than KSH 3 billion in terms of destroyed
property.


8. Loss of reputation: The revision of S and P
credit rating will affect the country?s ability to attract
investors and retain positive view by international
community. Fitch Rating revision imminent. If Government
cannot raise external resources, will predate on local
liquidity. High interest rates loom once again.


9. Loss of market as regional hub. The disruption
of regional transit traffic means that Kenya will now
compete with other corridors that will emerge in order to
reduce vulnerability of landlocked neighbors on the Kenyan
corridor. Transit trade has been a large source of forex
for Kenya. We cannot let it go.


10. We are hearing rumours of sanctions against Kenya. We
must not give the opportunity to place sanctions on Kenya,
as it has a far-reaching impact. It affects our external

NAIROBI 00000240 003 OF 007


markets as well as sources of imports for the country.


11. Investors and Multinational with presence in Kenya are
watching this keenly. As a country we need to give them an
opportunity to make a long-term commitment to the country.

What Would Business Like Government to Do:
--------------


1. Short Term/practical needs revolve around
creation of an enabling environment for resumption of
pre-Dec 29th level of Business Operations.

a. Security to enable movement of goods and persons
all over the country. To make deliveries and for staff to
get tot work. For suppliers and customers to move freely.
Specific concern has been security on transport corridors
and unblocking of roads with illegal road blocks.

b. Provision of reprieve/grace period for business
of some fiscal obligations. Such includes reprieve from
payment of advance taxes on ground of distressed business
and inability to operate fully or collect from customers
who are also distressed.

c. Need for reconstruction support. Many businesses
lost property ? burnt farms, vehicles and building as well
as inventory. We need to put together a Business
Reconstruction Support Fund to assist in recovery.
Insurance is invoking the 'political crisis' clause and not
paying.

d. Need for Tourism Destination marketing support
when crisis is over.


2. Political Settlement: As the President, business
urges H.E. to lead a process of dialogue that will address
and reduce the tensions in the country. A significant
proportion of Kenyans do not recognize the announced
results and it is important for the President to take the
initiative to improve the level of public confidence and to
show leadership that puts the Kenyan people first. We must
start addressing the underlying tensions and fears. The
tensions and violence have surfaced other fundamental
tensions that must be addressed in a comprehensive
political settlement.


3. The negotiated settlement needs to address these
other fundamental issues which include:
-Commitment to reforms of process that caused crisis, e.g.,
the Electoral laws and institutions.
-Commitment to minimum strategic constitutional reforms ?
power arrangement, and provisions for resolution of similar
crises in future.
-Commitment to addressing regional inequality in the
country that was highlighted during the campaigns
-Commitment to resettlement and reconstruction
-Commitment to process to resolve the land questions in the
country especially in the Rift Valley and the Coast regions.
-Acceptable model for Devolution END TEXT.


3. (U) KEPSA issued a press release noting their concerns
and the fact they met with both sides. KEPSA includes key
American multi-nationals like General Motors, Eveready,
Coca Cola, and the many others with significant interests
in Kenya. KEPSA issued the following press release. Begin
text.

KENYA PRIVATE SECTOR MEETINGS WITH HIS EXCELLENCY PRESIDENT
KIBAKI AND HON. RAILA ODINGA

The Kenya Private Sector Alliance (KEPSA) with the East
Africa Business Council represented by leaders of member
associations; including the Federation of Kenya Employers,
SME Federation, Hotel and Tourism Federation, Kenya
Association of Manufactures (sic),Kenya Agricultural
Society held meetings with H.E. President Kibaki and the
Hon. Raila Odinga at separate times on 18th January 2008.

These talks were very candid about the problems Kenya has

NAIROBI 00000240 004 OF 007


faced since the election results were announced. The
Private Sector gave information about economic and social
concerns our nation has experience (sic) during the crisis.
These discussions also covered the following:

-Both the government and the opposition agreed to continue
with dialogue towards a political settlement that is
acceptable to both sides. There were no conditions placed
for a meeting between the government and the opposition
other than the opposition requesting the presence of an
international mediator in the meetings.

-All parties regretted the loss of life, displacement of
people and damage to property that has been experienced. It
is difficult for all seeing the loss of any life.

-The Private Sector also communicated that many Kenyans
would like to see faster resolution of the current
political crisis and also for both parties to start the
process of resolving some of the log standing problems that
underlie the current crisis.

-The Private Sector also requested additional messages from
both parties to stop the violence

-All parties, including the Private Sector felt there are
opportunities to move forward in resolving this crisis. The
Private Sector reminded everyone that the legacy of both
leaders and the Nation is now being determined by the
wisdom reflected in their actions in resolving this crisis.

Steven G. Smith
Ag. Chairman
End text.


4. (C) In addition to the press release, KEPSA also
forwarded to me their notes from the meetings with both
Government and the opposition. The notes are as follows:

Begin text:

Kenya Private Sector Alliance Meeting with Kenyan
Government and Opposition on Friday, January 18, 2008

Government side discussion:
--------------

- In meeting with President ? Minister of Finance, Head of
Civil Service, PS of Trade and Industry

- Meeting was from 10:30 to 13:30

- Gave an overview of the impact of the economy to date and
for the next six months ? loss of 500,000 jobs, KSH 266
billion loss for first six months, no tourism expected for
the year. Month of January most business will show a loss.

- Most at or under 50 percent of plans ? total loss for
year will reduce business by 20 percent if situation is
fixed now. We reminded that they must accept 50 percent of
(the votes) were not for them and they must remember this
in their messages and in how they are seen.

- Minister actual(ly) responded to issues from private
sector ? President did not. He only talked about (the)
church burning and the need to rebuild homes. (He)
repeated this six times over a 20 minute period. Not sure
what was going on here???? I and Minister tried four times
to take him to other issues but he did not move and meeting
(was) actual(ly) stopped by (the) Minister and me.

- (We) were told not to use Raila?s name in front of (the)
President in a meeting with (the) head of civil service on
Thursday ? but we did.

- We were told elections did happen ? use the court if you
see a problem. Kibaki is the president. Many, including
Raila?s team, signed off on election numbers only to
revoke.


NAIROBI 00000240 005 OF 007


- They feel they can wear out Raila ? (it) will take time
and he will give in to them, is the opinion we walked away
with. They feel he will start to lose the support of the
people.

- Government insiders are trying to have close business
ties with KEPSA, etc.

- Government knows there are problems but actually does not
feel (the) economy is in trouble ? (they) have enough
reserves to handle (the) situation ? extra money coming
from sale of Telecom and Safaricom.

- Have paid all contractors with certified invoices already
? from what we are hearing most of these companies are
close to the government.

- (We) were told that they have sent out VAT refund early
-- no one has seen.

- (We) were told we were first group to give such a full
and candid report back to president? We took with a grain
of salt. What we think was they knew most of what we were
saying but had not briefed the president.

- Indicated the reason they lost (the) House Speaker?s
position was because the opposition told Members of
Parliament they must show (their) ballot and if they voted
for government or thought they voted for government, their
houses would be burned.

- Most of the killings are not their fault.

- (The government) agreed to a meeting with Raila only to
have a letter come with articles they could not accept.
This agreement was worked on by the World Bank and Raila?s
team ? Many stories on this letter ? it appears it may have
come from some people in the government.

- Governments want business to demand the stopping of mass
actions.

- We should help invite others to come see the president.

- Told them their messages were not clear and not
presidential. People do not see them trying to resolve any
situation. They are not humble in activities and this only
brings more problems.

- They gave us a copy of a Jan. 7 letter ? Raila says he
did not get??? Many questions around the timing of this
letter requesting a meeting with Raila. They gave us a
copy of the letter.

- At least two government persons have had their houses
burned.

- We were given (a) government news release on (the) team
to lead post-election crisis talks.

- They say they will meet with no preconditions.

- Opinion - (The government) is not serious about meeting
Raila ? (they) feel they can ride this thing out. Still
very hard line.

Opposition Side Discussions:
--------------

- Raila, (ODM vice Presidential Candidate Musalia)
Mudavadi, (ODM Pentagon member William) Ruto, (ODM
Secretary General) Anyang? Nyongo, Joe, Charles (last two

SIPDIS
unknown)

- Meeting was from 14:45 to 18:30

- Mistrust at every level. Haven?t forgotten MOU with
President in last election.

- (Recently nominated Vice President) Kalonzo (Musyoka) was

NAIROBI 00000240 006 OF 007


called Judas.

- (ODM) [w]ill not sit in any meeting with a team lead by
Kalonzo or with (Minister of Justice) Martha (Karua) as a
member

- (ODM) [w]ill only meet with Kibaki with an international
mediator

- They will target (with economic boycott) only firms they
feel are close to Kibaki. These are people who continue to
support him.

- Do not want a position in Government; will not accept a
position and if someone does; they will call person?s MP
seat vacant.

- They say (someone) was giving up to KSH 20 million to get
a vote change for house speaker. They are of the opinion
that the government cannot believe they lost speaker's
position.

- When asked why they have targeted specific business(es)
for mass action; they say they had not. When give(n) the
news release they changed topic. We reminded this could get
out of hand.

- Told them message to people not clear and they need to
stop the actions which were moving people out of area and
violence. Their comment was it was the government causing
all the problems. How could they be doing these things
which all locations have K (meaning unclear).

- GSU needs to be removed from the streets and violence
will stop. Felt police force had tried to help the
situation.

- Two of the young boys killed were relatives of (ODM)
Pentagon members.

- They know business is hurting. They also feel it will
only take 3 months to recover from any business losses
during these difficult times.

- We were asked how can we support a government who attacks
hospitals.

- The indicated Government are sick people and liars ? they
(are) not telling truth about election, letters, who is
killing people ? Continued to say we (ODM) are telling the
truth, they (government) are not.

- Believe government is using the military at every level
to control people, etc. This is how people are being
displaced.

- When we would raise issues about displaced people they
(ODM) would go to other topics. Could not get them to
address but then said it was the government and not them.

-We told them message of no violence was not being heard
and they need to be clear in this message.

- They will continue to put pressure on economy at any
level.

- We did ask them about rumors within business of specific
ethnic community being asked to sabotage business. They did
not respond only saying this is government at work.

- We reminded them 50 percent of votes for Kibaki. They
have to remember this when giv(ing) messages.

- (ODM) feels the nation knows the government stole the
election and saw it on TV; this gives them (ODM) the right
to do what they are doing. It is not the election that is
the real problem. You must treat the disease which is years
of issues not addressed ? land, equal distribution of
wealth, etc.


NAIROBI 00000240 007 OF 007


- Our opinion is (ODM) have decided to go the distan(ce) to
get what they want ? Kibaki out. End Text.


5. (U) Since the outset of the crisis, we have also been
seeking to energize the extremely influential Kikuyu
business community. These efforts have included a number
of individual meetings, and a breakfast I hosted with a
core group on January 17. The Kikuyu business people are
generally wary of getting too directly involved in the
current crisis. While Kikuyu business interests (which
dominate the economy) are being negatively impacted by the
crisis, they see no alternative other than support for
Kibaki?s government, and some believe the government
hardliners? propaganda that the current troubles will
dissipate over time if the government remains firm against
compromise with Odinga. Still, the fact that these Kikuyu
business people have been so ready to talk with us about
the political situation reveals the level of their
concern. We understand that they are seeking to make their
concerns known to the President, but discreetly, and not
particularly as an organized group.


6. (U) During the breakfast, I broached the idea of
business people creating a fund to assist all those
affected by violence (not just Kikuyus who have been
displaced),and they are following up. Several of the most
influential Kikuyu businessmen are linked to religious
groups and have ties to the congressional prayer
breakfast.


7. (U) We are continuing intensive efforts to stimulate the
business community to become more outspoken publicly on the
need for a political solution, and to use their leverage
privately with both sides.

RANNEBERGER