KENYA ECONOMIC HIGHLIGHTS: LATE NOV/EARLY DEC '08

UNCLAS NAIROBI 002715

STATE ALSO FOR AF/E AND AF/EPS

STATE PASS USTR PATRICK COLEMAN
STATE PASS USAID/EA
STATE PASS USITC FOR ALAN TREAT, RALPH WATKINS, AND ERLAND
HERFINDAHL
STATE PASS TO DEPT OF TRANSPORTATION FOR CORNELIA HUNTER
TREASURY FOR REBECCA KLEIN
COMMERCE FOR BECKY ERKUL
AGRICULTURE FOR US FOREST SERVICE
TSA FOR JILLENE MACCREERY, CARLOS DE LA TORRE, AND MIRIAM MOSES
FAA FOR DONNA KRIMSKI
FAA REPRESENTATIVE DAKAR
SIPDIS

E.O. 12958: N/A
TAGS: ECON SENV EAGR ELAB EINV EFIN ETRD EAID BEXP PINR
EAIR, ASEC, PTER, KCOR, ELTN, UG, KE

SUBJECT: KENYA ECONOMIC HIGHLIGHTS: LATE NOV/EARLY DEC '08

REF: A) Nairobi 1692 B) Nairobi 2710

This cable is not/not for internet distribution.

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TABLE OF CONTENTS
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1. (SBU) CENTRAL BANK PREPS FOR ECONOMIC HEADWINDS

2. (SBU) DEMAND FOR KENYAN TEA FALLS SHARPLY

3. (SBU) TEA WORKERS GET PAY HIKE; GOK FORMS LABOR BOARD

4. (SBU) INTERPOL-KWS MAKE PROGRESS ON POACHING

5. (SBU) PM CONTINUES PRIVATE SECTOR ENGAGEMENT

6. (SBU) CORRUPTION: FORMER FINANCE MINISTER CLEARED

7. (SBU) MAU FOREST ROUNDTABLE WITH REO BAUMAN


1. (SBU) CENTRAL BANK PREPS FOR ECONOMIC HEADWINDS

Central Bank Governor N'dung'u recently indicated to us that the
global recession would significantly hamper Kenya's economic
recovery from post-election violence. Emphasizing exports as the
key to the country's growth, the Governor said cut flowers, tea, and
tourism would take hits. To help safeguard Kenya, the Governor is
now increasing market liquidity by cutting the benchmark Central
Bank Rate from 9 to 8 percent and its cash reserve ratio from 6 to 5
percent. Unfortunately, inflation - which rose again in November to
29.4 percent on rising food prices - continues to hinder growth and
erode purchasing power; 46 percent of Kenyans live on less than
$2/day.

The GOK also is grappling with a mounting budget deficit - revenue
collection fell 9 percent below its third quarter target of 119
billion KShs. Despite the deficit and bleak economic outlook,
Kenyan MPs - some of the highest paid in the world - have rejected a
call to have their generous allowances (approx. $96,000/yr) taxed.
Some good news: transport fuel costs have begun to decline in
response to falling international oil process.

Overall, all of our interlocutors in business and economic analysis
are telling us that while the global economic crisis has already
begun to bite, the full effect is still 4-6 months away. With
Kenya's major foreign exchange earners (remittances, tourism, cut
flowers, coffee and tea) all sensitive to global income shifts, it
appears inevitable that, combined with the downturn resulting from
the post-election violence, Kenya will be hit hard by the global
crisis.


2. (SBU) DEMAND FOR KENYAN TEA FALLS SHARPLY

The international auction price for Kenyan tea has dropped over 30
per cent since September, rocking a key forex earning industry. The
United Kingdom and Pakistan, both facing official recessions, are
the top two markets for Kenyan tea.


3. (SBU) TEA WORKERS GET PAY HIKE; GOK FORMS LABOR BOARD

More than 270,000 Kenyan tea workers have received a 20 percent
salary increase. According to the Kenya Plantation and Agricultural
Workers Union, tea factory workers will now earn 254 Kshs/day
(about $3.40/day),while tea pickers will get 6.97 Ksh (93
cents)/kilogram picked. In announcing the pay hike, the union also
warned multinational tea companies of strikes if automated tea
plucking machines were introduced.

Labor Minister Munyes has formed a National Labor Board, which
includes employee, employer and government representatives. The
Board is responsible for ensuring implementation of the country's
labor laws and developing ways to enhance productivity. Kenya's
private sector maintains that the labor laws (including provisions
for paternity leave and 96 months of disability pay) are too costly,
while workers contend that salaries haven't kept pace with inflation
and temporary employment is rarely converted to fulltime in
accordance with the law.

4. (SBU) INTERPOL-KWS MAKE PROGRESS ON POACHING

As part of an Interpol-organized operation ("Operation Baba") the
Kenya Wildlife Service (KWS) recently arrested 36 persons (including
three Chinese nationals) suspected of trafficking in ivory and
wildlife parts. The directors of the KWS elephant and rhino
programs told visiting Embassy Addis Ababa REO Kirsten Bauman that
very little poaching is occurring in Nairobi National Park but
otherwise they believe the CITES decision to allow a one-off ivory
sale to China will spur elephant poaching.


5. (SBU) PM CONTINUES PRIVATE SECTOR ENGAGEMENT

On November 19, Prime Minister Odinga held his second roundtable
with key elements of the Kenyan private sector. The CEO of the
Kenya Private Sector Alliance (KEPSA) Kevit Desai told us that the
PM's efforts to engage with business are "deepening understanding"
between the two sides. Desai said that the roundtable is resulting
in some private sector concerns around barriers to trade and
movement of goods (e.g. the conversion of the Port of Mombasa into a
24 hour facility) being addressed by government. It has also been
an opportunity for business to update government on the negative
effects of the global economic crisis in Kenya and the tough times
expected over the next year.


6. (SBU) CORRUPTION: FORMER FINANCE MINISTER CLEARED

Former Finance Minister Amos Kimunya has been reportedly cleared of
wrongdoing by the Cockar Commission which investigated the sale of
the Grand Regency Hotel by the GOK to the Libyan company LAICO. The
Commission did, apparently, conclude that Kimunya, who was not
interviewed by the panel, should have advised the Central Bank on
how to sell the property. That said, the issue is in a holding
pattern. Though it appears the Executive has cleared Kimunya, there
is still the outstanding issue of the Parliamentary Committee's
ruling that he's unfit. This means that if President Kibaki
re-appoints Kimunya as Finance Minister, Parliament may punish
Kibaki/Kimunya by stalling any finance-related legislation. Kibaki
may now be looking for another role for Kimunya. Kimunya is a member
of the president's inner circle, so the president may try to find
another post for him to avoid conflict with Parliament. There is
speculation of Kimunya taking Acting Finance Minister Michuki's
Environment portfolio or even heading the Ministry of Transport.
Ref A provides background on Kimunya's involvement with the Grand
Regency sale.


7. (SBU) MAU FOREST ROUNDTABLE WITH REO BAUMAN

Representatives from Kenya's National Environment Management
Authority (NEMA) and the Forest Service uniformly praised PM Odinga
and Environment Minister John Michuki for standing firm on their
decision to protect Kenya's five "water towers." They confided to
REO Kirsten Bauman that protecting these highlands is indispensable
to safeguarding Kenya's hydroelectric power generation, the Mara
River which waters the Maasai Mara wildlife reserve, and rivers
which feed Lake Victoria, Lake Turkana, Lake Nakuru, and several
other Rift Valley lakes. An estimated 5.5 million Kenyans involved
in tea and rice cultivation, livestock rearing, and tourism depend
on the Mau watershed. The annual market value of their activities
is approximately $300 million. In the past ten years, squatters,
loggers, and charcoal makers have denuded 250,000 acres of forest.
See ref B for a comprehensive update/analysis on the Mau situation.


RANNEBERGER