KENYA ECONOMIC NOTES: MAY 2009

UNCLAS NAIROBI 001036

STATE ALSO FOR AF/E AND AF/EPS

STATE PASS USAID/EA

STATE PASS USITC FOR ALAN TREAT AND PHILIP STONE

TREASURY FOR REBECCA KLEIN

COMMERCE FOR BECKY ERKUL AND USPTO OFFICE OF ENFORCEMENT

LABOR FOR INTERNATIONAL LABOR AFFAIRS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ELAB ECPS EINV EFIN ETRD KIPR PINR KE
SUBJECT: KENYA ECONOMIC NOTES: MAY 2009

REF: Nairobi 992

This cable is not/not for internet distribution.

--------------
TABLE OF CONTENTS
--------------


1. Leading Indicators Suggest Negative Per Capita Growth

2. Kenya Tourism Shows Signs of Life

3. USG-Sponsored IPR Conference Raises Awareness

4. Export Processing Zones (EPZ) Fared Well in 2008


1. Leading Indicators Suggest Negative Per Capita Growth

Annual inflation measured from April '08-April '09 climbed 26% on
higher food and medical/consumer good prices. A recent U.S. Foreign
Agricultural Service assessment indicates continuing white maize
shortfalls, keeping pressure on both prices and the need to import.
Remittances, a key social safety net and past driver of residential
construction, fell 9% in Q1 2009 compared to Q1 2008. Liquidity
remains tight, and the Kenyan shilling has appreciated some 30%
against the Ugandan shilling in the last four months, making Kenyan
exports less competitive in its largest foreign market.
Horticultural exports declined 33% in Q1 2009. The Nairobi Stock
Exchange's benchmark index is down 27% for the year. In another
sign of sluggish economic times, the region's largest cement company
reports a 25% percent drop in FY09 earnings compared to the same
period last year. We continue to expect cuts in public sector
expenditures due to rising budget deficits.

Kenya's economy grew by only 1.7% in 2008 due to fallout from
post-election violence and the global economic slump. The IMF
projects Kenya's GDP will grow by 2.4% in 2009, representing
negative per capita growth given the country's 3% population rate.



2. Kenya Tourism Shows Signs of Life

In a positive sign, however, tourism rebounded (relatively) in Q1

2009. Kenya welcomed 228,713 foreign arrivals January-March, up
from 139,255 during the same period last year - albeit when Kenya
was in the midst of post-election violence. The Q1 2009 numbers are
over 45,000 tourists short of the Q1 2007 figure of 273,909. Kenya
Tourist Board Acting Managing Director Marianne Ndegwa and other
industry leaders attribute the rebound in large part to Barack
Obama's election as U.S. President. "The election of Obama played a
significant role in putting Kenya on the world map," Ndegwa said in
mid-May. The Kenya Tourist Board hopes 840,000 tourists will visit
Kenya in 2009. Kenya surpassed the one million mark for the first
time in 2007 (1,048,732 tourists). Tourism employs an estimated
410,000 Kenyans and accounts for roughly 8% of GDP.


3. USG-Sponsored IPR Conference Raises Awareness

Prime Minister Raila Odinga told attendees at his third private
sector roundtable meeting (May 13) that the GOK would not tolerate
continued dumping of counterfeit and substandard products into the
market. He vowed to take stern action (including dismissal) against
any Kenya Revenue Authority Customs Service or immigration officer
discovered to have abetted trade in counterfeit wares.

The PM's comments were well-timed as some fifty government officials
from Kenya, Uganda, Tanzania, Rwanda, and Ethiopia attended the May
19-21 "East Africa Regional Seminar on Copyright Enforcement in the
Internet Era." (Post appreciates the U.S. Patent and Trade
Office's support for this event.) Attendees included MPs from
Uganda, the head of Rwanda's Customs and Compliance Division, the
chief of Tanzania's Counterfeit Department in the Fair Competition
Commission, Ethiopia's copyright director, the executive director of
the Kenya Copyright Board, and the director of Kenya's judicial
training institute. Judges, prosecutors, law enforcement officers,
and representatives from the entertainment industry were also on
hand.
In her welcoming remarks, DCM Pamela Slutz noted the seminar's
timeliness given the approaching advent of fiber optic
communications to the region (reftel),portending new opportunities
for African innovators in software, internet applications, and
telecommunications technology. Greater awareness and enforcement of
intellectual property rights, she stressed, would help ensure that
their discoveries and adaptations are safeguarded and rewarded. The
defense of copyright and other intellectual property, she continued,
would go beyond rewarding innovators, inventors, and creative
artists; it would also protect Africa's unique cultural patrimony
and folkloric knowledge. Noting that IPR enforcement serves to
protect consumers, the DCM cited instances where adulterated
knock-off "medicines" had damaged the health and cost the lives of
thousands of Africans. She emphasized that for all these reasons
"East Africa needs a strong intellectual property rights regime."


4. Export Processing Zones (EPZ) Fared Well in 2008

EPZ apparel firms, which produce 80% of all garment exports to the
U.S. under AGOA provisions, experienced surprising growth in 2008,
according to a recent survey. The number of pieces exported
increased by 13% from 59.2 million to 67.2 million pieces while
export earnings grew by 10.7% from $203.9 million to $225.8 million
in 2008 -- notwithstanding two months' post-election violence and
the effects of the global financial crisis.

As a result of a few uncompetitive firms closing down, the EPZ total
employment level actually declined by 12.7% from 34,318 to 29,957 in

2008. EPZ contacts tell us the firms which excelled targeted high
end consumers, integrated the value chain, and diversified their
product lines. EPZ firms are looking to the August 4-6 AGOA Forum
in Nairobi as an excellent opportunity to promote their wares.


RANNEBERGER