KENYA: NOVEMBER ECONOMIC HIGHLIGHTS

UNCLAS NAIROBI 002412 STATE ALSO FOR AF/E AND AF/EPS STATE PASS USAID/EA TREASURY FOR REBECCA KLEIN SIPDIS E.O. 12958: N/A TAGS: EAGR ECON EINV ETRD PINR KCOR SENV KE SUBJECT: KENYA: NOVEMBER ECONOMIC HIGHLIGHTS REF: A) 08 NAIROBI 2166 B) 08 NAIROBI 2220 -------------- TABLE OF CONTENTS -------------- ¶1. IMF APPLAUDS KENYA'S NEW INFLATION CALCULATION ¶2. EVICTIONS PROCEED IN MAU FOREST ¶3. KENYA SIGNS COMMON MARKET TREATY ¶1. IMF APPLAUDS KENYA'S NEW INFLATION CALCULATION The IMF's Resident Representative in Kenya told Econoff November 20 that the GOK's recent adoption of a new methodology based on geometric mean to more accurately calculate inflation is a positive policy development. The IMF had been exhorting the GOK to abandon its outdated arithmetic methodology for two years (ref A). In response to the "new math," Kenya's measured inflation rate fell from 17.9% in September to 6.6% in October. The IMF rep said he expected a further fall in measured inflation once the GOK recalibrated the weights in the basket of goods it uses to calculate changes in consumer prices. According to the IMF, the current basket inordinately weighs costly food and energy and under represents key consumer items such as airtime for cell phones. While lower measured inflation rates may help cast Kenya's tarnished investment climate in a somewhat better light, the average Kenyan continues to feel the bite of high food and energy prices. ¶2. EVICTIONS IN MAU FOREST PROCEED The Government of Kenya (GOK) is evicting an estimated 2,500 undocumented residents (e.g., squatters, trespassers, encroachers) from a 19,000 hectare (ha) area in the South Western Mau Forest Reserve, the second phase of a five-phase plan to recover the Mau Forests Complex. The Mau Forests Complex originally covered approximately 452,007 ha and was the largest closed-canopy montane forest ecosystem in East Africa. One of Kenya's five 'water towers', the 'Mau' is a critical source of water for the Mara River and 12 other rivers that flow to Lake Victoria (ref B). Water from the Mau also supports the Maasai Mara Reserve and Serengeti National Parks. Despite its critical role in sustaining the economic development of much of western Kenya and the Rift Valley, the forest has been under increasing threat from irregular and ill-planned settlements, encroachment and illegal forest resource exploitation. Degazettement of forest reserves (removal from protected forest status) and continuous widespread encroachment are associated with logging, farming, and charcoal production. During the last two decades these activities have led to the destruction of over 107,000 ha, representing over 25 percent of the Mau's forest cover. In October 2008, the Government of Kenya (GOK) established a Task Force whose responsibility was to make recommendations on immediate, short and long-term options for restoring the entire Mau Forests Complex. The Task Force submitted its report and recommendations in March 2009, and in August, Cabinet approved the report. On August 17, as part of the report's short-term recommendations, the GOK established an Interim Coordinating Secretariat within the Office of the Prime Minister to coordinate the implementation of the report's recommendations. As part of the recovery effort, all people living in the protected forests -- and many living in what was formerly forest -- will have to be relocated or resettled. The Secretariat announced that the first phase, recovery of uninhabited land, and the second phase, the eviction of the 2500 squatters (undocumented inhabitants) in South Western Mau, Ol Pusimoru, and Maasai Mau forest reserves, will be completed by the first week of December 2009. The GOK has said that those evicted as part of Phase two will not be compensated because there was no intention of setting aside those protected forest areas for settlement and because these particular residents are in the forest illegally. The Secretariat will begin the third phase in January, during which it will remove people with title deeds. In the event of resettlement, the GOK will provide 'compensation' - possibly alternative land and funds for the development of the land. However, it is a challenge to determine which landowners are actually entitled to compensation. Many forest landowners have irregular title deeds. For example, title deeds were issued when the lands were still gazetted as forest reserve or in disregard of a High Court order restraining the Government from moving ahead with the excision process. Comment: The eviction of 2,500 squatters from the South Western Mau to begin the recovery process of Mau is relatively easy compared to the challenges the GOK will face when resettling those with title deeds and vested interests. Although the government is providing some assistance to the evictees (food, water, transportation),the eviction of squatters has potentially created humanitarian challenges as squatters have not been relocated to new land and many claim they have nowhere to return. SEPTEL will report on a recent USAID/OFDA assessment of humanitarian conditions faced by evictees. End Comment. ¶3. KENYA SIGNS COMMON MARKET TREATY President Kibaki, along with four other heads of state, signed the East African Community (EAC) Common Market Protocol on November 21. The protocol is the first step in the establishment of a common market which encompasses five countries (Burundi, Kenya, Rwanda, Tanzania, and Uganda) with a combined population 126 million people. The protocol lays the groundwork for free trade and free movement of services, people, capital and labor. The treaty calls for the common market to come into effect as early as July 1, 2010; however, each state must ratify the protocol according to national laws before it can be implemented. While the signing of the protocol is seen by experts as a step in the right direction toward regional integration, there are myriad details to work out before a true common market can be realized. For example, the EAC Customs Union -- which is one pillar of the common market protocol -- was due to begin January 2010. However, many issues are yet to be resolved, including a revenue sharing agreement for duties collected in the region, harmonization of existing customs laws and regulations, management of security issues surrounding free movement of cargo, and sanitary and phytosanitary concerns related to the movement of agricultural products. Like the customs union, a fully operational common market will require detailed planning and political negotiation. Considerable investment will also be needed to facilitate transition of the various ministries, revenue and customs authorities that will be involved in implementation. The protocol establishes a six-month deadline for a detailed report on the timeline for implementation, and there will likely be separate timelines for the execution of each component (e.g. customs union, monetary union) of the common market. RANNEBERGER