Cablegate: Kenya: October Economic Highlights

VZCZCXYZ0017
RR RUEHWEB

DE RUEHNR #2260/01 3030935
ZNR UUUUU ZZH
R 300935Z OCT 09
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 1427
INFO RUCPDOC/USDOC WASHDC 3241
RUEHRC/USDA FAS WASHDC 1868
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS

UNCLAS NAIROBI 002260

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 USPTO OFFICE OF ENFORCEMENT

LABOR FOR INTERNATIONAL LABOR AFFAIRS

SIPDIS

E.O. 12958: N/A
TAGS: EAGR ECON ELAB ECPS EINV EFIN ETRD ENRG PINR KCOR
SENV, KE
SUBJECT: KENYA: OCTOBER ECONOMIC HIGHLIGHTS

REF: A) Nairobi 1423 B) 08 Nairobi 2166 C) Nairobi 373 and previous

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TABLE OF CONTENTS
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1. IMF FORECASTS CY2009 2.7% ECONOMIC GROWTH
2. TOURISM SHOWS SIGNS OF RECOVERY
3. WILDLIFE THREATENED BY DROUGHT AND INCREASED POACHING
4. CORRUPTION SURFACES AT THE MINISTRY OF EDUCATION

1. IMF FORECASTS CY2009 2.7% ECONOMIC GROWTH

IMF reps briefed donors October 28 on the outcome of their annual
Article IV Consultations. The reps said they expect Kenya's economy
to grow by 2.7% in CY2009. Given Kenya's 2.9% population rate, per
capita GDP would decline this year. Drought and the continuing
impact of the global slump significantly contributed to Kenya's
lackluster economic performance, according to the Fund. The reps
praised the Central Bank of Kenya's expansionary monetary policy and
the government's fiscal stimulus (ref a). They expressed
disappointment that the government continues to embrace an outdated
method of calculating the consumer price index, which puts an upward
bias on measured inflation (ref b), currently 18%. Looking ahead to
2010, the IMF reps saw continuing strength in the banking sector and
a steady recovery in manufacturing and tourism, likely leading to
over 3% GDP growth; agriculture and global demand remained key
variables of the strength of future economic growth. The reps did
not expect Kenya's economy to return to 6% GDP growth (roughly the
level before the 2008 post-election violence and global financial
crisis) until 2013.

2. TOURISM SHOWS SIGNS OF RECOVERY

The Kenyan tourism sector appears to be experiencing a recovery from
its 2008 decline caused primarily by post-election violence and the
global economic slowdown. According to the Kenya Tourism Board
(KTB), revenues in the tourism sector through August 2009 totaled an
estimated Ksh 36.64 billion compared to Ksh 33.24 billion for the
same period in 2008, an improvement of 10.2%. International
arrivals during the same period were up 38.6% compared to 2008. The
GOK attributes the recovery to increased international marketing,
including its Internet site www.magicalkenya.com, discounted travel
packages, and visa fee reductions. Despite the improvement,
receipts have not reached the 2007 peak of Ksh 44.63 billion, a
benchmark year for the sector. KTB expects that international
tourism arrivals will close at approximately 930,000 at the end of
2009, still below the historic 2007 high of 1,048,738 but
significantly surpassing the 2008 arrival number of 729,000.

3. WILDLIFE THREATENED BY DROUGHT AND INCREASED POACHING

Severe drought and increased poaching have threatened wildlife in
and around Kenya's protected wildlife areas. According to the Kenya
Wildlife Service (KWS), approximately 100 elephants, at least 80
hippos and large numbers of antelope and other animals have died as
a result of severe drought this year, the worst in 40 years. The
hardest hit areas are the Laikipia, Samburu, Amboseli, and Tsavo
reserves where animals have had to travel farther to find water and
competition for pastureland is escalating as pastoralists
increasingly graze livestock in protected areas. In Tsavo alone, it
is estimated that 200,000 livestock have moved into the area,
displacing wildlife and causing increased erosion.

To mitigate the effects of drought, KWS is supplying hay to certain
species, especially hippos in Tsavo National Park. KWS has also
posted 40 rangers to care for 15 rhinos in Tsavo West. KWS and
other wildlife experts agree that the expected increase in rainfall
from the short-rains season that has just begun will help wildlife
populations rebound in the long-term, although flooding may increase
losses of weak and young animals in the short-term. However, they
say that long-term strategies (i.e. water harvesting, mitigation of
human-wildlife conflict through rangeland management) must be
implemented to prevent further loss as the time between drought

cycles appears to be decreasing.

Exacerbating the losses caused by drought, at least 140 elephants
have been killed for their tusks so far this year, up from 98 in
2008. KWS links the increase in elephant poaching to Chinese
laborers working on infrastructure projects and living in camps near
protected areas. According to the East Africa Regional Director of
the International Fund for Animal Welfare, the 2007 CITES decision
to allow a one-off sale of legal ivory from three Southern African
countries (ref c) has increased demand for ivory in China, providing
a ready market for poachers in Kenya. To combat the increase in
poaching, KWS has posted surveillance rangers near the camps as well
as sniffer dogs at Jomo Kenyatta International Airport (JKIA). KWS
reports that 90% of ivory smugglers detained at JKIA are Chinese
nationals.

4. CORRUPTION SURFACES AT THE MINISTRY OF EDUCATION

Two recent corruption scandals have arisen within the Ministry of
Education (MoE). In the first scandal, MoE officials
misappropriated approximately $1.3 million from two programs, the
Kenyan Education Sector Support Program and the Western Kenya
Community Driven Development project. These two programs are funded
by the World Bank and the UK Department for International
Development (DfID). The Ministry of Finance has taken strong
measures by suspending the programs and 25 MoE officials. In the
second scandal, the MoE is alleged to have lost approximately $17.3
million of textbooks from the Free Education Program over the last
four years. Newspapers reported that the textbook losses occurred
as a result of fraud, theft, and destruction. The MoE stated that
the losses occurred as a result of the political violence in
2007/2008, poor storage, and natural atrophy. The primary donor,
DfID, is reviewing the issue but is not expected to pull funding
from the program. DfID considers the Free Education Program to be a
major success and the level of losses to be within reason.

RANNEBERGER

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