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RR RUEHGI RUEHRN
DE RUEHNR #0871/01 0540932
ZNR UUUUU ZZH
R 230932Z FEB 07
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 7697
RUEHLMC/MILLENNIUM CHALLENGE CORP
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHXR/RWANDA COLLECTIVE

UNCLAS SECTION 01 OF 03 NAIROBI 000871 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR AF/E, AF/EPS, EB/IFD/OMA 
USAID FOR AFR/DP WADE WARREN, AFR/EA JEFF BORNS AND 
JULIA ESCALONA 
TREASURY FOR VIRGINIA BRANDON 
LONDON AND PARIS FOR AFRICA WATCHERS 
 
E.O. 12958:  N/A 
TAGS: ECON EAID EFIN KCOR PGOV KE
SUBJECT: GOVERNANCE REPORT HELPS CRYSTALIZE DONOR CONSENSUS ON THE 
WAY FORWARD IN KENYA 
 
NAIROBI 00000871  001.2 OF 003 
 
 
¶1.  (SBU) Summary: A comprehensive World Bank assessment of 
governance in Kenya, still in draft, concludes that the control of 
corruption in Kenya improved in the early years of the Kibaki 
administration, but has since stagnated.  Graft has not, however, 
returned to the levels seen under previous Kenyan regimes. 
Moreover, the so-called Kaufmann report makes a number of 
level-headed recommendations for improving governance in Kenya. 
Just as important, it provides an organized intellectual framework 
for a new and evolving consensus among Kenya's major donors, 
including the World Bank and the United States, on how to engage 
with Kenya on governance more generally.  This new consensus 
acknowledges that serious deficiencies in "political will" remain at 
the leadership level. But it also recognizes that there are 
important underlying positive changes underway in Kenya, and that 
these are worthy of targeted donor support.  End summary. 
 
------------------------------------------- 
The World Bank Assesses Governance in Kenya 
------------------------------------------- 
 
¶2.  (SBU) At the request of the Government of Kenya (GOK) for an 
empirical evaluation of the country's governance performance, the 
World Bank launched a governance assessment mission to the country 
in June-July 2006.  The mission was led by Dr. Dani Kaufmann, 
Director of Global Programs at the World Bank Institute, and a 
leading world expert on governance and anti-corruption. 
 
¶3.  (SBU) The mission subsequently produced an exhaustive 170-page 
report, "An Initial Governance Assessment for Kenya" (aka the 
Kaufmann report), which was handed over to the GOK leadership in 
October for comment and input.  While the Bank waits for this, the 
document remains in draft and is not for public dissemination. 
However, prior to a February 13 donor meeting which featured a 
briefing by the visiting Kaufmann, the Bank circulated the draft 
assessment and related documents to donor missions in Nairobi.  This 
cable draws from the assessment and puts it into the context of an 
emerging new consensus in the donor community in Kenya on how best 
to engage with the country in light of ongoing governance concerns 
and deficiencies. 
 
------------------------------------------ 
Summary Conclusions of the Kaufmann Report 
------------------------------------------ 
 
¶4.  (SBU) The Kaufmann report comes to the following conclusions, in 
outline: 
 
-- Stagnating governance: Corruption declined "somewhat" in 
2003-2004, after the NARC administration came to power, but since 
then, corruption control appears to have stagnated, or worse. 
Empirical data suggests deterioration in bribery in the judiciary 
and in procurement. That said, there has not been a full reversal to 
the extremely high levels of corruption prevailing under previous 
regimes. 
 
-- Prioritization, Implementation, Leadership Lagging:  The GOK'S 
recently launched Governance Action Plan (GAP) does well by 
identifying many needed actions on the corruption and governance 
fronts, and it illustrates the good technical skills of the GOK 
bureaucracy in drafting such plans and strategies.  But plans such 
as the GAP also negatively illustrate the inability to prioritize, 
with little distinction between "first-order" measures and other 
actions.  Moreover, "decisive implementation" is often subpar.  This 
"underperformance" is not due to capacity constraints, but is more 
often the result of entrenched vested interests, distorted 
incentives, and "leadership constraints." 
 
-- Leadership, Transparency and Accountability: Kenya faces 
deficiencies in each one of these areas. Reforms in the institutions 
of accountability, such as the judiciary, are especially hard when 
vested interests are entrenched. But reforms are possible with 
dedicated focus, a clear strategy, and leadership by "champions of 
change." 
 
--------------------------------------------- 
There's Hope -- and a List of Recommendations 
--------------------------------------------- 
 
¶5.  (SBU) Following on this last point, the Kaufmann report points 
out the possibility for positive change in Kenya, even in the 
short-term context of election-year politics.  It recommends the 
following broad areas in which specific measures to improve 
 
NAIROBI 00000871  002.2 OF 003 
 
 
governance and combat corruption in Kenya can and should be taken. 
Later in the report, it provides a list of concrete actions the GOK 
can and should take in the short-term, drawn from it's own 
Governance Action Plan: 
 
-- Procurement Reforms: Kenya's new law and regulations for 
government procurement, an area extremely vulnerable to corruption, 
should be implemented quickly and effectively. 
 
-- Reform of the full "judiciary chainQ  Kenya's justice system is 
weak throughout the whole judiciary chain, from investigation, to 
prosecution, to the court process. The report lists a number of 
specific measures the judiciary can and should take to improve its 
performance in delivering justice. 
 
-- Transparency: A number of concrete transparency reforms, which 
could be easily implemented administratively offer promise in the 
short term, "in spite of the prevailing political realities."  These 
transparency-related reforms should include adoption and 
implementation of a Freedom of Information Act and greater public 
disclosure of assets by public officials and legislators. 
 
-- Independence of Key Institutions: The GOK can and should ensure 
the full autonomy, independence, and adequate funding of key 
oversight institutions, including the Human Rights and Electoral 
commissions, and the Central Bank of Kenya.  It should also ensure 
the independence and protection of the media. 
 
-- Regulatory Reform: The GOK can and should accelerate progress in 
deregulating the economy in light of the extensive burden of red 
tape that stifles business investment and breeds corruption.  It 
should also renew and accelerate privatization efforts. 
 
-- Sectoral Focus: The GOK should give priority to particular 
sectors, such as health and transport sectors, traditionally 
vulnerable to graft, in order to improve safeguards for projects and 
investments in these key sectors. 
 
--------------------------------------------- -- 
Donors Agree: Lack of Leadership is the Problem 
--------------------------------------------- -- 
 
¶6.  (SBU) In the ensuing open discussion, an unspoken consensus 
formed around some of the key conclusions of the Kaufmann report. 
Ambassadors from several major donor countries expressed ongoing 
frustration with Kenya's unmet potential, lamenting not so much lack 
of capacity, but lack of what some called "political will"; others 
called it "leadership," or "commitment."  Kaufmann agreed, saying 
"Kenya is not where it should be," even in comparison with the rest 
of sub-Saharan Africa.  World Bank Country Director Colin Bruce 
urged donor colleagues to forget about regional comparisons and to 
push a common theme in discussions with the Kenyan political 
leadership.  That theme: That the leadership is not doing as well as 
it could, nor as well as Kenyans themselves expect. 
 
-------------------------------- 
World Bank: Realistic But Upbeat 
-------------------------------- 
 
¶7.  (SBU) At the same time, Bruce and others emphasized in this and 
previous Nairobi-based donor discussions that because the GOK is not 
monolithic under the current administration, there exist many 
opportunities to engage in Kenya with reform-minded officials and 
with civil society to advance the cause of anti-corruption and 
improved governance.  In a lunch the same day with the Ambassador, 
Bruce noted that the Bank is likely to approve additional loans 
before June to bring total disbursements for 2006-2007 up to $600 
million.  New credits would be in the areas of governance, health, 
including HIV/AIDS, community development, flood infrastructure in 
Western Kenya, and additional support for the Northern Transport 
Corridor.  To this will added another $400 million in new project 
loans between June 2007 and June 2008. (Note: All of this would be 
on top of the Bank's current loan portfolio of $675 million in Kenya 
as of February 2007.  End note) 
 
¶8.  (SBU) While striking, this imminent activity doesn't represent a 
significant ramping up of Bank engagement, Bruce said, but rather 
the clearing out of projects that were already in the pipeline, but 
delayed due to earlier Bank concerns about governance and corruption 
in Kenya, both at the macro and project levels. (Note: The Bank did 
not bring a single credit proposal for Kenya to its board between 
October 2004 and January 2006.  End note).  After much 
 
NAIROBI 00000871  003.2 OF 003 
 
 
soul-searching and many internal audits, the Bank has decided to 
move ahead in Kenya, but on a selective basis, investing where it 
thinks money will be well spent and accounted for by its Kenyan 
partners. 
 
-------------------------------- 
World Bank and U.S. on Same Page 
-------------------------------- 
 
¶9.  (SBU) In this light, Bruce remarked that his thinking parallels 
exactly that of the U.S. Mission, as captured in the Ambassador's 
November 2006 policy address to the American Chamber of Commerce in 
Kenya.  The message there: Despite serious governance challenges in 
Kenya, the overall direction of change is positive; Kenya's 
international friends and partners must therefore support the 
country in ways that advance these positive long-term trends.  Bruce 
liked the speech so much he e-mailed excerpts to World Bank 
President Paul Wolfowitz. 
 
-------------------------------------- 
Comment: A New Consensus on Engagement 
-------------------------------------- 
 
¶10.  (SBU) What is striking here is the emergence of a new consensus 
on engagement in Kenya on the part of the country's key development 
partners, including two of the biggest, the U.S. and the World Bank. 
 Twelve months ago in the midst of graphic public revelations 
documenting high-level corruption in the Kibaki administration, the 
debate among donors was simpler, but more heated and polemical: 
Should we stay or should we go?  Since then, the debate has slowly 
become more nuanced, and it has now been given a strong intellectual 
footing in the analysis and recommendations found in the Kaufmann 
report.  This new consensus is still tinged with frustration over 
the country's leadership deficit and Kenya's consequent 
underperformance.  But it is sober, realistic, and balanced.  It 
takes into account two important facts: First, that there are 
important positive changes occurring in the country quite apart from 
the self-serving maneuverings of the political elite.  Second, 
donors now increasingly see that these positive changes can and 
should be reinforced and encouraged by carefully targeted support 
from Kenya's friends in the international donor community. 
 
¶11.  (SBU) Finally, we note that the recently approved Millennium 
Challenge Account Threshold Program for Kenya is in perfect synch 
with several of the conclusions and recommendations of the Kaufmann 
report.  The Threshold Program for Kenya partners the U.S. with 
carefully selected champions of change, focuses on government 
procurement, and targets procurement in health, a developmentally 
important sector, but one traditionally vulnerable to graft. 
Ranneberger