VZCZCXYZ0000
PP RUEHWEB

DE RUEHNR #1227/01 1340745
ZNR UUUUU ZZH
P 130745Z MAY 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC PRIORITY 5768
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS NAIROBI 001227 
 
SENSITIVE 
 
DEPT FOR AF/E, AF/EPS, EEB/IFD/OMA 
DEPT ALSO PASS TO USTR FOR BILL JACKSON 
TREASURY FOR VIRGINIA BRANDON 
COMMERCE FOR BECKY ERKUL 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN PGOV ELAB KE
SUBJECT: EXPANDED KENYAN CABINET MIGHT COST EXTRA $600 MILLION A 
YEAR 
 
SENSITIVE BUT UNCLASSIFIED.  FOR USG USE ONLY. 
 
REFS: A) NAIROBI 1126, B), NAIROBI 1041, C) NAIROBI 355 
 
Summary 
------- 
¶1. (SBU) The new 92-person Kenyan Cabinet represents 42% of 
Parliament and is the largest, most expensive in Kenya's history. 
The Grand Coalition Cabinet and government could cost Kenyan 
taxpayers up to $5.82 billion/year, about $594 million more than the 
previous one.  This extra cost is probably manageable, but it adds 
fiscal strain at a time when the Government also needs resources for 
post-crisis reconstruction.  Ordinary Kenyans, while glad to have 
peace, are angered at the high price paid in the form of a bloated 
cabinet.  End summary. 
 
Grand Coalition Government Biggest Ever... 
----------------------------------------- 
¶2. (U) On April 13, Kenyan President Mwai Kibaki named the Grand 
Coalition Cabinet worked out with opposition leader Raila Odinga 
under the agreement brokered by Kofi Annan and enacted under the 
National Reconciliation Accord Act.  Kibaki named one Prime Minister 
(PM), two Deputy PMs, 39 Cabinet Ministers, an Attorney General and 
52 Assistant Ministers.  The government was expanded by splitting up 
five ministries, creating four new ministries, and by redistributing 
the functions formerly carried out by 35 agencies (refs A and B). 
Of the 222 Members of Parliament, 92 (about 42%) are Cabinet 
members, making this the largest, and almost certainly the most 
expensive government in Kenya's history.  The new Coalition Cabinet 
is evenly divided between the Party of the National Unity (PNU - an 
umbrella of several parties that support Kibaki) and the Orange 
Democratic Movement (ODM) coalition that supports PM Raila Odinga. 
The Coalition Cabinet was sworn into office on April 17.  On April 
21, President Kibaki appointed a head of civil service, 43 Permanent 
Secretaries (PS), and 21 Secretaries, 11 of whose positions were 
newly created. 
 
Cabinet Costs Up 19% 
-------------------- 
¶3.  (U) In 2007, the Cabinet was comprised of a Vice President, 33 
Cabinet Ministers, 50 Assistant Ministers, 34 Permanent Secretaries 
and 10 Secretaries, and was considered large.  Using existing data 
on government salaries and benefits, we believe that if one includes 
the Cabinet members' pre-existing base salaries as Members of 
Parliament, the Cabinet itself cost Sh1.53 billion/year, or $24.2 
million.  Using the standard set of allowances and perks for each 
level, we believe the new National Coalition Cabinet of a Vice 
President, one Prime Minister, two Deputy Prime Ministers, 39 
Cabinet Ministers, 52 Assistant Ministers, 43 Permanent Secretaries 
and 21 Secretaries will cost Sh1.8 billion/year ($28.7 million), a 
$4.5 million, or 18.6%, increase. 
 
Guesstimated Cost of New Government Up 10.5% 
-------------------------------------------- 
¶4.  (U) Calculating the greater total cost of government is far more 
problematic, because in several cases, "new" ministries are simply 
existing bureaucracies that will be hived off of other ministries. 
Underlying salary costs thus may not increase substantially.  But it 
is likely administrative costs will increase as new ministries 
replicate administrative functions previously handled under single 
ministries, and buy new vehicles and furnish new offices for the new 
Ministers and their assistants.  In the 2007-08 budget, the total 
operating cost of the previous government of 34 Ministries was 
Sh315.8 billion/year or $5 billion, an average of Sh9.3 billion or 
$147.4 million/Ministry (ref C).  If one assumes (admittedly 
somewhat arbitrarily) that the eight new and/or divided ministries 
will cost only half of this average cost, then the total cost of the 
new government would be KSh353 billion ($5.6 billion), which would 
be a 10.5% increase of $589.8 million.  Together with the additional 
Cabinet costs, the total Coalition government will cost an 
additional Sh37.5 billion ($594 million) or so more than the 
previous government. 
 
The Public Reacts 
----------------- 
¶5. (U) Whether one considers this increase reasonable, obscene, or 
something in between, context and perceptions matter.  Civil society 
groups have criticized the Coalition Cabinet as bloated, saying the 
number of ministers is unjustified in a country where 46% were 
living on less than $1 a day even before the crisis tipped many more 
into poverty, and where about 350,000 internally displaced persons 
desperately need assistance in rebuilding their lives.  Civil 
 
society activists and the media had called on Kibaki and Odinga to 
name a 24-member cabinet comprised of a Prime Minister, two 
deputies, a Vice President, 20 Ministers and 24 Assistant Ministers. 
 We estimate such a lean cabinet would have cost Sh960 million/year 
or $15.2 million -- 47% less than the estimated cost of the 
Coalition Cabinet. 
 
Can the GOK Afford It? 
---------------------- 
¶6. (U) In addition to the added costs of the new, larger government, 
the GOK also estimates it needs $479 million for reconstruction 
following the two months of violence that displaced about 350,000 
people.  This will add to a FY 2008-08 budget that was already 
forecasting a KSh 109 billion deficit.  In response, Finance 
Minister Kimunya on April 29 asked Parliament to approve an 
additional Sh27 billion ($429 million) supplemental for the 
FY2007-08 budget.  A total of Sh19.6 billion ($311 million), 
including Sh4 billion from other previously budgeted funds, will be 
for the expanded Government's operating costs.  The revisions will 
raise the FY07-08 budget from Sh537.6 billion in planned spending to 
Sh559.2 billion. 
 
¶7.  (U) The Kenya Revenue Authority (KRA) reported collecting $4.6 
billion in the first three quarters of FY2007-08, 1.8% above the 
target of $4.5 billion.  KRA Commissioner-General Michael Waweru 
insisted that revenue collections were on target, despite the 
economic aftermath of the crisis.  Anecdotal evidence suggests this 
might not be the case, but only time will tell whether KRA will 
continue to meet revenue targets to help defray the cost of a larger 
government and help the country rebuild.  Meanwhile, the sale of 
Telkom Kenya to France Telecom in December brought in $390 million 
(about Sh27 billion at the then-exchange rate of Sh70/$), and the 
initial public offering of cell phone giant Safaricom, which is 
ongoing, is expected to net Sh50 billion, much higher than the 
budgeted Sh34 billion.  Because money is fungible, the proceeds of 
these successful privatizations will help cover the higher cost of 
the new government, but they can only do so in the first year. 
After that, Kenyan taxpayers will have to bear the cost. 
 
Comment 
------- 
¶8. (SBU) Our guesstimate of the added costs of a larger cabinet and 
civil service is just that - an attempt to quantify something which 
only over time will become more precisely measurable.  While Kenyan 
civil society and media accepted the reconciliation deal, they have 
criticized the bloated cabinet as a high price to pay for peace. 
The appearance of 42% of already-well paid MPs receiving extra 
allowances and benefits while hundreds of thousands of displaced 
persons suffer and hundreds of thousands more lose jobs and slip 
into poverty rankles Kenyans deeply, and for good reason. 
Ranneberger