VZCZCXRO3201
RR RUEHGI RUEHRN
DE RUEHNR #1505 1711308
ZNR UUUUU ZZH
R 191308Z JUN 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 6148
RUEHRC/USDA FAS WASHDC 1647
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHEG/AMEMBASSY CAIRO 4005
RUEHFR/AMEMBASSY PARIS 2768
RUEHRO/AMEMBASSY ROME 5305
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 4449
RUEHDU/AMCONSUL DURBAN 0187

UNCLAS NAIROBI 001505 
 
AGRICULTURE FOR USDA/FAS CJACKSON AND MHOUSE, USDA/FAS/OFSO FRANK 
LEE, USDA/FAS/OCBD PATRICIA SHEIKH, USDA/FAS/OCRA CHUCK ALEXANDER, 
AND USDA/FAA RON VERDONK 
 
STATE FOR EEB/TPP/MTA CHEVER VOLTMER, EEB/TPP/ABT GARY A. CLEMENTS, 
JACK A. BOBO, AND AMY WINTON; EEB/IFD/ODF MARGO SIEMER; AND EEB/TPP 
MIKAEL LURIE 
 
STATE ALSO FOR AF/E, AF/EPS, AND EEB/TPP/ABT/ATP JANET SPECK 
 
STATE PLEASE PASS USTR BILL JACKSON AND USAID/EA 
 
COMMERCE FOR BECKY ERKUL AND USITC RALPH WATKINS 
 
LONDON, PARIS, ROME FOR AFRICA WATCHERS 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: EAGR ETRD TBIO ECON EAID EFIN PGOV KE
SUBJECT: KENYA REDUCES TARIFFS ON WHEAT AND CORN IMPORTS 
 
REFS: (A) STATE 53353 (B) STATE 533346 (C) STATE 52628 
      (D) NAIROBI 1122 AND PREVIOUS 
      (E) FAS NAIROBI GAIN KE8012 (F) STATE 1336 
 
¶1. Summary: Kenya has reduced its duties on imported wheat from 35 
percent to 10 percent and plans to import 297,000 tons of corn duty 
free. Corn normally is assessed a 50 percent import duty.  This 
fulfills a commitment made by the Minister for Agriculture William 
Ruto to the Ambassador during a meeting on May 8, 2008 (Ref F).  It 
is expected that these tariff reductions will help rein in, to some 
degree, the spiraling cost of food in Kenya. End Summary. 
 
¶2. Minister for Finance Amos Kimunya delivered the first budget of 
the Grand Coalition Government. The budget speech covered recent 
economic developments, restoration of the economy, facilitation of 
investment, creation of a robust financial sector, improvement of 
infrastructure, poverty reduction and promotion of equitable 
distribution of resources. Minister Kimunya noted that the country 
faced several challenges that include regional disparities, poverty, 
unemployment, low agricultural production, and high inflation. The 
theme of the budget speech was 'working together to build a 
Cohesive, Equitable and Prosperous Kenya." 
 
¶3. Compared to the 2007 budget, the 2008 budget comes at a time when 
the country has almost reversed gains attained in previous years. In 
2007 the economy was growing at a rate of 7 percent and looking up. 
The violence that erupted at the beginning of the year coupled with 
the rising cost of production (due to increased cost of inputs and 
rising international oil prices) led to a record high inflation of 
31.5 percent during the month of May, 2008.  Given that food 
accounts for about 87 percent of inflation and with existing grain 
stocks forecast to last only until August 2008 the Minister of 
Finance put emphasis on fixing food prices and putting in place 
policies that stimulate local food production. 
 
¶4. Realizing the importance of food security for Kenyans the 
Minister zero rated Value Added Tax (VAT) on wheat flour, milk and 
corn flour. To further cushion the poor against the rising cost of 
living he also zero rated the VAT on bread and rice, and reduced the 
import duty on wheat from 35 % to 10 %. The government also promised 
to increase its Strategic Grains Reserve by 2 million (90 kg) bags, 
to 6 million (90 kg) bags. The SGR imports will be duty free. 
 
¶5. The Government further promised to play a proactive role in 
sourcing fertilizer at competitive international price to help 
stabilize domestic prices. In consultation with the governments of 
Uganda and Tanzania, plans are underway to set up a regional 
fertilizer factory to ensure long term sustainable supplies. 
 
¶6. The Minister emphasized the Grand Coalition Government's 
commitment to restoring the economy and putting it back on a higher 
growth path through boosting investments to drive long-term growth. 
This remains largely a wait-and-see situation. 
 
Slutz