VZCZCXYZ0000
RR RUEHWEB

DE RUEHNR #2605/01 3230641
ZNR UUUUU ZZH
R 180641Z NOV 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 7612
INFO RUCPDOC/USDOC WASHDC 3092
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHRC/USDA FAS WASHDC 1689
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS
RHMCSUU/FAA WASHDC
RUEAHLC/HOMELAND SECURITY CENTER WASHDC

UNCLAS NAIROBI 002605 
 
STATE ALSO FOR AF/E AND AF/EPS 
 
STATE PASS USTR PATRICK COLEMAN 
 
STATE PASS USAID/EA 
 
STATE PASS USITC FOR ALAN TREAT, RALPH WATKINS, AND ERLAND 
HERFINDAHL 
 
STATE PASS TO DEPT OF TRANSPORTATION FOR CORNELIA HUNTER 
 
TREASURY FOR REBECCA KLEIN 
 
COMMERCE FOR BECKY ERKUL 
 
TSA FOR JILLENE MACCREERY, CARLOS DE LA TORRE, AND MIRIAM MOSES 
 
FAA FOR DONNA KRIMSKI 
FAA REPRESENTATIVE DAKAR 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON ELAB EINV EFIN ETRD EAID BEXP PINR EAIR ASEC
PTER, KCOR, ELTN, UG, KE 
 
SUBJECT:  KENYA ECONOMIC NOTES 
 
This cable is not/not for internet distribution. 
 
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TABLE OF CONTENTS 
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¶1.  (SBU) GOK MOVES APACE ON AGOA FORUM PREPARATIONS 
¶2.  (SBU) CIVAIR AUTHORITY RAMPING UP FOR FAA CATEGORY 1 
¶3.  (SBU) ANTI-CORRUPTION COMMISSION CONCEDES WEAKNESSES 
¶4.  (SBU) KENYA RAILWAYS: STRUGGLING TO GET BACK ON TRACK 
¶5.  (SBU) MACRO-ECONOMIC INDICATORS SUGGEST SLUGGISH GROWTH 
¶6.  (SBU) WORKERS CALL FOR RELIEF FROM INFLATION 
 
FOR INTERNAL USG DISTRIBUTION ONLY 
 
¶1.  (SBU) GOK MOVES APACE ON AGOA FORUM PREPARATIONS 
 
On November 11 Deputy Prime Minister/Trade Minister Uhuru Kenyatta 
and Acting Chief Economist Richard Sindiga told senior mission 
members that Kenya is delighted that the United States has accepted 
its offer to host the 2009 AGOA Forum in Nairobi, probably in 
August.  Kenyatta emphasized that he wants the AGOA Forum to be much 
more than yet another talk-shop among trade ministers; he envisions 
a venue for American buyers and sellers to meet their African 
counterparts.  In the past month, Kenyatta has remarked on several 
occasions that, while AGOA is the most generous trade pact Africa 
has ever received, Kenya and other AGOA eligible nations have not 
taken proper advantage of it.  In mid-November he commented to the 
press that "it is our sincere hope that the incoming US 
Administration will continue to strengthen that relationship for the 
benefit of our people."  He called upon the Obama Administration to 
make AGOA a permanent fixture to make the region more attractive to 
investors. 
 
¶2.  (SBU) CIVAIR AUTHORITY RAMPING UP FOR FAA CATEGORY 1: 
 
The Kenya Civil Aviation Authority (KCAA) has hired four flight 
operations inspectors to certify Kenya Airways' new generation 
Boeing 737s, 767s, and 777s.  This hiring is a crucial step towards 
Kenya's achievement of FAA Category 1 status, permitting Kenya 
Airways to fly direct to the U.S. (or potentially code share with 
Delta, which plans to begin U.S.-Kenya service in June 2009.)  The 
new KCAA inspectors must undergo specialized training prior to 
beginning the certifications.  Achievement of Category 1 may still 
require another 12-18 months.  Embassy Nairobi appreciates DOT's and 
FAA's continuing support for safer skies in Kenya. 
 
¶3.  (SBU) ANTI-CORRUPTION COMMISSION CONCEDES WEAKNESSES 
 
In an October 31 meeting with EconCouns, Kenya Anti-Corruption 
Commission (KACC) Chairman Ringera expressed ongoing frustration 
with the lack of prosecutorial authority in his office.  Directly 
connected to that complaint is the lack of support from the Attorney 
General's office in moving forward on cases that the KACC has 
thoroughly investigated.  Ringera admitted that the lack of high 
level prosecutions on major scandals (e.g. Goldenberg and 
Anglo-Leasing) has hurt the Commission's and Kenya's reputation. 
Asked if there had been a change in government attitudes since the 
Grand Coalition came into office, Ringera responded simply, "same 
game, different faces."  That said, Ringera believed the perception 
of corruption was worse than the real thing in Kenya.  He cited a 
number of actions taken in recent years, including in recovering 
funds for the state from the Grand Regency Hotel sale, that he 
 
believed showed success.  Overall, Ringera argued that Kenya had 
made significant progress since 1992 in minimizing the opportunities 
for corruption in government. 
 
¶4.  (SBU) KENYA RAILWAYS: STRUGGLING TO GET BACK ON TRACK 
 
In a recent meeting with econoffs, Kenya Railway Corporation's 
Managing Director said the condition of the railroad (track, 
locomotives, and wagons) is "the worst in 100 years."  Currently, 
rail transports only six percent of the freight out of the port of 
Mombassa (on any given day, some 1,000 containers at the port are 
ready for delivery, yet the trains transport only a few hundred of 
them).  The small gauge of the current track could handle 20-30 
percent of port traffic if it were well-maintained.  However, 
because of continuing inaction by concessionaire Rift Valley 
Railways (RVR), the MD opined it would be at least five years (and a 
$300 million investment) before the railway could run at capacity. 
To jumpstart investment, the GOK has instructed RVR to place $50 
million in escrow by January 2009 or face cancellation of the 
concession; the GOK is in discussions with RVR stakeholders to 
permit additional infusions of capital from new investors.  The MD 
lamented that the GOK hadn't embraced "the British approach" of an 
"open access system" (government maintains tracks and private 
railroads pay a usage fee). 
 
Forty percent of the cargo leaving the port by rail is Uganda-bound. 
 According to the MD, Ugandan President Museveni has said Kenya's 
neglect of its railroad is equivalent to "an act of war" and 
"sabotage."  Transportation represents as much as 45 percent of the 
cost of production in the region. 
 
¶5.  (SBU) MACRO-ECONOMIC INDICTORS SUGGEST SLUGGISH GROWTH 
 
Tourism:  In the wake of depressed tourist receipts for 3Q 2008, 
both government and business leaders now concede that the economy 
will likely grow only 4 percent this year.  Compared to 
January-October 2007 figures, arrivals slumped 30 percent from 1.35 
million to 940,000; while revenues also fell 30 percent from 
KSh49.25 billion ($703.5 million) to KSh34.53 (less than $500 
million).  Tourist Minister Najib Balala and Kenya Tourist Board 
(KTB) Chairman Jake Grieves-Cook and Managing Director Dr. Achieng 
Ongong'a predict the industry may not recover until Nov-Dec 2009, 
assuming limited damage from the global financial crisis. 
 
Inflation:  The National Bureau of Statistics reports that annual 
inflation rose to 28.4 percent in October, up slightly from 28.2 
percent in September, due to a 1.4 percent increase in the index for 
food and non-alcoholic drinks.  The most worrisome development has 
been the doubling in price of a 2-kg bag of cornmeal, Kenya's staple 
food.  According to the Regional Agricultural Trade Intelligence 
Network (RATIN), expected corn production will fall short in 
satisfying domestic consumption, ensuring that prices will remain 
high throughout 2009.  RATIN predicts a shortfall of at least 
400,000 metric tons.  In mid-August 2008 the Kenya Food Security 
Steering Group estimated that 1.38 million rural Kenyans are already 
"highly food insecure."  To boost purchasing power, the GOK has 
reduced the VAT on electricity by four percent and is on the cusp of 
introducing price caps on transportation fuel. 
 
¶6.  (SBU) WORKERS CALL FOR RELIEF FROM INFLATION 
 
Workers from industries as diverse as tea farming to airline 
engineering continue to demand higher wages to compensate for 
inflation.  Kenyan employers and unions are bracing for hard 
bargaining over salaries, which haven't kept pace with rising 
prices.  On November 18, the Kenya National Union of Teachers, which 
has been negotiating with government since May, announced a January 
2009 deadline to reach agreement or strike.  By some accounts, 
employers need to increase wages by 30 percent in 2009 to give 
workers the same purchasing power they had in 2005.  After a 
"go-slow" last summer, port workers negotiated a forty percent pay 
increase in September.  Union leaders and Ministry of Labor 
officials are also exhorting employers to implement the country's 
labor laws, which mandate the timely conversion of temporary workers 
to the formal sector. 
 
RANNEBERGER