VZCZCXYZ0002
RR RUEHWEB

DE RUEHNR #2715/01 3391253
ZNR UUUUU ZZH
R 041253Z DEC 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 7806
INFO RUCPDOC/USDOC WASHDC 3113
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHRC/USDA FAS WASHDC 1692
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS
RHMCSUU/FAA WASHDC
RUEAHLC/HOMELAND SECURITY CENTER WASHDC

UNCLAS NAIROBI 002715 
 
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 
AGRICULTURE FOR US FOREST SERVICE 
TSA FOR JILLENE MACCREERY, CARLOS DE LA TORRE, AND MIRIAM MOSES 
FAA FOR DONNA KRIMSKI 
FAA REPRESENTATIVE DAKAR 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON SENV EAGR ELAB EINV EFIN ETRD EAID BEXP PINR
EAIR, ASEC, PTER, KCOR, ELTN, UG, KE 
 
SUBJECT:  KENYA ECONOMIC HIGHLIGHTS: LATE NOV/EARLY DEC '08 
 
REF:  A) Nairobi 1692 B) Nairobi 2710 
 
This cable is not/not for internet distribution. 
 
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TABLE OF CONTENTS 
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¶1.  (SBU) CENTRAL BANK PREPS FOR ECONOMIC HEADWINDS 
¶2.  (SBU) DEMAND FOR KENYAN TEA FALLS SHARPLY 
¶3.  (SBU) TEA WORKERS GET PAY HIKE; GOK FORMS LABOR BOARD 
¶4.  (SBU) INTERPOL-KWS MAKE PROGRESS ON POACHING 
¶5.  (SBU) PM CONTINUES PRIVATE SECTOR ENGAGEMENT 
¶6.  (SBU) CORRUPTION:  FORMER FINANCE MINISTER CLEARED 
¶7.  (SBU) MAU FOREST ROUNDTABLE WITH REO BAUMAN 
 
¶1.  (SBU) CENTRAL BANK PREPS FOR ECONOMIC HEADWINDS 
 
Central Bank Governor N'dung'u recently indicated to us that the 
global recession would significantly hamper Kenya's economic 
recovery from post-election violence.  Emphasizing exports as the 
key to the country's growth, the Governor said cut flowers, tea, and 
tourism would take hits.  To help safeguard Kenya, the Governor is 
now increasing market liquidity by cutting the benchmark Central 
Bank Rate from 9 to 8 percent and its cash reserve ratio from 6 to 5 
percent.  Unfortunately, inflation - which rose again in November to 
29.4 percent on rising food prices - continues to hinder growth and 
erode purchasing power; 46 percent of Kenyans live on less than 
$2/day. 
 
The GOK also is grappling with a mounting budget deficit - revenue 
collection fell 9 percent below its third quarter target of 119 
billion KShs.  Despite the deficit and bleak economic outlook, 
Kenyan MPs - some of the highest paid in the world - have rejected a 
call to have their generous allowances (approx. $96,000/yr) taxed. 
Some good news:  transport fuel costs have begun to decline in 
response to falling international oil process. 
 
Overall, all of our interlocutors in business and economic analysis 
are telling us that while the global economic crisis has already 
begun to bite, the full effect is still 4-6 months away.  With 
Kenya's major foreign exchange earners (remittances, tourism, cut 
flowers, coffee and tea) all sensitive to global income shifts, it 
appears inevitable that, combined with the downturn resulting from 
the post-election violence, Kenya will be hit hard by the global 
crisis. 
 
¶2.  (SBU) DEMAND FOR KENYAN TEA FALLS SHARPLY 
 
The international auction price for Kenyan tea has dropped over 30 
per cent since September, rocking a key forex earning industry.  The 
United Kingdom and Pakistan, both facing official recessions, are 
the top two markets for Kenyan tea. 
 
¶3.  (SBU) TEA WORKERS GET PAY HIKE; GOK FORMS LABOR BOARD 
 
More than 270,000 Kenyan tea workers have received a 20 percent 
salary increase.  According to the Kenya Plantation and Agricultural 
 Workers Union, tea factory workers will now earn 254 Kshs/day 
(about $3.40/day), while tea pickers will get 6.97 Ksh (93 
cents)/kilogram picked.  In announcing the pay hike, the union also 
warned multinational tea companies of strikes if automated tea 
plucking machines were introduced. 
 
Labor Minister Munyes has formed a National Labor Board, which 
includes employee, employer and government representatives.  The 
Board is responsible for ensuring implementation of the country's 
labor laws and developing ways to enhance productivity.  Kenya's 
private sector maintains that the labor laws (including provisions 
for paternity leave and 96 months of disability pay) are too costly, 
while workers contend that salaries haven't kept pace with inflation 
and temporary employment is rarely converted to fulltime in 
accordance with the law. 
¶4.  (SBU) INTERPOL-KWS MAKE PROGRESS ON POACHING 
 
As part of an Interpol-organized operation ("Operation Baba") the 
Kenya Wildlife Service (KWS) recently arrested 36 persons (including 
three Chinese nationals) suspected of trafficking in ivory and 
wildlife parts.  The directors of the KWS elephant and rhino 
programs told visiting Embassy Addis Ababa REO Kirsten Bauman that 
very little poaching is occurring in Nairobi National Park but 
otherwise they believe the CITES decision to allow a one-off ivory 
sale to China will spur elephant poaching. 
 
¶5.  (SBU) PM CONTINUES PRIVATE SECTOR ENGAGEMENT 
 
On November 19, Prime Minister Odinga held his second roundtable 
with key elements of the Kenyan private sector.  The CEO of the 
Kenya Private Sector Alliance (KEPSA) Kevit Desai told us that the 
PM's efforts to engage with business are "deepening understanding" 
between the two sides.  Desai said that the roundtable is resulting 
in some private sector concerns around barriers to trade and 
movement of goods (e.g. the conversion of the Port of Mombasa into a 
24 hour facility) being addressed by government.  It has also been 
an opportunity for business to update government on the negative 
effects of the global economic crisis in Kenya and the tough times 
expected over the next year. 
 
¶6.  (SBU) CORRUPTION: FORMER FINANCE MINISTER CLEARED 
 
Former Finance Minister Amos Kimunya has been reportedly cleared of 
wrongdoing by the Cockar Commission which investigated the sale of 
the Grand Regency Hotel by the GOK to the Libyan company LAICO.  The 
Commission did, apparently, conclude that Kimunya, who was not 
interviewed by the panel, should have advised the Central Bank on 
how to sell the property.  That said, the issue is in a holding 
pattern. Though it appears the Executive has cleared Kimunya, there 
is still the outstanding issue of the Parliamentary Committee's 
ruling that he's unfit.  This means that if President Kibaki 
re-appoints Kimunya as Finance Minister, Parliament may punish 
Kibaki/Kimunya by stalling any finance-related legislation.  Kibaki 
may now be looking for another role for Kimunya. Kimunya is a member 
of the president's inner circle, so the president may try to find 
another post for him to avoid conflict with Parliament.  There is 
speculation of Kimunya taking Acting Finance Minister Michuki's 
Environment portfolio or even heading the Ministry of Transport. 
Ref A provides background on Kimunya's involvement with the Grand 
Regency sale. 
 
¶7.  (SBU) MAU FOREST ROUNDTABLE WITH REO BAUMAN 
 
Representatives from Kenya's National Environment Management 
Authority (NEMA) and the Forest Service uniformly praised PM Odinga 
and Environment Minister John Michuki for standing firm on their 
decision to protect Kenya's five "water towers."  They confided to 
REO Kirsten Bauman that protecting these highlands is indispensable 
to safeguarding Kenya's hydroelectric power generation, the Mara 
River which waters the Maasai Mara wildlife reserve, and rivers 
which feed Lake Victoria, Lake Turkana, Lake Nakuru, and several 
other Rift Valley lakes.  An estimated 5.5 million Kenyans involved 
in tea and rice cultivation, livestock rearing, and tourism depend 
on the Mau watershed.  The annual market value of their activities 
is approximately $300 million.  In the past ten years, squatters, 
loggers, and charcoal makers have denuded 250,000 acres of forest. 
See ref B for a comprehensive update/analysis on the Mau situation. 
 
 
RANNEBERGER