VZCZCXYZ0014
RR RUEHWEB

DE RUEHNR #0428/01 0620913
ZNR UUUUU ZZHCCY ADDED SENSITIVE (ADX 38A2FF MSI2147) 431
R 030913Z MAR 09 ZDS
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 8711
INFO RUCPDOC/USDOC WASHDC 3192
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS

UNCLAS NAIROBI 000428 
 
C O R R E C T E D  C O P Y (SENSITIVE HANDLING INDICATOR ADDED) 
 
SENSITIVE 
 
STATE ALSO FOR AF/E AND AF/EPS 
 
STATE PASS USAID/EA 
 
STATE PASS USITC FOR ALAN TREAT, RALPH WATKINS, AND ERLAND 
HERFINDAHL 
 
TREASURY FOR REBECCA KLEIN 
 
COMMERCE FOR BECKY ERKUL 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ELAB ECPS EINV EFIN ETRD EAID BEXP PINR ASEC
PTER, KCOR, KE 
SUBJECT:  KENYA ECONOMIC NOTES: MARCH 2009 
 
REF: Nairobi 411 
 
This cable is not/not for internet distribution. 
----------------- 
TABLE OF CONTENTS 
----------------- 
¶1.  (SBU) ECONOMIC ADVISOR TO GOK LEADERS: "GET REAL" 
¶2.  (SBU) IMF MISSION EXPLORES SUPPORT FOR KENYA 
¶3.  (SBU) HORTICULTURE EXPORTERS LOOK TO THE U.S. MARKET 
¶4.  (SBU) KENYAN TRAVEL TO THE U.S. DECLINES 
 
¶1.  (SBU) ECONOMIC ADVISOR TO CABINET: "GET REAL" 
 
Prime Minister Odinga's chief economic advisor recently told Econ/C 
that the Kenyan political leadership, including decision makers at 
the Central Bank, is underestimating the impact of the global 
economic crisis on Kenya.  The advisor, a Japanese professor with 
extensive IMF experience, will brief Cabinet in early March on the 
possibility of only 1% GDP growth (roughly equivalent to negative 2% 
per capita) in 2009.  He said he would advise Cabinet to "get real" 
about the state of the economy in hopes of steering policy towards 
lower food inflation and growth.  The advisor expressed concern over 
the possibility of unrest due to high food costs and declining 
employment.  He said the government would vigorously "tin-cup" 
donors to avoid cuts in capital expenditures, noting the challenge 
of attracting direct budget support in light of the endemic 
corruption here (reftel). 
 
Note: Remittances, the largest source of foreign exchange and a key 
social safety net, have dropped by over 25% from Jan '08 to Jan '09. 
 
 
¶2.  (SBU) IMF DELEGATION EXPLORES SUPPORT FOR KENYA 
 
An IMF mission is in Kenya Feb 23-Mar 6 to discuss the government's 
request for access to IMF resources under the Exogenous Shocks 
Facility. A fundamental objective of this mission will be to reach a 
comprehensive understanding of the government's economic agenda for 
fiscal years 2008/09 and 2009/10, including how it intends to 
finance its emergency food relief program and "Kazi Kwa Vijana" (a 
youth employment initiative).  The GOK is running a Ksh 70 billion 
($875 million) deficit.  Kenya may seek as much as $300 million in 
IMF funding to help stabilize the shilling/provide balance of 
payments support, if necessary, and/or provide cheap financing from 
the Central Bank (where the IMF would essentially deposit the 
funding) to the government.  Conditionality will generally revolve 
around appropriate macro policies to address the effects of the 
global crisis.  At a mission kick-off meeting and at a later 
briefing with Ambassadors, donors made clear their lack of appetite 
for direct budget support to the GOK due to corruption and an 
inability to utilize assistance that has been provided; donors 
indicated some willingness to supply additional assistance to WFP to 
alleviate food shortages.  The IMF delegation will brief donors on 
their finding March 6 (septel). 
 
¶3.  (SBU) HORTICULTURE EXPORTERS LOOK TO U.S. MARKET 
 
The Ministry of Agriculture has reported that the Kenyan 
horticulture sector earned 29% more in 2008 than in 2007, despite 
early 2008 ethnic violence and the global economic crisis.  In 2008 
the sector earned KSh73.7 billion (about $982 million) to become the 
country's number one foreign exchange earner (remittances, usually 
estimated at $1 billion annually, not withstanding).  Export 
volumes, led by the sales of cut flowers and processed vegetables 
and fruits to the EU, increased by 9.8% to 423,000 tons.  The EU 
market, led by the UK's 33% market share, accounted for 82.4% of 
Kenyan horticultural sales. 
 
Horticulture industry representatives remain hopeful that - despite 
the economic slump - Kenya will increase its exports of cut flowers, 
prepared bouquets, shelled peas, baby corn, and baby carrots to the 
United States.  In late February 2009, Dr. Stephen Mbithi, the 
executive director of the Fresh Produce Exporters Association of 
Kenya (FPEAK), welcomed the announcement by the US Department of 
Agriculture Secretary Tom Vilsack that the United States had decided 
to reintroduce stricter traceability guidelines for imports of fresh 
produce and meat under the USDA's country of origin labeling 
program.  Saying that Kenya has a "reliable self-regulatory 
mechanism" and quality control surveillance system certified by USDA 
inspectors, Dr. Mbithi suggested that "traceability will only work 
to our advantage because, unlike other producing countries, there is 
no negative sentiment associated with our fresh produce." 
 
Jane Ngige, the CEO of the Kenya Flower Council (KFC -- a trade 
association of 72 cut flower exporters), confided to econoff March 2 
that Valentine's Day 2009 sales were down sharply from the previous 
year.  Whereas the industry had persevered following the 
January-February 2008 post-election upheaval, Ngige said it is 
beginning to feel the effects of the global financial crisis. 
Explaining that the cold weather in Europe had people shoveling snow 
rather than buying flowers, Ngige revealed that cut flower sales to 
Europe plummeted 25% during Valentine's.  She and other industry 
leaders are appealing to the Kenyan government to "cushion" the 
industry by declaring the flower farms economic processing zones, 
thus making them eligible for a variety of tax holidays.  The tax 
breaks, she maintained, would keep "our heads above the waters; 
otherwise we may well see several flower farms go under."  Aside 
from appealing to the government for tax relief, Ngige said the KFC 
is determined to increase sales to Japan and Eastern Europe.  The 
association is also anxiously awaiting the scheduled early June 2009 
of direct Delta U.S.-Kenya flights, which Ngige and the growers 
believe will help resuscitate the industry. 
 
¶4.  (SBU) KENYAN TRAVEL TO THE U.S. DECLINES 
 
During the past five months, the Consular Section has noted a 15% 
spike in the rate of NIV interview "no-shows" over the same period 
last year; visa adjudications are down nearly 12%.  The increase in 
"no-show" applicants could reflect tough economic times as roughly 
the same number of applicants are making the initial appointments 
(there is no fee for making an appointment online) but are having 
second thoughts once it comes to paying the Machine Readable Visa 
(MRV) application fee of $131. 
 
 
RANNEBERGER