VZCZCXYZ0003
RR RUEHWEB

DE RUEHNR #2007/01 2661429
ZNR UUUUU ZZH
R 231429Z SEP 09
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 1071
INFO RUCPDOC/USDOC WASHDC 3229
RUEHRC/USDA FAS WASHDC 1854
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS

UNCLAS NAIROBI 002007 
 
STATE ALSO FOR AF/E AND AF/EPS 
 
STATE PASS USAID/EA 
 
STATE PASS USITC FOR ALAN TREAT AND PHILIP STONE 
 
TREASURY FOR REBECCA KLEIN 
 
COMMERCE FOR BECKY ERKUL AND USPTO OFFICE OF ENFORCEMENT 
 
LABOR FOR QTERNATIONAL LABOR AFFAIRS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ELAB ECPS EINV EFIN ETRD ENRG PINR KCOR
KE 
SUBJECT:  KENYA: SEPTEMBER ECONOMIC HIGHLIGHTS 
 
REF: (a) Nairobi 1854, (b) Nairobi 1452, (c) Nairobi 1517 
 
This cable is not/not for internet distribution. 
 
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TABLE OF CONTENTS 
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¶1.  KENYA BUREAU OF STANDARDS CHIEF SACKED; POTENTIAL POSITIVE STEP 
¶2.  GDP GROWTH BELOW TARGET, GOK MULLS IMF PROGRAM REQUEST, AND 
FOOD/ENERGY PRICES SET TO RISE 
¶3.  AMBASSADOR PRESSES FOR AGRICULTURAL REFORM IN FACE OF RECURRING 
DROUGHT 
¶4.  TURKANA WIND PROJECT PROMISES NEW ENERGY CAPACITY 
 
 
¶1.  KENYA BUREAU OF STANDARDS CHIEF SACKED; POTENTIAL POSITIVE STEP 
 
Head of Civil Service Francis Muthaura fired Dr. Kioko Mang'eli, the 
managing director of the Kenyan Bureau of Standard (KEBS) on 
September 10.  Scandals involving imported maize and oil inspections 
as well as constant complaints from the private sector over the 
flood of counterfeit products in Kenya reportedly led Muthaura to 
dismiss Mang'eli.  Contacts tell us the Prime Minister's office also 
pushed for the sacking.  The Kenyan Association of Manufacturers, 
American Chamber of Commerce of Kenya, and the Kenya Private Sector 
Alliance reacted very positively to the move but cautioned on the 
continuing need for institutional reforms at KEBS. 
 
However, Minister of Industrialization Henry Kosgey, who oversees 
KEBS, contradicted the offices of Muthaura and the PM in Parliament 
on September 17, stating "Mang'eli is still the MD."  According to 
Kosgey, only he has the authority to fire Mang'eli.  While it 
appeared Mang'eli would remain in office pending the outcome of 
consultations among his supporters and detractors in government, 
September 22 media reports (combined with information from our own 
contacts) indicate that Mang'eli has been replaced by his Deputy. 
Comment:  This is a potentially positive step for Kenya.  Mang'eli 
was at the center of a range of corrupt practices.  His successor 
will have to prove him/herself to be committed to the fight against 
counterfeiting as well as corruption for this move to be ultimately 
considered a success.  End comment. 
 
¶2.  GDP GROWTH BELOW TARGET, GOK MULLS IMF PROGRAM REQUEST, 
FOOD/ENERGY PRICES SET TO RISE 
 
In a September 21 meeting with a senior GOK Finance Ministry 
official, we learned that the global economic crisis plus the 
ongoing drought and other domestic limitations have driven growth 
below the Government's projection of 3 percent in 2009 (ref b). 
While official statistics are not out yet for the second quarter, 
our contact warned that growth was "bad."  The official also warned 
that not much should be made of the first quarter growth number of 
3.9 percent which only represented a return to normal levels of 
economic activity following the negative growth brought about by 
2008's post-election violence during the same period. 
 
Meanwhile, difficult economic times are reflected in Kenya's ability 
to borrow and collect revenues.  The Finance official said that the 
GOK is now having increasing difficulty raising money through 
short-term, 90-day Treasury bills which are undersubscribed.  News 
reports have also noted investor/tax payer concerns about whether a 
KSH 18 billion "infrastructure" bond earlier in 2009 was used for 
infrastructure at all. According to our contact, there is a KSH 6 
billion revenue shortfall for the first two months of the fiscal 
year owing to the overall economic slowdown and gaps in the Kenya 
Revenue Authority's collections.  In hopes of assisting with these 
looming difficulties, the official told us the GOK is still likely 
to pursue a Poverty Reduction and Growth Facility from the IMF 
(previous information indicates that it would be for $500 million - 
ref c).  A formal request to the IMF could come as early as 
mid-October. 
 
Inflation reached 18% (8/08-9/09) and the Central Bank of Kenya has 
warned that consumers will continue to face high food and energy 
prices throughout the remainder of the year.  Pervasive drought has 
caused poor agricultural and livestock production, higher water 
prices, and continuing reliancQon imported maize - all contributing 
to pressure on food prices.  Drought also has led to higher energy 
prices as Kenya increasingly relies on imported fuel for power 
generation to compensate for lost hydropower.  A year ago, imported 
fuel contributed roughly 20% of the electricity to the national 
grid; last month it contributed 30%.  With any luck, the Oct-Nov 
rainy season, boosted by El Nino, will bring ample rain to improve 
agriculture and hydro production, easing both food and energy prices 
in 2010 for already cash-strapped Kenyans. 
 
¶3.  AMBASSADOR PRESSES FOR AGRICULTURAL REFORM IN FACE OF RECURRING 
DROUGHT 
 
At a September 15 donor's meeting hosted by Prime Minister Odinga 
and World Bank Country Director Johannes Zutt, the Ambassador 
focused on the USG's $165 million (thus far in 2009) response to 
Kenya's food crisis.  The Ambassador also emphasized our long-term 
recommendations, including Kenya's removal of duties on all grains 
through next June and restructuring of the National Cerealsand 
Produce Board (NCPB).  The Ambassador also described the new USG-led 
global food security initiative.  Prime Minister Odinga said the 
current drought in Kenya is the most severe in years.  He reported a 
40 percent decline in maize production and that 70 percent of lakes, 
ponds, and pans were dried out completely.  The PM spoke to the 
resources that Kenya has brought to bear and sought additional donor 
assistance.  Multiple donors, led by the U.S., provided details on 
current assistance levels as well as additional assistance in the 
pipeline.  All donors also focused heavily on the need for long-term 
reform and planning to avoid a recurrence of drought and its effects 
here given that drought is a regular, chronic threat to the 
country. 
 
¶4.  TURKANA WIND PROJECT PROMISES NEW ENERGY CAPACITY 
 
The Lake Turkana Wind Project (LTWP) is a 310 MW renewable energy 
wind power project planned for Northern Kenya. If this project 
succeeds, Kenya's power capacity could increase by 25%.  The project 
has not broken ground yet. However, per the current schedule, wind 
power generation could begin in June 2011 with completion of the 
project by July 2012. This $590 million project is primarily 
financed by the African Development Bank. Dutch companies will 
develop the project using Danish turbines. The Lake Turkana 
Transmission Line Project (TRANSCO) involves the construction oQa 
266 mile transmission line from Lake Turkana to a sub-station north 
of Nairobi. This portion of the project will cost $180 million and 
be commercially financed. Work on the transmission line has not 
broken ground yet either. The GOK is requesting USAID support on 
technical capacity building for the Kenyan Transmission Company 
(KETRACO) during negotiations with TRANSCO.  USAID is preparing a 
Statement of Work and expects capacity building activities to begin 
in November 2009. 
 
 
 
 
RANNEBERGER