VZCZCXYZ0009
RR RUEHWEB

DE RUEHNR #2412/01 3291204
ZNR UUUUU ZZH
R 251204Z NOV 09
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 1640
INFO RUCPDOC/USDOC WASHDC 3247
RUEHRC/USDA FAS WASHDC 1874
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS

UNCLAS NAIROBI 002412 
 
STATE ALSO FOR AF/E AND AF/EPS 
 
STATE PASS USAID/EA 
 
TREASURY FOR REBECCA KLEIN 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: EAGR ECON EINV ETRD PINR KCOR SENV KE
SUBJECT:  KENYA: NOVEMBER ECONOMIC HIGHLIGHTS 
 
REF: A) 08 NAIROBI 2166 B) 08 NAIROBI 2220 
 
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TABLE OF CONTENTS 
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¶1.  IMF APPLAUDS KENYA'S NEW INFLATION CALCULATION 
¶2.  EVICTIONS PROCEED IN MAU FOREST 
¶3.  KENYA SIGNS COMMON MARKET TREATY 
 
¶1.  IMF APPLAUDS KENYA'S NEW INFLATION CALCULATION 
 
The IMF's Resident Representative in Kenya told Econoff November 20 
that the GOK's recent adoption of a new methodology based on 
geometric mean to more accurately calculate inflation is a positive 
policy development.  The IMF had been exhorting the GOK to abandon 
its outdated arithmetic methodology for two years (ref A).  In 
response to the "new math," Kenya's measured inflation rate fell 
from 17.9% in September to 6.6% in October.  The IMF rep said he 
expected a further fall in measured inflation once the GOK 
recalibrated the weights in the basket of goods it uses to calculate 
changes in consumer prices.  According to the IMF, the current 
basket inordinately weighs costly food and energy and under 
represents key consumer items such as airtime for cell phones. 
While lower measured inflation rates may help cast Kenya's tarnished 
investment climate in a somewhat better light, the average Kenyan 
continues to feel the bite of high food and energy prices. 
 
¶2.  EVICTIONS IN MAU FOREST PROCEED 
 
The Government of Kenya (GOK) is evicting an estimated 2,500 
undocumented residents (e.g., squatters, trespassers, encroachers) 
from a 19,000 hectare (ha) area in the South Western Mau Forest 
Reserve, the second phase of a five-phase plan to recover the Mau 
Forests Complex.  The Mau Forests Complex originally covered 
approximately 452,007 ha and was the largest closed-canopy montane 
forest ecosystem in East Africa.  One of Kenya's five 'water 
towers', the 'Mau' is a critical source of water for the Mara River 
and 12 other rivers that flow to Lake Victoria (ref B).  Water from 
the Mau also supports the Maasai Mara Reserve and Serengeti National 
Parks.  Despite its critical role in sustaining the economic 
development of much of western Kenya and the Rift Valley, the forest 
has been under increasing threat from irregular and ill-planned 
settlements, encroachment and illegal forest resource exploitation. 
Degazettement of forest reserves (removal from protected forest 
status) and continuous widespread encroachment are associated with 
logging, farming, and charcoal production.  During the last two 
decades these activities have led to the destruction of over 107,000 
ha, representing over 25 percent of the Mau's forest cover. 
 
In October 2008, the Government of Kenya (GOK) established a Task 
Force whose responsibility was to make recommendations on immediate, 
short and long-term options for restoring the entire Mau Forests 
Complex.  The Task Force submitted its report and recommendations in 
March 2009, and in August, Cabinet approved the report.  On August 
17, as part of the report's short-term recommendations, the GOK 
established an Interim Coordinating Secretariat within the Office of 
the Prime Minister to coordinate the implementation of the report's 
recommendations.  As part of the recovery effort, all people living 
in the protected forests -- and many living in what was formerly 
forest -- will have to be relocated or resettled. 
 
The Secretariat announced that the first phase, recovery of 
uninhabited land, and the second phase, the eviction of the 2500 
squatters (undocumented inhabitants) in South Western Mau, Ol 
Pusimoru, and Maasai Mau forest reserves, will be completed by the 
first week of December 2009.  The GOK has said that those evicted as 
part of Phase two will not be compensated because there was no 
intention of setting aside those protected forest areas for 
settlement and because these particular residents are in the forest 
illegally.  The Secretariat will begin the third phase in January, 
during which it will remove people with title deeds.  In the event 
of resettlement, the GOK will provide 'compensation' - possibly 
alternative land and funds for the development of the land. 
However, it is a challenge to determine which landowners are 
actually entitled to compensation.  Many forest landowners have 
irregular title deeds.  For example, title deeds were issued when 
the lands were still gazetted as forest reserve or in disregard of a 
High Court order restraining the Government from moving ahead with 
the excision process. 
Comment:  The eviction of 2,500 squatters from the South Western Mau 
to begin the recovery process of Mau is relatively easy compared to 
the challenges the GOK will face when resettling those with title 
deeds and vested interests.  Although the government is providing 
some assistance to the evictees (food, water, transportation), the 
eviction of squatters has potentially created humanitarian 
challenges as squatters have not been relocated to new land and many 
claim they have nowhere to return.  SEPTEL will report on a recent 
USAID/OFDA assessment of humanitarian conditions faced by evictees. 
End Comment. 
 
¶3.  KENYA SIGNS COMMON MARKET TREATY 
President Kibaki, along with four other heads of state, signed the 
East African Community (EAC) Common Market Protocol on November 21. 
The protocol is the first step in the establishment of a common 
market which encompasses five countries (Burundi, Kenya, Rwanda, 
Tanzania, and Uganda) with a combined population 126 million people. 
 The protocol lays the groundwork for free trade and free movement 
of services, people, capital and labor.  The treaty calls for the 
common market to come into effect as early as July 1, 2010; however, 
each state must ratify the protocol according to national laws 
before it can be implemented. 
 
While the signing of the protocol is seen by experts as a step in 
the right direction toward regional integration, there are myriad 
details to work out before a true common market can be realized. 
For example, the EAC Customs Union -- which is one pillar of the 
common market protocol -- was due to begin January 2010.  However, 
many issues are yet to be resolved, including a revenue sharing 
agreement for duties collected in the region, harmonization of 
existing customs laws and regulations, management of security issues 
surrounding free movement of cargo, and sanitary and phytosanitary 
concerns related to the movement of agricultural products.  Like the 
customs union, a fully operational common market will require 
detailed planning and political negotiation.  Considerable 
investment will also be needed to facilitate transition of the 
various ministries, revenue and customs authorities that will be 
involved in implementation.  The protocol establishes a six-month 
deadline for a detailed report on the timeline for implementation, 
and there will likely be separate timelines for the execution of 
each component (e.g. customs union, monetary union) of the common 
market. 
 
 
RANNEBERGER