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close this bookThe Courier N 130 Nov - Dec 1991 - Dossier: Oil - Reports: Kenya - The Comoros (EC Courier, 1991, 96 p.)
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close this folderKenya - Democracy: winning the hearts and minds of wananchi
View the document(introduction...)
View the documentKANU, the ruing
View the documentGearing up for industrial take-off
View the documentMatching resources with the population
View the documentPressing ahead with refonns
View the documentProfile
View the documentEEC at the grassroots
View the documentFinancial cooperation between Kenya and the EEC

Pressing ahead with refonns

Despite its relatively better economic performance, Kenya has had, like the rest of black Africa, to take its IMF potion of Structural Adjustment Programme (SAP) - and that since 1987. A continuous budget deficit, balance of payments problems, a heavy debt burden, and other imbalances had to be redressed if economic growth was to be stimulated, productivity strengthened and employment created.

In 1989, the Government requested further support from the Bretton Woods institutions, for a three-year arrangement (1989-1991) under the enhanced structural adjustment facilty (ESAF). This imposed on Kenya, among other things, a fiscal discipline, a commitment to reduce the budget deficit, freeze recruitment to the civil service and privatise certain parastatals.

The implementation of these measures is proving very painful, particularly in education, which normally swallows 30% of the annual budget, and in health. Demand for these services has continued to grow. In the University sector, for example, the backlog in admissions caused by a one-year closure of the University of Nairobi by the government, for what it believed was student support for the failed coup in 1982, is not yet cleared. This has been worsened by the change in the educational system which has unloaded a large number of students at the doorsteps of higher institutions. The latter suffer from lack of qualified teachers, educational aids and accommodation for both staff and students. In the health sector, a cost-sharing exercise sponsored by the World Bank created so many difficulties for the poor and caused so much chaos in hospitals that President Daniel arap Moi had to intervene, ordering that all treatment in government hospitals should be free. It was a return to what the situation was in the 1960s when all medical services were free. The problem really was how to protect the poorest sections of the population from the IMF exigencies. The president’s intervention meant that there had to be a re-examination of budgetary priorities to restore funds for health. It is understood, however, that since then, a new scheme of cost-sharing has been devised, and there is no doubting the gavernment’s determination to press on with reforms. Indeed the 1991-92 budget saw deep cuts de signed to reduce the deficit to 2% of GDP from the 5.3% achieved in the 1990-91 financial year.

Kenya depends heavily of course on development assistance, which has risen in the past five years by over 60%. Donors, impressed by the government’s commitment to restoring the country’s economic health, have been forthcoming with assistance, mainly in the form of debt cancellations. Belgium, the United States and France have this year cancelled some of Kenya’s debt, but debt servicing remains heavy at between 25 and 30% of foreign exchange earnings. The EC, on the other hand, has financed an import support programme as a contribution to the resolution of the country’s balance of payment problems.

On the economic front, there have been some positive results from adjustment. There has been an overall increase in investment by 7%, a rise in the total value of exports by 19.1% and a fall in the current account deficit from 7.4% of GDP in 1989 to 5.5% in 1990. Agriculture and manufacturing, last year, grew 3.4% and 5.2% respectively, while earnings from tourism rose by 23% over the 1989 figure.

Reforms are continuing apace in the various sectors. In agriculture, the most notable is the EC-financed Cereals Sector Reform Programme (CSRP) which is about to enter its second phase. Begun in 1988 under LomII, the programme involves liberalising the grain market and rationalising the role of the National Cereals Produce Board (NCPB) in Kenya’s food security drive. This has meant the closure of the Board’s primary marketing networks, ie the buying centres, and the encouragement of private traders and cooperatives to be involved. The result is that 75% of NCPB purchases are now from licensed buying agents. The aim ultimately is to reduce the Board’s share of the primary grain market to 15% and the secondary market to 60%, leaving it with the main function of maintaining adequate strategic reserves for security and price stabilisation. The Board now has ten silos throughout the country.

In the industrial sector, price controls have been removed so far from 36 products, 12 are still subject to controls and these will be removed in due course, according to officials of the Industrial Promotion Centre (IPC); import licensing has been liberalised and interest rates deregulated.

Shortage of fertile land

Accounting for more than one-third of the GDP and two-thirds of exports, agriculture remains constrained by a shortage of arable land and by erosion as well as being occasionally plagued by bad weather and pests. There are around 1.5 million smallholders in Kenya with varying acreage. These farmers are largely responsible for the transformation of the country’s agriculture into one of, if not the most dynamic and diversified in Africa, with crops ranging from coffee, tea, sugar cane, maize, sisal and cotton to horticultural products. With land becoming very scarce and demand growing, the wisdom of maintaining large farms, of which there are still many in Kenya, is increasingly being questioned, although Minister of Planning and National Development, Zachary Onyonka, thinks it is not a viable option (see interview on page 18). Attempts are, meanwhile, being made with relative success to reclaim marginal lands, particularly in semi-arid areas through irrigation, but these are far more appropriate to livestock breeding than to farming. The only way of improving productivity seems to be intensive cultivation and intercropping in the fertile areas of the country. Thankfully, Kenya has almost achieved self-sufficiency in food, particularly in maize. Indeed in good years it exports.

Despite the deterioration in the terms of international trade, Kenya’s two most important exports, coffee and tea, continue to ensure high earnings. This has as much to do with efficient production as with the quality of both products. The fall in the sale of coffee has been made up largely by increased tea exports, and tea, not surprisingly, has overtaken coffee in recent years as the second most important foreign exchange earner, after tourism. Last year earnings from tea rose to Ksh 6.8 billion from Ksh 5.4 billion in 1989 against an income of Ksh 4.4 billion from coffee. Production forecast for coffee in the 1990-91 season is 60000 tonnes, well below the 75 000-80 000 tonnes expected, and nowhere near the 100 000-300 000 tonnes that the authorities have always set as a target. The expected fall in coffee production this season is due to the bad weather experienced earlier in the year and to what producers call ‘state mismanagement’ (the Kenya Coffee Board being constantly in arrears in payment to farmers). For tea, on the other hand, there is a low cloud on the horizon. Kenya will almost certainly feel the impact of the UN trade embargo on Iraq, the latter having been a valuable market. Furthermore, there is: the annoying of Pakistan, the second biggest purchaser of Kenyan tea, which is constantly threatening to boycott it in protest against the imbalance of trade between the two countries. Such a threat has to be taken seriously since Pakistan has once carried it out with disastrous consequences on foreign exchange earnings.

It would appear strange, but it is true that there is a school of thought in official circles which believes that some lands currently under food production should be transferred to tea and coffee production. These officials estimate that a transfer of 3% of lands would generate a 70% increase in foreign exchange.

Kenya’s livestock industry, which embraces traditional and commercial ranching, is recovering from the severe decline it suffered in the 1984 drought. Cattle heads have increased from 7 million to over 8.5 million. It is hoped that by 1994, barring any major climatic disaster, they will have recovered to their pre-drought level of 10 million. The success of the industry is explained in part by the numerous irrigation projects taking place in the semi-arid areas where, traditionally, nomadic herdsmen live. The industry is gradually giving rise to a hides and skins industry that is export-oriented.

The star export performer of the agricultural sector in recent years has of course been horticulture - non-traditional commodities of considerable hope for the future, which now include, fresh cut flowers, french beans, sweet carrots, passion fruit, pinespples, and off-season strawberries. With markets in the Middle East and Europe, the industry has become so well organised that fresh flowers cut in the evening in Kenya, for example, could be in all major European markets in the morning. Although facilities now being provided at Nairobi International Airport will go a long way to improving freight, the producers are exploring the possibility of exporting by sea, because the growth of the industry is such that there would continue to be a shortage of air-space. Already, quantities of bananas, mangoes, pineapples and avocadoes are being shipped. As a measure of the importance of this industry, in 1990, horticultural products earned Ksh 3.19 billion, a 36% increase over the Ksh 2.34 billion earned in 1989. This represented a doubling of export earnings in just four years, from Ksh 1.77 billion in 1987.

The industrial sector is of course a money spinner for the country with its wide range of exports, particularly to the Preferential Trade Area. A major expansion of this sector is planned (see article on page 15). Of particular note here are the substantial earnings from petroleum exports. Kenya has no known oil deposits of commercial value. The discoveries made in 1988 at Isiolo and Turkana districts have still not been evaluated, but the country imports crude oil which it refines at Mombasa. With an output of around 2 million tons annually, domestic needs for petroleum products are met and the remainder is supplied to Burundi, Rwanda, Uganda and eastern Zaire. The refinery, Kenyan Petroleum Refineries Ltd. (KPRL) is jointly owned by the Kenyan government and a group of oil companies. So successful has this policy been that another refinery is planned at Mombasa in joint venture with Iran, which will provide the crude. It will come on stream by 1993 if the proposed plan, as is being suspected, is not a ploy by the authorities to get their partners in KPRL to expand the existing refinery. The success of this policy can be attributed in part to the fact that Kenya derives nearly 15% of its energy needs from the Olkaria geothermal station and another 5% from hydro-electricity, the latter becoming more and more important every year as a source of energy.

Tourism: still going strong

Tourism, the most important foreign exchange earner, remains as vibrant as ever and is set to grow even stronger in the years ahead as Kenya’s attractiveness remains unbeatable. In 1989, tourism earned Ksh 8 billion (US$ 348 million) from 730 000 visitors. In 1990 there were 801 000, not too far from the target figure of one million. Although the number of visitors this year is likely to fall slightly because of the Gulf war, which dissuaded a lot of Americans from travelling early in the year, the* has been a sudden rush in the summer months. This is partly as a result of the devaluation of the Kenyan shilling which has made holidays in Kenya much cheaper than in most of its competitors, partly because of the greater security which tourists now enjoy in the wake of the strict measures taken by the authorities to counter activities by criminal gangs. There are new, for example, greater patrols of the game reserves following a few murders from. which Kenya received very bad publicity.

That investments in tourism have continued to grow, despite its already good infrastructure, is evidence of confidence in the future of the industry. This is happening at a time when Kenya is in full control of the preservation and management of its greatest asset - wildlife, thanks mainly to the setting up of the Kenya Wildlife Services (KWS) two years ago.

Following the public burning of ivory worth more than $3 million by President Moi, a successful worldwide campaign for curbs on trade in ivory and stringent anti-poaching measures at home, KWS reports a virtual cessation of elephant poaching in Kenya. Now the game reserves are being properly managed, with a number like the Meru National Park and Tsava East and West, receiving facelifts: roads rehabilitated, gates painted and officers in uniforms. It will now be possible to provide tourists with a wider choice in game reserves to avoid concentration on a few and serious environmental damage. The KWS’s most important task and no doubt one that will, if successful, ensure long-term stability and peace in the parks, is the resolution of the conflict between wildlife and the economic needs of local inhabitants. It intends to do this by allocating part of the revenue from park fees to provide social amenities for the communities. This is already being done in some places and, according to the KWS, the response of the people has been positive as they see the economic advantages of preservation. A sensitisation campaign, however, is continuing not only around the parks but also around the country. Perhaps the most ambitious plan in efforts to resolve the conflict between wildlife and people is the move to fence off the parks so that ‘the animals will be free in their area without interference from settlements and the settlements free from wildlife’, explained Minister of Tourism, Katana Ngala. Over 2500 km of fencing country-wide is involved. ‘Fencing has already started in a few areas and we hope to complete the whole exercise as soon as the money has been raised’, said Mr Ngala. Indeed the whole reform of the wildlife sector is being bankrolled by donors. Over $14 million have so far been raised, with the World Bank and The European Community contributing the largest sums. The Director of KWS, Richard Leakey, who is the force behind Kenya’s wildlife conservation campaign, has also been involved in fondraising all over the world with considerable success.