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close this bookThe Courier N 159 - Sept - Oct 1996 - Dossier: Investing in People - Country Reports: Mali ; Western Samoa (EC Courier, 1996, 96 p.)
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View the documentA success story for African mining
View the documentJoint Assembly to consider climate problem
View the documentACP-EU Council in Apia
View the documentKenya's economy in the 1990s


Investment symposium

A success story for African mining

The MIGA (Multilateral Investment Guarantee Agency) symposium was held in Montreal from 22-24 May. It brought together some 40 African mining ministers, most of the important donor agencies and representatives of around 25 mining companies. MIGA, which is a specialised agency of the World Bank, promotes the flow of private investment to developing countries. It provides insurance against political risks and assists member countries in attracting foreign investment.

The purpose of the symposium was to attract investors from all over the world in order to exploit the rich mining possibilities offered by many African states. Several of the countries that attended went to considerable effort to present themselves well, and it was evident that some are quickly learning what it takes to attract foreign investors.

The climate for mining investment in most African states has improved tremendously over the last two to three years. Most countries have introduced new mining codes, clearly defining the rights and obligations of foreign investors. State-owned companies are also being privatised, taxation has been made more reasonable and institutions in the mining sector, such as geological surveys, are becoming more efficient.

All this has led to a big increase in exploration for new deposits and a substantial increase in investment. At present, the activity is particularly heavy in West Africa, where many countries have very good gold potential. The European Community is contributing to this development in several ways. The biggest success so far has been the exploration campaign in Mali, funded under that country's Lomational Indicative Programme (NIP), which led to the discovery of the Sadiola gold deposit. A world-class gold mine will be built here, bringing substantial benefits to the country.

The World Bank has also supported many African countries in their efforts to reform the legal and administrative framework for the mining industry. An important element, however, in attracting mining companies is the availability of good geological data. This is a very expensive activity, which does not bring immediate returns, if at all. So it is not appropriate to finance this through bank loans. The NlPs and SYSMIN Fund, on the other hand, are instruments that are well-suited to this kind of work. The Community has already financed a series of airborne geophysical surveys in Botswana and Namibia -to mention just two examples-and a new Sysmin project is currently being prepared for Burkina Faso.

The Commission Unit responsible for Mining Cooperation and Sysmin (VIIIl.B.5) was represented at the symposium. Its main purpose for being there was to present the functioning of Sysmin and the Community's cooperation in the field of mining to ACP ministers, mining companies and other donor agencies.

Current state of the mining sector

The mining sector is currently very active. Exploration in West Africa doubled between 1993 and 1995 and new mines are being opened all the time. A lot of this new activity is to be found in the gold sector. This is mainly due to the development of cheaper production methods combined with a much more positive investment climate in many African countries. A gold mine takes less time to reach the production stage than, for example, a copper mine, with the former being far less dependent on good infrastructure. Outside the gold sector, activity is much more subdued. While base-metal prices are at a reasonable level, the pay-back period is much longer and the lack of suitable infrastructure kills many projects.

For many countries, mining is a key area in the growth of the private sector. State-ownad mines are being privatised and the new mines that are being opened have little or no state participation. Foreign investors are bringing in the most up-to-date mining technologies and business methods, and they are faced with the need to train local people in technical and business skills. Supporting the mining sector is clearly an efficient way of supporting private sector development.

SYSMIN's future role

Given that most metals are currently fetching quite high prices, it is probable that relatively few ACP countries will be eligible for SYSMIN assistance over the next two to three years. The viability of most existing mines is not thought to be under threat and they should continue to be profitable. Thus, countries that are heavily dependent on mining should not experience severe losses in export income, which in turn means that relatively few SYSMIN requests are expected during the period of LomV's second financial protocol. At the same time, the financial allocation for SYSMIN has been increased from ECU 48Om to ECU 575m.

When trying to attract new mining investors, it is essential for a country to have good geological information. Private companies are normally unwilling to undertake much general prospect ion, such as airborne geophysical surveys, because it is very expensive and, if they do, it is usually limited to very small areas.

At present, companies are tending to restrict their activities to areas for which general information is already available. These points were raised by several of the mining companies that attended the symposium.

But the present mining boom is not going to last for ever. Metal prices are volatile and, with the next downturn in the business cycle, a decline in metal prices will surely follow. So it is essential to prepare the basis for future mining activities by collecting general data. Given that a significant part of the SYSMIN allocation may remain unused because of a lack of requests, it would be worthwhile to consider whether a part could be reallocated to prepare general geological data for mining activities in the next century.
F. B.-H.

Joint Assembly to consider climate problem

by Hans van de Veen

Can the EU-ACP relationship be used to strengthen the dialogue between Europe and the main victims of climate change? And can the Lomonvention be one of the tools to promote climate protection measures, as well as the implementation of the Climate

Treaty? These questions will be considered in depth at a hearing on climate derange scheduled for the next ACP-EU Joint Assembly, to be held in the last week of September 1996.

Periods of heavy rain have always been part of normal life in Fiji. But the latest rains were different, says counsellor Taina Tudau of the Fiji Embassy in Brussels. 'They were much more extreme than what we were used to, and caused heavy damage. Normally it took several days of heavy rain before the floods came up. This time, the water flooded the islands almost immediately the rain began to fall.' Mrs Tudau sees two main causes for the recent flooding. First, there is heavy deforestation on the islands, causing widespread erosion. But she is sure there was another reason for the recent damage: 'In the Pacific we know the local climate is changing. We see that the sea is rising. We are experiencing more extreme weather events. There can be no doubt that global warming is already going on.'

Fiji is a prominent member of the Alliance of Small Island States (Aosis), the group of 36 nations which feel particularly threatened by global warming. At the first Conference of Parties to the UN Framework Convention on Climate Change, held in Berlin in March 1995, Aosis called for industrialised nations to reduce their C02 emissions by 20% by 2005 (based on 1990 levels). At the end of the conference, the 150 national delegations agreed to begin negotiations on targets for industrialised nations to cut emissions in the early years of the next century.

So intentions may be good, but in practice not much has been done yet. The EU, for its part, risks losing credibility if firm action is not taken soon. According to a recent Commission White Paper on energy policy, the use of energy within the Union will increase by 1% a year up to 2020. Failing 'any strong policy interventions', the paper says, emissions of carbon dioxide are likely to show a 'substantial increase' during this period. Says Fiji-counsellor Tudau: 'As small island states we know what's at stake, but there seems to be no feeling of urgency in the rest of the world. We really wonder how long it will take before there is a definite move towards reduction of greenhouse gases.'

EU-ACP cooperation

At the Berlin conference, the ACP countries-led by Aosis but with support from most of the African states -took a constructive and moderate position in the G77. The position adopted by the EU could also be described as moderate, certainly compared to that of other OECD countries. Several observers have pointed to the fact that these two moderate approaches by important blocks within the Climate Convention negotiations offer possibilities for some form of cooperation.

'No doubt the EU represents the most progressive group of countries

within the OECD, although its position is far from sufficient', says Sible Schone, a representative of the World Wide Fund for Nature. 'Besides that, the EU has a special relationship with a large group of developing countries. Quite obviously it will be significant to get a dialogue started between the EU and the ACPs on the subject of climate change.' Currently, there is no such dialogue. 'At the moment we are not in a dialogue with ACP countries on climate change', says Bertil Heerink of the European Commission's Environment Directorate-General who is a member of the EU delegation to the climate negotiations. 'I'm convinced this will happen some day, but first we have to agree on our own goals and measures. I am sure developing countries want us to give priority to this too.'

The special ACP subcommittee to deal with tropical timber, the environment and fisheries, formed after the signing of the revised LomV, only recently started its work. With respect to the global warming issue, it is waiting for the Joint Assembly hearing, according to ambassador Michael King of Barbados, who is a committee member. 'The specific interests of the different regions have to be articulated there, and then some kind of sustained effort has to be initiated.'

The unit for Sustainable Development and Natural Resources in the Development Directorate-General of the Commission (DG VIII) not at present dealing with the subject of climate change. Says Head of Unit, Amos Tincani: 'We have worked on biodiversity and desertification, and we want to do more on the specific environmental problems of small island states. But we have done nothing similar on climate change. This is partly because it is so much a global problem, but the main reason is we simply lack the people and the time to go into it.'

Assembly hearing

At its meeting in Windhoek in March this year, the Joint Assembly adopted a resolution which had been proposed by representatives of 13 small island states. This urged the EU to take the lead in combating climate change and the adverse effects thereof. More specifically, the Commission is being asked to update its climate change strategy for the period post-2000 and to achieve significant reductions in emissions of greenhouse gases over the coming decade and thereafter. The resolution riches on to call for extra assistance to ACP countries in the Caribbean, Pacific and Indian Ocean to help them improve their disaster preparedness. The Commission is also urged to accelerate the transfer of appropriate technologies and practices, to enable ACP states to develop coastal zone management strategies and to rehabilitate and protect areas stricken by drought and desertification as well as by hurricanes and floods.

Two representatives of the European Parliament, Maartje van Putter (PES) and Peter Liege (EPP), have been active on the situation of the small island states and climate change for several years. According to Mrs Van Putten, the main effect of the coming Assembly hearing should be to put extra pressure on the Commission to take its responsibility seriously. 'Talking about climate change,' she says, 'one should never forget who is to blame and who, therefore, must take decisive action. A European tax on energy or carbon dioxide would be an important first step, but no more than that.'

Besides influencing the Commission's energy policy, Mrs Van Putten hopes the Assembly hearing will raise public awareness on the climate problem in those ACP countries which are not in the 'small island' category. 'If you are talking about rising sea levels, the African states with low-lying coastal zones face the same problems as the small island countries,' she points out. 'And they also face the problem of desertification and declining food production.'

Integrating the climate dimension

In a recent briefing paperto the Commission, the International Institute for Environment and Development (IIED) concluded that, hitherto, the aid community (including the EU) had not incorporated measures on global warming into their strategic thinking on sustainable development. 'Indeed, the possibility of climate change has been considered of minor importance in comparison to other environmental concerns.' This is hardly surprising, says the London-based institute, as the climate issue has only recently been placed on the international agenda. Moreover, the long-term threat of global warming raises some difficult questions regarding priorities in circumstances where resources are limited. In other words: who wants to spend scarce funds on problems the full effects of which will probably not be felt for another 25 to 50 years? The best way forward, suggests the IIED, is to tackle the apparent conflict between shortterm development priorities and longterm climate protection, by 'integrating the climate dimension' rather than considering climate change as an issue in isolation.

Technology transfer could be a central point, according to WWF's Sible Schone. 'Developing countries see technology transfer as a central theme in the Climate Convention, but the industrialised countries don't give enough weight to these There are a lot of paragraphs about technology transfer in the Convention as well as in LomNow it's time to fill in these commitments.'

Strangely, there are hardly any Lomrojects currently under way in the field of energy efficiency. It is strange because experts have pointed to the large potential in developing countries for cost-effective energy improvement and energy conservation. Improved management could save at least 25% of the energy now being consumed. Quick realisation of this potential would significantly contribute to alleviating environmental development problems.

Henri Martin, energy specialist in DG VIII, agrees a lot more could be done in this field, but he points out: 'We are dependent on requests. If you look at the wording of the Convention, everything has already been said. There are chapters on energy and technology transfer. The problem is that we don't get enough signals back from the ACP countries that these items are a priority for them. I'm afraid sustainable energy or energy efficiency is not high on the agenda of most countries.' Taina Tudau disagrees strongly: 'Our experience is that the projects that could make a difference and contribute to sustainable development, protection of the environment and local sustainable energy production, are found to be too small. It is the donor that sets the conditions for the projects, not us, the small island states.'

New funding?

Can the EU build a credible policy linking climate and development cooperation, without reserving extra money? Not surprisingly, there is disagreement on this question. In Brussels, officials are inclined to point to possibilities that are already there but not being used. Amos Tincani, for instance, observes that 'there are budgets for this kind of problem under LomWe have provisions specially targeted for the islands'. He mentions regional budgets in particular: 'A lot can be started at the regional level which then trickles down to the national level. But after producing fine resolutions, everybody seems to forget the work still needs to be done. The idea is: 'oh yes, we can do it, provided it is with fresh money'. We say: a lot more can be done with existing budgets and instruments.'

Maartje van Putten, from the Parliament, says the discussion should not be 'dominated by southern demands for additional money'. She agrees that ACP countries could make better use of existing funds and possibilities, such as, for instance, the funds for intra ACP cooperation. But counsellor Tudau points to the fact that the Climate Convention urges industrialised countries to support the response of developing countries to climate problems through 'new and additional' money, besides the transfer of environmentally sound technologies and expertise.

There is a financial mechanism built into the Climate Convention, which is administered by the Global Environmental Facility, to cover additional costs of appropriate measures. But much more could be done by the aid community, including the EU, according to Mrs Tudau. 'Most European countries will not succeed in stabilising, let alone reducing, their emissions. In reaction to this, as ACP countries we should say: European Union, you are not fulfilling your obligations. You have to try harder and you have to set extra money aside to compensate for the damage this is doing to us.

ACP-EU Council in Apia

There were no real surprises or unexpected developments at the ACP-EU Council meeting which took place in Apia, Western Samoa, on 27 and 28 June, 1996. The session was preceded by an ACP Council, which saw the adoption of three important decisions. The first of these was the appointment of a new ACP Secretary-6eneral, Mr Ng'andu P. Magande of Zambia. The post had been vacant for some time, following deadlock within the ACP Group over a successor to Berhane Ghebray (see issue 155 of The Courier, p.6). The ministers also agreed to hold a summit of ACP heads of government in Libreville, Gabon, during the second half of 1997. This meeting is expected to focus heavily on the future of ACPEU relations once the present Lomonvention has expired.

In the substantive area, the ACP Council adopted a resolution deploring the suspension of cooperation with Equatorial Guinea. Ministers urged the European Union to make use of the procedure in Article 366a of the revised Lomonvention, and to set in train the consultation procedure envisaged in this provision.

This issue was raised again by the ACP side at the subsequent ACP-EU Council. This meeting, which was presided over by Mrs Toya (Italian Under Secretary for Foreign Affairs) and Mr Syamujaye (Zambia's Trade Minister) had a relatively light agenda. There was a discussion about the Commission proposal for a directive on the use of vegetable fats, other than cocoa fat, in chocolate (see issue 158 of The Courier, p.35). Somalia also featured in the debate, with representatives agreeing on the need to find ways of allowing this country to benefit from Lomonvention provisions. The civil conflict in Somalia, and the absence of an effective central administration have prevented the deployment of regular development aid for many years, although significant amounts of emergency assistance have been and are still being provided.

In addition, the ACP-EU Council approved two reports drawn up by the development finance cooperation subcommittee and commodities sub-committee respectively. Representatives were able to reach a compromise on two outstanding points of contention in the resolution on development finance relating to tenders and the dissemination of the user's guide.

Note was taken of the number of countries that have so far lodged instruments of ratification for the revisad Lomonvention (Mauritius agreement). At the time of the Apia meeting, only nine countries had ratified: seven on the ACP side (Barbados, Dominica, Equatorial Guinea, Jamaica, Malawi, Mauritius and Solomon Islands) and two EU Member States (Denmark and Sweden). Appeals were made for the contracting parties to speed up their ratification procedures so that the Eighth European Development Fund can come on stream as speedily as possible.

The next ACP-EU Council meeting will take place in Luxembourg on 24 and 25 April 1997.

The government of Western Samoa deserves a special mention for the warmth of their hospitality and the efficient way in which they organised the Council meeting. Delegates from all sides were keen to express their appreciation of the host country's efforts, which ensured the smooth running of the various meetings and gave the visitors a real taste of this Pacific country's unique culture. ed. S.H.

New ACP Secretary-General

Ng´andu Peter Magande, is no stranger to the challenge of development at the grassroots. The new Secretary-General of the ACP Group, who was born in 1947, began his working career as a provincial development officer, planning and supervising projects in the Southern Province of his native Zambia. He is an economics graduate of the University of Zambia and also holds a master's degree in agricultural economics from Makerere university, Uganda.

From working in the field, he moved into government administration, rising to the position of Permanent Secretary-a post which he held in a number of ministries. Since the mid-1980s, he has had key jobs in a number of Zambian enterprises (including Managing Director of the Zambia National Commercial Bank) His most recent work has been on a project to develop private sector participation in agricultural input and produce marketing.

Kenya's economy in the 1990s

by Elisabeth Pape

Kenya has enjoyed rare political stability since independence in 1963. It is one of the most famous holiday destinations in Africa, with abundant wildlife, fine beaches and stunning scenery. But despite having the most advanced economy in East Africa, it is still one of the world's poorest countries. Over 11 million Kenyans live below the poverty line. But better times may be ahead. The Government has embarked on an ambitious reform programme which promises to lay the foundations for strong growth.

The early 1990s marked the worst time in Kenyan history, in economic development terms. Real GDP growth dropped from 4.3% in 1990 to 2.1% in 1991 and was almost zero in 1992 and 1993. This poor performance was due to drought, structural rigidities, lack of monetary discipline, non-enforcement of banking regulations, and reduced donor assistance. While Kenya was used to receiving substantial foreign aid inflows, the present decade began with growing tensions between Government and donors. In the new post-Cold War atmosphere, the latter wanted to see political and economic reforms, and in November 1991 they decided to halt guick-disbursing aid.

Multi-party elections in December 1992 did not immediately restore relations with the donors, in particular as they were accompanied by a lack of fiscal and monetary discipline whose effects threatened economic ruin. Monetary expansion was fuelled, among other things, by discretionary exemptions to Banking Act provisions, which enabled over-borrowing by certain 'political' banks from the Central Bank. In early 1993, things came to a head. Foreign currency reserves were down to just a few weeks of imports, the banking system was on the verge of collapse, and consumer prices had shot up. Against this background, the Government went for a comprehensive, IMF-supported structural adjustment programme.

A number of far-reaching reforms were implemented with unprecedented speed. Exchange restrictions were removed, import licensing was ended, import procedures were made easier and tariffs were reduced. The export license requirement was also lifted and price controls were abolished. In March 1993, the Central Bank (CBK) began to tighten monetary policy. By issuing large amounts of treasury bills, it soaked up most of the excess liquidity which had been injected the previous year. There was also stricter bank supervision and a number of weak financial institutions were closed.

Structural reforms

The Government began structural reforms aimed at reducing its own role in the economy in favour of the private sector. The privatisation programme, begun in 1991, was accelerated. By the end of 1995, the authorities had divested more than half of the 211 non-strategic parastatals-though critics complained the process often lacked transparency. The Government also substantially reduced its fiscal deficit through, above all, an improved revenue policy. The deficit fell from 11.4% of GDP in 1992/93 to 2.5% in 1994/95. The number of civil servants was reduced, mainly through voluntary early retirement, so that, by the end of 1995, the service had been trimmed by more than 30 000 (10% of the payroll).

In 1995, the reform programme lost momentum as proponents of the old and the new systems locked horns. Vested interests stood in the way of more radical reforms. Temporary import bans on maize and sugar were reimposed, key parastatal reforms were delayed and expensive but economically dubious projects were approved outside normal budgetary procedures. These included an international airport in Eldoret, a presidential jet and an identity card project. These further delayed the resumption of balance of payments support by the Bretton Woods Institutions and contributed to the frustration of efforts to improve relations with donors.

The economic crisis peaked in early 1993 and the shilling was sharply devalued. The official rate went from about KSh 36 to the dollar at the end of 1992 to KSh 60 in April 1993. On the market, the currency was being traded at a premium of more than 30% and that continued until July-i.e. about two months after the removal of exchange restrictions. The market premium then started to decline and the two rates converged in mid-October when the shilling stood at 69 to the dollar.

The high interest rate on treasury bills under the liberalised foreign exchange regime was the main reason behind strong currency inflows which began in October 1993. Other factors, whose exact impact is difficult to gauge, included capital flight from neighbouring crisis-torn countries, the international money laundering one normally finds in places with newly liberalised foreign exchange regimes, and a surplus in the current account position. The shilling then started to rise, despite the CBK's massive currency purchases which led to a build up of reserves to the equivalent of six months of imports. The appreciation continued up to October 1994: indeed, at one point, the shilling reached a high of 35 to the dollar.

That was the turning point. Strong import demand, fuelled in particular by a surge in oil imports in the wake of petroleum market liberalisation, and an outflow of portfolio investments due to lower interest rates, weakened the currency. By mid-1995, after two sharp falls, it reached a rate of 56 to the dollar. Since then, it has been relatively stable.

Economic recovery

Real GDP grew by 3% in 1994 and an estimated 5% in 1995. Good weather certainly helped, but the economy also benefited from the Government's reforms. Agriculture, the mainstay, grew by 2.8% in 1994 and by more than 5% in 1995. This compares with negative growth rates in 1992-93, when the sector was hard hit by bad weather. Elsewhere, the trends were more mixed. Many producers for the local market were affected by trade liberalisation and, in 1994, by the strong shilling. The former created a highly competitive environment almost overnight-after years of cosy protectionism. For cloth manufacturers, the liberalisation of imports of second-hand clothing further aggravated the problem. In 1994, the clothing sector's output dropped 35%. Tourism, the main foreign exchange earner, fared quite well in volume terms in 1994 despite the strong shilling. But while turnover may have gone up, it is likely that many operators did not earn enough extra to cover their increased local currency costs. In 1995, visitor arrivals fell by 20% to the lowest figure since 1988. In consequence, tourism earnings fell by a quarter.

As intended, liberalisation led to higher trade volumes. In 1994, exports ( + 16%) rose by more than imports ( + 13%) in value terms, but the position was reversed in 1995 when the latter jumped by 35% while the former were 14% lower. One good sign was that the highest import growth was in industrial supplies and machinery (60% up) but the fact that the deficit almost doubled to reach record levels was obviously a cause for concern.

A major revolution has also taken place in trade flows. In 1994, for the first time, Uganda overtook the UK as the biggest importer of Kenyan goods. In the same year, the value of Kenya's exports to African countries moved ahead of its combined exports to Europe and North America.

During 1994, the Nairobi Stock Exchange proved to be one of the worid's best-performing stock markets, the value of shares rising by 80%.1995 was disappointing, however. Although foreigners were allowed to invest for the first time, the index nonetheless fell by 25%.

Fighting inflation has been the CBK's main objective since 1993 and a tight monetary policy has brought the problem under control. Inflation dropped from 46% in 1993 to 29% in 1994 and to below 2% in 1995. Recently, however, an upward trend has bean observed. This follows a money supply increase far in excess of the expansion of economic activity, and is mainly due to a substitution of treasury bills for borrowing from the Central Bank since the end of 1994. If inflation is to remain within the 5% target for 1996-which already seemed highly unlikely by the middle of the year - the trend needs to be speedily reversed.

Initially, the main way of mopping up excess liquidity was through the sale of treasury bills. When the sales began in March 1993, there was a huge liquidity overhang and high interest rates had to be offered to take money out of the market quickly. The rate earned on 90-day bills-which became the lead interest rate in the economy- rose from 17% to 80% between March and July 1993. It then declined steadily, reaching 18% at the end of 1994. This prompted an outflow of short-term capital, leading to currency depreciation and lower foreign reserves. Since mid 1995, treasury bill rates have been back above 20% and this seems to have stabilised the foreign exchange situation. It is generally believed that the high prevailing real interest rates are a major obstacle to investment and economic growth.

Interest on domestic debt is still a big item in the state budget, although, the situation is much improved, thanks to the reduction in the stock of treasury bills and lower interest rates. In fiscal year 1993/94, interest payments on domestic debt alone swallowed one third of total gavernnnent expenditure.

The agriculture sector employs 70% of the total labour force and generates more than a quarter of Kenya's GDP. Much of industry is linked to agricultural processing, and tea, coffee and horticultural products are Kenya's major foreign exchange earners after tourism. The marketing of key farm products is dominated by large parastatals and cooperatives which are often run like parastatals. Most marketing organisations have been hard hit by the liberalisation, which brought both inefficiency and corruption to light. Tea growers have complained about improprieties at the Kenya Tea Development Authority. Imported sugar flooded the local market, often without paying import duties, leaving the mills with huge stocks. This, in turn, created severe cash flow problems. Most sugar farmers have not been paid for months. Kenya Cooperative Creameries was not able to pay farmers for milk deliveries for up to half a year, and could only start servicing the arrears when the Government came to its rescue with KSh 800 million in January 1996.

Formidable challenges

Kenya's labour force, around 12.5 million in 1996, is growing at more than 4% a year. This means that at least half a million people enter the job market annually. The challenge of absorbing the new workers is formidable. Studies show that any strategy to deal with this must be based on three pillars: smallholder agriculture (to absorb most of the growth in the rural labour force), continuing substantial job creation in the informal sector, and high real GDP growth (+8% per year is needed to ensure that the modem sector absorbs a significant number of workers).

Informal sector employment has risen rapidly (up by 15-20% a year since 1991). By 1994, for the first time, there were more people working here than in the modern economy. The informal sector covers semi-organised and unregulated activities largely under taken by self-employed people or employers with just a few workers. Typically, they do not comply fully with tax, registration, and licensing rules, and this sometimes leads to conflict with the authorities. Workers are often paid below the minimum wage and have no social security. For many, the informal sector is, therefore, an 'employer' of last resort.

It is estimated that almost 50% of rural people and 30% of urban residents live in absolute poverty- unable to meet their minimum requirements for food and essential non-food items. While the percentage has remained fairly stable in recent decades, the increase in the number of 'absolute' poor is alarming. So too is the extent of the poverty: the gap between these people's minimum needs and their actual disposable income has reportedly increased over the last ten years. The bulk of the poor live in the central and western parts of the country, which have the best agricultural potential, the rich soils having always attracted settlers. For decades there was enough land to go around, but demographic trends have finally started to take their toll. The size of landholding has declined continuously, in many cases reaching levels which are no longer capable of sustaining a family.

There has been some progress in restructuring parastatals, but much remains to be done. The performance of key parastatals has been unsatisfactory by international standards and this has constrained growth. At Mombasa port, which is managed by the Kenya Ports Authority, handling charges are 50% higher than the global average, while container turnover is three times slower. Rail transport is unreliable, slow and more expensive than road haulage. The Kenya Power and Lighting Company has a shortage of generating capacity which means periodic power cuts. And intervention in the maize market by the National Cereals and Produce Board- at above-market prices-has prevented private sector involvement as well as placing a heavy burden on government finances. The Board has posted annual operating losses of between KSh 1.8bn and KSh 2.5bn each fiscal year since 1992/93.

Corruption, misuse of funds, and the politics of patronage remain endemic and these clearly distort development. Elimination of corruption has been an aim of most reform programmes but it seems that the effect so far has only been to change its form. Trade liberalisation has killed cash cows such as import and foreign exchange licences, and the commercialisation of parastatals has stopped them from doing deals with cronies which were profitable only for the latter. But other forms of non-acceptable wealth accumulation have emerged. In the early 1990s, alleged exports of gold and diamonds are thought to have resulted in a loss of KSh 7 billion of public funds. Land grabbing has also become widespread. This either involves land being sold to individuals or companies with well-established political connections at well below market prices, or the purchase of land by public institutions from the same individuals or companies at inflated prices.

After delays because of political differences, cooperation between the three states of the former East African Community (Uganda, Tanzania and Kenya) was revived in early 1996. The EAC Secretariat, based in Arusha, is headed by a Kenyan, Francis Muthaura, a former ambassador in Brussels. For the three countries, the new cooperation aims at facilitating movements of people, capital and trade within the region, and harmonisation of external tariffs and investment regulations. Currencies will be fully convertible. This revived cooperation is expected to have a major growth impact. The Nairobi Stock Exchange is currently assisting Kampala and Dar es Salaam to set up their own exchanges. And the NSE Chairman, Jimnah Mbaru, sees the future not only in a cross-listing of companies in the three places, but in a regional stock exchange.

Policy framework

The Policy Framework Paper (PFP) for 1996-1998, which was published in February ahead of the donors' Consultative Group (CG) Meeting, was highly applauded for both its content and form. The programme, which the media has dubbed 'the big push', promises finally to crack most of the 'hard nuts' of previous reform agendas, in particular in the parastatal and public sector. It also lays down measures aimed at supporting fiscal and monetary discipline through the next elections. These include cutting the budget deficit to 1.5 % of GDP by 1997/98, a tight monetary policy, and more autonomy for the Central Bank. In addition, it tackles some areas'that have emerged as avenues of corruption in recent years, such as the National Social Security Fund. While previous PFPs were highly confidential, this one was published, and the President appointed a Commission chaired by himself to oversee its implementation. These are seen as important steps in bridging the credibility gap which threatened to open up again in 1995. Donors are prepared to support the reform agenda and are eager to see it implemented speedily. Shortly after the positive outcome of the CG meeting, the IMF approved a three-year Enhanced Structural Adjustment Facility programme for a total of $220m. The World Bank is expected to follow suit with a credit of $85m.

An increasing number of donors, however, have pointed to the link between democratic governance/ human rights issues on the one hand, and aid and investment flows on the other. If Kenya is to meet its ambitious targets and turn into a newly-industrialising country by 2010, foreign inflows will be vital. The point was succinctly put by a delegate to the CG meeting. 'If its (the Government's) economic successes are matched by a commitment to democracy and human rights, Kenya may yet prove that surging economic growth is not just for Asian tigers, but for African lions, too.' The period leading up to the next general election will be the acid test.