No respite yet for battered economy

Nine months into the National Alliance Rainbow Coalition s (Narc) rule, an economic miracle continues to elude the country. While the country reeling from over 50 per cent adult unemployment was hopeful of quick-fix solutions, it has on the large been jolted back to reality.

The economy, to the disillusionment of many Kenyans, has only grown by 1.4 per cent, which is not much different from the 1.1 per cent achieved last year. The markets have settled for the less impressive.

Whereas owing to euphoria the Kenya shilling had climbed as high as Sh65 to the dollar, in the last six months it has fallen over Sh10 and appears to headed

for Sh78 to the dollar just where it was when Kenya African National Union (Kanu) lost power.

It is only the Nairobi Stock Exchange that has maintained the ebullience, for a different reason. The new government has maintained low interest rates in

its domestic borrowing, exploiting high liquidity in the market to the maximum. Liquidity is thus fleeing to the stock market even as the price to earnings ratio hit crazy multiples.

The country is also paying for the euphoria of the earlier part of the year. For one, Kenyan exports have grown expensive especially in key Ugandan and

Tanzanian markets in tandem with the strong shilling. So has tourism.

Tourism has been complicated by the travel advisories by the British and the US governments. While the UK has lifted the advisory predicated on possible terror

attacks, the US one remains in place. America contributes to the lucrative upcountry Safari circuit, though not to a very large extent.

But both warnings have had a telling impact overall as European tourists

stay away. The loss overall has been estimated at 30 per cent of total tourist earnings.

There are enough reasons why the country is deflated. One, for the money markets, the donors have taken too long to come in. It was initially thought that the passing of the old government, known for corruption, would send in donors.

But there are reasons why they have taken their sweet time. Foremost amongst them is the huge government deficit, at Sh62 billion or 6.5 per cent of the GDP ($805 million), which was largely incurred to please the political constituencies including teachers and the security forces.

Second, the government has been having trouble reconciling its generous fiscal methods with those of the mean International Monetary Fund and the WorldBank. That only $250 million is available under the IMF programme in five years has been a bit of disappointment. This is the amount expected to be voted for by the board at the end of October.

Finance minister David Mwiraria has already expressed displeasure to the World Bank over the money especially the latter is committing as project aid. But the latter s representative in Kenya Makhtar Diop has basically said the bank can only finance defined projects.

But what has sold Kenyans down the river has been the slow flow of the foreign direct investment (FDI), which over the years, has been on the decline. The immediate reason for the poor showing by Kenya is poor governance.

That whiffs of the same are appearing in the shape of payment of disputable pending bills to contractors has been a matter of concern both to donors and potential investors. The problem has been that the stock of bills has been rising and earning interest over the years.

A good number of the contractors

have obtained court orders for payment; in the majority of the cases the former government helped the already corrupt courts by not entering a defence.

What is emerging though is that the fundamentals are also against the country. While Uganda and Tanzania continue to attract extractive investment, Kenya is faring badly.

For investors though, the instability inherent in the coalition government has been a put off. The main issue they are expecting to settle matters is the constitutional conference.

Side shows are neither absent: The recent death of the vice-president Kijana Wamalwa is expected in the short-term to breed a new power struggle largely rotating around ethnicity and regions. Investors are watching.

The other major factor is that infrastructure around the country has been neglected for long. Power for example, supplied by the inefficient state owned Kenya Power and Lighting is more expensive than in the competing economies of Zimbabwe, Egypt, Zambia, Sudan and Malawi.

These countries are grouped under the Common Markets for Eastern and Southern Africa free trade area. It would thus make more sense to set up a factory in these economies than in Kenya.

The road infrastructure is in a tattered state while the landline monopoly, Telkom Kenya is a byword for inefficiency. While plans are afoot to restructure the utility firms and possibly revamp the road infrastructure, recent announcement by government ministers that the privatisation and liberalisation process can wait has sent alarm bells ringing. The suspicion is that the new government wants to use them for political patronage, as did the old one.