Donors postpone aid disbursement

Eleven months into the National Rainbow Coalition (Narc), investors are yet
to make their first move. Whereas the government has elicited widespread
goodwill because of it bold politico-economic reforms, it appears convincing
the owners of capital to put money in the country in the short term was
never going
to be an easy job after all.

The immediate causative factor has been the delayed clean bill of health
from the Bretton Woods, viewed as crucial in guiding the investors. Early in
November,
the IMF board rescheduled a crucial meeting on Kenya that would have opened
doors for programme aid from a raft of bilateral and multilateral donors.
This
followed demand of a fresh debt analyses on Kenya's external commercial and
bilateral liability.

True, IMF board just like that of the World Bank has laudatory remarks on
the country. And it is expected to clear Kenya and provide quick disbursing
aid. But the impression that things are not going as smoothly as should have
been expected with the ouster of the Kanu regime is yet sending
disconcerting vibes.

It is clear though that investors are waiting for clear and concrete signals
before they can put their money in East Africa's largest economy. With a 1.8
per cent growth in the economy, consumer purchasing power is not a pull
factor for Kenya-indeed fear has struck the heart of the business community
with independent survey indicating that sales for fast consumer goods hit
an all-time low in August.

Immediate dearth of consumer liquidity is attributed to suspension of
procurement by the state and sealing of corruption loopholes, which used to
fire heavy consumerism.

This situation rather unfortunately has been juxtaposed against loud
wrangles in the ruling coalition, which basically gummed together ethnically
aligned parties to oust the corrupt Kanu regime: The question in many an
investors mind is whether Narc can hold long enough to guarantee the
much-needed stability.

One of the major fundamental bottlenecks so far has been infrastructure-with
the national power distributor Kenya Power & Lighting Company Ltd (KPLC) and
telecom monopoly, Telkom Kenya topping the bill. Power in Kenya is more
expensive than in competing Common Markets for Eastern and Southern Africa
(Comesa) investment destinations of Egypt and, until recently, the
crisis-wracked Zimbabwe.

The problem with Kenya Power is that it losses a fifth of the power it pays
for from suppliers through its rickety system while maintaining expensive
Independent Power Producers. Announcement that it has struck a deal with
state hydro-electricity power generator, KenGen, which capitalises its
liability and reduces bulk tariffs by 25 per cent, is not expected to reduce
the consumer cost any time soon.

Telecom services are expensive due to the monopoly of the Telkom, blessed
with antiquated equipment and overcharging for Internet backbone and
international gateway services. Regulator communications Commission of Kenya
(CCK) has advertised for expression of interests in a second national
operator (SNO), which will probably spell death for the firm and usher in
new efficient competitors.

Another infrastructure cost factor is a tattered road network that received
scant attention during the Moi Era. Major road transport arteries are in
poor state and it is estimated that it will cost up to KES 80 billion ($1
billion) to beat them back to shape.

Government has frozen the privatisation process awaiting legislation,
dashing hopes of any quick-fix solutions for utility monopolies.
Reemergence of sleaze allegations in the tendering process has also had many
worried. This has featured names of prominent Narc politicians like Local
Government Minister Karissa Maitha, Transport chief John Michuki, and Dr
Mukhisa Kituyi of Trade and industry.

Foreign investors will be keen to see how president Mwai Kibaki handles the
reported wrongdoing. The purported sleaze has also hit the crucial Kenya
Revenue Authority.

A trend Kenya would wish to see halted though is increasing inflows of
investment into neighboring Tanzania and Uganda at her expense. Both are
powering on at a growth of average 6.2 per cent and appear to have a good
measure of luck with natural resources.

Tanzania has struck natural gas, diamond and gold while Uganda is expected
drill oil. Tanzania' foreign investment from $192.8 million in 2000 jumped
16 per cent to $224 million last year. Kenya with exception of the $110
million invested by cellular firms in 2000 has seen little action. On the
contrary, firms like South African Breweries international and other
manufacturing firms have been pulling out due to poor demand and
infrastructure.

The only saving grace has been investment in the Export Processing Zones
which have taken advantage of the African Growth and Opportunity Act (Agoa)
which offers duty-free access for over 2,000 items to the US market.
Positive signs are not completely absent though.

Huge reduction in official corruption is likely to get the notice of foreign
investors. Already, a good number of them have been making inquiries on
investment. The purge on the judiciary is expected bear fruit, as
arbitration on business disputes gets fairer.

That said though, with the delay in awarding licence for the third mobile
operator and the fact that an SNO is unlikely to be in place before June
next year, it is clear that Kenya will close the first year of the new dawn
with no major break.

The Narc promise of creating 500,000 jobs annually rings in hollow in the
country now experiencing more than 50 per cent adult unemployment. Lately,
the influential East African Association enjoining British investors has
asked the government to move with speed in removing the bottlenecks to
investment.