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Cablegate: Kenya Private Sector Briefs Foreign Missions

VZCZCXYZ0000
PP RUEHWEB

DE RUEHNR #0472/01 0431428
ZNR UUUUU ZZH
P 121428Z FEB 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC PRIORITY 4681
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS NAIROBI 000472

SIPDIS

SENSITIVE

DEPT FOR AF/E, AF/EPS, EEB/IFD/OMA
DEPT ALSO PASS TO DOT FOR CONNIE HUNTER
DEPT ALSO PASS TO USTR FOR BILL JACKSON
DEPT ALSO PASS TO DEPT OF LABOR FOR SUDHA HALEY, PATRICK WHITE AND
MAUREEN PETTIS
TREASURY FOR VIRGINIA BRANDON
DEPT ALSO PASS TO USAID/EA
DEPT ALSO PASS TO USITC FOR RALPH WATKINS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EAID ELAB ETRD EIND EINV KE
SUBJECT: KENYA PRIVATE SECTOR BRIEFS FOREIGN MISSIONS

REFS: A) Nairobi 383, B) NAIROBI 353, C) NAIROBI 336

SENSITIVE BUT UNCLASSIFIED. FOR USG USE ONLY.

1. (SBU) Summary: The Kenya Private Sector Alliance met with foreign
mission reps on February 6 to brief them on the February 5 CEOs
statement to politicians, and to ask the European missions to
clarify their public position on aid cutoffs and to revise their
travel advisories. They confirmed their estimate that the Kenyan
economy could lose $4.71 billion and contract in 2008, absent a
swift political settlement and return to normalcy. The European
Missions said decisions on assistance will depend on the outcome of
the talks, and that stability is needed before they would revise
their travel advisories. Both groups agreed the Annan-mediated
talks must reach a successful result soon. End summary.

Private Sector Support Annan-Mediated Talks
-------------------------------------------
2. (SBU) The Kenya Private Sector Alliance (KEPSA) met with foreign
mission officials on February 6 to brief them on the February 5 CEOs
statement to the politicians (ref A), and discuss aid programs and
travel advisories. KEPSA representatives stressed the private
sector's complete and unified support for the PNU-ODM negotiations
mediated by Kofi Annan, and that the talks must not fail. The
private sector does not back either side, KEPSA reps emphasized, but
rather puts Kenya first. The violence is no longer about the
election, they contended, but is based on tribal and land issues,
and aims to inflict pain. (Note: The organization's press statement
called for all leaders, public and private, from the top down, to
make clear public statements at the grass roots level calling for an
end to violence. End Note.)

Are You Cutting Off Aid?
------------------------
3. (SBU) The KEPSA reps asked that Foreign Missions provide more
public clarity on their policies on assistance to Kenya. Many
Kenyans, they suggested, have the misimpression the donors are
cutting off aid and abandoning them, contributing to the misery of
poor Kenyans and making the politicians less likely to heed the
advice of donors..

Aid Decisions Pending
---------------------
4. (SBU) In response, Danish Ambassador Bo Jenson, who also
co-chairs the local Donor Coordination Group, commended the private
sector for its strong public statement of support for Kofi Annan and
the negotiations. He stressed that no donor has taken a definite
position on long term assistance levels. Donors are waiting for the
outcome of the talks before making decisions. Until then, they
cannot do business as usual. Mission staffs, he added, are very
busy on humanitarian programs, giving further impetus to a go-slow
approach to existing or new long-term development programs.

5. (SBU) The Swedish ambassador urged the private sector to maintain
pressure on the political leaders by providing information on the
urgency of the country's economic and humanitarian crises. KEPSA
said it has have met with both President Mwai Kibaki and ODM leader
Raila Odinga and will seek more meetings. For the private sector as
well, it is not business as usual.

Economic Damage Remains Severe
-------------------------------
6. (SBU) Reports from KEPSA members show manufacturing activity was
down an average of 50-55% in January, with some firms down 70-75%.
Exporters are still operating, but with disruptions. They told the
foreign mission reps that the government should use whatever force
is needed to keep the roads open so they can supply goods to the
Northern Corridor countries. The government is responsible for
providing security and clearing militias and opportunistic criminals
from the roads.

7. (U) A member of KEPSA, the Kenya Association of Manufacturers
(KAM) estimates losses to the economy as follows:

- Property destruction: Ksh 16 billion ($228 million) and rising.
- Lost business in January: Operations down 40-50%, Ksh 88 billion
($1.26 billion) in lost production, Ksh 21 billion ($300 million)
lost tax revenue to GOK.
- 250,000 workers laid off or on paid leave in the formal sector,
over 1 million jobs estimated lost in the informal sector.
- Forecast business will be down 20% in the first half of 2008, and
down 10% in the second half; loss to the economy would be Ksh 220
billion ($3.14 billion) and Ksh 110 billion ($1.57 billion)
respectively for annual loss of Ksh 330 billion ($4.71 billion),
which means economic contraction, not growth, in 2008.
- Tax is 24% of GDP, so tax revenues would decline Ksh 80 billion
($1.14 billion).

KAM nevertheless remains hopeful. If the situation is resolved
quickly, and transportation to western Kenya and the Northern
Corridor is restored, it believes the damage to the economy will be
limited.

Tourism Sector Proactive Recovery Measures
------------------------------------------
8. (U) The Kenya Tourism Federation (KTF) rep said tourism is down
85-90%. In 2007, tourism earned Ksh 65 billion ($1 billion) and
attracted over one million tourists for the first time in Kenya's
history (ref C). It paid Ksh 10.4 billion (about $148 million) in
VAT to the government in 2007, and an unknown level of income tax,
most of which, he noted, would be lost in the first quarter.
However, cancellations are only until June, and all facilities are
intact. Tourism could bounce back quickly in his estimation.
Although media images were a factor, KTF said it was the European
travel advisories that were killing tourism. The Kenya Tourism Board
(KTB) told EconOff on February 8 that it expects only 27,000

visitors in the first quarter, down 94% from the agency's original
forecast of 350,000. KTB announced on February 10 a paltry 8,000
tourist arrivals in January, and predicted earnings in the first
quarter of only Sh8.4 billion ($120 million), rather than the Sh21
billion ($300 million) predicted before the crisis.

9. (SBU) Public and private tourism industry stakeholders have
formed a task force that has been meeting senior politicians face to
face to highlight the impact of the crisis on the sector and its
stakeholders. The media committee encouraged journalists to
interview those tourists still here, to demonstrate the resort areas
are safe. It also urged the media to move the violence off the
front page, not to highlight isolated incidents of violence, and to
cover stories of recovery as well as loss. KTF issues daily
security updates to the industry and media to ensure that any
outbreaks are noted, and tour operators warned to steer clear. The
updates show the violence is well away from most tourist routes.
The Ministry of Foreign Affairs instructed Kenyan Embassies to brief
source country governments and lobby for revision of the travel
advisories.

Stability First, Advisories Second
----------------------------------
10. (SBU) The KTF rep accordingly urged the European governments to
revise their travel advisories so that they warn against travel only
to western Kenya, and not against Kenya as a whole, as the UK and
U.S. have done. He claimed that, if the advisories were limited,
travelers' insurance policies, including life and health, would
remain valid for the other parts of Kenya, removing a critical
barrier to renewed bookings. Ambassador Jensen responded that
source countries must have more certainty that violence has stopped
and will not restart in a few weeks before lifting the advisories.
He appreciated the efforts of tour operators to keep their customers
safe, but pointed out that some tourists come independently, and
more stability is needed before revising the advisories. Officials
from the other missions echoed this theme.

Comment
-------
11. (SBU) Despite the tension on the travel advisories, the private
sector and the Missions are in complete agreement that the Kofi
Annan-mediated negotiations are the only possible solution, and that
both will continue to coordinate their efforts to push the
government and ODM to reach an agreement as soon as possible.

RANNEBERGER

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