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Cablegate: Kenya Reduces Tariffs On Wheat and Corn Imports

VZCZCXRO3201
RR RUEHGI RUEHRN
DE RUEHNR #1505 1711308
ZNR UUUUU ZZH
R 191308Z JUN 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 6148
RUEHRC/USDA FAS WASHDC 1647
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHEG/AMEMBASSY CAIRO 4005
RUEHFR/AMEMBASSY PARIS 2768
RUEHRO/AMEMBASSY ROME 5305
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 4449
RUEHDU/AMCONSUL DURBAN 0187

UNCLAS NAIROBI 001505

AGRICULTURE FOR USDA/FAS CJACKSON AND MHOUSE, USDA/FAS/OFSO FRANK
LEE, USDA/FAS/OCBD PATRICIA SHEIKH, USDA/FAS/OCRA CHUCK ALEXANDER,
AND USDA/FAA RON VERDONK

STATE FOR EEB/TPP/MTA CHEVER VOLTMER, EEB/TPP/ABT GARY A. CLEMENTS,
JACK A. BOBO, AND AMY WINTON; EEB/IFD/ODF MARGO SIEMER; AND EEB/TPP
MIKAEL LURIE

STATE ALSO FOR AF/E, AF/EPS, AND EEB/TPP/ABT/ATP JANET SPECK

STATE PLEASE PASS USTR BILL JACKSON AND USAID/EA

COMMERCE FOR BECKY ERKUL AND USITC RALPH WATKINS

LONDON, PARIS, ROME FOR AFRICA WATCHERS

SIPDIS

E.O. 12958: N/A
TAGS: EAGR ETRD TBIO ECON EAID EFIN PGOV KE
SUBJECT: KENYA REDUCES TARIFFS ON WHEAT AND CORN IMPORTS

REFS: (A) STATE 53353 (B) STATE 533346 (C) STATE 52628
(D) NAIROBI 1122 AND PREVIOUS
(E) FAS NAIROBI GAIN KE8012 (F) STATE 1336

1. Summary: Kenya has reduced its duties on imported wheat from 35
percent to 10 percent and plans to import 297,000 tons of corn duty
free. Corn normally is assessed a 50 percent import duty. This
fulfills a commitment made by the Minister for Agriculture William
Ruto to the Ambassador during a meeting on May 8, 2008 (Ref F). It
is expected that these tariff reductions will help rein in, to some
degree, the spiraling cost of food in Kenya. End Summary.

2. Minister for Finance Amos Kimunya delivered the first budget of
the Grand Coalition Government. The budget speech covered recent
economic developments, restoration of the economy, facilitation of
investment, creation of a robust financial sector, improvement of
infrastructure, poverty reduction and promotion of equitable
distribution of resources. Minister Kimunya noted that the country
faced several challenges that include regional disparities, poverty,
unemployment, low agricultural production, and high inflation. The
theme of the budget speech was 'working together to build a
Cohesive, Equitable and Prosperous Kenya."

3. Compared to the 2007 budget, the 2008 budget comes at a time when
the country has almost reversed gains attained in previous years. In
2007 the economy was growing at a rate of 7 percent and looking up.
The violence that erupted at the beginning of the year coupled with
the rising cost of production (due to increased cost of inputs and
rising international oil prices) led to a record high inflation of
31.5 percent during the month of May, 2008. Given that food
accounts for about 87 percent of inflation and with existing grain
stocks forecast to last only until August 2008 the Minister of
Finance put emphasis on fixing food prices and putting in place
policies that stimulate local food production.

4. Realizing the importance of food security for Kenyans the
Minister zero rated Value Added Tax (VAT) on wheat flour, milk and
corn flour. To further cushion the poor against the rising cost of
living he also zero rated the VAT on bread and rice, and reduced the
import duty on wheat from 35 % to 10 %. The government also promised
to increase its Strategic Grains Reserve by 2 million (90 kg) bags,
to 6 million (90 kg) bags. The SGR imports will be duty free.

5. The Government further promised to play a proactive role in
sourcing fertilizer at competitive international price to help
stabilize domestic prices. In consultation with the governments of
Uganda and Tanzania, plans are underway to set up a regional
fertilizer factory to ensure long term sustainable supplies.

6. The Minister emphasized the Grand Coalition Government's
commitment to restoring the economy and putting it back on a higher
growth path through boosting investments to drive long-term growth.
This remains largely a wait-and-see situation.

Slutz

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