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Cablegate: Kenya's Stagnating Economy

VZCZCXYZ0002
RR RUEHWEB

DE RUEHNR #2872 3590701
ZNR UUUUU ZZH (CCY AD121656 AMG2477-695)
R 240701Z DEC 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 8066
INFO RUCPDOC/USDOC WASHDC 3155
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHRC/USDA FAS WASHDC 1728
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS

UNCLAS NAIROBI 002872

SENSITIVE

C O R R E C T E D COPY CAPTION

STATE ALSO FOR AF/E AND AF/EPS
STATE PASS USTR PATRICK COLEMAN
STATE PASS USAID/EA
STATE PASS USITC FOR ALAN TREAT, RALPH WATKINS, AND ERLAND
HERFINDAHL
STATE PASS TO DEPT OF TRANSPORTATION FOR CORNELIA HUNTER
TREASURY FOR REBECCA KLEIN
COMMERCE FOR BECKY ERKUL
AGRICULTURE FOR US FOREST SERVICE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAGR ELAB EINV EFIN ETRD EAID BEXP PINR ASEC
KE
SUBJECT: KENYA'S STAGNATING ECONOMY

REF: Nairobi 2778

This is not for internet distribution.

1. (U) Economic growth registered 2.1 percent in the third quarter,
falling over one percent from the second quarter rate of 3.4
percent. Continuing double-digit inflation (particularly for food
and fuel), declining agricultural production, and a struggling
tourist sector (still recovering from the January-February 2008
violence) are the principal causes of slower growth.

2. (SBU) In public remarks over the last several months, senior reps
from the Ministry of Finance, Central Bank and IMF appeared
confident GDP growth would reach at least 4.5 percent in 2008.
(Kenya's economy expanded 7 percent in 2007; the violence in early
2008 roughly halved the country's expected annual growth.) On
December 23, however, the Finance Ministry's Economic Secretary,
Geoffrey Mwau, told us that the third quarter results mean Kenya
will "barely" reach 4 percent, "if at all" for the year. Mwau is
still analyzing the data, but preliminarily reports no clear link
between Kenya's lackluster third quarter performance (ending
September) and the global economic crisis - the impact of which
should be reflected in the fourth quarter numbers and beyond.

3. (SBU) Comment: As 2008 comes to a close, Kenya's economy
continues to stagnate in the wake of the ethnically-charged
post-election violence this past January-February. The global
economic crisis seems certain to constrain the economy through 2009,
given likely reductions in demand for key exports cut flowers,
tea/coffee, fresh produce, and tourism. Remittances - a social
safety net and past driver of investment (e.g., real estate and the
Nairobi Stock Exchange) - will likely decline in coming months.
With forty percent of Kenyans already unemployed, half the country
surviving on about $2/day, and a doubling of staple food prices over
the last twelve months, the possibility of social unrest looms large
during the coming year if the global economic crisis hits as hard as
we believe it will. In order to mitigate against possible unrest,
the GOK must take the hard decisions on economic and political
reform in 2009. End comment.

RANNEBERGER

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