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Cablegate: Kenya: November Economic Highlights

VZCZCXYZ0009
RR RUEHWEB

DE RUEHNR #2412/01 3291204
ZNR UUUUU ZZH
R 251204Z NOV 09
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 1640
INFO RUCPDOC/USDOC WASHDC 3247
RUEHRC/USDA FAS WASHDC 1874
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS

UNCLAS NAIROBI 002412

STATE ALSO FOR AF/E AND AF/EPS

STATE PASS USAID/EA

TREASURY FOR REBECCA KLEIN

SIPDIS

E.O. 12958: N/A
TAGS: EAGR ECON EINV ETRD PINR KCOR SENV KE
SUBJECT: KENYA: NOVEMBER ECONOMIC HIGHLIGHTS

REF: A) 08 NAIROBI 2166 B) 08 NAIROBI 2220

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TABLE OF CONTENTS
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1. IMF APPLAUDS KENYA'S NEW INFLATION CALCULATION
2. EVICTIONS PROCEED IN MAU FOREST
3. KENYA SIGNS COMMON MARKET TREATY

1. IMF APPLAUDS KENYA'S NEW INFLATION CALCULATION

The IMF's Resident Representative in Kenya told Econoff November 20
that the GOK's recent adoption of a new methodology based on
geometric mean to more accurately calculate inflation is a positive
policy development. The IMF had been exhorting the GOK to abandon
its outdated arithmetic methodology for two years (ref A). In
response to the "new math," Kenya's measured inflation rate fell
from 17.9% in September to 6.6% in October. The IMF rep said he
expected a further fall in measured inflation once the GOK
recalibrated the weights in the basket of goods it uses to calculate
changes in consumer prices. According to the IMF, the current
basket inordinately weighs costly food and energy and under
represents key consumer items such as airtime for cell phones.
While lower measured inflation rates may help cast Kenya's tarnished
investment climate in a somewhat better light, the average Kenyan
continues to feel the bite of high food and energy prices.

2. EVICTIONS IN MAU FOREST PROCEED

The Government of Kenya (GOK) is evicting an estimated 2,500
undocumented residents (e.g., squatters, trespassers, encroachers)
from a 19,000 hectare (ha) area in the South Western Mau Forest
Reserve, the second phase of a five-phase plan to recover the Mau
Forests Complex. The Mau Forests Complex originally covered
approximately 452,007 ha and was the largest closed-canopy montane
forest ecosystem in East Africa. One of Kenya's five 'water
towers', the 'Mau' is a critical source of water for the Mara River
and 12 other rivers that flow to Lake Victoria (ref B). Water from
the Mau also supports the Maasai Mara Reserve and Serengeti National
Parks. Despite its critical role in sustaining the economic
development of much of western Kenya and the Rift Valley, the forest
has been under increasing threat from irregular and ill-planned
settlements, encroachment and illegal forest resource exploitation.
Degazettement of forest reserves (removal from protected forest
status) and continuous widespread encroachment are associated with
logging, farming, and charcoal production. During the last two
decades these activities have led to the destruction of over 107,000
ha, representing over 25 percent of the Mau's forest cover.

In October 2008, the Government of Kenya (GOK) established a Task
Force whose responsibility was to make recommendations on immediate,
short and long-term options for restoring the entire Mau Forests
Complex. The Task Force submitted its report and recommendations in
March 2009, and in August, Cabinet approved the report. On August
17, as part of the report's short-term recommendations, the GOK
established an Interim Coordinating Secretariat within the Office of
the Prime Minister to coordinate the implementation of the report's
recommendations. As part of the recovery effort, all people living
in the protected forests -- and many living in what was formerly
forest -- will have to be relocated or resettled.

The Secretariat announced that the first phase, recovery of
uninhabited land, and the second phase, the eviction of the 2500
squatters (undocumented inhabitants) in South Western Mau, Ol
Pusimoru, and Maasai Mau forest reserves, will be completed by the
first week of December 2009. The GOK has said that those evicted as
part of Phase two will not be compensated because there was no
intention of setting aside those protected forest areas for
settlement and because these particular residents are in the forest
illegally. The Secretariat will begin the third phase in January,
during which it will remove people with title deeds. In the event
of resettlement, the GOK will provide 'compensation' - possibly
alternative land and funds for the development of the land.
However, it is a challenge to determine which landowners are
actually entitled to compensation. Many forest landowners have
irregular title deeds. For example, title deeds were issued when
the lands were still gazetted as forest reserve or in disregard of a
High Court order restraining the Government from moving ahead with
the excision process.
Comment: The eviction of 2,500 squatters from the South Western Mau
to begin the recovery process of Mau is relatively easy compared to
the challenges the GOK will face when resettling those with title
deeds and vested interests. Although the government is providing
some assistance to the evictees (food, water, transportation), the
eviction of squatters has potentially created humanitarian
challenges as squatters have not been relocated to new land and many
claim they have nowhere to return. SEPTEL will report on a recent
USAID/OFDA assessment of humanitarian conditions faced by evictees.
End Comment.

3. KENYA SIGNS COMMON MARKET TREATY
President Kibaki, along with four other heads of state, signed the
East African Community (EAC) Common Market Protocol on November 21.
The protocol is the first step in the establishment of a common
market which encompasses five countries (Burundi, Kenya, Rwanda,
Tanzania, and Uganda) with a combined population 126 million people.
The protocol lays the groundwork for free trade and free movement
of services, people, capital and labor. The treaty calls for the
common market to come into effect as early as July 1, 2010; however,
each state must ratify the protocol according to national laws
before it can be implemented.

While the signing of the protocol is seen by experts as a step in
the right direction toward regional integration, there are myriad
details to work out before a true common market can be realized.
For example, the EAC Customs Union -- which is one pillar of the
common market protocol -- was due to begin January 2010. However,
many issues are yet to be resolved, including a revenue sharing
agreement for duties collected in the region, harmonization of
existing customs laws and regulations, management of security issues
surrounding free movement of cargo, and sanitary and phytosanitary
concerns related to the movement of agricultural products. Like the
customs union, a fully operational common market will require
detailed planning and political negotiation. Considerable
investment will also be needed to facilitate transition of the
various ministries, revenue and customs authorities that will be
involved in implementation. The protocol establishes a six-month
deadline for a detailed report on the timeline for implementation,
and there will likely be separate timelines for the execution of
each component (e.g. customs union, monetary union) of the common
market.


RANNEBERGER

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