Through a combination of listening 
to the private sector, astute interventions and considerable good luck, Kenya’s new power-sharing government has managed to restore the country’s economic lead in the region

Ahigh-profile joint manoeuvre made by President Mwai Kibaki and prime minister Raila Odinga in August helped to move Kenya into its economic recovery phase following the election-related killings in January and February. It showed how the country’s recently-formed coalition government could work in harmony, despite considerable scepticism about how long it could hold together. Their joint moves also showed the speed with which things could be done at the highest levels of government when its leaders put their minds to it.


The date was 11 August and the new grand coalition government was setting about a process of breaking several short-term and long-term bottlenecks affecting business in the country, and the focus of its two key leaders was to get the economy growing again.


In Nairobi, President Kibaki called an extraordinary meeting of ministers and top civil servants handling the security, transport, trade, roads and immigration portfolios. The ministers did not form a specific cabinet subcommittee nor was the meeting a regular ‘let-us-review-affairs’ discussion.


As Kibaki was meeting with the ministers, Prime Minister Raila Odinga flew to Mombasa, the country’s nerve-centre of trade, upon which much of East and Central Africa depends, to deliver what would be a hard-hitting speech against the ‘business-as-usual’ approach of the Kenya Ports Authority (KPA).


Inefficiency, mismanagement, corruption and a lack of investment have long been the norm at Mombasa’s port. But all these factors became much more obvious than usual during the post-election violence which rocked the country, when key trade routes in the hinterland and to neighbouring countries were blocked. Even once the road and rail routes had been reopened, the port showed itself unable to process cargo fast enough, causing knock-on effects for trade in Uganda, Rwanda, Burundi, eastern Democratic Republic of Congo and southern Sudan.


Odinga told his listeners that the port was “the linchpin” of Kenya’s infrastructure and then tore into its management. “The port is failing us all,” he said. “Its lapses pose a severe bottleneck on our country’s business activity. There are complaints galore, from Kenyans and neighbours, about virtually every area of the operations.”


While the managers of Mombasa port were still absorbing Odinga’s tough words, in Nairobi, Kibaki was announcing a slew of measures aimed at shaking up not only the port but also the country’s border-points and the roads used by its transporters.
Key among these measures was one to turn all border-points into 24-hour service areas; another to reduce road-blocks along the main trade routes to one-third of what they are; and finally, orders to the KPA and the national tax authority to take a fresh look at their customs rules and to remove duplications and other obstacles to doing business efficiently.


Only four days earlier, Odinga had received an action plan that followed earlier discussions that he and 15 cabinet ministers had had with Kenya’s business community. The plan, which included all the measures that the government then announced on 11 August, had followed a major roundtable meeting between the government and the private sector held in late July, in what was the first-ever structured dialogue between the two key elements guiding the Kenyan economy.


In the past, discussions between the government and private sector had been determined by specific events such the budget-making process, which generally focused on tax issues. The July meeting was the first where captains of industry, merchants, bankers, big farmers and others were able to meet top government officials and thrash out issues that they have regularly raised with government, or else in public, but on which they had usually seen only limited action taken.


The roundtable meeting was also an acknowledgement by government that it did not have all the answers and that Kenya’s new situation was uncharted – with its first coalition government in place – and that all forms of help were welcome.


The immediate backdrop of those discussions was the rising costs of living and doing business, driven by high global oil prices and equally high global food prices. These cost rises had already begun to hit when protests against the disputed presidential election results broke out in January. What had been political protests quickly spread throughout the country, with the sole exception of two provinces, and took on the ethnic dimension that began to suggest to some onlookers that the country was heading towards civil war.

Empty beds and empty tables


As soon as the violence was reported in Coast Province, hotel managers along Kenya’s beaches quickly found that what had promised to be a good season (even better, they hoped, than the record one of early 2007) was turning bad. From hotels having above 80% of beds occupied, they saw their daily occupancy reduced to below 40% and even lower. This all happened during the peak season, which usually begins before Christmas and continues until March.


The Kenya Private Sector Alliance (KPSA) – an umbrella group of business associations – projected in mid-January that if Kenyan leaders did not stop the violence then, Kenyans were likely to lose as many as 400,000 jobs in the first half of 2008, and businesses could lose as much as KSh266bn ($3.4bn). Even once the violence had subsided in the wake of the country’s historic peace deal, the World Bank and the African Development Bank were warning of the regional ramifications of an economic recession in Kenya.


As things turned out, the damage was far less than feared, although serious enough. The KPSA showed The Africa Report preliminary figures indicating the loss of 100,000 jobs and estimating the cost of the post-election violence to business at more than KSh50bn ($640m).


Following the government’s interventions, by October, the KPSA was sounding more positive. “We have seen a recovery from the low experienced during the post-election violence. However, we do have to continue to rebuild the tourist trade for the Coast and continue to overcome the delayed or missed plantings by farmers,” said KPSA chairman Steve Smith. Some of the strategies that firms had adopted to overcome their losses include generating “more export business and improving the business cycle in Kenya”, Smith said.


Providing positive projections


In 2007, when the government made projections for economic growth in 2008, it gave the figure of 7%. Different ministries have since revised that projection downwards; the planning ministry has been suggesting 3.5-4.5% and the finance ministry 4.5-6.0%. An IMF team that visited Kenya in July, however, still managed to project economic growth of 7.2%.


Players in the tourism industry, which is one of Kenya’s top foreign exchange earners, have also begun to share optimism that the recovery will be quicker than expected. The Kenya Tourist Board has already begun to look forward to the main high season of 2010 (December 2009 to March 2010) when it hopes that the Coast could see a return to the record numbers of 2007. The board’s managing director, Achieng Ongong’a, said he was confident that the recovery would be much quicker than the last time tourists avoided Kenya as it went through one of its earlier bouts of violence, breaking out ahead of the 1997 elections.


Ongong’a said it took the tourism industry seven years to recover from that time of trouble, which directly affected the Likoni area of the southern Coast. Things have been different this time, he said. For example, all players in the industry are now speaking with one voice and working together, unlike after the 1997 violence. The government has also been funding a KSh600m marketing programme aimed at helping the industry recover, something that did not happen after the events of 1997.


Tourism at the Coast is much more sensitive to effects of negative publicity than other attractions in Kenya. An estimated 65% of foreign tourists coming to Kenya go to the Coast during its peak season, while August and September serve as another important season for the industry.


KPSA chairman Steve Smith said that for now the government has been taking the right measures to help the economy recover, despite the poor global outlook. “The impact of inflation and higher material cost has been a lot for all to deal with, but progress is being made. The government is listening and we feel it is moving forward with the needed changes,” Smith told The Africa Report.