This country profile was published in November 2008 in our annual 'Africa in 2009' issue. The next edition, 'Africa in 2010' will be on sale 23 November 2009.

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In an indication of how eager Nairobi’s politicians are to return to business as usual, after ethnic violence and protests took the country to the edge of civil war, their biggest preoccupation seems to be positioning around the 2012 presidential elections. Justice minister Martha Karua, an erstwhile defender of President Mwai Kibaki during the post-electoral logjam, broke ranks with the coterie around the president and declared her intention to run. She was not alone. An assistant minister, Bifwoli Wakoli, a minor figure from western Kenya, also declared his interest in the post. More significant was the endorsement for 2012 of Vice-President Kalonzo Musyoka by a core group around Kibaki’s Party of National Unity.


The eagerness to replace Kibaki is more muted within Raila Odinga’s Orange Democratic Movement, but can still be heard. Odinga, as Prime Minister in the coalition government, has rebuked those playing campaign politics, but he faces the headache of dissent in his party where various ethnic groupings continue to jostle for ever bigger pieces of the pie.


The parties have been forced into a painful internal reorganisation in line with the Political Parties Act, coming into effect on 1 January 2009. It will force parties, which in the decade-and-a-half of multiparty politics have been little more than ethnic vehicles for Nairobi politicians, to establish real structures across the country to reflect what the act terms ‘national outlook’. Party elections could precipitate the break-up of the ethnic coalitions that formed in the run-up to the disputed December 2007 elections.


The more fundamental crisis is the growing inequality between the elite and the poor and unemployed. The biggest threat to the country’s stability is this neglected population of young people (70% of the population is below 30). The violence of January and February was driven less by politicians’ manipulations of ethnic sentiment than by the decade-old nurturing of youthful militias. Widespread unemployment, plus a growing consciousness that inequality is driven by elite corruption, allowed the militias to seek more independent measures to assert themselves. They morphed into protection rackets in the minibus transport industry and vigilante security groups in poor neighbourhoods.


Nairobi’s politicians often appear unaware of the monsters they have created. The media’s preoccupation with the Nairobi political agenda since the formation of the coalition government has also allowed a kind of tyranny of peace to take hold. The pressing issues of poverty and inequality are conveniently ignored in the pursuit of a vision for peace and stability. Festering discontent, removed from the media glare, grows. When it has emerged, it is interpreted as isolated pockets rather than a nationwide crisis. In 2007, the Kibaki government hastily set up a youth fund to placate this population, and in the 2008/09 budget KSh1bn ($13m) was allocated to it. It is little and late, and heightens the perception of political neglect.


A major issue in 2009 will be the long-awaited revision of the constitution, especially the challenge of how to distribute power away from the executive and from Nairobi. Attempts to do so – the main one being the Constituency Development Fund (CDF) – have been popular but problematic; the CDF has been hogged by the political class and used as more fuel for ethnic patronage systems. The coalition government regularly voices its determination to undertake further revisions, and only if this happens will the raging fires beneath the elitist coalition be dampened.


There is still much to be done to reverse the impact the violence had on the economy at a time when world fuel and food prices were spiralling, pushing the inflation rate to 31.5% in May, its highest level in recent years. The Central Bank of Kenya (CBK) described this as ‘unprecedented’, adding that such levels of inflation had not been observed “since the Goldenberg-related periods in the early 1990s” – a reference to the period when government corruption pushed macroeconomic management completely off-track.


The economy managed to show growth in 2008 despite declines in agricultural output, tourism and trade that resulted from the violence. Different ministries put growth projections for the year between 3.5% and 6%. The CBK says inflation will fall below 20% in January 2009 and continue to drop. The Bank adds that Kenya’s “macroeconomic stability and the resilience of the economy is beyond doubt”.


In a bid to cushion the population from the rising costs of living, the government has cut sales tax on rice and bread, reduced the duty on wheat and offered subsidised seeds to farmers. The government is also using the threat of price controls to get oil marketing companies to lower pump prices, arguing that since world prices have dropped, companies should follow suit. In October 2008, the government banned farmers from exporting maize in a bid to avoid shortages. The country was then facing a drought that forecasters said should end with the rains in the final quarter of the year.


Despite setbacks, the government and the private sector are beginning new rounds of investment and there will be much focus on telecoms. At least one of three submarine fibre-optic cable projects is set to be completed and reach Mombasa by the end of 2009. Data services costs are expected to drop drastically as the capacity to send and receive large amounts of data quickly increases.


Internet service providers are offering a new broadband service and telecom companies have expanded their data services or are preparing to do so. The largest mobile phone service provider, Safaricom, began its third generation (3G) mobile service in May, in Nairobi and Mombasa.


The country’s fourth mobile service provider, Econet Wireless Kenya (EWK), plans to spend $500m over the coming two years, some of it to invest in a call centre, and data services, including 3G. EWK is making the investment after legal wrangles over ownership and its licence were resolved and Indian conglomerate Essar Group bought a 49% percent stake in its parent company, Johannesburg-based Econet Wireless International. Telkom Kenya plans to spend KSh19bn over three years, primarily on its recently launched mobile phone service (under France Telecom’s Orange brand) and data services like broadband connections to small and medium-sized enterprises. The government, for its part, will invest KSh900m to create a business-processing outsourcing park in an effort to position Kenya as a new major call-centre destination. 

Business survives, but much more is needed

With the exception of tourism, the formal economy was, surprisingly, only marginally affected by the political crisis in early 2008. The Kenya Association of Manufacturers reported a 15% downturn in earnings; at the time, many thought it would be much worse than that.


Despite the promise of recovery, inflation driven by fuel and electricity bills will probably continue to slow down growth in 2009. Manufacturers reported that their power bills rose 100% in the third quarter of 2008, a situation precipitated by a surge in industrial demand for power that forced the national power generator, KenGen, to import diesel generators to meet the shortfall. Significant breakthroughs on this are unlikely to be immediate, but during the shortfall, KenGen announced that it had doubled its net profits year-on-year to KSh4.8bn in 2008. The ‘grand coalition’ government has formed two new parastatals to address the energy problem, but new inflation-linked energy prices meant that prices almost doubled in a two-month period. 


In the ‘sambaza economy’, a mobile phone catchphrase meaning ‘to spread’ and referring to the common practice of money transfer via mobile phones, it is jobs and opportunities, not growth, that preoccupy a worried population.