Distractions hide economic slide: while allegations of graft and corruption are grabbing all the headlines, a far more insidious force is at work undermining the economy. Neil Ford analyses why the anticipated economic turnaround is not happening.

Author:Ford, Neil
 
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The massive national and international furore that has erupted following publication of a report on corruption by the former transparency czar, John Githongo, has distracted attention away from Kenya's economic ills.

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In addition, as politicians jostle for the high ground, there is a growing feeling in Nairobi that internal strains within the National Rainbow Coalition (Narc) have diverted far too much energy away from more pressing matters.

Asset managers have warned that the well publicised drought will hit growth this year and divert money away from infrastructural projects towards famine relief, in an understandable attempt to cushion the potential threat of food shortages.

Yet the crisis could also provide the government with another reason to justify its mixed economic performance since coming to power in 2002.

Rick Ashley, the chief executive of asset managers Old Mutual, explained the likely economic impact of the drought: "We have revised our GDP growth forecast for 2006 to 5% after lowering growth projections for key sectors in the economy". He continued: "We expect the drought to adversely affect the agriculture and manufacturing sectors and to constrain aggregate demand in the economy."

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Old Mutual manages assets worth KSh50bn ($701m) in East Africa and so should be in an excellent position to assess the situation.

Government expenditure on anti-drought measures is expected to be around KSh27bn ($378m). It is feared that the rising cost of food could boost inflation to 12% by the end of the first quarter of 2006, while infrastructural spending on key sectors, such as the power and port sectors, may have to be cut.

The drought will also have an impact on power generation. About 70% of Kenyan electricity is generated by hydro schemes, so drought at the start of 2006 does not bode well for power supplies for the rest of the year. Most rain falls between December and March, and if the rainy season fails, water levels at the country's main reservoirs are expected to fall.

While the drought will almost certainly exact a shocking human and economic toll, it should not hide the fact that far too little progress has been made on strengthening the economy since Narc came to power.

Slow growth rates during the late 1990s and into the new millennium were blamed on the deficiencies of the previous government and more latterly on foreign investors and donors holding back investment because of corruption...

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