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Corruption, politics and drought cloud Kenya economy

Corruption, politics and drought cloud Kenya economy

NAIROBI – A triple scourge of corruption, drought and political manoeuvring is expected to put the brakes on Kenya’s three-year economic recovery in 2006, analysts say.

Drought has pushed food prices steeply higher and triggered plans to import emergency power generators to meet electricity shortfalls after water levels in power dams receded. Politicians are expected to focus increasingly on the general election next year and less on crucial economic reforms, repairing dilapidated roads and fixing an inefficient telecoms sector.President Mwai Kibaki’s administration has come under intense domestic and foreign criticism for failing to root out corruption and crime, which it pledged to do when sweeping to power three years ago.”I think the outlook is bleak, given the situation with the drought, the expected political temperatures as you get closer to an election year and also concerns over corruption will dampen the growth of the economy,” Billow Kerrow, the shadow finance minister, told Reuters.The economy has been on an upward trend since Kibaki took office in late 2002 and grew an estimated 5 per cent in 2005 after 4,3 per cent in 2004 and 2,8 per cent in 2003.Analysts polled by Reuters in the last month however said they expected the economy to grow by between 4,0 and 5,2 per cent this year compared with the government’s prediction of around 6 per cent.Although rains have pounded some parts of the country, the Kenya Meteorological Department says the drought is not over yet.It forecast that most of the country will get insufficient rainfall in the longer March-May rainy season.”There is an erroneous thinking that once it rains it immediately translates into food,” said Michael Arunga, communications manager for charity World Vision Kenya.”People are still desperate, the situation is still bad.”The government will be forced to divert funds to buy food for the needy instead of spending on development.”Economic growth will slow down marginally from 2005 due to the impact of drought,” said Sunil Sanger, General Manager Treasury at CFC Bank, predicting an expansion of 4,5 per cent.Although the economy has largely ignored ceaseless political bickering since 2002, experts say it is likely to remain in the back seat for the next two years as politicians jostle for power.Political parties are likely to concentrate on raising funds for polls or building new coalitions instead of improving living standards for Kenyans ahead of next year’s election.More than half of Kenya’s 32 million population lives in abject poverty.The corruption scandals and a media clampdown which culminated in a government raid on one of Kenya’s leading newspapers and television station have dominated Kenyan headlines and the political scene.The pressure intensified early this year, prompting the resignations of the finance, education and energy ministers in February.They all deny involvement in corruption.This week, the spotlight turned to the central bank Governor Andrew Mullei after the independent anti-corruption agency said it had investigated him over graft allegations and forwarded its recommendations to the attorney general for action.Analysts say the business community could hold back and wait to see how the government will act on those implicated.Likewise, the International Monetary Fund and the World Bank could further hold back disbursement of delayed funds.Despite the concerns, economists say they expect interest rates and the exchange rate to remain stable and inflationary pressure to ease in the course of the year.Overall inflation rose to a 17-month high of 18,9 per cent in February due to drought.”It is our view that as rains resume over the second half of 2006, there will be a downturn in the overall inflation rate,” Yvonne Mhango, of Standard Bank in South Africa, said, predicting an overall inflation rate of 8,5 per cent in December.Analysts gave mixed views on the outlook for the shilling.Some said that the shilling would weaken to a rate of 74 to the dollar from around 72 as importer demand for dollars increased.The central bank has refused to intervene in the market to weaken the local unit despite exporters’ complaints that the strong shilling is hurting them.”We will see export proceeds starting to taper off a bit.The net import economy that we have will weigh down on the shilling,” said Kihara Maina, the treasurer at Barclays Bank.But Sanger forecast the shilling would end the year at 70 to the dollar.- Nampa-ReutersPoliticians are expected to focus increasingly on the general election next year and less on crucial economic reforms, repairing dilapidated roads and fixing an inefficient telecoms sector.President Mwai Kibaki’s administration has come under intense domestic and foreign criticism for failing to root out corruption and crime, which it pledged to do when sweeping to power three years ago.”I think the outlook is bleak, given the situation with the drought, the expected political temperatures as you get closer to an election year and also concerns over corruption will dampen the growth of the economy,” Billow Kerrow, the shadow finance minister, told Reuters.The economy has been on an upward trend since Kibaki took office in late 2002 and grew an estimated 5 per cent in 2005 after 4,3 per cent in 2004 and 2,8 per cent in 2003.Analysts polled by Reuters in the last month however said they expected the economy to grow by between 4,0 and 5,2 per cent this year compared with the government’s prediction of around 6 per cent.Although rains have pounded some parts of the country, the Kenya Meteorological Department says the drought is not over yet.It forecast that most of the country will get insufficient rainfall in the longer March-May rainy season.”There is an erroneous thinking that once it rains it immediately translates into food,” said Michael Arunga, communications manager for charity World Vision Kenya.”People are still desperate, the situation is still bad.”The government will be forced to divert funds to buy food for the needy instead of spending on development.”Economic growth will slow down marginally from 2005 due to the impact of drought,” said Sunil Sanger, General Manager Treasury at CFC Bank, predicting an expansion of 4,5 per cent.Although the economy has largely ignored ceaseless political bickering since 2002, experts say it is likely to remain in the back seat for the next two years as politicians jostle for power.Political parties are likely to concentrate on raising funds for polls or building new coalitions instead of improving living standards for Kenyans ahead of next year’s election.More than half of Kenya’s 32 million population lives in abject poverty.The corruption scandals and a media clampdown which culminated in a government raid on one of Kenya’s leading newspapers and television station have dominated Kenyan headlines and the political scene.The pressure intensified early this year, prompting the resignations of the finance, education and energy ministers in February.They all deny involvement in corruption.This week, the spotlight turned to the central bank Governor Andrew Mullei after the independent anti-corruption agency said it had investigated him over graft allegations and forwarded its recommendations to the attorney general for action.Analysts say the business community could hold back and wait to see how the government will act on those implicated.Likewise, the International Monetary Fund and the World Bank could further hold back disbursement of delayed funds.Despite the concerns, economists say they expect interest rates and the exchange rate to remain stable and inflationary pressure to ease in the course of the year.Overall inflation rose to a 17-month high of 18,9 per cent in February due to drought.”It is our view that as rains resume over the second half of 2006, there will be a downturn in the overall inflation rate,” Yvonne Mhango, of Standard Bank in South Africa, said, predicting an overall inflation rate of 8,5 per cent in December.Analysts gave mixed views on the outlook for the shilling.Some said that the shilling would weaken to a rate of 74 to the dollar from around 72 as importer demand for dollars increased.The central bank has refused to intervene in the market to weaken the local unit despite exporters’ complaints that the strong shilling is hurting them.”We will see export proceeds starting to taper off a bit.The net import economy that we have will weigh down on the shilling,” said Kihara Maina, the treasurer at Barclays Bank.But Sanger forecast the shilling would end the year at 70 to the dollar.- Nampa-Reuters

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