The potential impact of economic sanctions on the Kenyan government
There has been a lot of speculation how much the Kibaki government can be influenced by economic or aid sanctions.
Reuters Facts Box reports :
An EU official said on Monday the 27-nation bloc, one of Kenya’s top donors, was considering suspending all aid and imposing sanctions if mediation efforts to resolve the crisis failed. The EU provided 290 million Euro ($430 million) in aid to Kenya between 2002 and 2007. A further 383 million Euro are planned for 2008-2013. A big percentage of this goes to direct budgetary aid.
USAID is supporting more than $300 million in development activities in Kenya, including education, health, economic growth, democracy and governance, and peace and security programs.
In June 2007 the World Bank approved a credit of $80 million for Kenya to expand the fight against HIV/AIDS.
As of September 2007, the World Bank’s portfolio in Kenya consisted of 16 active operations with a total commitment of $919 million.
Lets take a further look into complementary facts:
According to the CIA World Fact Book, Kenya’s revenues as of 2007 were $4.448 billion and the Expenditures $5.3777 billion, including capital expenditures. This leaves a glaring deficit of almost a billion US Dollars. How does Kenya go about patching this? One can include the direct budgetary support by the EU. However, from the figures above, it is not sufficient to cover the deficit.
According to the 2007 budget speech,
The overall budget deficit (including grants) in 2007/08 would be KShs.109.8 billion, equivalent to 5.3% of GDP. Overall expenditures in 2007/08, excluding amortization payments and restructuring costs, will amount to Ksh.580.4 billion, about 28.2% of GDP, up from KShs.427.6 billion or 23.4 percent of GDP in 2006/07.
The government based their calculations on a number of factors. They predicted that:
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in line with Government policy, there would be a shift of resources from recurrent to capital expenditures and core-poverty programs
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the share of recurrent expenditure was projected to decline sharply from the level of 2006/07, while domestically financed capital expenditures were planned to increase from Ksh.54.7 billion to KSh.85.1 billion or from 3.0% of GDP to 4.1% of GDP.
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Net external financing amounting to KShs.39.8 billion or 1.9% of GDP, was expected to cover part of this budget deficit
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KShs.70 billion or 3.4% of GDP, to be financed through domestic borrowing (Kshs.34 billion) and net privatization receipts of about KShs.36 billion.
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Inflation remaining under control
However not to be ignored is the fact (stated in the budgetary report) that this structure above was based on and set against the background of the medium-term macro-fiscal framework and a continuation of the recent strong economic performance, with real GDP expected to increase by 6.5- 7.0% in 2007/08, largely propelled by continued strong performance across all sectors.
With a review of the post-election situation and the loss of revenue that Kenya has undergone and is continuing to undergo, a retardation and even decline of economic growth, one can see an eventuality of a total collapse of the budget. Point five above would even bite more if the sanctions threatened by the EU are carried out. The government is heavily reliant on the world bank and its projects/ programmes. We do not know how far the World Bank would go to carry out these sanctions in review of their seeming tolerance of the government.
The fear that China would fill the gap without preliminary conditions is in our view over-rated. China’s interest in Africa so far has been hunger for natural resources. Looking again into the CIA Fact Book Kenya’s lack of natural resources stand out. And the little that Kenya has, seems to be already under China’s control: In what the East African called cynically a “an unprecedented act of generosity”, the government of Kenya gave the state-owned National Oil Corporation of China – CNOOC – exclusive rights to its hotly contested areas where oil might be found.
If a co-ordinated freeze aid to Kenya campaign is carried out by all donors in the face of the turmoil and violence, I believe the government and opposition will shape up and sit with the mediators to bring an end to the stale-mate that has cost many a Kenyan lives. It is the most effective way and we urge a consideration of this.
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Tim Cocks from Reuters comes to a different conclusion:
http://www.reuters.com/article/reutersEdge/idUSL1564026220080115?sp=true
“Donors have few options to tackle Kenya crisis
By Tim Cocks – Analysis
NAIROBI (Reuters) – Western countries pressing Kenyan President Mwai Kibaki and the opposition to start talks and end weeks of chaos over a disputed election are likely to have limited influence because the West has little leverage.
Violence erupted across Kenya two weeks ago, when Kibaki was sworn in after a December 27 presidential election that challenger Raila Odinga says was rigged. Donors are threatening to take tough action unless Kibaki and Odinga open dialogue.
And Kenya, in comparison to neighbors who get half their budgets from foreign donors, funds all but 5 percent of its budget from its own revenues.
With Western aid mostly focused on grassroots projects and an expansionist China ready to plug gaps left by sanctions, threats against Kibaki’s government will be largely symbolic.
“Their leverage is restricted,” said Ian Taylor, a professor of international relations at Britain’s St. Andrews University.
“Policy makers are not going to just pull the plug when the Chinese are playing a bigger role and can provide an alternative source of investment and political support.”
Post-poll turmoil has killed at least 612 people, hurt Kenya’s image as a stable country in a troubled region, cost the economy millions of dollars and dismayed foreign donors.
After praising a peaceful polling day, international observers condemned “serious irregularities” in the counting, which included blocking their access to tally centers and high turnouts in Kibaki’s core constituencies.
Odinga — whose party kicked out most of Kibaki’s cabinet and won 99 seats in parliament against the president’s 43 — was ahead until the last day, when several returning officers went missing while tallying results from Kibaki strongholds.
Diplomats say such misdeeds may have tipped the balance, although Odinga’s people also stuffed ballot boxes in his strongholds and threatened rival agents.
His supporters have since been accused of stirring up ethnic violence in parts of the country but diplomats say they there is little they can do to force Odinga to call off further protests starting Wednesday, as he does not have much to lose.
“VEILED THREAT”
Analysts say Kibaki is hoping to ride out the crisis.
“Kibaki … speculates that in the end this will be business as usual and the donors will shrug and say ‘oh well’,” said Richard Dowden of the London-based Royal Africa Society.
“If they (donors) did that, they’d be making a huge mistake.”
Former U.N. head Kofi Annan was due to fly into Nairobi on Tuesday at the head of a group of “Eminent Africans” to try and host crisis talks between Kibaki and Odinga, after African Union head and Ghanaian President John Kufuor failed to broker a deal.
In the most tangible threat from the West since the crisis started, the European Union said on Monday it might cut aid to Kenya. The United States warned that it “cannot conduct business as usual in Kenya,” unless both sides hold meaningful talks.
“Of course there was … a veiled threat of international action. We already plan to keep formal … diplomatic contacts with senior officials to a minimum,” said a Western diplomat.
This has angered Kibaki hardliners, who accuse Britain and other Western powers of neo-imperialism.
“We do not need foreigners to tell us what to do,” Roads Minister John Michuki was quoted on Monday as saying.
Donors are coy about what “action” might entail.
“There are measures that might be effected by a failure to communicate … A lot of money comes into Kenya — investment, tourism, remittances,” said U.S. embassy spokesman T.J. Dowling.
SANCTIONS UNLIKELY
Punitive actions risk pushing Kenya into the open arms of a resource-hungry China vigorously courting Africa, analysts say.
China’s official People’s Daily made a provocative remark on Monday blaming Kenya’s troubles on Western colonialism — a common refrain among many Africans resentful at what they view as a patronizing and paternalistic attitude from the West.
Unlike oil-rich Sudan or diamond-producing Zimbabwe, Kenya doesn’t have raw materials but is “a gateway to central Africa,” says James Shikwati of the Inter Region Economic Network.
Aid cuts are also problematic because Kenya does not need or get much budget support.
“Most of the aid goes directly to projects,” said Tom Cargil of UK think-tank Chatham House. “Cutting that would negatively affect ordinary people … not the government.”
The other option is economic sanctions but these would again hurt Kenya’s populace more than the political elite, although diplomats say they may be willing to issue travel bans — which have been laughed at by a number of those targeted.”
Comment: Lisa – 22. January 2008 @ 6:58 pm
[...] Eyes on Kenya discusses the economic implications of the sanctions the donor community threatened to impose on Kenya: With a review of the post-election situation and the loss of revenue that Kenya has undergone and is continuing to undergo, a retardation and even decline of economic growth, one can see an eventuality of a total collapse of the budget. Point five above would even bite more if the sanctions threatened by the EU are carried out. The government is heavily reliant on the world bank and its projects/ programmes. We do not know how far the World Bank would go to carry out these sanctions in review of their seeming tolerance of the government. [...]
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[...] “The potential impact of economic sanctions on the Kenyan government” takes a closer look at the Kenyan economy and delivers useful statistics and [...]
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