East African Business Week (Kampala)
Abwao Oluoch
21 January 2008
Nairobi — Kenya's economic fortunes began to nose-dive last Thursday following the European Parliament's endorsement of an immediate aid freeze to push President Mwai Kibaki to negotiate with his rivals on a political settlement.
The European Union (EU) parliamentarians also questioned the disbursement of 40.8 million Euros granted to Kenya soon after the completion of the Europe-Africa leader's Summit held late last year, at which European leaders praised Kenya's economic success.
Eralier envoys from the European Union, United Stated, United Kingdom and Canada which are key development partners had openly announced that they would advise their countries accordingly on the future of aid in Kenya.
US ambassador to Kenya Michel Ranneberger told reporters in Nairobi that it would not be business as usual between his country and the US if justice failed to prevail in the ongoing post election power struggle.
"I want to assure the Kenyan government that the US and its allies are closely watching the unfolding post election events. It won't be business as usual if justice is not seen to be done," he said then.
The European Union (EU) has also expressed such threats both locally and even in the UK. The EU said the solution to the ongoing crisis holds the key to continued funding for the country.
According to the EU Development Commissioner Louis Michel it will be difficult for the trading block to continue with the amount of budgetary support to Kenya if justice and democracy are not allowed to flourish.
The aid freeze is expected to keep the local currency, which had strengthened rapidly against the US dollar and some of the world's major currencies, under immense pressure. Central Bank of Kenya (CBK) Governor Prof. Njuguna
Ndung'u has been quoted in local media saying that the country's 6.5% growth recorded in 2007 would not be affected.
The governor has told a local television in an interview yet to be aired, that the growth achieved over the years was not achieved in the streets and would therefore not be lost in the streets.
The EU parliamentarians, some of whom were in Kenya to observe the presidential elections on 27 Dec. said the political and economic crisis in Kenya, heralded "grave repercussions" for the country and the entire East African region.
Kenya is the region's biggest manufacturer of industrial goods. The disruptions in trade and business since the presidential vote, has caused a mass shortage of commodities across the region, including oil products, which are now being rationed in some states.
Economic analysts said the EU parliament's move will send the wrong signals to the international debt market that Kenya was not ready to borrow outside its domestic markets. The analysts said the planned issuance of a sovereign bond in Kenya was unlikely to succeed if Kenya continued on the aid blacklist. It was not immediately clear whether the recommendations made by the EU parliament would be taken directly for execution at the European Commission (EC).
EC Commissioner for International aid Louis Michael was hard put to explain the late disbursement of 40 million Euros to Kenya on 28 Dec. He said the decision to disburse the funds was reached before the flawed presidential elections.
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