KENYA-ECONOMY: Aid Syndrome to Continue for Next Decade

By Moyiga Nduru Reprint | | Print |

Moyiga Nduru

NAIROBI, Oct 19 1997 (IPS) - Kenya, widely regarded as the economic hub of East Africa, will continue to rely heavily on foreign aid in the foreseeable future, according to an aid official here.

“External aid is, and will continue to remain a key element in the public financing … with the proportion of official aid to Gross National Product (GNP) consistently being over 10 percent,” said Salil Shetty, of ActionAid, a British-based non-governmental organisation (NGO).

Shetty told journalists here that a high percentage of all Kenya’s development expenditure was reliant on aid money. “The fact that there was a drop of about 21 percent in Official Development Assistance (ODA) between 1991 and 1995 is a matter of great concern,” he said.

Shetty said while launching a major ActionAid report that, if the international community fails to honour their commitments, it might be too late for some developing countries.

The report, entitled ‘The Reality of Aid 1997-1998’, says that total aid from member states of the Organisation for Economic Cooperation and Development (OECD) has been cut to the lowest level since 1950, to only 0.25 percent of total OECD GNP.

The report says this indicates a total lack of commitment by the richest governments to reach the target of 0.7 percent of GNP.

Total aid from OECD fell by 3.8 billion U.S. dollars in 1996 to 55.8 billion, a decline of 4.2 percent in real terms from 1995. OECD aid amounted to only 0.25 percent of total OECD GNP, a far cry from government commitments to reach 0.7 percent of GNP, and the lowest level since 1950, according to the report.

It also finds that insufficient aid is being channelled to the countries where it is most needed. Wealthier countries in central and eastern Europe, enjoyed a 10 percent increase in aid, while the poorest countries received a smaller share of a smaller pot.

In July, the International Monetary Fund (IMF) halted a crucial 215 million U.S. dollar aid package to Kenya, accusing the East African nation of not doing enough to combat corruption in high places.

This is, however, not the first time that donors have used the leverage of aid to force the Kenyan government to change its ways. In 1991, President Moi was forced to yield to the donors’ demands to introduce multi-party democracy.

Between 1991 and 1995, figures from the Ministry of Planning and National Development show that Kenya received over four billion U.S. dollars in bilateral and multilateral aid.

But President Daniel Arap Moi, playing down the July crisis, urged Kenyans not to panic over the suspension of the aid. He said the amount held back was “insignificant compared to last year’s annual expenditure of Shs13.9 billion (one dollar is equivalent to 60 Kenyan shillings).”

He said the big hole blown in the budget, by the IMF, would be compensated for by the revenue generated from exports of coffee, tea, pryethrum and milk. To avoid similar problems in the future, Moi said Africans should not rely on foreign aid and should aim for self-reliance.

In a statement, following the IMF’s Jul. 30 decision, the Minister of Finance Musalia Mudavadi said the government had included funds that had been blocked by the IMF as the anticipated aid flows from donors to support this year’s fiscal budget. “The shortfall could destabilise the economy if it is not properly and urgently addressed in the context of putting in place appropriate fiscal and monetary policies,” said Mudavadi.

The IMF extended to Kenya a three-year structural adjustment loan of 215 million U.S. Dollars in April 1996, but regular payments were conditional on Kenya meeting its promises on reform issues.

The aid was stopped by the IMF in protest over the way the Kenyan authorities had handled a multimillion-dollar financial scandal involving a Nairobi-based firm, Goldenberg International. The Washington-based lending institution is also concerned about alleged corruption in Kenya’s energy sector.

Although Kenya has, after the IMF decision, increased duties on fuel in a bid to raise revenue, its major source of foreign currency earnings, tourism, has been hit by civil unrest in Mombasa, some 500 kilometres east of here.

Hoteliers in the Indian Ocean port of Mombasa say tourism has fallen by almost half since the violence erupted there in August.

The industry, Kenya’s second foreign currency earner after agriculture, picked up in 1996, registering a 2.4-percent increase over the previous year. In 1995, both tourism earnings and arrivals had declined by 20 percent, the sharpest fall in the industry in almost 10 years, according to the 1996 Kenya Economic Survey report.

The decline was blamed partly on the weakening of the economies of industrialised countries which provide the majority of tourists. It was also attributed to the negative publicity in the international press on insecurity in Kenya. The tourism industry represents more than 10 percent of the country’s Gross Domestic Product (GDP) and employs upwards of 350,000 people.

A recent report by the Kenya Wildlife Service (KWS) says the industry needs to grow by five percent per annum for meaningful returns to be realised. Kenya also is in danger of being overtaken by rival markets such as Tanzania, Zimbabwe and Botswana.

Irungu Houghton, ActionAid’s Policy Research Coordinator, said the majority of the donors who “continue to lead a schizophrenic existence” in Kenya were only pushing for more aid for economic liberalisation. But “the fruits of this liberalisation are enjoyed primarily by the elite, as the poor wait for the trickle down effect,” he said.

“…We want the poor to have greater access to decision making,” Houghton added.