2. POVERTY AND DEVELOPMENT IN KENYA

2.1 Poverty in Kenya

During the period 1993-2003, poverty in Kenya increased. The proportion of the population living below the poverty line rose from 49 pct. in 1990 to 56 pct. in 2003. In addition, key social indicators such as life expectancy, infant and child mortality, maternal mortality, morbidity, nutritional status and illiteracy rate showed deterioration in the 1990’s. The reasons for the increase in poverty are mainly lack of good governance and economic stagnation. At the same time, the growth of the population from 8 million people in 1963 to 31 million people in 2004 amplified the negative trend.

The average GNI per capita in Kenya in 2004 was USD 400. Social inequality in Kenya is significant. Based on 1997 figures, recent studies rank Kenya among the top ten most unequal countries in the world and the fifth in Africa¹. Inequalities in Kenya are manifested in various forms. Differences in share of income and social services are observed across regions, genders and even specific segments of the population. The country’s top 10 pct. of households controls 43 pct. of the total income, while the bottom 10 pct. controls 1 pct. Three quarters of the poor live in rural areas, but urban poverty is increasing with the growth of informal settlements with little or no access to public services.

There is scarcity of arable land in Kenya where 80 pct. of the country is classified as arid and semi-arid lands (ASAL). These areas support 25 pct. of the population. The low level of productivity is aggravated by poor cultivation practices leading to soil and environmental deterioration, and by land tenure and land subdivision, with plots being too small for subsistence farming. The supply of water is inadequate in relation to the needs of humans, livestock, crops and wildlife.

More women suffer from poverty than men. In general, female-headed households are worse off than male-headed households; women’s participation in decision-making remains far below that of men; female illiteracy is almost twice that of males; and violence against women remains widespread. Cultural and traditional practices restrain women’s access to economic resources, including land, despite the fact that 69 pct. of the active female population work as subsistence farmers. Women in the ASAL spend much of their time fetching water and fuel. Other groups vulnerable to poverty include the landless, pastoralists, urban slum dwellers, orphans, unemployed youth, victims of HIV/AIDS and people with disabilities.

HIV/AIDS has been declared a ’national disaster’ by the Kenyan government. Although the national HIV prevalence is difficult to ascertain because of poor data, it is estimated to be around 6.7 pct.² (2003) of the population. Currently, AIDS-related deaths represent about 40 pct. of total mortality and 1.5 million Kenyans have died from AIDS. There are 1.2 million HIV/AIDS orphans in Kenya.

2.2 Kenya’s Poverty Reduction Strategy

In June 2003, the Kenyan government launched its ’Economic Recovery Strategy for Wealth and Employment Creation 2003-2007’ (ERSWEC). An action plan for the ERSWEC, the ’Investment Programme’ (IP), has also been developed. In May 2004, the IP-ERS was endorsed by the World Bank (WB) and the International Monetary Fund (IMF) as Kenya’s Poverty Reduction Strategy Paper (PRSP).

The main objective of the ERSWEC is to reduce poverty by promoting strong economic and employment growth. Goals for poverty reduction linked to the Millennium Development Goals (MDGs) are identified and progress and targets indicators are established. Thus, the ERSWEC contains a broad development agenda, encompassing reforms aimed at accomplishing the following:

The ERSWEC and IP-ERS have been well received by the bilateral and multilateral development partners. The primary strengths of the strategy are the strong emphasis on improving governance and restoring the rule of law and its comprehensive monitoring system. The strategy is, however, very ambitious and asince being launched it has become evident that the Kenyan government faces several dilemmas when prioritising among the many different objectives.

One of the main challenges is to make sure that the ERSWEC objectives are reflected in the national budget and the Medium-Term Expenditure Framework (MTEF). The Kenyan government is working on a closer integration of these processes and has developed a Budget Strategy Paper. Gradually, this exercise shall lead to pro-poor budgeting and contribute to linking budget outcomes to the IP-ERS. Although there have already been significant improvements, there is still some way to go. A crucial element in this process is the finalisation of the ongoing elaboration of coherent sector policies and strategies in order to define development objectives, indicators, targets and budgets at sector level. Furthermore, coherent sector policies and strategies are also a prerequisite for the needed progress in aligning donor assistance and moving towards sector wide approaches (SWAps).

The ERSWEC does not deal specifically with gender issues. However, the IP-ERS recognises this weakness along with the need for special efforts to empower women and reduce their vulnerability. Efforts to mainstream gender in the ER-SWEC are ongoging. Constraints, however, include lack of gender-disaggregated analysis and gender-specific targets for defining improvements in the economic, social and legal situation.

Protection of the environment is a cross-cutting issue in the ERSWEC, which takes cognizance of the need to achieve the broad macro and sectoral objectives and targets without compromising the environment. In addition, important environmental actions are incorporated in the objectives for the agricultural sector.

The Kenyan government has elaborated the first annual progress report of the IP-ERS covering 2003-2004. The report marks an important shift in the planning process by focusing on results. However, there are still many weaknesses in the monitoring and evaluation systems. The reporting on trends in key performance indicators and on progress towards the annual targets indicates that the revitalisation of the economy is moving forward, but exposes limited achievements in the social sectors. The main success is the increase in the net enrolment in primary school from 5.9 million children in 2002 to 7.2 million in 2003. On a more horizontal level, the report states that important progress has been made in the ongoing process of strengthening public financial management. The WB/IMF Joint Staff Assessment of the progress report largely confirms the Kenyan government’s views.

Along with other donors, Denmark will assist in strengthening the monitoring and evaluation systems of the Kenyan government. In this process, attention will be given to ensuring the existence of gender-disaggregated data both in terms of analysis and targets.

2.3 Additional Factors Affecting Development Cooperation

Kenya’s economy is the third largest in sub-Saharan Africa after South Africa and Nigeria. Kenya has a substantial development potential as a result of its relatively diversified economy. Agriculture is the most important sector, which contributes to 24 pct. of Kenya’s Gross Domestic Product (GDP). Industry is the second most important sector, contributing 13 pct., while trade, tourism and hotels account for 12.7 pct. The trade balance is negative with a deficit of about USD 1.3 billion. Performance is relatively good in some areas of the agriculture sector, notably horticulture and tea production.

Kenya experienced an average annual GDP growth rate of 7 pct. between 1965 and 1980. Growth rates fell steadily in the 1990s to average rates of 2.2 pct. and as low as -0.2 pct. in 2000. During recent years the economy has grown by 1.1 pct. in 2002, 1.8 pct. in 2003 and 4.3 pct. in 2004. These rates should be compared to annual growth rates of around 6 pct. in the 1960s and 1970s. When taking the growth of the Kenyan population of 3.2 pct. (average per year 1975-2003) into account, the GDP per capita growth has in some years been negative.

The decline in economic performance in Kenya during the 1990s was caused by unstable macroeconomic policies, slow pace of institutional reforms, declining investments and productivity as well as structures of political and economic patronage. The country’s economic decline has been further exacerbated by external factors such as recurrent drought/floods and low world market prices for Kenyan goods. Poor governance led to huge capital outflows and reduced inflows of aid. Under these circumstances, Kenya was unable to maintain its infrastructure and public services.

Public sector reform has been slow in Kenya. The ERSWEC has introduced plans for a pay reform for performance-based management and realignment of ministerial organisational structures based on core functions of government. This also means privatisation of a number of the public companies and paras-tatals, which is an area showing particular lack of progress. The level of public expenditure has been on a general upward trend despite the government’s policy objective of containing overall expenditure. The wage bill is about 8.6 pct. of GDP. Achieving the 6.74 pct. target by 2008 will require a substantial downsizing of the civil service. The government’s commitments to the IMF will require a total downsizing of the civil service by 29,740 people during the period. The ERSWEC includes a Voluntary Retirement Scheme (VRS) with a target figure of 21,500 civil servants. On a positive note the revenue from tax collection is on the increase.

The most important reform, however, is revision of the Constitution. Among the main issues debated is the distribution of power: between the president and parliament and between central government and local government. The revision process came to a preliminary conclusion when the new draft constitution was rejected in a referendum that took place on 21 November 2005. The draft constitution provided for increased devolution of authority to local levels, but local authorities only account for 5 pct. of the government revenue and most of them have very limited capacity. Decision-making is likely to remain highly centralised for some time into the future.

The constitutional issues are, however, likely to remain high on the political agenda, Sush issues include the powers of the president, devolution of authority to the local level, land rights and entrenchment of human rights. The victorious opponents to the latest draft have demanded further consultations on a way forward and the issues are under all circumstances so crucial and controversial that they will need to be addressed, at the latest in connection with the 2007 elections.

Corruption continues to be a major problem in Kenya. The ERSWEC recognises that poor economic governance, including endemic corruption and poor accountability in public resource management, are some of the key impediments to economic and social development. The current government made a strong pledge to combat corruption when taking office and has since confirmed this commitment. The Kenyan government has elaborated an anti-corruption action plan with specific actions, targets and indicators for preventing corruption in the future. The progress report on the first six months (published September 2005) shows progress in the institutional set-up, including passing of crucial laws. Petty corruption among lower civil servants is being addressed through streamlining and computerising administrative procedures. The government has, however, been fairly slow to produce specific follow-up on high-profile cases, and continued lack of transparency in relation to security related procurement, for example, has not been addressed. A perception of Kenya as a country with rampant corruption persists widely.

Kenya has a relatively strong and vibrant NGO community that has played a vital part in the development effort and especially the promotion of good governance and respect for human rights during the Moi regime. The government has confirmed that it sees an important role for the civic society and NGOs –national as well as international - and is committed to facilitating their participation. Reports from rural areas indicate that community based organisations are much more active than during the previous regime. However, there are also indications that the government can be very sensitive about NGO involvement when politically difficult areas such as the land issue are at stake. Some NGOs, including MS-Kenya, have complained about pressure and intimidation. In order to maintain the momentum in the political reforms, it is important that civil society organisations (CSOs) are allowed to continue to play a part in Kenya.

Kenya is an important political player in Africa and plays a positive role in the promotion of peace, stability and conflict prevention in the region. Kenya is constructively engaged in the peace processes in Somalia and Sudan and plays important roles in regional and sub-regional organisations such as the Inter-Govermental Authority on Development (IGAD), which is involved in mediation efforts. Kenya has suffered several terrorist attacks, which have significantly damaged the tourism industry. Kenya is firmly committed to the fight against international terrorism.

Kenya has also suffered from conflicts in the neighbouring countries in terms of economic relations and the influx of a large number of refugees, especially from Sudan and Somalia. Administrative and management problems have been immense. The refugees have been a huge burden on the government, the local communities and the environment, and armed elements have been associated with violence, crime and possibly terrorism. Kenya has served as a base for relief operations into neighbouring countries.

The new government has moved Kenya towards a more active involvement in the New Partnership for African Development (NEPAD), including the Peer Review Mechanism. Economically, Kenya is a key player in the regional economic cooperation within the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA).

2.4 Support Provided by Other Donors

Since independence, Kenya has received an estimated USD 18.4 billion in development assistance. In 2004 (latest figures), Kenya received USD 616 million, which was a 15 pct. increase compared to 2003. However, the 2004 disbursements were considerably less than the USD 1.4 billion received in 1990. The ratio of grants to loans is approx. 3:1.

In 2004, the bilateral donors contributed 57 pct. of the development assistance to Kenya, while multilateral donors provided 37 pct. The balance was made up by contributions from particularly Swiss, Finnish and Austrian NGOs. In 2004, the USA was the overall leading donor followed by the World Bank, the UN, the UK and the EU. Denmark presently ranks as number 9 (2004).

Infrastructure attracts the largest amount of foreign assistance. Health, including HIV/AIDS, comes second and agriculture third. Support to governance, energy and education are other major intervention areas. Aid allocations thereby reflect the country’s development priorities contained in the ERSWEC.

¹ Figures here are based on ’Pulling Apart. Facts and Figures on Inequality in Kenya’, Society for International Development. In ’Human Development Report 2005’, the UNDP presents a slightly less dispersed picture, although the statistical material is similarly dated.

² Ages 15-49, UNDP Human Development Report 2005.