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Little is known about the pre-colonial history of Kenya but when the Portuguese reached its coast in the 16th century, trade activity was already developed. More than 40 different ethnic groups inhabited the region and all had developed their own culture, religion, organisation, and power structure. The Portuguese settled around Mombasa, which soon became an important port in the Indian Ocean. At the beginning of 19th century the Omani Arabs conquered it and maintained control of the region until the arrival of the British and the Germans at the end of the century. Kenya was then declared a British protectorate in 1895. From the outset, indigenous people strongly opposed British rule, but it only was after the Second World War that the different ethnic groups coordinated their efforts and formed the Kenya African Union (KAU), the first African nationalist organization. Under the leadership of Jomo Kenyatta, the KAU dramatically increased African involvement in the country’s ruling. In 1961, Jomo Kenyatta accepted the presidency of the recently formed Kenya African National Union (KANU), the most influential African organisation of its time. The concerted effort of the different ethnic groups made it possible for Kenya to declare independence in 1963, with Jomo Kenyatta becoming the first president. Jomo Kenyatta was re-elected three times and ruled the country until his death in 1978. Under the banner of “harambee” (Swahili for “Let's Get Together and Push”) he promoted the creation of a self-sufficient economy; strong, centralised government planning and heavy involvement of the state in the economic activities achieved remarkable economic growth. His last vice-president, Daniel Arapi Moi, was his official successor in 1978. Under Moi’s ruling the KANU party was declared the sole legal party, the presidential powers became dictatorial, and all opposition leaders were arrested and insulated from political activity. During the 1980s, despite strong repression from the government, opposition parties boomed and public support soared. In 1990, prominent opposition leaders formed the Forum for Restoration of Democracy (FORD) with extensive multi-ethnic support. But in 1992, civil unrest broke out and outbreaks of violence continued to mount over the next two years. Daniel Arapi Moi was re-elected in 1993 and again in 1998 through democratic elections whose legitimacy was questioned by opposition leaders and international observers. During this period, his regime became more and more repressive and corruption and mismanagement plagued Kenya’s weakening economy. In 2002, after agitated campaigns and elections, Mwai Kibaki became the third president of Kenya, despite the fact that Daniel Arapi Moi had nominated Kenyatta’s son as his favourite candidate. For the first time since independence, the KANU party is not in power. Before the arrival of European colonisers, Kenya was primarily a closed economy characterised by small farming, herding, and hunting. Some trade activity, mainly with the Arab people was concentrated in the coastal area. When the Europeans arrived, they brought the capitalist system with them. The land that Africans cultivated for their subsistence was distributed among white colonisers who were encouraged to farm agricultural goods for exportation. Africans were forced into paid work, a concept that was completely alien to them. With very rich soil, Kenya soon became an important producer of tea, coffee, and sisal (a fabric used to make ropes), goods that were mainly exported to European countries. At the time of independence the Kenyan economy was split between large-scale farming of products for export - mainly dominated by European settlers - and the majority of people engaged in small subsistence farming and barter economy. New government policy, aimed at creating a self-sufficient economy based on an import-substitution strategy and strong government involvement in the economic sectors, reduced the country’s dependency on exports and encouraged diversification. Public investment, encouragement of smallholder agricultural production, and incentives for private (often foreign) industrial investment resulted in economic growth. These policies were successful and Kenya's economy grew by an average of 6% per year in the 1960s, 6.6% in the 1970s and 4.2% in the 1980s. In the 1990s, due to a combination of internal and external factors, Kenya faced economic recession for the first time. There was a strong decline in agricultural production and a sharp increase in inflation accompanied by a severe reduction in the commodity prices on the international markets. Moreover, the endemic high-level of corruption that characterised the Moi government worsened the economic chaos. Despite these difficulties, Kenya’s economy started to recover and between 1994 and 1996 Gross Domestic Product[2] (GDP) increased more than 4% per year. Since a slowdown in 1999, GDP has been increasing steadily to date. Despite the all the efforts to diversify, Kenya’s economy is still heavily dependent on agriculture and exports. Agriculture accounts for around 25% of GDP and 18% of the wage employment, although almost half of all agricultural output is subsistence and not marketed. Agricultural products account for 59% of the total exports and tea is still the country’s major export, followed by coffee and oil. Tourism accounts for 18% of GDP, down from 25% last year since it is periodically adversely affected by security concerns, and is constrained by a deteriorating transportation infrastructure. The industrial sector, which accounts for around 10% of GDP, is dominated by food-processing industries, most of which are located in the urban centres. But what is even more worrying is that, particularly during the 1990s, Kenya’s economic growth has not been accompanied by an increase in the welfare of the population since all the development indicators have worsened sharply. Between 1994 and 2000 the number of poor increased from 11.5 million to almost 15 million. Today almost 16% of the population lives in extreme poverty and more than 50% of households do not have access to safe drinking water. The population is struggling to come to terms with a devastating HIV/AIDS epidemic and life expectancy at birth is 46 down from almost 50 in 1997. Furthermore Kenya is characterised by huge inequality: the richest 20% of the population consumes 51% of national GDP.
Kenya and the HIPC Process[3]
Kenya is officially on the HIPC initiative list, but is considered to already have a sustainable debt burden according to the official HIPC initiative criteria. As with Nigeria, however, it is possible that Kenya’s exclusion from receiving any benefit under the HIPC initiative has been due to concerns about governance in the country, particularly under the former president Daniel Arap Moi. With reference to Kenya, there are at least two issues should be considered: the origin of Kenya’s debt and the internal debt. As most of Kenya’s external debt has financed the regime of Daniel Arap Moi, Kenya’s civil society has started to call for the recognition of it as ‘Odious Debt’. The IMF and the World Bank only boycotted Moi’s Government for three out of his 24 years in power. With their long-term financial support, which amounts to more than $2 billion, they helped prop him up and made it almost impossible for civil society actors to challenge corruption and repression in their country. The evidence suggests that irresponsible lending contributed hugely to Kenya’s current situation and creditors should be made accountable for it and accept their losses
Moreover, Kenya’s case highlights the narrowness of the HIPC debt sustainability criteria that compares external debt to exports. Kenya’s problem lies not only in the external debt, but also in the internal debt. The amount of Kenya’s internal debt reached $3.1 billion in 2002, bringing the total level of public debt to $7.97 billion, almost 70 per cent of the country’s GDP. Since internal-debt service accounts for 13 per cent of government expenditure, we believe it should be taken into consideration when assessing the country’s debt sustainability. History This part of the report is possible thanks to the Kenyan Debt Relief Network (KENDREN) whose contribution and comments we greatly appreciate. For more information about the Jubilee 2000 campaign in Kenya please see http://www.econewsafrica.org/Html/frame1.html Kenya is among those countries that applied for debt relief under the HIPC initiative and was classified as a ‘potentially sustainable’ case (others are: Angola, Yemen and Vietnam). The World Bank and the IMF recognise that the current level of indebtedness for these countries is unsustainable, even according to their narrow definition of sustainability, but at the same time they “are expected to achieve debt sustainability after receiving debt relief provided under traditional mechanisms”, and therefore should not receive any treatment under the HIPC initiative. Kenya has steadily accumulated external debt that currently amounts to $5.7 billion, representing almost 50% of the country’s GDP. Under the HIPC framework, debt is considered sustainable when the ratio of the Net Present Vale[4] (NPV) of debt to export is more than 150%, or when the NPV of debt to revenues is more than 250%. Therefore, since Kenya has an NPV of debt-to- export ratio of ‘only’ 148%, it is considered potentially sustainable. Kenya is an evident case of the narrowness of World Bank and IMF criteria, which fails to represent the overall reality of the country’s situation. Little relevance is given to the fact that 50% of the population has no access to safe drinking water and more than 15 million people live in extreme poverty. Moreover, our analysis shows clearly that Kenya is among those countries that cannot repay their debt if they are to meet the Millennium Development Goals.[5] In our view, the fact that the amount of resources spent in servicing the debt is such that the government will not have enough to achieve the Millennium Development Goals is condition enough to consider the debt unsustainable. With reference to Kenya, there are at least two other issues that the creditors should consider: the origin of Kenya’s debt and the internal debt. As clear in Figure 1, most of the debt has financed the regime of Daniel Arape Moi and Kenya’s civil society has started to call for the recognition of it as “Odious Debt”.[6] The IMF and the World Bank only boycotted its government for three out of his 24 years in power, but with their long-term financial support, which amounts to more than $2 billion, they helped prop him up and made it almost impossible for civil society actors to challenge corruption and repression in their country[7].
The role of international institutions in Kenya is even clearer when the composition of the debt is taken into consideration. As shown in Figure 2, the composition of Kenya’s debt has changed dramatically since the 1980s. Multilateral debt has increased its share from 30% to almost 60% of the total. While private creditors were exiting Kenya - their share of the total went down from almost 40% in 1980 to less than 10% in 2000 - the international institutions were pumping money into a regime whose corruption was well known worldwide. The same considerations could be taken into account with reference to the bilateral credit that has raised its share of the total debt, particularly during the 1990s. Kenya has already approached the Paris Club in order to obtain debt relief. Twice the Paris Club rescheduled Kenya’s debt: in 1994 for $535 million and in 2000 for $300 million. The debt was rescheduled, not cancelled, i.e. debt repayments were only postponed.
We believe the evidence shows that irresponsible lending contributed hugely to the current situation in Kenya and creditors should be made accountable for it and accept their losses. Moreover, in Kenya’s case, the narrowness of the HIPC admission criteria is highlighted by the fact that Kenya’s problem lies not only in the external debt, but also in the internal debt. The amount of Kenyan internal debt reached $3.1 billion in 2002, bringing the total level of public debt to $7.97 billion, almost 70% of the country’s GDP. Since internal-debt service accounts for 13% of government expenditure, we believe it should be taken into consideration. With the election of a new government and the new opportunities that this affords to a democratic Kenya, we think that the international community should consider Kenya’s debt burden more seriously. It is a fact that much of Kenya’s debt was accumulated with the help of international creditors during an undemocratic and corrupted regime. While it brought little benefit to Kenya’s population, it is still forcing the government to spend more on debt servicing than on basic needs and development programmes. Kenya needs justice from the international community to pursue a better future for its people. Millennium Development Goals Sustainability Analysis We use a ‘human development’ definition of debt sustainability. Under this approach, debts are only considered ‘sustainable’ when the debt service burden leaves the HIPCs with sufficient funds to meet their human rights obligations under the internationally agreed Millennium Development Goals (MDGs).
Therefore we present some calculations. For full details on the calculations and the methodology behind it please see the “Real Progress Report on HIPC” published in September 2003
SOURCES
[1] CIA Fact book http://www.cia.gov/cia/publications/factbook/geos/ke.html [2] For a definition of Gross Domestic Product please see http://www.jubileeresearch.org/databank/glossary.htm [3] For a clear explanation of the HIPC initiative please see http://www.jubileeresearch.org/hipc/what_is_hipc.htm [4] For a definition of Net Present Value please see [5] Jubilee Research published a report about the importance of linking debt sustainability and achievement of the Millennium Development Goals that is available athttp://www.jubileeresearch.org/analysis/reports/reliefworks.pdf [6] For a definition of Odious Debt please refer to http://www.jubileeplus.org/analysis/reports/dictatorsreport.htm [7] For more details on the World Bank and IMF activity in Kenya please refer to http://www.jubileeplus.org/analysis/articles/Kenya.htm |
The latest
This definition of debt
sustainability has gained wide acceptance - not only in the non-governmental
community, but also in the United Nations, amongst African governments, HIPC
Finance Ministers, and even creditor governments. The Irish Government has
formally come out in favour of an MDG-based DSA for poor countries. The latest
Human Development Report produced by the United Nations Development Programme
(UNDP), for example, argues that ‘debt servicing capacity should be assessed
relative to the country’s needs for achieving the Goals.’ For many countries
this will require full debt cancellation. The HIPC debt-export measure of debt
sustainability has little to do with the needs of poor people.’