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Kenya's Economy Suffers Amid Unrest

Kenya has been one of Africa's strongest-performing economies in recent years, averaging more than five percent growth since 2003 and with projected growth as high as eight percent for 2008. But political violence that has killed 1,000 people and displaced more than 300,000 since a disputed election in late December, has seriously hindered Kenya's economic performance. Derek Kilner has more from Nairobi.

Growth estimates for 2008 have dropped to around four percent. The Kenya Association of Manufacturers says that 49,000 jobs have been lost, but that figure does not include many of the people who have been displaced. If they cannot return home, up to 400,000 jobs could be at risk.

Tourism, Kenya's leading industry, with revenue of nearly $1 billion in 2007, has been hit particularly hard. Tourist arrivals for the first quarter of 2008 are expected to drop by more than 91 percent, with a decline in revenue of nearly $80 million per month.

To make matters worse, the unrest has come in the middle of tourism's high season, when hotels on the coast and tour operators rely on pulling in a major portion of their yearly income.

Kenya Tourist Board Managing Director Ong'ong'a Achieng' says that 20,000 lost jobs have been reported, but the effects will be felt more broadly.

"We can talk of 20,000, but I think it is much more. The figures we get are from hotels and lodges - but we are not talking of other budget hotels and all other business associated with tourism. It is much more than that," he said.

Kenya's tourism industry has endured periods of crisis before. But the Tourist Board says the current challenge is greater than that after terrorist attacks on the American embassy in Nairobi in 1998 and on an Israeli-owned hotel on the coast in 2002.

Kenya's booming flower industry is also in one of its busiest periods before Valentine's Day. The town of Naivasha, Kenya's main center for growing flowers, was the site of deadly clashes in the last week of January that prevented more than two thirds of employees from coming to work.

CEO Jane Ngige, of the Kenya Flower Council, says 80 percent of industry employees are working now, and temporary security measures have allowed most of the Valentine's Day demand to be met. But she says the crisis will pose longer-term challenges to the industry, as importers and investors look to other countries.

"They will be wondering whether in the long term we shall be still as reliable as we have been in the past. We have got Ethiopia that is growing very fast. We have got Mexico that is also been coming up to produce the kind of flowers we do, we have got India that has come back. So yes, there is a lot of people standing in the wings," she said

The situation has calmed considerably in the past week, as the country watches a mediation effort between the government and opposition led by former U.N. Secretary General Kofi Annan.

Kenya Association of Manufacturers Chairman Steven Smith says business operations are beginning to return to normal.

"People are moving their products. In the stores that did not get burned down, shelves are now being stocked in Eldoret, Kisii, Kericho, Kisumu as we speak. People are starting to get back to some kind of normalcy," he said.

If things remain calm, Smith estimates that 12 to 18 months will be required for the economy to return to the level of late 2007.

University of Nairobi economist Terry Ryan says that poor weather for agriculture would also have slowed the economy regardless of political unrest.

He says prospects of recovery vary between industries. The tourism industry could require considerable time to regain lost revenue and rebuild confidence. But other industries may be able to bounce back more quickly.

"The amount of destruction of capital equipment is not that large. It is spectacular where you see it because it is burning things, but the main industrial plant is in Nairobi and Mombasa, which is relatively unaffected," he said.

If widespread unrest returns the economic costs will be far higher, and recovery much more difficult. Ryan says one of the biggest threats is that Kenya would lose its status as an economic hub, as landlocked countries to the west look for alternative supply routes.

"Where you lose seriously is if this thing is sustained for any length of time then hinterland countries will generate new facilities for importing so we will lose all the transit traffic. Now that is quite serious because once that has been developed - I am thinking particularly through Tanzania on to the lake across into Uganda Rwanda and to Sudan - it is hard to recapture," he said.

For now, all eyes are on Mr. Annan's mediation effort. But even if a political solution is reached soon, the full extent of the economic impact of Kenya's crisis could take considerable time to assess.