Grand Regency saga proves costly to Kenya

July 9, 2008

, NAIROBI, July 9- After six years of aggressive economic reforms, Kenya appears to lose its cozy business ranking, reinforced by signs of donors taking a wait and see attitude.

Prime Minister Raila Odinga told Parliament on Tuesday that the World Bank had put off a decision on the funding of the key Northern Corridor Development Project, a major highway intended to connect Kenya and Uganda.

The World Bank Board was due to discuss the funding for the project, first approved in June, 2004 with a completion deadline set for December 2009, but the controversial sale of the Grand Regency hotel has forced the bank to postpone its funding decision.

The sagging business confidence on Kenya, coming barely six years since the World Bank and the International Monetary Fund (IMF) renewed their engagements with the government after nearly a decade of strained relations, is likely to spread to major donors.

The Northern Corridor Project is intended to accelerate Kenya\’s economic growth by facilitating regional trade with Uganda and Rwanda. It involves the construction of a series of highways, bus parks, pedestrian and cyclist routes cutting across the landscape.

However, the controversial sale of the Grand Regency hotel appears to have raised the alarm among the international donors, suggesting the possible return of official high-level corruption, which remained the hallmarks of former President Daniel Moi\’s regime.

Kenya is expected to benefit chiefly from the components of the Northern Corridor funding. The project will provide funding for airport security improvements and funding for improvements in air service search and rescue operations.

Former World Bank Country Director Moktar Diop had indicated when the bank signed the first phase of the Northern Corridor project, that the institution was considering raising Kenya\’s compliance rating in order to increase the amount of donor aid to the country.

World Bank\’s credit ratings are crucial votes of confidence which result into automatic credit lines, including direct budgetary support from both bilateral and multilateral donors. Kenya was on the threshold to achieving some of those milestones.

But with Treasury, the heart of the financial management, fighting off allegations of graft, the planed airport security improvements and the commercialization of the major highways planned under the Northern Corridor masterplan would now be forced to wait.

Delays in approving funding for the transport deal is expected to take its toll on three major cities; Nairobi, Mombasa and Kisumu, which were earmarked as key beneficiaries of major highway improvements.

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