Jan. 9 (Bloomberg) -- The ethnic tensions engulfing Kenya probably won't subside until its Kikuyu rulers, led by President Mwai Kibaki, relinquish some power and share benefits from the tourism-dependent economy's transformation into a regional trade hub.

The Kikuyu, the biggest and most-prosperous group, have dominated Kenya since it won independence in 1963, fueling resentment and repeated spasms of violence. Rioters killed more than 600 after the Kikuyu-dominated government of Kibaki, 76, declared on Dec. 30 that he had been re-elected over Raila Odinga, 63, a Luo.

``The conflict is taking an ethnic form, but it's got its roots in a failure of governance, rising poverty and the growing exasperation of an extremely young population with a geriatric bunch of leaders,'' said Michela Wrong, a journalist and author of three books about Africa, including a coming one about Kenya.

Kenya is a patchwork of more than 40 ethnic groups. About 20 percent of its 32 million people are Kikuyu. Four other groups, including the Luo and the Kalenjin, each have 10 percent or more.

The economy used to rely on tourists, attracted by Kenya's abundant wildlife and beaches. Now its port in Mombasa has become East Africa's main transshipment point, and the manufacturing and service industries are thriving.

``A few years ago, Kenya was seen as a place for holidays which sold its tea to Asia,'' said Razia Khan, chief Africa economist at Standard Chartered Plc in London. ``Now 42 percent at least of Kenya's exports go to neighboring countries.''

Prominent Beneficiaries

Economic growth is at an 18-year-high of 7 percent, and the most prominent beneficiaries are Kikuyu. Among them: Jimnah Mbaru, chairman of the Nairobi Stock Exchange; Central Bank of Kenya Governor Njuguna Ndung'u; Eddy Njoroge, chief executive officer of Kenya Electricity Generating Co., east Africa's biggest power generator; Gerald Mahinda, CEO of East Africa Breweries Ltd., the region's largest beer maker; and Eunice Mbogo, head of Kenya Reinsurance Corp.

``There was generally a tendency to shower benefits and certainly to shower jobs in the ministries and civil service on their own tribe,'' Wrong said. ``People saw that and resented it.''

Ethnic Rivalry

Ethnic rivalry can be traced to the 1950s, when the Kikuyu- led Mau Mau resistance movement fought British colonialists. A million Kikuyus were placed in detention camps by the British and 100,000 of them died, according to the book Imperial Reckoning: The Untold Story of Britain's Gulag in Kenya, by Harvard University's Caroline Elkins.

In the 1960s, Kenya's first president, Jomo Kenyatta, oversaw a land-redistribution program that resettled many fellow Kikuyu onto fertile farms in the west's Rift Valley formerly owned by Europeans.

``Kikuyu farmers, pastoralists, were resettled in a land- reform exercise, and they did better than the nomadic groups,'' Khan said.

Kenyatta's successor, Daniel Arap Moi, was a Kalenjin who forged alliances with Kikuyu politicians. He was followed by Kibaki, a Kikuyu. He came to power in 2002 after bidding for the non-Kikuyu vote by promising to stamp out a culture of corruption that benefited his ethnic group and to appoint Odinga as prime minister.

Corruption

Kibaki reneged on appointing Odinga, and his anti-graft commissioner, John Githongo, resigned and fled the country, later implicating top government officials in a corruption scheme. Little has changed since. Transparency International, the Berlin-based anti-graft watchdog, last year ranked Kenya among the world's 24 most corrupt countries.

``The evidence of corruption has been absolutely damning,'' Wrong said. ``I think it's amazing that Western donors are still lending millions of dollars to a government that showed it was planning to steal.''

The recent ethnic violence is the worst in years. Unrest during Kenya's first multiparty ballot in 1992 claimed at least 1,500 lives, and hundreds died after 1997 elections, according to New York-based Human Rights Watch.

Vote-Rigging Allegations

Supporters of Odinga, the son of Kenyatta's vice president, were energized for the 2007 vote because he had helped defeat a Kibaki-backed 2005 referendum to increase presidential power. After Kibaki was declared the winner, Odinga accused the government of rigging the vote.

``To have rolled the stone up the hill all your life, to have had the prize in your grasp, to be fulfilling your father's legacy, these are not small things,'' Aly Khan Satchu, a Nairobi stockbroker, said in a note to clients.

Odinga's followers responded with riots targeting the Kikuyu. ``There was a feeling among a lot of Odinga supporters that politically and economically they have been marginalized since independence,'' Philippe de Pontet, an analyst at Eurasia Group, a political-risk consulting firm, said in an interview from Washington. ``They were finally going to get their day in the sun and that was stolen from them.''

Kenya's benchmark stock index fell 7.9 percent over the first three trading days following announcement of the election result. The Kenyan shilling fell as much as 8.4 percent against the dollar.

Obama Call to Odinga

Meanwhile, U.S. Democratic presidential candidate Barack Obama, whose father was Kenyan and who still has family members there, said he called Odinga on Jan 7. Obama's father was from the Luo tribe, campaign spokeswoman Jen Psaki said.

``What I urged was that all the leaders there, regardless of their position on the election, tell their supporters to stand down, to desist with the violence,'' the Illinois senator told reporters yesterday in Manchester, New Hampshire. Obama said he also plans to talk to Kibaki.

Violence subsided after police blocked opposition rallies last week. On Jan. 7, Odinga canceled a plan for another rally to allow Ghanaian President John Kufuor, the chairman of the African Union, to try to negotiate an end to the crisis.

The result may be a ``more ethnically diverse government'' because ``I don't think the opposition will be easily appeased,'' de Pontet said. ``If there is not a recount then there may be a re-vote if Kibaki realizes he is going to preside over an ungovernable country.''

Stephen Bailey-Smith, head of African research at Standard Bank Group Ltd. in London, concurs. ``None of Kenya's political ruling class really want the ethnic violence genie to be fully released across the country,'' he told clients in an e-mail.

To contact the reporters on this story: Paul Richardson in Johannesburg at pmrichardson@bloomberg.net; Antony Sguazzin in Johannesburg asguazzin@bloomberg.net

Last Updated: January 9, 2008 05:51 EST