Kenya leaders meet for the first time since election as economy grinds to halt

President Kibaki met his political challenger, Raila Odinga, yesterday for the first time since disputed elections nearly a month ago triggered waves of ethnic violence. Both said that they were committed to seeking peace.

The symbolic meeting, brokered by Kofi Annan, the former UN Secretary-General, raised hopes of a political resolution to end the bloodshed and ease the country's economic crisis. “We are determined to get to the underlying causes of these unprecedented events and to lead the nation in a process of healing, reconciliation and lasting harmony,� Mr Kibaki said.

Mr Odinga's followers, however, accused the President of lacking sincerity. “It is now absolutely clear to the country that Mr Kibaki has no intention whatsoever of embarking on this journey with the people of Kenya,� said Anyang' Nyong'o, an opposition spokesman.

More than 650 people have died since President Kibaki was sworn in for a second term and the conflict threatens to stall East Africa's most successful economy. The boom years seem to be over as tea fields stand unpicked, railways are silent and thousands of workers flee their homes and jobs.

Terry Ryan, adviser to Kenya's Central Bank, said that economic growth might be as low as two per cent after expanding by seven per cent for five successive years.

Tourism has been the most obvious economic casualty. Hotels stand empty on Kenya's splendid beaches, the tourists scared away by television images of marauding tribal gangs.

Garry Cullen, managing director of Hemingways Resort, in the coastal town of Watamu, said that such footage failed to show that holiday destinations had remained peaceful.

“There's been massive collateral damage,� he said. “The way this problem has been presented, if I was a person who didn't know Kenya, you couldn't pay me enough to come here.�

By day, the 150 or so sunloungers at Hemingways, overlooking the turquoise waters of the Indian Ocean, are used by just a handful of hardy guests. By night the buffet of gently spiced Swahili dishes is almost deserted. The boats used for deep-sea fishing trips, which should be chasing marlin and wahoo in waters made famous by Ernest Hemingway, float idly at anchor. Robert Shaw, an economic commentator, said: "Earnings had gone up massively in the past few years. The place was full and we were getting into the next phase of expansion, with more hotels, more beds - and then it's hit by a wave of cancellations."

The tourism industry is the biggest earner of foreign currency and was expected to make £500 million this year. The Kenya Tourist Board believes the figure will be halved and 120,000 jobs will be lost by March.

Thousands of British holidaymakers were forced to cancel their trips when the Foreign Office advised against all-but-essential travel. Charter flights arrived empty and left packed with tourists who cut short their holidays.

The squeeze on tourism has also had an effect on one of Kenya's other booming sectors: flowers. Almost two thirds of exports to Europe are flown as cargo on returning passenger aircraft; the Fresh Produce Exporters Association of Kenya says that it has lost 20 per cent of its capacity, because dozens of flights have been cancelled.

Kenya's crisis has also sent ripples through the rest of East Africa. The World Bank estimates that a quarter of the GDP of Rwanda and Uganda, and a third of Burundi's GDP, passes through Kenya, mostly through the port of Mombasa. Uganda, which estimates it is losing $1.2 million a day in tax revenues, has had to ration petrol, as has Rwanda.

The only guests at the Hemingways Resort in Watamu are regular visitors to Kenya who sought advice from friends in the country before travelling. "The Foreign Office advice was not to travel here unless it was essential," said Chris Litherland, from Salisbury, as he sipped a pre-lunch gin and tonic. "My wife considered a holiday essential."

Rob Crilly in Nairobi