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Economy of Kenya

From Academic Kids

After independence, Kenya promoted rapid economic growth through public investment, encouragement of smallholder agricultural production, and incentives for private (often foreign) industrial investment. Gross domestic product (GDP) grew at an annual average of 6.6% from 1963 to 1973. Agricultural production grew by 4.7% annually during the same period, stimulated by redistributing estates, diffusing new crop strains, and opening new areas to cultivation.

Between 1974 and 1990, however, Kenya's economic performance declined. Inappropriate agricultural policies, inadequate credit, and poor international terms of trade contributed to the decline in agriculture. Kenya's inward-looking policy of import substitution and rising oil prices made Kenya's manufacturing sector uncompetitive. The government began a massive intrusion in the private sector. Lack of export incentives, tight import controls, and foreign exchange controls made the domestic environment for investment even less attractive.

From 1991 to 1993, Kenya had its worst economic performance since independence. Growth in GDP stagnated, and agricultural production shrank at an annual rate of 3.9%. Inflation reached a record 100% in August 1993, and the government's budget deficit was over 10% of GDP. As a result of these combined problems, bilateral and multilateral donors suspended program aid to Kenya in 1991.

In 1993, the Government of Kenya began a major program of economic reform and liberalization. A new minister of finance and a new governor of the central bank undertook a series of economic measures with the assistance of the World Bank and the International Monetary Fund (IMF). As part of this program, the government eliminated price controls and import licensing, removed foreign exchange controls, privatized a range of publicly-owned companies, reduced the number of civil servants, and introduced conservative fiscal and monetary policies. From 1994-96, Kenya's real GDP growth rate averaged just over 4% a year.

In 1997, however, the economy entered a period of slowing or stagnant growth, due in part to adverse weather conditions and reduced economic activity prior to general elections in December 1997. In 2000, GDP growth was negative.

In July 1997, the Government of Kenya refused to meet commitments made earlier to the IMF on governance reforms. As a result, the IMF suspended lending for 3 years, and the World Bank also put a $90 million structural adjustment credit on hold. Although many economic reforms put in place in 1993-94 remained, Kenya needed further reforms, particularly in governance, in order to increase GDP growth and combat poverty among the majority of its population.

The Government of Kenya took some positive steps on reform, including the 1999 establishment of the Kenyan Anti-Corruption Authority, and measures to improve the transparency of government procurements and reduce the government payroll. In July 2000, the IMF signed a $150 million Poverty Reduction and Growth Facility, and the World Bank followed suit shortly after with a $157 million Economic and Public Sector Reform credit. By early 2001, however, the pace of reform appeared to be slowing again, and the IMF and World Bank programs were in abeyance as the government failed to meet its commitments under the programs.

Nairobi continues to be the primary economic hub of East Africa. It enjoys the region's best transportation linkages, communications infrastructure, and trained personnel. A wide range of foreign firms maintain regional branch or representative offices in the city. In March 1996, the Presidents of Kenya, Tanzania, and Uganda re-established the East African Cooperation (EAC). The EAC's objectives include harmonizing tariffs and customs regimes, free movement of people, and improving regional infrastructures.

Economy - overview

Kenya, the regional hub for trade and finance in East Africa, is hampered by corruption and reliance upon several primary goods whose prices continue to decline. Following strong economic growth in 1995 and 1996, Kenya's economy has stagnated, with GDP growth failing to keep up with the rate of population growth. In 1997, the IMF suspended Kenya's Enhanced Structural Adjustment Program due to the government's failure to maintain reforms and curb corruption. A severe drought from 1999 to 2000 compounded Kenya's problems, causing water and energy rationing and reducing agricultural output. As a result, GDP contracted by 0.3% in 2000. The IMF, which had resumed loans in 2000 to help Kenya through the drought, again halted lending in 2001 when the government failed to institute several anticorruption measures. Despite the return of strong rains in 2001, weak commodity prices, endemic corruption, and low investment limited Kenya's economic growth to 1%, and Kenya is unlikely to see growth above 2% in 2002. Substantial IMF and other foreign support is essential to prevent a further decline in real per capita output.

  • GDP: purchasing power parity - $31 billion (2001 est.)
  • GDP - real growth rate: 1% (2001 est.)
  • GDP - per capita: purchasing power parity - $1,000 (2001 est.)
  • GDP - composition by sector:


agriculture: 24%
industry: 13%
services: 63% (2000 est.)

  • Population below poverty line: 50% (2000 est.)
  • Household income or consumption by percentage share: lowest 10%: 2%; highest 10%: 37% (2000)
  • Inflation rate (consumer prices): 6% (1999 est.)
  • Distribution of family income- Gini index: 45 (1994)
  • Labor force: 10 million (2001 est.)
  • Labor force - by occupation: agriculture 75%-80%
  • Unemployment rate: 40% (1998 est.)

Budget:
revenues: $2.91 billion
expenditures: $2.97 billion, including capital expenditures of $NA (2000 est.)

Industries: small-scale consumer goods (plastic, furniture, batteries, textiles, soap, cigarettes, flour), agricultural products processing; oil refining, cement; tourism

Industrial production growth rate: -0.7% (2001 est.)

Electricity - production: 4,616 GWh (2000)

Electricity - production by source:
fossil fuel: 22%
hydro: 70%
nuclear: 0%
other: 8% (2000)

Electricity - consumption: 4,433 GWh (2000)

Electricity - exports: 0 kWh (2000)

Electricity - imports: 140 GWh (2000)

Agriculture - products: coffee, tea, corn, wheat, sugarcane, fruit, vegetables; dairy products, beef, pork, poultry, eggs

Exports: $1.8 billion (f.o.b., 2001 est.)

Exports - commodities: tea, coffee, horticultural products, petroleum products (1995)

Exports - partners: Uganda 12%, UK 13.5%, Tanzania 12.5%, Germany 5.5% (2000)

Imports: $3.1 billion (f.o.b., 2001 est.)

Imports - commodities: machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics

Imports - partners: UK 12%, UAE 9.8%, Japan 6.5%, India 4.4% (2000)

Debt - external: $8 billion (2001 est.)

Economic aid - recipient: $457 million (1997)

Currency: 1 Kenyan shilling (KSh) = 100 cents

Exchange rates: Kenyan shillings per US dollar - 78.597 (January 2002), 78.563 (2001), 76.176 (2000), 70.326 (1999), 60.367 (1998), 58.732 (1997)

Fiscal year: 1 July - 30 June

See also

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