Economy of Kenya

Economy of Kenya

Nairobi is a major financial centre of Sub-Sahara Africa.
Currency	Kenyan shilling (KES)
Trade organizations	CEN-SAD, COMESA, EAC, WTO and others
Statistics
GDP	PPP: $145.650 billion Nominal: $69.977 billion (2015 est.)
GDP rank	72nd (nominal) 74th (PPP)
GDP per capita	PPP: $3,304 (2015 est.) Nominal:$1,587 (2015 est.)
GDP by sector	agriculture (24.2%), industry (14.8%), services (61.0%) (2012 est.)
Inflation (CPI)	10.1% (2012 est.)
Population below poverty line	45% (2012 est.)
Gini coefficient	42.5% (2008 est.)
Labour force	~15.89 million (41% population) (2009 est.)
Labour force by occupation	agriculture 75%, industry and services 25% (2007 est.)
Unemployment	40% (2008 est.)
Main industries	small-scale consumer goods (plastic, furniture, batteries, textiles, clothing, soap, cigarettes, flour), agricultural products, horticulture, oil refining; aluminium, steel, lead; cement, commercial ship repair, tourism
Ease-of-doing-business rank	129th
External
Exports	$5.942 billion (2012 est.)
Export goods	tea, horticultural products, coffee, petroleum products, fish, cement
Main export partners	Uganda 10.5% Tanzania 10.2% Netherlands 7.1% United Kingdom 6.7% United States 5.8% Egypt 5.2% DR Congo 4.5% (2012 est.)
Imports	$14.39 billion (2012 est.)
Import goods	machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics
Main import partners	India 20.7% China 15.3% United Arab Emirates 9.5% Saudi Arabia 6.7% (2012 est.)
Public finances
Public debt	$11,960,000,000 (31 December 2013 est.).
Budget deficit	-4.6% of GDP (2012 est.)
Revenues	$7.375 billion (2012 est.)
Expenses	$9.3 billion (2012 est.)
Credit rating	Standard & Poor's: B+ (Domestic) B+ (Foreign) BB- (T&C Assessment) Outlook: Stable Fitch: B+ Outlook: Stable reserves = 5,541,000,000 (Dec 2013)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars.

Kenya's economy is market-based with a few state-owned infrastructure enterprises and maintains a liberalised external trade system. The country is generally perceived as Eastern and central Africa's hub for Financial, Communication and Transportation services. Major industries include: agriculture, forestry and fishing, mining and minerals, industrial manufacturing, energy, tourism and financial services. As of 2015 estimates, Kenya had a [{GDP]] of $69.977 making it the 72nd largest economy in the world. Per capita GDP was estimated at $1,587.

The government of Kenya is generally investment friendly and has enacted several regulatory reforms to simplify both foreign and local investment, including the creation of an export processing zone. The export processing zone is expected to grow rapidly through input of foreign direct investment. An increasingly significant portion of Kenya's foreign inflows are remittances by non-resident Kenyans who work in the US, Middle East, Europe and Asia. Compared to its neighbours, Kenya has well-developed social and physical infrastructure.

As of March 2014, economic prospects were positive with above 5% GDP growth expected, largely because of expansions in telecommunications, transport, construction and a recovery in agriculture. These improvements are supported by a large pool of English-speaking professional workers. There is a high level of computer literacy, especially among the youth.

Economic history

After its 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. 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.

Throughout these first three decades of independence, Kenya's parastatals, partly from a lack of expertise and endemic corruption, largely inhibited economic development. In 1979, a presidential commission went as far as saying that they constituted "a serious threat to the economy"; a decade later, they had still not furthered industrialisation or fostered the development of a Black-Kenyan business class.The backbone of the country's private-sector success was provided by Asian Kenyans; during the colonial period, it was they who had created their country's internal market, and then dominated internal trade. British colonizers instituted segregation based on skin colour: Whites were first-class citizens, Indians (who came to Kenya to work on the East African Railway as labourers, were second-class citizens, and native Kenyans were third-class citizens. As a result, various laws were set in place to limit African Kenyans in their own land, for example, they had to walk around with 'Passes' at all times, and free movement, schooling and entrepreneurial endeavours for Africans in Kenya was strictly enforced by colonial police between the late 1800s and Kenya's Independence in 1963. Post-independence, and particularly after being pushed out of its retail stronghold after its "Africanisation", those who stayed in Kenya transferred their dominance to the more advanced sectors of its commerce and industry, easily out-competing Western multinationals in notable instances. Prominent Asian-Kenyan businesspeople include Manu Chandaria and Madatally Manji.

In 1993, the Government of Kenya began a major program of economic reform and liberalisation. 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, privatised a range of publicly owned companies, reduced the number of civil servants, and introduced conservative fiscal and monetary policies. From 1994 to 1996, 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 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 three years, and the World Bank also put a $90 million structural adjustment credit on hold.

The Government of Kenya took positive steps on reform, including the 1997 establishment of the Kenya 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.

This is a chart of trend of gross domestic product of Kenya at market prices estimated by the International Monetary Fund with figures in millions of Kenyan Shillings.

Year	Gross Domestic Product	US Dollar Exchange
1980	74,940	7.42 Shillings
1985	143,715	16.43 Shillings
1990	278,502	22.86 Shillings
1995	614,267	50.42 Shillings
2000	967,838	78.58 Shillings
2005	1,449,408	75.55 Shillings
2008	–	78.90 Shillings
2011	–	96.85 Shillings
2011	–	106.21 Shillings
2012	–	84.00 Shillings

Small scale businesses are providing a more and more jobs in Kenya. With increased but simplified regulations, they are able to blossom into large, legitimate businesses that can eventually create more jobs and government revenue.

Gross domestic product

Kenya's economic performance since independence.

In 2006 Kenya's gross domestic product (GDP) was about US$17.39 billion. Per capita GDP averages somewhat more than US$450 annually. Adjusted in purchasing power parity (PPP) terms, per capita GDP in 2006 was about US$1,200. The country's real GDP growth picked up to 2.3 percent in early 2004 and to nearly 6 percent in 2005 and 2006, compared with a sluggish 1.4 percent in 2003 and throughout President Daniel arap Moi's last term (1997–2002). Real GDP is expected to continue to improve, largely because of expansions in tourism, telecommunications, transport, and construction and a recovery in agriculture. The Kenya Central Bank forecast for 2007 is between 5 and 6 percent GDP growth. GDP composition by sector, according to 2004 estimates, was as follows: agriculture, 25.7 percent; manufacturing, 14.0 percent; trade, restaurants, and hotels, 13.8 percent; transport and communications, 6.9 percent; government services, 15.6 percent; and other, 24.0 percent.

Agriculture, industry and manufacturing, and services GDP growth

Agriculture: In 1980, agriculture accounted for 33% of Kenya’s overall GDP. In 1990, the value agriculture added to GDP was 30 percent, in 2000, it increased to 32 percent, and in 2011, and the value agriculture added to overall GDP fell to 23 percent.

Industry and manufacturing: In the last 31 years, this component of Kenya's GDP has been greatly fluctuating. In 1980, industry and manufacturing accounted for 21 percent of Kenya's overall GDP. In 1990, it decreased to 19 percent, and in 2000, the value added to GDP decreased again to 17 percent. In 2011, there was a slight rise to 19 percent of Kenya's overall GDP.

Services: The World Bank defines Services as jobs that are included in "wholesale and retail trade, transport, government, financial, professional, and personal services." In 1980, services accounted for 47 percent of Kenya's overall GPD. In 1990, it accounted for 51 percent, in 2000 it stayed constant at 51 percent, and in 2011, the services sector accounted for 58 percent of Kenya's overall GDP.

Industries

Agriculture

Main article: Agriculture in Kenya

See also: Coffee industry of Kenya and Tea Production in Kenya

Tea farm, Kericho County

The agricultural sector continues to dominate Kenya's economy, although only 15 percent of Kenya's total land area has sufficient fertility and rainfall to be farmed, and only 7 or 8 percent can be classified as first-class land. In 2006 almost 75 percent of working Kenyans made their living on the land, compared with 80 percent in 1980. About one-half of total agricultural output is non-marketed subsistence production. Agriculture is the second largest contributor to Kenya's gross domestic product (GDP), after the service sector. In 2005 agriculture, including forestry and fishing, accounted for about 24 percent of GDP, as well as for 18 percent of wage employment and 50 percent of revenue from exports. The principal cash crops are tea, horticultural produce, and coffee; horticultural produce and tea are the main growth sectors and the two most valuable of all of Kenya's exports. In 2005 horticulture accounted for 23 percent and tea for 22 percent of total export earnings. Coffee has declined in importance with depressed world prices, accounting for just 5 percent of export receipts in 2005. The production of major food staples such as corn is subject to sharp weather-related fluctuations. Production the downturns periodically necessitate food aid—for example, in 2004 aid for 1.8 million people⎯because of one of Kenya's intermittent droughts. However, the expansion of credit to the agricultural sector has enabled farmers to better deal with the large risk of agriculture based on rainfall and the dramatic fluctuations of the prices of agricultural products.

Tea, coffee, sisal, pyrethrum, corn, and wheat are grown in the fertile highlands, one of the most successful agricultural production regions in Africa. Livestock predominates in the semi-arid savanna to the north and east. Coconuts, pineapples, cashew nuts, cotton, sugarcane, sisal, and corn are grown in the lower-lying areas.

Forestry and fishing

Resource degradation has reduced output from forestry. In 2004 roundwood removals came to 22,162,000 cubic meters. Fisheries are of local importance around Lake Victoria and have potential on Lake Turkana. Kenya's total catch reported in 2004 was 128,000 metric tons. However, output from fishing has been declining because of ecological disruption. Pollution, overfishing, and the use of unauthorised fishing equipment have led to falling catches and have endangered local fish species.

Mining and minerals

Soda Ash train, Lake Magadi, Kajiado County

Kenya has no significant mineral endowment. The mining and quarrying sector makes a negligible contribution to the economy, accounting for less than 1 percent of gross domestic product, the majority contributed by the soda ash operation at Lake Magadi in south-central Kenya. Thanks largely to rising soda ash output, Kenya's mineral production in 2005 reached more than 1 million tons. One of Kenya's largest foreign-investment projects in recent years is the planned expansion of Magadi Soda. Apart from soda ash, the chief minerals produced are limestone, gold, salt, large quantities of niobium, fluorspar,and fossil fuel.

All unextracted minerals are government property, according to the Mining Act. The Department of Mines and Geology, under the Ministry of Environment and Natural Resources, controls exploration and exploitation of such minerals.

Industry and manufacturing

Although Kenya is the most industrially developed country in East Africa, manufacturing still accounts for only 14 percent of gross domestic product (GDP). This level of manufacturing GDP represents only a slight increase since independence. Expansion of the sector after independence, initially rapid, has stagnated since the 1980s, hampered by shortages in hydroelectric power, high energy costs, dilapidated transport infrastructure, and the dumping of cheap imports. However, due to urbanisation, the industry and manufacturing sectors have become increasingly important to the Kenyan economy, and has been reflected by an increasing GDP per capita. Industrial activity, concentrated around the three largest urban centres, Nairobi, Mombasa, and Kisumu, is dominated by food-processing industries such as grain milling, beer production, and sugarcane crushing, and the fabrication of consumer goods, e.g., vehicles from kits. Kenya also has an oil refinery that processes imported crude petroleum into petroleum products, mainly for the domestic market. In addition, a substantial and expanding informal sector engages in small-scale manufacturing of household goods, motor-vehicle parts, and farm implements. About half of the investment in the industrial sector is foreign, with the United Kingdom providing half. The United States is the second largest investor.

Kenya's inclusion among the beneficiaries of the US Government's African Growth and Opportunity Act (AGOA) has given a boost to manufacturing in recent years. Since AGOA took effect in 2000, Kenya's clothing sales to the United States increased from US$44 million to US$270 million (2006). Other initiatives to strengthen manufacturing have been the new government's favourable tax measures, including the removal of duty on capital equipment and other raw materials.

Energy

Further information: Energy in Kenya

The largest share of Kenya's electricity supply comes from hydroelectric stations at dams along the upper Tana River, as well as the Turkwel Gorge Dam in the west. A petroleum-fired plant on the coast, geothermal facilities at Olkaria (near Nairobi), and electricity imported from Uganda make up the rest of the supply. Kenya's installed capacity stood at 1,142 megawatts a year between 2001 and 2003. The state-owned Kenya Electricity Generating Company (KenGen), established in 1997 under the name of Kenya Power Company, handles the generation of electricity, while the Kenya Power and Lighting Company (KPLC), which is slated for privatisation, handles transmission and distribution. Shortfalls of electricity occur periodically, when drought reduces water flow. In 1997 and 2000, for example, drought prompted severe power rationing, with economically damaging 12-hour blackouts. Frequent outages, as well as high cost, remain serious obstacles to economic activity. Tax and other concessions are planned to encourage investment in hydroelectricity and in geothermal energy, in which Kenya is a pioneer. The government plans to open two new power stations in 2008, Sondu Miriu (hydroelectric) and Olkaria IV (geothermal), but power demand growth is strong, and demand is still expected to outpace supply during periods of drought.

Kenya has recently found some hydrocarbon reserves on its semi arid northern region of Turkana after several decades of intermittent exploration. Prospecting also continues off Kenya's shore. In the meantime, Kenya currently imports all crude petroleum requirements. Petroleum accounts for 20 to 25 percent of the national import bill. Kenya Petroleum Refineries—a 50:50 joint venture between the government and several oil majors—operates the country's sole oil refinery in Mombasa, which currently meets 60 percent of local demand for petroleum products. In 2004 oil consumption was estimated at 55,000 barrels (8,700 m³) a day. Most of the Mombasa refinery's production is transported via Kenya's Mombasa–Nairobi pipeline.

Tourism

Main article: Tourism in Kenya

WaterLovers Beach Resort, Diani Beach.

Kenya's services sector, which contributes about 63 percent of GDP, is dominated by tourism. The tourism sector exhibited steady growth in most years since independence and by the late 1980s had become the country's principal source of foreign exchange. In the late 1990s, tourism relinquished this position to tea exports because of a terrorism-related downturn. The downturn followed the 1998 bombing of the U.S Embassy in Nairobi and later negative travel advisories from Western governments.

Tourists, the largest number from Germany and the United Kingdom, are attracted to the coastal beaches and the game reserves, notably, the expansive Tsavo East National Park and Tsavo Wast National Park (20,808 square kilometres) in the southeast. The government and tourist industry organisations have taken steps to address security issues and to reverse negative publicity. Such steps include establishing a tourist police and launching marketing campaigns in key tourist origin markets. In 2006 tourism generated US$803 million, up from US$699 million the previous year.

Financial services

Kenya is East and Central Africa's hub for financial services. The Nairobi Stock Exchange (NSE) is ranked 4th in Africa in terms of market capitalisation.

The Kenya banking system is supervised by the Central Bank of Kenya (CBK). As of late July 2004, the system consisted of 43 commercial banks (down from 48 in 2001), several non-bank financial institutions, including mortgage companies, four savings and loan associations, and several score foreign-exchange bureaus. Two of the four largest banks, the Kenya Commercial Bank (KCB) and the National Bank of Kenya (NBK), are partially government-owned, and the other two are majority foreign-owned (Barclays Bank and Standard Chartered). Most of the many smaller banks are family-owned and -operated.

Labour

In 2006 Kenya's labour force was estimated to include about 12 million workers, almost 75 percent in agriculture. The number employed outside small-scale agriculture and pastoralism was about 6 million. In 2004 about 15 percent of the labour force was officially classified as unemployed. Other estimates place Kenya's unemployment much higher, even up to 40 percent. In recent years, Kenya's labour force has shifted from the countryside to the cities, such as Nairobi, as Kenya becomes increasingly urbanised.

The labour force participation rate in Kenya has been constant from 1997 to 2010 for both women and men. In 1997, 65 percent of women were employed in some type of labour and 76 percent of men were employed. In 2005, 60 percent of women and 70 percent of men were in the labour force, and in 2010, 61 percent of women and 72 percent of men were a part of the labour force.

Family farm labour

In the past twenty years, Kenyans have moved away from family farming towards jobs that pay wages or to start small businesses outside of agriculture. In 1989, 4.5 million Kenyan's, out of a total working population of 7.3 million, worked on family farms. In 2009, only 6.5 million Kenya's, 45 percent, out of a total working population of 14.3 million, work on family farms, as compared to Tanzania, where 66 of the working population worked on family farms. More than half of family farm workers in Kenya are women, 3.8 million, compared to men who make up 2.7 million.

Wage-job labour

According to the World Bank 2012 Kenya Economic Update, "Men are much more likely than women to hold wage jobs, and women are more likely to work on family farms. Twice as many men as women hold wage jobs, and more men work principally in wage jobs than on family farms. Most Kenyans are now striving get modern, wage jobs." Modern wage jobs include being a "engineer, telecommunication specialist, cut flower worker, teacher, construction worker, housekeepers, professionals, any industrial and manufacturing job, and port and dock workers." In 1989, there were only 1.9 million Kenyans employed in wage work, in 2009, 5.1 million Kenyans work in modern, wage jobs. In wage jobs, men dominate over women. In 2009, 3.4 million men held wage jobs, while only 1.3 million women were employed in wage jobs.

Non-farm self-employment

Non-farm self-employment has risen from 1989 to 2009. The World Bank characterises non-farm self-employment to include jobs being a "street vendor, shop owner, dressmaker, assistant, fishmonger, caterer, etc." Non-farm self-employment has risen from a total of 0.9 million working in 1989 to a total of 2.7 million workers in 2009. There is almost an equal amount of men and women in the non-farm self-employment category. The men make up 1.4 million workers, and the women 1.3 million.

Currency, exchange rate, and inflation

The exchange rate of the Kenya shilling between 2003 and 2010 has averaged at about KSh74-78 to US$1.

As at June 2012 Kenya's inflation rate is 10.05%.

Government finances

Revenue and spending

In 2006 Kenya’s revenues totalled US$4.448 billion, while its estimated expenditures totalled US$5.377 billion. Government budget balance as a percentage of gross domestic product—a low −5.5 percent in 2004—had improved to −2.1 percent in 2006.

As at 2012, Kenya set a record high budget of 1.459 trillion KES.

Government debt

In 2006 Kenya had a current account deficit of US$1.5 billion. This figure was a significant increase over 2005, when the current account had a deficit of US$495 million. In 2006 the current account balance as a percentage of gross domestic product was −4.2.

In 2006 Kenya's external debt totalled US$6.7 billion. The debt is forecast to be a manageable 30 percent of gross domestic product in 2007.

Economic Stimulus Programme

Main article: Kenya Economic Stimulus Program

The Kenya Economic Stimulus Program (ESP) was an initiative that aimed to stimulate economic activity in Kenya through investment in long term solutions to the challenges of food security, rural unemployment and underdevelopment. Its stated objective was to promote regional development for equity and social stability, improving infrastructure, enhancing the quality of education, availing affordable health-care for all Kenyans, investing in the conservation of the environment and expanding the access to and building the ICT capacity of the general populace of Kenya. In launching the Economic Stimulus Programme, the Ministry of Finance aimed to achieve regional development for equity and social stability.

Integrated Financial Management Information System

Originally introduced in 2003, the Integrated Financial Management Information System (IFMIS) was re-engineered by the Ministry of Finance to curb fraud and other malpractices that stem from inefficiency. In re-engineering IFMIS, the Ministry aimed to put Kenya's financial and economic information in a format that was accessible from an online platform, which would radically improve public expenditure management under the Ministry of Finance.

IFMIS enables fully integrated planning for the budgeting process since it links planning policy objectives and budget allocation. It also seeks to support the e-Government shared services strategy by taking government financial services online. IFMIS will ensure that status reports are readily available, which enhances capacity to track budgets thus enabling effective decision-making. The three pronged benefits of IFMIS include leading to improvements in planning and budgeting, monitoring, evaluation and accountability and budget execution. Other benefits include aiding in the reduction in maintenance cost of government fleets in terms of fuel and spares where huge losses have been previously incurred.

Funds for the Inclusion of Informal Sector

The Fund for the Inclusion of Informal Sector (FIIS), a fund that allows Micro and Small Entrepreneurs (MSE) to access credit facilities, expand their businesses and increase their savings.

It also aims to help informal enterprises transition to formal sector enterprises through access to formal providers of financial services. The fund is a revolving fund through which the government enters into credit facility agreements with select banks for on-lending to micro-and small-enterprises through branches, authorised banking agents and other channels, particularly mobile banking.

Its objective is to ensure that the MSE sector becomes efficient, innovative and has a diversified and competitive product range. It will also provide policies that raise the earnings and productivity of an estimated 8.3 million Kenyans working in the informal sector.

Investor compensation fund

The operations of the investor compensation fund, which aimed to compensate investors who had lost money to defunct stock brokers such as Nyaga Stock Brokers and Discount Securities Limited, was launched under his watch. In launching the operations of the fund, also ensured that the interests of future investors were safeguarded. The fund had prior to the launch of its operations been established under the Capital Markets Act.

This Fund is specifically meant to compensate investors who suffer losses resulting from failure of a licensed stockbroker or dealer to meet his contractual obligations. In both the case of the collapse of Nyaga Stock Brokers and the collapse of Discount Securities Limited all genuine claims within the statutory maximum of Sh.50,000 per every investor were compensated.

The government, through treasury and public financial management reforms, strengthened audit capacity as a result of structured capacity building and the merger of all Government of Kenya (GoK) audit functions (including those of schools and local authorities) so as to enhance their independence and effectiveness. The Ministry of Finance also issued a circular to bring donor-funded projects within the mandate of the Treasury's Internal Audit Department (IAD) with an aim of effectively monitoring the use of funds allocated to these projects.

Foreign economic relations

Kenyan exports in 2006.

Since independence, Kenya, a nonaligned country, has seen both substantial foreign investment and significant amounts of development aid (total aid was $943 million in 2006, which was 4% of GNI), some from Russia, some from China and others from the high developed countries. Between 60 and 70 percent of industry is still owned from abroad.

Kenya's development assistance has come from increasingly diverse sources in recent years with China taking an increasingly higher prominent role than the west. The share of funding provided by the United Kingdom has fallen significantly, while that of multilateral agencies, particularly the World Bank and the European Development Fund, has increased. The most active investors currently are the Chinese.

Kenya is active within regional trade blocs such as the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC), a partnership of Kenya, Uganda, and Tanzania. The aim of the EAC is to create a common market of the three states modelled on the European Union. Among the early steps toward integration is the customs union which has eliminated duties on goods and non-tariff trade barriers among the members.

Exports

Kenya Export Treemap by Product (2012) from Harvard Atlas of Economic Complexity

Kenya's chief exports are horticultural products and tea. In 2005, the combined value of these commodities was US$1,150 million, about 10 times the value of Kenya's third most valuable export, coffee. Kenya's other significant exports are petroleum products, sold to near neighbours, fish, cement, pyrethrum, and sisal. The leading imports are crude petroleum, chemicals, manufactured goods, machinery, and transportation equipment. Africa is Kenya's largest export market, followed by the European Union.

The major destinations for exports are the United Kingdom (UK), Tanzania, Uganda, and the Netherlands. Major suppliers are China, India, United Arab Emirates, Saudi Arabia, and South Africa. Kenya's main exports to the United States are garments traded under the terms of the African Growth and Opportunity Act (AGOA). Despite AGOA, Kenya's apparel industry is struggling to hold its ground against Asian competition and runs a trade deficit with the United States. Many of Kenya's problems relating to the export of goods are believed by most economists to be caused by Kenya's export of inexpensive goods that saturate the global market but do little to substantially raise the amount of money coming into the country.

Kenya is also the dominant trade partner of Uganda (12.3% exports, 15.6% imports) and Rwanda (30.5% exports, 17.3% imports).

Balance of trade

Kenya typically has a substantial trade deficit. The trade balance fluctuates widely because Kenya's main exports are primary commodities subject to the effects of both world prices and weather. In 2005 Kenya's income from exports was about US$3.2 billion. The payment for imports was about US$5.7 billion, yielding a trade deficit of about US$2.5 billion.

Foreign investment policies

Kenyan policies on foreign investment generally have been favourable since independence, with occasional tightening of restrictions to promote the Africanization of enterprises. Foreign investors have been guaranteed ownership and the right to remit dividends, royalties, and capital. In the 1970s, the government disallowed foreign investment unless there was also some government participation in the ownership of an enterprise.

Notwithstanding some restrictions, between 60 and 70 percent of industry is still owned from abroad, a significant portion of which can be traced to fraudulent asset transfers by the colonial Britain during transition to independence. This denied Kenyans the opportunity to progress economically – relegating most of them to poverty and creating conditions that would lead to dependency on foreign aid. However, Kenyan has had more economic success and more success raising its own quality of life than some of its neighbours in Sub-Saharan Africa.

Current economic standing

As of 18 June 2012, the Kenya Economic Update launched in Nairobi, indicating that the economy is stabilising due to government action in the third quarter of 2011. The actions taken consisted of a raise in interest rates that in turn brought inflation down. The latest World Bank economic report is projecting an economic growth of 5 percent in 2012, but the economy is still vulnerable to shocks that may reduce growth to a lower 4.1 percent. Johannes Zutt, the World Bank County Director for Kenya, quoted--”Kenya's per capita income has exceeded US$800 for the first time, and Kenyans have an opportunity to enjoy better standards of living as the economy progresses towards middle-income status in the coming years." Jane Kiringai, the Bank's Senior Economist for Kenya, makes a point that--“Structural weaknesses, including a widening current account deficit, pose a significant risk to Kenya's economic stability. Another oil price shock, poor harvest, or contagion in the Euro zone could easily create renewed economic turbulence and reverse the recent gains." Although these problems are currently taking place, the East African Community is creating opportunities to reduce the shocks occurring in Kenya's economy.

Economic planning: Vision 2030

Further information: Vision 2030

The Vision 2030 is Kenya's current blue-print for the future of economic growth. The long-term goals of this vision are to create a prosperous, and globally competitive nation with a high quality of life by the year 2030. To do this, it aims to transform Kenyan industry all the while creating a clean and secure environment. The vision is separated into three different pillars: economic, social, and political governance.

The Economic Pillar

The Economic Pillar is seeking to achieve growth in the Gross Domestic Product of 10 percent by 2012. The economic areas that the Vision 2030 is targeting are: tourism, agriculture, wholesale/retail trade, manufacturing, IT enabled services, and Financial Services.

The Social Pillar

The Social Pillar of Vision 2030 has the objective of improving the quality of life for all Kenyans. It aims to do this by targeting human and social welfare programs, specifically: education and training, health, environment, housing and urbanisation, children and social development, and youth and sports.

The Political Pillar

The Political Pillar of Vision 2030 objective is to move to the future as one nation and envisions a democratic system that is issue based, people centred, results oriented, and is accountable to the public. It targets five main areas: The rule of law – the Constitution of Kenya, electoral and political processes, democracy and public service delivery, transparency and accountability, and security, peace building and conflict management.

Criticism and challenges

The economy’s heavy dependence on rain-fed agriculture and the tourism sector leaves it vulnerable to cycles of boom and bust. The agricultural sector employs nearly 75 percent of the country's 38 million people. Half of the sector's output remains subsistence production.

Kenya's economic performance has been hampered by numerous interacting factors: heavy dependence on a few agricultural exports that are vulnerable to world price fluctuations, population growth that has outstripped economic growth, prolonged drought that has necessitated power rationing, deteriorating infrastructure, and extreme disparities of wealth that have limited the opportunities of most to develop their skills and knowledge. Poor governance and corruption also have had a negative impact on growth, making it expensive to do business in Kenya. According to Transparency International, Kenya ranks among the world's half-dozen most corrupt countries. Bribery and fraud cost Kenya as much as US$1 billion a year. Kenyans, 23 percent living on less than US$1 per day, pay some 16 bribes a month—two in every three encounters with public officials. Another large drag on Kenya's economy is the burden of human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS). Prospects significantly improved under the Kibaki government, whose policy aims include budgetary reforms and debt restraint.

Despite early disillusionment of western donors with the government, the economy has seen a broad-based expansion, led by strong performance in tourism and telecommunications, and acceptable post-drought results in agriculture, especially the vital tea sector. Kenya's economy grew by more than 7% in 2007 and its foreign debt was greatly reduced. However, it is possible to underscore that situation in Kenya will be stable over foreseeable future and it will result in stable economic growth, in 2014 it is expected to reach 4% and more in 2015 due to growing flow of foreign investment, prospective promotion of Kenyan goods on global markets and increment in demand for agricultural products, especially, for tea and cut flowers. Western donors are now adopting a less paternalistic attitude towards their relations with African nations. However, there is still significant improvement to be done. 2007–2008 post election violence also impacted a lot to Kenyan economy, these prove for the down swing of Kenya business cycle within the period.

See also

• Category: Companies of Kenya
• Eco-Pesa
• Vision 2030

General:

• Economy of Africa

References

 This article incorporates public domain material from websites or documents of the CIA World Factbook.

Further reading

• Kitching, Gavin (1980). Class and Economic Change in Kenya. Yale University Press. ISBN 978-0-300-02385-5. 

External links

• CBIK – the Center for Business Information in Kenya, a division of the Kenya Export Promotion Council
• KenInvest; the Kenya Investment Authority, formed by the government of Kenya in 2004
• Kenya Economic Development at DMOZ
• Kenya latest trade data on ITC Trade Map
• Bio Jane Kiringai
• About Johannes Zutt

News

• Business Daily
• Daily Nation Business
• The Standard Business

Trade

• World Bank Summary Trade Statistics Kenya, 2010