Kenya - Economy

Overview:Kenya is the most developed of the three countries of the East African Community (Kenya, Uganda and United Republic of Tanzania). It was formerly one of Africa’s strongest economies, with average annual growth of 5% in the late 1980s, based on agriculture (notably tea and coffee production and horticulture) and tourism. Poor harvests and political uncertainty slowed growth in the early 1990s; a foreign exchange crisis resulting from the withholding of aid by donors between December 1991 and November 1993 brought low growth and high inflation (46% in 1993). The country was afflicted by persistent drought during the 1990s.

However, after 1993 the government took steps to liberalise the economy, removing import licensing, price and foreign-exchange controls, and reducing the public sector by privatisation of state enterprises and cutting the civil service. This resulted in a period of lower inflation and positive growth in real GDP – based on tea, coffee and horticulture production, tourism and a growing manufacturing sector. There were good harvests in the mid-1990s, but very heavy unseasonal rains in 1997–98 severely damaged the harvest and transport infrastructure and caused growth to stall. This was followed by drought in 1999–2000.

The relationship with the IMF and other international agencies was turbulent during the 1990s and early 2000s. In August 2000, IMF support – suspended since 1997 – was resumed when it agreed a three-year poverty reduction and growth loan, conditional on all senior officials, including the president, declaring their assets each year. Relations with aid donors were strained during 2001–02, and some disbursements were delayed; relations only improved after the change of government in December 2002. The new government committed itself to structural adjustment, including privatisation of Kenya Commercial Bank, Telkom Kenya and Kenya Railways; it enacted anti-corruption legislation; and concluded a poverty reduction and growth facility with the IMF. Commitments of support by other multilateral and bilateral donors and a new round of debt-rescheduling then followed.

The 2000s opened with very slow growth, rising after 2002 – to 5.7% in 2005, 6.1% in 2006 and 6.9% in 2007 – while inflation was 14% in 2006 and 4% in 2007.

Trade: Exports of goods and services account for 26% of GDP and manufactured exports for 21% of total merchandise exports (2004). Main exports are tea, horticultural products, coffee, petroleum products, fish, fish products, tobacco and tobacco products, soda-ash and cement. Main imports are industrial machinery, refined and crude petroleum, motor vehicles and parts, iron and steel, and resins and plastics. Main export partners are Uganda, the UK, United Republic of Tanzania and the Netherlands; and import partners, United Arab Emirates, the UK, Japan, the USA and India.

From 2007, when the Cotonou Agreement between the European Union and the ACP grouping of developing countries came to an end, negotiations proceeded on a series of regional Economic Partnership Agreements, to replace the preferential trade agreements of the Cotonou Agreement with WTO-compliant free-trade areas.

Kenya was a member, with Uganda and United Republic of Tanzania, of the East African Community, which from 1967 had a common market and many shared services, but collapsed in 1977. The three countries again embarked on developing regional co-operation in 1993, bringing about progressive harmonisation of standards and policies across a wide range of activities and launching a new East African Community in January 2001 and East African Customs Union in January 2005.