Economy of Kenya

From Wikipedia, the free encyclopedia

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. Kenya is the largest tea market in Africa.

1 Macro-economic trend
2 Government intervention
3 Aid suspension
4 Liberalisation
5 Alleged Corruption
6 East African Cooperation
7 China signs oil exploration in Kenya
8 Economy - overview
9 See also

[edit] Macro-economic trend

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	51.42 Shillings
2000	967,838	78.58 Shillings
2005	1,449,408	75.55 Shillings

[edit] Government intervention

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.

[edit] Aid suspension

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.

.By early 2005 Kenya was excluded from debt relief by a joint committee of the bank and the International Monetary Fund (IMF).

Later that year Kenya was also removed from the Highly Indebted Poor Countries (HIPC) initiative and is today classified as a developing nation.

[edit] Liberalisation

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.

[edit] Alleged Corruption

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. Lack of progress in the Goldenberg scandal marked an unwillingness to deal with corruption.

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.

[edit] East African Cooperation

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.

[edit] China signs oil exploration in Kenya

During his short state visit to Kenya in 2006 , Chinese President Hu Jintao found time to sign several bilateral agreements with his Kenyan counterpart, President Mwai Kibaki. Of an outstanding interest was however a deal allowing oil-hungry China to dominate the promising Kenyan onshore oil exploration.

President Hu was today received at State House in Nairobi by a Kenyan counterpart eager to bind the eastern power up in as many development deals as possible. President Kibaki after the ceremony announced that Kenya had secured Chinese grants worth several hundred million shillings in the sectors of economic and technical cooperation, health research and the urban development of Nairobi. Also cultural cooperation would be strengthened.

The Kenyan-Chinese deal that caused most attention nevertheless was signed between Kenyan Energy Minister Henry Obwocha and the state-controlled company China National Offshore Oil Corporation (CNOOC). The oil agreement secures China a leading role in the promising but under-developed petroleum sector in Kenya.

CNOOC was allowed to head the exploration of six onshore blocks covering 115,343 square kilometres in the northern and southern of part of Kenya. There have still not been made any exploitable oil or gas discoveries on these six blocks, but several international companies have demonstrated their interest lately, indicating that there is a large potential of finding major reserves.

Exploration investments in the six blocks, located in the basins of Lamu, Anza and Mandera, would commence within short, CNOOC indicated in a statement today. The Chinese state company emphasised its optimism ahead of operations: "This vast area has attractive untapped exploration potential, although it is not yet a mature oil and gas producing area," the CNOOC statement said. The signing indicated CNOOC had successfully extended its overseas exploration activities to East Africa, it added.

The Kenya Energy Minister added that the deal had been very favourable to the Chinese state company. CNOOC would not have to pay any other costs than its wn exploration costs during the 20-year deal, Mr Obwocha explained. Only if oil really was found, new agreements would be signed, aiming at production-sharing between CNOOC and a Kenyan state company.

Presidents Hu and Kibaki witnessed the signing of the oil deal between Minister Obwocha and the CNOOC President. The signing of the oil exploration agreement was widely seen as the climax of President Hu's two-day state visit to Kenya by the Chinese press. China is in desperate need of oil for its fast growing industry.

In Kenya, on the other hand, focus was on other bilateral agreements. President Hu promised to finance urban development schemes in Nairobi, including the rehabilitation of roads, street lighting and a sports stadium. Kenya further was to receive large amounts of anti-malarial medicine and a grant of half a billion shillings, which government is widely free to use as it seems fit - as contrasted to grants and loans from Western partners.

[edit] Economy - overview

Kenya continues to be the primary communication and financial hub of East Africa. It enjoys the region's best transportation linkages, communications infrastructure, and trained personnel, although these advantages are less prominent than in past years. 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. In March 2004, the three East African countries signed a Customs Union Agreement.

GDP (2003): $12.7 billion.

Annual growth rate (2005): 5.8%.

Per capita income: $471.

Natural resources: Wildlife, land. Agriculture: Products--tea, coffee, sugarcane, horticultural products, corn, wheat, rice, sisal, pineapples, pyrethrum, dairy products, meat and meat products, hides, skins. Arable land--5%. Industry: Types--petroleum products, grain and sugar milling, cement, beer, soft drinks, textiles, vehicle assembly, paper and light manufacturing.

Trade (2002): Exports--$2.2 billion: tea, coffee, horticultural products, petroleum products, cement, pyrethrum, soda ash, sisal, hides and skins, fluorspar. Major markets--Uganda, Tanzania, United Kingdom, Germany, Netherlands, Ethiopia, Rwanda, Egypt, South Africa, United States. Imports--$3.2 billion: machinery, vehicles, crude petroleum, iron and steel, resins and plastic materials, refined petroleum products, pharmaceuticals, paper and paper products, fertilizers, wheat. Major suppliers--UK, Japan, South Africa, Germany, United Arab Emirates, Italy, India, France, United States, Saudi Arabia