Kenya - Economy

Kenya's is an agricultural economy supported by a manufacturing sector, much of which dates from the pre-independence period, and a tourism sector, which is an important foreign exchange earner. Kenya has few mineral resources. Although Kenya is one of the most industrialized countries in East Africa, industry only accounts for around 13% of GDP. Kenya has a drought-prone agricultural sector in which maize is a principal staple crop, along with tubers—cassava, potatoes, and sweet potatoes. There is a shortage of arable land—only 12% is first-quality farm land—and little irrigation. Nonetheless, the country exports tea, coffee, cut flowers, and vegetables. Tea exports provide the largest share of foreign exchange earnings, followed by tourism. Coffee exports were the third largest source of foreign exchange earnings in 2002, due to a decline in world coffee prices and a decline in production, which was caused in part by mismanagement.

Kenya had one of Africa's strongest economies in the 1980s, posting growth rates of 5% annually. In the early 1990s, however, political turmoil and poor harvests slowed growth. Disagreements over the direction of future investments led to a suspension of foreign aid in 1992 resulting in low growth and high inflation. Under a structural adjustment program supported by the World Bank and International Monetary Fund (IMF) in 1993, Kenya strengthened its free market by abolishing price controls, removing import licensing requirements, and floating the currency. The end of most financial controls occurred in 1995. These reforms, together with a strong harvest, helped the economy to expand by 3% in 1994, 5% in 1995, and 4% in 1996.

In 1997 a drought caused continuing power interruptions slowed business and manufacturing and cast doubts on the country's ability to sustain growth. Flooding during 1998 caused industry slowdowns. At the same time, government corruption was threatening $200 million in direct aid from the IMF and World Bank. The donor agencies' concern with official corruption was heightened in early 1996 when they learned that the government's request for a $50-million low interest loan coincided with its purchase of a $50-million private jet for the president. The purchase of the jet was a non-budgeted expenditure hidden from the World Bank auditors. In August 1997, the IMF and World Bank, tired of Kenya's failure to clamp down on graft, ended talks on resuming aid, a move that resulted in cuts in bilateral aid programs. The government initiated its own Economic Recovery Strategy in September 1999 to improve public sector management.

Another drought in 1999–2000 caused water and energy to be rationed and reduced agricultural output. The IMF again provided loans to guide Kenya through the drought, but suspended them in 2001 when the government failed to implement anti-corruption measures. Although ample rains returned in 2001, corruption—compounded with low investment and weak commodity prices—prevented any increase in economic growth. The new government installed after the elections of December 2002 committed itself to providing adequate education, a zero tolerance for corruption, and an economic environment conducive to domestic and foreign investment.