Economy of Kenya
Kenya’s services sector, which contributes about 63 percent of GDP, is dominated by tourism. The tourism sector has 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 mainly to the coastal beaches and the game parks, notably, the expansive Tsavo National Park (20,808 square kilometers) in the southeast. The government and tourist industry organizations have taken steps to address the security problem and to reverse negative publicity. Such steps include establishing a tourist police and launching marketing campaigns in key tourist origin markets. Tourism has seen a substantial revival over the past several years and is the major contributor to the pick-up in the country’s economic growth.[1]
Tourism is now Kenya's largest foreign exchange earning sector, followed by flowers, tea, and coffee. In 2006 tourism generated US$803 million, up from US$699 million the previous year.[1]
Other elements of Kenya’s services sector face challenges of downsizing, in particular, the financial system. 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.[1]
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Labor
In the early 2000s, agriculture remains the population’s main occupation and source of income. In 2006 Kenya’s labor 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 labor force was officially classified as unemployed. Other estimates place Kenya’s unemployment much higher, even up to 40 percent.[1]
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Currency, exchange rate, and inflation
The value of the Kenyan shilling (KSh), Kenya’s unit of currency, declined during President Moi’s last term (1997–2002) from about KSh60 per US$1 in 1998 to KSh78.75 per US$1 in 2002. The exchange rate of the Kenya shilling between 2003 and 2005 averaged about KSh76 to US$1. As of June 1, 2007, the rate was KSh67=US$1.[1]
In 2006 the inflation rate for consumer prices was estimated at 14.5 percent. This rate was a significant rise from the previous year’s 10.3 percent, reflecting higher food prices, which carry a 50 percent weighting in the consumer price index.[1]
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Government Budget
The budgets of the Moi era (1978–2002) carried increasingly worrisome deficits, and the Kibaki government’s first budget for fiscal year (FY) 2004 was similarly unbalanced. In 2006 Kenya’s revenues totaled US$4.448 billion, while its estimated expenditures totaled 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.[1]
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Foreign economic relations
Since independence, Kenya, a nonaligned but pro-Western country, has seen both substantial foreign investment and significant amounts of development aid, some from the communist bloc, most from the West. Between 60 and 70 percent of industry is still owned from abroad. Development assistance has come from increasingly diverse sources in recent years. The share provided by the United Kingdom has fallen, while that of multilateral agencies, particularly the World Bank and the European Development Fund, has increased. When President Moi left office in December 2002, one of the major concerns of international donors was removed, and they prepared to step up aid. The International Monetary Fund resumed aid after a three-year gap, and others followed suit with pledges of US$4.1 billion from 2004 to 2006 for development and budgetary support. By February 2005, however, relations with donors were again deteriorating, and some promised aid was suspended because of disappointing progress in tackling corruption and in instituting economic reforms, including privatization.[1]
Aside from ties with advanced economies and donors, 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 EAC, dissolved in 1977 because of political tensions, was revived in 1997. The ultimate aim of the EAC is to create a common market of the three states modeled on the European Union. Among the early steps toward integration is the customs union of 2004, which eventually will eliminate duties on goods and non-tariff trade barriers among the members. The question of how the EAC will relate to other regional trade blocs, including COMESA and the Southern African Development Community (SADC), is in flux.[1]
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 neighbors, 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 the UK, United Arab Emirates, Japan, and India. 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.[1]
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.[1]
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.[1]
In 2006 Kenya’s external debt totaled US$6.7 billion. The debt is forecast to be a manageable 30 percent of gross domestic product in 2007.[1]
Kenyan policies on foreign investment generally have been favorable 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. The most active investors have been the British.[1]
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See also
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References
This article contains material from the CIA World Factbook which, as a U.S. government publication, is in the public domain.
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Further reading
- Kitching, Gavin (1980). Class and Economic Change in Kenya. Yale University Press. ISBN 0300023855.
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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
- Economy of Kenya at the Open Directory Project
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