Right since independence, Kenya based its economy on free market, becoming the main economic hub in East Africa. It is ranked as the 86th economy of the world. Inital sustained growth after independence in 1963 stagnated from 1974 due to self-sufficiency policies together with the world oil crisis. Low performance aggravated in the early 1990s and inflation reached 46% in 1993, leading Daniel arap Moi's government to design an economic reforms and liberalisation plan aimed at decreasing import barriers, suppressing the control of foreign exchange and reducing the public sector by rationalising services and selling away state-owned industries. With the support of the World Bank, the International Monetary Fund (IMF) and other donors, the reforms implemented in 1993 led to a growth of economy that partly relieved the previous negative results. GDP grew at 5% in 1995 and at 4% in 1996, with a moderate inflation.
The economic growth cooled down in 1997-98, mainly due to crisis in agriculture and tourism. The former was affected by the torrential El Niño rains in 1997 and 1998, which ruined crops and damaged infrastructures. On the other hand, tourism dropped after the bombing of the US Embassy in 1998, the surge of ethnic riots and the upswing of crime. Failure to implement reforms and fight corruption led the IMF to suspend lendings in 2001. Aids were resumed afterwards and new president Mwai Kibaki took office in 2003 with an anticorruption message, but donor lendings have been periodically halted after high-level graft scandals in 2005 and 2006.
The GDP growth kept on positive albeit lower values over the first years of this century and peaked at 7% in 2007, but subsequently fell down to 1.7% in 2008 following post-election riots added to the effects of drought and the global financial crisis. It has been recovering ever since keeping average values of 5%. Inflation in the last years has fluctuated in the range of 5 to 15%.
Today, the main problems of Kenya's economy include the negative trade balance, since exports are mainly agricultural products highly dependent on weather conditions and world prices; external debt, which was USD 8.947 billion in 2011; power shortage, inefficient Government's control on the key sectors, endemic corruption, high population growth rate (2.44% in 2011) and unemployment around 40%. Population below the poverty line increased from 42% in 1992 to 50% in 2000.
Agriculture & livestock
Growth of other sectors has reduced agriculture's contribution to GDP from 38.4% in 1963 to 30% in 1990, 29% in 1997 and 19% in 2011. However it still accounts for at least 50% of Kenya's exports and employs 75% of the labour force, revealing it is still the main stronghold of Kenya's economy. And all this despite the fact that arable land is only 17% of the country's area. The main exports are tea, horticultural products and coffee. With 399,000 tonnes produced in 2010, Kenya is the world's third largest tea producer after China and India, and the leading exporter.
Agriculture in Kenya can be classified in two types, industrial or colonial and indigenous or subsistence farming. The first one represents the heritage of the large colonial plantations, devoted to the culture of coffee, tea, cotton, sugarcane, potatoes, tobacco, wheat, peanuts, sisal and sesame.
Subsistence farming, performed by local owners in small plots, has been traditionally based on crops such as corn, which is a staple food, as well as manioc, beans, sorghum and fruit. The cooperativist movement has grown over the past years, together with the adoption of new crops formerly monopolised by large plantations and the increase in productivity due to technical improvement.
Crops are seriously affected by irregular climatology. The El Niño rains in 1998 greatly damaged infrastructures and some crops, while the subsequent La Niña droghts were harmful for the sector as a whole.
Cattle raising in Kenya is based on bovine and ovine. Same as agriculture, livestock is shared between the large colonial estates and the small local owners. The nomad tribes perform susbsistence cattle raising, reason why their most valuable goods are their cattle. The largest productions of meat, milk and dairy products, leather and wool correspond to the big estates. A part of this production is assigned to export.
Industry & energy
Since the country's independence in 1963, Kenya's Governments have implemented policies for import substitution, export enhancement and promotion of foreign investment. Manufacturing has grown slowly to a 16.4% of GDP in 2011 and to employ 10% of the work force. The major industrial plants are located around the big cities, mainly Nairobi, Mombasa and Kisumu.
Industrial activity is spread among many different types of products such as food processing and canning, beverages, tobacco, chemicals, petroleum derivatives, metals, textiles, plastics, furniture, batteries, soap, leather, rubber, construction materials (cement, clay, glass), motor car assembly, paper, and pharmaceuticals.
Kenya's Governments have promoted the development of the informal sector called Jua Kali, basically an easy solution to unemployment encouraging people to set up small repair or craft workshops for manufacturing a wide range of products such as furniture, tools, machines, door and window frames, crates or coal stoves.
Energy resources are scarce in Kenya, and there are no nuclear plants. Electricity comes mostly from hydro plants and fossil fuels. The main hydroeletric stations are located in the upper Tana river (Kindaruma dam, 1968) and in the Turkwel river gorge, near Turkana. However, hydroelectric energy is vulnerable to recurring droughts, causing power shortages. There is also a geothermal plant in Olkaria, just south of lake Naivasha.
Although some hydrocarbon reservoirs have been detected recently in the remote north near Turkana, Kenya produces yet no petroleum or natural gas, reason why all crude oil has to be imported, mainly from Saudi Arabia and the United Arab Emirates. There is only one oil refinery, located in Mombasa and linked to Nairobi by a pipeline.
Mining is represented by the fluorite beds north of Nairobi, extraction of soda and salt from natural deposits at Lake Magadi, gold mines at Kakamega, and lead and silver mines at Kinangoni. In Kilifi there is a plant for mineral processing. A large part of the 100,000 tons of soda extracted each year is assigned for export. However, as a whole, contribution of mining to Kenya's GDP is minimal.
Wildlife is the main natural resource in Kenya, and therefore the tourism sector is a keystone of the country's economy. It is the third largest contributor to the GDP (averaging 10%) and one of the three main sources of foreign exchange, occasionally leading this chapter but sometimes losing it to tea exports when travel warnings are issued after unrest episodes. This susceptibility to security status is precisely the main fragility of Kenya's tourism sector. Arrivals peaked in 2007 with 1.8 million visitors, but subsequently dropped more than one third due to post-election violence.
Kenya's Government largely cares for the protection of wildlife and environment, given that it is these assets, together with coastal resources, that sustain the national tourism industry. Great efforts are invested to control poaching and crime and to develop infrastructures. However, constant rises in the tourist bill, including sustained increases of entry fees to national parks and lodging prices, may divert an important part of the tourism flow to other African countries that are catching up in the competitive safari industry.
Infrastructures, transport & communications
Only 11,197 km of roads are paved out of 160,886 km. There are only a few kilometers of dual carriageways in the main accesses to Nairobi. The railroad network comprises 2,066 km but has been mostly neglected for years, with only the Nairobi-Mobasa line working in full and upgrades pending to revive the route that historically connects the country's capital with Kampala in Uganda. The most important port is Mombasa, with a petroleum refining plant, followed by Kisumu in Lake Victoria.
The domestic fixed telephone network is inadequate and outdated, based on microwave radio relay, but the use of mobile or cellular phones has boomed in the last years. The mere 283,500 fixed telephone lines, which place Kenya at the 120th position in the world ranking, contrast sharply with the 29,9 million of cell phones that make Kenya the 34th country in mobile terminals.
There are 194 aerodromes, 15 with paved runways. The main airports are Jomo Kenyatta International Airport (JKIA) in Nairobi and Moi International Airport in Mombasa. The severely outdated and cramped JKIA, which is currently coping with more than double the passenger capacity it was designed for in the 1950s, is seriuosly hampering tourism expansion, since its failure to be ranked as Category 1 by the United States Federal Aviation Administration precludes direct flights to and from the USA. On the other hand, the proliferation of airstrips in parks and reserves has been a positive factor for tourism promotion.
Historically, Kenya's exports were limited to a narrow product range, mainly tea, coffe, sisal and pyrethrum. This situation exposed the country to the swings of a small group of markets. Over the past decades, the Government's efforts and entrepreneurialship have resulted in the growth of non-traditional exports, such as flowers, consumer goods, fruits and vegetables. This has caused a sustained raise of Kenya's exports from USD 1.7 billion in 2000 to 5.77 billion in 2011.
Tea and horticultural products are now the main exports, both around 22%, with coffee in constant decline. The main markets for Kenya's exports in 2011 were Uganda (10%), Tanzania (9.7%), Netherlands (8.5%), United Kingdom (8.2%), United States (6.2%), and Democratic Republic of the Congo (4.2%).
Since the country's independence, imports of consumer goods have been partially substituted by domestic production due to the expanding industry. However, Kenya's trade balance is recurringly negative, with imports amounting USD 13.49 billion in 2011.
The major imports are machinery, equipment and transportation goods, petroleum products, chemicals, consumer goods, motor vehicles, iron, steel, resins and plastic. The main partners are China (14.8%), India (14%), United Arab Emirates (10.1%), South Africa (7.8%), and Saudi Arabia (7.1%).