Introduction
Kenya is among countries classified by the World Bank as low-income or developing nations. After attaining independence, the government stimulated economic growth through various means. It encouraged small-scale agriculture through substantial government investments.
Kitching asserts that the government invested in agriculture, which remains the backbone of the economy, since 24% of the economy’s Gross Domestic Product (GDP) emanates from the sector (34). By 1973, which marked a decade of independence and self-rule, the country estimated the economic growth to be a little shy of 7%. Primarily, the agricultural sector had received the most growth and was growing by almost 5% for every fiscal that ensued.
By the early 1990s, the economy recorded the worst economic performance. The key economic sectors stagnated, with the most vibrant sector, agriculture, declining by 4.5%. Considering that the Kenyan economy is non-resource, the world oil prices destabilized myriads of the projects that the government had initiated (Kitching 43). The excessive import substitution and huge export restraints deemed the country unfriendly to investors (Mankiw 56). Continued poor performance by the majority of the sectors saw government spending decline substantially. Government-owned sectors such as the textile industry, dairy industry, and meat industries, all of which were hitherto fueling economic growth, collapsed. By 1995, the inflation rates had surpassed 100% with unemployment rising to about 56% (Kitching 51).
On the one hand, the economic situation was partially orchestrated by the West who denied the Kenyan government foreign direct aid owing to her resistance in adopting structural adjustment programs (SAPs). The international lending institutions introduced the SAPs as an antidote to counter the negative economic growth witnessed among the developing nations. On the other hand, the political environment took the partial blame of the deteriorating and weakening economy. Political influence on monetary and fiscal policies of the country by the end of the century facilitated the continued stagnation of the Kenyan economy. By the dawn of the 21st century, the economy was recording negative balance of trade and payment with the collapse of tea and coffee, which were the greatest foreign exchange earners by independence. The budgetary deficit was about 14%.
Despite these challenges, the Kenyan economy has shown some resilience in the recent past. The political regime of President Moi ended in 2003. The new political leaders adopted Economic Recovery Strategy (ERS). The ERS embarked on reviving key sectors of the economy, enhancing foreign and local investment into the country, public investment for the revival of the collapsed industries besides countering the rising inflation and unemployment rates. The IMF and World Bank decided to review Kenyan appeal for aid positively (Kitching 73). This allowed the government an extra source of government external borrowing that led to the achievement of almost all the objectives of the ERS. By the end of 2007, the country’s inflation rate stood at 4%, the unemployment rate had significantly dropped at 34% while the GDP recorded a positive and substantial growth of 7.1% (Kitching 9).
Current Economic Outlook
Notwithstanding the efforts made by the government to stimulate growth, political instability has typified the country. The 2007-08 political violence brought the economy back to its knees. The country’s tourism was the most hit with only a couple of tourists willing to tour the country amid the political upheavals. Nonetheless, the resolution of the standoff has seen the country taking a positive turn. The current economic growth is almost 5% with vibrant government spending directed towards agricultural subsidies, infrastructure development (Kitching 31). In fact, the tourism sector has stabilized and is currently leading industry for the economy. Indeed, it is the largest foreign exchange earner as well as the biggest contributor of the GDP.
Besides, the unilateral relationships that Kenyan government has established seem to be driving the economy to growth. Telecommunication sector has opened up the country to direct foreign investments in addition to reducing the unemployment rates substantially. Although the budgetary deficit remains high, the government has reduced the external borrowing considerably and is focusing on local borrowing through treasury bonds among many other strategies. The inflationary rate is comparatively low, standing at 3.2% (Kitching 51). The export quotas and subsidies have also revived the cash crop exportation with coffee and tea fetching substantially at the global markets.
Kenyan Economic Future
Kenyan government should counter the rising numbers of unemployment as the first step towards increasing its revenue. The continued collapse of local industries has increased the imports to level unmatched by the current Kenyan exports (Mankiw 76). This implies a negative balance of trade. Increasing the competitiveness of the local industry would reduce the imports of goods that can be produced locally. The government therefore ought to increase subsidies and quotas that would reduce the production costs of local goods (Mankiw 71). This will allow them to compete effectively with the imports. Nonetheless, the level of subsidies ought to be reasonable enough to avoid the resulting effect of scaring away the investors.
Coupled with competitive local industries, the country’s economy could accelerate the current rate of economic growth. This is besides reduced unemployment rates that have remained high for decades. It is imperative not to impose such strategies as export quotas that can have negative effect on the Kenyan products at the international markets (Kitching 31). However, subsidies and quotas imply increased government spending that could in turn cause an increased budgetary deficit. The continued local borrowing through issuance of treasury bonds is healthy for the economy since the external borrowing could increase the government’s debt and cause inflationary pressure.
In summary, Kenya remains a low-income country since its independence. Poor fiscal and monetary policies weakened the economy in the 1990s. However, the review of the economic policies has seen the country to record accelerated economic growth. The country continues to grapple with high unemployment rates and high budgetary deficits. Therefore, the country ought to stimulate economic growth through enhancing competitiveness of local industry.
Works Cited
Kitching, Gavin. Class and Economic Change in Kenya. Yale University Press. 2009. Print.
Mankiw, Gregory. Macroeconomics. New York: McGraw Publishers, 2008. Print.