Situated on the equator between Lake Victoria and the Indian Ocean, Kenya encompasses a rich economic, cultural, and international history. Culturally, Kenya represents the intersection of Arab, Bantu, and Swahili culture within Africa. These disparate traditions were drawn together during a nearly a century of British colonization as British East Africa. The devasting Mau-Mau Rebellion in the late 1950's pushed the British Crown to cede independence in 1962, when the Republic of Kenya was established under Jomo Kenyatta, who would remain President until his death in 1978.
The 24-year (1978–2002) presidency of Daniel arap Moi produced relative stability and only moderate growth. Since Moi, there has been a regular exchange of the Presidency, although the 2007 election was notable for highly tribalized rhetoric that was associated with post-election violence. In 2013, Uhuru Kenyatta, the son of founding father Jomo Kenyatta, was elected President, despite his supposed involvement in fomenting post-election violence in 2007. Careful development of manufacturing and service sectors, along with strong institutions has made Kenya an economic leader within East Africa. The recent discovery of new hydrocarbon resources and several mega-projects initiated by the Kenyatta administration hold forth the opportunity to slash the relatively high poverty rate in Kenya and place it amongst middle-income countries in the coming decade.
Population: 43.2 million
Surface area: 580,400 km²
Currency: Kenyan Shilling (KSh)
GDP: $53 billion
GDP per capita growth (2011-2012): 1.8%
GDP per capita growth (2011-2012): 4.6%
Human Development Index 2013(HDI Value): 0.535
International poverty line in local currency $1.25 a day 2005: 40.9
Labor force participation rate (15 and older in 2012): 67%
HistoryThe Arab Period
The earliest recorded civilization in Kenya was by Arabs around the year 600 when they settled along the Kenyan coast while developing trading routes with Persia and India. There are accounts of Chinese ships sinking near Lamu Island in Kenya in 1415. Survivors are said to have adopted local customs and married local women. By the 16th century, the first European to set foot in Kenya was Vasco da Gama on his return trip from India when he made a landing in Malindi. He had discovered the sea route to India from Europe and a few years later St. Francis Xavier was to pass through Malindi on his trip to Goa leading to the Christianization of some coastal peoples. The Portuguese tried to establish themselves along the East African Coast but conflict with the Omani Arabs and Swahili States cut short their presence and by 1830 the Omani Arabs had consolidated control of the East African Coast.British Colonialism
In 1895 the British government took over and claimed Kenya as East Africa Protectorate and by 1920 it became a crown colony of Kenya administered by a British governor, Major-General Sir Edward Northey. Kenya had little intrinsic value but was strategically important as a land bridge from the Indian Ocean to the source of the great lakes in Uganda. Asian migration to modern day Kenya began in earnest with the construction of the Uganda railway between 1896 and 1901 when some 32,000 indentured laborers were recruited from British India. Although more than 2,000 had already died in the process, about 7,000 decided to remain after the line's completion, creating a permanent community in Kenya. The railway built from Mombasa to Lake Victoria aided early British settlers move into the Kenya highlands their primary interest being land described "as some of the richest agricultural soils in the world, mostly in districts where the elevation and climate make it possible for Europeans to reside permanently."
From 1945, Jomo Kenyatta of the Kenya African Union (KAU) began demanding from the British government political rights for land reforms. However some radical elements within the KAU set up splinter groups to form the Mau Mau. They openly attacked political opponents and even raided settler farms and destroying property.
In October 1952 the British declared a State of Emergency and began moving army reinforcements into Kenya. Kenyatta and five others together known as the “Kapenguria six” were arrested and jailed.
As the passage of time was to show, Kenyatta’s arrest only exacerbated the ongoing conflict. In the ensuing years, Dedan Kimathi the de-facto leader of the Mau Mau was captured and executed. Eventually, the colonial government realized two things: only Kenyatta had sufficient authority to bring an end to the Kikuyu violence and secondly, independence for Africans and preparation for an African majority government could no longer be delayed. Michael Blundell a white settler leader was to play a key role in the devolution of British power. He was the go-between Kenyatta and the British government that established a secret pact not to interfere with the skewed land distribution at independence as some of the most valuable land was in British hands while some Africans did not have titles of their land. In return, the British would clear his way as independent Kenya’s first leader.
In May of 1960, Kenya African National Union (KANU) was founded in Kiambu by James Gichuru, Tom Mboya and Oginga Odinga. The leadership was dominated by representatives from the larger tribes Kikuyu, Luo, Embu, Meru and Kamba. It favored rapid decolonization, social reform, prominent state role in the economy, open competition for land and resources and unfettered ethnic boundaries in which communities would perform well. Gichuru was chosen as its acting president while Odinga its prime mover was chosen as vice-president.Independence and Jomo Kenyatta's Presidency
Kenya gained independence on 12th December 1963 with Jomo Kenyatta as prime minister. In 1964, the Republic of Kenya was formed with Kenyatta as president and Oginga Odinga as vice-president. Despite the stability that Kenya enjoyed under Kenyatta, the country witnessed politicial violence which claimed the lives of some of the Kenya´s prominent post-independence leaders. Notably, Pio Gama Pinto who was assassinated in 1965 for leading the drive against corruption. An ideological disagreement with president Kenyatta led Oginga Odinga to resign as vice- president to form Kenya Peoples Union (KPU) in 1966. In 1969, Tom Mboya, Kenyatta´s heir apparent, was assasinated by a Kikuyu political group to prevent a member of a rival tribe from becoming president. Josiah Mwangi Kariuki (JM Kariuki) another prominent politician and member of parliament, though a Kikuyu like Kenyatta, was seen as a threat to those in power during Kenyatta´s reign and was assasinated in 1975.
By the end of the Kenyatta presidency it was not uncommon to find high-ranking civil servants as well as government ministers owning commercial and industrial enterprises serving on company boards of directors, and owning urban and rural property. The middle class running the government was playing an influential economic role during the first decade and a half after independence. They were dramatically controlling and expanding the modern sector in partnership with western capital.The Moi Era
After the death of Kenyatta in 1978, Moi became as vice-president the second president of Kenya as per the Constitution. A coup d’état was staged by the rank and file members of the Air force in 1982. The true motivations remain obscure but it was widely believed that there were two or three different military and political groups involved each with its own aims and objectives. Rumors abounded in Nairobi of a plot by Kikuyu officers to overthrow the President when he was away attending the Organization of African Unity (OAU) conference in Tripoli. However, it was the Luo junior officers and other rank and file Air force members that struck first. The army managed to put down the coup but the delayed response revealed the high command’s lack of loyalty to the president. Two Kikuyus who had risen to high office (Air force and Police Commissioner) under Moi were discovered to be disloyal. The coup attempt transformed Moi who increasingly relied on Army chief of Staff Major-General Mulinge who had remained loyal throughout the whole incident. From this time henceforth, Moi became suspicious of the Kikuyu in his government.
Later that year there was a constitutional amendment that made Kenya a de jure single party state such that only members of KANU could serve in parliament. This was a departure from Kenyatta who relied on the Provincial Administration and directly controlled the Office of the President to maintain control in the localities. Moi used it to monitor public sentiment and to suppress opposition.
Over the years Moi slowly brought his loyalists to power and in order to gain control he became increasingly repressive of politicians unless they were loyal to him. Intellectuals were harrassed and jailed and press freedom constrained. By the mid eighties, Kenya showed signs of becoming a feudal state. Many policy innovations failed, either because they were misconceived or because the civil service was overstaffed, underpaid, politicised and tribalised and incapable of effectively implementing any policy without rent seeking. Part of the problem was Moi himself who manifested tolerance for corruption and tribalism.
In 1991, Moi under mounting pressure from the West after the fall of the Iron Curtain had the Kenyan Constitution changed to make Kenya a multi-party state. The first multiparty elections were held in 1992 with Moi and the ruling party KANU winning although 2,000 people lost their lives in the violence that ensued. In 1997 he won again but he could not participate in the 2002 elections as he was constitutionally barred.The Kibaki Presidency
In 2002 Kibaki a former vice president ascended to power under a new party National Rainbow Coalition (NARC) spelling doom for KANU the party that had ruled Kenya for close to 40 years. However, the NARC government faced difficulties as it later emerged that the state was favoring “Mount Kenya peoples” (Kikuyu, Embu and Meru) over all others. Not happy with the intransigence of Kibaki over a pre-election memorandum of understanding to grant him a prime ministerial position, Raila in 2005 formed a new party the Orange Democratic Movement (ODM) arguably strong enough to defeat the Kikuyu centered government in the 2007 general elections. The elections were held on 27th of December and three days later Samuel Kivuitu the Electoral Commission of Kenya (ECK) chairman declared Kibaki winner of the elections for a second term. Violence erupted in different parts of the country and the fighting that ensued in December 2007, January and February 2008 claimed the lives of 1,200 people, left over 500,000 displaced persons, and the wide-spread destruction of land and property. This represented the worst violence the country experienced since independence.
On 1 July 2010, following ratification by Burundi, Kenya, Rwanda, Tanzania and Uganda, the East African Community (EAC) was established. It was based on “four freedoms”: free movement of goods, labor, services and capital. It was expected that this would boost trade and investments and make the region more productive and prosperous.
In October 2011, Kenyan troops entered Somalia to attack Al Shabab rebels accused of several kidnappings of foreigners on Kenyan soil. They captured port of Kismayu in conjunction with AMISOM troops in September 2012. A year later, Kenya was to pay heavily for this when in September 2013 the Al Shabab launched a successful attack in the Kenyan capital city of Nairobi killing close to 70 people in one of the deadliest terrorist attacks. In June 2012 oil was discovered in the North Western part of Kenya and President Kibaki hailed it as a ''major breakthrough''.Uhuru Kenyatta Presidency
Uhuru Kenyatta the son of Kenya's first president was elected president of Kenya in March 2013. A challenge of the results by his rival, Prime Minister Raila Odinga, was rejected by the Supreme Court. Uhuru had been Moi´s choice for presidency in 2002 though he lost the elections to Kibaki. However, he was the official opposition leader during Kibaki’s first term 2002-2007 and minister of finance for a while during Kibaki’s second term from 2009-2012. Uhuru is ranked the richest man in Kenya by Forbes, heir to his late father's vast business empire that spans from swathes of land, Kenya's biggest dairy company, five-star hotels, banks and to exclusive schools. Both Uhuru Kenyatta and the deputy president William Ruto faced charges at the International Criminal Court (ICC) of masterminding the violence that arose in Kenya after the 2007 general elections. Uhuru appointed the Deputy President William Ruto as Acting President while he attended the 2 days status conference at The Hague, on October 8th 2014 in the Netherlands.
Wars and Civil Unrest, ViolenceThe Mau-Mau Uprising (1953-1957)
The Mau-Mau guerilla war that began in 1952 was a key event in Kenya’s history. While some viewed the Mau-Mau as freedom fighters others viewed them as a terrorist group bound to kill anyone who proved to be an obstacle to their goals. The Mau-Mau war shaped Kenya´s future political and economic social structure. The goals of the Mau Mau were more political than military; to build the movement to isolate African enemies, drive out settlers and the use military pressure to force government to release detained leaders and negotiate Kenyan independence and to retain their land. Essentially, it was unstructured and violent amongst other Africans especially the Kikuyu against whom land was taken by Europeans. Some believed that the war was a fight for political and economic equality. However, both the British and Mau-Mau fought to win by any means possible without any care of the morality of their actions since each of them believed in their cause .
The Mau Mau wanted to win the land for themselves, and political rights for their ethnic groups and a national independence for all Kenyan Africans. Because the Mau Mau had to survive without foreign support and logistic provisions, they were dependent on the theft of weapons and ammunition.
In October 1952 a state of emergency was declared in Kenya as a result of the growing Mau Mau movement. However, this transformed the resistance into an open revolt. The densely forested inaccessible regions of the Aberdare Mountains and Mount Kenya provided the Mau Mau with an ideal retreat. In the forest camps and through political meetings and debates, patriotic songs and religious observances, the Mau Mau developed a strong culture of resistance and went as far as to try and develop a new society belief system after the war.
The Mau Mau leaders tried to educate their followers on the history of government and settler oppression, convince them with enthusiasm to fight for land and freedom; however, they never succeeded in politicizing the Kikuyu population relying too much on oath taking. Also, they relied too much on civilian loyalty, to kin and neighbor’s ethnic patriotism, resentment of the British and the fear of Mau Mau guerrillas to maintain commitment. When the guerrilla forces suffered defeats and the British counterinsurgency tightened its grip, the guerrillas lost their hold on the civilians and their prestige declined as the cost of supporting them rose dramatically.
The Mau Mau war had a terrible toll, losing around 20,000 men, while killing some 4,000 people - including 32 white settlers. Although the British triumphed, the Mau-Mau war had demonstrated to the world that the British people, severely exhausted by the Second World War, neither had the will nor the resources to impose colonialism in Kenya or anywhere else in Africa through the barrel of a gun.
Recent studies show that in order to contain the Mau Mau, the British had to detain nearly the entire Kikuyu population of about 1.5 million people at that time in camps called villages. The aim was to educate the Africans, but the living conditions there were generally sub-humane. Documents containing what happened in these camps were however destroyed by the British in massive bonfires on the eve of Kenyan independence in 1963.Lari Massacre (1953)
Of the multitude of atrocities conducted by the Mau-Mau, historians term the Lari Massacre (also known as the night of Long Knives) as one of the most notorious. It is believed to have been the work of Kikuyu tribesmen repatriated from the Rift Valley specifically to perform the job. That night, 84 people lost their lives (over 60% whom were women and children), 31 were wounded or mutilated (some so severely that they were permanently maimed), 200 huts were destroyed by fire and 100 cattle maimed. Amongst those killed was Chief Luka, slashed to death with his three wives. In the following weeks, security forces arrested roughly 2,000 suspects implicated in the attacks and 135 of them were sentenced to death.Post-election Violence 2007-2008
Many agree that the underlying tinderbox of the 2007 disputed results was the historical land issue. The unrest spread widely in certain parts of the country partly because of the police’s inability or unwillingness to stem the violence. This cannot be understood or separated from extended histories of racial and ethnic discrimination, predatory politics, and violent resistance.
The events following the December 2007 general elections led to loss of over 2000 lives and the dislocation of over 500,000 people. Economic life was disrupted and the destruction of property estimated at over US$1 billion. The per capita GDP was reduced by an average of US$70 per year a decrease of approximately 5%. The president of Kenya Uhuru Kenyatta (2013 -) and his counterpart Deputy President William Ruto are accused suspects for crimes against humanity committed during the 2007–2008 Kenyan crisis and faced charges at the International Criminal Court.Tana River 2012 
In August 2012, a series of ethnic clashes between the Orma and Pokomo tribes of Kenya's Tana River District resulted in about 50 deaths. More than 13,500 displaced were women and children.
By 2010 the Kenyan government like many other governments in developing countries had had little power and resources to provide clean water, sanitation and adequate education to the rapidly growing populations. The result has been mushrooming illegal settlements with primitive facilities around cities especially Nairobi, increased overcrowding, and rampant disease linked to unhealthy environments.
An improvement in childhood survival has meant rapid population growth. One indicator the Infant Mortality Rates (IMR), declined rapidly to 60 deaths in 1998 down from 184 deaths per 1,000 live births in 1948. The 2009 Kenya Population and Housing Census enumerated a total of 38,610,097 million people, a 35% increase from the 1999 census. Population increases have been 10.9 million, 15.3 million, 21.4 million, 28.7 million and 38.6 million persons in 1962, 1969, 1979, 1989, 1999 and 2009 respectively.
The population was growing at about 1.2 million persons per year in 2012 with an estimated 43% of the population being below the age of 15. With many more women entering the reproductive age (15-49), this means they will have children within a decade. Kenya’s birth rate per woman is 4.5. According to the census, women constituted 48.3% of the total population.
The high population growth means that Kenya will need to create twice as many new jobs in 2040 as 2009. A larger population will translate to a larger workforce and a bigger consumer base with the careful policy making in the right sectors: education, science and technology, health care, infrastructure and institutional development.Ethnicity
The British colonialists divided Kenya along ethnic lines creating eight provinces, with a different majority in each. With more than 42 ethnic communities that have lived side by side for a long time, Kenya is a multi-ethnic society. Nairobi is the most cosmopolitan region, with the Kikuyu forming a plurality. Dominant Kenyan ethnic communities are the Kikuyu, the Luhya, the Luo, the Kalenjin, the Kamba, and the Kisii. Since the onset of colonialism, political power in Kenya has been associated with different particular ethnic groups. Politicians have deepened these differences as a way of clinging to power taking advantage of poverty, mis-education, and lack of opportunities amongst the peoples. Nowhere is this more apparent than during elections, where since independence, there has always been ethnic overtones. In particular, the 1992 and 2007 general elections were not only violent but also claimed more than 3,000 lives. The 2007 general elections seemed a replay of those in 1992 in terms of the ethnic violence that was experienced before and after. However, the violence was on a scale never witnessed before in all the previous elections. With over 200 ethnic communities Tanzania though poorer enjoys cohesion amongst its peoples thanks to its visionary politicians.
A closer look of the political campaigns before the 2007 general elections reveals that most of it was based on ethnicity and the different ethnic identities that exist in the country. The political elite exploited the different ethnic aspirations of Kenyans to forward their political agendas. For most Kenyans, the relationship between ethnicity and language is synonymous with identity. Ethnic issues are fundamental in Kenyan society that they almost seem an integral component.
Today, most Kenyans identify themselves as belonging to some ethnic community. A 2012 study conducted using data collected from a flower farm by Hjort during 2007 and 2008 showed that ethnic diversity in the workforce could lead to the lowering of output by enhancing misallocation within a firm.
The number of Kenyan Diaspora was estimated at 3 million in 2010. This migration is divided into three distinct waves. The first wave is made up of a small number of Kenyans who preceding independence, travelled abroad mainly to the United Kingdom in search of better education and training opportunities. These individuals often returned and participated in the struggle for independence. The second wave occurred during the great airlift when young Kenyans were taken abroad particularly the United States of America to acquire further education. The third wave occurred in the 1980s and 1990s and is constituted of Kenyans who migrated to developed countries (Europe Australia and the United States) to seek better opportunities in the face of unemployment, negative per capita income growth and worsening income distribution.
According to United Nations Development Programme (UNDP) reports, the amount of inward remittances was US$1.9 billion in 2010, representing 5.4% of Kenya’s GDP. This amount also exceeds Overseas Development Assistance (ODA). Kenyan diaspora face high remittance costs and poor consular services to address their issues. The country still continues to experience migration of its citizens to other countries with large communities of Kenyans now found in the United Kingdom, the United States, and in the Far East. Kenyans in the diaspora represent 8 per cent of all Kenyans.
Increasingly, professional Kenyan diaspora possess immense intellectual and professional resources although the country is often unable to attract this human capital, inhibiting reverse transfer of technology.
The 2010 Kenyan Constitution allows for dual citizenship but for Kenyan diaspora unable to benefit from this policy due to non-acceptance of such arrangements are to be granted an ‘Overseas Citizenship Card’ that guaranteed them a ‘visa for life’ to visit Kenya, as often as they wish. However, it is unclear whether Diaspora direct their remittances to productive investment ventures.The Somali People
The Somali people constitute one of the largest refugee populations in the world. With no end in sight to the armed conflict despite Kenya´s efforts, more than 1.4 million Somalis continue to be displaced internally within their country. By 2010 it was estimated that over 600,000 Somali nationals had taken refuge in neighboring countries with 338,151 being registered in 2010 as refugees in Kenya according to United Nations High Commission for Refugees (UNHCR). Three camps near Dadaab in North-Eastern Kenya, host refugees from Southern Sudan, Somalia, Ethiopia, Burundi, Congo, Eritrea and Uganda.
These camps are overcrowded, sanitation is poor, and do not provide proper education facilities. However, there are many Somali nationals living in Nairobi and other major cities in Kenya. Eastleigh, a suburb in Nairobi is full of Somali nationals who have established businesses there and it has been labeled “small Mogadishu”.
The border between Kenya and Somalia was officially closed on 3 January 2007, although many Somalis still manage to get into Kenya. The closure was partly due to the frustration by Kenyan authorities at the inadequate international support to share responsibility of the Somali problem and the lack of durable solutions. The Kenyan government views Somalis as a security threat more so after the September 2013 terrorist attack at Westgate in Nairobi that claimed the lives of 70 people.
Social Protection and Labor
By the 1960s, the great majority of workers in the core sections of the economy spent their working lives in wage employment. A trend towards a more stable skilled and better-paid labor force begun as a response to the changing political and economic climate in the decade prior to independence that continued to characterize formal sector employment after independence.
Wage employment was concentrated in urban areas, especially in Nairobi. After 1963, employment increases in Nairobi almost doubled that of other major towns, employment in the capital Nairobi and in the other towns and cities growing fastest in the first decade after independence (annual rate of 3.8%). The public sector grew faster than the private sector in the 1960s and 1970s. In 1967, wage employment constituted 35.5% of the public sector. By 1978, this rose to 42.8%. Public-sector employment was concentrated in service industries while employment in the private sector industries was concentrated in agriculture and manufacturing.
By the 1980s manufacturing employment had experienced little growth and only constituted 2% of the labor force of 6 million. Approximately 10% of the labor force was formally unemployed mostly in urban areas while the rest was involved in informal/temporary low-income jobs. At this time, Kenya had only 33 registered trade unions including COTU, but the prevailing laws made striking legally difficult. In 1981 however, new rules demanding state doctors give up private practice caused a nationwide strike. Other subsequent strikes for better pay and working conditions ensured a ban on unions.
By 2012 Kenya’s labor force was estimated at 16.6 million people. The formal public or semi-public sectors were the most remunerative but they constituted only five percent of total employment in Kenya.
Out of the 487,000 jobs created during the 2003/2004 period, only 28,000 were in the formal sector. General unemployment trend in Kenya rose to about 25% from an average of 16% over the previous 10-year period. The quality of jobs in the informal sector is not discernible since data on this classification is not available. Rising unemployment trends in Kenya mean that specific diagnosis on underemployment is crucial if policy actions towards addressing concerns that contribute to the sizeable class of the working poor are to be facilitated.
The Constitution of Kenya (2010) contains a comprehensive Bill of Rights Article 43 that guarantees all Kenyans their economic, social, and cultural rights. It asserts “The State shall provide appropriate social security to persons who are unable to support themselves and their dependents”.
By 2010 there Kenyan social assistance, social security and insurance systems provided coverage to formal sector and salaried workers. Informal sector workers (about 8 million) and those living in rural and remote areas had inadequate access to the protective aspects of social protection. The public social security system was highly fragmented involving many different institutions and large number of ministries.
Rural Areas and Poverty
Inequality and poverty are among the key development challenges that the Kenyan government continues to confront and address. Whereas substantial attention has been placed on poverty alleviation, there exists a huge gap between the poor and elite in the entitlement to political, civil and human rights. In 2006, relative poverty varied from a low of 11 % in Kajiado, to a high of 94% in Turkana. In the urban areas, the poverty prevalence was 30% for male-headed households compared to 46.2% for female-headed households.
A challenge is to address the poverty gap occasioned by the geographical variation amongst the Kenyan people. Statistics indicate a wide range of poverty incidence amongst Kenya’s constituencies rising from 16.5% to 84%. Odhiambo and Manda report that the according to the 1994 Welfare Monitoring Survey (WMS) 75% of Kenya´s poor live in rural areas while majority of the urban poor live in slums and peri-urban settlements. The North Eastern part of the country had one of the highest proportion of people living in relative poverty (58%). Marsabit, Isiolo, Kitui, Meru, Tharaka-Nithi, Embu, Machakos counties collectively made up (57%). Mombasa, Kwale, Kilifi, Tana River, Lamu and Taita-Taveta counties made up (55%). Moreover, more than 50% of all the population in all Kenyan counties except Nyandarua, Nyeri, Kirinyaga, Murangá and Kiambu (31%) were living in poverty. In urban areas, Kisumu town had the highest recorded prevalence of poverty (63%) followed by Nairobi city (50%).
In the second decade of the 21st century, Kenya had hardly improved. In 1987 Kenya’s per capita GDP was US$530 and in 2012 it was US$594, a paltry 10% improvement in a period of over 25 years. With the implementation of the 2010 Constitution of Kenya, reducing poverty will partly depend on the efficient use of large central government transfers to the county level, with appropriate accountability for spending allocations and outcomes. This new revenue sharing arrangement (involving no less than 15% of national revenues) will increase per capita transfers to poorer counties (located in northern, eastern and coastal parts of Kenya) that previously received less provision of public services. These efforts will provide room for higher social and infrastructure spending empowering county governments to increase the delivery of key services, such as education and health. Kenya’s 2014 Economic Survey showed a decline in poverty rate from 46.6 % in 2005/06 to 45.2 % in 2009, with a larger decline in urban areas. The urban poverty ratio in 2009 was estimated at 33.5% (about 3.9 million individuals), while rural poverty ratio was estimated at 50.5%, with about 13.1 million individuals living below the poverty line.
The Kenyan school system has undergone many changes since independence in 1963. In 1985 the country developed its own education system- the 8-4-4 system; 8 years of primary school, 4 years of secondary school and 4 years of university education replacing the 7-4-2-3 system. Other educational systems in the country include the American, British, French and German educational systems although they are in the minority. Following a 2002 government policy of Universal Free Primary Education (UPE) an additional 2.1 million children were enrolled in primary school, which brought the total primary school enrolment to 8.2 million. The Kenyan government provided annual grants to the public primary and public secondary school as well as development grants to tertiary education institutions. Each primary and secondary school student received US$33.5 and US$111.7, respectively. The grants aided an estimated 9.2 million primary school and 2.1 million secondary school students. The funds were utilized for expansion of infrastructure, recruitment of staff and in the improvement of education resources and materials such as laboratory equipment and books. Total enrolment in Kenyan primary schools increased to 10.2 million from 10 million in 2012. In 2013 Kenya had 199,686 public primary teachers up from 191,034 to in 2012. Number of primary schools went up in 2013 to 30,122 from 29,161 in 2012.
Enrolment in secondary school rose to 2.1 million in 2013 from 1.91 million in 2012. Public secondary school teachers were 64,338 in 2012 and 65,494 in 2013. There were 8,848 secondary schools in 2013 from 8,197 in 2012. Of the 357,488 candidates who were examined at the secondary school level - the Kenya Certificate of Secondary Education (KCSE) Examination a national exam- in 2010, only 97,137 obtained the entry requirement for University admission at C+. That year public universities admitted 32,000 students and 10,000 students were admitted in the private universities. The 2011 enrolment in Technical Vocational Education & Training (TVET) public institutions was 60,000 although the annual intake was 25,000. Middle level colleges (public and private) are estimated to have taken 75,000 students. Of the 357,488 KCSE candidates in 2010 only 142,000 or 40% found opportunities for further or higher education. The rest 215,488 or 60% had to look for existing opportunities in formal training so as to join the workforce. In 2009, the secondary school net enrollment rate was approximately 50% while the primary-to-secondary school transition rate was equally low at 55%.
By 2012 Kenya had 23 Public universities 17 chartered private universities, some national polytechnics, 17 institutes of technology and 12 technical training institutes. The World Bank estimated the total adult literacy rate at 87% in 2010. The size of the Kenyan education sector was 6.7% of GDP in 2013 up from 6.2% in 2012. University enrolments were 324,560 in 2013 and 240,551 in 2012. By 2014, private universities had increased to 30 from 27, Technical, Industrial, Vocational and Entrepreneurship Training (TIVET) institutions to 748 up from 701.
In 1970 public universities in Kenya had only 3,443 students. By 2010 this number had increased to 159,752 students (59,665 females and 100,087 males). Private universities had a total enrolment of 37,179 students (14,462 females and 22,717 males) in 2004. The total number of those enrolled in public and private universities rose to 196, 931 although the transition rate from secondary level to university still remained low. The Kenyan government target is to graduate an average of 2,400 PhDs by the year 2022. Also to be established was a Kenya Universities and Colleges Central Placement Service (KUCCPS) to award scholarships based on national priority areas, student capability, and eligible courses and programmes. Competing universities are to demonstrate continual quality improvement in order to attract funding.
Kenya has a small mining sector contributing only 0.4% of GDP in 2010 which represented a growth of 9.8% after contracting by 4.5% in 2009. In 2008, the industry formally employed 6,600 people. Mining production affected by world market conditions affected exploitation of gold, gemstones, fluorspar and soda ash deposits in Kenya.
Kerio Valley is known for its significant fluorite deposits, first discovered in 1967. Together with soda ash they are the most important mining commodities in Kenya. Mining operations were privatized in 1996 under terms of a governmental reform policy. The privatized company, Kenya Fluorspar Company, entered into a 20-year lease with the government, leasing an area of 3,664 hectares. Annual production stands at over 125,000 metric tons.
It is mined from Lake Magadi one of the largest known natural sources of trona in the world. Production in 2008 was 513,415 tonnes and 401,904 tonnes in 2009. Kenya faces competition from lower cost synthetic soda from China. Over 80% of the production is exported while local firms like Athi River Mining (ARM) have used it in the production of sodium silicate an ingridient of detergents, soaps and chemical and metallurgical applications. Soda ash is also used domestically by glass producers to make bottles for beverages. Trona occurs together with common salt making Lake Magadi a major source of crude salt.
Limestone, marbles and dolomites widely occur in the country and huge deposits of these commodities are known to exist. Along the coastal belt, Bamburi Portland Cement company exploits kunkar and crystalline limestone mainly from coral reefs in the area. In 2012 the country had five cement factories; Athi River Mining (ARM), Bamburi Cement, East Africa Portland Cement (EAPC), National and Mombasa. ARM had an output of 600,000 tonnes/year in 2012 and a turnover of approximately US$16 milllion. The company controlled 5% of the Kenyan market which comprised 60% of the company´s turnover.
Bamburi, founded in 1954 is a subsidiary of the French based Lafarge - a world leading manufacturer of building materials - had a yearly output of 2.3 million tonnes in 2012. It controlled 57% of the local market while 28% of the production was exported to Comoros, the Congo, Madagascar, Mauritius, Reunion, Sychelles, Sri Lanka and Uganda. Its cement plant in Mombasa is the second largest in Sub-Saharan Africa. The Kenya government owns EAPC which has has an output of 720,000 tonnes/year.
Various building stones are exploited. The Kisii soapstone is used for handicrafts. Granite, gneisses, migmatites and quartzites are extensivey used in the construction industry both as dimensional and decorative stones. However, socio-ecological consequences have hindered large scale operations.
In 2012, oil deposits were discovered in Lokichar basin in Kenya. Although commercial viability has yet to be fully established, the discovery seemed promising. Further prospecting is to take place along the Kenyan Coast as the search for deep sea oil deposits continues.
According to UNESCO's 2012 projection, about 17 million of Kenya's 41 million people lack access to safe water. Some of them are in Turkana where inhabitants often express feelings of marginalization. It is one of the hottest, driest and poorest parts of Kenya. In September 2013, huge water sources (two aquifers) were discovered in Turkana. Experts believe that the aquifers could supply Kenya´s water needs for up to 70 years.
ProductionManufacturing, Mining, Utilities, and Construction
Although Kenya expanded its manufacturing capacity during the 16 years after independence, its contribution to GDP rose from 10 to 13% and created few jobs. With dozens of import-substitution and material processing factories being established and despite being one of the most sophisticated economies in East Africa, there has been no take off into capital goods production apart from a car kit assembly. Its manufactured goods are solely for domestic consumption or its African neighbors. This is largely because its products are not of sufficiently high quality or low enough price to compete globally. Shortages of skilled technical labor, the labor-intensive nature of industries and the limited technology transfer by multinationals reinforce this. Limitations of the import substitution model became apparent after the collapse of the East African Community (EAC) in the late 70s. As the cost of foreign loans was increased, there was a shortage of funds for industrial development and a shortage of spare parts and materials. Many business manufacturers closed down, including Kisumu Cotton Mills, a textile processing factory, and the Kisumu Molasses Project; a plant designed to produce biofuel from sugar residues. The plant had cost the government US$130 million in construction costs and has never been revived to date.
Industrialization remains an integral part of the country’s development strategies as the Kenyan economy remains predominantly agricultural. Its contribution was a little more than 10% since the early 90s. Manufacturing activities accounted for the greatest share of industrial production output and formed the core industry employing 254,000 people. An additional 1.4 million people were employed in the informal side of the industry. The sector is mainly agro-based and is characterized by relatively low value addition, low wage employment, low capacity utilization and low export volumes partly due to weak linkages to other sectors.
Intermediate and capital goods industries are also relatively underdeveloped, implying that Kenya’s manufacturing sector is highly import dependent. The sector is also highly fragmented with more than 2,000 manufacturing units divided into several broad sub-sectors. Food processing, beverages and tobacco, refined petroleum products, textile apparel and footwear industries were the top 3 sectors and collectively accounted for 50% of GDP, 25% of export earnings and provided employment to about 60% of the labor force.
Locally manufactured goods comprised 25% of Kenya’s exports by 2005. However, the share of Kenyan products in the regional market is only 7% of the US$11 billion regional market. This is because the Eastern African market is dominated by imports from outside the region.
Oil and gas: Kenya is not considered a mineral rich country but recent discoveries of oil and gas in 2012 comparable to those Equatorial Guinea and the Republic of Congo promise to change that. Tullow, one of the main investors in oil fields in Kenya, estimated reserves of well above the 600 millions of barrels of oil equivalent (mboe). If confirmed, this could bring Kenya’s external current account to a surplus making the country self-sufficient in oil production within 3-5 years according to Morgan Stanley estimates.
Titanium: Titanium mining in Kenya has suffered various setbacks since the 1990s when the Kenyan government implemented a series a policy measures to improve the investment climate and as a result Foreign Direct Investment (FDI) in the sector increased from the 1985-1995 average of US$26 million to US$42 million in 1999. Historically FDI has not played a significant role in the Kenyan mining industry partly due to the lack of comprehensive national environmental policy frameworks, little operational co-operation and policy coordination among relevant authorities, ineffective enforcement of existing rules and regulations, budgetary shortfalls, bureaucratic inertia, lack of political will and corruption.
The Kwale Tiomin project for instance, was highly controversial. The proposed mine sites were located in a fragile ecosystem in Kenya’s coastal forest listed as one of the world’s 25 hotspots by Conservation International. An Environmental Impact Assessment (EIA) commissioned by Tiomin was within Kenyan Law and World Bank standards but an independent study by Kenyatta University raised questions about the possibility of neglected environmental impacts. The project required displacement of 450 families and after 21 years the land was to revert back to the farmers. Critics maintained that it would take a further 10-30 years for the land to return to productivity. The company negotiated comprehensive compensation and rental agreements with landowners but dissatisfaction with the terms followed. People with no land were not covered under the scheme and were considered squatters and therefore a government problem.
Tiomin suffered a series of setbacks but was later acquired by an Australian company Base Resources 2010. With the backing of the Kenyan government, Base resources registered a wholly owned Kenyan subsidiary, Base Titanium. The company made its first shipment of 25,000 tons of ilmenite — one of the major components found in the Titanium mineral ore — to China in February 2014. The Kwale Sands is the first large mining development in Kenya since 1911.
To take advantage of these developments the Kenyan government in 2014 initiated institutional and legal reforms for extractive industries with its parliament set to discuss the Extractive Industry Tax Regime and new Mining Bills. The Kenya National Bureau of Standards (The KNBS) had already commenced the dissemination of a new quarterly producer price index for mining and quarrying, manufacturing and utilities as from October 2012.
The Kenyan government expressed its commitment to the Millennium Development Goals (MDGs) placing public utilities high on the political agenda. Such investments required infrastructure upgrades and expansion with a need for greater cost-reflectivity of tariffs and for regulators to balance politically sensitive and potentially conflicting efficiency and welfare objectives.
Electricity: In 2011 the unserved electricity energy market for Kenya was 25GWh against a demand of 150MW. This demand for electricity was being fuelled by certain projects within the country including a light rail network and a planned expansion of the Mombasa port amongst other projects. In line with these growing needs, the country planned to mount coal, gas fired plants and geothermal plants to generate electricity that would be used as peaking plants. Also, the country hopes to get its first 1,000MW nuclear plant by 2022. This total additional capacity to the system would increase capacity to 18,920 MW with geothermal contributing 5,040MW a huge increase from the country’s capacity of 1,593MW in 2011; hydro accounted for 49% of the country’s total energy supply.
Water Supply and Sanitation
Kenya is not regarded as a water-rich country and in a move to privatize the water and sanitation sector, the Kenyan government through the Kenya Water Act 2002 created the Water Resources Management Authority (WRMA). The body was to provide for the conservation and control in the use of water resources. Also established was the Water Services Regulatory Board (WASREB) whose core responsibilities included licensing providers of water services and determining standards for the provision of water services to consumers.
The 2006 official estimates by the Government of Kenya put water supply coverage at 42% and sanitation coverage at 31% (urban and rural areas combined). By 2011 it was clear that the government would not meet the 76% coverage target set for 2015. Piped coverage (household connections) remained limited in rural areas. The Millennium Development Goal (MDG) target was to have three-quarters of Kenyans with improved access to water supply by 2015. Anticipated public capital expenditure (CAPEX) for water supply in the years up to 2015 was estimated at US$386 million per year with the total annual CAPEX requirements estimated at US$303 million per year, of which US$246 million per year was to be derived from public finance.
Access to improved water supply between 1990 and 2008 in urban areas dropped from 83% in 1990 to 91% in 2008 against a background of rapid urban growth. However, even with the drop in coverage somewhere between 3 and 6.5 million people in urban Kenya gained access to improved sources of drinking water highlighting the challenge that urban population growth poses. Water resource management is an important consideration since Kenya’s water resource situation, particularly for urban areas, is precarious especially in the poorer districts. A 2009 county status study suggested an additional US$150 million per year to urgently develop additional water storage and transfer, up to 2015.
Coverage of Sanitation in urban areas was at 29% in 2006 up from 24% in 1990 with 51% of urban Kenyans using shared latrines and 2% resorting to open defecation. A total of US$272 million per year was required for sanitation hardware (not including promotion and marketing costs) for rural sanitation and hygiene. Households were expected to contribute around 80% of these costs. This figure was calculated in relation to sewerage only. Although Kenya has a National Environmental Sanitation and Hygiene Policy it was not clear how Kenyan households were to be encouraged to invest in sanitation, given that households were required to meet 80% of the costs.Health
The Kenyan Total Health Expenditure for Kenya (THE) in absolute value increased from US$1,046 million in 2001/02 to US$1,620 million in 2009/10, an increase of 49%. THE per capita also increased, from US$34 in 2001/02 to US$42 in 2009/10. However, government health expenditures as a percentage of total government expenditures declined from 8% in 2001/02 to 4.6% in 2009/10 despite the government’s commitment to increase allocations for health to 15% of its budget by 2015. The health sector continued to be predominantly financed by private sector sources (including households and out-of-pocket spending), although the private sector share of THE decreased from a high of 54% in 2001/02 to 37% in 2009/10. Public sector financing remained constant during this period at about 29% of THE, while the contribution of donors to THE more than doubled, from 16% in 2001/02 to 35% in 2009/10.
In 2009/10, the Kenyan government divided its health spending into five accounts: HIV/AIDS, reproductive health (RH), tuberculosis (TB), malaria, and child health (CH).
The total health expenditures on HIV/AIDS (THEHIV) doubled since 2001/02, from US$188.6 million to US$397.5 million in 2009/10. In 2009/10, THE HIV accounted for 25% of THE and 1.3% of the GDP. Donors continued to finance the bulk of HIV/AIDS expenditures, although their contributions as a percentage of THE HIV declined from 70% in 2005/06 to 51% in 2009/10.
The total health expenditures on reproductive health (THERH) increased from US$170.4 million in 2005/06 to US$225.2 million in 2009/10 with government contributing 40% in 2009/10 compared to 34% in 2005/06. The private sector’s role as a financer of THERH declined from a high of 41% of THERH in 2005/06 to 38% of THERH in 2009/10.
In 2009/10, total health expenditure on malaria (THEMalaria) was US$405 million, or 25% of THE. The private sector (including households, through out-of-pocket spending) and the government financed 52% and 31% of THEMalaria respectively in that year.
In 2009/10 total health expenditures for TB (THETB) were US$17.8 million, accounting for 1.1 % of all health spending in Kenya. Donors provided 42% of all resources for THETB, followed by the private sector and government, each contributing almost 30%. About 39% of THETB in 2009/10 was managed by the public sector with NGOs and donors together controlling 34%.
Child Health services (CH) services were crosscutting with a frequent overlap between spending on CH services and spending on HIV/AIDS, TB, and malaria. A total of US$122 million was spent in 2009/10 for CH services. The total child health expenditures (THECH) per child below 5 years were US$20. Donors, provided the largest share of THECH in 2009/10 at 44%, while the private sector, including households, contributed 32%.
Public health facilities continued to be the major providers of health care services. In 2009/10 they accounted for nearly half (47%) of THE, followed by private health facilities, which were responsible for 22%. Inpatient care took 22% of THE in 2009/10, down from 32% in 2001/02. Expenditures on public health programs increased from 9% in 2001/02 to 23% in 2009/10.
Medical training in Kenya is carried out by the Kenya Medical Training College (KMTC) and its affiliated 26 institutions, which graduated approximately 4000 health professionals by 2010 from the 17,000 qualified applications it received annually. A severe shortage of academic staff was the limiting factor for admissions. Of the 1500 established posts for academic staff in KMTC, only 650 were filled.
The Government of Kenya Economic Survey 2010 estimated the value of medicines and pharmaceuticals consumed in Kenya at US$190 million (based on local production plus imports less exports). However, for 2008/09 the total allocated budget for “drugs and dressings” was only about US$37 million, or 12.1% of the total Ministry of Health (MOH) recurrent budget.
The role of the private sector as a financing agent or manager of THE decreased in 2009/10 from almost a third of total health spending to nearly 50% in 2001/02. NGOs and donors controlled 30% of THE in 2009/10 — four times more than in 2001/02. Public sector entities managed 43% of THE in 2001/02 controlled just 37% in 2009/10.
The World Health Organization (WHO) estimated the level of public sector funds needed to provide essential medicines in a basic health care package at around US$ 1.5-2 per capita against a MOH allocation of US$ 1.1 per capita. National estimates obtained through quantification and estimation of needs, revealed that about US$ 81 million was required for pharmaceuticals annually, but less than US$22 million was made available.
Kenya’s Human Resources for Health (HRH) situation was high in sub-Saharan Africa with a provider-population ratio of 1.69/1000 (for all cadres of providers). The most pressing problem however was the drastically unequal distribution of workers, by urban/rural areas, by regions, and by level of care. Rural dispensaries had 20% fill rates of their nursing establishments, while district hospitals have 120% fill rates. Approximately 25% of the HRH budget for the entire public sector was taken up by the two referral hospitals.
The National Hospital Insurance Fund (NHIF) Kenya’s public health care system reached a sizable proportion of the population of employees in the formal sector, approximately 1.2 million members and their families composing a group of some 7 million beneficiaries. However, while the NHIF paid fixed rates for in-patient days, these payments only covered “hotel” costs. All other fees for treatment, diagnosis and pharmaceuticals were paid out of pocket by the NHIF insured patients. The benefit was therefore not perceived as substantial by the NHIF insured patients as considerable amount of extra costs were incurred especially for specialized treatment.
A study by Wells revealed that 60–80% of the houses constructed in Kenyan urban areas between 1985 and 1995 did not follow the formal construction directives. Regulation was severely diminished by a combination of decreasing resources and corruption. An increasing number of private clients in Kenya chose to build using the informal system - the building process, without the use of contractors or formal contracts, United Nations Human Settlement Program (UNCHS) - either because it met their needs for incremental building (which the formal system did not) and/or because it offered a similar outcome at lower cost.
Informal construction employment in Kenya rose from 17,800 in 1992 to 31,600 in 1995, an increase of 75% in 4 years, while formal (private) employment increased only slightly during the same period to reach 47,000. The Quarry and Mineworkers Union estimated that in 1996 there may have been around 200,000 quarry workers in Kenya representing 10% of the estimated total employment in the small businesses and micro-enterprises in Kenya at the time. Approximately 20,000 workers were estimated to have been directly employed in quarries serving the Nairobi market alone. Many others were employed in support activities, such as transporting stone to markets, manufacturing and repairing tools and cooking food for quarry workers.
There was a significant decrease in the effective regulation of new building activities in Kenya since the 90s with many privately owned buildings, large as well as small, being constructed without permits with occupancy certificates being issued for only a small fraction of the completed buildings each year.
The early 2000s led to increased growth in enterprises offering specialized labor for common tasks such as concreting or block laying. In turn this drove a growing number of private clients to opt out of the formal procedures for awarding contracts, in favor building directly with informal sector enterprises that supplied labor. Contracts between the parties were verbal and construction took place in stages.
In 2013, the Kenyan building and construction sector expanded by 5.5% up from a growth of 4.8% in 2012.Agriculture, Forestry, and Fishing
Average figures for the year 2008 -2009 indicated that agriculture was the largest contributor to GDP by activity (an average of 23%). However, only 16% of the total land area of Kenya was is arable. The remaining land semi-arid land (ASAL) is of low agricultural potential. The rest could support commercial ranching or irrigated agriculture but only with added technological input.
Over 5 million people live and derive their livelihoods in ASAL areas. Generally, Kenya has been self-sufficient in major food items except in drought years. Chronic vulnerability to drought is concentrated in ASAL areas. Challenges include provision of water for domestic use, livestock and preservation, and the rearing of drought-tolerant crop varieties.
The narrow base of agricultural products, especially exports, exposes the country to volatile incomes in international markets. The sector is also characterized by weak vertical integration made worse by weak agricultural institutions and unreliable export services.
Tea: By 2011 Kenya was one of the largest producers of black tea in the world. Kenyan tea is renowned for its brisk flavor and delicate fragrance. It is among the country’s biggest foreign exchange earners, with earnings of about $1.3 billion in exports to over 54 destinations. By 2010, key markets included Egypt, Pakistan, Afghanistan and Sudan.
Floriculture: Horticulture contributed to about 3% of the Kenyan National GDP in 2011, floriculture contributing 1.6%. This amounted to about US$ 1 billion annually in foreign exchange earnings. Main production areas are around Lake Naivasha, Nairobi, Thika, Kiambu, Athi River, Kajiado, Kitale, Nakuru, Kericho, Nyandarua, Uasin Gishu and Eastern Kenya. In 2012 the main cut flowers grown in Kenya were roses (53.6%), Easter lilies (26.5%), Arabicum (4.1%) carnations (3.1%), and Hypericum (1.98%).
Coffee: This is a source of livelihood, for small-scale producers (700,000 in 450 cooperative societies) most of whom live in heavily populated agro-ecological zones. Small-scale farmers (farms of no more than 10 acres) produced about 28,000 metric tons while medium estates farmers and large-scale famers produced 22,000 metric tons in 2010. The country produces Arabica coffee, a high-quality mild coffee, grown on rich volcanic soils found mainly in the highlands between 1500 and 2100 metres. Coffee was fourth after tea, horticulture and tourism in contributing to Kenya’s foreign exchange earnings (close to 20% of total export earnings) in 2010.
Lack of investments, diseases and poor infrastructure led to poor quality and reduced productivity and earnings. Kenya Planters’ Cooperative Union (KPCU) a state corporation enjoyed a monopoly until 1995 when liberalization of milling gave rise to two new players Socfinaf and Thika Coffee Mills although more millers were licensed as from 2005. Kenya had a record crop of 128,000 tons in 1988/89 when the only miller KPCU handled the crop. Currently, Socfinaf is the largest producer (+/- 2,250 ha under coffee), followed by Sasini (927 ha under coffee). The quality and market price of Kenya’s coffee suggest that with the right policies, an opportunity of promising returns exists. Productivity at the national productivity levels in 2010 was only 289kg/ha against a productivity of 2,000kg/ha by large-scale farmers.
Forestry: Kenya Forest Service (KFS) a State Corporation was established in February 2007 under the Forest Act 2005 to conserve develop and sustainably manage forest resources for Kenya's social-economic development. Kenyan forest plantations cover 150 000 ha, of which only about 130 000 ha are satisfactorily stocked. Cypress (Cupressus lusitanica), pines (Pinus patula and Pinus radiata) and eucalypts (mainly E. saligna, E. camaldulensis, and E. grandis) comprise over 80% of the plantation area, and supply most of the country’s industrial roundwood. Roundwood plantation production was 1.21 million m3 in 2000, but was expected to rise to 1.96 million m3 by 2020. However, projections by the Ministry of Environment and Natural Resources in 1994 and showed that demand would exceed supply by 2005. Identified factors that would contribute to this included conversion of forestland to settled agriculture, poor plantation management practices, and low investment in forest industries leading to low utilization efficiencies - estimated at 28%.
Fishing: Bokea and Ikiara estimated that in 1995, fishermen earned an estimated US$66.1 million from fishing, less than 30% of the value of the retail trade. The rest went to the people engaged in the processing and marketing and in government taxes. In the same year, fish exports earned Kenya US$16.8 million in foreign currency. These foreign exchange earnings were in fact, an under-estimate as earnings from sport fishing were not included.
Factors responsible for the decline in catches included ecological consequences of overfishing, introduction of alien fish species, pollution and the water hyacinth infestation.
In 1998, Kenya exported fish worth US$ 27.8 million. This constituted only about 1.4% of the country's total exports that year.
1999 estimates reveal that 7.5% of Kenya’s coastal population was directly dependent on fisheries. Spear-gunners were non-existent on the Kenya coast in the 1960s but in 2000 they constituted between one-quarter and one-third of the population engaged in nearshore captures.
Most of the fish population consists of pelagic, coral reef species and the demersals. The most productive fishing areas are on the north coast in the Lamu area including Kiunga, Kizingitini and Faza, at Malindi and Tana River delta, and on the south coast around Majoreini and Vanga. Consequently, fishing activities are concentrated along this inshore areas fished by small-scale fishermen operating small non-mechanised crafts and few mechanized commercial trawl fishers targeting shallow water shrimps.
Approximately 80% of the total Kenyan marine products came me from shallow coastal waters and reefs while 20% was from off-shore fishing in Kenyan waters done by Kenyan and foreign vessels, the latter under licenses’. However, due to the nature of such activities, supervision of the fishing area was a big problem and it was likely that unlicensed fishing vessels could easily poach in Kenyan territorial waters. No accurate information existed about the fish caught by foreign owned vessels. The main marine products consisted of: demersal species 42%; pelagic species 18%; crustaceans 11%; sharks, rays and similar species 18%; molluscs and echinoderms 4%; deep sea and game fish 6%.
There are two discernible fishing seasons congruent with the Indian Ocean monsoon seasons. The calm NE monsoon that sets in active fishing by most of fishermen while the rough SE monsoon season results in little fishing with most fishermen opting out of the fishery or alternatively restricted to the inshore sheltered creeks and bays.
Tuna fisheries in Kenya continue to play an important role in the socio-economic development of the country. Artisanal landings of 180 tons of tuna were realized in 2010 while a local longliner landed 137 tons. Recreational big- game fishing for tuna and billfishes landed 60 tons.
Rich inshore marine fishing grounds are found in and around Lamu Archipelago, Ungwana Bay, North Kenya Bank, and Malindi Bank. This area is where the south flowing Somali Current meets the north flowing East African Current during the Northeast Monsoon season (November to March) causing upwelling and enrichment. The various marine environments in place include a fringing coral reefs extending all along the coastline with a few breaks where the two major rivers i.e. River Tana and Athi drain into the ocean. The others are mangrove areas, sandy shores, mudflats and rocky shores.Gross Capital Formation
Kenya achieved gross capital formation (% of GDP) percentage growth rates of 5.5%, 5%, 16.1% and 9% in 2009, 2010, 2011 and 2012 respectively. During this period the growth rates for Africa averaged at 7.2%, 14%, 8.2%, 11.3% and 8.2%. The final average growth rate 8.9% comparing poorly against a total Africa’s 9.8% for the same period. African countries that achieved strong capital formation growth rates included Ghana 14,1%, Zambia 13.9%, Tanzania 13.7%, Mozambique 12.5% and Malawi 11.36% for the period.
The average gross fixed capital formation for the country 200-2009 was US$7 billion and US$ 8 billion for Africa. The following African countries had greater capital formations than Kenya. South Africa US$69m, Algeria US$59m, Nigeria US$54m, Egypt US$39m, Morocco US$29m, Sudan US$12m, Angola US$11m, Tunisia US$10m, Ethiopia US$9.7m, Ghana US$9 m, Equatorial Guinea US$8.5m, and Tanzania US$8.2m.Tourism
Of the total employment in Kenyan economy in 2013, 226,500 were direct jobs (4.1% of total employment) and 363,000 indirect jobs (6.5% of total employment) in Travel & Tourism. Direct contribution of Travel & Tourism to GDP was U$2.05 billion (12.5% total GDP in 2013) with visitor exports generating $1.8 billion (17.3% of total exports) during the same year. Travel & Tourism investment in 2013 was $624 million, or 7.6% of total investment. After a drop in revenues in 2007 due to the violence that resulted after elections, the Kenyan tourism industry was on a recovery path with tourism revenues reaching $1.09 billion in 2011 up from $0.82 billion in 2010, $0.69 billion in 2009 and $0.73 billion in 2007. Using data between 1975 and 2011 Gil Alana, Mudida and Perez de Gracia arrived at the same conclusion in their study of the Kenyan tourism industry revealing that political shocks affecting the industry were only transitory; expected to disappear relatively fast after a political shock. This conclusion presents a tremendous opportunity for the country to use tourism as a vehicle for economic development.
It is therefore not surprising that the Kenyan Government earmarked tourism as one of the six key growth sectors that would drive the country to economic prosperity. The vision is for Kenya to be one of the top ten long-haul tourist destinations by 2030. However, this will not be easy given the key constraints affecting Kenya’s touristic offerings particularly at the coastal region, in game parks and natural reserves, and in niche products such as cultural and eco-tourism as well conference tourism. The challenge of the programme is that 75% of Kenya‘s wildlife is found in the dry lands with nearly 80% of the wildlife being found outside protected areas (parks and reserves); in places known as range lands. Parks and reserves are the basis of Kenya‘s wildlife safari tourism. Rangelands are areas rich in wildlife and with their natural rivers or manmade wells and dams are important in the conservation of wildlife. By 2013, Kenya had 57 protected areas dispersed widely across the country covering about 8% of the country‘s land area most of them located in the Arid and Semi-Arid Lands (ASALs).
Existing attractions in Kenya in 2013 included 22 terrestrial national parks, 4 marine national parks, 28 terrestrial national reserves, 6 marine national reserves and 5 national sanctuaries, museums, heritage sites and mountain ranges. Kenya had 174 hotels with domestic tourism accounting for 34% of overall tourism bed nights by 2011. The highest average bed occupancy rate ever reported in Kenya was 87% out of an available 24,000 rooms during the same year.
Total tourist arrivals in 2012 were 1,780,768 tourists compared to 1,785,382 tourists in 2011 registering a marginal decline. Estimated receipts from tourism for 2012 were US$1.07 billion, a 1.92% drop from the US$1.09 billion realized in 2011. Europe was the main source market source for Kenyan tourism 43%, Africa 24%, America 13%, Asia 12%, Middle East 5% and Oceania 3%. 2012 figures revealed that domestic tourism accounted for 37% of all bed-nights; 16.4% of these were in Nairobi high-class hotels while 44.8% were at the Coastal beach hotels.
There seems to be a correlation between long haul flights and the development of a country’s tourism industry. In SSA East Africa is the best-connected region by long-haul flights with Air France, South African Airways, Brussels Air, British Airways, and Ethiopian Airlines providing 61% of the long-haul flights.Special section – mobile telephones
Nairobi city was at the forefront of the mobile phone transformation in East Africa. Wananchi Online, a leading Kenyan Internet service provider became East Africa’s leading cable, broadband and IP (Internet-based) phone company with a valuation of over US$100 million in 2014. Craft Silicon, a Kenyan software firm that provided core banking, microfinance, mobile, switch solutions software and electronic payments services for over 200 institutional clients in 40 countries had a US$50 million market value.
However, the most successful of these companies was Safaricom with a market capitalization of US$5 billion in 2014 it was not only the biggest company in East Africa but had the most successful money transfer service in the world, M-PESA. The company reported a user base of 15.2 million users in 2012 enabling the company generate revenues of US$116 million during the same year. M-PESA was conceived by a London based team within Vodafone and the Central Bank of Kenya helped enable the M-PESA system processes by allowing mobile operators to take a central role into the lowering of costs of financial access especially to poorer people. The Department for International Development (DFID) played an instrumental role in the creation of M-PESA within Kenya by providing seed funding to Vodafone for early M-PESA trials. M-PESA was launched in March of 2007 and by 2011 the system was processing more transactions domestically than Western Union globally. The system became successful since pre-existing market conditions made Kenya conducive for successful mobile money deployment. Such growth rates are even more impressive than those of the mobile phone. It took Safaricom service nearly 10 years to build a user base of 8 million subscribers. The competitive pricing structure was one reason for such rapid growth. Other factors that contributed to its rapid growth included acceleration of the speed at which money could be transferred. This was because money was being transferred in electronic rather than physical form.
M-PESA worked as follows: to transfer money individuals had to register at one of the retail agent outlets, and deposit cash. The cash was thereafter reflected as e-money in a virtual account that was attached to the sender’s SIM card. After a balance was established, the e-money value could be transferred to a recipient’s phone. The recipient thereafter visited an agent to convert the e-money balance back into cash. The actual transfer happened almost instantaneously.Financial Services
After a comprehensive analysis of Kenya’s global competitiveness, process outsourcing (BPO) and financial services were two key sectors identified to deliver a 10% per annum growth rate. To promote high-levels of savings and financing for Kenya’s investment needs, financial services were important as Kenya sought to become a regional financial services center.
A 2013 Central Bank of Kenya (CBK) analysis revealed that financial access in Kenya had improved over time from 18.9% in 2006 to 22.6% in 2009 and 35% in 2013. Kenya had also moved its proportion of the population excluded from financial access from 38.4% in 2006 and 32.7% in 2009 to down to 25% by 2013. By 2013 mobile phone financial services companies had increased to six players since 2007 when the services were first introduced. Some of the company’s products featured interfaces, linkages and integration of mobile payment platforms to financial institutions to dispense financial services. Examples of such interfaces include: M-Shwari, M-Kesho, Pesa-Pap, KCB Mtaani, Co-op kwa jirani, Faulu Popote and ATMs -mobile linkages.
By June 2013 mobile phone financial services provided over 60 million transactions valued at about US$ 1.75 billion with total mobile phone transactions per day averaging US$58.4 million. The average size of the transactions per customer had been increasing from US$45.5 in March 2007 to US$78.6 in June 2013. Part of the rise was due to corporates encouraging the use of the facility in new diverse ways to make payments.
Number of deposit accounts increased from 1.9 million in 2002 to over 20.9 million in June 2013. Number of micro accounts increased from 1.55 million accounts in 2002 to about 19.91 million accounts in June 2013 (Micro-accounts were accounts with balances of up to US$1,100 and fully covered by the Deposit Protection Fund of the Central Bank of Kenya). The phenomenal growth was attributable to reduced costs of maintaining micro accounts.
Kenya is a relatively open economy with a trade to GDP ratio of more than 50% although its exports are highly concentrated to coffee, horticulture and tea. These are classified under food and services in Figure 1. Coffee exports have been severely affected by collapse in international coffee prices and since 2008 the leading export has been tea with horticulture as second. Tea exports benefited from the supervision of the Kenya Tea Development Agency (KTDA) which efficiently managed input provision and collection of green leaf tea, providing a market for smallholder farmers.
The loss of European market share to Brazil and Vietnam further reduced the value of Kenya’s coffee export. The persistent reliance on raw agricultural produce, crops that have poor growth and real price change prospects has meant that export earnings are often negatively affected by sluggish international demand, because the country has failed to diversify to product lines that promise favorable growth prospects. Therefore, Kenya’s traditional exports face unfavorable long-term global demand prospects due to their low-income elasticities.
Kenya’s exports totaled US$ 3.9 billion (made up of domestic exports of US$ 3.74 billion and re-exports of US$ 247 million) while imports totaled US$ 9.1 billion in 2009. By 2011 exports had increased to US$ 5.92 billion and imports to US$ 15.2 billion. Figure 2 illustrates Kenya’s export markets by value since 2008. In terms of broad economic categories (see Figure 1). Leading exports were food and beverages (accounting an average of 41.9 %), industrial supplies (28.4%) and consumer goods (24.2%) contributing more than 90% of Kenya´s total domestic export earnings. Kenya’s regional exports first increased between 1993 and 1998, then declined somewhat until 2001, and have since been rising quickly. Regional exports are dominated by re-exports of petroleum and petroleum products into its hinterland (Uganda, Rwanda, and Burundi). The leading market for Kenya’s exports is Africa (see Figure 2), taking more than 46% share of all exports in since 2004. While Uganda and Tanzania are Kenya’s top customers, other major African importers of Kenyan goods are the Democratic Republic of Congo, Egypt, Rwanda and Sudan. By regional grouping, East African Community (EAC) takes up more than 55% of the total exports within Africa while Common Market for Eastern and Southern Africa (COMESA) takes up 27.5%.
However, Kenya’s trade with South Africa, Africa’s second largest economy is one sided. In 2004 for instance US$ 450 million imports from South Africa far outweighed US$ 21 million exports. Nevertheless, most exports are to Uganda accounting for more than 10% of Kenya’s exports since 2009.
A major inhibitor of the export business especially energy-intensive exports such as textiles and garments, and some agricultural products is power costs. The quality of roads and delays in administrative procedures also drives up transport costs. For instance 69% of total costs for coffee are transport costs. Administrative delays that characterize VAT refunds for VAT paid on imports effectively constitutes a tax on exports, reducing Kenyan exporters’ ability to compete in world markets. Weaknesses in the legal framework, licensing, complex rules and regulations for exports, and the poor quality and other high costs of business services make Kenya exports uncompetitive.
Kenya’s next largest market is Europe, which since 2004 absorbed an average of 27% of its exports. Major customers were the United Kingdom, the Netherlands, Germany France and Belgium. In 2004 major importers of Kenyan goods to Asia were Pakistan, United Arab Emirates, India and China. Although textile exports rose by 200% between 1976 and 2003 due to American Growth and Opportunities Act (AGOA preferences) they still contribute less than 1% of export value. The United States of America was the main customer from the American continent.
Between 2009 and 2011 Kenya’s top suppliers include the United Arab Emirates, China, India, South Africa, Japan, the United States, Saudi Arabia and the United Kingdom. Collectively, these countries make up more than 55% of Kenya’s total imports. Figure 3 displays imports by region. Major imports by percentage value are shown in Figure 4. Industrial machinery, petroleum products, crude petroleum and road motor vehicles are the largest categories by value.
Although Kenya is a deficit economy, the current account deficit has widened over time. It increased from US$ 3.3 billion (9.7% of GDP) in 2011, to US$ 4.5 billion in 2012 (11.1% of GDP). This was due to subdued export demand from Kenya’s trading partners in Europe, but also due to a strong import demand fuelled by the growth in capital imports. Capital and financial accounts recorded higher surpluses of US$ 5.06 billion in 2012 compared to a surplus of US $3.8 billion recorded in 2011.
Crude oil imports did not drive the current account deficit especially in 2012 when the oil bill remained the same as in 2011 at US$ 4.1 billion. Nevertheless, capital imports increased by 29% from US$ 3.7 billion to US$ 4.9 billion.
The overall balance of payments improved from a deficit of US$ 0.04 billion (0.1%) in 2011 to a surplus of US$ 1.4 billion (3.0 % of GDP) in 2012, as the result of an increase in project loans and strong net short term flows. Notably, an increase in international reserves attributed to the purchase of foreign exchange reserves from the domestic interbank market by the Central Bank of Kenya (CBK) and the disbursement of International Monetary Fund (IMF) loans under the Extended Credit Facility (ECF). The basic balance (current account balance plus net direct investment) remained negative though, implying a continued reliance on potentially volatile portfolio investment, signaling that Kenya continues to remain vulnerable to external shocks.
Imports of heavy machinery and transportation equipment important for infrastructure projects and oil and gas exploration are likely to further widen the current account deficit in the coming years. Therefore, Kenya will be at risk of depending on short-term flows that are susceptible to uncertainties in global financial markets. This could undermine its ability to finance the current account deficit. Kenya would benefit from increased long-term flows and Foreign Direct Investments (FDI), to substitute for some of the short-term flows that are more vulnerable to uncertainties in global capital markets.
Kenya’s regional imports consist of textile fibre/textile products, tobacco, beverages and cereals from the EAC and iron and steel, paper products, sugar, machinery/transport equipment and chemicals from COMESA. Over 50% of all component imports occur in just three product groups: telecommunications equipment, motor vehicles and switchgear.
Kenya’s banking sector is comprised of 43 commercial banks, a mortgage finance company, 9 microfinance institutions and 7 offices of foreign banks, 106 foreign exchange bureaus and 2 credit reference bureaus. The sector’s balance sheet stood at US$ 30.3 billion, loans and advances at US$ 17.6 billion, the deposit base at US$ 22.1 billion, and a combined sector profit of US$ 1.07 billion before tax as of 2013. Average liquid assets amounted to US$ 8.68 billion while total liquid liabilities stood at US$ 21.4 billion, resulting in an average liquidity ratio of 40.4% above the minimum statutory limit of 20%.
Kenya’s de jure monetary policy anchor has traditionally been reserve money targeting, although targets on net domestic assets have become more prominent recent times (in the context of an IMF program), and the CBK has been paying increasing attention to short–term interest rates. The country maintains a managed ﬂoat, with foreign exchange rate operations, reﬂecting in part the role of the CBK as banker to the government and the magnitude of official foreign exchange ﬂows, providing most of the liquidity injections in recent years.
It is difficult to characterize CBK′s de facto monetary policy framework. Although the bank has tried to maintain inﬂation targets through foreign exchange purchases and Open Market Operations (OMO) its Reserve Money (RM) targets have often been missed and subsequently adjusted, so that they in themselves have not dictated monetary policy. From 2009 through 2011 for instance RM growth was consistently higher than targeted as the effectiveness of the monetary policy was hampered by the operational framework in place. CBK had maintained a policy rate (the Central Bank Rate or CBR) meant as a signal stance of policy used to lend overnight to banks within a standing facility program. In practice however, the rate was not relevant for the ﬁnancial system since sizeable injections of liquidity resulted in large declines in interbank rates – 1% - while the CBR was at 6% (Figure 6). Moreover the CBK had employed Repurchase Operations (REPO) and reverse REPO operations to manage liquidity, with the rates associated with these operations being delinked to the CBR but moving in line with the interbank rate.
Inﬂation started to accelerate signiﬁcantly in 2011, reaching almost 19% in November. The Shilling depreciated by 15% in the six months through November 2011 as inﬂation expectations deteriorated. In response to these developments, the CBK reduced foreign exchange purchases and suspended the provision of liquidity through reverse REPO. As interbank rates started to spike, commercial banks began to exploit arbitrage opportunities from the expected depreciation by borrowing from the CBK’s overnight discount window and building up foreign exchange positions. In an effort to stem the incipient crisis, the CBK raised the CBR through the second half of 2011 and eventually restricted the use of the discount facility, but without a clear communication strategy, which resulted in even larger increases in the interbank rates.
Facing this instability and the increase in inﬂation, the CBK modiﬁed its operational framework in September 2011 with a view to making the CBR useful as a signal of policy. It increased the CBR to 18% by December 2011 from 6.25% in September. In addition, the CBR became the pivot rate for both REPOS and reverse REPOs; i.e., these operations would take place at the CBR rate plus or minus a margin. The overnight rate was set at the CBR rate plus 600 basis points, to eliminate its role as a regular source of funding. Since this reform and policy shift, inﬂation declined. In 2013, CBK focused on maintaining an inflation target to (5 ± 2.5 %) The convergence of interbank rates toward the CBR, and the stability of the market-determined exchange rate improved the credibility of Kenya’s macroeconomic policies and raised expectations.
Government and Fiscal Policy
Taxation is a key source of revenue for the Kenyan government financing close to 60% of the national budget. Dependency on foreign aid and borrowing declined averaging about 11% of the total budget between 2005 and 2010. In 2013 Kenya placed its first ever US$2 billion Eurobond the largest in sub-Saharan Africa, which was more than four times oversubscribed with a strong response from foreign investors. Proceeds are to be used to upgrade power generation, agriculture and transportation infrastructure. The Kenyan government with the help of a loan from China intends to construct a Mombasa-Nairobi standard gauge railway at a cost of US$3.6bn, expected to commence in 2014 and to be implemented in 5 years.
The Constitution of Kenya 2010 gives national government powers to impose taxes direct taxes and indirect taxes - value added tax (VAT), excise duty and customs or import duty. On the other hand, County governments’ mainly impose taxes on property and entertainment taxes. Of the total tax revenue collected since 2000, the largest contributors were income tax (40%) and VAT (28%). However, the burden on income tax is felt by only 20% of the total productive labor force. Corporate income tax rate is charged on profits from registered business entities at 30% for resident companies. However, a number of businesses especially in the informal sector are not taxed.
Kenya’s philosophy on trade taxes is that it should not only generate revenue but also facilitate trade by protecting the domestic manufacturing industry. Figure 1 shows the Kenyan government financing of loan and grants over a period of five years.
The Kenyan government established new counties in line with the 2010 Constitution, and introduced a reporting framework on budget execution by counties through detailed quarterly reports published by the Office of the Controller of the Budget. However by 2013 teething problems had not only introduced strains in government’s cash management but also induced interest rate volatility. There was a need for a review of the cash management framework with a view of revamping and staffing the intergovernmental fiscal relations department, which would support capacity building at the county level.
By 2011 and despite increasing aid flow and more donor countries, aid to Kenya declined in relative importance. Only 15% of Kenya’s public expenditure was foreign-financed, compared to more than 40% in the other East African Community (EAC) countries. Kenya had a strong revenue performance with many public services being financed by taxpayer money.
According to a 2009 Brookings Institute report increased aid flow to Kenya since 2002 was more as a result of increased government borrowing to finance development projects on infrastructure as well as increased inflows of grants to support government efforts in social sectors and humanitarian responses to droughts following successful Consultative Group (CG) meetings in 2003 and 2005 (Consultative group meetings are periodic meetings under the aegis of the World Bank involving senior officials of a recipient country but very much donor driven).
An increase in foreign aid is generally viewed as a measure of donor confidence in a government’s resolve to the proper management of the economy and situating adequate government measures against graft and corruption. The drop in aid in the 1990s reflected Kenya’s own falling out with donors over the implementation of Structural Adjustment Programmes (SAPs) but also a general decline in aid to SSA following the end of the Cold War. Kenya’s share of ODA among developing countries was 1.22% over 1980-2006 and the country’s share of development aid to Africa was 3.34% over the same period.
At its peak in 1989-1990 net Official Development Aid (ODA) inflows averaged 14.6% of the GDI declining to 2.52% in 1999 and was 2.94% in 2002 before increasing to 4% in 2006. This indicated a decreasing importance of ODA to the economy and at 3-4% of GNI, Kenyan dependence on foreign assistance was low. Kenya received approximately 70% of its total aid from bilateral donors
Loans and grants to Kenya from China became significant in size after 2003 when a new government was elected with China’s share in total aid exceeding 1%. China accounted for 1.23% of the total aid in 2003, 1.15% in 2004, and by 2005 this had increased to 8.25%. The country rose from among the lowest contributors of development assistance in Kenya to become one of the largest by 2005, second only to the European Union.
The Kenyan government estimated to collect a total of US$11.56 billion comprised of US$10.8 billion as ordinary revenue and US$ 756 million in aid for the 2013/2014 financial year. The country’s overall budget expenditure for 2013/2014 was estimated at US$18.4 billion with total receipts of US$ 14.4 billion including loans and grants and an overall deficit amount of US$ 4 billion.
Government printed estimates of 2013/2014 financial year reported that it would receive US$2.7 billion from development partners comprising of: loan revenue US$517 million, grant revenue of US$122 million, loans appropriations in aid of US$1.5 billion and US$550 as grants. Actual disbursements in the first quarter of financial year 2013/2014 were US$54 million representing 2% of the gross estimates. Grant revenues registered the lowest performance of US$1.1 million in the period under review.
Kenya’s central bank, The Central Bank of Kenya (CBK) is guided by the Central Bank Act that stipulates, “the principal object of the Bank shall be to formulate and implement monetary policy directed to achieving and maintaining stability in the general level of prices.” In addition, “the Bank shall foster the liquidity, solvency, and proper functioning of a stable market-based financial system”. Tools used by CBK to implement monetary policy include:
- Open Market Operations (OMO)—First used by CBK in 1996, it is the main and most actively used monetary policy instrument to manage liquidity. The OMOs are conducted through sale and purchase of government securities using repurchase agreement (REPO) with commercial banks. In these daily auctions, commercial banks bid for rates that the CBK accepts or rejects.
- Reserve Requirements—Commercial banks are required to maintain a daily proportion of their liabilities in cash—currently 6%—at the CBK. This is not an actively used monetary policy instrument.
- Other Instruments include, Rediscount Facilities and Lender of Last Resort Facilities, which are rarely used as key tools for implementing monetary policy.
Monetary policy is conducted through monetary programming (monetary-targeting framework) of controlling quantities of money (M3X) as the intermediate target to affect prices in the economy. Reserve money (RM) comprising bank deposits at CBK and currency outside bank, is the operating target and is under CBK´s control. Figure 3 is a plot of the Kenya´s money supply over a period of 10 years and Figure 4 is the corresponding inflation rate. Tight monetary stance appears to characterise the Kenyan economy.
Kenya´s exchange rate until 1974, was pegged to the dollar, but after discrete devaluations the peg was changed to the Special Drawing Rights (SDR). Between 1974 and 1981, the movement in the nominal exchange rate in relation to the U.S. dollar was quite erratic; in general the nominal exchange rate depreciated by about 14% and this depreciation accelerated in 1981/82 with further discrete devaluations. Also between 1980 and 1982, the Kenya shilling was devalued by about 20% in real terms measured against the SDR. After these devaluations, the exchange rate regime was changed to a crawling peg in real terms by the end of 1982.
Kenya´s nominal exchange rate is determined by real income growth, the rate of inflation (Figure 4), money supply growth (Figure 3), the cycles in the real exchange rate movements and cointegrating vectors and shocks. Actions on the fiscal side too have implications on domestic interest rate (e.g. through the price effect of crowding out through the effects on the return on government securities relative to other assets). Figure 5 illustrates the exchange rate of the Kenyan Shilling against currencies of leading trading partners over a period of 10 years.
In the long run, price determinants for Kenya’s economy are found to be the exchange rate, foreign price levels and the terms of trade. The adjustment of inflation to disequilibria is slow typically lasting several years. Money growth and changes in the Treasury bills rates too have a positive effect on inflation. An important source of shocks has been the maize-price inflation as domestic supply constraints due to drought raise inflation in the short-run. Kenya is gripped with droughts on average every two to three years and the response has been expensive imports to cover food supply shortfalls.
Proper understanding of the transmission mechanism of monetary policy is essential to the appropriate design, management, and implementation of monetary policy.
The country is yet to adopt an inflation-targeting regime that is widely adopted in industrialized and middle-income emerging markets. Although attractive, such a regime has associated pit-falls and challenges that CBK will have to face. This transition from one monetary framework to another should neither be abrupt nor taken in isolation. Fortunately, many of the elements of a full-fledged inflation-targeting framework are in place and the CBK is engaged in developing the required capacity. Fortunately, these developments will have to be undertaken in concert with the East African Community countries.
Kenyan Commercial Banks
Kenya had 26 locally owned commercial banks which accounted for 61.4% of the assets; 14 commercial banks were foreign owned and accounted for 34% of the sector’s net assets in 2013. The total net assets in the Kenyan banking sector stood at US$ 30.3 billion as at 31st December 2013; 6 banks were classified as large with a market share of 52.39%, 16 with a market share of 37.95% as medium banks and 22 shared the remaining market share were classified as small.
For a sustainable intermediation function, banks need to be profitable and the financial performance of banks has critical implications for economic growth of countries.
The Central Bank of Kenya (CBK) implemented a requirement that all banks needed to build their core capital to US$12 million by December 2012 up from US$ 4 million in 2008. The argument from the CBK’s perspective was that increased capital base was important for financial sector stability and would lead to cost reduction from economies of scale hence lowering prices (lending rates). However, other market players argued that the Kenyan banking industry was already concentrated and increasing the capital requirements would serve to create more concentration. The reason for the hastened build-up of capital was the perception that stronger banks were likely to withstand financial turbulences thereby increasing banking sector stability. Banks were also expected to benefit from economies of scale and lower transaction costs so as to reduce bank lending rates.
Starting January 2015, all Kenyan banks were required to maintain a minimum capital requirement (Tier II) of 14.5% from the current 12%. This followed the issuance of revised guidelines on prudential capital adequacy ratios by the CBK in January 2013 to strengthen the regulatory framework for commercial banks. The main aim was to enable institutions withstand future periods of stress. In a Financial Stability Report, CBK had indicated its intentions to raise minimum ratios further to make the banking industry move to the level of other markets in the region such as South Africa and Nigeria.
Systemic banks were moving ahead of new regulations, increasing capital through capital injections or bond issuance. They were also adopting internal capital adequacy assessment processes in line with CBK regulations introduced in 2013. Despite higher capitalization, Kenyan banks were been reporting higher profitability than their peers in other SSA countries.
Kenyan banks adopted new technologies (see special section on services) and modern ways of operating which were safer and superior compared to the old ones. This included use of EFT electronic payment transfer, automation clearing through EFT, truncation or cheque imaging transmission systems, uses electronic banks transfer and implementation of mobile money. Technology enhanced commercial banks efficiency as evidenced by the increase in the number of customers that were served by a bank employee. In 2012, one employee used to serve an average of 502 customers while in 2013 the same employee was serving 640 customers.
The FinAccess 2013 survey results revealed that Kenya’s financial inclusion landscape had expanded. The proportion of the adult population using different forms of formal financial services was at 66.7% in 2013 compared to 41.3% in 2009. The proportion of the adult population totally excluded from financial services had declined to 25.4% in 2013 from 31.4% in 2009.
CBK pursued various initiatives geared towards promoting stability of the financial sector on the regional front. Following the development of the framework for supervisory colleges in 2012, CBK hosted supervisory colleges for three of the large commercial banks that had presence in the East African Community (EAC) in October 2013. The college meetings brought together banking sector regulators from all the five EAC member states (Burundi, Kenya, Rwanda, Tanzania and Uganda) including South Sudan, providing an opportunity for the regulatory authorities to have a better understanding of the complex structures of these banking groups. To conduct joint inspections, and plans to establish more supervisory colleges in 2014, the CBK signed Memoranda of Understanding (MOUs) with regulators in EAC countries, South Africa, Nigeria and Mauritius to promote supervisory cooperation.
Agent banking - the turning of non-bank outlets into financial services providers using technology to enable them offer limited financial services - was introduced in December 2010. Since then, the number of banks conducting agency banking increased to 13 as at December 2013. The number of approved agents also increased from 7,144 to 23,477 as at the end of December 2013. This represented a 44% increase in the number of licensed agents, albeit the concentration of 92% of the agents was in 3 large banks. The number of transactions increased by 40% from 29,937,112 transactions recorded in 2012 to 42,055,854 transactions. The increase was largely driven by transactions relating to transfer of funds, cash deposits, cash withdrawals and payment of retirement and social benefits which increased by 24.9%, 48%, 43% and 28% respectively in the year 2013. Despite the overall increase in the number of transactions there were few notable declines in some operations in the year 2013.
The commercial banks’ average lending rate declined from 18.13% in January 2013 to 16.99% in December 2013 and the average interest rate paid by banks on deposits increased to 6.65% from 6.51% over the same period. Consequently, the interest rate spread narrowed from 11.62% in January 2013 to 10.34% in December 2013 reflecting a larger decline in the lending rates. The sector recorded a 16.6% growth in pre-tax profits during 2013. Total net assets and total deposits held by commercial banks recorded growth rates of 16.0% and 13.3% respectively. The sector also recorded strong capitalization levels as a result of retention of profits and additional capital injection.
Kenyan banks expanded by raising domestic credit, providing access to new borrowers, and increasing operations beyond Kenyan borders. The banks remained sound and profitable despite a moderate increase in non-performing loans (NPL) to total loans ratio to 5.6% in May 2014 from 4.6% a year before. A pick up in credit growth was funded externally, mainly because of more intensive use of medium-term concessional foreign currency lines for SME project financing, and increased credit limits by international banks to their subsidiaries. Financial inclusion continued progressing with mobile-banking loans (in this document see the special section on services) and deposits driven by M-Shwari (7 million customers in its first year of operations) and higher Small and Medium Enterprises (SMEs) access to credit.
Following the recommendation of a task force on measures to reduce the cost of borrowing, the Kenyan government introduced the Kenya Bank Reference Rate (KBRR) to allow customers to better compare lending rates across banks. The KBRR was defined as the 60-day average of the CBK policy rate and the 90-day T-bill rate, and was set for 6 months unless market conditions changed significantly. Fixing the reference rate for floating rate loans for six months would paradoxically act against transparency, as banks would be required to adjust the risk premium for the same borrowers as market conditions change during the six-month period.
Kenyan banks expanded throughout East Africa, becoming dominant players in some markets since host banks were less developed and capitalized. In South Sudan Kenyan banks held 45% of the banking assets and 28% in Rwanda a high share compared to the South African and Nigerian banks operating in 25 and 9 countries respectively, with an average share of 10% of assets each in host markets. Kenya Commercial Bank, Kenya’s leading financial institution, was the first Kenyan bank to expand to Tanzania in 1997. Today, 11 Kenyan banks with 288 branches operate in the East Africa, including South Sudan. Kenyan banks entered East African markets mainly through subsidiaries. By 2014, some Kenyan banks were exploring further opportunities in the Democratic Republic of Congo, Ethiopia, Malawi, Somalia, and Zambia. Transnational Kenyan bank assets increased by 35% annually on average since 2011 although by 2013, cross-border activities of Kenyan banks accounted for 10-12% of their banking operations in terms of assets, loans, and deposits. Eight subsidiaries in four countries registered losses, mainly due to inexperience in the new markets.
Water Provision in Kenya: Problems and challenges in managing finite resources
While the related pressures of anthropogenic climate change and population growth will continue to make essential natural resources scarce globally, domestic and international policy has been slow to adapt to this threat. In Kenya, the issue of water rights is heating up rapidly as insufficient infrastructure and dwindling surface waters already leaves many underserved.
Despite the East African country relying economically on water resources, it is simply a water scarce nation. Roughly 90% of its total area is unsuitable for crop cultivation, yet agricultural production remains the largest single contributor to Kenya’s GDP; in the last two years it climbed above 30% of GDP and employs as much as 80% of the population. However, further potential to grow, or even maintain the current reliance on water dependent industries is up for questioning, as agriculture alone represents nearly 80% of freshwater withdrawals in Kenya.
Tables Turned: How Kenya’s President has indicted the International Criminal Court
Since the first summons of now Kenyan President and Deputy President, Uhuru Kenyatta and William Ruto, to the International Criminal Court (ICC) in 2011 and 2013, a protracted debate has emerged around the history and future of the ICC, which in itself is an intermediate victory for the defense. Coming into force in 2002, the institution has, at its extremes, been deemed a bastion of global peace and an instrument of global hegemony. While the content of the cases themselves are unremarkable compared to the Court’s record, they are increasingly amounting to a crucial moment in the Court’s history.
Waiting on a transformation: When will ICT make good on its governance potential?
It has a been a number of years since mobile phone penetration rates began turning heads in development circles. Kenya, perhaps the most referenced country in regards to this statistic, reached 80% last year, which is still considered a low estimate by some. While this has brought significant cultural and economic changes, its supposed biggest dividend, transparency and better governance, has yet to be demonstrated for any sustained period. Making good on that promise is possible, but will require critical research approaches to identify and discover effective applications.