Kenya is a country in East Africa that operates on a market based economy and has an economic growth rate that is higher than most countries in sub-Saharan Africa. The country often experiences economic downfall during election periods which are often characterized by economic tension. However the country is Eastern and Central Africa’s financial, Communication and Transportation services hub, this is not a surprise give Kenya’s comparative advantage. The financial inclusion rate in East Africa is one of the highest among developing countries; the region is also characterized by a strong and highly diversified private sector. In Eastern Africa, the safe haven for Assets is Kenya, with large inflows from the neighboring countries such as South Sudan and Somalia. The Kenyan economy is diverse, and even though it is one of the fastest growing economies in Africa, the country has not had much development lately. This essay analyses the Kenyan economy’s macro-economic performance, economic challenges and government policies in the country.
Performing sectors in Kenya economy
The economy of the country grew by 4.9% in 2017 which was a drop by one percent compared to the previous year. This decrease can be attributed to the fact that the year 2017 was characterized by political tension that was as a result of the election period that prolonged for over three months due to the disputed presidential results (Kenya Economic Outlook, n.d.).. The country has several sectors including agriculture, manufacturing, energy, transport and building and construction, and communication. This essay will discuss the tourism and agricultural sectors which are the main contributors to the Kenyan economy.
The Kenyan economy is mainly based on the agricultural sector; the country’s main exports are agricultural products. Historically, when the colonialists came to the country, most European farmers chose to settle in the country because of the fertile soil. Introducing tea, coffee and sisal the country and these have grown to be among the leading exports even after the European settlers left the country. In comparison to other industries contributes highly to the GDP of the country. In 2016 the agricultural sector contributed to 15.2% of the GDP in the country. The agricultural sector grew by 3.5% compared to the 5.2% growth in 2016.
Another sector that contributes highly to the GDP growth in the country is the tourism sector. The country is endowed with beautiful sceneries, which includes one of the Seven Wonders of the World, the wild beast migration. The sector continued to perform despite 2017 being challenging year in the country. The country earned 120 billion from the sector in the year which is an increase of 0.2 percent compared to 2016.
Annual GDP growth rate
The annual gross domestic product growth rate in the country is 1.5%, the economy of the country expanded by 6.3% 2018s second quarter, after a 5.7 percent growth in the first period. This is the highest growth rate since 2016. The table below shows the drivers of growth in the first and second quarter of 2018.
Driver Growth rate 1st quarter Growth rate in 2nd quarter
Agriculture 5.2 5.6
Manufacturing 2.3 3.1
Wholesale And Retail Trade 7.7 6.2
Transportation And Storage 7.8 7.1
Accommodation And Restaurants 13.5 15.7
Information And Communication 12.0 12.6
Utilities 5.1 8.6
Public Administration 5.8 4.6
The economic growth on a quarterly base grew by 1.5%, this was slower compared to the previous period’s expansion of 1.9%. Since 2004 the GDP growth rate has been at least 5.46 percent, with the highest rate being 12.4% in 2010 and the lowest was 0.3% in the last quarter of 2008. From the table the major driver of economic growth in the country in the year 2018 so far is the accommodation and restaurant sector. This sector had a high growth rate, this attributed to the high number of tourists visiting the country. The agricultural sector performed lowly because of the prolonged drought conditions.
With such growth, the budget deficit which had grown in the year 2017 is expected to shrink in 2018. Subsides that had been introduced on corn so as to tackle food shortages are to be removed and this will also result into reduction in the capital expenditure. Improvement in the climatic conditions is expected to help reduce the current account deficit (Adminusr. 2018, March 19)..
Unemployment and Inflation Rate
According to Kenya national bureau of statistics, the country faces an unemployment crisis and over seven million individuals have no jobs. The high rate of unemployment has been recorded for a long time and is caused by the slow economic growth, seasonal agriculture, poor education system and rapid population growth. Since 1991 the rate of unemployment in the country has remained unchanged at an average of 10.8%. the highest rate of unemployment recorded was 12.20 in 2009 and 10% is the record low in 1997. While it is impossible to have a 100% rate of employment since this will lead to a high level of inflation. The country needs to increase the rate of employment this might help with the rate of economic growth in the country.
The inflation rate in Kenya between September 2018 and October 2018 fell from 5.7% in September to 5.53 in October. This was because of the reduction in transport cost due to the reduction in tax rate for petroleum from the normal sixteen percent to eight percent. Between the two months the customer price index was 0.79 in October and 1,02 in the previous month. Inflation rate in the country has been an average of 9.75% since 2005, with the high being in may 2008 31.5% and the lowest rate was 3.18% in October 2010.
Income, Inequality and Poverty in Kenya
According to Oxfam the level of income inequality in Kenya is very high, actually extreme. The parity between the poor and the rich is very high. Wealth is in the hands of the minority, and as these few reap wealth economic growth fails to help the poor. If this high level of inequality continues almost 3 million people will live in extreme poverty conditions. Less than 0.1 of the population are rich and have more wealth compared to the remaining number. The richest population earns an average 20 times more than the remaining population (Kenya: Extreme inequality in numbers., n.d.)..
Income is not equally distributed in the country especially with the high unemployment rate. It is notable that the number of poor people is high compared to the number of the rich. Inequality in wealthy distribution is inevitable but then it is important to eliminate this phenomenon by creating more jobs both in the formal and in the informal sector where the economy of the country thrives. To reduce the inequality to an acceptable level the government should implement certain economic policies to reform the fiscal system, look for sufficient financing for free and also raise the quality of education and healthcare.
Kenya is a young economy that continues to grow, and has a constantly rising GDP despite the many challenges that the country faces. The government works constantly to make economic policies that gear growth. The country has a long term economic plan, the vision 2030, that outlines the long term plan for economic, social and political development in the country. In addition, in 2010, the country had a new constitution that allows for a devolved government, that is the country is now divided into counties. This strategy will help the country have economic development.