From Kenya's capital Nairobi

Economy and Business in Kenya

Threer Africa

Kenya is one of the most economically developed countries in Africa, with a complex business sector based on agriculture, and with a modern sector with significant industry and a substantial service sector, including tourism. Tourism is normally one of the country’s most important sources of income. Gross domestic product (GDP) stood at USD 163.7 billion in 2017. GDP per capita was 3500 USD in the same year.

Coffee and tea

Coffee and tea have traditionally been the most important export products from agriculture. Coffee exports have declined in recent years, while sales of vegetables, fruits and flowers have increased sharply.

Unlike most other African countries, Kenya had a large group of settlers – white settlers in the colonial era – who developed a modern agriculture with large plantations for the cultivation of coffee and tea, which have since been among the country’s most important export products. Coffee, which is also grown by a large number of small farmers, is vulnerable to partly strong price fluctuations in the international markets. Many farmers have therefore chosen other products, not least flowers and vegetables, which together with tourism was the major growth industry in the 1990s.

Despite a significant modern sector, Kenya is still an agricultural country, where agriculture and animal husbandry employ a majority of the working population. A land reform was implemented after independence, with the distribution of plantation land owned by Europeans and Asians to African farmers. Later, the authorities also contributed to giving Africans a stronger position in other parts of the economy, which was also dominated by Europeans and Asians, although both groups – like Kenyan nationals – continued to play an important role in the country’s economy.

From Kenya's capital Nairobi

Historical development

Kenya had a stronger economy than most African countries when it became independent in 1963, and economic growth continued through the 1970s, making it a success story – and one of the more prosperous in tropical Africa. The 1980s posed several economic problems, not least related to high population growth and a lack of arable land. The political leadership of the country also contributed to the slowdown in growth and to Kenya’s significant financial problems in the 1990s; average income was lower in 2003 than in 1990. In the 1990s, Kenya felt even more strongly than in the 1980s the effect of the widespread AIDS epidemic, which affected, among other things, access to labor. Inequalities between poor and wealthy also increased in the 1990s.

In modern times, large differences existed between a small affluent upper class and the poor, often landless, majority of the people. According to a report presented in 2004, Kenya was then among the top ten countries in the world with the greatest inequality between poor and rich, while at the same time major geographical inequalities and gender were identified. In 2003, more than 56 per cent of the population lived below the poverty line. In 2016 the figure had dropped to 36 per cent. Kenya also has a substantial middle class, with a purchasing power that is a prerequisite for the development of the modern sector of the economy.

From the early 1990s, political contradictions have contributed to financial difficulties to a greater extent, including attributable to widespread corruption under the autocratic president Daniel arap Moi, blamed and criticized by foreign aid providers and multinational financial institutions. Therefore, there was hope for a revitalization of the economy as well, when a new regime came to power after the 2003 elections, including structural reforms.

Kenya has a mixed economy where cooperative measures are common in agriculture and private enterprises (often with some state participation) in trade and industry. Large private foreign investment has been attracted to the country, not least because of Kenya’s political stability – although the country appeared less attractive in the 1990s, due to ethnic and political contradictions. Parts of the country are located in arid areas, where the population at times depends on food aid – partly from the outside and partly provided by Kenya itself. Tourism, especially from the 1980s, has developed into one of Kenya’s foremost sources of income, but from the late 1990s was hit by terrorist terror; partly after the attack on the US embassy in Nairobiin 1998, even more after this was seen in the context of projections against targets in the US in the fall of 2001, as well as terrorist attacks in Mombasa in 2002.

Tourism was also somewhat weakened by high crime rates, especially in the capital Nairobi. The majority of tourists come from the UK and Germany; a Norwegian company is behind an ecologically based effort in the large national park Masai Mara.

Economic cooperation

In 1967, Kenya, Tanzania and Uganda established the East African Community (EAC), as a Customs Union and Economic Cooperation Organization, with several joint services, including shared railways and airlines, as well as the East African Development Bank (EADB). Due to political and economic contradictions in the 1970s, the EAC disintegrated and the property was divided between the countries; EADB continued to exist. The border between Kenya and Tanzania was closed for several years, and official trade ceased. The EAC was restored as a cooperative organization in 2001, followed by a decision to establish a customs union in 2004.

Kenya has for many years been one of the largest recipients of Norwegian development aid. Assistance to the country started in 1965, but was severely curtailed when Kenya in 1990, as a result of Norwegian criticism of the country’s breach of human rights, severed diplomatic relations with Norway. Norwegian assistance to the Kenyan state ceased then, but was continued to some extent through private organizations.

Agriculture, forestry and fishing

The agricultural sector has remained a cornerstone of the Kenyan economy despite an emerging modern sector. With fishing and forestry, agriculture accounted for approximately 20 percent of gross national income (GNI) in the early 2000s, employing over half of the working population. In 2017, agriculture accounted for 34.5 per cent of gross domestic product (GDP) and 36 per cent of employment.

Farming conditions vary greatly from one region to another. About three-quarters of the land area consists of dry plains suitable only for grazing land for zebu cattle, goats, sheep and camels. They are mostly owned by traditional peoples ( masai, somali, boran)), and consistently provides very little financial returns. The commercial livestock farm, which produces meat and dairy products, is based on a small number of large cattle farms in the highlands, especially in the Nairobi area. Production of meat and dairy products is important for both local consumption and export. Precipitation conditions limit arable farming to the highlands, the area around Lake Victoria and the coast. In these areas, agriculture is often intensive, mechanized and with the use of mineral fertilizers. There is a great shortage of arable land, but Kenya still has considerable potential for artificial irrigated agriculture, estimated at over 350,000 hectares.

The most important export crops are traditionally coffee and tea, but in the 1990s increased production of flowers and vegetables. Earnings from this area were higher in the early 2000s than from coffee exports. Tea production has also risen sharply since the 1970s, and tea from the 1990s is Kenya’s most important agricultural export product. Kenya became the world’s second largest exporter of tea in the 1990s (after Sri Lanka) and the largest supplier of tea to the UK. Like coffee, tea is grown in the humid, higher altitudes. Coffee production fell as a result of uncertain prices from the 1990s, and many farmers switched to other crops. Some also removed the coffee bushes, although this is prohibited by law. The higher-lying areas are also suitable for growing flowers, fruits and vegetables for export, essentially to Europe and the Middle East.

Horticulture (horticulture) became a major source of income during the 1990s, and in 2003 passed both coffee and tourism, and is only bypassed by tea. Kenya is the second largest horticultural exporter in Africa, after South Africa. Production includes a variety of vegetables and fruits, as well as cut flowers, of which roses make up a large proportion. Kenya accounts for about 60 percent of Africa’s total cut flower exports, measured in value, and is the world’s second largest exporter, after Colombia (2003). Kenya supplies around 65-70 per cent of world production of pyrethrum. Pyrethrum is a priest collar that provides a natural toxin that is used among other things in insecticides.

Sisal plantations are being cultivated on coastal plantations, but the market for this product has been failing and production is declining. Other sales crops are cotton and sugar cane, and in recent years the focus has been on cultivation for the export of cashew and macadamia nuts. Most of the arable land is used for self-sufficiency production and the local market. In particular, maize, beans, cassava and sweet potatoes, as well as some wheat and barley, are grown for their own use, and Kenya is largely self-sufficient with food grains and other basic foods, as well as with tobacco.

The reduction of fuel and the clearing of forests for agriculture have significantly reduced the original forest vegetation. The large logging has caused considerable erosion problems, but considerable new planting is taking place.

Deep sea fishing is of very limited importance, with relatively small offshore coastal fishing, but freshwater fishing in Lake Victoria and Lake Turkana provides relatively large catches. However, the fishing industry is hampered by the fact that fish are not part of the traditional diet of many of the country’s inhabitants

Mining and energy

Kenya has deposits of a number of minerals, but only a few are of commercial significance. Some flux spatula and sodium carbonate (soda) are extracted, as well as salt, limestone, titanium and gold. Rubies are also recovered, and several deposits of semi-precious stones, including tsavorite, have been found in Tsavo, south of the country. Occurrences of chromium, nickel and copper have been found. Oil exploration off the coast and in the Tana River valleys have not shown any viable deposits.

Kenya is not self-sufficient in energy and imports electrical power from the Owen Falls power plant in Uganda. The country’s in-house electricity comes essentially from hydropower from plants at the Tana River and Turkwel Gorge, about 15 per cent from thermal power plants. The majority of private consumption is based on wood and coal.

Industry

Kenya is the most industrialized country in East Africa. The industrial sector (including construction) grew strongly from independence until the 1980s, after which there was a relative stagnation, partly due to uncertain access to electricity and imports of cheaper products. In 2017, the sector accounted for approximately 18 per cent of GDP.

The industry was built up substantially for the production of consumer goods for the local market, to replace imports; Later, production was also focused on exports, especially to southeast Africa. The food industry is traditionally the most important industry, with the processing of agricultural products. Otherwise, petroleum products (based on the processing of imported crude oil ), chemicals, cement, paper and paper products, beverages, tobacco, textiles, clothing and transport equipment are produced.

Kenya has had a significant textile industry, but after the major importer, the United States, introduced import quotas in 1994, the industry collapsed. One reason for the quotas was that textiles from the East were exported via Kenya illegally. Most of the light industry is concentrated in Nairobi, while the heavy industry is located in Mombasa.

Foreign Trade

Kenya traditionally has a deficit in trade with foreign countries, and has accumulated a large foreign debt, partly also as a result of expensive prestige projects initiated in the 1970s. In recent years, exports have gained wider breadth, and consist of both agricultural and industrial products, while tourism has generated significant revenue. While coffee and tea have traditionally been the most important products of agriculture, coffee exports have declined, while sales of vegetables, fruits and flowers have increased sharply since the 1990s.

Imports include not least crude oil, machinery and transport equipment. Following the dissolution of the East African Community (EAC) in 1977, trade with neighboring countries Tanzania and Uganda declined significantly, but rose sharply again in the 1990s, after cooperation resumed. In 2017, Uganda was Kenya’s most important export market, followed by Pakistan, the United States, the Netherlands, the United Kingdom and Tanzania, among others.

Transport and Communications

Kenya has an extensive transport network consisting of roads, railways and aircraft, as well as boat traffic both on the coast and inland, including on Lake Victoria. The main line of the transport network has been from the early 1900s the railway and the main road from Mombasa through Nairobi and across the highlands to Uganda.

International airports can be found at Nairobi (Jomo Kenyatta International) and Mombasa (Moi International); a new and disputed airport was completed in 1996 in the then President Daniel Arap Moi’s hometown of Eldoret. Mombasa is the largest and busiest port city on the east coast of Africa north of Beira in Mozambique, with a hinterland that encompasses all of Kenya and Uganda and much of northern Tanzania, as well as parts of eastern Congo.