The economy experienced moderate growth of 4.4% in 2011 and 4.2% in 2012 and is expected to reach 4.5% in 2013 and 5.2% in 2014.
Having witnessed drastic currency depreciation and rapid inflation in 2011, the economy experienced stability for both indicators in 2012. This stability is expected to continue in 2013.
International Criminal Court (ICC) proceedings against six Kenyans dominated the political scene in 2011 and 2012 and are likely to continue as the cases against four of the six accused persons move to full trial in summer 2013. Two of the accused were cleared at the pre-trial stage due to a lack of evidence. Political activity in 2013 is dominated by preparations for, and the outcome of, the March 2013 election of a new president, 47 county governors, members of Parliament (senate and national assembly) and county assembly representatives.
Kenya’s economy continued to record slow growth in 2012, primarily driven by financial intermediation, tourism, construction and agriculture. The first half-year gross domestic product (GDP) growth rate in 2012 was an estimated 3.4 %, compared to an annual real GDP growth rate of 4.4% in 2011 and 5.8% in 2010. The estimated growth of 4.2% in 2012 was mainly curtailed by a slowdown in most economic sectors. Agriculture – the mainstay of Kenya’s economy – recorded suppressed activity (mainly in the industrial crops sub-sector) and was further affected by slowed demand for Kenyan horticultural exports in the European market. Similarly, the tourism, manufacturing and construction sectors did not reach the anticipated growth levels.
Real GDP growth is expected to increase to 4.5% in 2013 and 5.2% in 2014. Similarly, consumer price index inflation is expected to remain in the single-digit range over the same period. Regardless which coalition wins the elections, radical changes in economic governance are not expected, thereby guaranteeing the stability of economic fundamentals.
Political activity in 2011 and 2012 mainly centred on trials at the ICC and preparations for the March 2013 general elections. Six Kenyans were initially indicted by the ICC for crimes against humanity committed during the 2008 post-election crisis. Two were cleared in 2011 and the trials of the other four continue at The Hague. The March 2013 general election also saw intense competition between the two main coalitions seeking the presidency, various gubernatorial and county representative seats and membership in Parliament.
Overall, the 2012 Country Policy and Institutional Assessment (CPIA) findings mirrored the 2011 findings. The scores for macroeconomic policies; institutions for economic co-operation, regional integration and trade; business regulatory environment; environmental policies; efficiency of revenue mobilisation; quality of public administration; and transparency, accountability and corruption remained unchanged over two consecutive years. Little variation in other CPIA scores led to little change in the overall CPIA score.
Figure 1: Real GDP growth 2013 (East)
Table 1: Macroeconomic indicators
|Real GDP growth||4.4||4.2||4.5||5.2|
|Real GDP per capita growth||1.7||1.5||1.8||2.5|
|Budget balance % GDP||-4.5||-4.7||-3.5||-3|
|Current account % GDP||-5.5||-6.7||-6.1||-7.7|
Recent Developments & Prospects
Table 2: GDP by Sector (percentage of GDP)
|Agriculture, forestry & fishing||-||-|
|Agriculture, hunting, forestry, fishing||25||27.7|
|Electricity, gas and water||1.6||1|
|Electricity, water and sanitation||-||-|
|Finance, insurance and social solidarity||-||-|
|Finance, real estate and business services||11.4||12.3|
|General government services||-||-|
|Gross domestic product at basic prices / factor cost||100||100|
|Public Administration & Personal Services||-||-|
|Public Administration, Education, Health & Social Work, Community, Social & Personal Services||6.7||5.7|
|Public administration, education, health & social work, community, social & personal services||-||-|
|Transport, storage and communication||12||11|
|Transportation, communication & information||-||-|
|Wholesale and retail trade, hotels and restaurants||12.8||13.9|
|Wholesale, retail trade and real estate ownership||-||-|
Kenya’s main agricultural produce include cereals (maize and wheat), horticulture, industrial crops (sugarcane and pyrethrum), permanent crops (coffee and tea) and livestock products. Agriculture has recorded a positive performance since 2009 despite occasional adverse climatic conditions. The sector experienced peak 6.4% growth in 2010 – when favourable weather conditions and government-provided subsidised fertiliser and certified seeds to peasant farmers led to increased production – but meagre 1.5% growth in 2011. It expanded by 2.3% in the first quarter of 2012 (compared to 0.2% during first-quarter 2011), mainly due to improved performance in food crops.
In the year to August 2012, total tea production declined by 1.3% to 363 037 tonnes (compared to 367 692 tonnes in 2011) due to frost during the first quarter of 2012. The average auction price for tea also declined, from KES 265 (Kenyan shillings) in 2011 to KES 249 per kilogramme. The horticultural sector recorded negative performance, with exports decreasing by 0.9% to 245 272 tonnes (compared to 247 389 tonnes in 2011) due to the euro area crisis (Europe is the primary market for Kenya’s horticultural produce). Unlike other commercial crops in Kenya, coffee production grew 29.8% to 43 206 tonnes (compared to 33 297 tonnes in 2011) due to high international prices that have lured farmers back to coffee growing. Yet the average auction price for coffee declined to KES 495 per kilogramme, compared to KES 536 per kilogramme in 2011. Meanwhile, the sugarcane quantity delivered by farmers for processing increased 13.2% in the first quarter of 2012 over first-quarter 2011.
Still in the year to August 2012, the dairy processing sector contracted 4.3%, with total milk delivered to processing plants amounting to 499 million litres (compared with 521 million litres over the same period in 2011). This reduction was attributed to dry weather, which resulted in a lack of fodder during this period.
While the tourism sector in Kenya experienced turbulence during and after the 2007/08 post-election violence, it has been on a rebound since 2010. Tourism experienced significant gains in 2012, despite the negative image created by the terrorist incidents in Kenya.
For the year to August 2012, tourist arrivals over grew 0.8% to 1.23 million (against 1.22 million for the same period in 2011). The United Kingdom, USA, Italy, India and Germany comprised the top five source markets. In regional terms, Europe accounted for 45.5% of tourist arrivals; Africa (led by South Africa, Uganda and Tanzania) accounted for 23.6%; the USA accounted for 13.2%; Asia (led by India and China) accounted for 11.2%; the Middle East accounted for 4.1%; and Oceanic countries accounted for 2.3%. Tourism earnings expanded by 6.4% to KES 38.7 billion, compared to KES 36.4 billion in 2011. Hence, the Ministry of Tourism’s efforts to diversify source markets (the Kenya Tourism Board has been conducting aggressive marketing campaigns in Europe and Asia) are yielding positive results.
Industries in Kenya’s manufacturing sector mainly engage in processing agricultural, metal, electrical and chemical products and fast consumer goods. Kenya also refines crude petroleum into petroleum products mainly consumed in the domestic market. It also has an expanding informal sector engaging in small-scale manufacturing of household goods, motor vehicle parts and farm implements.
Manufacturing sub-sectors registered improved performances in the year up to August 2012. Production of galvanised sheets grew 3.5% to 262 680 tonnes, compared with 253 688 tonnes during the same period in 2011. Cement output grew 2.7% to 4.1 million tonnes, up from 4.0 million tonnes in 2011. The number of vehicles assembled locally increased to 6 437, from 5 708 in 2011. While the manufacturing sector in Kenya has a high potential for growth, it was inhibited in 2012 by high production costs, mainly stemming from the high cost of credit.
Kenya mainly relies on imports of crude oil, which it refines for both domestic use and export. Over a five-year period, the quantity of imported petroleum products grew 18.9%, from 3.7 million tonnes in 2007 to 4.4 million tonnes in 2011. On the other hand, petroleum products exports grew 5%, from 234 400 tonnes in 2007 to 246 100 tonnes in 2011.
In 2012, British explorer Tullow Oil plc and its partner Africa Oil Corp struck oil in northern Kenya. By the close of the year, the explorers had struck oil in two wells (known as ngamia-1 and twiga-1) located 30 kilometres apart. While this indicates that Kenya could have vast oil reservoirs, the commercial viability of the find is yet to be determined.
In 2011, total electricity generation grew 8.4%, from 6 976 Gigawatt hours (GWh) in 2010 to 7 560 GWh in 2011. Due to subtle rainfall, hydropower generation declined by 0.21% compared to 2010. On the other hand, electricity generation from thermal sources increased 27.2% (thanks to the commissioning of Kipevu III, the largest thermal plant in Kenya with an installation capacity of 115.0 megawatts in 2011) and generation from geothermal sources increased 0.1%. Hydropower accounted for 42.6% of total electricity generation, while thermal sources accounted for 37.0% and geothermal sources for 19.1%. Wind energy increased marginally, from 16.8 GWh in 2010 to 17.6 GWh in 2011.
In the year to August 2012, total electricity generation grew 3.7%, from 7.1 billion kilowatt hours (KWh) to 7.3 billion KWh. Of the total electricity generated, 50.2% was hydropower, 29.4% was thermal power and 20.4% was geothermal power. Hydropower generation grew 11.9% (to 3.7 billion KWh), geothermal power generation grew 3.1% (to 1.5 billion KWh) and thermal power generation dropped 7.5% (to 2.2 billion KWh). Estimated electricity consumption grew 2.2% (to 6.2 billion KWh), compared to 6.1 billion KWh in 2011. Fuel consumption grew 23.3% (to 4.3 million tonnes).
The building and construction sector has been a key driver of economic growth in recent years. The private sector has invested heavily in real estate and the government has embarked on a substantial infrastructure development programme targeting increased investments in road networks and provision of affordable housing. Consumption of cement dropped 0.6%, from 851 million tonnes in the second quarter of 2011 to 846 million tonnes in the second quarter of 2012. This mixed performance was attributed to the increased cost of borrowing for real estate development from local financial institutions. The sector has a propensity for growth in future years, buoyed by excess demand for housing units and the government’s commitment to enhanced infrastructure.
At the end of the first half of fiscal year (FY) 2012/13, the cumulative overall fiscal balance (on a commitment basis and excluding grants) amounted to KES 126.2 billion (equivalent to 3.3% of GDP) against a targeted deficit of KES 147.3 billion (equivalent to 3.9 % of GDP). Over the same period in FY 2011/12, the fiscal deficit stood at KES 73.0 billion (equivalent to 2.2% of GDP). Including grants, the fiscal balance (on a commitment basis) recorded a deficit of 4.7% of GDP against a targeted deficit of 3.3% of GDP.
The central government cumulative revenue collection at end-December 2012 amounted to KES 379.3 billion (equivalent to 10.1% of GDP) against a target of KES 446.1 billion – an underperformance of nearly KES 67 billion. The central government cumulative revenue collection for FY 2010/11 was KES 667.5 billion (equivalent to 24.2% of GDP) against a target of KES 686.4 billion (equivalent to 24.9 % of GDP). Total revenue collection is expected to reach 25.7% of GDP in 2012 and 25.1% of GDP in 2013.
The central government’s cumulative expenditure and net lending for the period ending 31 December 2012 amounted to KES 505.5 billion (KES 87.9 billion below the KES 593.4 billion target), a drop largely attributed to low absorption in operations and maintenance and slow utilisation of domestically and foreign-financed development expenditures. Total expenditure is expected to rise moderately, from 29.2% of GDP in 2011 to 30.5% in 2013 (Table 3).
The cumulative overall fiscal balance, on a commitment basis (excluding grants), amounted to a deficit of KES 126.2 billion (equivalent to 3.3% of GDP) at end-December 2012, compared with a deficit of KES 73.0 billion (equivalent to 2.2% of GDP) for the same period in FY 2011/12. During 2010/11, the government continued to pursue prudent fiscal policy and reduced the budget deficit by KES 137.6 billion (5.0 % of GDP) on a commitment basis. The deficit was within the target of 6.8% of GDP. The cumulative overall fiscal balance, on a commitment basis (excluding grants) registered a deficit of KES 43.6 billion (equivalent to 1.3% of GDP) by the end of the first quarter of FY 2011/12, compared to a deficit of KES 22.3 billion (equivalent to 0.8 % of GDP) for the same period in FY 2010/11. The primary balance deficit is expected to stand at 2.2% in 2012 and 0.5% in 2013.
Table 3: Public Finances (percentage of GDP)
|Total revenue and grants||23.3||23.1||24.7||25.7||25.1||24.9|
|Total expenditure and net lending (a)||27.8||29.5||29.2||30.5||28.6||28|
|Wages and salaries||7.1||7||7.1||6.8||6.5||6.2|
2012 was relatively tranquil for the monetary authority in Kenya, with critical monetary variables successfully in check. The month-on-month inflation rate averaged 12.5%, against 14% in 2011. The Central Bank of Kenya (CBK)’s monetary policy committee (MPC) can be credited for adopting measures that lowered the overall inflation rate significantly and consistently, from a high of 18.3% in January 2012 to a low of 3.2% in December 2012. The lower inflation rate was mainly attributed to a decline in the food and non-alcoholic beverage and transport indices. The reduced food inflation was attributed to improved weather conditions, which enhanced food production. The “housing, water, electricity, gas and other fuels index” declined from 11.9% in June 2011 to 9.7% in June 2012. The government has set an inflation target of 5% for FY 2012/13.
In 2012 the Kenyan shilling was largely stable, with a marginal appreciation of 0.4 % against the US dollar over January-December and an average exchange rate of KES 86.34 per US dollar in January 2012, against KES 85.99 per US dollar in December 2012. The Kenyan shilling depreciated against the pound sterling (GBP), from an average KES 133.94 per pound sterling in January 2012 to KES 138.78 per pound sterling in December 2012. It also depreciated against the euro, from an average KES 111.61 per euro in January to KES 113.28 per euro in December 2012.
To arrest the high inflation rate that prevailed in early 2012 and maintain a stable inflation rate throughout the year, the MPC maintained the Central Bank Rate (CBR) at 18% from January to June. This had the desired effect, with inflation dropping from 18.31% in January to 10.05% in June. In July the CBK reduced the CBR rate by 150 basis points, to 16.5%. In September the CBK further reduced the CBR by 350 basis points to 13%, before reducing it again in November by 200 basis points to 11%. This was pegged on the fact that overall inflation was within the government target, the exchange rate was stable and private-sector credit was growing within the target growth path. Moreover, the CBK was attempting to shield the economy from any spillover effects of the global economic slowdown, which threatened domestic consumption and production.
In FY 2011/12 domestic credit increased by KES 206.3 billion (15.3%), compared to an increase of KES 257.5 billion (23.7%) in FY 2010/11. The deceleration was due to a strong reduction in credit to the private sector, which increased by KES 172.2 billion (16.5%) in FY 2011/12 – against a target of KES 175.3 billion (16.8%) – compared to KES 245.5 billion (30.7%) in FY 2010/11.
The money supply grew by 15.5%, to KES 1.6 trillion (against projected 18.7% growth) in the year to June 2012, compared to KES 1.4 trillion (actual 15.0% growth) over the same period in 2011. The expanded money supply was supported by strong growth in net foreign assets.
Economic Cooperation, Regional Integration & Trade
Kenya has experienced negative balance-of-payment positions since 2010, when the net balance stood at a deficit of KES 86 billion, improving marginally to KES 51 billion deficit in 2011. The current account deficit rose from KES 63.5 billion in 2010 to KES 108.3 billion in 2012. Net capital flows increased significantly, to a surplus of KES 42.9 billion in 2011, compared to a deficit of KES 29.3 billion in 2010.
In the year to September 2012, Kenya’s overall balance of payments recorded a surplus of USD 1.2 billion, compared to a deficit of USD 220 million over the same period in 2011. The improved performance was explained by increased financial inflows into the capital and financial accounts, more than financing the current- account deficit (USD 4.3 billion against USD 3.1 billion in 2011). The USD 1.3 billion widening of the merchandise account deficit more than offset the USD 171 million surplus in the services account. On the other hand, in the capital account records the capital and financial account surplus grew from USD 2.9 billion to USD 5.3 billion over the same period in 2012. This accumulated surplus stemmed largely from financial flows, which increased to USD 1.2 billion in the year to September 2012, compared to USD 329 million over the same period in 2011.
Export earnings increased from USD 5.8 billion in the year to September 2011 to USD 5.9 billion over the same period in 2012. The main exports were tea (19.3 %), horticulture (11.3%), manufactured goods (11.9%), raw materials (7.2%), coffee (4.5%) and oil products (1.3%). The improved export performance was due to improved earnings in coffee (23.6% growth) and tea (2.2% growth) exports. However, horticultural exports declined by 6.5%.
The value of imports increased by 10.1%, from USD 14.5 billion in the year to September 2011 to USD 16 billion in the year to September 2012. The major import products were oil (25.4%), manufactured goods (14.4%), chemicals (12.9%) and machinery and transport equipment (27.5%). The increase in the value of imports was mainly based on imports of oil, machinery and transport equipment and manufactured goods. The value of oil imports increased from USD 3.7 billion in the year to September 2011 to USD 4.1 billion over the same period in 2012, mirroring increases in international crude oil prices and the high prices of refined petroleum products in the international markets. Oil imports accounted for 25% of the total import bill in the year to September 2012, compared to 24.2% in 2011. Imports of machinery and transport equipment accounted for 28% of total imports, increasing from USD 3.9 billion to USD 4.4 billion due to imports of power-generating machinery and specialised equipment machinery.
In the year to September 2012, 48.4% of total Kenyan exports went to African countries and the remaining 51.6% to the rest of the world. The main destinations for Kenya’s exports were Uganda (13.4 %), Tanzania (8.7%), the United Kingdom (8.3%), the Netherlands (5.9%), the United States of America (5.1%), the United Arab Emirates (4.4%), Egypt (4.2%), Somalia (3.9%), Pakistan (3.9%), Democratic Republic of the Congo (3.5%), Sudan (2.1%) and Afghanistan (2.1%). Exports to the East African Community (EAC) represented 26.3% and exports to the COMESA region represented 31.7% of total exports.
Still in the year to September 2012, Kenya sourced 10.9% of its imports from African countries and the remaining 89.1% from the rest of the world. As a general rule, Kenya is increasing its imports from the thriving Asian countries. The main sources for Kenya’s imports were the United Arab Emirates (12.8%), India (12.4%), China (12.2%), Saudi Arabia (6.1%), South Africa (4.6%), Japan (4.4%), Indonesia (4.2%), Singapore (4.0%) and the United Kingdom (3.1%). Imports from the EAC region represented 2.2% and imports from the COMESA region represented 4.8% of total imports, with the remainder coming from other (mainly European) countries. Table 4 below presents the overall trade and current account balance.
Table 4: Current Account (percentage of GDP)
|Exports of goods (f.o.b.)||16.9||14.6||15.2||14.2||14.4||13.9||13.2|
|Imports of goods (f.o.b.)||27||33.3||34.6||31.8||33.7||33.1||32.7|
|Current account balance||-0.8||-7.9||-7.3||-5.5||-6.7||-6.1||-7.7|
The overall objective of the debt management strategy is to meet the central government borrowing requirement at minimal cost and with a prudent degree of risk. The strategy also aims to facilitate government access to the financial markets and support the development of a well-functioning domestic financial market. The country has a debt management department that is currently being transformed into a full-fledged debt management office – part of wider reform agenda to strengthen financial management.
Total gross domestic debt stock increased by 13.1%, from KES 859 billion at end-June 2012 to KES 971 billion at end-December 2012. The total external debt stock stood at KES 822 billion at end-December 2012, comprising multilateral debt (58.7%), bilateral debt (32.3%), export credit debt (1.9%) and commercial banks (7.1%).
Figure 2: Stock of total external debt and debt service 2013
Economic & Political Governance
The International Finance Corporation-World Bank report Doing Business 2012 ranked Kenya 117th out of 183 economies in its ease of doing business – 6 places lower than the 2011 ranking. The 2012 Fitch Rating remained a B+ for long-term foreign debt, B for short-term foreign debt and BB- for domestic long-term foreign debt.
Small- and medium-sized enterprises (SMEs) have continued to contribute significantly to Kenya’s economic development. In 2011 SMEs created 445 900 jobs – a 5.1% increase. An estimated 9.2 million people were engaged in Kenya’s informal sector in 2011.
However, as in other parts of the world, SMEs in Kenya face many challenges, including poor infrastructure, finding the right quality of staff and access to adequate credit and financing. To address these issues, the Micro and Small Enterprises (MSE) Bill 2012 has been passed into law. The law aims to streamline and standardise the SME sector and address the lack of financing and of a sound regulatory framework impeding sectoral growth. Under the law, firms with an annual turnover of below KES 500 000 employing under 10 people will be classified as micro enterprises, while those with an annual turnover of KES 500 000 to KES 5 million employing 10-15 people will be classified as small enterprises.
To further address the financing issue, the capital markets authority (CMA) and the Nairobi Securities Exchange (NSE) have been working on launching a new window for SMEs – to be called the Growth and Enterprise Market Segment (GEMS) – in 2013. The GEMS aims to offer benefits to issuers by allowing a listing by introduction without a public capital raising component. Its goal is to help enterprises broaden their shareholder base, gain access to open-market valuation through market price discovery and access long-term capital. Small businesses aspiring to list on the GEMS will be required to have a minimum capitalisation of KES 10 million, but will not be required to have a trading record or profit history.
Real estate has also been a critical sector in the economy, growing at a moderate rate buoyed by sharp demand and a limited supply of housing units. An estimated 50 000 units were produced in 2012, against a demand of about 150 000 housing units. Sector analysts point to an unbalanced supply of housing units against demand in the different market segments, with a limited supply to the low and lower-middle-income segments compared with a broad supply to the upper-middle and high-end market segments. While the high demand creates enormous opportunities, one of the sector’s limitations is its overreliance on conventional financing. In the year to September 2012, lending to the sector stood at 9.9% of total credit by banks and mortgage finance companies, compared to 8.6% over the same period in 2011. Hence, the bulk of sector financing was done through household savings and capital inflows.
The NSE saw increased trading activity in 2012. The NSE 20 share index rose from 3 205 in December 2011 to 4 083 in November 2012, while the number of shares traded grew from 337 million to 837 million and market capitalisation increased from KES 868 billion to KES 1.25 trillion. The bullish trend was attributed to the renewed optimism of local and foreign investors over the performance of the Kenyan economy. Bond turnover for the year up to November 2012 stood at KES 39 billion, compared to an annual turnover of KES 25 billion in 2011 (a 56% increase), while the number of bond deals stood at 632, up from 436 in December 2011. In 2012 Kenya Commercial Bank Group, Express Kenya, NIC Bank, Standard Chartered Bank and Kenya Airways all turned to the NSE to raise capital through rights issues.
In 2012 the number of banking institutions remained at 43, including 1 mortgage finance institution doing business in Kenya. By December 2012, eight registered deposit-taking microfinance institutions were in operation, including the newly licensed Century DTM and SUMAC DTM.
Total assets of the banking sector rose 15.8 %, from KES 1.9 trillion in June 2011 to KES 2.2 trillion in June 2012. Asset-based growth was due to growth in deposits, retained profits and capital injections. For the year up to 30 June 2012, the banking sector’s pre-tax profits grew 30.4% to KES 53.2 billion, up from KES 40.8 billion by end-June 2011. Deposits grew 21.4%, from KES 1.4 trillion in June 2011 to KES 1.7 trillion in June 2012, thanks to branch expansion, remittance inflows and export receipts. Gross non-performing loans decreased by 1.4%, from KES 58.3 billion in June 2011 to KES 57.5 billion in June 2012, while the ratio of gross non-performing loans to gross loans rose from 5.4% in June 2011 to 4.5% in June 2012, largely thanks to enhanced risk analysis and credit underwriting standards by financial institutions. The banking sector is expected to remain stable in 2013.
Public Sector Management, Institutions & Reform
Kenya has a proper and functional organisation of government, with ministerial and departmental functions clearly specified. The government is in the process of revamping the five-year public financial management reform programme. The new Constitution promulgated in August 2010 has created new institutions to help improve public administration and governance, including the independent electoral and boundaries commission; commission on revenue allocation; salaries and remuneration commission and a revamped judiciary, complete with a new supreme court. A devolved system of governance is expected to come into force in the wake of the 4 March 2012 elections, with the creation of 47 counties and the abolition of the eight former provinces.
The entire government continued to embrace performance contracting, part of a broader public sector reform aimed at improving efficiency and effectiveness in public service management. Hiring of civil service employees has improved tremendously, thanks to a legal requirement to recruit across various ethnic groups and a constitutional requirement for 30% of either gender representation in public services.
Natural Resource Management & Environment
Environmental law requires the National Environmental Management Authority (NEMA) to conduct annual environmental audits and to submit a State of Environment (SoE) report every year to parliament. The report documents environmental issues and potential interventions to be undertaken by various sectors to enhance the status and quality of the environment. It also forms the basis for preparing operational sector policies, better integrating environmental concerns into development processes and preparing environmental action plans. In April 2010 Kenya developed its first National Climate Change Response Strategy (NCCRS) aiming to enhance participation in global climate change discussions. The country also made specific provisions for environmental protection in its new Constitution.
The government continues to pursue environmental protection, currently focusing on the Mau Forest and cleaning of the Nairobi River Basin. Over 1 400 hectares of forest have been replanted and plans are underway to rehabilitate an additional 5 000 hectares. It is expected that once the Mau is complete, protection efforts will focus on the remaining four principal water towers.
Although the Grand Coalition Government put in place after the post-election crisis of early 2008 brought together two different political parties, its performance has been commendable. Co-ordination between the Office of the President and the Office of the Prime Minister has functioned well and restored stability in government functions. While the cabinet meets every week under the chairmanship of the president to deliberate on national policy, the prime minister chairs various thematic groups, including land, food security and private sector development. All cabinet decisions are posted through briefs on the Kenya State House website.
The collaboration between the president and prime minister has resulted in several successful reforms mounted by the government between 2009 and October 2011, the most critical being the adoption of the new Constitution in August 2010 and the passage of several laws to anchor it. The new election organised and conducted in March 2013 is a further success, ushering in the fourth President of Kenya and new institutions created at the national and county levels.
Thematic analysis: Structural transformation and natural resources
As developing countries grow, they experience a large-scale shift of resources from traditional sectors to relatively new and modern sectors resulting from fundamental changes in national policies and objectives. Development economists argue that this kind of transformation involves four main features: a falling share of agriculture in economic output and employment; a rising share of urban economic activity in industry and modern services; migration of rural workers to urban settings; and a demographic transition in birth and death rates that always leads to a surge in population growth before a new equilibrium is reached.
According to the Centre for Global Development, structural transformation has resultant challenges for the poor. First, evidence suggests an existing pattern of worsening income distribution between rural and urban economies during the initial stages of structural transformation. Secondly, sectoral income distribution tends to worsen during the early stages of structural transformation and this has been found to extend much later into the development process. With little prospect of reaching the turning point quickly, many poor countries turn to agricultural protection and farming subsidies sooner rather than later in their development process. These actions tend to create many more rural poor in the early stages.
Kenya’s economy has undergone a noticeable transformation. While the country experienced remarkable growth in the post-independence years, growth in later years has been slow to moderate. However, in the last ten years Kenya’s seemingly focused development objectives have placed it once again on a growth trajectory and its economic structure has responded equally well.
Government expenditure on agriculture, forestry, fishing and hunting was KES 9.5 billion in FY 1998/99, increasing gradually to KES 44.3 billion in FY 2010/11. Compared to expenditure on fuel and energy, transport and education, agriculture seems to be performing dismally in terms of government allocation and spending. It is worth nothing that fuel and energy, transport and education are key sectors a developing country should emphasise, as Kenya seems to be doing. This appears more clearly in Table 2.
Expenditure on fuel and energy increased significantly, from 0.89% of total expenditure in FY 1998/99 to 3.45% in FY 2010/11. Expenditure on transport increased from 3.64% in FY 1998/99 to 9.22% in FY 2010/11. Expenditure on agriculture, forestry, fishing and hunting dropped consistently from 3.90% in FY 1998/99 to 2.78% in FY 2006/07, before rising slightly to 4.43% in FY 2010/11. This analysis indicates that resources in the economy are being transferred from traditional sectors (agriculture, forestry, fishing and hunting) to more economically rewarding sectors such as fuel and energy, transport and education.
The agricultural sector’s share of total employment in Kenya has declined persistently, from 18.46% in 1998 to 16.26% in 2011. On the other hand, the share of lucrative non-traditional sectors (such as building and construction, transport and communication) has increased persistently over 1998-2011.