Kenya: Economic and Political Overview

Economic Indicators

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Kenya has enjoyed a decade of strong economic growth, allowing the nation to access the status of middle-income country in 2016. Kenya was one of the fastest-growing economies in Sub-Saharan Africa and growth was only partially affected by the Covid-19 pandemic, with GDP contracting 0.3%. The country returned to its growth path in 2021 (7.5%) and in 2022 (5.3% as per the IMF estimates), driven by broad-based increases in services and industry, whereas the agricultural sector’s performance was hampered by drought (the most severe in the last forty years). According to the IMF, Kenya’s medium-term growth prospects remain positive with GDP projected to grow by 5.1% this year and 5.5% in 2024 notwithstanding current global and domestic shocks, backed by private sector credit expansion, a near-term recovery in agricultural production, and high commodity prices favourable to the country’s exports.

Concerning public finances, the COVID-19 pandemic and the Russia-Ukraine war contributed to lower international reserves and a widening current account deficit, estimated at 5.9% of GDP – USD 6.9 billion according to Fitch Ratings. Exchange rate flexibility has helped absorb some of the external pressure, but foreign-currency liquidity has tightened (to USD7.2 billion as of November 2022, down from USD 9.5 billion at the end of 2021) and currency depreciation has increased Kenya's external interest servicing in shilling terms. For 2023 and 2024, Fitch Ratings expects the current account deficit to remain stable. The debt-to-GDP ratio rose to 69.4% in 2022 (from 67.8% one year earlier), and is projected to follow a downward trend over the forecast horizon – to 67.5% this year and 64.6% in 2024 according to the IMF – although external debt service should rise to 24.8% of current external receipts by 2024. Similarly, an improved revenue performance helped the fiscal deficit narrow to 6.2% of GDP in FY22, down from 8.2% in FY21. Inflationary pressures increased over the course of the year due to a rise in food prices caused by the drought that affected the country, as well as global supply shocks, resulting in an average inflation rate of 7.4%. For 2023, the IMF expects the rate to moderate marginally to 6.6%, followed by 5.1% in 2024, below the 5.9% average recorded between 2017-21. In order to achieve this target, the Central Bank of Kenya raised the main policy rate three times in 2022, by a total of 175bp. Kenyan authorities remain committed to the 38-month program under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements (worth USD 2.34 billion) approved by the IMF in April 2021. This program aims to reduce debt vulnerabilities by raising tax revenues and tightly controlling spending while safeguarding resources to protect vulnerable groups (IMF). The third review under these arrangements was completed in July 2022, providing Kenya access to about USD 236 million of funding. The new government will also pursue the previously launched Big 4 development agenda: the program, which is part of the long-term development plan of the country “Vision 2030”, prioritizes four major areas: manufacturing, universal healthcare, affordable housing and food security. Kenya relies heavily on international portfolio investment inflows, which makes the local currency highly vulnerable to potential capital outflows and decreasing global risk appetite.

The country has been invested in reducing child mortality, meeting this Millennium Development Goals (MDGs) target. Kenya also managed to almost reach universal primary school enrolment, while narrowing gender gaps in education. The unemployment rate was estimated at 5.7% in 2021 (World Bank). Kenya’s total workforce is projected to increase by 40.6% to 40.4 million by 2035; as data from the Kenya National Bureau of Statistics (KNBS) indicate the country will add 11.7 million to the job market by 2035, this may cause mounting unemployment in an economy that is not generating adequate jobs for school leavers and college graduates. Overall, the country’s GDP per capita (PPP) was estimated at USD 6,122 in 2022 by the IMF, while the World Bank macro poverty outlook estimates the country’s ratio of extremely poor (living below USD 1.9 a day) reduced from 19.2 million or 35.7% of the population in 2020 to 18.8 million or 34.3% in 2021.

Main Sectors of Industry

Kenya is particularly advanced in the sector of services and has been the source of innovations adopted throughout the continent (for example, it was the first country to sell government bonds through mobile phones). It is also the third-largest producer of tea and first exporter (in volume) in the world, the 8th producer of dry beans, the 15th producer of oilseeds, and is among the 20 largest coffee exporters (FAO). The primary sector represents 22.4% of Kenyan GDP and employs 54% of the workforce (World Bank, latest data available), making agriculture and horticulture the two largest sectors of the national economy. Coffee, wheat, sugarcane, fruit and vegetables are among the main crops, and dairy products, beef, fish, pork, poultry, and eggs are the main animal products. The country exports tea, coffee, cut flowers and vegetables. According to the World Bank, the agriculture sector contracted by 1.5% in the first half of 2022 amid the worst drought in 40 years.

Industry accounts for 17% of the GDP and employs only 6% of the workforce. Although the country has little in terms of mineral resources, some high-value minerals, such as titanium, have considerable potential. In addition, Kenya could become an oil and gas producer in the years to come, as new oil deposits (with a potential of 750 million barrels) were found following the drilling of exploration wells in the Turkana County (North-West). The manufacturing sector is estimated to account for 7% of GDP, with the processing of agricultural products as the main subsector.

The services sector contributes to 54.4% of the GDP and employs 39% of the workforce. Tourism, a core sector of the Kenyan economy, has been hit by several terrorist attacks carried out by the Al-Shabab group since 2013. According to a performance update by the Kenya Tourism Board, the total number of arrivals in Kenya in the period Jan-Nov 2022 grew by 74.5% compared to the same period one year earlier, recording more than 1.3 million arrivals (70.2% of the level recorded before the pandemic). Manufacturing and financial industries, although modest, are among the most sophisticated in East Africa. The IT and communications sectors are expanding rapidly and the construction industry is very dynamic. The growth pace of transport, medicine, education and financial services makes Kenya a regional hub. Furthermore, Mombasa is the third-largest port in Africa.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	54.3	6.2	39.4
Value Added (in % of GDP)	22.4	17.0	54.4
Value Added (Annual % Change)	-0.2	7.2	9.5

Source: World Bank - Latest available data.

 

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Monetary Indicators	2016	2017	2018	2019	2020
Kenyan Shilling (KES) - Average Annual Exchange Rate For 1 MUR	2.87	3.00	2.99	2.87	2.71

Source: World Bank - Latest available data.

 

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:

54,9/100

World Rank:

138

Regional Rank:

28

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

4.58/10

World Rank:

75/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Foreign Trade in Figures

Kenya is relatively open to foreign trade, which accounts for 31% of its GDP (World Bank, latest data available). The country remains committed to trade liberalization through its membership in the World Trade Organisation (WTO), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC), which includes Kenya, Tanzania, Uganda, Rwanda, Burundi, and South Sudan. Kenya also ratified the African Continental Free Trade Agreement and signed many bilateral trade agreements. The country is currently negotiating a free trade agreement with the United States and is one of the top five beneficiaries of the US-Africa trade initiative, the African Growth and Opportunity Act (AGOA). Moreover, in 2022 the two countries launched the U.S.-Kenya Strategic Trade and Investment Partnership. Most tariff barriers have been eliminated and customs duties are not very high. Kenya mostly exports agricultural products (tea, flowers, coffee, fruits, and vegetables), petroleum oils, titanium ores, iron and medicines; and mainly imports petroleum products, palm oil, medicines, cereals, vehicles, and manufactured products.

The country's main customers are Uganda (12.3%), the Netherlands (8.3%), the United States (8%), Pakistan (7.2%), the United Kingdom (6.7%), and Tanzania (6.1%); whereas its main suppliers are China (20.5% of total imports), India (10.8%), the United Arab Emirates (8.3%), Saudi Arabia (5.3%), Japan (4.6%), Malaysia (4.4%) and the United States (4.1% - data Comtrade).

Kenya imports almost three times more than it exports, which translates into a trade balance that is largely in deficit. This situation persists, due to imports related to infrastructure modernization and oil exploration. In 2021, total goods exports reached USD 6.7 billion whereas imports amounted to USD 19.5 billion (+11.6% and +26.7% y-o-y, respectively). The bill of import for services stood at USD 4 billion, slightly below that of export (USD 4.6 billion). Overall, the negative trade balance was estimated at 9.5% of the country’s GDP (up from -8% one year earlier – data World Bank). Although official figures for 2022 are not available yet, Kenya’s exports suffered from the severe drought that hit the country: as an example, in the first nine months of the year overseas sales of black tea (the main export) dropped 22% in volume terms compared to the same period one year earlier (marking the first decline in five years).

Sources of General Economic Information

Ministries

Ministry of Finance
Ministry of Tourism
Ministry of East African Community (EAC), Labour and Social Protection
Ministry of Agriculture, Livestock and Fisheries
Ministry of Mining
Ministry of Transports and Infrastructure, Housing and Urban Development
Ministry of Industrialisation, Commerce and Cooperatives
Ministry of Energy and Oil

Statistical Office

Kenya Bureau of Statistics

Central Bank

Central Bank

Stock Exchange

Nairobi Securities Exchange

Search Engines

Google Kenya

Economic Portals

Kenya Moja

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