Renowned as East Africa’s economic powerhouse, Kenya is one of the fastest growing economies in Africa. Between 2010 and 2018, the country grew at an annual average rate of 5.9 percent and by 2014 had graduated to a lower-middle income country. However, since 2020 several roadblocks have retrogressed the economy starting with the Covid-19 pandemic, the plague of locusts that was detrimental to the country’s agricultural sector being the backbone of Kenya’s economy, and of course the most recent drought. The Russian-Ukraine conflict has also escalated the situation, with rising inflation threats for a spiraling recession stand high.
The new administration under President William Ruto, is striving to set the economy in the right tempo having inherited a heavily indebted government. Through debt restructuring among other key economic reforms, Ruto’s administration is committed to quell inflation and create a thriving economy for all Kenyans.
The recently published East Africa Economic Outlook report, indicates that Kenya is among the countries in the region that could face rising risks of debt distress, thus widening fiscal and current account deficits, largely due to structural weaknesses exacerbated by the pandemic and the Russia-Ukraine war.
According to the 2022 African Economic Outlook (AEO), by AfDB inflation is projected to edge up to 7 percent, close to the upper end of the target band at 7.5 percent, caused by greater energy and food inflation. The Kenya National Bureau of Statistics (KNBS), reported that the country’s inflation rate as of October 2022 stood at 9.6%, creeping up 0.4% from September’s all time high of 9.2%.
With the resumption of the International Monetary Fund (IMF) supported fiscal-consolidation and debt management program, the hope is for the fiscal deficit narrow to 6.5% of GDP in 2022 and to 5.5% in 2023. The current account deficit is projected to widen further to 6.1% and 5.2% of GDP over the two years, attributable to higher fuel and food import bills.
The IMF’s Kenya’s medium-term outlook remains favourable, supported by proactive reform efforts by the new government. In a recent visit to the country, IMF’s staff noted, “The Kenyan economy has been resilient in the face of a challenging environment. Real GDP grew by 6 percent year-on-year in the first half of 2022, supported by robust services sector activity, notwithstanding a decline in agricultural output. Food insecurity has increased due to severe drought in parts of the country. Higher food and energy prices have pushed up inflation and pressured the external position.”
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Looking to the future, critical sectors that will revive Kenya’s economy include:
Agriculture In Kenya
The agriculture sector is the backbone of Kenya’s economy and continues to play a critical role, accounting for 20 percent of Gross Domestic Product (GDP). The sector accounts for 65 per cent of the export earnings, and provides employment either directly or indirectly to more than 80 per cent of the Kenyan population. In addition, agriculture contributes more than 60 per cent of the total export earnings and about 45 per cent of government revenue, while providing for most of the country’s food requirements.
Agriculture is estimated to have a further indirect contribution of nearly 27 per cent of GDP through linkages with manufacturing, distribution, and other service related sectors. With the recent adoption of Genetically Modified Foods (GMOs) following a ten-year ban, agriculture is taking a new shape. Going forward, it remains a cornerstone sector to steer the economy.
Tourism in Kenya
Tourism in Kenya is the second-largest source of foreign exchange revenue and comprises of leisure tourism, eco-tourism, cultural tourism, and sports tourism. The country is home to the 7th natural wonder of the world, the Maasai-Mara Wildebeest Migration, numerous national parks and game reserves, pristine beaches among a myriad other attractions. In 2021, travel and tourism contributed 5.4 billion U.S. dollars to Kenya’s GDP. The sector offers employment to over 40 percent of Kenya’s population and largely attracts FDI. The future looks bright for the sector and its bound to continue boosting the economy.
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ICT in Kenya
The country’s Information Communication Technology (ICT) sector, is set to account for up to 7% of the country’s GDP through IT-enabled services. A recent surveys places ICT among the top ten sectors making massive contributions to the country’s GDP. The 2021 Economic Survey report by the KNBS, indicates that the value of output from the ICT sector to Kenya’s GDP, increased by 2.5 per cent to Kshs 538.3 billion in 2020. The ICT industry has more than doubled from Sh123 billion to Kshs 258 billion in 2019.Furthermore, ICT has been adopted in key sectors such as agriculture, healthcare, financial services among many others, in line with the 4IR.
Micro, Small and Medium sized Enterprises (MSME) Sector in Kenya
Kenya’s MSMEs are the lifeblood of Kenya’s socio-economic development. The sector is projected to contribute 50 percent of GDP growth, in the next three years. In addition, the sector employs over 80 percent of employment, establishes a new middle class and stimulates the demand for new goods and services.
Most SMEs fall under the informal sector, and the informal sector is estimated to constitute 98 percent of business in Kenya, contributing 30 percent of jobs and 3 percent of Kenya’s GDP. Moreover, the important role of MSMEs in promoting GDP growth and employment, is underlined in Kenya’s Vision 2030. MSMEs have emerged as the second-largest employment generating sector after agriculture. There are over 7.4 million MSMEs employing approximately 14.9 million Kenyans, in various sectors of the economy.
Financial Services in Kenya
Kenya is East Africa’s hub for financial services. In terms of market capitalization, the Nairobi Stock Exchange (NSE), is ranked fourth in Africa. From banks to co-operatives and microfinance institutions, financial services are a key sector contributing largely to Kenya’s economy, pertinently in disbursing credit for SMEs. Going forward, the sector will continue to boost the country’s economy greatly.
Trade in Kenya
Trade is central to Kenya’s economy, now more than so with the country been chosen to participate in the first phase under the African Continental Free Trade Area (AfCFTA).Some of Kenya’s imports include electrical appliances, medical devices, pharmaceutical products, seeds, spare parts, secondhand clothes. In the same breath, Kenya exports horticultural products such as flowers and fresh produce, coffee and tea. Trade will remain among the top earners for Kenya’s economy.
