Economy

Kenya grows economy nine times since independence

rail

A sample standard railway line at Changamwe Railway Station on November 26,2013. Infrastructure expansion is a key driver of growth. FILE

Kenya celebrates 50 years of independence on Thursday with the economy having grown nine times.

In real terms — after adjusting for inflation — the value of all economic activities has made leaps and bounds from Sh180 billion in 1963 to Sh1.6 trillion now, on average doubling in size every six years.

However, the momentum has slowed down from an average growth rate of 8.2 per cent in the first 10 years of independence to a low of 3.2 per cent by 2002.

The foundations for growth were laid by founding President Jomo Kenyatta despite tackling political challenges such as the change from a federal to a unitary state, the Shifta war, political assassinations and the cold war between socialist and capitalist economic systems.

Sessional Paper number 1 of 1965, African Socialism and its Application to Planning in Kenya, settled the contest in favour of free market policies with critics saying only secondary emphasis was put on equity and alleviating poverty.

The capitalism route appeared imprudent at the time as transnational corporations dominated the economy and growth slowed in the face of capital outflows, with Kenya having no indigenous entrepreneurs that it now boasts of.

The homegrown business elite, however, started emerging in the 1980s culminating in Forbes Magazine recently naming Kenyatta’s widow, Mama Ngina; Manu Chandaria, Nicholas Biwott and Naushad Merali as dollar billionaires, ranking them among the 55 wealthiest people in Africa.

READ: Mama Ngina, Biwott in Africa billionaires list

The weaknesses of the sessional paper started being laid bare as global economies moved towards liberalisation while Kenya retained protectionist trade policies and price controls.

By 1978, when President Kenyatta passed on the leadership baton to Daniel arap Moi, growth had slowed to an average of seven per cent with agriculture contributing 40 per cent of gross domestic product on the back of strong performance from cash crops, notably coffee.

The lowest growth by then, 1.3 per cent, came in 1983 after a failed coup a year earlier.

The coup caused capital flight before the economy could fully recover from the high oil prices beginning 1979, the collapse of the East African Community which provided an export market for Kenyan goods in 1977, and the end of the coffee boom.

The worst drought in Kenya’s history in 1984 compounded the economic doom. Pressure from the World Bank, the IMF and market realities saw price controls come tumbling down in the 1990s, with privatisation of State enterprises, cost sharing in education and health and restructuring of the public service taking a heavy toll on jobs and social welfare.

The measures appeared successful with growth averaging 5.1 per cent in the five years to 1988, up from four per cent in the previous period, before the multi-party politics shock and tribal clashes changed the outlook.

Production declined

From 6.2 per cent growth in 1988, the economy slowed to 4.7 per cent the following year, 1.4 per cent in 1991 and 0.5 per cent in 2002 as industrial and agricultural production declined.

This prompted the then Finance minister Simeon Nyachae to quip in 1988 that the economy was in the ICU (intensive care unit) and the government was broke, provoking his sacking by President Moi.

The period was also characterised by high inflation, which reached 101 per cent in 1993 on the back of deceleration in growth, depreciation of the shilling, increase in money supply with the floating of the shilling and through $1 billion Goldenberg export scam.

President Mwai Kibaki embarked on wide ranging reforms on taking over power in 2002, leading to a three per cent growth in 2003 and an average acceleration of 4.6 per cent over the next decade.

Key to the revival was the Economic Recovery Strategy of 2003 and the Vision 2030 projects which placed infrastructure at the centre of building a modern economy.

Tarmacking of the Mombasa-Busia highway, upgrading of Thika Road into a superhighway, Konza ICT City, Lamu port and opening up new trade routes with Ethiopia and South Sudan were among the key projects.

Under President Uhuru Kenyatta, who took office in April this year, agriculture and infrastructure expansion appear to be the key drivers of growth. The building of a standard gauge railway and putting one million acres of land under irrigation are key facets of this approach.

Another emphasis is social equity, with the population enjoying cash transfers being doubled to 300,000 this year and a commuter rail being built around Nairobi to ease transport and the cost of living for the poor.

The government targets a growth rate of seven per cent by 2018, with the IMF convinced that opportunities for economic transformation are manifest and that the right policies are needed to make things happen.