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Kenya: East Africa’s Economic Powerhouse

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Kenya Economy
Kenya has east Africa’s largest economy

AFRICANGLOBE – Lately many observers have been avidly discussing the recent high rates of economic growth in Africa. Speaking in Washington earlier this year, Donald Kaberuka, the president of the African Development Bank offered some cautionary words. While the good economic news from the continent may well represent a turning point from a past characterized by hopelessness, he said, Africa nevertheless remains far from a tipping point. To reach such a threshold, Africa requires major investments in three “I’s”: institutions, integration, and infrastructure. Even with the recent robust growth experienced over the past decade, Africa still suffers a major infrastructure deficit. Most of the countries have relatively weak institutions. And the regional integration project has been slow and marred by compliance and commitment deficits. Thus, as Kaberuka noted, although Africa has reached a turning point, progress to a tipping point is not an easy journey.

One of the regions in Africa that is making remarkable progress in all these “I’s” is the East African Community. The EAC’s original members — Kenya, Uganda, and Tanzania — have recently been joined by Rwanda and Burundi. South Sudan is expected to join the community soon. The region has fast-tracked regional integration and has seen considerable progress in institutional reforms. Moreover, East Africa boasts much greater political stability than it has at any time in its recent past, and peace has been restored in most of the countries. The region has also seen major investments in both national and regional infrastructure; many more projects have been planned and are scheduled to commence shortly. On Nov. 28, for example, President Uhuru Kenyatta of Kenya inaugurated the commencement of construction of a rail project that will link Kenya’s coast town of Mombasa to Kampala (Uganda), Kigali (Rwanda), and Juba (South Sudan). With positive growth trajectory predicted over the medium term, the EAC has a good chance of reaching a developmental tipping point.

Within the EAC, the Kenyan economy is the anchor. The overall performance of the region will to a great extent depend on what happens in Kenya. Kenya’s economy is the largest in the region and is much more dynamic than those of other member countries. The country’s economy is much better linked to the other economies in terms of investment flows and trade. Thanks to its more advanced human capital base, its more diversified economy, and its role as a leader in the information communication revolution in the region, Kenya’s economy is expected to remain strong, creating salutary benefits to the other member countries. The prospects for a strong economy are boosted by recent institutional reforms that have culminated in the adoption of a new constitution that provides for devolved governance.

Kenya’s economic dominance in the region is based on a strong private sector that has evolved under relatively market-friendly policies for most of the post-independence era. Kenya’s record of relative political stability and its lack of dramatic ideological shifts over the same period have done much to cement its position. By contrast, the other members of the EAC have had rather turbulent political histories. In the case of Tanzania, a radical ideological orientation to socialism under the policy of “Ujamaa” was the cornerstone of founding President Julius Nyerere’s government. Such factors undermined the growth of the private sector in the other EAC countries. Though these countries have undertaken substantive reforms, and are now on a positive growth trajectory, Kenya is likely to hold onto its dominant position for the near-to-medium future.

EAC member countries have diverse political histories. The five countries attained their independence in the 1960s. Tanzania was the first (1961), followed by Uganda, Burundi, and Rwanda in 1962, and Kenya in 1963. Despite achieving political independence at the same period, the countries’ political development has been somewhat heterogeneous. Only Tanzania and Kenya escaped major internal conflict and military rule. Uganda’s Milton Obote was ousted in 1971 by Idi Amin, and what followed was a devastation of the country’s economy brought about by Amin’s policies. Idi Amin was ousted through a military coup in 1979 by Milton Obote, who was again overthrown by General Tito Okello, who ruled for six months before being ousted by the current Ugandan president Yoweri Museveni.

Burundi has been marred by civil unrest since its independence, a conflict primarily between the two main ethnic groups. Burundi, one of the five poorest countries in the world, has seen its growth and development curtailed by civil unrest. Rwanda, the smallest country in East Africa in terms of geographical size, experienced one of the worst genocides in history in 1994, in which over half a million people were killed within approximately a hundred days. The 1994 genocide in Rwanda was a culmination of the ethnic and political rivalry that long existed between the same groups that were involved in the conflict in Burundi.

Tanzania boasts a large reservoir of resources: land, water, and mineral wealth. Although the country has been politically stable in recent decades, the development of the private sector was greatly hampered by the Ujamaa policy. The Ujamaa village was a concept propagated by President Nyerere, based on the ideals of “African Socialism,” which stipulated that the president should determine how the country’s natural resources were allocated and used. There was no freehold land ownership. Cultivation of land was collective, as the land rights were transferred to the elected village councils, “the Ujamaa.” The Ujamaa concept not only affected agriculture but also nationalized the banks and industry and made the government the biggest employer. As a result, the private sector declined. The country became dependent on international aid. A nation rich in natural resources became one of the poorest in the world.

Although Kenya has never experienced military rule, and its political environment can be described as somewhat democratic, the country has had its share of politically instigated violence along ethnic divisions and ethnic lines. Even though elections in Kenya have been marred by flaws and irregularities, the country is considered to have a wider democratic space compared to its neighbors.

Following the post-election violence in 2007-2008, Kenya held a constitutional referendum in August 2010, approving a new constitution that brought several important reforms. Among other things, the new constitution allows Kenyans to initiate referenda, thus promoting popular initiative. This democratic environment is not enjoyed in Uganda, where Yoweri Museveni has held power for the last 25 years, and who has stated that he will run yet again in the 2016 elections if his party endorses him.

In Rwanda, Paul Kagame has held the presidency since 1994; during that time, critics have accused him of infringing on media freedom and suppressing the opposition. Burundi has been somewhat democratic in its elections, but the country has also experienced presidential assassinations and at least one coup d’etat since it embraced democracy. Tanzania has a multiparty democracy (though Chama Cha Mapinduzi has been the dominant party since 1977).

As previously observed, Kenya has the largest economy amongst the members of EAC in terms of GDP. Kenya’s GDP accounts for 40 percent of the region’s GDP, followed by Tanzania at 28 percent, Uganda at 21 percent, Rwanda at 8 percent, and lastly Burundi at 3 percent. In terms of GDP at current market prices, Kenya’s 2011 GDP stood at $34 billion, well ahead of the closest rival economy, Tanzania, with a GDP of $24 billion.

Compared to other African countries, Kenya has very limited arable land and rainfall — but it also boasts the most sophisticated agricultural sector. Horticulture contributes the highest percentage of agricultural gross domestic product (33 percent), followed by food crops (32 percent). Industrial crops and industrial crops contribute 17 percent each. Kenya has consistently done well in horticulture and tea production and export. The horticulture industry has existed since pre-colonial times and continued to flourish when the export market was opened in Europe in the post-independence period.

Kenya is doing better than Tanzania in this industry because of the infrastructural rigidities inherent in Tanzania’s export system. Tanzania produces much more horticulture produce than Kenya but sells very little overseas. Compared to Kenya, Tanzanian farmers grow the produce on a small scale and lack networks to enable them combine their harvest at lower costs when exporting. Additionally, higher freight charges at Kilimanjaro International Airport and Julius Nyerere International Airport in Dar Es Salaam, coupled with inadequate storage facilities at the airports, make it even harder for Tanzania to export. By contrast, Kenya’s Nairobi Jomo Kenyatta airport is well served by major airlines and charter operators, making it easier to access European markets and the rest of the world. The Kenyan government has also supported this sector by ensuring that supply chain bottlenecks are minimized as much as possible by streamlining the process. At the same time, the Ministry of Agriculture has steadily increased funding for irrigation projects and subsidized fertilizers.

Part Two

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