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Recent economic history

At the time Kenya secured its independence, in 1962, the country contained approximately nine million inhabitants, the vast majority of whom lived in the countryside and supported themselves by farming. (A description of the economy and polity from this time till the early 1970s can be found in Leys, 1975; the subsequent period is covered in Mosley, 1991.)

In 1969, the Kenyan economy generated a total output valued at US$1.4 billion, in terms of the prices current in that year. This output provided an income for each Kenyan, on the average, of US$130 per year (see Tables 4.1 and 4.2). The structure of the economy, in the same year, is indicated by the proportion of the total marketed income arising in agriculture (35 per cent), industry (20 per cent), and services (46 per cent) (see Table 4.3): by the standards of developing countries with similar per capita incomes the proportion of income accruing to those in the service sector (primarily government) was rather high.

Thereafter, for the next ten years, the Kenyan economy grew quite rapidly. By 1979, average income per capita had risen to $370 in current US dollars; a better measure of the increase in the average is provided by data on GDP per capita in constant Kenyan Shillings (of 1987) from column 2 of Table 4.2; here the increase was from Kshs 4,400 in 1969 to Kshs 5,980 in 1979, an average yearly rate of growth of a little over 3 per cent. Surprisingly this welcome increase took place with little change in the relative size of the three different sectors; in terms of the incomes their participants earned, all sectors grew at approximately equal rates (see Table 4.3).

The decade of the 1980s was very different for Kenya. A succession of changes, some evident towards the end of the previous decade (a deterioration of prices for coffee and tea in world markets), others emerging only in the 1980s (the second oil price rise and the subsequent recession in the world at large; the expansion of petroleum refining in the Arabian Gulf at the expense of Kenya's refined exports; and the cueing off of trade with Tanzania and Uganda - all events beyond Kenya's control) harmed Kenya's economy. For a few years until 1982, the country was able to finance deficits in its balance of payments and accompanying shortages of foreign exchange by borrowing abroad (see Table 4.4), but by late 1981 external sources both private and governmental had been exhausted.

Short-term debt, particularly to the private sector, reached a peak in 1980, and the servicing of the debt, both show - and long-term, was approaching the level of annual borrowings, so that there was no longer a substantial net inflow of foreign funds (see Table 4.5, column 1). The private sector's account had fumed negative by 1983, indicating that on balance the private sector was exporting capital. In 1980, the total foreign debt was US$3.5 billion; its service in 1981 consumed 5.7 per cent of GDP, and 23 per cent of export earnings.

Table 4.1 Kenya: GDP 1969-1991

Sources:
1969-1989: World Bank, World Tables 1991, 1993
1990-1991: Republic of Kenya, [Economic Survey, 1992

Table 4.2 Kenya: GNP per capita 1969-1991

Sources:
1969-1989: All columns except column 2: World Bank, World Tables 1991,1993
Column 2: GDP at constant 1987 prices (from Table 4.1) divided by population in column 1

Table 4.3 Kenya: GDP by sector 1964-1991

Sources:
1964-1968: Van der Hoeven and Vandermoortele, 1987, Table 2, p. 42
1969-1989: World Bank, World Tables 1991,1993
1990-1991: Republic of Kenya, Economic Survey, 1992

Table 4.4 Kenya: debt and debt servicing 1970-1991

Sources:
Column 1: 1970-1980, 1987-1987-1991: World Bank World Tables 1991,1993
Column 1: 1981-1986, and Columns 2-11; Strack and Schönherr, 1989
Columns 2,3, 6, 7: 1987-1991: World Bank, World Debt Tables, 1993-4,
Column 12: column 8 divided by column 1, Table 4.8 (converted to US dollars by the exchange rate in column 4, Table 4.1)

In 1980 the Kenyan government was forced to turn to the World Bank for its first Structural Adjustment loan, amounting to US$70 million, bringing the country's indebtedness to the World Bank to nearly half a billion US$, or three-quarters of a billion when combined with that owed to the IMF (see Table 4.4). (This and succeeding programmes of stabilization are described in van der Hoeven and Vandermoortele, 1987, and in Mosley, 1991. The various conditions imposed on the Kenyan government from the first Structural Adjustment by the World Bank through the Financial Sector Adjustment Credit of July 1989 are listed in Mosley, 1991: 277-82, Table 16.4). In order to conserve foreign exchange the government increased controls on imports, restrained credit, and partially devalued the Kenyan Shilling. These measures enabled the country to cut the deficit on current account of its balance of payments by nearly US$300 million between 1980 and 1981, and by another US$250 million between 1981 and 1982 (approximately 4 per cent of GDP in each year). Nonetheless, the crisis continued and in 1983 Kenya found it necessary to accept the IMF's strictures, involving further reductions in the budget deficit and bank lending, increased agricultural prices and a successive, sharper devaluation. The IMF continued to advance loans, as did the World Bank, with its second structural adjustment loan of US$131 million, and subsequent sectoral loans: for agriculture, for US$60 million in 1986; for industry, for US$112 million in 1988; and for finance, for US$120 million in 1989 (World Bank, May 1990, Annex IIa). In line with these loans, other official loans were granted to Kenya, so that its current indebtedness is mainly of long-term liabilities assumed by the government of Kenya (see Table 4.5). The total debt, official and private, as of the end of 1989, was US$5.7 billion, representing 70 per cent of the annual value of GDP; public sector debt was US$5.0 billion.

Servicing the total debt in 1989 consumed US$490 million, almost exactly 40 per cent of total export earnings for the year (see Table 4.6); servicing the official debt consumed US$316 million, 17 per cent of the government's total revenues for the year. Loans and grants from abroad were considerably less than these sums; in total there was a net outflow from Kenya in 1989 of US$286 million, of which US$150 million was the contribution of Kenya's private sector to foreign creditors and US$139 the contribution of Kenya's government (see Table 4.6).

It is not easy for the citizens of a country, developing or developed, to change the structure of its economy while making such substantial contributions to foreigners. The resources that are needed for internal adjustment - be they adjustment from the public sector to the private; or from industry to agriculture; or within industry; or within agriculture; or wherever cannot also, at the same time, be devoted to satisfying the claims of outsiders. It is in the framework of competition for Kenya's scarce resources, and the pressure that this competition imposes on its government, that the pursuit of science and technology will have to be placed.

Table 4.5 Kenya: net transfers from abroad 1981-1990 (millions current US dollars)

Sources: Strack and Schönherr, 1989

Table 4.6 Kenya: balance of payments 1964-1991

Sources:
1964-1968: Van der Hoeven and Vandermoortele, 1987, Table 2, p. 42 and Table 4, p. 44
1969-1989: World Bank, World Tables 1991
1990, 1991: Republic of Kenya, Economic Survey, 1992
Note:
b signifies billions of Kenya Shillings

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