Economic Development Term Paper

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Kenyan reform policy Successful?

The need for reform in Kenya has been clearly demonstrated. But the question remains, has this reform been successful? The slogan of "Harambe" fueled the passions of the Kenyan people and drove them to strive as one nation to lift themselves up from poverty and oppression. It has been ten years since the last reform and it is now time to look back and see what has been accomplished.

To measure the success of the reforms we will consider several economic indicators both before the reform and after to see how they have changed. Then these factors will be considered as a whole to develop a better outlook on the entire picture. We will consider education, the performance of the industrial sector, the trade and tourism sector, the finance sector, rate of inflation, employment and wages, the agricultural sector, construction, social services and some comments on general conditions of the average person in Kenya today.


It is conventional wisdom to stress the importance of education, a measure of human capital accumulation, in determining growth. After independence, Kenya experienced a major educational expansion but experienced economic slow down in the 1960s followed by stagnation in the 1970s and decline post-1980 (Appleton, 1999). Like the subcontinent as a whole it has experienced educational expansion but poor economic performance. At present, Kenya's educational achievements are above the average for the subcontinent with an illiteracy rate of 22% in 1995 compared to 44% in the subcontinent as a whole.

Its income is below average, in 1997 its GNP per capita in was $1,110 compared to $1,470 in the subcontinent. (World Bank, 1998). One common critique of conventional rate of return to education estimates is that they are based on urban wage employees. This may be appropriate for males in industrialized countries, but is questionable in developing countries where most of the population depends on self-employment. For the years for which we have data, we find rates of return to education within self-employment are comparable to those for wage employment. Education does have strong effects on the probability of employment and self-employment, an effect missed by conventional analysis of returns within employment (or self-employment) alone. However, earnings differences between the two kinds of activity are not sufficiently large to make this a major consideration for men. For women, low rates of labor market participation implies that education may have a much stronger effect on earned income than implied by conventional estimates (Appleton, 1999).

With higher literacy rates than the rest of the African continent, it would seem that their GDP per capita should be higher as well. But this is not the case and it seems as if education is not the only factor in determining economic growth.

Industrial Sector

Kenya's industrial sector has grown substantially over the years with its contribution to Gross Domestic Product (GDP) rose from about 8 per cent in 1990 to 14 per cent in 1994. There are more than 700 medium and large-scale enterprises of which 200 are foreign multinationals, mostly from the United Kingdom, the United States of America, Germany and the Far East. The major industrial exports include refined petroleum products and cement (, 2001). This sector points to economic growth since the reform as this sector is a major source of employment, growth in this sector would b expected to have positive influences in other sectors as well.

Trade and Tourism

Another sector that has gained increased importance in the Kenyan economy since 1963 is trade, restaurants and hotels, including tourism. At the time of independence, the contribution of this sector to the national economy was minimal. Today the sector is the third most important, accounting for nearly 12 per cent of the total annual national output. By 1996, the country had earnings from tourism rising from 1,250 (Million Kenya Pounds) in 1995 to 1,280 million (Kenya Pounds) (, 2001).

Finance Sector

With the general growth of the economy, other services such as banking, insurance and business have also expanded. Real estate services have also grown substantially over the period, reflecting largely the rapid expansion that the country has experienced in its urban population. Altogether, the contribution of these services to the gross domestic product, which was 16 per cent, had almost quadrupled by the end of 1990 (, 2001).


In 2000, the Kenyan economic growth rate was at its lowest since independence in 1992 by registering a 0.4% increase. Inflation rose to 27.5%. Political reforms that led to the reintroduction of multi-party political system led to economic uncertainty towards the general election. This coupled with ethnic clashes in some parts of the country led to economic disruption and a fall in the output levels of the affected areas. During the same year, bad weather led to less production. Consequently, the gross domestic product declined. During the year 1992, a survey conducted by the National Household Welfare Monitoring and Evaluation showed that most households' expenditure was spent on food. The same survey showed that about 74% of households used mud or wood in the construction of walls, 67% used the same materials in floor construction. 36% used grass-thatched roofs (, 2001)

By 1994, the Kenyan economy had improved considerably compared to the past four years, 1990-1993. This was largely due to the implementation of appropriate economic reforms like tight monetary control, favorable weather also helped to improve the economy, liberalization of foreign exchange and also a return to political stability. Real Gross Domestic Product expanded by 3.0% compared to 0.2% in the previous year. Inflation rate, which had risen to 46% in 1993, declined to 28%. During the year, the agriculture sector registered a growth of 2.8% while the manufacturing sector was hit by competition from imported goods hence registered a growth of only 1.9% (, 2001)

Employment and Wages

By the year 1992, an estimated 2.1 million people were employed outside rural small-scale agriculture. A total of 91,000 jobs were created. Growth in employed persons declined in the years 1990 to 1992. Total employed persons by 1992 were 1,462,600. Due to the government's effort to reduce wages and achieved budgetary savings, a decline in the number of persons employed in the public sector was realized by 1%. On the other hand, the informal sector created 68,800 additional jobs representing 27.2% of total persons employed in 1992. (, 2001)

The overall nominal wage rose from K£ 2,649 in 1991 to K£ 3,013 million in 1992 representing a 13.7% increase. Average earnings per person increased from K£ 1,837.4 per annum in 1991 to K£2,059.7 per annum. Due to inflation rate increase in this period from 19.6% in 1991 to 27.5% in 1992, consumer prices rose rapidly. (, 2001)

By 1994, total employment outside rural small-scale agriculture activities grew to an estimate of 3.4 million persons. Employment in the informal sector had overtaken the public sector and represented 53.4% of the total employed persons with a total number of 1,792,400 persons. Overall, nominal wage increased by a huge 20.5% from K£3,496.6 million in 1993, to K£4,213.8 million in 1994. Inflation declined by 17.2% from 46% in 1993 to 28% in 1994. (, 2001)

The year 1996 saw the total employment outside rural activities stand at 4.3 million persons. The number of persons employed in the informal sector was 2,643,800 and accounted for 61% of total persons employed. Those employed in the modern sector were a total of 1,670,000 persons. The overall wage increased from K£ 5,303.7 million in 1995 to K£ 6,669.8 million in 1996. The rate of inflation was contained within a single digit but rose from 1.6% in 1995 to 9% in 1996. (, 2001)

The Kenyan economy generated 384,800 additional jobs in 1997 to bring total employment outside rural small-scale agriculture activities to 5.1 million persons by 1998. The overall nominal wage increased by 23.3% rising from K$8,247.7 million in 1997 to K$10,170.3 million in 1998. Average earnings per person expanded by 25.% from K$5,004.6 per annum in 1997 to 6258.3 per annum in 1998. Overall inflation as estimated by Nairobi consumer price indices, declined by 4.6% points from 11.2% in 1997 to 6.6 in 1998. (, 2001)


Agriculture, accounts for 24.5 per cent of the Gross Domestic Product (GDP), and has expanded by 0.7 per cent within the year to July 2000 relative to 1.2 per cent in 1999. The agricultural sector has recorded a continued decline in performance, which is attributed mainly to the prolonged drought, tribal clashes that affected some parts of the country, power rationing, low prices of commodity and high cost of inputs (, 2001).

By the end of 1994, the agriculture sector began to grow after four years of decline. The production of maize, wheat, sugarcane, potatoes, beans and rice recorded a significant increase. The sector's contribution to the Gross Domestic Product grew by 2.8 per cent compared to a 4 per cent decline registered in 1993 (, 2001).

In 1996, the agriculture sector recorded a 4.5 per cent growth…[continue]

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