Principle Economic Sectors of Kenya

The subsistence agriculture and the barter of goods were the foundation of the Kenyan economy in the early days of independence. Agricultural exports majorly tea and coffee, brought in substantial income from foreign exchange. With the establishement of democracy in 2002, the Kenyan government began to promote a mixed economy composed of both privately-owned and state-run businesses. These attempts to diversify the economy in Kenya meant an increase in stability, employment and overall economic growth during the first ten years of independence.

Today the economy is greatly influenced by the development of enterprises that the government either fully or partly owns. A substantial amount of foreign investment has further supplemented economic growth. Despite these steps forward, poverty and unemployment persist and the balance of trade remains unbalanced. The ever-increasing population rate further exacerbates Kenya's economic challenges.

Agriculture :

The agricultural sector continues to dominate Kenya’s economy, although only 15 percent of Kenya’s total land area has sufficient fertility and rainfall to be farmed but only 7 or 8 percent can be classified as first-class land. In 2006, 75 percent of working population in Kenya made their living from the land as compared with 80 percent in 1980. Around half of total agricultural output is non-marketed subsistence production. Agriculture is the second largest contributor to Kenya’s gross domestic product (GDP) after the service sector. In 2005 agriculture, including forestry and fishing, accounted for about 24 percent of GDP, as well as for 18 percent of wage employment and 50 percent of revenue from exports. The principal cash crops include tea, horticultural produce and coffee. The horticultural produce and tea are the main growth sectors and the two most valuable of all of Kenya’s exports. In 2005 horticulture accounted for 23 percent and tea for 22 percent of total export earnings. Coffee has declined in importance with depressed world prices, accounting for just 5 percent of export receipts in 2005.

The highlands of Kenya, has the fertile soil is best for the growth tea, coffee, sisal, pyrethrum, corn and wheat. Production is mainly on small African-owned farms formed from the division of formerly European-owned estates. Livestock predominates in the semi-arid savanna to the north and east.

Fisheries

Fisheries are of local importance in Kenya, the places around Lake Victoria and have potential on Lake Turkana. Kenya’s total catch reported in 2004 was 128,000 metric tons. However, output from fishing has been declining because of ecological disruption. Pollution, overfishing and the use of unauthorized fishing equipment have led to falling catches and have endangered local fish species.

Industry

The industrial hubs in Kenya are found in the urban areas of Mombasa and Nairobi. Most of the manufacturing work is the processing of agricultural products. There are limited meat processing and dairy industries as well as leather, paper, textile, and sugar production. Petroleum products are manufactured at government-owned refineries on the coast. Kenya relies on imported crude for its jet fuel and diesel. Imported raw materials are also used in the manufacture of machinery and motor vehicles.

Services

The service sector in Kenya contributes to about 63 percent of GDP and its dominant segment is tourism. The tourism industry has exhibited steady growth in most years since independence and by the late 1980s had become the country’s principal source of foreign exchange. In the ‘90s, tourism relinquished this position to tea exports, because of a terrorism-related downturn. The downturn was at a high when the 1998 bombing of the U.S Embassy in Nairobi and later negative travel advisories from Western governments. The largest number of tourist in the country are from Germany and the United Kingdom, are attracted mainly to the coastal beaches and the game parks, notably, the expansive Tsavo National Park (20,808 square kilometers) in the southeast. The tourism industry along with the government  have taken steps to address the security problem and to reverse negative publicity. Such steps include establishing a tourist police and launching marketing campaigns in key tourist origin markets. Tourism has seen a substantial revival over the past several years and is the major contributor to the pick-up in the country’s economic growth.

Tourism is now Kenya's largest generator of foreign exchange and is followed by flowers, tea and coffee. In 2006 tourism generated US$803 million, up from US$699 million the previous year.

Other elements of Kenya’s services sector face challenges of downsizing, in particular, the financial system. The Kenya banking system is supervised by the Central Bank of Kenya (CBK). As of late July 2004, the system consisted of 43 commercial banks (down from 48 in 2001), several non-bank financial institutions, including mortgage companies, four savings and loan associations, and several score foreign-exchange bureaus. Two of the four largest banks, the Kenya Commercial Bank (KCB) and the National Bank of Kenya (NBK), are partially owned by the government and the other two are majority foreign-owned (Barclays Bank and Standard Chartered). Most of the many smaller banks are family-owned and –operated.

Mining and minerals

The mining and quarrying sector makes a negligible contribution to the economy in Kenya and accounts for less than 1 percent of gross domestic product. Though the majority is contributed by the soda ash operation at Lake Magadi in south-central Kenya. One of Kenya’s largest foreign-investment projects in recent years is the planned expansion of Magadi Soda. Apart from soda ash, the chief minerals produced are limestone, gold, salt, and fluorspar.

All unextracted minerals are government property, according to the Mining Act. The Department of Mines and Geology, under the Ministry of Environment and Natural Resources is responsible and controls the exploration and exploitation of such minerals.

Energy

The largest share of electricity supply in Kenya is from hydroelectric stations at dams along the upper Tana River and from the Turkwel Gorge Dam in the west. A petroleum-fired plant on the coast, geothermal facilities at Olkaria. The electricity imported from Uganda make up the rest of the supply.  The Kenya Electricity Generating Company (KenGen) is state owned and was established in 1997 under the name of Kenya Power Company. It handles the generation of electricity while the Kenya Power and Lighting Company (KPLC), which is slated for privatization, handles transmission and distribution.

There is a shortfall of electricity at times when a drought occurs. In 1997 and 2000 the drought prompted severe power rationing. The major shortcomings are frequent outages and high cost. Tax and other concessions are planned by the government is to encourage investment in hydroelectricity and in geothermal energy, in which Kenya is a pioneer. The government also has plans to open two new power stations in 2008, Sondu Miriu (hydroelectric) and Olkaria IV (geothermal), but power demand growth is strong, and demand is still expected to outpace supply during periods of drought.

For Further Reference

African Economic Outlook

Kenya Country Profile - BBC News

The World Bank