Kenya is the most developed of the original three countries of the East African Community (Kenya, Uganda and United Republic of Tanzania). It was formerly one of Africa’s strongest economies, with average annual growth of five per cent in the late 1980s, based on agriculture (notably tea and coffee production and horticulture) and tourism. Poor harvests and political uncertainty slowed growth in the early 1990s; a foreign exchange crisis resulting from the withholding of aid by donors between December 1991 and November 1993 brought low growth and high inflation (46 per cent in 1993). The country has been afflicted by recurring droughts over two decades.
However, after 1993 the government took steps to liberalise the economy, removing import licensing, price and foreign-exchange controls, and reducing the public sector by privatisation of state enterprises and cutting the civil service. This resulted in a period of lower inflation and positive growth in real GDP – based on tea, coffee and horticulture production, tourism and a growing manufacturing sector. There were good harvests in the mid-1990s, but very heavy unseasonal rains in 1997–98 severely damaged the harvest and transport infrastructure and caused growth to stall. This was followed by drought in 1999–2000.
The relationship with the IMF and other international agencies was turbulent during the 1990s and early 2000s. In August 2000, IMF support – suspended since 1997 – was resumed when it agreed a three-year poverty reduction and growth loan, conditional on all senior officials, including the President, declaring their assets each year. Relations with aid donors were strained during 2001–02, and some disbursements were delayed; relations only improved after the change of government in December 2002. The new government committed itself to structural adjustment, including privatisation of Kenya Commercial Bank, Telkom Kenya and Kenya Railways; it enacted anti-corruption legislation; and concluded a poverty reduction and growth facility with the IMF. Commitments of support by other multilateral and bilateral donors and a new round of debt-rescheduling then followed.
The 2000s opened with very slow growth, but the economy had recovered by the mid-2000s, when it grew by at least five per cent p.a. Then, feeling the impact of both drought and global recession, it slowed sharply (growing by 1.5 per cent in 2008), but recovered in 2009 (3.3 per cent) and became vigorous from 2010 (8.4 per cent), with growth generally of four to six per cent p.a. in 2011–15. Keeping inflation under control, however, proved more challenging.