A property boom has seen house prices in Nairobi and Mombasa among the fastest-rising in the world, while two new power stations are expected to stimulate Kenya’s growth. Yet cash crops, manufacturing and tourism remain crucial for foreign trade
Despite the generally stormy nature of Kenya’s politics, the country continues to be the strongest economy in the East African sub-region. Its US$41 billion GDP relies largely on agriculture (27 per cent) with tourism, manufacturing, transport and communication contributing around 11 per cent of GDP apiece.
Mombasa is perhaps the second most important port in Sub-Saharan Africa, after Cape Town. It serves a vast hinterland including Uganda, Rwanda, Burundi, South Sudan and the eastern Democratic Republic of Congo. Kenya’s private sector companies are some of the biggest investors in neighbouring countries, its relatively sophisticated banks have branches virtually throughout the sub-region and it is a busy transport hub.
Growth has averaged around 4.5 per cent over the past fi ve years – much lower than the country’s planners had hoped for when they drew up the ambitious Vision 2030 plan in 2005 on the back of growth figures of more than seven per cent. The plan, which was designed to transform the country into an industrialising middle-income country by the year 2030, was based on growth of around ten per cent per annum. However, the global financial crisis, which affected Kenya’s key export and tourism markets in Europe and the USA, and the post-election violence in 2008 put paid to those lofty ambitions.
Nevertheless, despite unfavourable external conditions and an alarming depreciation in the value of the Kenyan shilling in 2011, the economy has shown a robust staying power. It is still too early to tell if the recent onshore and offshore oil discoveries will have a profound effect on growth over the coming decade, but what seems certain is that greater regional integration through improved transport corridors will place Kenya in an enviable economic position.
The most ambitious of these schemes is the proposed Lamu Port-South Sudan- Ethiopia Transport corridor (LAPSSET). This involves building a new container and oil shipment port on the mainland, opposite the ancient and picturesque Lamu Island in the north of the country, and connecting it to Ethiopia and the oil-rich South Sudan via roads, railways and pipelines. There are plans to build oil refineries, airports, hotels and a new town to serve the corridor. This would also stimulate economic activity along the length of the corridor and help develop the neglected semi-arid sections in the northern part of the country.
The bill for the whole project was around $15 billion a few years back but is now around $25 billion. Finding the finance for this epic project has proved far more difficult than initially expected. South Sudan, which was expected to underwrite a large part of the cost of pipeline construction, shot itself in the foot when it turned off its oil taps last year, following a dispute with Sudan through which its oil now transits. The oil flow has restarted, but the lost revenues have not been recouped.
The Chinese made aggressive bids for contracts in the initial stages, but their ardour appears to have cooled more recently as their own growth has contracted. Nevertheless, work has started on the port in Lamu but it is clear that the project will require much more time and far more complex deal-making if it is to be realised.
In the meanwhile, Kenya relies on its old faithfuls – tea, coffee, horticulture, manufacturing and tourism – for its foreign trade. Services, particularly in the telecommunications and finance sectors, construction, transport and retail trade are the main domestic growth drivers.
Some five million smallholders form the backbone of Kenya’s agricultural sector. More than a third of the country’s agricultural output is exported, forming more than 65 per cent of the country’s total exports. The sector provides formal employment to 18 per cent of the workforce, but millions more are involved informally.
Coffee is grown both on large estates, which produce about 44 per cent of the total output, and by smallholders organised in cooperative societies who produce the rest. Tea is also produced on large estates as well as by smallholders, with Kenya the fourth largest producer of tea in the world and the third largest exporter – horticulture now rivals tea as a foreign exchange earner. Fresh vegetables, grown on Kenyan farms, are flown daily to stock supermarket shelves, mainly in the UK but increasingly in the Middle East too.
Cut flowers – grown in massive greenhouses and also by thousands of smallholders in the Lake Naivasha area – are similarly picked, sorted, packed and flown to the major European flower markets every night and appear in full bloom in European outlets the next morning. The main markets of floriculture are in the Netherlands, Scandinavia and France, with small amounts exported to the Middle East and Asia.
One of Vision 2030’s flagship projects was the ten-lane, $317 million Nairobi Ruiru-Thika superhighway. The 50 km highway links Nairobi and the industrial and agricultural towns of Ruiru and Thika, as part of a new network of roads that is designed to decongest the traffic-choked city and open up new suburbs around the capital.
The highway has already spawned satellite cities and suburbs like Tatu City, Migaa, Fourways Junction, Thika Greens Golf Estate, Flame Tree, Oakfield Valley and Jacaranda Gardens. Demand for new residential property was so high that in 2011 both Nairobi and Mombasa ranked first and second in the world in terms of gains in property prices.
In August, the arrivals hall of the Jomo Kenyatta International Airport, a crucial international hub, burst into flames, closing down the airport and causing chaos to regional connections. Earlier plans to build a new greenfield terminal, to take some of the pressure off the overstretched airport, had been going nowhere when the fi re occurred. President Uhuru Kenyatta stepped in and ordered a complete rebuilding of the creaking airport – and decided that the new terminal should be fast-tracked. As a result, Transport Secretary Michael Kamau announced that the $705.8 million expansion plan for the airport, which had more or less been shelved, would now be a priority. The fi re, say the country’s increasing number of air travellers, was a ‘phoenix moment’ and a blessing in disguise. The expansion will increase the airport’s capacity by two thirds.
The government’s most immediate concern is to create jobs for the thousands of young school leavers who join the labour pool each year. The Uwezo fund is a tilt in this direction. It will provide interest-free funding and internships to young people to enable them to learn commercial skills and set up their own businesses. Kenyatta has also pledged to support the innovative centres that have sprung up around universities, which are producing an exciting generation of young Kenyan IT ‘techies’ whose products have already found a ready market both domestically and abroad.
Once new energy-generating projects such as the Olkaria IV thermal-generating station in the Rift Valley and a large-scale wind-power scheme come on stream, Kenya can expect an acceleration of its industrial output and a new growth spurt.
