Building capacity to help Africa trade better

Kenya

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Kenya

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Kenya

Key Facts

  • Capital: Nairobi
  • Region: East Africa
  • Official language: Swahili and English
  • Independence Day: December 12, 1963
  • Area: 580,000 sq km
  • Population (2018): 51.4 million
  • REC membership: CEN-SAD, COMESA, EAC, IGAD
  • WTO membership: January 1, 1995
  • GDP (2018): US$ 87.908 billion
  • GNI per capita (2018): US$ 1 620
  • Currency: Kenyan shilling

Economic overview

Real GDP grew by an estimated 5.9% in 2019, driven by household consumption and investment on the demand side and services on the supply side (such as public administration, information technology, finance and insurance, and transport and storage). GDP was down from 6.5% in 2018, caused mainly by unfavorable weather and reduced government investment. At 5.2%, inflation remains within the central bank’s 5 ± 2.5% target band.

The exchange rate remained stable due to the narrowing current account deficit, from 5.0% of GDP in 2018 to 4.9% in 2019 thanks to increased transfers. Foreign exchange reserves rose from $9 billion in 2018 to $9.4 billion at the end of August 2019, equivalent to 6 months of imports, or more than the East African Community convergence criterion of 4.5 months. The fiscal deficit is estimated at 7.5% of GDP in 2019, down from 8.8% in 2017, thanks to ongoing fiscal consolidation and greater domestic resources mobilization. Public debt rose to 58% of GDP in 2019, up from 41% in 2013, and became more non-concessional (67%) than concessional (33%).

More of it is held externally (16% of GDP) than domestically (9% of GDP), but the domestic share is increasing. The debt creates risks for refinancing, cost escalation, and foreign exchange. Because of expected liquidity challenges, the IMF elevated Kenya’s debt stress rating from low to moderate in 2018. Kenya’s economic growth has not been inclusive enough: poverty fell to 36% in 2015/16 from 46% in 2005/6. Unemployment fell marginally from 9.5% in 2014 to 9.3% in 2018. The bottom income quintile receives only 4% of income.

Real GDP is projected to grow 6% in 2020 and 6.2% in 2021. Macroeconomic stability is expected to continue. Inflation, around 5% in 2020 and 2021, is expected to remain within the target range, and the fiscal deficit will narrow in 2020 and 2021. The positive outlook mainly reflects favorable weather, increased crude oil production and exports, continuing foreign direct investment, the benefits of the African Continental Free Trade Agreement, and the government’s commitment to the Big Four Agenda aimed at industrialization in health, housing, agriculture, and manufacturing.

The Agenda plans to enhance food security and transform agriculture from subsistence oriented and rain dependent to market oriented, using special economic zones as a manufacturing base to expand exports and boost import substitution. The envisioned structural change depends on quickly transitioning to growth led by the private sector, not the public sector. Reforms to make the investment climate conducive to domestic and foreign investment should extend to the credit market, particularly to enhance access for small and medium enterprises.

Kenya’s economic transformation faces challenges in manufacturing, agriculture, the labor market, and macroeconomic stability. Manufacturing’s share in GDP has remained at 9% for more than a decade, and manufacturing value added is only 5% of GDP. Agriculture accounted for 52% of GDP, 56% of employment, and 65% of foreign exchange earnings in 2018. The 2018/19 drought slowed economic growth and reduced food security. Informality and unemployment remain high. Four-fifths of workers are in the informal economy, and 9.3% of the workforce are unemployed. Investment has been low in sectors with greater capacity to absorb labor. Given the youth bulge, the supply of labor is large, but skills and entrepreneurial activity are limited.

Last updated: April 2020

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