Paper Example on Kenya: East Africa's Thriving Market-Based Economy

Introduction

Kenya is well known for its market-based economy and the most flourishing commercial hub in East Africa. The country is one of the founding states forming the East African Community (EAC). Within the past decade, Kenya has had a supportive environment for domestic policies. Among all states in East Africa, Kenya has the most robust trade base, and thus, has been attracting many countries interested in investing in the available resources. Since its independence in 1963, Kenya's capital city, Nairobi, and its busiest port, Mombasa, have harboured over 93% of the country's economic, social, and political operations. The infrastructure of the two cities, most importantly the various means of transportation have proved to diversify the trade operations, hence maintaining the region as the greatest financial centre.

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Kenya also majorly participates in agribusiness, as well as manufacturing, technological and logistics across the Sub Saharan region. Interestingly, after the result of the 2007 Post Election Violence, Kenya has picked up to an annual growth level of about 6%. Kenya has experienced a continuous positive development process. However, the country faces some key challenges including poverty, corruption, and unemployment. Kenya has also been known to face both internal and external attacks that have temporarily shaken the country's economic state. This key development challenge, however, is usually professionally handled by the Kenya Defence Force as well as the Kenya Police Unit. Some of the temporary challenges have been tackled within a short period while others have proven to be permanent limitations that require leadership change to overcome.

In 2010, the country implemented a new constitution that seeks to eradicate the major challenges. Moreover, the new constitution included the formation of a new devolution system that aims at strengthening the economic performance of the 47 counties, and the country as a whole. The main objectives of the constitution are to increase job opportunities, curbing poverty and corruption, reforming economic operations, and the expansion of local and international markets. Moreover, the new constitution seeks to better public service at the regional levels within the 47 county in the country.

ECONOMIC OVERVIEW

Kenya is known for its supportive economic and trade system. As a result, the country has attracted several countries with the intention of investing in the available resources and most flourishing sectors. The country boasts of its harbourage for financial, commercial, communication, transportation, and industrial operations in East Africa. The country has boosted the economy of the East African Community, comprising of 145 million people. Agriculture, mining, tourism, manufacturing and processing industries, energy, fishing, and forestry are the major sectors that support Kenya's economy. Agriculture remains to support over 33% of the country's economy every year with more than 30 million Kenyans participating in either large-scale or small-scale farming.

The Kenyan government has proved to welcome investors with fair regulatory policies that support both local and international businesses. The Export Processing Zone in the country has eased direct foreign investments into the region. The skilled human capital, extensive air routes, and strategic position have reinforced Kenya's economy by attracting trading corporations into the state. Foreign investors include a major percentage from U.S.A and the United Kingdom. The financial status of Kenya has also drawn the attention of prominent traders from Asia and the Middle East.

Over the past decade, the technology sector has grown steadily. This is as a result of having the highest internet speeds across the Sub Saharan region of Africa. Moreover, mobile money has majorly participated in the economic growth of the country. Mobile money has eased access to most of the financial services in Kenya making it fast and convenient for consumers and investors to trade in the growing economy. The invention of mobile money resulted to the innovation of mobile banking, a service that remotely connects consumers with banks.

President Uhuru Kenyatta, the leader of the country introduced the Big Four Agenda after his re-election for a second term. The Agenda include affordable housing for Kenyans, security on food and nutrition, improvement on the manufacturing industry, and health coverage on the citizens. The B4 strategy seeks to reduce the current challenges; poverty, corruption, and unemployment. The Agenda, moreover, aims at enhancing the economic growth of the state by at least 8%.

Challenges in the Economic Sector

Kenya experiences a steady growth on the county's Gross Domestic Product. The state's GDP is believed to grow to about 6.2% by the end of 2019. However, Kenya faces myriad of challenges that derail the economic development of the country. Around the election season, the country seems to be in tension that slows down the economic growth. Most companies and businesses tend to close down in fear of inter-regional clashes. Moreover, the tourism sector is affected since most foreign tourists avoid spending too much time in the country so as to be safe from any unexpected violence.

In the last decade, the country has also experienced short but worrying conditions of drought. The climate change has negatively impacted the agricultural sector, which is the backbone of the country's economy.

Additionally, the unsteady caps on bank interest rates by financial institutions has proven to disturb most citizens as well as foreign investors. Most Kenyans need loans to stabilize or start their own companies. With lending rates at a higher level, banks lose chances of attracting clients into the market, and thus, a loss to both parties.

KENYA'S TRADE OVERVIEW

Kenya is ranked globally at position 107 among all export economies. Agricultural products position Kenya high in exports as the sector produces high quality goods that are consumed both locally and internationally (Mugo, S. 2018). Statistically, the agricultural sector of the country contributes over 30% in Kenya's GDP. Tea and horticulture are exports that mainly contribute to the exported products taking about 46% and 29% respectively. Coffee and fish also majorly contribute to the mainly sourced goods of the country that need to be exported. The country mainly exports its products to the U.S., Netherlands, U.K., Pakistan, and its neighbouring states; Tanzania, Uganda, and Somalia. However, the country experiences several instances of drought and floods that highly affect the agricultural sector.

Kenya also imports products that are required to balance the trade operations of the country. These products are mainly machinery and equipment from the Middle East, China, and Japan. While participating in the African economy, Kenya participates in exporting cement, oil, and chemical products to countries in the continent. Japan supplies the country with automotive products, China with rail and signalling equipment while Asian countries export petroleum products to the state.

In the last half decade, the balance of trade in Kenya has worsened. The percentage of imports is higher than exported goods. This has resulted to an imbalance in the trade industry of the country. With a worsening export-import ratio, the result is a weak Kenyan Shilling against other international currencies. The imbalance of trade in the country was as a result of an increasing percentage of food imports into the country. In 2017, a drought struck the country forcing the country to seek international support on food products. During that period, the country was forced to exhaust the stock available in its foreign exchange reserves at the Central Bank of Kenya. The country is striving to create more jobs so as to reduce the trade balance deficit.

Reforms are underway to improve the trade sector of Kenya. The Standard Gauge Railway, a fast and efficient means of transport connects Mombasa and Nairobi. The railway system is the largest project in the infrastructure sector to be completed since 1963, when the country gained its independence. The SGR project ended in 2017, seeking to improve trade within the East African Community. The East African members developed an e-passport system that will allow traders to transact and exchange currencies freely within the five countries; Kenya, Tanzania, Uganda, Rwanda, and Burundi. Kenya implemented the system by September 2017 with Tanzania as second to absorb the e-passport in February 2018.

KENYA'S FINANCIAL OVERVIEW

The fiscal position of Kenya has been improving since the country attained its independence in 1963. The country's government revenues have demonstrated a significant increase in the 21st century, with mobile money as the chief contribution (M'Amanja, D. 2015). Banks are also key participators in facilitating the development of the financial sector of Kenya's economy. The technological innovation of mobile money has efficiently accelerated the tax revenue in Kenya. However, tax collection in the trade sector has been a challenge since most local businesses are not recognized and avoid filing returns to Kenya Revenue Authority.

As the revenues of the country are improving, so is the government expenditure. Recurrent expenditure takes the highest percentage of all the projects undertaken by the government. Since the country has been spending more than the revenue collected, Kenya has been facilitating financial support to its expenditure through local and international debts. Government expenditure has mainly been increasing due to the ongoing development projects in the country.

The International Monetary Fund has been concerned by the increasing recurrent expenditure over development spending in the country. In 2010, the new constitution included a devolution system that resulted to 47 counties. As a result, wages and salaries of the 47 regions became a high contribution to the government's expenditure. Since 2001, recurrent expenditure has been taking the largest portion, around 77% of Kenya's spending.

The new devolution system led to an increased wage bill in the country, consuming a high percentage of the total collected revenues. Kenya, therefore, is forced to a progressive recurrent expenditure and repayment of past mature debts.

MARKET AND COMPETITION OVERVIEW

Businesses and corporations in the Kenyan economy have been working under free-market principles since 1963, when the country gained its independence. Since independence, the first two presidents of the country controlled the economic policies as a way to remain in power. The second and third dynasties, Moi's and Kibaki's regime ensured that they dominated the business industries. Any businesses that had contrary opinion were drained forcing their closure.

The Kenyan economy comprises of several monopoly companies who control the prices of their goods or services as they wish. Setting high prices on products leads to an imbalance on the rates at which consumers purchase necessary goods. In 2010, the Competition Authority of Kenya was formed to regulate the monopoly companies as well as to monitor the standard prices of similar products and services.

PRICE AND CURRENCY OVERVIEW

Kenya experienced the highest inflation rate in 2008, an aftermath of the Post-election violence that occurred in 2007. Additionally, the 2017 drought led to an increase in prices of food products resulting to an escalation in the inflation rate to around 11%.

The value of the Kenyan shilling fluctuates occasionally. The 2007 Post-election violence resulted to a drop in the value of the Kenyan shilling to about 13% with relation to the U.S. dollar (Nyoni, T. 2018). The Kenyan currency, ho...