Working Paper No. 12 of 2005 on Kenya's Reform Experience: What Have We Learnt?

Abstract

Kenya has since independence from Britain in 1963 undergone a number of political and economic phases. Like most African countries, Kenya's economy in the 1960s and 1970s was characterised by controls and a protective, inward-looking trade regime. The economy achieved an outstanding economic growth in the first decade after independence-with an average real Gross Domestic Product (GDP) growth rate of 6.6 percent between 1964-73 (Government of Kenya 2002). The 1970s were, however, marked by a series of economic crises, following terms of trade shocks and fiscal indiscipline, coupled with several structural distortions. The oil crises of the 1970s compounded problems by exposing the country's vulnerability to external shocks. This was a major blow to the import-substitution industrialisation strategy. The government in response tightened the trade regime and sought financial assistance from donors. Despite deterioration in economic management by late 1970s the government was unwilling to implement market-oriented reforms.1 As the economic crisis deepened, economic liberalization became the softest option for borrowing from abroad, leading the government to reluctantly embrace reforms under Structural Adjustment Programmes (SAPs) in the early 1980s. Little was, however, achieved until the 1990s when comprehensive reforms were implemented. This study is an attempt to document an in-depth analysis of the reform process, emphasising on the key economic reforms undertaken.