Kenya’s admirable regional economic status has much to do with the comparatively prudent political and economic policies practiced by the government since Independence despite the tumultuous international events

The colonial period, with all its negativities, helped catapult Kenya ahead of the region. Key events that helped shape the economy in the 1960s can be traced to the 1950s and even beyond.

The colonialists left the country with a small but fairly well-educated elite, a functional British education system, a sprouting capitalist class, a limited railway network, a stock exchange established way back in 1954, commercial agriculture and partial agriculture sector reforms. A settler community would also prove an important economic differentiating point between Kenya—and also Zimbabwe (formerly Rhodesia), South Africa, Namibia—and many African economies.

As the country celebrates 50 years of Independence, it would be important to look at this crucial era to trace some of the achievement and failures. The difference between Kenya and the region, not to forget most Asian economies, was already obvious in various aspects in our favour when we attained Independence in 1964.

ECONOMY’s Golden era

Finance-2bThe economy was largely agrarian at Independence and its commercial side tended to build on the legacy of the settler economy. To be sure, this proved to be a major anchor for the economy, with agriculture being at the heart of Kenya’s highest and consistent economic growth. Up to the beginning of the 1980s, there was consistent growth in the economic status of the Kenyan citizen, with per capita income, measured as Gross Domestic Product (GDP) divided by the population, averaging 2.5 per cent per year.

The GDP growth in the first decade averaged over 7 per cent, making it this the golden era for the Kenyan economy.

Kenya inherited some good institutions from the colonial era that helped underwrite this growth. Among them is the Kenya Planters’ Cooperative Union (KPCU), initially founded to help develop the coffee sector exclusively for the white farmers. Another strong institution was the Kenya Cooperative Creameries (KCC) which dealt with milk buying, processing and marketing. These institutions, though they would falter at one point during the economic morass of the 1980s and 1990s, leveraged the commercial agriculture sector and unmistakably their deterioration happens to trace the worst of Independent Kenya’s economic performance.

However, the near double-digit growth in the Independence decade cannot be attributed to the commercial sector alone. Although the sector tended to meld well with the subsistence economy some land reforms of the 1950s and 1960s helped agriculture and by extension the economy grow for years. Notable were land adjudication and amalgamation of the 1950s. For the first time, Africans legally got their small pieces of land which would account for sizeable expansion in GDP. With the title deed, they were able to borrow funds to develop their land although the banking system at the time largely tended to favour the elite.

Partly as a result of a more robust farming sector, between 1960 and 1969 production of cereals went up by 69 per cent. The planted area expanded by an unprecedented 61 per cent to five per cent.

Tea numbers were even more dramatic with small-holder production rising from one per cent of 13,000 tonnes in 1960 to 20 per cent of 40,000 tonnes in 1970. As for coffee production, the smallholder portion rose from 20 per cent in 1960 to 50 per cent, by 1965.

This was the era of settlement of the landless, which explains the never-seen before increase in personal incomes of the hither-to paupers and squatters. The crop yield was a major factor in production. It is also during this decade that growing of cash crops was opened up to Kenyans of African origin spurring coffee and tea production, easily helped by the existing and new marketing structures. The old ones include KPCU and the Coffee Board of Kenya which supported coffee sector besides KCC while the new ones included Kenya Tea Development Authority (KTDA—later renamed Agency).

The growth of the industry was ring-fenced by a strict exchange control and import regime practiced by government up to 1993.

Apart from agriculture, the buoyant growth of the era was leveraged by the inter-linkage of the three regional economies. Kenya, Uganda and Tanzania operated an advanced common currency regime installed by the British. This was part of the East African Common Services (EACS) whose upgrade version created in 1967, the East African Community (EAC), would collapse in 1977. Starting with common post office services, it went on to run common railway services under the East African Railways, common tax collection regime, and ports services under the East Africa Ports and Harbours, among others.

But cracks would emerge as soon as the British left the East African territory to its own designs. Tanzania and Uganda would go for socialist policies even as Kenya’s founding President Jomo Kenyatta leaned towards the West and capitalism — a decision that would prove inspired in hindsight as other economies ran aground and stalled.

It is in 1965 that the ideological divide was at its widest. An economic policy paper called African Socialism was drawn up by the Kenya government indicating that capitalism would be the main policy of the new government. The key people behind it were Tom Mboya and Mwai Kibaki, some of the brightest brains of the new government. The first would be assassinated in 1969 while the other went on to become president in 2003.

In 1966, the Kenya Government clearly saw the fallout in EACS coming shortly. It was during this year that the country took the drastic action of establishing its own Central Bank, marking an end of the East African Central Bank and single currency. Thus was born the Kenya shilling with Kenyatta featuring on the new notes and coins. EACS which anchored some of the growth would thereon be on its death bed as Tanzanian president Julius Nyerere went on to declare the Ujamaa Policy replete with mass villagisation of the economy. Uganda’s Prime Minister (later president) Milton Obote was an ideological partner of Nyerere and followed the same policies, but would have little time to implement them as military chief Idi Amin soon seized power in 1971 and sent him scurrying into exile.

Each country would establish a central bank but Kenya’s would be the most successful, largely as a mirror of the economic and political stability in the country. The first governor of the Central Bank of Kenya (CBK) would be Duncan Ndegwa and he would adhere to a strictly controlled exchange regime largely with a view to protecting Kenyans from inflation—which happened to stay low thanks also to a strict fiscal policy that maintained budget deficits at bare minimums.

Both monetary and fiscal policies helped keep the shilling at an artificially high rate against the dollar and the sterling pound. While this aided a low inflation, it equally undermined exports as the importers and tourists found the shilling expensive to buy.

It also kept settlers from swiftly selling their property to the detriment of the fragile economy as the sterling pound earnings remained ridiculous low. Indeed, a parallel exchange market consequently developed marking a new form of corruption that would ruinously explode with the Goldenberg scandal of the 1990s.