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Kenya, Economy

Traditionally, Kenya’s economy was based on farming, herding, hunting, and trade. With the establishment of colonial rule, however, Kenya was brought into the world capitalist economy. Under the British, Kenya developed an economy based on the export of agricultural products. The colonial government encouraged the settlement of European farmers in Kenya to provide a greater supply of exports. From World War I (1914-1918) through the mid-1950s, produce grown on settler farms and estates, such as coffee, sisal (a fiber used to make rope), and tea, dominated Kenya’s exports. Meanwhile, African households were encouraged to produce commodities for subsistence and for sale in local markets, and to work on European farms producing export crops.

During and after World War II (1939-1945), Kenya’s economy was altered by the initiation of import substitution manufacturing—that is, the production of goods that formerly had to be imported. The 1950s also witnessed an important change in the agricultural sector as the colonial government adopted measures to stimulate greater production by African households, including granting Africans permission to grow high-value export crops. This helped spur small-scale production over the next two decades, and despite the departure of most European farmers after Kenya gained independence, agricultural exports expanded dramatically. This, together with influxes of foreign capital and technical expertise, made Kenya’s cumulative rate of economic growth—6.8 percent—among the highest in sub-Saharan Africa between 1963 and 1980.

Kenya’s booming economy weakened in the 1980s as a consequence of a rising trade deficit, among other factors. Kenya’s slowing economic growth rate and expanding budget deficits caused the government to turn to structural adjustment policies advocated by the International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF) as part of their economic assistance to Kenya. Nevertheless, the Kenyan government has set the ambitious target of achieving the status of industrialized economy by 2020. In 2000 the gross domestic product (GDP), which measures the value of goods and services produced, was $10.4 billion, or about $340 per person.

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