Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Kenya has a domestic market of over 50 million people and is a leading economy in sub-Saharan Africa. The top reasons U.S. companies should consider doing business in Kenya include: 1) it is a market-based economy; 2) Kenya is the economic, commercial, financial, and logistics hub of East Africa; 3) it has a young, growing and educated English-speaking population with a high fluency in technology; and 4) Kenya has a strong bilateral relationship with the United States, including a Commercial Cooperation Memorandum of Understanding to promote trade and investment and the Strategic Trade and Investment Partnership (STIP) announced in July 2022. The following information gives greater detail for an overview of the market.
In 2021, the United States reported a goods trade deficit with Kenya, with U.S. exports to and imports from Kenya valued at $551 million and $685 million respectively. U.S. exports were concentrated in petroleum products ($125 million), pharmaceutical products ($68 million), and aircraft parts ($59 million). Imports from Kenya consisted mostly of apparel ($449 million), macadamia nuts ($51 million), and coffee ($41 million). U.S. imports from Kenya have grown by more than 10% annually (avg.) since 2001, when AGOA’s tariff benefits took effect (Congressional Research Service). Kenya has the strongest industrial base in the east Africa region and has been successful in attracting U.S. exporters and investors, with many companies establishing local and regional operations to take advantage of Kenya’s strategic location, diversified economy, entrepreneurial workforce, comprehensive air routes, and status as a regional financial center.
Kenya has built strong bilateral and multilateral trade relationships. Kenya is a member of the East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA), and the Africa Continental Free Trade Area (AfCFTA). In July 2022, the United States and Kenya announced the STIP, which identifies ten areas for the development of high standard commitments. The objectives of STIP include increasing investment; promoting sustainable and inclusive economic growth; benefiting workers, consumers, and businesses (including micro-, small-, and medium-sized enterprises); and supporting African regional economic integration.
Kenya’s GDP is projected to grow by 5.5% in 2022 and 5.2% in 2023. Although the economic outlook and recovery is broadly positive, it is subject to greater uncertainty, due to worsening drought, and Kenya’s exposure (as a net fuel, wheat, and fertilizer importer) to the global price impacts of the war in Ukraine. The official unemployment rate in 2021 was 5.7% (World Bank), though actual employment rates are challenging to estimate given high levels of unrecorded informal employment and subsistence agriculture.
Kenya’s debt-to-GDP ratio is projected to increase from 68.1% in 2021 to 70.3% in 2022. Inflation as of May 2022 was 7.05% (Central Bank of Kenya) and is projected to go above the top end of the Central Bank of Kenya’s 5±2.5% target band, driven by the rising cost of imports as the shilling weakens against the dollar.
The Government of Kenya (GOK) has initiated a broad range of pro-business reforms over the last few years, including regulations on starting businesses, obtaining access to electricity, registering property, protecting minority investors, and streamlining the business insolvency process. Kenya has also been experiencing a strong flow of foreign direct investment, particularly in the finance and insurance, renewable energy, trade, manufacturing, communication, and education sectors. There are a variety of private-equity entities present in Kenya, including multilateral institutions, such as the International Finance Corporation (IFC), the African Development Bank, and by bilateral bodies, including the U.S. International Development Finance Corporation (DFC).
Agriculture remains the backbone of Kenya’s economy and central to Kenya’s development strategy. According to the Kenya National Bureau of Statistics (KNBS Economic Survey 2022), the sector remained dominant, accounting for 22.4% of the gross domestic product (GDP) in 2021, despite a contraction of 0.1% from 2020. According to the Food and Agriculture Organization agriculture comprises 65% of export earnings. It is the largest employer in the country, with more than 40% of the total population and more than 70% of Kenya’s rural population earning at least part of their income from the sector. Agriculture in Kenya is large and complex, with a multitude of public, parastatal, non-governmental, and private sub-sectors. The contraction in the sector is attributed to erratic and poorly distributed rainfall, rising costs of inputs, and the shift of land use to real estate.
Although Kenya is the most industrially developed country in east Africa, the manufacturing sector only accounted for 7.2% of GDP in 2021 (KNBS Economic Survey 2022). Although Kenya’s mineral resources are limited, the country is an important source of high-value mineral commodities such as titanium, gold, and rare earth minerals.
The construction and real estate sectors were among the fastest growing sectors in 2021. The construction sector registered growth of 6.6% compared to growth of 10.1% in 2020. To meet long term population growth needs, the GOK has heavily invested in public infrastructure development projects (road, rail, energy, port, and airport modernization) and the real estate sector. However, the need for fiscal restraint given high levels of public debt is expected to constrain public infrastructure investment in the medium-term and slow down the construction industry.
Technology remains one of the fastest-growing business sectors in Kenya, with internet penetration of 34.9% and ranking seventh in Africa in number of internet users (Statista). The GOK-approved goal of universal 4G coverage, and the growth in smartphone usage is spurring growth in e-commerce and other e-services.
The tourism sector in Kenya is one of the most diverse in east Africa, with increased investments in conference, eco-tourism, and leisure tourism. In 2021, supported by the relaxation of COVID-19 travel restrictions, the tourism sector began to recover with international arrivals expanding by 50.3% to 871,3oo visitors (KNBS Economic Survey 2022).
Overall, while the economic recovery from COVID-19 related effects has been strong, various macroeconomic factors are exerting significant pressure on the Kenyan economy. These include the August 2022 general elections, drought and famine, rise in global commodity prices and supply disruptions of key inputs including oil, wheat, and fertilizers, as well as a tight fiscal space and limited access to external resources. U.S. companies should be mindful of this current economic volatility and maintain strategic agility.