Economy of Kenya - Foreign Economic Relations

Foreign Economic Relations

Since independence, Kenya, a nonaligned country, has seen both substantial foreign investment and significant amounts of development aid, some from Russia, some from China and others from the high developed countries. Between 60 and 70 percent of industry is still owned from abroad. Kenya's development assistance has come from increasingly diverse sources in recent years with China taking an increasingly higher prominent role than the west. The share of funding provided by the United Kingdom has fallen significantly, while that of multilateral agencies, particularly the World Bank and the European Development Fund, has increased. The most active investors currently are the Chinese.

Kenya is active within regional trade blocs such as the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC), a partnership of Kenya, Uganda, and Tanzania. The aim of the EAC is to create a common market of the three states modeled on the European Union. Among the early steps toward integration is the customs union which has eliminated duties on goods and non-tariff trade barriers among the members.

Kenya’s chief exports are horticultural products and tea. In 2005 the combined value of these commodities was US$1,150 million, about 10 times the value of Kenya’s third most valuable export, coffee. Kenya’s other significant exports are petroleum products, sold to near neighbors, fish, cement, pyrethrum, and sisal. The leading imports are crude petroleum, chemicals, manufactured goods, machinery, and transportation equipment. Africa is Kenya's largest export market, followed by the European Union. The major destinations for exports are the United Kingdom (UK), Tanzania, Uganda, and the Netherlands. Major suppliers are the UK, United Arab Emirates, Japan, and India. Kenya’s main exports to the United States are garments traded under the terms of the African Growth and Opportunity Act (AGOA). Despite AGOA, Kenya’s apparel industry is struggling to hold its ground against Asian competition and runs a trade deficit with the United States. Many of Kenya's problems relating to the export of goods are believed by most economists to be caused by Kenya's export of inexpensive goods that saturate the global market but do little to substantially raise the amount of money coming into the country.

Kenya typically has a substantial trade deficit. The trade balance fluctuates widely because Kenya’s main exports are primary commodities subject to the effects of both world prices and weather. In 2005 Kenya’s income from exports was about US$3.2 billion. The payment for imports was about US$5.7 billion, yielding a trade deficit of about US$2.5 billion.

In 2006 Kenya had a current account deficit of US$1.5 billion. This figure was a significant increase over 2005, when the current account had a deficit of US$495 million. In 2006 the current account balance as a percentage of gross domestic product was –4.2.

In 2006 Kenya’s external debt totaled US$6.7 billion. The debt is forecast to be a manageable 30 percent of gross domestic product in 2007.

Kenyan policies on foreign investment generally have been favorable since independence, with occasional tightening of restrictions to promote the Africanization of enterprises. Foreign investors have been guaranteed ownership and the right to remit dividends, royalties, and capital. In the 1970s, the government disallowed foreign investment unless there was also some government participation in the ownership of an enterprise. Notwithstanding some restrictions, between 60 and 70 percent of industry is still owned from abroad, a significant portion of which can be traced to fraudulent asset transfers by the colonial Britain during transition to independence. This denied Kenyans the opportunity to progress economically - relegating most of them to poverty and creating conditions that would lead to dependency on foreign aid. However, Kenyan has had more economic success and more success raising its own quality of life than some of its neighbors in Sub-Saharan Africa.