Kenya is one of the most vibrant economies of the African continent. The nation has made significant structural, political and economic reforms over the past few decades that have largely brought about sustained social developments, political gains and economic growth in the country. However, the country still remains to be classified as a developing economy according to the development standards of the World Bank (Copley, 2014). Mainly, the key challenges to the nation’s growth arise from factors such as inequality, poverty, climate change and the overall vulnerability of the country’s economy to both internal and external shocks.
According to Rostow’s stages of economic development, the country is at the take off stage. Mainly, this is because the country’s manufacturing industry has assumed greater importance over the past few years, although the number of industries remains low. Agriculture in the country is mechanized and more output is traded (Jacobs, 2018). Furthermore, the social and political institutions are developing although external finance is still required to sustain them. Also, the rate of savings and investment in the country has grown over the ears, but still remains around 15 percent of the total GDP of Kenya (Jacobs, 2018). The economy can also be viewed as being a dual economy. Mainly, this is due to the fact that there has been an apparent rise in the level of productivity and wealth in its manufacturing and other industries over the past few years (Iraki, 2017). In this regard, one can comfortably argue that the Kenyan economy is at the take-off stage according to Rostow’s stages of economic development.
It is imperative to note that Kenya has a market based economy characterized by a few state-owned enterprises. Largely, the country maintains a liberalized external trade system. The nation has the largest and most vibrant economy in the East Africa region and is considered to e the region’s financial and transportation hub. After obtaining its independence in 1963, the country’s government promoted economic growth through public investments, incentives for private industrial investments, and encouragement of agricultural production (Economic History, n.d.). As at 2016, the nation’s GDP value was estimated at 70.53 billion US dollars (Kenya GDP, 2018). Notably, this value represents approximately 0.11 percent of the world economy (Kenya GDP, 2018). Its average GDP value since 1960 to 2016 is estimated at 14.33 USD billion (Kenya GDP, 2018). Over this period, the lowest GDP value to be recorded was 0.79 USD and was experienced in 1961 (Kenya GDP, 2018). On the other hand, the all time high record is 70.53 and was recorded in 2016 (Kenya GDP, 2018).
Overall, the country’s GDP has been growing continuously over the past ten years. In 2008 , Kenya’s GDP was estimated at 35.9 USD billion. In the year that followed this value increased slightly to 37.02 USD billion then 40 USD billion in 2010. By 2011, Kenya’s GDP had risen to 41.95 billion. In the year that followed, the nation experienced a sharp increase in itt GDP and was estimated at 50.41 billion US dollars (Kenya GDP, 2018). Afterwards, in 2013, the country’s GDP continued to grow and was recorded at 55.1 USD billion. In 2014, the growth continued and the GDP was valued at 61.45 USD billion (Kenya GDP, 2018). There was a slight increase in the level of GDP in 2015 as it rose to 63.77 USD billion before rising further again to 70.53 USD billion 2016.
Figure 1: Kenya’s GDP
Source: (Trading Economics, 2018).
Just like any other economy, Kenya’s economic activity slowed down in 2008 following the global economic recession but resumed three years later. In 2016, the country’s economic growth rate was estimated at 5.8 percent, making it one of the fastest growing economies in the Sub-Saharan Africa. It is worth pointing out that economic expansion was mainly attributed to a stable macroeconomic environment, a rebound in its tourism sectors, low global oil prices and government led infrastructure development. According to the World Bank (2018), the economy is expected to experience further growth over the short-term and the long term period.
Although Kenya is predominantly a market based economy, its government plays a major role in influencing the level of economic activity in the country. As such, the government is keen on enhancing the level of economic growth in the country. Therefore, it takes an active role in promoting policies that aim at increasing the GDP level of the country. In Kenya, the government influences the GDP through an increase in the level of government expenditure on infrastructural developments. As such, government spending in the country over the past few years has been seen in major infrastructural developments such as roads, industries and schools. In turn, these government expenditure acts as a fiscal multiplier that fuels growth in the country by leading an increase in the country’s aggregate demand.
In addition, the Kenyan government, through the Central Bank of Kenya influences the interest rates in the country. It is worth noting that the Central Bank of Kenya is the country’s monetary authority that is in charge of formulating and executing monetary policies in the country. Therefore the government through the CBK adjusts the interest rates in the country to influence the level of economic activity. For instance, last year, the government set a 4 percent interest rate cap on all banks loans in the country. (Shilitsa, 2018) Mainly, this was aimed at lowering the cost of credit in the country and, hence stimulates economic growth (Ngugi, 2018). According to economic theory, a low interest rate regime reduces the cost of borrowing loans. As a result, households and businesses are able to borrow from banks and financial institutions, and this in turn brings about an increase in the aggregate demand in the economy.
Unlike GDP growth and interest rate, the Kenyan government has no influence over the value of its currency. Mainly, this is due to the fact that the country has a flexible exchange rate regime (Rao, 2017). Therefore, the value of the Kenyan shilling deviates according to the forces of demand and supply in the foreign exchange market (Rao, 2017).
The Kenyan government plays an important role in influencing the level of foreign debt in the country. Mainly, this is because the government is in charge of borrowing of funds from the IMF, World Bank and developed economies such as USA and the UK. For instance, the current government authorized 18 loan agreements to finance various projects in the country (Ayagga, 2016). As at 2017, the foreign country’s foreign debt was estimated at 2349.28 billion Kenya shillings (Kenya Central Government, 2018). The balance of trade of the country has also been negative for the past few decades. The government may help in achieving a balance of trade by ensuring that the loans borrowed are put into intended use, and facilitate growth and development in the country. This way, the borrowed funds will help to enhance the economic conditions of the country and provide an opportunity for the repayment of the loans (Ayagga, 2016). However, given the high degree of corruption in the country, most of the borrowed funds and embezzled and misappropriated, thereby creating more foreign debt for the country while realizing no form of economic improvement.
Just like most governments, the Kenyan government takes an active role in the protection of the environment. Mainly, this is achieved through the establishment of environmental policies and regulations that aim at protecting the environment from harm such as pollution. Today, the Kenyan government performs these roles through government agencies such as the National Environmental Management Authority (NEMA) (NEMA, 2018). Specifically, NEMA is in charge of coordinating the various environmental activities undertaken in the country to promote the integration of environmental considerations into development plans, projects and policies. Therefore, the government through NEMA ensures the protection of the environment in Kenya (NEMA, 2018).
It is imperative to point out the fact the Kenyan government takes very little interest in the personal well-being of its citizens. As such, there are very limited policies and facilities that have been developed by the government to promote social welfare. (Social Welfare Programs, 2017). Most of the social welfare programs in the country are private sector initiatives by individuals and private companies. Therefore, it this regard, the Kenyan government might step up in its responsibilities and develop policies and invest in facilities across the country that will promote the personal well-being of its citizens through housing projects, homes for the elderly, orphanages, better healthcare facilities, among others (Social Welfare Programs, 2017). By doing so, the government will significantly improve the personal wellbeing of its citizens and improve the overall social welfare in the country.
At the moment, the tourism industry in Kenya is one of the largest sectors in the country. It is also the second-largest source of the country’s foreign exchange revenue after the agricultural industry. In 2017, the sector realized a growth of 20.3 percent (Angeline, 2018). Such impressive growth rates in the industry are expected to continue over the short term future (Angeline, 2018). Therefore, in this regard, this sector plays an important role in the economic growth of the country and the Kenyan government should devise ways of achieving tourism development and growth in the country (Karim, 2013). As such, the government should work towards creating a positive environment for the development of the tourism and hospitality industry in the country.
Firstly, the government can contribute towards tourism and hospitality development in the country through infrastructural development. As such, the government should invest in building infrastructure such as roads, airports, railways across the country to ensure that the main tourist attraction sites in the country are well served by roads and are easily accessible by both local and international tourists (Akama, 2002). So far, one must commends the Kenyan government for investing in highways and railways across the country. As a result, most of the tourist centers in the country are accessible by road or rail.
Secondly, the government could provide a positive environment for the development of the tourism industry through the provision of economic incentives to tourist firms. Mainly, this can be in the form of tax incentives and investment and funding. Particularly, tax incentives may comprise of reduction in the tax paid by tourism industries in order to reduce their overall tax burden and improve their profitability. In turn, this encourages the firm to expand their operations and promote their services to attract more clients from both abroad and locally. Additionally, the government may increase its funding to firms within the industry in the form of grants or cheap loans (Government Strategies, 2017). When companies have access to cheap funds, they will able to expand their operations and, therefore, lead to the growth and development of the tourism industry in Kenya.
Furthermore, the government can promote the tourism and hospitality sector through education and training. As such, the government may set up educational centers to offer training and educational services to individuals who would like to work in the tourism and hotel industry. In these schools, individuals can learn a range of skills and competencies that are required in the sector. These courses could range from hotel management to catering, tour guides and hotel services. By so doing, the government would have significantly improved the qualifications and capabilities of the workforce in the industry, which in turn would translate into an increase in worker productivity in the sector. An increased worker productivity would in turn bring about significant growths in the tourism industry in the country.
Moreover, the Kenyan government can help in developing the tourism industry in the country through marketing the tourism products offered by its industry both locally and abroad. As such, the government can set up marketing initiatives such as advertising the main tourist attraction sites in the country abroad and entice potential visitors to tour the country and have the Kenyan experience. It is worth noting that Kenya has numerous tourist attractions ranging from sandy coastal beaches, to national parks, archeological sites and mountains. Therefore, advertising these tourist destinations would significantly increase the number of people who are aware of their existence, and therefore promote the tourism industry in the country.
Also, the Kenyan government can create a positive environment for the development of tourism by maintaining political stability and peace in the country. It is worth noting that this industry depends highly on the political tranquility and peace as tourists cannot travel into the country when there are instabilities. In 2007 for instance, most countries issued a travel advisory to its citizens o avoid visiting the country because it was experiencing significant post election violence and political unrest. Although the rest and calm in the country has been restored over the years, the country is still susceptible to political unrests. Therefore, in order to ensure stability in the tourism sector, the government should instill policies that ensure peace prevails in the country at all times.
Setting up a luxury beach hotel that guarantees affordable prices in the country’s Kilifi region as a tourist destination may attract many tourists to the business. Mainly, this is because Kilifi has many tourist attraction sites ranging from sandy beaches to historical and archeological sites. Additionally, the local people in the region have a very rich culture that attracts many visitors. Therefore, visitors from all over the world visit the region to view these sites and experience the local culture. Yet, at the moment, many good hotel facilities in the region are very expensive and costly for both local and international tourists. Therefore, the business will step in and fill this market gap by offering high quality services at affordable rates for both local and foreign tourists.
The business will seek local sources of finance to help construct and develop the hotel. Thus, it will approach local banks and financial institutions around the area and present them with the viable business plan that explain the feasibility and viability of the business idea. Given the great potential that the idea has, it is most likely that the banks would lend the firm money to start the business.
After obtaining a stable source for business financing, the managers will apply for all the necessary permits and licenses required for building a hotel establishment in the country. In addition, it will seek to register the business as a wholly foreign owned company with both the central and local governments. The management will also ensure that the firm strictly adheres to the rules and legislations of the country as regards to the development and establishment of a hotel business in the country. The firm will also utilize the services of local experts in the building and construction industry as well as those in the tourism and hotel industry in order to proper plan for the business’ activities.
It is worth pointing out that the business will utilize the skills and expertise of the local people. As such, a majority of the members of staff at the hotel would be individuals from the local Kilifi community. The company will first offer training to these residents before absorbing them into the workforce.
To a large extent, the business will bring about numerous positive effects to the local community of Kilifi. Firstly, the hotel will provide job opportunities for the residents of Kilifi who would work in the hotel in various capacities. As a result, they would be able to earn a decent income. In turn, this would lead to an alleviation of the economic status of the people in the region. Additionally, the business will promote other local business in the area. As such, the hotel will demand from various products such as food from the local market, and therefore promote the local business people as well. Furthermore, the business will lead to an improvement in the region’s infrastructure, as it will lead to development of feeder roads to connect the hotel to other regions and prominent road networks. Therefore, in this regard, the business will result in many positive economic effects for the local community of Kilifi.
Conclusion
All in all, all factors taken into consideration, the Kenyan economy has great potential for economic growth. Even though it is a developing economy, the country has undergone multiple social, political and economic reforms that have allowed it to grow into the largest economy in East Africa. The tourism industry in the country also has great potential and its government should devise strategies that will help the sector in growing and developing further.
References
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Angeline, O. (2018). Kenya’s Tourism Sector Recorded 20.3% Growth In 2017. Kenya Wall Street. Retrieved 19 May 2018, https://kenyanwallstreet.com/kenyas-tourism-sector-recorded-20-3-growth-2017/
Ayaga, W. (2016). Jubilee heavy borrowing pushes Kenya’s foreign debt to Sh3.2 trillion. The Standard Digital. Retrieved 19 May 2018, https://www.standardmedia.co.ke/article/2000219951/jubilee-heavy-borrowing-pushes-kenya-s-foreign-debt-to-sh3-2-trillion
Copley, A. (2014). Africa in the News: Kenya Becomes a Middle-Income Country; Mo Ibrahim Index Released; South Sudan Peace Talks Yield Promise. Brookings. Retrieved 19 May 2018, https://www.brookings.edu/blog/africa-in-focus/2014/10/03/africa-in-the-news-kenya-becomes-a-middle-income-country-mo-ibrahim-index-released-south-sudan-peace-talks-yield-promise/
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