Policy Recommendation

Kenya does have some policies in place in order to help with growth. Some of these policies help but some may actually end up hindering Kenyan citizens. The Kenya Trade Policy was put in place in the 1990s by Kenyan government to give Kenyans free trade so they could obtain goods and services cheaper than they can produce them for (International Monetary Fund, 2009). The central bank of Kenya Act was passed in 1966 by the Kenyan government in order to create a central bank. This central bank is responsible for maintaining financial stability throughout Kenya (Central Bank of Kenya, 2009). Kenya also has a minimum wage policy and some unions to help protect workers (CIA, 2009). According to the CIA factbook, this year Kenya’s minimum wage was increased to 2,536 Shillings per month.
First and foremost I would modify Kenya’s trade policy. This policy is making Kenya too dependent upon other countries for necessities. I would slowly place trade restrictions on Kenya until they are able to produce several necessities on their own. I would begin by closing off trade with all countries that import machinery. This would remain in place until Kenya could produce these machines for themselves. After Kenyans accomplish this productively, I would reopen trade with the countries that produce machinery but close trade with countries that Kenya relies on for other necessities. This would continue on until Kenya is completely self-sufficient. Since Kenya is so in debt to other countries at this point in time I believe it would be to Kenya’s benefit to be completely self-sufficient. Perhaps in a few years when Kenya gets back on its feet it could then begin trading once again.
There are some possible adverse effects from modifying this policy. For one there is a chance that Kenyans will not have the money or the human capital to make this policy work. If they are unable to purchase the capital to produce these new goods and services then this policy will fail and poverty will consume even more people. People could starve. If this happens for longer than two years then I would reopen trade and start saving Kenya’s money. I would then try the policy again in ten years or so. If this policy works Kenya would not only reduce its imports but it could also possibly increase its exports, increasing their net exports even more. Since net exports is added to government spending, consumption, and investment to obtain GDP, the more net exports increase the more GDP increases.
I would also implement a policy that would require all children, including girls, to go to school until they are at least sixteen years old. Currently in Kenya not all girls go to school because men are regarded as superior to women (Irin, 2009). If this policy is implemented it should raise the literacy rate while creating more workers per household at the same time. It could also help to curb population growth. If women are educated then they will better be able to work, and they should be able to increase the per capita GDP and help to eliminate poverty. I would permanently keep this policy in place.
This policy could cause the unemployment rate to skyrocket even higher though. There is already structural unemployment due to a mismatch of qualified people and jobs available. To combat this I would mix boys and girls together in schools and then take the highest achieving five percent of each grade and send them to a college in another country. The government would try to get a grant or financial assistance to pay for their education with the understanding that the student will return to Kenya and work there. I would keep this part of the policy in place for twenty years, until the per capita GDP increases. It will take a lot of work to get the grant but it has to be done, because Kenya needs more of a variety of workers. Some of these students could even become engineers and help to build some of the capital necessary for my previous policy to work.
I would additionally put a policy into place to combat inflation. In this policy I would hire successful financial advisors from other countries to come into Kenya and monitor the Central Bank. One of the Central Bank’s jobs is to make sure inflation does not get out of hand. In recent years however inflation has increased substantially. The financial advisors would help Kenyans better invest the reserves they do have. Then hopefully they will make more money. I would also put a limit on how much inflation there can be in each year. The Central Bank simply will not be allowed to print money when inflation reaches over ten percent. Cameron is currently trying to do this in England (Chapman, 2009). I would keep these policies in place for ten years, until Kenya’s currency becomes stable.
One problem with this is obviously that the investors cost money. The investors may also invest the money poorly. Kenya could become even more destitute than it already is. Kenya additionally will not be able to pay off its debts without inflation. Even if the investors do cost money, in the long run it will be worth it. The money Kenya is expected to make and save should easily cover the cost of the advisors and beyond. If the investors do not pick good stocks to put the money into then Kenya could become even more destitute. However Kenya’s economy is already suffering a lot. In this case the potential benefits outweigh the risks. In response to Kenya’s debts, Kenya is constantly in debt. It does not matter if there is inflation for Kenya to pay those off or not. There will always be new debts. Kenya needs to nip this problem in the bud before it becomes even worse. If Kenya keeps going on the way it is then in a few years their debt could increase exponentially.
Lastly I would implement a policy to help bring more money into Kenya. Kenya is already a major tourist attraction. I would build more hotels and make commercials to air in rich countries like the United States, Britain, and Germany. There are already several natural tourist attractions so no other work would need to be done. When tourists come they will increase per capita GDP because they will buy from local merchants. New hotels and commercials would also create unskilled labor jobs for countless Kenyans, decreasing unemployment.
It is fair to say that this will cost a fair amount of money. However the money Kenya would make in return makes this idea well worthwhile. Building the hotels would employ even more people as well. If this idea fails then there will still be hotels, which can be used as apartment housing for locals. Therefore even if this policy fails, it would not be a complete loss.
Overall I would implement all of these policies at different times. It would be far too risky and it would be too much change to put all of these policies into effect at one time. However, I believe if I began each of these policies twenty years after the previous policy then Kenya’s economy would improve tenfold. All in all I believe these policies have the potential to substantially help Kenyans economically.

References:

International Monetary Fund. "Kenya - International trade." Encyclopedia of the Nations. N.p., 1998. Web. 24 Nov. 2009. .

Central Bank of Kenya. "About Us." Central Bank of Kenya. N.p., 2009. Web. 1 Dec. 2009. .

CIA. "Kenya Economy." CIA World Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009. .

Chapman. "Cameron under fire for his promise to stop printing money Mail Online." Home Mail Online. 2009. Web. 08 Dec. 2009. .

Irin. "IRIN Africa KENYA: Women weighed down by culture East Africa Kenya Children Gender Issues Health & Nutrition Human Rights Feature." IRIN " humanitarian news and analysis from Africa, Asia and the Middle East - updated daily. 2009. Web. 08 Dec. 2009. .

Money

Kenya uses the Shilling as its currency. They have both paper money and coins. The coins are fractions of Shillings and the paper money is whole Shillings (Classic Escapes, 2009). The Shilling is fiat money because it has no intrinsic value. One Kenyan Shilling is equal to .0128 United States dollars (CIA, 2009).
Kenya’s currency is not very stable. Since 2004 the inflation rate has been around ten percent. However, just this year the inflation rate has soared to over twenty six percent (CIA, 2009). A large rise in the price of food caused this jump in inflation (CIA, 2009). Since there is so much inflation the Shilling is not a good medium of exchange. It is difficult to measure wealth with a currency that is constantly changing in value.
The Shilling is not a good store of value either. Since the inflation is so vast if someone were to save a Shilling today there is no telling how little it will be worth one year from now. This has especially detrimental effects on Kenyans since they have such a high unemployment rate. The people who become unemployed are left only with the money they earned when they were working. They are forced to save this money to buy food and necessities. However when inflation is rising and a person is no longer earning an income, they are essentially losing money because they have the same amount of money but the prices of everything are increasing. The value of their money is decreasing.
The high inflation rate also makes the Shilling a poor unit of account. The currency keeps decreasing in value, causing goods and service to cost more and more. Factors of production are never able to stay at the same price from year to year because of this.
Kenya does have a central bank to try to combat inflation though. The Central Bank of Kenya’s role is to maintain stable prices, maintain a stable market, and comply with new government policies. The Central Bank of Kenya is also in charge of the foreign exchange policy, storing reserves, making sure merchants and firms are authorized, and issuing currency (Central Bank of Kenya). According to the Central Bank of Kenya’s website, on August 14, 2009 the Central Bank discussed that food prices needed to stay consistent so that excessive inflation does not occur. The Central Bank also plans to try to invest more in technology and give out loans to people in rural areas. These policies have not helped much yet because they have not had enough time to be put into place (Central Bank of Kenya, 2009). However, given time these policies have potential to help with both Kenya’s inflation issue and their economy as a whole.

References:

Central Bank of Kenya. "About Us." Central Bank of Kenya. N.p., 2009. Web. 1 Dec. 2009. .

Classic Escapes. "Kenya Money Matters." Classic Escape. Classic Escape, 2009. Web. 1 Dec. 2009. .

CIA. "Kenya Economy." CIA World Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009. .

Employment

Unemployment Rate
40%
Labor Force Participation Rate-Men
87.3%
Labor Force Participation Rate-Women
74.4%
Data derived from CIA World Factbook

The vast majority of Kenyan workers, approximately 75%, work in farming (Kenya Advisor, 2009). Farming is a job that does not require a formal education. Most people in Kenya are farmers. Since Kenyans lack in technology necessary for education after high school, they need a job that does not require much formal education (Mulama, 2009). The soil in Kenya is also rich in nutrients which crops like coffee and tea need to thrive. Farmers in areas of Kenya that do not have good soil herd cattle (Kenya Advisor, 2009).
More men work than women. A lot of the time the woman in the family stays at home and births and takes care of the children instead of working. Since the women of Kenya do not have much access or knowledge about contraceptives they are unable to work a lot of the time because they are at a point in their pregnancy when it is dangerous to work. This is apparent through Kenya’s birthrate of 36.64 births/ 1000 population (CIA, 2009).
Kenya has a high unemployment rate for a couple of reasons. One reason is that Kenya is still suffering the consequences of a drought in 2000 (Kenya Advisor, 2009). This drought killed several crops lowering Kenya’s supply of crops to sell. Then in 2002 there was too much rain which drowned many crops again decreasing the supply (Kenya, 2009). When the supply is decreased like this, the farmers make less money. When the farmers make less money they have to cut back in several areas, including employees. Kenya has naturally high unemployment because so many people want farming jobs but there is only so much land in Kenya so there can only be so many farmers. There are not many jobs other than farming available.
Kenya does have a minimum wage of 2,536 Shillings per month to protect workers (CIA, 2009). The government implemented this current minimum wage in 2009 to keep up with inflation (CIA, 2009). Kenya also has some unions like the Union of Commercial Food and Allied Workers and the Union of Journalists (Kenya Advisor, 2009). Overall Kenya has some major unemployment issues.

References:

Kenya Advisor. "Who Are The Kenya People?" Kenya Advisor. N.p., 2009. Web. 1 Dec. 2009. http://www.kenya-advisor.com/kenya-people.html.

United Nations. "Kenya." UNdata. United Nations, 2009. Web. 1 Dec. 2009. < crname="Kenya">.

CIA. "Kenya Economy." CIA World Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009. https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html.

Mulama, Joyce. "On The Way To Getting Wired." IPS. IPS, 2009. Web. 24 Nov. 2009. .

International Trade

Exports: tea, horticultural products, coffee, petroleum products, fish, cement

Imports: machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics
Data derived from CIA World Factbook

Kenya has lots of trade activity. Though Kenya has many natural resources it is able to export, Kenya still imports countless more items. A large part of the reason why Kenya has accumulated so much debt is because Kenya imports so many goods and exports so few (CIA, 2009). In fact Kenya exported 5.04 billion dollars worth of goods and imported 10.69 billion dollars of goods in 2008 (CIA, 2009).
The Kenyan trade policy is quite liberal and has been since the 1990s (International Monetary Fund, 1998). Kenya has had an open trade policy since the early 1990s (International Monetary Fund, 1998). Kenya has only a 25 percent tariff (International Monetary Fund, 1998). Kenya is so open with trade that they have become dependent upon resources from trade with other countries.
Kenya has comparative advantage in very few goods because Kenya does not produce a variety of goods. Since Kenya does not have comparative advantage in many goods they do not export many goods other than agricultural products, which they have comparative advantage in (CIA, 2009). In fact coffee and tea are a couple of the few items Kenya has comparative advantage in (CIA, 2009). Since Kenya can obtain mechanical resources elsewhere they have never had the desire to invest in factories, because investing in factories costs time and money. Therefore since Kenya has a large imbalance of imported and exported goods since it does not export a range of goods.
Contrary to what usually is the case for free international trade, trade could be hindering Kenya. Since Kenya knows it can import goods for a lower price than making them Kenya has become dependant upon other countries for necessary resources such as machinery and metals. If Kenya were not able to trade with other countries then they could be forced to invest more in capital to produce the goods for themselves. If Kenya did this then they would be far less dependant upon other countries and they might not even be in as much debt to other countries as they are now. Overall Kenya’s net exports are a large issue for the Kenyan economy. Perhaps Kenya should invest in capital to produce imported goods for themselves.

References:

International Monetary Fund. "Kenya - International trade." Encyclopedia of the Nations. N.p., 1998. Web. 24 Nov. 2009. .

CIA. "Kenya Economy." CIA Worls Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009. .

Savings And Investment

In past years Kenya has not invested much into capital to prepare for the future. However the effects of not investing are catching up to Kenya. As a result Kenya is now trying to invest in capital for the future. According to the Central Bank of Kenya’s website, the governor of the Central Bank of Kenya recently discussed that Kenya needs to invest in technological capital. However Kenya has not yet had time to implement any policies either to raise moeny for capital or to give people incentive to invest their own money (Central Bank of Kenya, 2009). The Kenyan government, as well as governments worldwide, is slowly realizing that Kenya’s economy needs help. Kenya’s population is growing faster than its economy is growing (JamboKenya, 2009). Because of this the government must act fast to prepare for the future before Kenya obtains even more debt.
The Kenyan government is trying to generate more revenue by creating more and more businesses (JamboKenya, 2009). The government invests money into these businesses so that they will both create jobs for people and increases Kenya’s revenue in the present and in the future. The government hopes these enterprises will be a good investment that will consistently generate money for Kenya for many years. Foreign countries are also helping Kenya’s economy grow by investing in Kenya through foreign direct investments (JamboKenya, 2009).
However Kenya’s economy is having difficulties growing because even though the Kenyan government is investing into capital they are not saving to invest this money. They are getting the money through loans from other countries (JumboKenya, 2009). Kenya is still importing goods several mechanical and electronic goods even though they have a myriad of natural resources (CIA, 2009). Essentially Kenya is using money it does not have in order to create businesses. These businesses will have a difficult time becoming successful when they begin in a country that is in a major debt. Since these businesses have spent so much more money than the initial allotment, it will take several years to repay their debts before the businesses can begin making a profit.
Since the Kenyan government is investing in all of these businesses given the current economic state of Kenya in the short run the economy might continue to suffer. However, in the long run these firms could eventually be able to recover from all of the money they are costing in the short run. These businesses will create jobs for countless people as well as increase productivity. Thus after these firms are able to overcome their large debts the Kenyan economy should be much better off. Perhaps after these enterprises are able to overcome the debt they will be able to help the economy because they will eventually begin making a profit.
They can then save their profits in order to invest in even more businesses later which will help the Kenyan economy grow. When these companies save their money in the banks, it will help to shift the supply curve right, lowering interest rates so even more people can take out loans in order to purchase capital for investments for the future. Conversely, it is plausible that the Kenyan government will gain too much power and become an unbreakable market power. Overall the new businesses the Kenyan government is creating may or may not help the economy.

References:

JamboKenya. "Kenya Economy." JamboKenya. N.p., 2009. Web. 24 Nov. 2009. http://www.jambokenya.com/jambo/kenya/econ01.htm.

Central Bank of Kenya. "About Us." Central Bank of Kenya. N.p., 2009. Web. 1 Dec. 2009. http://www.centralbank.go.ke/.

CIA. "Kenya Economy." CIA Worls Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009.

Productivity

Kenya is doing quite well in the area of natural resources. Kenyans enjoy limestone, soda ash, salt, gemstones, fluorspar, zinc, diatomite, gypsum, wildlife, hydropower, tea, coffee, corn, wheat, sugarcane, fruit, vegetables, dairy products, beef, pork, poultry, eggs, and more (CIA, 2009). These resources should allow Kenya to be extremely productive and make money, which should allow Kenyans to obtain a high GPD, allowing for a high standard of living.
However this is not the case. Kenya is lacking in physical capital. Less than three percent of Africans have internet access and very few Africans, especially in Kenya, have phone lines (Mulama, 2004). Some areas of Kenya do not even have electricity. Some areas of Kenya do have the physical capital and the technological knowledge to make solar power work (Mulama, 2004). Because there is so much poverty in Kenya, Kenya is not able to afford much physical capital. Kenya does have some machines to make coffee and tea ready to sell but most work Kenyans do, like farm work, is done using manpower (CIA, 2009). This majorly holds back productivity because machines can do jobs much more efficiently than a person can. Since Kenya does not have machines to do their work more efficiently, Kenya is less productive. Since they are less productive they have less money than they could have. Kenyans in turn are not living up to their potential living standards.
Additionally though Kenyans do have the technological knowledge of how to mine and farm (CIA, 2009) since Kenyans are generally not able to have computers both their technological knowledge and human capital suffer, which directly causes Kenya’s productivity to suffer. Kenyans are not able to gain education through computers because they simply do not have them. Computers are useful in education because of the plethora of up-to-date information that can be discovered throughout the internet. Not only does the internet have factual information but it can also help teachers determine the best way to teach subjects.
Many Kenyan boys are able to become educated through schools but computers would help increase their human capital. Kenya also lacks in human capital because fewer girls are educated than boys (CIA, 2009). 79% of females are enrolled in school while 90% of males are enrolled in school (World Resource Institute, 2006). It is also difficult for Kenyans to gain technological knowledge because they cannot easily share in the knowledge of the best way to accomplish tasks because they do not have the internet to see how people are most efficiently accomplishing tasks globally. Thus, even though Kenya is rich in natural resources, its lack of human capital, physical capital, and technological knowledge cause Kenya to not live up to its potential productivity.

References:
Mulama, Joyce. "On The Way To Getting Wired." IPS. IPS, 2009. Web. 24 Nov. 2009. .

CIA. "Kenya Economy." CIA Worls Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009. . World Resource Institue. "School Enrollment and Literacy." World Resource Institute. N.p., 2006. Web. 4 Dec. 2009. .

Data Table

KENYA
GDP
$61.51 billion
GDP real growth rate
1.7%
GDP per capita
$1713.03
Population living below the poverty line
50%
Life expectancy
male: 57; female: 58
Adult literacy
85.1%
Birth rate
36.64 births/ 1000 population
Death rate
9.72 deaths/1000 population
Population growth rate
2.691%
Age structure
0-14 years: 42.3% (male 8,300,393/female 8,181,898) 15-64 years: 55.1% (male 10,784,119/female 10,702,999) 65 years and over: 2.6% (male 470,218/female 563,145)

Kenya has an interesting economy. Their per capita GDP is only $1,713.03 while the population growth rate is 2.691% (CIA, 1009). These numbers are concerning especially compared to the United States per capita GDP of 47,500 dollars and their population growth of only .915% (CIA, 2009). Kenya’s low per capita GDP goes along with its high population growth rate, because as countries have higher population growth rates they tend to have lower per capita GDPs that go along with it.
Kenya has an 85.1 percent literacy rate which is slightly higher than the world literacy rate of 82 percent (CIA, 2009). However when more closely examined these numbers reveal a higher truth. Over ninety percent of the male population in Kenya is literate while less than eighty percent of women in Kenya can read (CIA, 2009). These numbers strongly suggest that women are not often educated in Kenya. Women are expected to be mothers at very young ages. Since Kenyans have little availability and education about contraception there is high population growth (CIA, 2009). This lowers the standard of living for these women because they have to dedicate most of their money to several children rather than one child.
Forty two percent of the population in Kenya is under fourteen which means a large portion of Kenyan citizens have the ability to work, but they most likely would not be productive (CIA, 2009). This likely helps to explain why fifty percent of Kenyans are living below the poverty line. Stated simply, if people cannot work, they cannot gain money and they are destined to poverty. Kenya is slightly below average with their 1.7 percent GDP real growth rate. The average world growth rate is 2.01 percent (CIA, 2009). This could also help explain why so many people are living below the poverty line. Over the years as other countries have prospered by largely increasing their GDP, Kenya has increased their GDP by less than everyone else has (CIA, 2009). This is likely because while other countries are finding more productive ways to produce their multiple goods and services, Kenya is still farming largely by hand. The large number of people living below the poverty line could be a leading cause for why the average life expectancy in Kenya is only 57.49 years for males and 58.24 years for females while the world’s average life expectancy is 68.9 years (CIA, 2009). When people are living below the poverty line they are not able to afford the nutritious foods and necessary medications which people above the poverty line are able to consume in order to prolong their lives.
Additionally Kenya’s GDP is 61.51 billion dollars while the United State’s average GDP is 13.2 trillion dollars (CIA, 2009). Perhaps Kenya would have a higher GDP if more women would become educated so they could later play more important roles in the labor force, generating more money for the country. All in all, Kenya is significantly below average in many aspects of their economy.

References:

CIA. "Kenya Economy." CIA World Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009. library/publications/the-world-factbook/geos/ke.html>. CIA. "Literacy." CIA World

Factbook. CIA, Nov. 2009. Web. 20 Nov. 2009. library/publications/the-world-factbook/fields/2103.html>. CIA. "United States Economy."

CIA. "United States Economy." CIA World Factbook. CIA, Nov. 2009. Web. 20 Nov. 2009.
.Economy." CIA Worls Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009. .