Research Paper on the Kenyan Economy

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University of California, Santa Barbara
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Research paper
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The Kenyan economy is market-based that maintains an external trade system with few state owned infrastructure enterprises and maintains an external trade system that is liberalized. Agriculture sector remains the backbone of the country though there are other industries such as industrial manufacturing, tourism, financial services and forestry among others. Kenya for many years is regarded as the eastern and central Africa economic hub. The countrys gross domestic product stood at $70.66 billion as of 2015 estimates and was ranked 72nd largest economy globally. During the same period, per capita GDP was estimated at $1,786. Due to expansion in the transportation sector, telecommunication and agricultural sector, the economic prospects remain positive with an expected growth of 5% GDP by the end of 2017. The unemployment rate remains a key challenge with more than 70% of the youth being unemployed and those employed mostly rely on small scale business to earn a living. The poverty level remains high in Kenya, and the country is likely not to meet the millennium development goal to halve severe poverty by the year 2020. However, Kenya has set vision 2030 in its bid to become a middle-income country by the year 2030 (Africa & Outlook,2017).

Production Output Performance Analysis

Gross domestic product is the measure of the national output and income of an economy for a certain country. GDP is equal to total expenditures for all final goods that produced within any given nation in a specified period. The GDP is calculated without deducting depreciation of fabricated assets or degradation of natural resources. Even though real gross domestic product growth has been unstable in the recent years, it is tended to increase through the 2006-2016 period ending 6 % in 2016. At the end of 2016, the gross domestic product in Kenya was worth $70 billion which represents 0.12% of the global economy. Since independence in 1963, the countrys gross domestic product averaged at 14.44 billion until 2016 reaching an all-time high of 70 billion. The figure below shows the country GDP for the past ten years (Oxford Business Group,2017).

The latest report shows that the Nominal GDP of Kenya in April 2017 stood at $18.8 billion while the GDP deflector increased by 14.5percent the same month.

Gross domestic product per capita GDP divided by the population of the midyear. The gross domestic product per capita of Kenya has experienced a significant increase from $500 in the year 2005 to $1,516 in 2016 with an average growth of 7.3% and is equal to 9 % of the global average. The GDP expanded 4.7% in annual terms in the first quarter of 2017 down from 6.1 % in the fourth quarter of 2016. The performance in the first quarter of 2017 was contributed by strong performance in the construction industry that has maintained an 8.4% average growth. The heavy in structural development that is being experienced in the country such as the construction of the standard gauge railways has supported the sector. On the other hand, the agricultural sector underperformed recording 1.1% during the first quarter of 2017; this is attributed severe drought that the entire east Africa region experienced last year something that affected the production since most of the farmers rely on rainfall. Due to depressed agro-processing activities, the manufacturing industry in the first quarter of 2017 chalked up a meager 3.0% year-on-year expansion(Oxford Business Group,2017).

GDP is a detailed scorecard of any nations economic performance. As a collective measure of total economic production, gross domestic product shows the market value of all goods and services that the country produces over a certain period. Furthermore, gross domestic product is often presented quarterly on an annualized basis. There are further specific data sets that are provided in real time basis that can be adjusted for price fluctuation and hence net inflation.

Performance Trend of Kenyan Economy

The performance trend of Kenyan economy for the last ten years has been active. The successful implementation of Economic Recovery Strategy in 2004 that focused on creating more employment and wealth appeared to be successful. The strategy was able to transform the economy from a stagnated GDP OF 2.1% PER and rose to an average of 6.1 percent from 2005 t0 2016. In the year 2008, there was a global financial crisis which crippled the economy as it hit a record low of 0.3 percent. This was also contributed by the post violence election after the disputed presidential election in 2007. In the year 2010, the economy recovered under grand coalition government hitting an all-time high of 8.4 percent. In the year 2014, the world bank ranked Kenya as a lower middle-income country after using more accurate data on various vital sectors. The report put Kenya among top ten economies in Africa and as an economic, logical and commercial hub in east and central Africa.

There are vital sectors in Kenya that have contributed such a stable economy in the last ten years. Agriculture, fishing, and forestry are the greatest contributors to the countrys GDP totalling to up to 25 percent. The manufacturing sector is the second with 11 percent of the GDP, and the third sector is tourism sector which contributes 10 percent to the country's GDP. There are also other vital sectors such as the transport and storage industry that stands at 8 percent, real estate 8% and financial and insurance activities at 6 percent. Being a developing country, Kenya depends on agricultural sector that has contributed to 20 percent of the formally employment and the industry directly support 80 percent of individuals living in rural area.

Measures put by government to achieve full production

The agriculture sector plays an essential role in the Kenyan economy, and hence it is vital to understand how the growth can be accelerated. In spite of the fact that the agricultural sector still faces a lot of challenges, the Kenya government has put some measures to ensure that there is maximum production. The government has focused on increasing production of the tradable product that is a major part of the agricultural sector. To achieve this, some microeconomic policies have been put in place, and they include the adoption of technology essential for that current farm conditions. Also, the government has come up with marketing and institutional arrangements that support small scale farmers to access seasonal and long-term loans and also make sure that there is the ready market for the final product (Alila & Atieno,2006).

Furthermore, the 2003 Economic Recovery Strategy is the same strategy that the current and previous government has focused on to achieve production output performance. The strategy focused more on improving infrastructure boost the relationship the government and the private sector in particular through the Kenya association of manufacturers (Africa & Outlook, 2017).

Labour Market Analysis of Kenya

The current rate of unemployment in Kenya is the highest since the country got independence standing at 60%. The most affected group are youths who account for more than 50% of the population. In 2005/06, the unemployment rate youth aged 20% and the trend have been on the rises due to increased population and an improved education system that continues to produce more graduates yearly.

Unemployment and Types of Unemployment

Unemployment is a phenomenon that is experienced when someone that is actively searching for employment is not able to find work. Economist uses the rate of unemployment to measure how the economy is performing whereby the number of individuals that are not employed is divided by the number of persons in the labor force (Otieno, J2017).

Types of unemployment

Structural Unemployment

Structural unemployment arises as a result of the absence of demand for a particular type of work. This characteristically occurs when there are mismatches between the skills that employees have and the skill that the employer wants. The frequent advances in technology have been highlighted as the major course of this kind of unemployment as individuals lose their jobs since their skills are outdated. As such, it is structural unemployment due to changes in the economic structure but not because of fluctuation of it.

Frictional unemployment

This kind of employment is experienced when an individual is in between jobs. This kind of unemployment since when someone leaves a certain organization, it takes some time before he/she lands another job. Although there are sufficient employees to gratify every job opening, it sometimes takes before the employees learn about the new job chances, and for them to be employed (Amadeo, 2017).

Cyclical Unemployment

The economic environment is not constant as it fluctuates more frequently and this creates the business cycle. Cyclical unemployment occurs as a result of this cycles. During the recession period, cyclical unemployment rises and declines during economic growth.

Types of Unemployment in Kenya

Kenya experiences different types of unemployment, and one of it is cyclical. Kenya is a developing country, and its economy is not stable as it frequently fluctuates. Like at the moment, the rate of inflation is high, and businesses are finding it hard to operate, and as a result, most of them are being forced to lay off some of its employees. Another type of unemployment being experienced in Kenya is structural unemployment. Kenya is a growing economy, and production techniques are frequently changing with the result that individuals are likely to lose their jobs efficient techniques are introduced (Sunday, 2017).

Measures adopted by Kenyan government to achieve full employment

The government of Kenya has focused on developing rural areas whereby it has adopted a culture of spreading more industries and provide incentives to investors to develop more industries in rural areas (Hope Sr,2012). The measure will help to create employment to unemployed youths that for many years have relied on agriculture that faces a lot of challenges. Secondly, the government has focused on population control to ensure that individuals entering the job market are few. Additionally, the government has focused on increasing its expenditure on development projects such as the building of roads and distribution of electricity in rural areas. As a result, more opportunities will be created as youth will open up small scale business such as welding especially in rural areas (Ngai, 2017).

Price Level Analysis

Inflation Trend

Consumer prices in Kenya stood at 7.47 percent in July 2017 which was lower as compared to 9.21 in June and market expectation of 9%. It was the lowest rate of inflation for the past seven months as a result of reduced food prices. However, the rate of inflation slowed in the second month of July after hitting a 5-year record high of 11.7 percent as a result of last years drought that affected the agricultural sector. From 2005 until 2017, the average rate of inflation has been 10.23% hitting a record high of 30.5% in 2008 due to global financial crisis and a record low of 3.1perecent in October 2010.

Inflation and Causes of Inflation

Inflation is a continuous rise in the general price and arises from both demand and supply-side of the economy. There are typical causes of inflation in any particular country. The first cause of inflation is depreciation of exchange rate that results to increased price of imports and reduced price of exports. As a result, there will be a multiplier effect on the demand and output the country import less while export more but a less price. Secondly, there is higher demand from a fiscal stimulus such as increased government spending that creates extra demand in the circular flow. Lastly, there is a...

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