Report No. 9998-KE
Kenya
Re-Investing in Stabilization and Growth
Through Public Sector Adjustment
(In Two Volumes) Volume l: The Main Report
January 10, 1992
Country Operations Division
Eastern Africa Department MICROFICHE COPY
Africa Region Report No. 9998-KE Type: (ECO)
FOR OFFICIAL USE ONLY BRUCE, C. / X34160 / J10161/ AF2CO
Document of the World Bank
This document has a restricted distribution and may be used by recipients
only in the performance of their official duties. Its contents may not otherwise
be disclosed without World Bank authorization.
Selected AcronymN and Ahbreviations
ASAI. Arid and Semi-Arid Lands
ASAO Agricultural Sector ALi ustment Operation
ASMP Agricultural Sector Management Proi -ct
BRP Budget Rationalizationi Program
CBK Central Bank ot Kenya
CLSMB Cotton Lint and Seed Marketing Board
CMA Capital Markets Authority
DFCK Development Finance Corporation ot Kenya
DFI Development Finance Insiitution
DPM Departnment ot Personnel Management
EDP Export Development Project
EEC European Economic Community
FSAC Financial Sector Adjustment Credit
GDP Gross Domestic Product
GNP Gross National Product
ICDC Industrial and Commercial Development Bank
ICOR Incremental Capital Output Ratio
iDA International Development Association
IDC Industrial Development Cotporation
IDB Industrial Development Bank
IMF International Monetary Fund
ISAC Industrial Sector Adjustment Credit
KCC Kenya Cooperative Creameries
KGGCU Kenya Grain Growers Cooperative Union
KNCSS Kenya National Council of Social Services
KPCU Kenya Planters Cooperative Union
KTDA Kenya Tea Development Association
KTDC Kenya Tourism Development Corporation
MOA Ministry of Agriculture
MOLD Ministry of Livestock Development
MPND Ministry of Planning and National Development
MTTAT Ministry of Technical Training and Applied Technology
MUB Manufacturing Under Bond
NBFI Near-bank Financial Institution
NCPB National Cereals and Produce Board
NFNS National Food and Nutrition Secretariat
NSSF National Social Security Fund
O&M Operations and Maintenance
PIP Public Investment Program
PMIS Personnel Management Information System
PPG Public and Publicly Guaranteed
PPRS Project Performance Reporting System
PRFB Program Review and Forward Budget
PRBC Parastatal Reform Policy Committee
PSC Public Service Commission
SONY South Nyanza Sugar Company
TFP Total Factor Productivity
TSC Teachers Service Commission
VAT Value Added Tax
FOR OFFICIAL USE ONLY
Preface
The last comprehensive econiomic memorandum for Kenya, Stabilization and Adjustment:
Toward Accelerated Growth (9047-KE), was issued in October 1990. It argued that Kenya can
and needs to develop and grow more quickly. The memorandum also r.,ted that the Government
has undertaken important adjustment programs in a number of key sectors in recent years.
However, the public sector has not faced the need for comprehensive structural adjustment,
although this is critical for faster development.
The report develops further the case for public sector adjustment which covers civil
service and parastatal reforms. Chapter I reviews Kenya's recent growth performance, including
the public and private sources of growth, the evolution of per capita incomes and the pace of
employment creation, and identifies the challenges ahead. Chapter 2 discusses the indicators,
sources, consequences and management of the recent destabilizing macroeconomic pressures.
Chapter 3 looks at the evolution of the organizational structure of the Central Government as well
as the size, composition and productivity of the civil service. The analysis is supported by data
not made available before for calculating the rate of attrition, the age distribution of civil servants
and the financial implications of wage creep. The Chapter then makes the case for
comprehensive civil service reform and enumerates its elements. Chapter 4 delineates the
macroeconomic dimensions of the parastatal sector, including its impact on growth, investment,
employment, the external account, external debt and the fiscal deficit. It also evaluates the
investment efficiency, total factor productivity and financial performance of the sector using data
from a new and ambitious data gathering exercise conducted by the Government and IDA. The
argument is then put forward for comprehensive parastatal reform and for adherence to stipulated
guiding principles. Finally, Chapter 5 focusses on factors which contribute to successful public
sector adjustment. Among them are safety lets for redundant workers, parallel regulatory
reforms which promote private sector development, and a stable macroeconomic environment.
The report is based on the findings of a mission which, in the main, visited Kenya from
July 10 to August 2, 1991. The mission members were: Colin Bruce (mission leader, Eastern
Africa Department), Oladipupo Adamolekun (Africa Technical Department), Gerard Byam
(Eastern Africa Department), Sudarshan Gooptu (Cofinancing and Financial Advisory Services
Department), Yvonne Jones (Cofinancing and Financial Advisory Services Department), Kathleen
Jordan (Eastern Africa Department) and Roger Sullivan (Africa Technical Department). In the
field, and later at Headquarters, the team was joined by David Ndii (Regional Mission in Eastern
Africa). Other participants in field work were Jamshed Ali (Ministry of Planning and National
Development), Santi Chakrabarti (Ministry of Finance), Peter Kiguta (Ministry of Planning and
National Development) and Njuguna Mwangi (Ministry of Planning and National Development).
Contributions were also made by Jill Armstrong (Eastern Africa Department), Ian Bannon
(Eastern Africa Department), Deepak Bhattasali (Eastern Africa Department), Mary Elizabeth
Calhoon (Eastern Africa Department), Beatriz Florendo (International Economics Department)
and Kazi Matin (Country Economics Department). The peer reviewer was Michael Stevens
(Country Economics Department). The document was produced by a team headed by Roboid
Covington (Eastern Africa Department). An extended summary of this report was cleared by the
Government in October 1991 for submission as a background document for the Kenya
Consultative Group Meeting in Paris, November 25-26, i991. The full report was discussed with
and cleared by the Government in December 1991.
This document has a restricted distribution and may be used by recipients only in the performance
of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
TITLE: RE-INVESTING IN STABILIZATION AND GROWTH
THROUGH PUBLIC SECTOR ADJUSTMENT
COUNTRY: KENYA
REGION: EASTERN AFRICA
REPORT NO. TYPE CLASSIFICATION MM/YY LANGUAGE
9998-KE CEM Official Use 12/91 English
ABSTRACT: The report discusses Kenya's recent growth and stabilization performance, how it was
affected by the Central Government and the parastatal sector and why comprehensive civil service
and parastatal reforms are urgently needed. Although economic growth has been close to five percent
per year since 1985, it has been insufficient to significantly raise per capita incomes and create
enough jobs for Kenya's young and rapidly growing population. In the past, the pub!ic sector has
absorbed these workers more quickly than the private sector. However, this is unsustainable, partly
because it has created destabilizing fiscal imbalances and stifled the private sector's supply response
to on-going sectoral reforms. Furthermore, growth has been relatively inefficient depending more
on additional resources than increases in productivity. This has been especially true in the parastatal
sector where resources are used so inefficiently that if they were transferred to the private sector, the
economy could grow faster by about two percentage poihts a year. To prevent growth from slowing
further, the Government needs to stabilize the economy by dealing with the underlying forces which
drive Government expenditure. To do so as well as tackle the slower onset problem of deteriorating
public sector efficiency, the Government should streamline its functions and organizational structure
to eliminate duplication and redundancies, downsize staff in line with its rationalized functions and
organizational structure, and reform pay and personnel procedures. The Government should also
reform the parastatal sector through measures such as privatization and restructuring, and take direct
initiatives-including regulatory reform--to develop the private sector.
Pop 1 of 4
KDiYA - DATA SlEEt
Gml
Area ('000 sq in) 580.0
Pplatian - 1990 (millicm) 24.4
% Amhl Growth Rate (197 - 1999) 3.8
Demity (per sq kn) 42.1
Sociat Irdicators
Poplaticn Chamcteristics
Crude Birth Rate (per 1000) 46.1
Crute Death Rate (per 1000) 10.5
Health
Infant M4ortality (per 1000 live births) 68.7
Populatian per Physician 10103.0
Pcplaticn per Hospital Bed 600.0
Irae DistribLtion (X of ircae)
Higiest Qjintite 60.0
Laest Quintile 3.0
Access to Safe Water
X of UrLa Pqpuation 61.0
X of Rural PopuLaticn 21.0
Nutritio,n
Daily Calorie Intace per Persa, 1973.0
Per Cspita Protein Intake (g/day) 55.0
Ecaation
Aidit Literacy Rate CX) 59.2
Prinwry SdcoL Etrollment 96.0
(% of schol-age group)
KENYA - DATA SHfET Page 2 of 4
Gross Natinal Prodct - 1990
krral Groth Rate of GNP (% p.a.,constant prices)
LUS Mill. Xof OW 1978-83 193-89 19 1990
GNP at Market Prices 8357.1 100.0 4.1 5.0 4.6 5.5
Gr,as Darestic Insestnent 2058.0 24.6 -6.0 6.4 4.6 -6.3
Gross Naticrat Savires 1434.0 17.2 7.4 -1.0 7.9 1.3
QCrrent Accwt BaLance -475.7 -5.7 - - - -
Epwts of Goods & NFS 2202.3 26.4 -0.2 3.6 -5.6 5.9
Irports of Goods & NFS 2659.0 31.8 -13.8 7.6 -3.3 4.5
GP per capita 1/ 370.0
Output, Enplatet ad Prodx*tivity - 1990
VaLe Ad
VaLue Acdi Labor Force per Worker
LSSMiLI % Mill. % ISS %of Aerae
Agriculture 2115.0 28.3 ..
Ird.stry 1580.5 21.1 ..
Manfacturrig 855.4 11.4 ..
Services 37E3.7 50.6 ..
TotaL 7479.2 100.0 11.3 100.0 659.1 100.0
Gterruent Firnre 2/
(In fiscal years)
-...------------------------.--..--..---..----------------------..-----.--..... .-...-----.---.--------.-.---
Central Govermnt
KL Mill. X of GDP
.......... ----------------
1989/90 19B9/90 1985/86
Current Receipts 2144.3 23.0 22.2
OCrrent Experditure 2095.9 22.5 23.7
Current Sxplus/Deficit n.a. n.a. -1.5
Capitat E aerditures 760 5 8.2 5.6
1/ CaLculated in accorda-ze with Atlas cethology.
2/ IMF and staff estirmtes. In 1989/90, data in raw labelled "Lrrt Receipts" is for Total Receipts.
KENYA - DTASET MPe 3 of 4
Money, Credit erd Prices
... . .......---......-------------.-....................--------------------------------------.........------------------...------- 6
195i 1986 1987 1988 1989 1990
(mitt icr of KL oJtstanirC, ed of period)
Money S7Ily 1346.5 1784.3 199.3 2140.9 2417.6 290.8
Bak Cradit to PL.lic Sector 598.3 893.8 1144.7 1055.4 995.2 1523.4
Bar Credit to Private Sector 970.7 1134.2 1284.4 1535.8 1775.6 1w5.7
(perunte or irdex rnuns)
reyas % of GDP 26.7 30.4 30.2 28.4 28.1 28.9
Naircbi Ccraner P (1980 = 100) 190.1 200.7 215.0 238.0 263.1 296.4
Amuit percentage dwses in:
Nairobi Cosun Price Index 10.7 5.6 7.1 10.7 10.6 12.'
Bak Credit to PLblic Sector 10.4 47.7 29.5 -7.8 -5.7 53.1
Ban Credit to Private Sector 14.6 16.8 13.2 19.6 15.6 11.8
BaLaw of Pants
1986 1987 1988 1989 1990
(Milics of US�)
Exnorts of Goods & NFS 3/ 1871.4 1698.2 1869.2 1933.3 2202.2
!ntpwts of Goo & NFS 4/ 1858.7 2104.1 2306.3 2528.1 2659.0
(of nhich Petroleun ) 5/ 300.4 348.4 289.8 343.9 433.7
Resowrce Gap (deficit = -) 12.7 -405.8 -437.1 -594.8 -456.8
Factor Service PaWnts (ret) -258.6 -301.7 -365.7 -351.3 -390.9
Net Private Transfers 58.2 71.9 88.7 101.1 166.7
8altnce on Current Acrnt -187.7 -635.6 -714.1 -845.0 -681.0
excl. Net Official Transfers
Net Official Tresfers 148.9 142.3 256.0 279.8 205.3
Balnce cn Current Accint -38.8 -493.3 -458.1 -565.2 -475.7
irtc. Net Official Trasfers
Copital Accatnt 128.9 366.7 382.1 643.3 329.2
Lorg-term (ret) 105.2 316.5 330.3 607.0 176.8
Short-term (net) 20.9 56.2 56.6 52.4 146.9
Errors ard Onissicrs 2.8 -6.0 -4.8 -16.1 5.5
OveraLL Balance 90.1 -126.6 -76.0 78.1 -146.5
ne,etary Voenents -90.0 126.6 76.1 -78.0 146.4
Chwnge in Reserves -24.6 151.1 -59.5 -110.5 21.8
1W Tranactia6 -67.1 -62.3 123.0 20.2 101.4
Other 1.7 37.8 12.6 12.3 23.2
3/ Goo,f.o.b exctudirg aircraft ard ships' stores but includirg re-ewports.
4/ Goad,f.o.b ircludirg dlefe inports ard exctldire cinermtographic fiLes, naepqes,
periodicaLs ard aircraft leases.
5/ Cn.e and derivatives.
KEWYA - DATA SHEET p 4of4
Nerdm dso E)pwft (Avrn 1%6-90)
..... ....... .. ....-...... -......... ............. ............... ............................................ .. .............................
Value
(miIL. USS) aof Total
.........--- -----------------------........ ........... ...... ........... ...... ............................................. ..............................
Food 6 141.7 13.3
Coffee 275.7 26.0
Teo 231.0 21.8
Other sdre and T 9.0 0.8
Petrolaa Prodts 1Z7.3 12.0
Horticuttue 105.7 10.0
ownicals 49.5 4.7
mLituf 7/ 87.4 8.2
Other Daustic ESorts 5.1 0.5
Re-eprts 29.5 2.8
Total (incl. re-eiports) 1061.9 100.0
Rate of Exchane (Sellirn)
Arnot Awre Erd Period
-- - -- . . -- . - -- - -- - - . - - - - . - - .......... .......... .............. .... ....... ....
1908 1S99 1990 Jan-Oct. 1991 Oct. 1991
.......................... ............................................... ... ... .. ... ............. .. .................... ... .................
USS1.00 KSh 17.81 20.67 23.09 27.35 28.8
KSh1.00 rL!% 0.06 0.05 0.04 0.03
ExterrmL Debt, Decater 31, 1990
US mi l L .
.................................. ................... ............................... ...........................................................I
PLblic Debt. ircl. ar-anteed 8/ 4W9.8
IMF 482.0
Non-urente d Private Debt 577.9
Total Larg-Term 5869.7
short-term 97 .0
Total Outstadirg & Disbxsod 6840.7
Net LT Debt Service Ratio for 1990 9/
Perctage
PRlic Debt, ircL. Qnrmnteed 8/ 20.6
lf 5.7
N torQ.rafte Private Debt 3.3
Total Outstffirg & Disbursed 29.7
ID/IIM Leriirg (12/31/90) (USW milL.)
.. .... ... ... ... .......... ................. ..... ..... ... ... . ................. ............................. ... ....
OAtstardir & Disbwsed 871.5 1184.1
rdishrsed 5.2 472.8
Total OAjtstwrdirU incl. Lkdissred 876.7 1656.9
.. .. ........... ............... .. ........ ........... ... ....... ...........................
64 Irctutds uniel ard vegetabe oils rd fats.
7/ Excluks dcecaLs ad processed fomb.
V/ Exrhues IiF.
9/ Debt service, ret of inteet wred an foreign awh reservs, s a percew of EVorts of Goo & NFS.
KENYA
RE-INVESTING IN STABILIZATION AND GROWTH
THROUGH PUBLIC SECTOR ADJUSTMENT
TABLE OF CONTENTS
Executive Summary. i
Summary .......,,,,,,,,,,,,,,,,,,,, ii
Chapter 1
Growth: Performance and Challenges ............................1........
Introduction ..1
A. Real GDP and Per Capita Income Growth ........................ I
B. Sectoral Developments ..................... 3
C. Employment, Savings, Investment and Total Factor Productivity .... ....... 14
Chapter 2
Stabilization: Targets, Hits and Misses ................................... 21
Introduction ...... ........................... 21
A. Selected Indicators of Recent Instability .21
Inflation ....... ....................................... 21
External Viability .23
Sources of Instability .23
B. Consequences of Instability. 25
C. Management of Instability .27
Budgetary Policies .27
Monetary and Interest Rate Policies .29
Wage Policies .................... .. 30
Exchange Rate Policy ................................ 31
External Debt ........ ........ 32
Chapter 3
Re-investing in Stabilization and Growth Through
Central Government Adjustment ..37
Introduction ..37
A. Some Attempts at Limited Central Government Reforrr ................ 37
The Budget Rationalization Program .37
The Public Investment Program .39
B. Organization and Functions of Central Government .41
C. Employment, Pay and Productivity .44
D. The Need for Broad Adjustment .60
Chapter 4
Re-investing in Stabilization and Growth
Through Parastatal Reform .67
Introduction .67
A. Structure and Composition of the Parastatal Sector ...... ............ 68
B. Contribution to Growth and Employment .70
C. Contribution to Investment ......... . .. . . . . .. . . . . .. . . . .. . . . . . 73
D. Merchandise Exports and lInports .......................... . 75
E. Domestic Banking.. ......................... 76
F. Budgetary Inflows and Outflows ........ . . . . . . . ................. 78
G. External Debt ............. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 78
H. Evaluating Macroecon(omic and Financial Performance ...... . . . . . . . . . . . 80
Macroeconomic Performance.. . ..... 80
1. Finan -... Performance .......... .. . .. . .. . .. . .. . .. . .. . .. . .. . 81
.3ackground . . . . . . . . . . . . . . 81
Perfor-mance . . . . ..... . .... . ..... ... .. . . . .... . . .. . . 85
J. Transitional Sumniary and Conclusions .89
K. Parastatal Reform .91
L. A Set of Guiding Principles .92
Transparency of Divestiture .93
An Open Environment for Parastatal Reform .93
Subsidies and Preferential Trzatmenl. ............ . 93
Parastatal Debt and Government Guarantees .94
Regulation. Market Intervention and
Commercial Functions .94
Autonomy and Accountability of Parastatals .95
Parastatal Boards. 95
Management Salaries and Performance Incentives .96
Safety Nets .96
Institutional Framework .96
Implementation Issues .98
M. Summary .100
Chapter 5
Implementing Adjustment and Sustaining Growth .101
Introduction .101
A. Some Practical Issues and Lessons of Experience .101
Redundancies and Safety Nets .102
B. Private Sector Development .104
C. General Medium-Term Macroeconomic Considerations .106
The Medium-Term Outlook for the Global Economy .106
The Medium-Term Domestic Outlook .107
The Enabling Scenario .107
Growth .108
Consumption, Savings and Investment .111
The Balance of Payments .112
The Capital Account .112
Fiscal Performance .112
The Adjustment Scenario ................ ............. . 113
The Reference Scenario.116. . .......... .16
Bibliography ....... ... ... ....... ..... ...... .... ... .............. . 121
Statistical Appendix . . , .. 131
Technical Notes .201
Map
FIGURES
Chapter I
Figure 1.1 Growth Performance Compared 1981-90
Figure 1.2 Kenya Int'l Arrivals 1986-90
Figure 1.3 Indices of Selected Prices
Chapter 2
Figure 2.1 Evolution of Exchange Rates 1989-90
Figure 2.2 Average Nominal and Real Wages 1981-90
Chapter 3
Figure 3.1 Civil Servants in Post (Excluding Teachers) 1967/68-90/91
Growth in Numbers of Civil Servants (Excluding Teachers) 1967/68)90/91
Figure 3.2 Teachers in Post 1968-90
Growth in Numbers of Teachers 1968-90
Figure 3.3 Ratios of Allowances to Basic Salaries, All Job Groups, 1990
Figure 3.4 Composition of Current Expenditure 1981/82-89/90
iigure 3.5 Labor Costs as Share of Recurrent Expenditure by Ecoinomic Categories
1989/90-91/92
Figure 3.6 Illustration of Possible Savings Under an Early Retirement Scheme
Chapter 4
Figure 4. 1 The Structure of Parastatal Enterprise Sector
Figure 4.2 Modern Sector Employment
Figure 4.3 Parastatal and Economy-Wide ICORs Compared 1986-90
Figure 4.4 Enterprises in the Financial Sector Selected Performance Indicators, 1986-90
Chapter 5
Figure 5.1 Dimensions of Public Sector Adjustment
TEXT TABLES
Chapter 1
Table 1.1 GDP Growth
Table 1.2 Gazetted Comtnodity Prices, 1985/86-1990/91
Table 1.3 Fertilizer Availability and Usage, 1981/82-1990/91
Table 1.4 Summary of Balance of Payments, 1986 90
Table 1.5 The Gulf Crisis and Oil Imports July -December 1990
Table 1.6 Recorded Employment, 1986-90
Table 1.7 Private and Public Source of Wage Employment Growth, 1981-90
Table 1.8 Investment and Savings, 1986-90
Table 1.9 Sources of Economic Growth in Kenya, 1981-90
Chapter 2
Table 2.1 Summary of Central Government Finances, FY86-91
Table 2.2 Growth of Selected Components of the Money Supply, 1987-90
Table 2.3 Key Incentive Indicators, 1984-90
Table 2.4 Public and Publicly Guaranteed External Debt, 1986-90
Table 2.5 Illustration of Government Exposure to Foreign Exchange Risk Under
the Exchange Risk Assumption Fund
Chapter 3
Table 3.1 Central Government Establishment and Employment by Job Group
(Excluding Teachers) 1979, 1990
Table 3.2 Age Distributior of Civil Servants (Excluding Teachers) by Job Groups, 1990
Table 3.3 Central Government Establishment and Employment by Vote, 1971,1990
Table 3.4 Excess of Positions Filled Over Establishment Within Ministries, 1990
Table 3.5 Civil Service Salary Scales 1990
Table 3.6 The Arithmetic of the Central Government Wage Bill Historical and Prospective,
1986-95
Chapter 4
Table 4.1 Value-Added by Majority-Owned Parastatals as Share of GDP at Factor Cost,
1986-90
Table 4.2 Value-Added by Minority-Owned Farastatals as Share of GDP at Factor Cost,
1986-90
Table 4.3 Contribution of Parastatal Sector to Sectoral and Aggregate GDP(fc) Growth,
1986-90
Table 4.4 Wage Employment in Minority-Owned Parastatals
Table 4.5 Wage Employment in Majority-Owned Parastatals
Table 4.6 Merchandise Exports and Direct and Ex-factory Merchandise Imports of Majority-
Owned Parastatals, 1987-90
Table 4.7 Parastatal Deposits With and Credit From Commercial Banks and NBFIs 1986-90
Table 4.8 Distribution of Parastatal Deposits with Commercial Banks and NBFIs End-1990
Table 4.9 Parastatals and the Central Government Budget, FY86-91
Table 4.10 TFP of the Parastatal and Private Sectors, 1986-90
Table 4.11 Minority-Owned Parastatals: Selected Indicators of Financial Performance,
1986-90
Table 4.12 Majority-Owned Parastatals: Selected Indicators of Financial Performance,
1986-90
Chapter 5
Table 5.1 Macroeconomic Indicators in the Enabling Scenario, 1986-2000
Table 5.2 Macroeconomic Indicators in the Adjustment Scenario, 1986-2000
Table 5.3 Macroeconomic Indicators in the Adjustment Scenario, 1986-2000
Table 5.4 Summary of Macroeconomic Scenarios
TEXT BOXES
Chapter I
Box 1.1 Progress in Trade Liberalization
Chapter 2
Box 2.1 Inflation in Kenya: Three Persisting Questions and Their Four Emerging
Answers
Chapter 3
Box 3.,1 Collective Experiences of What Reform of Public Investment
Progiamming Can Achieve (and What it Cannot)
Box 3.2 Salary Increases Announced in September 1991
Box 3.3 Some Implications of the September 1991
Salary Adjustments
Chapter 4
Box 4.1 Data and Terminology
Box 4.2 Linkages Between the Macroeconomic and Financial Performance of the
Parastatal Sector
Box 4.3 Veneers and Zimmerman
Executive Suiminiary
Main FYndings
m The Kenyan economy faces a tremendous growth and employment challenge. During the past
five years growth has averaged around five percent per annum. Concurrently, about 87,000
jobs were created each year in the modern sector, equivalent to about one fifth of new
entrants to the labor force. Generally in the past, employment has been created more quickly
in the public sector but this is unsustainable. At the same time, the labor force is expected
to increase by about 400,000 each year over the next 17 years. The economy therefore needs
to sustain growth above five percent per annum, especially if the rate of unemployment is to
be reduced.
ui The sectoral adjustment measures which have helped the economy to raise its growth
performance over the last five years are being undermined by destabilizing fiscal imbalances
and the deteriorating productivity of the public sector. In fact, a new finding of this report
is that resource use in the parastatal sector is so inefficient that annual economic growth could
be at least two percentage points higher if the resources were transferred to the private sector.
ED Another new finding is that ad hoc measures such as attrition and freezes on vacancies in the
civil service would not significantly reduce the wage bill and thereby, the fiscal deficit. Nor
would they release adequate funds for complementary non-wage operations and maintenance
(O&M) expenditures which are needed to improve productivity.
Main Recommendations
[D An immediate priority of the Government should be the reduction of the fiscal deficit. This
requires tackling the wage bill and the underlying structural factors which drive it.
cI Over the medium- and longer-term, comprehensive civil service reform should aim to
improve organizational synergy, reduce vacancies at higher levels of the service, reverse
wage compression, and raise substantially expenditure on non-wage O&M.
FO The parastatal reform program should embrace not only divestiture which is implemented in
a transparent way, but also regulatory reform, and the restructuring of strategic enterprises
which are expected to remain in the public sector.
Operutionalizing the Main Recommendations
G A detailed Action Plan needs to be developed for civil service reform. The Plan slhould
include targets for staff reductions, and a timetable for the completion of the functional
reviews of each ministry, the identification of government services which could be privatized,
the oreparation of staffing and O&M norms, organizational restructuring of ministries, the
development of a safety net for redundant workers, comparative studies on compensation
packages and the design of a training program for civil servants.
Oi Work is also required to articulate and operationalize the Government's Action Plan for the
strategic enterprises under the parastatal reform program.
C1 A safety net has to be designed for workers who may be made redundant by public sector
adjustment.
- ji -
Summary
i. Growth. Although Kenya's economic growth in 1990 represents only a moderate
slowdown relative to the previous 5 years, growth at historical levels has been insufficient to
significant!y raise per capita incomes and provide enough employment for Kenya's young and rapidly
growing population. DCuring 1986-90, for instance, around 87,000 jobs were created annually in the
modern wage sector. However, at least 400,000 new positions will be needed annually for new
entrants to the labor force over the next 17 years. An even faster rate of employment creation will
be necessary to reduce the rate of unemployment. Generally in the past, the public sector has created
jobs quicker than the private sector. However, this is unsustainable, partly because the associated
fiscal imbalances are creating .estabilizing pressures. In any case, growth has also been relatively
inefficient depending more on additional resources (including foreign savings) than increases in
productivity. In fact, productivity increases contributed less than 10 percent to economic expansion
during 1981-90, reflecting a significant productivity deficit in the parastatal sector.
ii. Separately, because of relatively little progress in diversifying the economy, living
standards, as measured by the adjusted GDP per capita, remain vulnerable to external shocks.
Indeed, after contracting by 1.2 percent per annum during the first half of the 1980s, adjusted GDP
per capita growth declined by another I percentage point during 1986-90.
iii. Over the near-term, economic growth is likely to slow further as the effects of the
Gulf crisis continue to work their way through the economy. Over the longer term, growth would
slow even further if destabilizing pressures are not reduced, if the slower onset problem of
deteriorating public sector efficiency is not tackled and if the private sector's potential for accelerated,
efficient and outward oriented expansion is not developed.
iv. Stabilization. At 12.6 percent in 1990 (or 17.7 percent December over December),
inflation in Kenya returned to 1980-81 levels, continuing an upward trend which began in 1987.
Using a partially revised index, the Government has indicated preliminarily that the rate of inflation
in 1990 may have been 4 percentage points higher. Meanwhile, on the external front, the current
account improved but the overall balance of payments deteriorated because the capital account
weakened. The major single cause of these developments was the worsening of the fiscal deficit from
4.7 percent of GDP (including grants) in FY90 (commitment basis) to 6.8 percent of GDP in FY91.
The outturn compares very unfavorably with the target which was originally set at 3.8 percent of
GDP (including grants). However, faced with a sharp deterioration in Kenya's external terms of
trade in late 1990, the Government reduced its budget deficit target to 2.5 percent of GDP. The
tightening of the fiscal stance was to be achieved through revenue-generating and expenditure-cutting
measures of almost equal magnitude.
v. Despite implementation of revenue measures, the fiscal outturn in FY91 was very
disappointing. Efforts to reduce expenditure were not successful because of unbudgeted spending by
a few key ministries, increased interest on domestic debt, the assumption of additional parastatal debt
service obligations, and the reversal of some of the additional expenditure cuts which were proposed
in October 1990 to tighten aggregate demand. Some of the pressures on expenditure were also
associated with the doubling of the university intake.
- tui -
vi. The government has targeted a substantial reduction in the fiscal deficit to 2 percent
of GDP (including grants) for FY92. Some improvements in revenue collection are expected but the
crucial test for budgetary pu'icy will be to contain expenditure. At present, the Government proposes
to accomplish this through rnieasures such as limiting increases in the number of civil service posts
above grade G, and reducing the number of A to G rositions by 2.0 percent below the number in
post at the end of 1990. However, recent salary increases alone will raise the wage bill by 12.8
percent in FY92, 9.9 percent in FY93 and 8.3 percent in FY94.
vii. The Need for Comprehensive Central Government Reform. The prospects for
improving the fiscal balance, and thereby reducing the destabilizing pressures, through piece-meal
measures are not very good. The financial imbalances are mere indicators of larger problems which
originate in the complex organization and functions of the central government, overstaffing and the
deteriorating productivity of the civil service. One corollary is that even if there were no fiscal
problems, there would still be a need for comprehensive central government reform.
viii. Complexity of Central Government Organization and Functions. The central
government consisted of 23 ministries and 10 independent non-ministerial departments in FY81. The
numbers now stand at 28 and 9 respectively. Equally significant was the increase in functional
departments and divisions from 132 and 442 respectively in FY81 to 148 and 550 respectively in
FY92. The proliferation of ministries is striking even if allowance is made for the expansion and
functionr' specialization of government over time.
ix. One consequence is that effective coordination has become difficult and jurisdictional
disputes between ministries occur from time to time. In addition, Government has become
fragmented, complex and multi-layered. Complexity also derives from the existence of numerous
British-style advisory committees and boards which metamorphosed into permanent structures with
full-time members and secretariats. Meanwhile, under the "district focus" strategy adopted in 1983,
central departments and ministries are now represented at the district level. Although this
deconcentration has merits, it has caused duplication.
X. In addition, some of the pre-1983 arrangements for providing governmental services
at the provincial level are still in place. Over and above these, the Central Government has, over
the years, established about half-a-dozen Regional Development Authorities (some of them
specifically for river or lake basins and valleys) whose functions duplicate those of some ministries
and districts. There is no evidence that this expansion of government has increased access to and the
quality of government services nationally. What is clear, however, are indications that staff numbers
and the wage bill have increased significantly.
xi. Unsustainable Employment Growth. Excluding teachers, there were 270,005 persons
in the Kenya's civil service at end-1990. This amount refers to individuals who are paid directly
from the budget of the central government but exclude the employees of parastatals and local
authorities whose wage bill may be indirectly reflected in the budget. Because of the unreliability
of the data, persons filling "works-paid" and temporary positions are not included. Nonetheless,
employment in the mainstream civil service has grown by 6.5 percent per annum since FY67 (earliest
year for which reliable data is available), faster than GDP and population. In addition, the
Government employed 203,031 teachers in 1990, reflecting average growth since 1968 of 7.5 percent
per annum.
- iv -
xii. Cause of Growvth in Numnbers. Three related and pervasive factors imainly .xplain
the accelerated growth of employment in the central government (including teachers). First, rapid
population growth generated strong pressures to create jobs. It also increased the demand fot services
provided by the government. Second, because of the curricular orientation of the education system
and the success in increasing access to education, many graduates from secondary and teitiary-level
institutions were suited for and expected employment in the public sector. T7hird. employment
creation in the private sector did not keep pace with population growth or with the rising expectations
of wh,te-collar employment. Not surprisingly, the public sector was officiallv the employer of last
resort until the publication of Sessional Paper No. I of 1986. At that time, the p)ublic sector
employed some 75 percent of new university graduates. Although data for the perio.l since 1986 is
incomplete, there is some evidence that the Government has continued to employ many university
graduates, including those who experience difficulty in securing emplovment elsewhere.
xiii. Overestablishment and Underemployment. The combined effect of these pressures
for employment generation in the public sector has been to create large numbers of positions in the
lower ranks of the service (job groups A to G) where entry-level qualifications are relatively low.
At end-December 1990, civil servants in posts in the lower ranks (A-G) constituted 88 percent of the
mainstream service, leaving only 12 percent at the middle, senior and top management grades.
Accordingly, the Commissions which have reviewed the civil service during the past 11 years
unanimously and forcefully argued that the Civil Service was over-established, and many lower-ievel
staff were seriously under-employed. They also reported a shortage of middle-level technical and
professional staff.
xiv. Large Wage Bill But Uncompetitive Pay. The steady growth in civii service
employment has been accompanied by stagnation or regression in the salaries and wages paid to, civil
servants. This has contributed to the erosion of real wages in the central government and to a
deterioration in the ratio of positions filled to establishment in most ministries during the period 197 1-
90. Furthermore, because of the practice of granting larger percentage wage increases to staff in the
lower ranks vis-a-vis staff at higher levels, salary erosion has been more severe at the higher levels.
Partly as a result, in July/August 1991 vacancy rates at these levels were as high as 61 percent in the
Office of the Controller and Auditor General (for Job Groups K and above), and 68 percent in the
Management Consultancy Services Division of the Directorate of Personnel Management (Job Groups
H to Q). Comparable vacancy ra:es, especially in specialized skills areas, are evident across the
service.
xv. Deteriorating Productivity. Within the broad resource envelope of the government,
expenditures on wages and salaries have been maintained without adequate provision for O&M.
Little wonder that the Sessional Paper No. 1 of 1986 lamented that because salaries absorhed so much
of expenditure, there was not adequate provision for complementary resources such as paper and
pencils, that are required to make officers productive.
xvi. Next to the O&M problem, the most commonly cited reason for low productivity in
the civil service relates to weak personnel systems and procedures, including the virtual neglect of
the merit principle in determining promotions, an inadequate disciplinary machinery and an
ineffectual personnel appraisal system. Another factor is the formal approval given to civiJ servants
in the early 1970s to engage in business activities. There is evidence that this creatcs dual and
conflicting loyalties which most often result in officials giving more of their time to th,soe interests
that relate directly to their personal benefit.
- v -
xvii. Key Elements of Central Got'ernment Reform. Central Government adjustment
should give the highest priority to: (i) streamlining the functions and organizational structure of
government to avoid duplication and redundancies, and achieve better organizational synergy; (ii)
downsizing staff in line with the rationalized functions d organizational structure; and (iii)
reforming the pay structure and personnel procedures so as to achieve an appropriate mix of staff at
all levels, who are motivated and equipped to function effectively and efficiently. Other issues such
as improving training, accountahility, and capacity utilization are important. Independently. however,
none of these would address the immeiiate and longer-term need to generate budgetary savings,
improve productivity and enable government structures to better support the economic and social
aspirations of the private and voluntary sectors.
xviii. The case for reducing the complexity of government, eliminating duplication and
discontinuing functions made redundant by reforms elsewhere in the economy is self evident. The
case for comprehensive pay and employment reform is equally forceful. Without it, budgetary
resources would not be available to significantly improve non-wage O&M expenditures or to provide
compensation packages which would attract and retain staff in higher job groups. The point cannot
be overemphasized. Bank simulations show that when the recently announced salary adjustments are
combined with wage creep (net of attrition), the annual wage bill of the mainstream civil service
would probably rise during 1992-94 by about 12.2 percent (without replacement), 15.3 percent (with
replacement overall), 13.4 percent (with replacement at job group H and above, and 19.9 percent
(with vacancy filling at level H and above). Since the underlying average nominal GDP growth rate
is assumed to be 14.8 percent, deep cuts would have to be made elsewhere to reduce the overall fiscal
deficit.
xix. Staff reductions and wage cuts are not an end in themselves. They can make a
significant contribution toward reducing the fiscal deficit and, thereby, enhancing the macroeconomic
environment. However, they must go beyond that, redress the imbalance between wages and non-
wages O&M and ultimately facilitate sustained increases in the productivity of the Central
Government. Without that, the Government is unlikely to be able to provide and maintain the real
wage increases that would attract and retain qualified staff at all levels without independently creating
destabilizing fiscal pressures.
xx. The Need for Comprehensive Parastatal Reform. There are at least four
compelling and related arguments for comprehensive parastatal reform. FiYrst, during 1986-90, the
productivity of the sector worsened by about two percent annually. In contrast, the productivity of
the private sector improved by around five percent annually during the same period. Not
surprisingly, Bank estimates show that GDP growth during the period could have been as much as
two percentage points higher per year if productivity in the parastatal sector were similar to that of
the private sector. This would cut the time for doubling Kenya's per capita income from
approximately 35 years (if GDP growth continues at historical levels) to around 17 years. Second,
the net outflows from the Central Government budget to parastatals was equivalent to at least one
percent of GDP in FY91, mainly reflecting debt service payments assumed by the Government and
taxes collected but not remitted to the Treasury. Third, by releasing resources which are being used
inefficiently and reducing the pressures on the fiscal deficit, comprehensive parastatal reform would
itself complement private sector development. Fourth, the Government's past attempts at reform
have focussed on strengthening control mechanisms and the accountability of managers. Lacking an
overall policy framework for the parastatal sector, efforts to improve efficiency have tended to follow
a case-by-case approach, most often in response to a deteriorating situation in an individual enterprise
or the emergence of a crisis which focuses the public's attention or begins to impact noticeably on
- vi -
the Government's budget. In such circumstances, the Government has generally responded by
changing management and issuing a set of instructions to deal with the immediate problem. As a
result, progress in parastatal reform has been slow and ad hoc. Moreover, because the Government's
corrective measures have not dealt adequately with the underlying causes of parastatal inefficiency,
reforms have been short term in nature and constantly in danger of being reversed.
xxi. Recently, the Government has come to accept the need for a comprehensive approach
to parastatal refo;m, including a reassessment ot the role of the state more in line with Kenya's
development strategy and goals. This reassessment has been prompted in part by budgetary pressures
but also by growing concern over the low returns to public sector investments.
xxii. Key Elements of a Public Enterprise Reform Program. Although privatization
should be an important component of a parastatal reform program, it should be viewed as part of a
broader effort to promote production efficiency, strengthen competitive forces in the economy, and
support entrepreneurial development. Experience shows that divestiture programs that are
accompaniea by regulatory and institutional reforms have tended to show better results than programs
undertaken in isolation from such reforms. Thus, the design of the divestiture component in Kenya
should be well synchronized with the removal of economic distortions and the development of a
supportive macroeconomic, institutiona:, managerial, and financial environment.
xxiii. Implementation of the program and its sustainability will depend on the Government's
acceptance and adherence to a set of policy principles to guide the reforms. The following are among
the most important: (i) the process of divestiture must be transparent and must provide equal
opportunities to all potential investors to ensure sustainability and efficiency; (ii) the Government
should eliminate all subsidies, explicit or implicit, except for those enterprises or activities which are
of a strategic, social or developmental nature, and operate at the explicit request of the Government.
When granted, subsidies should be transparent and explicitly recognized in the Central Government
budget; (iii) necessary Government regulatory and marketing interventions (e.g., for health and
safety, competition, price stabilization in agriculture) should be institutionally separate from
commercial activities; and (iv) for commercially oriented enterprises which remain in the public
domain for strategic reasons, the government should improve the balance between autonomy and
accountability by setting the basic objectives for the enterprise (e.g. maximize profits or return on
equity) and should assess performance against them.
xxiv. Ensurng Successful Public Sector Adjustment. Apart from strong political
commitment, two other elements appear to contribute significantly to successful public sector
adjustment. The first is the provision of safety nets for workers who are made redundant. The
second element has two related components: a strong private sector and a healthy macroeconomic
environment.
xxv. Retrenchment and Safety Nets. In the short-run, reform of the central government
and parastatal sector is likely to entail some retrenchment of workers. At this stage, however, it is
unclear exactly how many persons could be affected or how quickly a less constrained private sector
would be able to absorb them. Such details would depend, among other things, on the phasing of
reform efforts and would have to be worked out on a ministry-by-ministry, firm-by-firm basis.
xxvi. Still, experience in several countries offers a number of general lessons for dealing
with employment reform in the specific context of public sector adjustment. FYrst, enforcement of
retirement age, perhaps the least politically sensitive approach, usually does not substantially reduce
- vii -
the wage bill. Significant savings in the wage bill, in nci present value terms, accrue only with the
removal of younger workers. In any case, removal of the senior cadre of workers, even if they are
within a few years of retirement, could rob the public sector of its most experienced, productive and
difficult-to-replace personnel. Not that younger workers are readily dispensable. In many countries
they are concentrated in urban areas and are politically vocal. Voluntary retirement would not
independently solve this problem hecause it may result in the exodus of the most able personnel. Left
behind may be the vast majority who are less mobile, and still politically vocal and costly to the
public sector.
xxvii. Second, severance packages could be the single most important factor which
determines the willingness of workers to accept redundancies. The severance payments in many cases
are decreed by law and are calculated on the basis of age and length of service. Additionally, in the
interest of protecting the standard of living of workers, it may be appropriate to go beyond the legal
requirement linking severance payments to salary only, and to impute some value for other
allowances such as housing and medical insurance. This may even be imperative in instances where
the ratio of salary levels to allowances is particularly low.
xxviii. Third, direct payments to workers are generally better than special credit schemes.
Where such schemes were tried, it was often difficult to interest banks in extending credit to
relatively small and potentially high risk borrowers. Moreover, many retrenched employees who
received credit considered them as merely grants or as a part of their termination package. As a
result, defaults on repayments and the administrative costs of such schemes were high. Fourth,
training programs for redundant public employees should be flexible and afford them a range of new
and marketable skills. Fifth, there was also little success when employment creation was attempted
through massive public works. Apart from being temporary and costly, the work usually involved
hard manual labor, paid minimum wages, and was unattractive to more skilled personnel. Sixth, the
design of safety nets should be supported by reliable data on staffing levels including 'ghost workers,'
and on variables such as age and length of service which may help to determine their eligibility for
retirement. Reliable information should also be obtained on the wage bill, including benefits and
allowances.
xxix. Private Sector Development. Where the private sector is strong and growing, it is
able to acquire divested assets, absorb some of the public sector redundancies, generate additional
revenues to finance pay reforms, and generally respond to the incentives in the enhanced competitive
environment. In Kenya, there are additional reasons why a strong private sector should be developed
in parallel with and in support of public sector adjustment. First, because of budgetary constraints
and the destabilizing influence of fiscal imbalances, the public sector cannot continue to absorb
significant amounts of Kenya's rapidly growing labor force. Second, as noted earlier, measurement
of productivity in the public and private sectors in Kenya show that there would be distinct payoffs
to growth if resources were shifted to the latter. Third, to grow rapidly, the Kenyan economy will
have to continue to be re-oriented toward the much bigger, but extremely competitive, world market.
Players in that market require a level of adaptability and skills that is very scarce within the public
sector. Over time, therefore, a broader range of private sector expertise, both domestic and foreign,
will need to be cultivated and utilized.
xxx. The Government has been tackling many of the first-order constraints on the
development of major sectors through the agricultural, industrial, financial and export adjustment
programs. Kenya now needs a second phase of direct actions to promote the private sector. These
actions should focus on reducing: (i) uncertainty which arises from factors such as macroeconomic
- viii -
imbalances, unequal case-by-case treatment of individuals and firms, poor implementation of
commercial legislation and economic regulations, and insufficient dialogue and information flows
between policy makers and the private sector; and (ii) high operating costs associated with inefficient
domestic parastatal suppliers of basic inputs, and pervasive ex ante government controls which allow
considerable bureaucratic discretion, wasteful rent-seeking activity and corrupt practices.
xxxi. General Medium-Term Afacroeconomic Consideratons. The macroeconomic
environment is also important because of its impact on private sector development, and independently,
on the efficiency of resource allocation nationwide. This underscores the importance of reducing the
fiscal deficit, the major source of destabilizing pressures, improving the regulatory environment, and
continuing reforms in the agricultural, industrial, financial, export and educational sectors.
Chapter I
Growth: Performance and Challenges
'St *eral eountrie.% /svlwich/ have achiieved rapid developmnent in the posNtar period. hav e in vested
VeS tiie olacation 0/ 'inen and cW }tven atul in physical capital; and . lhave achlie*edl higl productiv its
I ih.se investmients bY giving inarkets, comnpetition, and trade leading toles" (World Bantk
]t]h. p 31)
Introduction
1. 1 In this opening chapter, the report notes that although Kenya's economic growth in 1990
represents only a moderate slowdown relative to the previous five years: (i) growth at historical
levels has hcen insuflficient to significantly raise per capita incomes and create sufficient jobs for
Kenya's young and rapidly growing population; (ii) because of relatively little progress in
diversifying the economy, living standards, as measured by the adjusted GDP per capita, remain
vulnerable to external shocks; (iii) growth has also been relatively inefficient depending more on
additional resources (including foreign savings) than increases in productivity; (iv) private
investment, which is an important engine of growth, dropped markedly in 1990 after some
stagnation during the previous two years; and (v) growth in the near-term is likely to slow further
as the effects of the Gulf crisis continue to work their way through the economy. Over the
longer-term, growth would slow even further if destabilizing pressures linked to the fiscal deficit
are not reduced (Chapters 2 and 3), if the slower onset problem of deteriorating public sector
efficiency is not tackled (Chapters 3 and 4) and if the private sector's potential for accelerated,
efficient and outward oriented expansion is not developed (Chapter 5).
1.2 This chapter is organized as follows: Section A reviews recent economic and per capita
income growth. Section B discusses sectoral developments and highlights the factors, including
those associated with recent sectoral reforms, which affected growth in 1990. Section C provides
the analytical basis for concluding that although an improvement over first half of the decade,
growth has been insufficient and inefficient in longer-term perspective.
A. Real GDP and Per Capita Income Growth
l.3 Economic Growth. In Kenya, when GDP at factor cost grew by 5.1 percent in 1985
(Table 1.1), it was due largely to the return of the rains after the drought of 1984. During 1986-
87 growth averaged 5.3 percent per year, but it was partly driven by a mini-coffee boom in 1986
(due to frost in Brazil), lower international oil prices and fiscal expansion. In 1988-89, the
Central Government contained its spending and coffee prices collapsed toward the end of the
period but the economy as a whole benefitted from significantly higher inflows of policy-based
donor assistance.
1.4 Growth of GDP at factor cost slowed to 4.5 percent in 1990, the lowest since 1985, amid
difficult internal circumstances and a worsening external environment (Figure 1.1). At home,
the economy faced high inflation induced in part by the fiscal deficit, and later, the Gulf crises.
-2 -
On the external front, the terms of trade deteriorated, reflecting the further deterioration in coffee
prices and the Gulf crisis.
Table 1.1
GDP Growth
(In Percentages)
1981-85 1986 1987 1988 1989 1990
Growth rates (%):
GDP market prices 2.5 7.2 5.9 6.0 4.6 5.1
GDP factor cost 3.7 5.6 4.9 5.2 5.0 4.5
Agriculture 3.1 4.9 4.2 4.7 4.0 3.5
Manufacturing 3.8 5.8 5.7 6.0 5.9 5.2
Services 4.4 6.7 5.1 5.4 5.3 4.9
GDP per capita -0.2 1.9 1.2 1.6 1.3 1.1
Adj. GDP per capita a/ -1.2 5.8 -5.4 3.0 -2.8 -4.6
Source: Statistical Appendix, Tahles 2.2 and 2.4, and Economic Survey, various years.
a/ Real GDP per capita at factor cost adjusted for changes in Kenya's terms of trade.
1.5 Per Capita Income. Real per capita incomes contracted by 0.2 percent during 1981-85,
then grew by 1.4 percent during 1986-90 to reach K�173.5. However, when adjusted for
movements in the terms of trade, per capita incomes declined by 1.2 percent during 1981-85 and
by a further 0.8 percent during 1986-90. 1' Three factors explain these trends. First,
population growth averaged 3.8 percent during the 1980s, and was exceeded by only 2 countries
in Sub-Saharan Africa and 4 Middle Eastern countries. It also exceeded Kenya's own economic
growth during the first half of the decade. Second, because of high fertility and declining
mortality, Kenya's dependency ratio--the total population under 15 and over 64 years of age as
a percentage of the population between those ages--is 117, the highest in the world (World Bank,
1991b). Such a high dependency ratio suggests that a relatively smaller proportion of the
population is engaged in GDP generating activities, compared to a situation in which the
dependency ratio is lower. Third, the terms of trade, which captures Kenya's export value
relative to import cost, improved in 1986 as the international price of coffee prices rose, returned
to more normal levels in 1986 and 1987, but deteriorated thereafter following the collapse of the
quotas under International Coffee Agreement. In late 1990, oil prices increased as the Gulf crisis
1/ In precise mathematical terms, the terms of trade adjustment is given by:
EXP/MPI - EXP/XPI.
where EXP is exports at current prices, MPI is the index of import prices, and XPI is the index of export prices.
-3-
GROWTH PERFORMANCE COMPARED
1981-90
9
8
7 - Kenya GOP Growth
4 -
S. 5-
3 .- t
2 -- '1
- 1 \ ' OECD Growth ate
2 - Sub-Saharan Growth
.3
1981 1982 1983 1984 1985 19886 1987 1988 1980 1990
YEAR
Figure 1.1
unfolded. Since coffee is a major export and oil is a key import, their prices have a significant
combined effect on the terms of trade. Accordingly, when the terms of trade were used to adjust
GDP on the grounds that the latter is a quantity-based measure which needs to reflect some
changes in value, GDP and, derivatively, GDP per capita, fell significantly in 1987, 1989 and
1990.
1.6 There are indications that population growth in Kenya is beginning to decline as fertility
rates fall. As a result, population growth could slow to about 3.3 percent by 2000 (World Bank,
1991b). However, for GDP per capita to rise substantially over the period, growth would have
to accelerate significantly. At 1986-90 growth rates, GDP per capita would double only after
approximately 50 years. In addition, greater diversification of exports would be required to
insulate iacome from adverse movements in the international prices of exports and imports.
B. Sectoral Developments
1.7 Sectoral Growth. In general, GDP growth in Kenya reflects the outturn in agriculture
(31.0 percent of GDP), and manufacturing (approximately 11.6 percent of GDP), most of which
is agro-based. In 1990 the performance of agriculture was affected by inadequate and uneven
-4-
rains in the main agricultural areas, including Western, Nyanza, Central and Eastern provinces,
and low coflee prices. Maize production, which comprises about 7 peic'nt o1 the value of
nmarketed agricultural pr-oduction, declined by 13 percent. In an unrelated development during
thc period, the amount of maize not sub ject to moverment control was raised to 4 tons (December
1990) as part ot a program tor the phased deregulation of inter-district maize movement. At the
sarne time, the monopoly of the National Cereals and Produce Board in the secondary maize
mnirket (sales tO nmillers) was reduced to 73 percent. Likewise. its share of the primary market
was contained to 20 percent in 1989/90, in keeping with the commitment of the Government to
substantially plrivatize grain marketing. But heavy rains, not these policy reforms, caused maize
production to tall. In 'ther areas, the heavy rains caused localized waterlogging and impeded
land preparation. This had a particularly adverse impact on wheat production which fell by 22.1
percent in 1991, co nmpared with an increase of 4.4 percent during the previous year.
1.8 In the coffee subsector, which contributes about 26 percent of the value of marketed
agricultural production, the volume of sales contracted by 1 percent as dollar prices fell for a
second year, following the collapse of the International Coffee Agreement and the abolition of
quotas. During the year, a probe team was set up by the Government to investigate the problems
of the industry which include delays in payments to farmers and duplication of functions among
key organizations in the industry. The persistence of low prices and late payments are leading
to the neglect of coffee trees, indicating that production would take a long time to recover, even
if prices were to improve.
1.9 For tea, which accounts tor about 27 percent of the value of marketed agricultural
production, prices were strong and the weather was favorable. At the same time, output from
the Nyayo Tea Zones came on stream, and improved crop husbandry and new high yielding
clones raised the output of green leaves, As a result, the volume of tea sold rose by 9.1 percent
to 197,000 metric tons (Statistical Appendix, Tables 7.2 and 7.4). The livestock subsector, with
a 21 percent share of the value of marketed agricultural production, also performed well: the
quantum index of livestock and livestock products increased by 6.6 percent in 1990 compared
with 0.9 percent in 1989. This improvement followed a 9.2 percent increase in the index of
livestock prices in 1989 and corresponds to a further 15 rercent increase in the price index in
1990. Meanwhile, cotton sales to the Cotton Lint and Seed Marketing Board were 26.6 percent
higher in 1989 and 36 percent higher in 1990. The stagnation of previous years was reversed
by price inicentives, timely availability of key inputs, and revisions to the payment system.
1.10 Apart from adverse weather condifions which culminated in a drought in 1984, Kenya's
agricultural sector has been constrained ny factors such as the inadequate availability and
application of key inputs, as well as inadequate production incentives. Support services in
extension, research, credit and marketing were also unsatisfactory because of institutional
weaknesses in the parastatal and governmental bodies which provide them. Since 1987, some
progress has been made toward alleviating some of these constraints. To encourage fert.iizer use,
the pricing formula for domestic marketing of fertilizers was revised, more private importers and
distributors were allowed to operate, smaller packages (25 kg and 10 kg, in addition to the 50
kg bags) were provided, prices were decontrolled in January 1990, and the quota allocation
system for commercial imports was abolished in November 1990 (Annex I). At the same time,
production incentives were enhanced by adjustments in farm-gate prices and more timely
payments, which in the case of maize occurrcd within 1-2 weeks following delivery as opposed
to the previous delays of between 4-9 months. However, several real price incentives are being
eroded by higher inflation (Table 1.2).
- 5 -
Table 1.2
Gazetted Commodity Prices, 198586 - 1990/91
(Indices, 1982/83=100)
1985/86 1986/87 1987/88 1988/89 1989/90 1990/91
Maize: nominal 134.6 144.7 144.0 154.6 170.1 192.3
real 98.4 97.1 96.3 91.7 96.1 94.4
Wheat: nominal 156.2 169.4 169.4 181.6 182.8 217.1
real 114.2 113.7 112.7 107.5 103.3 106.7
Sugar cane: nominal 158.8 174.7 176.5 210.6 216.5 261.9
real 116.1 117.2 117.4 124.8 122.3 128.7
Rice: nominal 232.0 248.0 258.7 258.7 258.7 279.4
real 169.6 166.4 172.1 153.3 146.1 137.2
Milk: nominal 142.8 137.2 151.2 167.4 174.4 192.0
real 104.2 92.1 100.5 99.1 94.4 94.3
Seed couon: nominal 131.6 131.6 131.6 157.9 157.9 157.9
real 96.2 88.3 87.5 93.6 89.2 77.6
Sources. Ministry of Agricufrure, and staff estimates
Nominal prices adjusted by the Nairobi CPI to obtain real prices
1.11 A particularly worrying trend in the agricultural sector is the low level of fertilizer use
in spite of the relaxation of government controls on procurement, distribution and pi icing. Table
1.3 shows that fertilizer availability and usage fell for the second successive year in 1990/91.
While the slowdown of the coffee sub-sector, the largest consumer of fertilizer, is partly
responsible for low fertilizer use, there are other, perhaps more significant reasons. They include
distribution problems arising from congestion at the port and the limited capacity of the railways;
a mismatch between the available fertilizers, the nutrient deficiencies of the land and extension
support; and difficultie in recruiting agricultural labor.
1.12 Bank staff estimate that the agricultural sector in Kenya has the potential to sustain growth
above 4 percent per year. But this is predicated on steady movement toward market-driven input
and output prices, more timely payments for goods such as coffee and cotton, and accelerated
deregulation of the marketing system. More spending on research, extension and animal health,
and the reform and restructuring of agricultural parastatals would also contribute to this growth.
- 6 -
Table 1.3
Fertilizer Availability and Usage, 1981182 - 1990191
(In Thousand Metric Tons, and Percentages)
Crop Stocks Stocks Estimated Annual %
Year Forward Imports Availablc Carried Usage Change
1981/82 40.7 206.7 247.4 110.9 136.4 5.6
1982183 110.9 129.6 240,5 97.7 142.8 4.7
1983/84 97.7 120.0 219.7 19.2 198.5 39.0
1984/85 a/ 19.2 184.4 203.6 28.3 175.3 -11.7
1985/86 a/ 28.3 345.1 373.4 101.8 271.6 54.9
1986/87 101.8 230.1 331.9 104.8 227.1 -16.4
1987/88 b/ 104.8 225.3 330.3 92.4 237.9 4.7
1988/89 92.4 213.1 405.5 120.7 284.8 19.7
1989/90 120.7 210.9 331.6 94.2 237.4 -16.6
1990/91 C/ 94.2 220.6 314.8 92.1 222.7 -6.2
Source,: Ministry of Agriculture
a/ Estimated usage was greatly affected by the 1984 drought.
b/ The number for stocks forward has been changed for consistency with the stocks carried in
1986/87.
c/ Preliminary.
1.13 Manufacturing. In 1990, growth in the manufacturing sector slowed to its lowest level
over the 1986-90 period (Table 1.1). Within the manufacturing sector, however, the outturn
varied. Volume increases of between 13 and 15 percent were recorded for textiles, petroleum
and other chemicals, metallic products and cement products. The output of transport equipment
also increased (5.6 percent) in response to the reduction in sales taxes on several types of motor
vehicles. Food processing increased in volume terms by only 1.3 percent, due largely to the
decline in the sugar industry, while the output of wheat dropped by 9 percent. In the
miscellaneous food manufacturing sub-sector, the output of black tea rose (8.8 percent) because
of buoyant demand, but the production of milled coffee declined by 5 percent. Because of better
prices tnd strong demand from the Preferential Trade Areas, the output of tobacco and beverages
rose by 3.2 percent.
1.14 Inflationary pressures, the weakening of agricultural growth and latterly the Gulf crisis,
constrained the manufacturing sector in 1990 relative to 1989. On the positive side, more prices
were decontrolled, corporate tax rates were reduced and export incentives were strengthened.
Import liberalization also assured the more timely availability of inputs and introduced greater
competition. The regulatory framework is also being improved by the rolling back of some
redundant administrative interventions and discretion. In June 1990, to further reduce average
protection, restricted imports amounting to about 35 percent of items previously in Schedule IIIC
-7-
,vers transferred to I1IB The average tariff on all Schedules except the current IIIC was also
lowered by 5 percentage points and action was taken to limit the dispersion of tariffs.
Additionally, the highest rate category (135 percent) in all Schedules was eliminated, the next
highest category (100 percent) was scrapped in all Schedules except the current IIIC, and several
items which enjoyed a "zero" tariff rate were moved to the next highest level (Annex I). In June
1991, the programmed elimination of quotas reached its final stage. Remaining quotas were
lifted on all items (and replaced by equivalent or lower tariffs) except those which are restricted
for health, environmental or security reasons. Simultaneously, average tariffs were dropped by
a further 5 percentage points, and the number of tariff categories was reduced. One consequence
of these measures has been a marked reduction in effective protection (Box 1. 1).
1.15 Measures which specifically targeted exports were also taken. The manufacturing-under-
bond scheme, for firms e .porting 100 percent of their output, was extended to three new urban
areas. The cost of operating the scheme was also reduced by simplifying bonding requirements
and permitting the sale of rejects in the domestic market. However, no new enterprises have
entered the scheme. This is mainly because there has been insufficient publicity of the new
arrangements, apprehension by entrepreneurs given the previous problems of the scheme, and
uncertainty about the future of rmanufacturing-under-bond in the face of the much publicized
development of export processing zones. At the Jomo Kenyatta International Airport, Kenya's
major exit point for high value exports such as horticulture.. steps were taken to improve the
quality of cargo handling. Further, in November 1990, an import duty/value added tax (VAT)
exemption scheme was introduced for imported inputs into eligible exports and the export
compensationi system was amended with a view to accelerating payments to exporters and
widening coverage.
1.16 Manufacturing, especially, export-oriented manufacturing, has been the target of much
policy action in Kenya in recent years. For this reason, as well as the experience of other
developing countries, it would be reasonable to look to this sector for evidence that the economy
is responding favorably to sectoral adjustment measures even when the external environment and
other factors are unfavorable. However, the evidence at this early stage of the reform process
is sketchy and tentative. Consistent with the reduction in protection, preliminary empirical work
suggests that trade liberalization may be weeding out a number of inefficient local producers as
competition from foreign producers increases. On the other hand, there are indications that the
sector is responding to reforms which alleviate the institutional constraints to exports (Ndii,
199 1a).
1.17 Building and Construction. The visibility of building and construction activities,
especially in large urban centers such as Nairobi and Mombasa, makes the sector an easy, though
potentially misleading indicator of economic performance country-wide. Value-added in the
sector expanded at an encouraging rate: 4.7 percent in 1988, 5.4 percent in 1989 and 5.3 percent
in 1990. During the same period cement consumption, a leading proxy for construction activity,
rose by 19 percent, 7.7 percent and 18 percent respectively. Activity in the private sector
included the Harambee projects for schools and Nyayo wards, and a strong demand for residential
2/ Schedule IIIB comprises items which compete with domestic production and are restricted only by tariffs. The items
in Schedule IIIC are protected by quantitative restrictions and include competing goods which are not covered
elsewhere, luxury goods, and goods which are restricted for public health and safety reasons.
- 8 -
Box 1.1
Progress In Trade Liberalization
During most of the post-Independence period, Kenya's trade regime was oriented towaid import
substitution. Domestic industries were protected by tariffs and import quotas, and several public sector
enterprises enjoyed monopoly status in commercial activities which included international trade. Not
surpriuingly, manufacturing exports declined significantly as a share of total exports, even though
external circumstances were generally favorable to these goods. Recent reforms have sought to
encourage export development and improve the efficiency of domestic production by exposing domestic
produccrs to foreign competition (Ndii, 1991).
Under the Industrial Sector Adjustment Program and the Export Devclopment Program, protection has
become more transparent by replacing quantitative restrictions with tariffs. There has also been a
lowering of tariff rates, a reduction in tariff dispersion and consequently, a fall in protection. The table
below shows the decline in economy-wide average tariffs. The reform-induced declines in average tariffs
are greater when imports previously protected by quotas are excluded.
Economy-Wide Average Tariffs
All Schedules 1984/85 1987/88 1988/89 1989/90 1990191 1991/92
Unweighted 40.0 39.6 41.3 41.0 38.8 34.0
Import-Weighted .. 29.6 27.3 24.5 22.0 20.4
89/90 Schedules 1.11, Tl!A & IIIB
VJnweighted .. .. .. 34.5 29.5 25.9
Import-Weighted .. .. .. 28.9 20.2 18.7
Source: Kenya: Challenje of Promoting Exvorts A Trade Expansion Report. Washington, D.C. World
Bank, (forthcoming).
Though maximum tariff rates have fallen substantially, most of the reduction in the level of
manufacturing protection has been accomplished through a reduction in the production coverage of
quantitative import controls. For instance, the quantitative controls (Schedule IIIC) covered most of
manufacturing production in 1985/86. This coverage feUl to 79 percent in 1987/88, 45 percent in
1989/90 and 28 percent in 1990/91. The reduction in protection was not uniforrm across the
manufacturing sector: in June 1989 they occurred mainly in the paper and iron/steel subsectors; in June
1990 they focussed on food manufacturing; in June 1991 they were concentrated in textiles and
automobiles. However, these numbers understate the actual change in nominal protecticn relevant to
domestic manufacturing. Tariffs on competitive imports feU by much more than the avcrage. This is
evident from the larger reductions in production-weighted tariffs which fell from 61 .1fo in 1989/90 to
55.5% in 1990/91 and to 45.5% in 1991/92.
Future reform should focus on removing the licensing system and on further reducing tariff dispersion.
At present, dispersion in tariffs and thus nominal and effective protection is still significant and the
licensing system could be used to enlarge such dispersion. lnappropriate demand management is likely
to be accommodated through increased 'queuing-time" for import licenses instead of changes in the
explicit restricted list. This would raise protection and lower access to imported inputs. Therefore,
removal of the licensing system is warranted on efficiency grounds and as a confidence building measure.
Removal of the licensing system would make the flow of imports much more sensitive to macroeconomic
policies and tariffs, and would require an early warning system that would alert policy makers to any
inconsistency between the macroeconomic and the trade stance. Much of Kenya's quarterly economic
data can be used to develop such indicators. They include data on domestic credit, import inventories
and reserves.
- 9 -
and non-residential buildings. In the public sector, thcre was work on grain silos, roads, national
universities and teacher colleges in 1987-88, much of which was associated with the adoption of
the 8-4-4 educational system. This gave way to the construction of new lecture halls, libraries,
hostels and staff houses associated with the unusually large university enrolment in 1990.
1.18 Energy. Petroleum accounts for 68.6 percent of Kenya's commercial energy
consumption, and all of it is imported. Imports of crude and petroleum products increased b)
6.7 percent in volume terms and 26.7 percent in dollar terms in 1990. Mleanwhile, exports of
petroleum (mainly to Uganda, Zaire and Rwanda) increased by 3.6 percent to 534 thousand tons,
after falling by 24 percent in 1989. Kenya is still unable to recapture and penetrate the regional
market because of competition from more efficient extra-regional refineries.
1.19 The Government usually adjusts wholesale and retail domestic petroleum prices in line
with international prices. Thus, wholesale price increases (at Mombasa) averaged 20.6 percent
in February 1990. As the Gulf crisis unfolded, there were additional increases in September
1990, which ranged from 21.5 percent (liquefied petroleum gas) to 54.0 percent (fuel oil). At
the retail level, price increases in February 1990 were as low as 4.8 percent (premium motor
spirit and gasohol) and as high as 13.2 percent (gas oil). In September 1990, retail price
increases averaged 34.8 percent. In mid-February 1991, the Government decided not to adjust
the domestic prices of petroleum products in line with lower international prices for crude.
Instead, in an attempt to raise additional revenue, the increased differential is being absorbed
through a higher VAT.
1.20 The generation of hydro-electricity and geothermal electricity was respectively 2.8 percent
and 4.4 percent higher than in 1989. Electricity sales rose by 6.3 percent in 1990, following a
7.5 percent rise in demand from large commercial and industrial consumers, and the expansion
of the Rural Electrification Program. To partly satisfy this higher demand, imported electricity
increased by 55 percent to 174 KWH, equivalent to 5.5 percent of supply. Work is on schedule
for the commissioning of the Turkwell Gorge multipurpose project in 1991, and this will increase
the hydro-power capacity by 106 MW.
1.21 Tourism. In 1990, foreign exchange earnings from tourism rose by 11.3 percent in
dollar terms to $465 million, reflecting a 9 percent increase in international arrivals and a 5.2
percent rise in the average number of days stayed. These improvements were not uniform across
all groups of international arrivals. Business and transit arrivals, who comprise 8.2 percent of
the international traffic, dropped by 21.2 percent and 33 percent respectively Similarly, tourist
arrivals from North America, representing 11.2 percent of departures and 8.7 percent of hotel
bed-nights, were 12.6 percent fewer. Nonetheless, the sector as a whole performed well because
tourist arrivals from Europe, who accounted for 61 percent of total arrivals and 66 percenit of
hotel bed-nights, increased by 14.9 percent (Figure 1.2).
1.22 The External Sector. After worsening to 6.8 percent of GDP (including grants) in 1989,
the current account deficit narrowed to -.5 percent of GDP in 1990 (Table 1.4). This
improvement reflected the encouraging performance of horticultural exports. exchange rate
adjustments, and policies which specifically limited parastatal imports. Nonetheless, the overall
balance of payments deficit in 1990 was $146 million. In fact, over the last five years the
external account was in surplus only in 1986 (partly due to the mini-coffee boom) and 1989
(when there were significantly larger inflows of policy-based lending). With the drawdown. the
I S nyffiKen rvals 2sI
y ~~~~~~~~~~24
22
20 Bu~~~~~~~~~~sssw and
tel IDk loWe
Seasonal fadors apaftt.411/
there was no significant U 0 LQ1d
downtum in total arrivals, 8
induding holiday traffic, 6
240 during the second haff of 4 T
240 1990 /
220 0
200 Aoo lcw L I Q88 1QGO 1060
1200
!100 i i' A
80 |To" 0*th oI," (ts)
s60 *Hdidary 4hgii7
* 1~~~~ ~~~- 1-
Fi eTorl A1rvl Trend
20
0
1l66 1087 1066 1069 1090
Figure 1.2
l'able 1.4
Stummnary of Balance of Paymenits, 1986-90
(In Millions of US Dollars)
1986 1987 1988 1989 1990
Trade balance -285 -713 -782 -1033 -992
Exports 1171 907 1014 922 999
Itnports 1456 1620 1795 1954 1990
Services (nct) 39 5 -21 86 144
Transfers (net) 207 214 345 381 372
Current account balancc -39 -493 -458 -565 -476
Capital account 129 367 376 643 330
Long-term (net) 105 317 330 607 177
Short-term (net) 21 56 57 52 147
Errors and omissions 3 -6 -5 -16 6
OVERALL BALANCE 90 -127 -76 78 -146
Monetary movements -90 127 76 -78 146
Change in reserves -25 151 -60 -111 22
IMF transactions -67 62 123 20 101
Other 2 38 13 12 23
Memo items:
Import cover (months GNFS) 3.1 1.9 1.9 2.0 1.6
Current account deficit
as % of GDP: incl. grants 0.5 6.2 5.4 6.8 5.5
excl. grants 2.6 8.0 8.4 10.1 7.8
Source.- Statistical Appendix, Tables 2.3, 3.2, 3.10 and 3.11
foreign exchange reserves at end-1990 were equivalent to 1.6 months of merchandise imports of
goods and nonfactor services, compared with 2 months at end-1989.
1.23 Over the past two years, Kenya's external position has been affected by adverse terms
of trade. In 1990, the external terms of trade dropped by 9.9 percent after falling by 10.9
percent in 1989 (Figure 1.3). In the merchandise account, the overall quantum index of non-oil
exports increased by 12.6 percent (all exports by 6.1 percent) in 1990. Volume growth was
especially encouraging among non-traditional items such as horticulture (40.7 percent) and meat
- 12 -
and meat products (almost 3-fold). Coffee exports increased by 16.7 percent in volume terms
as the Coffee Board drew down its considerable stocks. Largely reflecting higher petroleum
prices which added approximately $116 million to the import bill (Table 1.5), 2 and a doubling
of food imports, total imports increased by 13.7 percent in dollar terms in 1990. The overall
quantum index of total imports increased by 4.8 percent in 1990.
INDICES OF SELECTED PRICES
1981-90
130
120
110-
100
90 - - . Ext. Terms of Trade
- 80 -
70 -
so50 Petroleum Price -
(Landed Price)
40 -
30--__
1981 1982 1983 1984 1985 1988 1987 1988 1989 1990
Year
Figure 1.3
124 The destination of Kenyan goods has remained largely unchanged in recent years. The
European Economic Community (EEC) received 44 percent of domestic exports during 1985-89,
compared with 45 percent in 1990. African countries received 24 percent and 25.8 percent
during the same periods. One notable development was the doubling of the share of exports to
3/ The assumption here is that the same volume of oil would have been imported had oil prices not risen significantly.
This is not unreasonable given the low price elasticity of demand for petroleum in Kenya.
- 13 -
Table 1.5
The Gulf Crisis and Oil Imports
July-December 1990
July August September October November December
Price ($fbl) a/ 16.3 21.3 29.0 34.0 34.9 35.2
Quantity (bIs) 1,369,993 1,007.200 2,145,798 1,100,000 1,722,800 1,672,315
Value (million$) b! 25.6 21.7 62.3 37.4 60.2 58.8
Simutated Value cl 25.6 16.4 34.9 17.9 28.0 27.2
(million$)
Memo Item;
Diff. costs/Imports (%) d/ 5.3
Source: Central Bank of Kenya, and staff estimates
a/ Cost including freight but excluding insurance.
b/ Includes insurance.
5l Price and insurance as at July 1990.
d/ Difference between the value and simuilated value of imports during July-December as a percentage
of merchandise imports (excluding leases) during the entire year.
Eastern Europe to 2 percent in 1989-90 relative to 1985-88. Regarding merchandise imports,
46.1 percent originated in the EEC during 1986-89 (45 percent in 1990), while Africa accounted
for 3 percent in both periods, the Far East and Australia for 21 percent (18.2 percent in 1990)
and the Middle East for 16.4 percent (20.6 percent in 1990). The increase of the Middle East's
share and the reduction of the share of goods from the Far East and Australia are attributable to
the Gulf Crisis.
1.25 Services and Transfers: Apart from 1988 when there were large outflows of investment
income, there was a surplus in Kenya's service account during 1986-90. In 1990, the dollar
value rose and the surplus reached its highest value for the decade ($144 million). This improved
performance in the services account, however, has been assisted by the fact that since 1988, the
Government has limited the repatriation of investment income. The growth in tourism earnings,
which had been steadily falling since 1986, rebounded in 1990. This improved performance
occurred in spite of a difficult external environment and concerns about personal security in
Kenya. For the first time in 1990, tourism earnings almost matched coffee and tea exports
combined. Private transfers grew impressively by 52 percent in dollar terms to reach $219
million in 1990.
1.26 Capital Account. The nominal dollar value of net capital inflows in 1990 was a little
more than half the 1989 amount--$330 million compared with $643 million. The unusually large
- 14 -
inflows in 1989 comprised substantial amounts of concessional loans under the industrial sect(r
adjustment program, the financial sector adjustment program and IDA reflows.
C. Employment, Savings, Investmenit and Total Factor Productivity
1.27 Employment. Tables 1.6 and 1.7 report official data on employment which cover wage
and salary earners in the tnodern sector, and in urban and rural small-scale enterprises (previously
called the informal sector). Together they comprise less than 20 percent of Kenya's total labor
force. Three trends should be noted. First, the public sector accounts for almost half of wage
employment and in general has been creating jobs faster than the private wage sector. Second,
wage employment creation grew more slowly than the working age population during 1981-90.
Furthermore, on average only 87.000 new jobs were created by the wage employment sector
during 1986-90. Third. employment grew fastest in the small-scale enterprises.
Table 1.6
Recorded Employment, 1986-90 a/
1986 1987 1988 1989 1990 1986-90
(Y)
Wage Employment 1,227 1,285 1,342 1,373 1,408 3.7
Agriculture 248 253 265 262 268 2.1
Manufacturing 166 175 181 183 188 3.4
Building & Cons. 56 58 64 69 71 7.5
Other 756 799 833 860 881 4.0
Private 621 658 682 687 714 3 6
Agriculture 193 199 198 195 202 1.7
Manufacturing 130 138 142 142 146 3.3
Other 298 321 342 350 366 4.8
Publc 606 627 660 686 694 3.8
Central Govt. 260 274 267 277 270 1.4
TSC 164 173 185 195 204 6.2
Other 182 180 208 214 220 5.2
Small-Scale
Enterprises 281 312 346 390 443 11.7
Self-Employed 35 38 44 44 48 7.0
TOTIAL 1,543 1,635 1,732 1,807 1,899 5.4
Source. Statistical Appendix, Tables 1. 3 and 5.8
a/ In thousands, unless otherwise specified.
- 15 -
Table 1.7
Private and Puiblic SoIJrces of Wage Employment
Growth, 1981-90
(In Percentages)
<-- Average Annual Growth Rate -> Contribution to
Public Modcrn Sector
Sector <-Employment-- >
Working <---- Employment --> Share of
Age Pop- Wage Private Public
Period ulatLon Private Public Total Empl. Sector Sector
18 L z Ep a E a/
1981 3.4 1.1 2.7 1.8 47.3 32.4 67.6
1982 4.2 0.0 4 4 2.1 48.3 0.9 99.1
1983 4.2 4.6 4.4 4 5 48.3 52.8 47.1
1984 4.3 2.2 2.6 2.4 48.4 48.3 51.7
1985 4.3 3.8 6.2 4.9 48.9 39.5 60.5
1986 4.2 3.5 5.4 4.5 49.4 40.5 59.5
1987 4.3 6.0 3.6 4.8 48.8 63.2 36.8
1988 4.2 3.6 5.3 4.4 49.2 41.9 58.1
1989 4.3 0.8 3.8 2.3 49.9 17.6 82.4
1990 4.3 3.9 1.2 2.5 49.2 76.2 23.8
1981-85 4.1 2.4 4.0 3 2 48.2 34.8 65.2
1986-90 4.3 3.6 3.9 3.7 49.3 47.9 52.1
1981-90 4.2 3.0 3.9 3.4 48.8 41.3 58.7
Source: Staff estimates using dala in Statistical Appendix, Tables I.1 and 1. 3.
al Ep = (1.z-7.,(QIL E8 = z,.,(l)/L
1.28 Estimates suggest that an estimated 400,000 new jobs will have to be generated annually
to accommodate Kenya's growing labor force over the next two decades. This estimate is based
on the expectation that: (i) the population will double in about 17 years; (ii) even though fertility
rates recently began to decline, this will have no effect on Kenya's labor supply over the next 15
years since all those who will have joined the labor force by then are alive today. An even larger
number of new jobs will be needed to reduce urban unemployment below the current level of
around 16 percent.
1.29 In the face of budgetary pressures and inefficiency, the public sector is not likely to be
a source of significant new jobs in the foreseeable future. However, rapid employment growth
in small-scale enterprises is occurring. A recent report attributes this performance to policies
which have supported agricultural growth, especially by smallholders, and have stimulated the
demand for non-farm activities. Many of these activities are in the informal sector which is
* 16 -
relatively unencumbered by government interventions. The report concluded that economic
growth above 5 percent, Lombined with a strategy of rural and small-scale urban industrialization,
and the promotion of rural nonfarm and urban informal activities, would permit Kenya to meet
its employment targets over the coming decade (World bank 1988).
1.30 Savings. Domestic savings as a share of GDP tell from 18.8 percent in 1989 to 18.4
percent in 1990, well-below the 5-year peak of 21.9 percent of GDP in 1986 (Table 1.8). The
downward trend reflects falling private sector savings in relation to GDP since 1985 and a
worsening of central government savings in 1990. The persistence of dissavings resulted from
rising debt service payments, difficulties in containing wage expenditure, especially in the
education sector, and transitional problems in administering the new VAT. The reasons for the
Table 1.8
Investment and Savings, 1986-90
(As Pcrccntages of GDP at Market Prices)
1986 1987 1988 1989 1990
Gross Investment 21.8 24.3 25.0 24.6 23.7
Fixed Investment 19.6 19.6 20.1 19.2 20.2
Public 8.1 7.1 8.3 8.1 9.5
Private 11.5 12.5 11.8 11.2 10.7
Change in Stocks 2.2 4.7 4.9 5.3 3.4
Financed by:
Foreign Savings -0.2 5.1 5.2 5.7 5.3
Grants 1.0 1.7 2.3 2.3 3.2
Net Borrowing -1.2 3.4 2.9 3.4 2.1
Domestic Savings 21.9 19.2 19.8 18.8 18.4
Central Government -1.7 -1.9 -1.3 -0.9 -1.6
Private 23.6 21.1 21.1 19.7 20.0
Memo Items:
Real Growth in
Fixed Investment 9.3 6.0 8.3 -0.9 0.1
Public 14.2 -6.7 22.3 1.8 13.6
Private 6.1 15.2 0.1 -2.8 -10.0
Source. Statistical Appendix, Tables 2.3, 2.6 and 5. 1
decline in private savings are less apparent. The drop in coffee prices was a major cause during
1989-90. Indeed, a recent study concluded that the behavior of private savings in Kenya during
1968-89 was best explained by changes in income; changes in real interest rates and inflation
appeared to be inconsequential (Sulemane, 1991). These empirical findings are consistent with
research in several countries which suggests that once the real interest rate becomes positive,
further increases appear not to affect savings. The reasons are two-fold. First, target-savers--
- 17 -
persons wishing to reach a certain level of savings--would not need to increase their savings
because of rising interest income from a givon level of savings. This income effect may actually
lower savings at higher interest rates Se&'ond, and in contrast to the first, higher real interest
rates raise the opportunity cost of consumption in the form of savings and interest income.
Consequently, savers may switch trom consumption to savings when real interest rates rise.
1.31 Investment. At 23.7 percent of GDP in 1990, gross investment was below the 1989
f'lgure ot 24.6 percent of GDP. The public sector increased its real gross fixed capital formation
but this was insut'ficient to offset the decline in real stocks and the contraction in real fixed
private investment. Fewer transport, machinery and other equipment were acquired in 1990
because domestic borrowing became more expensive as competition with Government paper
intensified. Costs also escalated with the steady depreciation of the Kenya shilling while incomes
in a key income-generating sub-sector, coftee, fell.
1.32 The drop in real private fixed investment followed a fall of 2.8 percent in 1989 and
virtual stagnation in 1988. This is a source of concern, given that in recent years the
Government's sectoral adjustment efforts have focused on improving incentives and removing
obstacles to private sector activity. Without a more dynamic response from the private sector,
domestic and foreign, it is difficult to see how Kenya's economy can accelerate growth over the
medium-term or even sustain the performance of the last four years. Although more detailed
analysis of the determinants of investment would be required, it is likely that falling private
investment levels may be the result of a number of interrelated factors. First, faster economic
development and dynamic private sector growth is more likely to take place if policies produce
a stable macroeconomic environment, which ensures reasonably low inflation, an appropriately
valued exchange rate, sustainable fiscal and current account deficits, and the avoidance of foreign
exchange crises. As discussed in Chapter 2, in recent years the Government's stabilization record
has been disappointing, especially in terms of dampening inflationary pressures and containing
the growth of public spending. Second, while in recent years the Government has made
consi(lerable progress in reforming incentives and policies, a more targeted reform effort is
required directed specifically at improving the enabling environment for the private sector and
removing some of the bottlenecks that impede a stronger supply response. In this respect,
excessive government regulations and lack of transparency in their application appear to be a
major constraint on new private sector initiatives. Third, although adjustment programs have
focused on reforming incentives and policies affecting the private sector, little structural
adjustment has taken place thus far in the public sector itself. An effective and streamlined public
sector, capable of efficiently delivering infrastructure and social services, without crowding out
private activity, is as important for high and sustained output growth as improved economic
incentives.
1.33 Total Factor Productivity (TFP). Also of concern is the fact that growth in Kenya has
depended more on the use of additional resources than on productivity gains. The data in Table
1.9 underscore this point: during 1981-90, the contribution of TFP to economic growth was 6.1
percent.
1.34 Apart from the drought of 1984, factors which may have contributed to low productivity
include: (i) pervasive administrative controls which limited the role of markets in the allocation
of resources; (ii) the high levels of protection from foreign competition which were accorded
domestic industries during most of the decade; (iii) socio-political pressures to create jobs for
Kenya's rapidly growing population and the significant role played by the public sector in this
- 18 -
Table 1.9
sources of Fconomic Growth in Kenya, 1981-90
(In Percrntages)
c------ Average Annual Growth Rate ------> Contribu-
tion of
<- Factor Productivity -> a/ Total
Labor Factor
Employ- Income Pro-
Period Output ment Capital Labor Capital Total Share ductivity
gy gL K gYL a' gyx a! gVr a/ z g/IgY a!
1981 6.0 1.8 5.9 4.2 0.1 1.8 41.3 29.8
1982 3.9 2.1 5.8 1.8 -1.9 -0.4 41.5 -9.9
1983 2.5 4.5 3.1 -2.0 -0.6 -1.2 41.3 -48.0
1984 0.9 2.4 1.9 -1.5 -1.0 -1.2 41.3 -132.6
1985 S.1 4.9 2.0 0.2 3.1 1.9 42.1 36.7
1986 5.6 4.5 1.8 1.1 3.8 2.7 40.9 48.8
1987 4.9 4.8 2.9 0.1 2.0 1.2 42.5 24.2
1988 5.0 4.4 2.9 0.5 2.1 1.4 42.0 28.7
1989 5.0 2.3 3.3 2.7 1.7 2.1 42.0 42.1
1990 4.5 2.5 2.7 2.0 1.8 1.9 43.1 41.8
1981-85 b/ 3.7 3.2 3.7 0.5 -0.1 0.2 41.5 -24.8
1986-90 b/ 5.0 3.7 2.7 1.3 2.3 1.9 42.1 37.1
1981-90b/ 4.3 3.4 3.2 0.9 1.1 1.0 41.8 6.1
Source. Staff estimates. Capital stock numbers based on informationfrom the Ministry of Planning
and National Deve!qpment.
A/ 9 gv gY - gL, Y gY -gK =YT g-Y (Zg [I-z]gK)
b/ Simple period averages from annual data in each column above,
regard (Chapter 3): and (iv) the inefficiency of the public enterprises which engaged in
commercially-oriented activities (Chapter 4).
1.35 Table 1.9 indicates an improvement in the contribution of TFP to growth during de latter
half of the decade. This turnaround has been greatly assisted by the Government's reform
programs in key productive sectors. The task ahead is to not merely sustain recent economic
gains but to accelerate productivity increases and economic growth. In pursuing this objective,
the Kenyan economy faces a number of interrelated challenges. First, with rising and competing
claims on limited aid budgets, Kenya must increasingly strive to reduce its dependance on foreign
savings to finance its development effort and enhance the effectiveness with which aid flows are
utilized. Second, to reduce Kenya's dependance on aid and its vulnerability to external shocks,
greater emphasis needs to be placed on diversifying the economy. Expanding and diversifying
Kenya's export base will be critical. Third, in addit.on to laying the foundation for faster
economic growth, the Government needs to ensure that growth is more equitable and
- 19 -
environmentally sustainable. Fourth, aggregate demand pressures, unless contained, threaten
Kenya's prospects for faster economic growth. Fifth, structural adjustment in the public sector
will be ne2essary, not only because of the linkage with fiscal policy, but also because currently
the sector absorbs resources which the private sector can use more efficiently. Sixth, in addition
to improving the efficiency of the public sector and reducing the size of the parastatal sector,
greater efforts will be required to enhance the enabling environment for private sector activity.
The last 3 points are developed sequentially in the rest of the report.
Chapter 2
Stabilization: Targets, flits and Misses
'The benefits of structural reforins thut aimn at improving resource allocation through chianges in
incentives, generalhl transmitted through relative price changes, are reduced by macroeconomic
instability in tleform of high and variable inflation and balance ofpaymnents crises" (Corbo and
Fisher, 1991, p. 3).
Introduction
2.1 The chapter argues that renewed stabilization problems constitute a serious threat to
growth in Kenya. Sustained growth usually requires reasonably low inflation, an appropriately
valued real exchange rate, sustainable fiscal and current account deficits, and the absence of
foreign exchange and debt crises. In Kenya, as in most countries, the key to stabilization is fiscal
policy. The fiscal deficit reported in July 1991 was 5.4 percent of GDP (including grants),
higher than the level recorded when recent stabilization efforts began in earnest in 1988. Worse
still, there are some indications that the revised fiscal deficit for FY9i ' 11 exceed 6 percent of
GDP (including grants). The crucial test for stabilization and budget:.r) policy will be to contain
government expenditure.
2.2 This chapter identifies the indicators of renewed instability in 1990 (Section A) and links
them to the sources of the destabilizing pressures (Section B). Next, . demonstrates that the
resurgence of stabilization problems threatens the hard won gains of recent sectoral adjustment
programs (Section C). In its final section, the chapter reviews the policies which currently seek
to redress these problems and comments on their prospects (Section D).
A. Selected Indicators of Recent Instability
Inflation
2.3 In 1990 inflation in Kenya returned to 1980-81 levels, continuing an upward trend which
began in 1987. At 12.6 percent (or 17.7 percent December over December) 4/, it was well
above the Government target of 7.5 percent. Even prior to the Gulf-crisis (January-August
1990), price increases averaged 10.1 percent, indicating that a significant deceleration in prices
would have been necessary during the last four months of the year to bring inflation within
reasonable range of the target. Instead, the rate accelerated.
2.4 Furthermore, the Government's 1991 Economic Survey indicates that the old indices may
have underestimated inflation by about 4.5 percentage points. This preliminary conclusion is
based on on-going but incomplete revisions of the CPI methodology. Among the more important
revisions are the adjustments to the income groups, updating the list of retail outlets from which
4/ This figure (17.7 percent) is dcrived by the application of IMF weights to the Nairobi CPI series for the lower,
middle and upper income groups (World Bank, 1991c, p. 1). When simple averages are used, the figure is
18.5 percent for December on December 1990. See Statistical Appendix, Table 11.2.
- 22 -
Box 2.1
Inflation in Kenya: Three Plersisting Questions
and Their Four Emerging Answers
Recent debate over inflation in Kenya has centered around three questions.
Does the official measure, the CPI, understate inflation? Several con.,ituents who usc thc CPI havc said
yes. They point to measurement bias arising from a) use of dated (1974) consumption basket; b) inclusioni
of price controlled items; and c) inadequatc coverage of housing costs. In its 1991 Economic Survey, the
Government also said yes and indicated a prcliminary underestimatc of 4.5 percentage points, based on
revisions dating back to February 1990 (p. 49). This conclusion was reached after a partial revision of the
CPI (Annex 11). It must be emphasized, however, that the basis for the revised consumption baskets and
expenditure weights used was the urban household budget survcy which was administered in 1982. But
since this survey does not capture the effects on expenditure of the significant price decontrols and other
policy measures which were implemented after 1985, its results must be interpreted with caution. In this
sense, therefore, the answer to the question raiscd is still not known.
If the CPI is underestimated, is the real growth of GDP at factor cost overestimated? The bricf answcr
is no. The question arises in the first place because of the misconception that, as a rule, GDP is first
calculated in nominal terms and is then deflated by the CPI to obtain real values. This is not the case.
Consistent with United Nations guidelines, real GDP is calculated directly, in most instances-forestry,
manufacturing, mining and quarrying, electricity and water, key aspects of wholesale and retail trade, and
several aspects of tourism--from changes in the volume of output. For instance, to obtain the (real) 1990
output of salt in constant 1982 prices, the volume of salt in 1990 is multiplied by the prices which prevailed
in 1982. Estimates of real growth in other sectors and subsectors may use deflators but never the CPI.
Some sub-sectors within agriculture use price indices derived from sales to purchasing agencies. In parts
of the building and construction sector, deflators are based on the Building Cost Index, the Non-Residential
Cost Index and the Civil Engineering Cost Index. Transport uses a price index which is a weighted average
of revenue per ton mile and revenue per passenger mile while ownership of dwelings is deflated by an index
of rents derived from the annual Rent Survey. Banking, insurance and real estate uses the implicit deflator
emerging from the relationship between the estimated GDP at current prices for all other sectors in the
monetary economy and the corresponding GDP at constant prices.
What are the most important causes of inflation in Kenya? Regression analysis confirms the
conventional wisdom that, other things remaining the same, inflation rises when any one or more of the
following happen: the money supply increases, prices rise abroad, the budget deficit expands. the exchange
rate depreciates, the domestic prices of petroleum products increase, the average wage rate rises, labor
productivity falls, and some consumer prices are decontrolled. In contrast, a rise in output reduces price
inflation. Regressions also indicate that: a) changes in the quantity of money affect prices most strongly
after a lag of six months; b) the broad money stock (M2) is a more important determinant of prices than
narrow money (Ml); c) decontrol of prices in recent years has raised the rate of inflation, but the effect
has been small, presumably because controlled prices have been per.odically revised to follow the trend of
free-market prices; and d) changes in the prices of domestic petroleum products have had a significant
impact on consumer prices (Annex 111). however, quantifying the (relative) importance ot the factors is
difficult and requires the 'other things remaining equal' proviso. For example, between 1987 and 1988 the
CPI in Kenya increased by 16.7 points. At the same time, the manufacturing unit value (MUV) index rose
by 9 points. Using the estimated coefficient of 0.6763 (Annex III, equation [41), this rise in MUV will have
contributed 9.0x.6763 = 6.11 points to the rise in Kenyan CPI, In other words, 6.11/16.7 = 36.7 percent
of Kenya's inflation in 1988 may be regarded as having been imported from abroad But this requires that
other things, including the exchange rate, remain constant. In addition, since changes in other things like
income and the interest rate are not isolated, their impact is captured jointly by the coefficients of MUV and
the exchange rate, and by the residuals. On-going work will ovcrcome this problem by using a more
complete model in which variables like money, output, deficit and interest are endogenously determined in
terms of exogenous variables such as the world price level and a range of policy instrument valiables.
- 23 -
prices are collected to retlect the clianiges in shopping patterns, and changes to the basket and
weights ( f goods based on the findings of tlle 1982 Urban Household Budget Survey (Annex 11).
Since the results of this Survey are now almost 10 years old and given the changes the economy
has since undergone, the Government plans to administer a new household survey in 1992. The
results will be used to further revise the CPI. Until then, the old and revised estimates of
inflation should be interpreted with caution (Box 2.1).
External N'iahilitv
.5 In Ken'i,a. the issue of external viability--the sustainability of the balance of payments--
concerns not onl) the performance ot' exports and imports, but also the volume and reliability of
aid flows to finance the budget and the external deficits, and the underlying macroeconomic
posture. All this is not readily captured by a single number or by a collection of numbers.
Instead, an assessment of external viability requires some judgment about whether or not the basis
f'or a healthy overall balance of payments performance was further strengthened.
2.6 On the positive side, Kenya contintLed in 1990 to implement adjustment policies aimed
at diversifying the exrort base, accelerating export growth, and liberalizing and improving the
efficiency of import rationing. In 1989, donor funding associated with these on-going reforms
helped to improve Kenya's reserve position expressed in months of imports. These inflows
tapered of' in 1990, partly because only one new policy-based adjustment operation, the main
vehicle for such funds, was finalized late in the year. The reserve position with respect to
imports also deteriorated. Separately, in an attempt to reduce the burden of future external debt
service payments, external borrowing on commercial terms by the public sector was limited.
Another positive developnment, but with only limited short-term benefits, was the decision in
Octoher 1990 to limit government and parastatal imports.
2.7 However, external viability was significantly compromised by the expansionary fiscal
stance which increased aggregate demand pressures, pushed up inflation, eroded real production
incentives and undermined confidence in Kenya's economic management. The next section
elaborates on this fiscal stance.
Sources of listability
2.8 First, the major cause of renewed instability was the worsening of the budget deficit from
4.7 percent of GDP including grants in FY90 (commitment basis) to 6.8 percent of GDP in FY91
(Table 2.1). The deficit was partly financ.ed by borrowing from the domestic banking system
preliminarily estimated at 4,1 percent of GDP. In 1988 and 1989, Central Government
borrowing from the banking system contracted by 8.7 percent and 3 percent respectively. That
of' public enteiprises also declined by 2.8 and 19.8 percent during the same period. In 1990,
however, Central Government borrowing grew by 58.9 percent while borrowing by other public
enterprises r ose bv 17.1 percent. Largely as a result, broad money grew by 20 per cent during
1990 (Table 2.2), the highest rate since 1986 when it increased by a record 32.5 percent. Annex
111 confirms that the fiscal imbalances and the related monetary movements are important causes
of recent inflation in Kenya. It also suggests that an average lag for the transmission of monetary
factors to prices is two quarters.
- 24 -
Table 2.1
Sum wary of Central Government Finances, FY86-91
(In Millions of Kenya Pounds)
Prel.
FY86 FY87 PY88 FY89 FY90 FY91
Revenue and grants 1 269 1 61 1 796 2.056 2.413 2,660
Revenue 1,215 1,398 1,637 1,869 2,144 2,452
Grants 55 63 159 187 269 208
Exoenditures 19 1 872 2.004 2 441 2.856 3.230
Recurrent 1,293 1,509 1,599 1,958 2,096 2,457
Development and net lending 304 363 405 483 761 773
Deficit -328 -411 -208 -385 -443 -570
Adjustment 37 3 -92 -11 63 -154
Cash Deficit (incl. grants) -291 -408 -300 -396 -380 -724
Financing:
Foreign (net) -48 2 71 200 312 207
Domestic 399 406 228 196 69 517
Bank 97 251 4 119 -16 437
Nonbank 243 155 232 77 85 80
Memo items: (% of GDP)
Expenditures 29.3 30.1 28.4 30.2 30.6 30.2
Deficit:
Including grants 5.3 6.6 4.3 4.9 4.1 6.8
Excluding grants 6.3 7.6 6.5 7.2 7.0 8.7
Nominal GDPmp (est.) 5,456 6,217 7,055 8,084 9,324 10,709
Source: IMF estimates; Statistical Appendix, Table 2.3; and staff estimates.
The cash deficit for FY89 was increased by K�91.3 million to reflect the increase in the stock of
unpresented checks at the end of June 30, 1989, which was largely liquidated through bank financing
in early July 1989. The figure for domestic bank financing was adjusted accordingly. Noniinal GDP
on a fiscal basis is an average of calendar years.
2.9 Second, in nominal terms, the shilling depreciated by 17.8 percent against the SDR and
by 11.2 percent against the US dollar in 1990. The figures for 1989 were 10.5 percent and 16.4
percent respectively (Statistical Appendix, Table 6.5). Set against increases in international prices
and imports equivalent to 23.9 percent of GDP at market prices, the immediate impact of the
depreciation was to raise the domestic price level. This conclusion is supported by the empirical
analysis in Annex III which also cautions that the subsequent impact of the exchange rate
depreciation may be to lower domestic prices as export growth and GDP growt, accelerate.
- 25 -
Table 2.2
Growth of Selected Components of the Money Supply, 1987-90
(Percentages)
1987 1988 1989 1990
Total Money Supply 11.2 7.9 12.9 20.0
Money 9.7 5.9 8.6 27.5
Quasi Money 13.3 10.8 18.6 11.0
Domestic Credit 20.4 6.7 6.9 26.6
Central Government 30.0 -8.7 -3.0 58.9
Other Public 26.9 -2.8 -19.8 17.1
Private Sector 13.2 19.6 15.6 11.8
Source: Statisical Appendix, Tabk 6.1
Third, price decontrol, which started in 1984, gathered momentum around the end of 1986 and
continued into 1990. This partly explains why the weight of price controlled items in the CPI
fell from around 40 percent in 1977 to under 25 percent by 1990 (Annex II). However, estimates
also suggest that every one percent fall in the weight of price controlled items (in the CPI) as a
result of price decontrol raises (suppressed) inflation by a mere 0.07 percent, other things being
equal (Annex III). Fourth, the Gulf crisis also contributed to higher prices but its full effect is
being felt in 1991. In any case, the fiscal imbalance and the monetary expansion which financed
it appear to have been enough to sustain the rate of general price increases at the elevated 1989
level.
B. Consequences of Instability
2.10 Two sets of consequences are of primary concern here. The first is the impact of
inflation on real incentive indicators shown in Table 2.3. By the end of the year, the real
effective exchange rate had fallen by 11 percent, in line with the nominal target of the
stabilization program. However, because of higher inflation, the rate actually appreciated during
the last quarter of the year (Figure 2.1). Table 2.3 also indicates that because nominal wages
were kept from rising commensurately with prices, real wages also deteriorated (para. 2.26 and
Figure 2.2). Higher inflation also eroded real prices in sectors such as agriculture (Table 1.3).
By extension, it may have also undermined other real price incentives which were created by
reforms in the industrial, agricultural and financial sectors, and which give impetus to higher
levels of sustained growth. Also by extension, inflation that was 4.5 percentage points higher,
as preliminarily suggested by the revised CPI, would have had an even more damaging effect on
real incentives and on the prospects for sustained growth.
2.11 The second concern is that any deterioration in external viability would introduce
uncertainty to the Government's import liberalization efforts. In October evidence emerged that
- 26 -
Evolution of Exchange Rates
1 989-90
78
78 -
76
74 Legend
72 - - Nom. Eff. Rate Index
e 70 - Real Eff. Rate Index
t8 -
62
G0.
se58- The real
effective rate
appreciated
54 - ~~ during the last
52 - quarter.
50
Jan, 89Apr, 89 Jul, 89 Oct, 89Jan, 9OApr, 90 Jul, 90 Oct, 90
Month
Figure 2.1
Average Nominal and Real Wages
(1981-90)
260-
240- Legend
220- , * Nominal: Economy
200- Nominal: Private
iso - ~~~~~~~~~~~Nominal: Public
- 1eO- / * Real: Public
Real: Economy
140 - Real: Private
120X
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
Year
v:... -L
- 27 -
Table 2.3
Key Incentive Indicators, 1984-90
(Percentagcs and Indices 11980=1001)
1984 1985 1986 1987 1988 1989 1990
Exchange rate
(%) change
Nominal effective 6.0 4.4 -11.0 -7.0 -4.5 -0.3 -5.5
Real effcctive 7 5 -1.4 13 3 -9.6 -7.9 -4 2 -11.0
Real intcrcst rates a/
Savings 2.0 0.3 5.4 3.9 -0.7 2 4 0.9
Lending 5 0 3.3 8.4 6.9 4.3 4 9 6.4
Index of real wages b/
Private sector 83.8 82 5 83.9 91.8 90.2 91.2 89.3
Public sector 85.3 84.1 87.5 84.9 88.3 85.3 81.9
Inflation C/
Nairobi CPI index 171.8 190.1 200 8 215.1 238.1 263.4 296.5
Annual increase (9) 9.1 10.7 5.6 7.1 10.7 10.6 12.6
Source. Statistical Appendix, Tables 6.4, 6.5 and 11.4
Notes:
a/ Commercial banks' savings rate and maximum rates on loans for less than three years.
b/ Nominal average wage earnings per employee adjusled by the Nairobi CPI.
c/ Average Nairobi CPI for all income groups.
the processing of import licenses was taking 10 or more weeks instead of the earlier average of
5-6 weeks. The delays were partly a precautionary measure against further claims on reserves
at a time of escalating oil prices and growing uncertainty about the course of the Gulf conflict.
One reaction of importers was to submit multiple applications for licenses in the hope of
preserving their position in the queue. Responding in February 1991, the Government decided
to return all applications for licenses for resubmission and promised to process and issue them
within a week. Although the import liberalization and export development programs were not
rolled back, this episode created much concern, especially among manufacturers.
C. Management of Instability
Budgetary Policies
2.12 The Government initially set its FY91 budget deficit target at 3.8 percent of GDP
(including grants). Faced with a sharp deterioration in Kenya's external terms of trade in late
1990, the Government reduced its budget deficit target to 2.5 percent of GDP. The tightening
of the fiscal stance was to be achieved through revenue-generating and expenditure-cutting
measures of almost equal magnitude.
- 28 -
2.13 Despite implementation of revenue measures, the fiscal outturn in FY91 was very
disappointing. Efforts to reduce expenditure were not successful because of unhudgeted spending
by a few key ministries, increased interest on domestic debt, the assumption of additional
parastatal debt service obligations, and the reversal of some of the additional expenditure cuts
which were proposed in October 1990 to tighten aggregate demand. Some of the pressures on
expenditure were associated with the doubling of the university intake, and the impact on the
Government's domestic debt service caused by the liberalization of the financial system.
2.14 The FY92 Budget. The FY92 Budget targets a substantial reduction in the deficit to 2
percent of GDP (including grants). This will correspond to external grant receipts equivalent to
2.2 percent of GDP, an increase in revenue to 23.7 percent of GDP, from 22.9 percent in FY91,
and a reduction in the level of expenditures as a percentage of GDP to 27.9 percent. from 30.2
percent in FY91. No borrowing from the domestic banking system is anticipated.
2.15 Revenues. The revenue target is to be attained through the adoption of discretionary
measures announced in the FY92 budget, the full fiscal-year effect of tax measures adopted in
November 1990 and February 1991, and improvements in tax administration. Based on the
expected improvements in tax collections and allowing for the full fiscal-year impact of the VAT
on petroleum products, the Government projects that revenues will increase to roughly 95 percent
of the targeted level. The remainder will accrue from the discretionary measures announced in
the FY92 budget. These include: increased revenues from the extension of excise duties to an
additional range of domestic goods and to imported goods; a minimum import duty of 2 percent
on many previously duty-free items: the elimination of import duty exemptions except those
provided by treaties and specific international agreements; and the introduction of a uniform VAT
rate of 18 percent on both outputs and inputs of a large number of items, and increased VAT
rates on a number of low tax rate items. Additional revenues are also expected from the
introduction of user charges at universities, and the reintroduction of outpatient fees for health
services. The Tax Modernization Program, which was introduced in 1990, seeks to improve
tax collection and administration. The 3 planks of the program are modernizing the structure of
taxation in Kenya, strengthening the analytical capacity and operational efficiency of the tax
departments, and computerizing the tax systems.
2.16 The revenue target takes into account the Government's ongoing rationalization of the tax
structure which is aimed in part at enhancing production incentives. The corporate rate declined
from 40 percent in FY91 to 37.5 percent in FY92. The lowering of tariff rates, which began in
1989 as part of the Government's industrial sector reform program, is continuing in FY92 with
the reduction of the maximum tariff rate to 70 percent. The Government also announced, as part
of the FY91 budget speech, the removal of the 50 percent tariff and VAT on air freight charges
on imported cargo, and duty exemptions for the import of equipment for externally-financed new
hotel constn;ction. The number of VAT rates was also reduced from 15 to 8 while the maximum
rate was lowered from 150 percent to 100 percent.
2.17 Expenditure. The crucial test for budgetary policy will be to contain expenditure. This
is to be accomplished through approximately equal reductions in recurrent and development
expenditures as shares of GDP. In the FY92 recurrent budget, the Government has undertaken
to limit the increase in the number of posts above grade G, and to reduce the number of A to G
positions by two percent below the number in post at the end of 1990. In addition, expenditures
on defense, security and public administration are to be reduced in real terms. In the education
sector, savings will be achieved Lt limiting new university enrollments to 10,000. as compared
- 29 -
to 21,488 in FY91 (an extraordinary year), and by increasing the pupil-teacher ratio to a level
that would allow zero growth in the employment of primary teachers. The Government is also
phasing in, over three years, the recommended wage increase for civil servants (Chapter 3). On
the development side, the Government does not intend to finance any new projects which are not
funded by donors in FY92. Furthermore, in FY92 the Government will review the major
projects in the Public Investment Program, especially in Energy, Transportation,
Telecommunications, and Health. It is also committed to reforming the parastatal sector in an
attempt to reduce the burden on the budget. The performance of large parastatals, which in the
recent past has forced the Government to meet a substantial amount of their debt servicing
obligations, will be critical in meeting the budget deficit target.
2.18 It is becoming increasingly uncertain that the budget deficit of two percent of GDP
(including grants) will be met in FY92. Even if the revenue target were reached, the
Government would need to compress expenditure by over four percentage points at time when
GDP growth is expected to slow further. Achieving this is uncertain for three main interrelated
reasons. First, the scope for cutting development expenditure, which in FY91 was about 7.5
percent of GDP is limited. If all own-funded projects were eliminated, the development budget
would probably be lower by only about two percentage points, given the number of externally
funded projects and the programmed external financing. As such, recurrent expenditure would
have to absorb the rest of the cuts necessary for reaching the deficit target. Second, several large
components of recurrent expenditure are set to rise at least in nominal terms. They include the
wage bill, following the recent salary adjustment (Chapter 3) and domestic debt service, due in
part to the liberalization of interest rates. Third, given the timetable for parastatal reform, public
enterprises will continue to require large transfers and some may need additional amounts to
cover debt service obligations. Under these circumstances, it is likely that non-wage operations
and maintenance expenditures would be cut but the room for doing so without downsizing the
civil service is also limited. Indeed, success at stabilization is increasingly dependent on
containing the public sector wage bill and improving the financial independence of parastatals.
This is as necessary as it may be difficult, and should be pursued aggressively until the
appropriate targets are reached.
Monetary and Interest Rate Policies
2.19 Although the Government is attempting to improve the efficiency of monetary policy
instruments, monetary policy in Kenya is essentially driven by fiscal policy. With limited
autonomy to set an independent monetary course, the Central Bank of Kenya (CBK) has no
option but to accommodate the domestic borrowing requirements of the Central Government.
In Kenya, borrowing from the banking system serves as residual financing for the budget deficit.
Furthermore, Central Government borrowing from the banking system in recent years has exerted
a more significant influence on the money supply than the combined effect of the other monetary
aggregates. Unless the Governm.,lt can succeed in substantially reducing the budget deficit,
monetary policy is likely to continue adding to inflationary pressures.
2.20 The CBK has a number of monetary policy instruments at its disposal to regulate
expansion of domestic credit. The daily cash reserve requirement (which has been 6 percent for
commercial banks since December 1986) and the liquid asset ratios (20 percent for commercial
banks and 24 percent for NBFI's since 1983) have not been used by CBK to regulate credit
expansion. Although these mandatory requirements have been, on average, less than what
financial institutions as a group maintain voluntarily, there are a number of individual institutions
- 30 -
which are not meeting these minimum requirements. Concern over the status of these weak
financial institutions has prevented CBK t'rom either entorcing minimum liquidity requirenments
or adjusting them to control credit expansion.
2.21 These instruments have heen supplemented since December 1987 by quantitative ceilings
on the growth of domestic credit. But until May 1990, when a new system was introduuced
whereby 20 percent of any excess credit extended had to be placed in a non-interest hearing
account, banks violated the ceilings. It should be of concern, however, that the burden of
adjustment has fallen almost entirely on the private sector and escaped the parastatal sector.
Moreover, the deceleration ot private sector borrowing was completely offset by growth of'
Central Government borrowing from the banlking system.
2,22 As part of the Government's financial sector reform policies, attempts are being made
to abandon inefficient monetar) policy instruments and strengthen monetary control. In 1990.
CBK removed controls on lendinig-related fees and charges, effectively freeing interest rates. In
late 1990, the Central Bank improved the T-bill auction system and in July 1991, interest rates
were fully deregulated. Earlier, in June 1991, CBK converted about K Sh 4.5 billion ot' its
claims on the Central Governmenit (bank overdraft) into a trading portfolio of Treasury Bills.
In principle, CBK can use this portfolio to stabilize both monetary expansion and interest rates.
By discounting its Treasury Bills at rates higher than the prevailing interest rate, CBK should be
able to withdraw excess liquidity from commercial banks. This contractionary policy would raise
interest rates to a level consistent with tighter liquidity and diminish the demand for credit.
Wage Policies
2.23 Wages in Kenya, particularly among unionizable workers, are influenced to a large
degree by the wage guidelines which are recommended by the General Wages Advisory Board.
The latter comprises representatives from the Ministries of Labour, Manpower Planning, Finance,
and Planning and National Development, and Trades Unions. It is empowered by the Regulation
of Wages and Conditions of Employment Act 1989 (1980) to: (i) specify the basic minimum
wages, which in the opinion of the Board, should be paid to all or any of the employees coming
within its terms of reference; (ii) propose regulation of wages and other conditions of employment
of all or any of such employees; and (iii) recommend that a wages council be established in
respect of such employees, to consider any matter affecting the industrial conditions of employees
and employers within its purview. 5/
2.24 When necessary, the wage guidelines are enforced on collective bargaining agreements
through the rulings of the Industrial Court. In fact, in matters of wages and salaries, the Court
is bound by the wage guidelines. The relevant powers of the Court include: (i) accepting
collective bargaining agreements for registration; (ii) refusing to accept such an agreement for
registration and referring it back to the parties for further negotiation; and (iii) ruling on matters
related to the interpretation of such agreements (Republic of Kenya, 1989c, Chapter 234, pp. 12-
17). Its decisions are final. Here it should also be mentioned that strikes are deemed unlawful
unless a report of a trade dispute has been made in writing to the Minister of Labour and 21 days
51 The police, members of the armed forces, thc National Youth Service and civil scrvants are cxempted.
Workers in agriculture are elso excluded, falling instead under the Agricultural Wages Advisory Board
- 31 -
have elapsed since the date on which the report was submitted, and unless the lead time for such
action expires as per the collective bargaining agreement. 6/
2 25 The w,-age guidelines have two explicit primary goals. lThe first is to encourage the
expansion ot employment by ensuring that wage settlements do not exceed productivity increases.
The second and related goal is to dampen inflationary pressure by holding increases in the total
wage bill below the rate of general price increases. The latest guidelines, which were issued in
lFebruary 1987, stipulated that: (i) wage increases should not exceed three quarters of the rise in
the cost of living excepting for lower paid workers (who could receive the full amount of the cost
of living increase); (ii) where applicable, additional compensation for housing should be allowed
provided it did not exceed one-half of the permissible percentage compensation due to the
workers; (iii) the Industrial Court should seek to limit increases in wages in one industry if this
would force wages up in other industries which "... are less able to afford ..." them; (iv) special
efforts should be made to ensure that "higher wages do not lead to higher prices whether in
export industries or industries producing primarily for the local market" (Republic of Kenya,
1987); and (v) ultimately, awards received by one group of workers should not be significantlv
out of step with those given to workers with similar skills. For the first time, the guidelines
urged the Court to ensure that salary awards did not make parastatals more dependent on the
Exchequer.
2.26 Not surprisingly, Figure 2.2 shows that in the private and public sectors, real wages were
lower in 1990 than in 1981. The most significant decline was in real wages in the public sector.
In the private sector, real wages were eroded more during the first half of the decade but
recovered somewhat during the latter half. The pattern was similar for the public sector but was
less nronounced. Thus it appears that wage policies have been successful in minimizing the
negative impact of salary increases on inflation. One caveat though is the impact of salary
increases in the Central Government on the fiscal deficit and monetary expansion, and thereby
on inflation.
2.27 Apart from limiting the inflationary impact of wage increases, wage guidelines and the
related labor regulations, appear to have limited disruptive disputes between workers and
employees. However, until further investigation is undertaken into the adverse consequences of
these guidelines, it would be reasonable to speculate that they may have: (i) created greater
inequity between the wages of unionized and non-unionized workers, (ii) distorted the relationship
between productivity and pay, and thereby undermined efficiency, (iii) in addition, compressed
relativities between more skilled and less skilled workers; and (iv) undermined the incentives for
creating employment by limiting the flexihility with which employers can hire, reward and fire
workers.
Exchange Rate Policy
2.28 While exchange rate depreciation can be inflationary in the short-run, it has an important
role in the long-run evolution of the economy. The level of the real exchange rate helps to
determine the market incentives for export development and the level of protection afforded
import-competing activities. Since 1982 the Government has essentially followed a flexible
6/ ibid., p. 20. A strike would also bc deemed unluawful if the Minister refuses to accept the report, unless the
Industrial Court revokes that refusal.
- 32 -
exchange rate policy. The real effective exchange rate depreciated by 11 percent in 1990 (Table
2.3). Over the period 1982-90, the real effective exchange rate depreciated by 38.2 percent.
Against the US dollar, the shilling depreciated by 47.3 percent over the same period.
External Debt
2.29 Kenya owed its external creditors an estimated total of $5.3 billion (including IMF) as
of December 31, 1990 on medium- and long-term public and publicly guaranteed debt (PPG)
(Table 2.4). Approximately 56 percent of Kenya's long-term PPG debt (excl. IMF) at end-1990
was concessional in nature compared with 54 percent at end-1989. Nevertheless, the average
interest rate on new commitments of this debt rose from 2.9 percent in 1989 to 4.4 percent in
1990. At the same time, the average maturity decreased from 28.4 years to 22.6 years while the
average grace period decreased from 7.9 years to 5.6 years. The grant element was 41.6 percent
in 1990 as opposed to 57.1 percent in 1989.
2.30 Kenya paid its creditors $601.8 million in debt service (including IMF) during 1990,
equivalent to 27.2 percent of exports of goods and services (Table 2.4). Commercial creditors,
Table 2.4
Public and Publicly Guaranteed External Debt, 1986-90
(In Millions of US Dollars)
1986 1987 1988 1989 1990
Debt Outstanding and Disbursed 3.926 1 4,723.1 4.621.5 4532 9 5,291.9
Multilateral (excl. IMF) 1,615.2 1,971.2 1,919.3 2,126.5 2,472.1
Bilateral 1,312.6 1,683.4 1,648.1 1,328.1 1,431.6
IMF (incl. Trust Fund) 459.8 401.3 455.4 415.4 482.1
Other a/ 538.5 667.9 598.7 662.9 906.1
Total Debt Service (incl. IMF) 530.7 L62.3 553.9 643.6 601.8
Amortization 331.7 355.2 346.2 448.4 387.5
Interest 199.0 207.1 207.7 195.2 214.3
Total Debt Service Ratio (%) b/ 27.8 32.4 29.3 33.1 27.2
Source; Debt Reporting System
a/ Suppliers' credits, financial institutions and export credits.
b/ PPG debt service as a share of exports of goods and services.
who account for 8.0 percent of the debt stock, received 11.2 percent of these payments.
Multilateral and bilateral creditors are owed 82.9 percent of PPG debt but their debt service
payments equalled 77.0 percent of PPG debt service.
- 33 -
2.31 Although Vtenya's debt service burden is large, it has been manageable partly because
sectoral reform efforts have been supported by debt forgiveness from creditor governments such
as France, Germany, the United States and the United Kingdom. Also, Kenya's debt
management strategy has basically been sound, involving:
* centralized coordination, approval, recording and monitoring of debts contracted
and guaranteed by the public sector;
* strengthening of debt recording and improvement of the quality and coverage of
1ebt service projections;
* limits on the amount of non-concessional public and publicly guaranteed loans
and preference for long-term over short-term borrowing;
* minimizing the exchange and interest rate risk borne by the Government; and
* maintaining creditworthiness by full and timely payment of debt service
payments. This is facilitated in part by foreign exchange budgeting.
2.32 However, some weaknesses exist, including:
resort to informal loan guarantees which do not require parliamentary approval
and could circumvent the prudent debt limits set by Parliament;
*fi institutional weaknesses which point to the need to clarify the role of the
Government Investment Division in enforcing the collection of parastatal debt
service payments, and closer coordination between the Central Bank and the
Treasury to avoid delays in externalizing of parastatal debt which attracts
penalties;
* procurement by some parastatals of external debt outside the debt management
system;
* non-payment of debt service by parastatals; and
* limited scope for 'managing' international reserves due in part to their extreme
scarcity and the need to provide foreign exchange liquidity for day-to-day
transactions.
2.33 Another weakness lies in the potential fiscal burden arising from the recently established
Exchange Risk Assumption Fund, under the Financial Secretary in the Treasury. The purpose
of the Fund is to cover foreign exchange losses associated with external loans directly acquired
by or on-lent by the Government to three Development Finance Institutions (DFIs), namely, the
Development Finance Company of Kenya (DFCK), the Industrial and Commercial Development
Corporation (ICDC), and the Industrial Development Bank (IDB). The Fund became operational
in February 1991. It requires that these DFIs each deposit two-and one-half percent per year of
the external amounts owed in K Sh (in addition to the contractual debt service payments in K Sh)
into the Fund. From these deposits, the Fund would then meet the K Sh equivalent of the debt
service payments falling due. The amount owed on the basis of which the K Sh contribution of
- 34 -
each DFI is calculated by converting the external loans of the DFIs as of July 1, 1989 into K Sh
equivalent amounts using the exchange rate that prevailed on that d y. For loans contracted
thereafter, conversion into K Sh is computed at the prevailing exchange rate on the day the loan
is disbursed. A contract of this K Sh amount owed is drawn up to stipulate the amount to be paid
each year into this Fund. The extra two and one half percent of the amount owed which is paid
into the Fund (over and above the approximate debt service obligations in K Sh calculated on the
basis of the exchange rate prevailing at the time of loan disbursement) is meant to cover the
foreign exchange risk of the debt service falling due.
2.34 As it stands, the Fund effectively caps the exchange rate losses which DFls can incur
directly through foreign exchange risks. Derivatively, if the foreign exchange loss is greater than
two-and-one half percent, the Government would assume its liability. The illustration in Table
2.5 makes these points. It shows a US dollar denominated debt of $100 million at end 1989,
with fixed annual amortization payments of $20 million and interest of $10 million. At the
average 1989 exchange rate, the debt stock would be equivalent to K Sh 2.1 billion. The amount
contributed to the Fund would therefore be the debt service plus K Sh 51.7 million in 1989, K
Sh 41.4 million in 1990, and so on. If it is assumed that the exchange rate (K Sh per US$)
depreciates as shown, the Government via the Fund would be required to provide cumulatively
K Sh 570 compared with a contribution by the DFIs of K Sh 144.9. If there is no scope for
increasing the DFIs' contribution to the Fund, the Government should make explicit the implied
subsidy to these institutions, given their developmental role and the overall thrust of recent
reforms in the financial sector.
2.35 The ability of the Government and the economy to bear this financial burden and the
overall foreign exchange requirements of servicing external debt is strongly linked to the speed
and effectiveness with whic'i the destabilizing pressures on the fiscal deficit are brought under
control. Here there is a short-term issue of stabilization as well as the longer-term challenge of
raising export growth.
2.36 In the short-term, Kenya faces some difficult but necessary policy choices and these will
either help or hinder the immediate and medium- to long-term course of the economy. In
discussing the consequences of renewed destabilizing pressures, this chapter has emphasized that
inflation is eroding the real incentives which are needed to sustain and accelerate growth. It is
also compromising the balance of payments. The main remedy, and one to which the highest
priority should be given, is expenditure reduction. This will test the Treasury's ability to impose
discipline on key line ministries and to correct the structural deficiencies which are driving
expenditures. A major deficiency discussed in Chapter 3 is the size of the civil service and the
associated wage bill. Chapter 4 also links poor parastatal performance to the fiscal problem but
its main purpose is to demonstrate that economic growth would be enhanced if comprehensive
parastatal reform were also undertaken. Chapter 5 then illustrates why, ultimately, no other
policy choices will serve the Kenyan economy better.
- 35 -
Table 2.5
llustration of Government Exposure to 'oreign
Exchange Risk Under the Exchange
Risk Assumption Fund
1989 1990 1991 1992
End year debt
stock (US$ million) 100.0 80.0 60.0 40.0
Dcbt service due (US$ million) 30.0 30 0 30.0 30.0
Amortization 20.0 20.0 20.0 20.0
Interest 10.0 10.0 10.0 10.0
End year debt stock for calculating
contribution to the Risk
Assumption Fund (KSh million) a/ 2,070.0 1,656.0 1,242.0 828.0
Cumulative contribution to Risk Assumption 51.7 93.1 124.2 144.9
Fund (KSh million) b/
Debt service due (KSh million) 621.0 693.0 804.0 936.0
Amortization 414.0 462.0 536.0 624.0
Interest 207.0 231.0 268.0 312.0
Debt service paid as per provisions of the
Assumption Fund (KSh million) c/ 621.0 621.0 621.0 621.0
Ainortization 414.0 414.0 414.0 414.0
Interest 201.0 207.0 207.0 207.0
Cumulative difference between debt service
due and debt service paid as per
provisions of the Assumption
Fund (KSh million) 0.0 72.0 255.0 570.0
Cumulative risk assumed by
the Government (KSh million) 0.0 0.0 130.8 425.1
Memo items:
Exchange rate (KShlUS$) 20.7 23.1 26.8 31.2
Source. Staff estinates
a/ End-year US$ stock converted at the 1989 exchange rate. Exchange rate (KSh/US$) in
1991-92 are illustrative.
b/ Equivalent lo 2.5 percent of debt outstanding, where the debt is calculated at the 1989
exch.., *
el Debt service payments converted at the 1989 exchange rate.
Chapter 3
Re-investing in Stabilization and Growth Through
Central Government Adjustment
"The important thing for government is not to do things /huch individuals are doing
already, and to do them a little better or worse, but to do those things which ... are not
done at all. " (Keynes, 1926)
Introduction
3.1 Two sets of concerns converge in this Chapter. The first arises from the central message
emerging from Chapters I and 2: although the economy has grown by around 5 percent per year
since 1985, the incentives necessary for sustaining this performance are being eroded by destabilizing
pressures which originate primarily in fiscal imbalances. The second and related concern is t}e need
to better understand the factors which limit the effectiveness of recent attempts to correct systemic
problems of government expenditure.
3.2 With this in view, Section A reviews the implementation and evaluates the accomplishments
of two recent efforts, the Budget Rationalization Program (BRP) and the Public Investment Program
(PIP). It concludes that each has achieved a measure of success in refining the process of expenditure
allocation but neither has, or indeed can, alleviate the underlying forces which limit the scope for
using expenditure more efficiently. To identify and understand the origin of these forces, Section B
looks at the organization and functions of the Central Government while Section C focusses on its
employment, pay and productivity. Both sections conclude that there are pressing issues of efficiency
and effectiveness which require urgent policy reform. At the end of the chapter, Section D makes
the case for broader reforms which reduce the complexity of goverrnment, eliminate duplication and
disc-onti'lue functions which can be better left to the private sector. The forceful case for
compreh-nsive. pay and employment reform is also noted. Without it, budgetary resources will not
be availaul'e to increase allocations to non-wage operationi and maintenance (O&M) or to provide
compensation packages which can attract and retain staff in higher job groups.
A. Some Attempts at Limited Central Government Reform
The Budget Rationalization Program
3.3 The Government introduced the BRP in 1985 with the prirnary aim of increasing the
productivity of Government expenditures. This was to be achieved, in part, by ensuring the provision
of adequate resources for O&M, and by concentrating financial and managerial resources on a smaller
number of high-priority projects. The need for the BRP stemmed from the Government's recognition
of the principal iimitation of the budgetary process, namely, the absence of a clear prioritization of
expenditures. One consequence was that ministries frequently violated expenditure ceilings set by
the Treasury. Another was a blurring of t'ie distinction between recurrent and development estimates,
with Ministries attempting to finance m-iderfunded items in the former through the latter. 7
7/ For a more detailed discussion of the rationale for the BRP, see World Bank (1989a).
- 38 -
3.4 The Forward Budget has been the principal instrument for implementation ot the BRkP. It was
introduced as a link between the Development Plan and the Annual Budget, which would achieve an
appropriate balance between current and capital expenditures. But initial attempts to implement the
BRP did not really begin until the Treasury Forward Budget Circular of July 1985 was issued. That
circular required: (i) the preparation of policy statements on expenditure priorities by line ministries;
and (ii) the identification of high priority projects as well as lower priority projects which could be
deferred, redesigned or even canceled in favor of more important expenditures.
3.5 To date the BRP has achieved some success in process issues but this has not translated into
a more efficient allocation and utilization of expenditure. Specifically, ministries are now issued a
Forward Budget Circular calling for submissions well in advance of the Forward Budget period. The
circulars are comprehensive and provide each ministry with overall ceilings, as well as ceilings on
wages and salaries. An element of discipline and planning has been introduced in that the circulars
emphasize that "projects and programs not included in the first year of the forward budget will not
be considered for inclusion in the draft estimates [for the next fiscal year]." The whole process now
unfolds within parameters set by the broader macroeconomic framework, including targets for the
budget deficit, domestic and external borrowing, and Central Government expenditures. With these
targets in mind, ministries now attempt to prioritize their budget submissions to the Treasury. In
turn, the Treasury has improved its monitoring of Central Government expenditures.
3.6 These improvements in the budgetary process have not achieved a reallocation of expenditures
to non-wage O&M, or a concentration of limited resources on high priority projects. On the
contrary, the ratio of O&M expenditures to personnel expenditures continued to decline even after
the BRP was introduced. For instance, between FY81 and FY86, non-wage O&M declined as a
percentage of total recurrent expenditures from 36 percent to 26 percent. However, since FY86, when
the BRP was introduced, it declined even further to 22 percent. The decline was even more
pronounced in some sectors. One example is the expenditure on transport in the Ministry of
Agriculture (Peterson, 1991). It fell as a percentage of emoluments from 18 percent in FY81 to 14
percent in FY86 and 12 percent in FY90. Over the same period, maintenance declined from 22
percent to 14 percent and 9 percent. Bank experience across regions indicates that wherever O&M
allocations have become seriously deficient, the productivity of the public sector has deteriorated
(World Bank, 1991g, p. 9). Furthermore, when this particular case is judged by independent
estimates of the O&M requirements of these ministries, the revised budgetary allocations for FY91
provided only 12 percent of the Ministry of Agriculture's requirements for effective transport, and
a mere 13 percent and 18 percent respectively of the requirements for travelling and maintenance.
In the Ministry of Livestock Development, only 8 percent of transport's requirements was met, and
9 percent and 7 percent respectively for travelling and maintenance. These shortfalls amounted to
K�52 million and K�91 million for the Ministries of Agriculture and Livestock respectively in FY91,
and were equivalent to 82 percent and 167 percent of their development and recurrent budgets for
FY91.
3.7 Three related factors explain the failure of BRP to achieve its targets. First. persoinel
emoluments were a significant and seemingly intractable amount of recurrent expenditure while the
share of interest payments doubled. Second, because the burden of expenditure cuts fell primarily
on nonwage recurrent expenditure, ministries depended on the development budget to finance O&M.
Subsequently, releases from the development vote became more erratic. Ministries have reacted to
this by turning more and more to the donor-financed portion of the development budget for the
funding of their non-wage O&M. Consequently, they have been reluctant to reduce the number of
projects in their portfolios as this would limit the number of candidates for aid funds. But since these
- 39 -
too became erratic, many Government funded projects in the development budget became a pool of
discretiona-y resources from which resources were reallocated during the course of the year to meet
more urgent needs. Third, the political imperatives of the District Focus strategy coupled with the
requirement that district projects should be shown as a separate sub-head in the budget, led to the
application of geo-political criteria in the selection of Government financed projects. In turn, this
resulted in a proliferation of many small and seriously underfunded projects. In essence, the
uncertainties caused by delavs and unexpected cuts in budgetary resources along with political
imperatives have created an incentive structure which operates contrary to the objectives of financial
managemenc embodied in the BRP.
3.8 The challenge for the Government is to reintroduce elements of financial planning and
discipline into the budgetary process. This will require adherence to expenditure ceilings on the part
of even the most p(olitically powerful ministries and better monitoring of state owned enterprises to
avoid unplanned assumption by the Central Government of parastatal debt obligations. Line
ministries which submit carefully prioritized budget requests should be afforded greater flexibility
within their approved expenditure ceilings. Simultaneously, norms should be developed within
ministries tor O&M expenditures required for increased capacity utilization. This has been attempted
in the Ministries of Agriculture and l ivestock Development, and is planned for Education and Health.
3.9 However, refinements of the BRP alone will not result in any increases in the productivity
of Government expenditures. Broader reforms are required to significantly reduce the wage bill from
which funds could then be reallocated to the non-wage O&M expenditures and the development
budget. But the BRP is also not geared to achieve the higher level of strategic forward investment
planning which should precede and feed the Forward and Annual Budgets. The PIP is meant to fill
this gap.
The Public Investment Program
3.10 At present, the PIP in Kenya consists of three main elements: (a) policy statements and lists
of priority activities prepared by ministries and 10 state corporations; (b) an enumeration of projects
together with information on their total estimated costs, cumulative expenditures, and the balance
required for completion: and (c) expenditure phasing for each project.
3.11 In Government's view, the PIP differs substantially from the Forward Budget because it:
explicitly requires the application of standard criteria to the selection of public
investments;
includes project data which form the basis for a more rational allocation of available
funds for completing ongoing projects;
covers investments of (a limited number of) state corporations, thereby providing
early warnirng of their budgetary impact;
e provides data on project financing, including domestic and external borrowing;
estimates the recurrent cost implications arising from public investments; and
- 40 -
improves project selection, preparation and programming, and re-establishes the
discipline of the project cycle.
3.12 For Kenya, the PIP represents an important step toward effective investment programming,
with some potential for improving expenditure planning. 8 The work done so far constitutes the
first attempt to compile very basic project data (including total cost estimates and cumulative
expenditure) for so many projects in the public sector and will facilitate better estimates of the
expenditures required for project completion. At present, however, there is no evidence that the
desigr.ation of projects as high priority is based on any economic analysis or sectoral strategy
Instead, items and data from the Forward Budget have been reproduced as the PIP, with
supplementary information and narrative. The absence of recurrent cost estimates for projects is
another major deficiency.
3.13 This outcome is not surprising, given that the PIP was driven by the Forward Budget. The
latter was coordinated by the Ministry of Finance which required that each ministry submit short
project briefs as part of the Program Review and Forward Budget (PRFB). There was little if any
input from the Ministry of Planning and National Development which found itself dependent on these
briefs for information on the PIP. However, if investment programming in Kenya is to be improved
and sustained, there are some institutional issues concerning the role of the Ministry of Planning and
National Development (MPND) which will have to be addressed urgently.
3.14 The Government will need to strengthen its planning systems. During the 1960s and 1970s,
Kenya had a reasonably well functioning planning system, based on a clearly defined project cycle
and regularly produced 5 year plans. The latter consisted of a review of the previous plan, and a
macroeconomic discussion with GDP and balance of payments projections for the next 5 years. This
was followed by sectoral chapters describing Government policies and an outline of the projects and
programs which the Government intended to pursue in each sector. Sectors broadly coincided with
ministerial portfolios, a format that lent itself well to setting out the programs and policies of each
ministry.
3.15 During the 1980s, the planning mechanisms changed. Plans became shorter, dropped much
of the details about projects, and focussed instead on cross-sectoral issues such as regional
development and poverty. This coincided with the separation of the Ministry of Planning from
Finance, with Planning becoming more and more remote from the annual budgetary process. MPND
is responsible for staffing the planning cells in the line ministries and is in charge of the Economists
Scheme of Service (currently consisting of 350 to 400 Economists). Hence, it is well placed to
coordinate the policy analysis and project screening essential to investment programming. However,
its role will have to be clarified and its leadership re-invigorated.
3.16 To be useful as a planning tool, the PIP should be located in and used by the planning units
of the line ministries. 'This suggests a decentralized approach but with coordination from the center
by MPND and the Ministry of Finance. MPND would be in charge of the project cycle and have
primary responsibility for approving Project Briefs and Project Memoranda (though the Treasury
would retain a voice and a veto power). MPND would also have responsibility for resuscitating the
Sector Planning Groups which would periodical!y review ministerial programs for consistency with
_/ This is not the first publication of a PIP by the Government. PiPs were produced in the early 1980s hut the
emphasis was on resource mobilization and the presentation of new projects for donor financing. The current
PIP is the first attempt to 'program' investments in Kenya.
- 41 -
sector strategies, and approve new projects. The Ministry of Finance, as aid coordinator, would
prepare the annual summary of the PIP as part of the PRFB and also when Consultative Group (CG)
meetings of donors are imminent. It would also continue to chair the Estimate Working Groups
engaged in the PRFB.
3.17 Developing the PIP in the manner suggested above should entail only modest staff
reallocation. Ministerial planning divisions would not require extra staff, since the PIP would
effectively simplify the programming of departmental projects. MPND would need strengthening,
but this is likely to be less a question of additional staff and more one of staff training and
redeployment within the Ministry. In the Treasury the workload is likely to be heavier, particularly
during the PRFB and prior to CGs. Accordingly, a small PIP coordination unit in the Budget
Department consisting of 2 or 3 people might be needed. Alternatively, the task could be absorbed
into the general PRFB workprogram of the Department (though this seems less likely, given the
apparent budget workload). Additionally, staff would require training in project evaluation, and in
the preparation, implementation and monitoring of the PIP.
3.18 To assist the planning units within ministries in preparing the PIP, a manual on PIP
management should be prepared. It should be explicit about the information requiLements, including
priority rankings, estimates of recurrent and capital costs, and expenditures in relation to budgetary
ceilings set by the Treasury. In due course, guidelines defining the project cycle documentation will
need to be updated or replaced. These should distinguish between project briefs and more detailed
project memoranda. The former should be a pre-requisite for inclusion in the PIP, and their
clearance should involve the MPND and Treasury. In this phase, MPND's role should be to assess
whether the pioposed project fits into the sector strategy. The Treasury's role should be to review
the financial aspects (perhaps on a no objections basis, subject always to compliance with annual
budget and forward budget ceilings).
3.19 At present, the Government plans to prepare the PIP alongside the Forward Budget. The
former would be delegated to the ministerial planning divisions but would be an input into the PRFB
process. In the longer term, consideration should be given to replacing the Development Budget
component of the Forward Budget with the PIP. The fact remains however, that even if the BRP and
PIP achieve all of their objectives for public investment efficiency, they would not deal with the
problems which beset expenditures as a whole (Box 3.1). Those problems are rooted in the
organizational complexity and payroll of the civil service to which the next sections turn.
B. Organization and Functions of Central Government
3.20 The Central Government consisted of 19 ministries and 10 independent non-ministerial
departments in FY71. By FY81, they had multiplied to 23 and 10, and now stand at 28 and 9
respectively. Equally significant was the increase in the number of functional departments and
divisions from 132 and 442 respectively in FY81 to 148 and 550 respectively in FY92. The majority
of these miic.tries and departments are responsible for the governmental functions common to modern
states: (i) sovereignty, and law and order (ministries/departments responsible for foreign affairs,
defense, home affairs, and judicial administration); (ii) economic including infrastructure (ministries
responsible for finance, agriculture, public works, transport, energy, industry and commerce); and
(iii) social development (ministries/departments responsible for education, health and manpower
development). The proliferation of ministries is striking even if allowance is made for the expansion
and functional specialization of Government during the past two decades.
- 42 -
Box 3.1
Collective Experiences of What Reform of Public
Investment Programring Can Achieve"
(and What it Canniot)
Frequently, the setting of reform is one in which the PIP exceeds the available domestic and external finances,
and insufficiently analyses its macroeconomic linkages and implications. Resources are spread thinly over
too many projects and, as a result, they are implemented poorly and perform below potential. Reformn usually
seeks to impose the discipline of the project cycle, and to concentrate scarce recurrent and capital resources
on a smaller number of viable, high priority projects which are chosen on the basis of more selective
screening criteria. As part of the reform efforts in many countries, a sub-group of "core' key projects is
identified. The objective is to accord this "core" the highest priority for prompt donor funding and protection
from any subsequent general cutback in government expenditure.
Generally, reform has succeeded in reducing the number of projects in the PIP but further reductions are
desirable. However, governments are usually reluctant to do so because of the lure of potential aid funding,
some of which covers O&M expenditures. The antidote is greater discipline on the part of the donor
community and better aid management by recipient countries.
Selection critcria usually succeed in eliminating the worst of the lower priority and bad projects. Greater
success would renuire application of the criteria earlier in the project cycle and increasing the number of staff
skilled in project preparation and analysis. But even when such analysis is undertaken, there are still
methodological problems in comparing rates of retum across sectors. The pragmatic solution is to strengthen
capacity to prepare sector strategies, build consensus around such strategies, estimate sectoral resource
envelopes and improve the overaU quality of policy analysis.
In some countries, 'core" programs have helped govemments to focus domestic counterpart resources on
priority projects. In other countries, projects in the PIP have attracted more of the scarce resources. The
first best solution, therefore, remains an appropriately sized and prioritized PIP which represents the "core"
of critical investments.
Capacity constraints sometimes prevent governments from updating and rolling-over PIPs except when CG
rmectings are imminent but lack of enthusiasm for greater transparency in public spending can also be an
obstacle.
As with O&M expenditure, experience has shown that it is necessary to go beyond PIPs and look at the
composition of expenditures as a whole including major components such as the wage bill, debt, transfers and
subsidies, military expenditure and development projects. Otherwise, the impact of better public investment
programming on the efficiency and effectiveness of overaU expenditure management wiUl be modest.
"8 World Bank (1991h).
- 43 -
3.21 One consequence of this is that effective coordination has become difficult and jurisdictional
disputes between ministries occur from time to tinie. In addition, the Government has become
fragmented and multi-layered. As ar. example, an investor wvith an agricultural project in an arid area
of the country may have five ministries to deal with: the Ministry of Agriculture, the Ministry of
Reclamation and Development of Arid, Semi-Arid and Waste Land, the Ministry of Regional
Development, the Ministry of Livestock Devel(opment, and the MPND Similarlv, a research project
in the agricultural sector may require contacts uith the M inistries of Agriculture, Reclamation and
Development of Arid. Semi-Arid and Waste Lands, Livesto.k, Water Development, Cooperatives,
and Supplies and Marketing. And if either project touches ernvironment-related matters, visits may
also be required to the Ministries of Environmnent and Natural Resources, the permanent Presidential
Commission on Soil Conservation and Afforestation. and any number of the 42 districts, each of
which has a District Officer responsible for the environment. But these District Officers are usually
not trained to deal with environmental matters.
3.22 Another example of the complexity of Government is the 6 ministries and departments
responsible for various (or the same) aspects of manpower development and employment: DPM,
PSC, the Ministry of Labour., the Ministry of Manpower Development and Employment. MPND, and
the Ministry of Technical Training and Applied Technology (MTTAT). Prior to the creation of the
last 2 ministries in 1988, employment issues were handled by the Ministry of Labour and the
Department of Industrial Training. The latter is now in MITTAT. What is worse is that although
manpower planning and the coordination of manpower development programs have been stressed in
successive Five-year Development Plans and in some reports of ad hoc committees and commissions,
there is no evidence that these overlapping structures have assured better performance of these tasks
(Republic of Kenya, 1988b).
3.23 Complexity also derives from the existence of numerous British-style advisory committees
and boards. While in Britain these bodies are small and have part-time members, in Kenya they have
metamorphosed into permanent structures with full-time members and secretariats. Their staffs are
also paid regular salaries from the state budget. Examples include the Presidential Commission on
Soil Conservation which coexists with the numerous structures dealing with the environmnt, and the
Presidential Commission on Music which coexists with the Ministry of Culture.
3.24 Outside of headquarters, the work of the Central Government is organized within 8 provinces
and 42 districts. 2' Under the district focus strategy adopted in 1983, central departments and
ministries should be effectively represented at the district level. Although this deconcentration has
merits, it has caused duplication. A recent report found, for instance, that it was common to find
a situation whereby the same farmer is visited on different days by several extension officers from
various ministries who may give either conflicting advice or the same advice with different emphasis.
There is also evidence that the district has become. in many cases, a new focus of centralized
management, especially in respect of the relationship between the Central Government, local
authorities and non-governmental organizations (Oyugi. 1988).
3.25 Another complication of the district tocus is that some of the pre-1983 arrangements for
providing Governmental services at the provincial level are still in place. Over and above these, the
Central Government has, over the vears, established about half-a-dozen Regional Development
Author;ties (some of them specifically for river or lake basins and valleys) whose functions duplicate
2/ A new district was created in Julh 1991 and two more are reported tO be in the ptpeline.
-44 -
those of some ministries and districts. These quasi-parastatals add to the problem of coordinating
Governrment work in the field and increase the cost of running the Government machinery lThere
is no evidence that the expansion of government has increased access to and the quaits oft
Government services nationally. What is clear, however, are indications that staff nuLnbers aviti thle
wage bill have increased significantly.
C. Employment, Pay and Productivity
3.26 This section (a) reviews the general growth in civil service employment and its underlying
causes; (b) assesses the overall staff composition and its impact on the quality of the service, (c)
comments on the structure of civil service wages and the size of the wage bill; (d) discusses the
augmentation of civil service pay through allowances and subsidies; and (e) ascertains the scope for
simultaneously reducing the wage bill and attracting, retaining and motivating qualified statt.
3.27 Growth in Numbers. Excluding teachers, there were 270,005 L' persons in the Kenyan
civil service at end-1990 (Figure 3.1). These amounts refer to individuals who are paid directly lrorn
the budget of the Central Government but exclude the employees of parastatals and local authorities
whose wage bill may be indirectly reflected in the budget. Because of the unreliability of the data,
persons filling temporary positions are not included.
3.28 Employment in the mainstream civil service has grown by 6.5 percent per annum since FY67
(earliest year for which reliable data is available), faster than GDP and population. lThe fastest
growth was registered during the 1970s when the rate averaged 10 percent per year. Growth slowed
in the 1980s to an average of 4.8 percent per year, but from a base that was much larger than a
decade earlier. Steep increases above 10 percent occurred in some years but growth in most other
years was comparatively moderate (Figure 3.1).
3.29 Teachers are employed by the Teachers Service Commission (TSC) which was established
in 1970 to unify the system for teachers and trainers. In 1990, they numbered 203,031 (Figure 3.2).
TSC's responsibilities include the registration of all teachers, and the recruitment, deployment,
remuneration and discipline of teachers who come under the Ministry of Education and MITTAT.
At present, it employs teachers for primary and secondary schools, teachers colleges, institutes of
technology, technical training institutes and national polytechnics. During 1968-90, the number of
teachers increased by 7.5 percent per annum. However, the pattern of growth. was uneven. In 1974
there was a 38.5 percent increase in primary school teachers and this raised the overall growth rate
of teachers to 34.4 percent that year. The increase was explained by the surge in student enrollments
by about 50 percent (890,000) following the abolition of school fees for Standards I to 4 (World
Bank, 1991b, pp. 77-80). Over the next two years the growth of secondary school teachers jumped
to around 23 percent per annum. With the adoption of the 844 system in 1985, the number of
primary and secondary school teachers increased by 12.7 percent and 12.1 percent respectively
(Figure 3.2).
3.30 Causes of Growth in Numbers. Three inter-related and pervasive factors mainly explain
the accelerated growth of emplovment in the Central Gxovernment (including teachers). First, rapid
10/ There is a mninor discrepanc) between this number and the one from the Central Bureau of Statistic (269,700
which is reported in Statistical Annex 11, Table 5.8.
45
Civil Sen.iants In Post (Exduding Teachers)
IW/68169019
300 l6rss
280
260
s ~LdW
240
No. of SW
100
140
120
40--
1988 1978 1988
1eO ~ ~ YO
Growith In Numbers of CM] Seivants (Excluding Teacher)
1967/6840191
20%
18%-
18%
le% - ~ ~ ~ ~ -rw0~
12%
10%
8% -
8%
2%.-
0%
1988 1978 1988
] Grow~~~~le We NubrloivlwVns Eddn Tices
YewN
Figure 3.1
46
Teachers in Post
:68W-90
240
220
200 Legend
180 Teachers
160
140
120
100
80
60
40 -
20
1968 1978 1988
Years
Growth In Numbers of Teachers
45% 1968-90
40%
40%
| 30~9% _- Qow6R
25%
� 20%
15%
10%
8%
1969 1978 1988
Yom
Figure 3.2
- 47 -
population growth generated strong pressures to create jobs. It also increased the demand for services
provided by the Government. One of the most striking examples of this is education which came to
bc recognized as the most reliable avenue for social and economic mobility in the modern sector of
the economy. Consistent with this view, the Government sought to provide universal and free access
to primary education (in practice there has been de facto cost sharing), increase its financial support
ftr secondary schools, expand technical and vocational training beyond the manpower needs of public
administration, and upgrade and increase the number of universities. As a result, the number of
primary school students increased from about 890,000 in 1963 to over 5 million in 1991 while the
gross enrollment rose from 50 percent to over 90 percent. At the secondary school level, numbers
rose from around 30,000 to over 600,000. Meanwhile, university enrollment went from 600 to
40,000 (an additional 10,000 are at universities abroad). All this has meant significant increases in
th umber of teachers (especially at the primary and secondary levels) as well as other staff in the
pu .it; education sector. Many more teachers are also being trained at the graduate level, whereupon
they are hired at higher wages. Not surprisingly, the share of personnel costs in the voted budget
of the Ministry of Education reached 81.3 percent in FY92. At the same time, the overall share of
the Ministry of Education in recurrent government expenditure was 40.7 percent (Republic uf Kenya,
1991b, pp 16-18).
3.31 Second. because of the curricular orientation of the education system and the success in
increasing access to education, many graduates from secondary and tertiary-level institutions were
suited for and expected employment in the public sector. In fact, during the 1960s and most of the
1970s, this was encouraged by the Government in its efforts to Kenyanize public administration.
With the introduction of the 8-4-4 educational system in 1985, there was a major shift in the
philosophy and structure of education from a purely academic emphasis toward a more practical
orientation. But the new system demanded accelerated increases in the number of teachers at the
primary and secondary levels. Parenthetically, it also led to a double intake into public universities
of 21,488 in 1990 compared with 7,036 in 1989, with the associated pressures to increase staff. In
any case, it will be several years before the new 8-4-4 system makes a significant impact, for
instance, on the skills composition of university graduates. Indeed, the Government estimated that
of students graduating from public universities between 1987 and 1992, 65.4 percent will have
pursued general degrees which have traditionally prepared them mostly for public sector employment
(The Weekly Review, Feb. 22, 1991, p. 9).
3.32 Third. employment creation in the private sector did not keep pace with population growth
or with the rising expectations of white-collar employment. For example, modern private sector
employment grew annually by 2.6 percent during 1981-86, comparecd with 4.3 percent in the public
sector (including local government) and a population growth rate of about 4 percent. Accordingly,
the public sector was officially the employer of last resort until the publication of Sessional Paper No.
I of 1986. At that time, the public sector employed some 75 percent of new university graduates.
Although data for the period since 1986 is incomplete, there is some evidence that the Government
has continued to employ many university graduates, including those--such as veterinarians--who
experience difficulty in securing employment elsewhere.
3.33 Tripartite agreements were one of the mechanisms which brought together the Government,
Trades Unions and the private sector to alleviate unemployment in the short-run (Bigsten, 1984). The
first agreement was finalized in 1964 and called for the creation of 40,000 jobs quickly. Consistent
with this, the public and private sectors were to increase their employment by 15 percent and 10
percent respectively. In turn, workers accepted a twelve month wage freeze and gave up the right
to strike during that period. The Second Tripartite Agreement ('The Unemployment Scheme') was
- 48 -
reached in 1970. It stipulated that employers, inc'uding the Government, should increase the number
of permanent jobs, as at May 31, 1970, by 10 percent over the next 4 months. Once again workers
accepted a twelve-month wage freeze and agreed to avoid strikes or lock-outs during the ensuing
twelve-month period. The growth in civil servants jurnped by 16 percent in FY71, compared with
7 percent one year earlier and 2 percent one year later (Figure 3.1). Under the Third Tripartite
Agreement of 1979-81, the public and private sectors were told to increase their employment by 10
percent but workers were not required to agree to a wage freeze. As a result, civil servant numbers
(including teachers) grew on average by 12 percent per annum during FY80-81. However, there is
no evidence that the private sector complied with any of these Agreements.
3.34 Special occurrences also contributed to the growth in civil service employment. In FY76 the
Government absorbed Kenyan employees of the East African Income Tax Department, an agency of
the East African Community. During the same period, the Government also absorbed into the service
a large number of clerks, drivers and subordinate staff who had been employed during the Annual
Meetings of the IMF and the World Bank in Nairobi. Later, the Government absorbed employees
from other agencies of the defunct East African Community together with a large number of
enumeration clerks who were employed during the 1979 census. In FY84 a large number of "works
paid" employees hired under development projects were absorbed into the service. In the Ministries
of Environment and Natural Resources and Works, Housing and Physical Planning alone, 11,482
such employees took up staff positions during this period. In most cases, however, such employment
is not well documented.
3.35 Composition of Civil Service Employment by Job Groups. Because of changes in the
definitions of job groups, meaningful comparisons with the present grade structure can only be made
from 1979. Calculations based on Table 3.1 show that in that year, job groups A-G accounted for
88.8 percent of the establishment and 89.8 percent of the positions filled. In 1990, the numbers were
86 percent and 87.7 percent respectively. This distribution of establishment and staff raises three
related questions: Is the entire Central Government overstaffed, given the services it provides? Is
there overstaffing at lower levels relative to higher level positions, given the services to be delivered?
Is there overstaffing--either throughout the service or at particular grades--given available financial
resources?
3.36 There is a paucity of research and comparative analysis on appropriate levels of staffing and
suitable ratios of lower level staff to higher level personnel in civil services in developing countries.
Of course, comparisons across sectors and countries would need to take account of differences such
as those arising from the nature and coverage of government services, demographic and spatial
factors, and technology. Nonetheless, answers about Kenya may be found in scattered evidence and
in the circumstances under whiclh recruitment took place.
3.37 Primary education is one subsector in which research has been done on appropriate overall
teacher staffing levels. That research suggests that class sizes up to around 45 students are possible
without sacrificing the level of academic achievement. That's because the most significant influence
on such achievement is the availability of textbooks, teaching material for students and teacher
quality. At present, the average teacher-student ratio in Kenya stands at 33. In 1986, it was 34 for
- 49 -
Table 3.1
Central Government Establ6shment
and Employment by Job Group
(Excluding Teachers)
1979, 1990
1979 1990
Job Group Establishment In-Post Establishment in-post
A 40,365 45,970 78,150 51,733
B 28,084 23,122 7,003 11,259
C 18,703 23,429 16,517 23,170
D 35,657 29,219 43,749 34,526
E 7,484 6,174 16,949 17,469
F 5,804 5,925 74,933 76,204
G 13,228 8,965 32,490 22,457
H 6,845 4,862 12,686 11.954
J 5,291 3,554 8.677 6,118
K 2.060 1,450 8,714 5,698
L 972 685 3,823 3,099
M 392 295 2,072 1,344
N 142 106 927 619
o 28 46
P 98 97 371 284
Q 3 7 149 143
R 83 83
S .. 15 15
T .. 3 4
Others 2,959 5,071 6,370
Totals 168,115 158,977 313,681 270,005
Source DPM
Kenya compared with 63 for NMalawi, 48 for Ethiopia and 40 for Suh-Saharan Africa as a whole,
Primarv education, therefore, is one concrete example of overall overstaffing in government. IL
H' The goverinment recently iittiated structural reforms in the educational sector which include containing the size
of primars school teaching force, and therch raising the teachcr-student ratio over time (World Bank. 1991d,
p 20,.
- 50 -
3.38 Within the mainstream civil service, employment under the Tripartite Agreements and other
special circumstaruces swelled the lower ranks of the service. Employees of the East African
Community were one exception. In part, large recruitment at the lower levels reflected the abundant
supply of young and relatively unskilled workers. From the perspective of ministries, these job
groups were easier to fill because: (a) they were covered by the Tripartite Agreements, (b) required
no specialized skills; and (c) were hired by ministries (not by the PSC as are most other employees).
Thus, by 1990, about 34 percent of total employees were 30 years of age or younger. and 92.9
percent of them were junior staff, below job group H (Ta..le 3.2). '`' Additionally, aggregate data
in Table 3.3 indicate that under 5 votes--the Ministry of Home Affairs and National Heritage, the
Police Department, the Ministry of Reclamation and Development of Arid, Semi-Arid and Wasteland,
the Judicial Department and the National Assembly--posts filled exceeded the establishment total.
A large number of the excess occurred at grades A-G.
Table 3.2
Age Distribution of Civil Servants (Excluding Teachers)
bv Job Groups, 1990
(In Percentages)
Age Range in Years
Job Group Above 55 51-55 46-50 41-45 36-40 31-35 26-30 18-25 Total
A 0 1 1.2 1.8 3.5 4.6 5.2 3.3 0.9 2C.5
B 0.0 0.6 0 8 1.1 1.0 0.4 0.1 0.0 3.9
C 0.0 0.5 0. 1.1 1.5 2 3 2.0 0.7 8.7
D 0 0 0.5 0.7 1.5 1.9 3.0 3.4 2.5 13.5
E 0.0 0.5 0.6 1.2 1.2 1.8 0.8 0.1 6.2
F 0.0 0.5 0.8 1.6 3.1 6.3 10.2 5.3 27.9
G 0.0 0.3 0.5 1.2 1.8 2.0 2.1 0.4 8.3
Sub-Total 0.2 4.2 5.7 11 1 15.1 21.0 21.8 9,8 89.0
H & Above 0.0 0.7 1.2 2.1 2 2 2.5 2.1 0.2 11.0
Total 0.2 4.9 7.0 13 2 17.3 23 5 23.9 10.1 100.0
Source: DPM
12/ Civil service employees in Keniva are categorized as follows
Analogous/Tcchinicdl Cadres Job Groups A G
Middle Managetnent Cadre Job Groups H-L
Senior Managenwnt Cadre Job Groups h1-Q
Top Managcment Cadre Job Groups R T
Political Appointees Job Groups U-Z
- 51 -
Table 3.3
Central Government Establishment and Employment by Vote, 1971, 1990
1971 1990
Establishment In-Post In-Poet I Establishment In -Post In-Post/
E&tabLishmrnt Establishment
(%) l%)__ __ __ _
Oftice ot the Preaident 18,797 18,213 96.9 47,789 423 90.5
Directorate of Persoanel Management 52 53 101.9 2.30 166 72.2
Ministry of Foreign Affairs and 257 240 93 4 817 728 89.1
International Cooperation
Ministry of Home Affairs and National 7,639 7,442 97.4 13,567 13,635 100.5
Heritage a/
Ministrv of Planning and National 988 484 49.0 10,761 9,025 83.9
Development and Office of the Vice
President and Minist"y of Finance
PoLice Department 16,361 14,934 91.3 33,341 33,357 100 1
Miristry of Reclamation and Development . . . 233 244 104.7
of Arid, Semi-Arid and Wasteland
Ministrv of Agriculture and 14,758 13,867 94 0 32,416 28,082 86.6
Ministry of Iivestock Development
Ministry of Health 11,680 12,925 110.7 43,066 42,405 98.5
Ministry of Local Government 108 145 134.3 903 622 68.9
Ministry of Public Works b/ 3,286 3,091 94 1 32,019 26,049 81.4
Ministry of Transport and Communications 736 7346 100.0 8 615 5,498 63.8
Ministiy of Labour and Ministry of 1,048 1,058 101.0 2,039 1,624 79.6
Manpower Development and Ermployment
Ministry of Tourism and Wildlife 865 1,614 186.6 5,674 484 8 5 c/
Ministry of Culture and Social Services 639 475 74 3 7,585 6,472 85.3
Ministry of InforTnaton and Broadcasting 1,515 1,090 71 9 3,803 1,935 50.9
Ministry of Water Development 16,038 11,Q94 74.8
Ministry of Environment and Natural 2,236 2,229 99.7 22,547 18,074 80.2
Resources
Ministry of Cooperative Development 690 584 84.6 2,696 2,198 81.5
Ministry of Industry and Ministry of 369 305 82.7 2,166 1,645 75.9
Commerce
Ministry of Supplies and Marketing . . 320 215 67.2
Office of the Attomey-General 329 271 82.4 1,873 719 38.4
Judicial Department 1.458 1,431 98A1 2,387 2,413 101.1
Public Service Commission 52 53 101.9 230 166 72.2
Office of the Controller and Auditor, 230 229 99 6 1,069 556 52.0
General
National Assembly 260 325 125.0 350 436 124.6
Ministry of Energy .. .. S.. 82 570 69.3
Ministry of Education d/ . . . 4,952 4,516 91.2
Mlinistry of Technical Training and Applied .. .. 1 ,034 885 86.4
Technology
Ministry of Research, Scienct and .. . . 909 279 30.7
Technology
Ministry of lands and Housing 4,113 3,879 94.3 10,932 9,230 84.4
Ministry of Regional Development . .. 2,738 2,719 99.3
Total 313,681 270,005 86.1
Source: DPM
a/ In 1971, was office of the Vice President and Ministry of Home AffaLrs
b/ In 1971, was Ministry of Works, Housing and Plannring
cl May reflect staff seconded to the Wildlife Services Department
d/ Employment of teacbers is domo by the TSC.
- 52 -
3.39 The excess of filled positions over establishment within ministries is far greater than aggregate
numbers show. This is partly because ministries are generally careful when submitting their
budgetary proposals to ensure that the total number of tilled positions shown is not greater than the
authorized establishment. They also ensure that the personnel expenses budgeted correspond to the
authorized establishment arid the number of filled positions shown for Pach job group. In reality,
however, the number of people hired, especially at lower grades, is significantly greater than
establishment in a large number of ministries (Table 3.4). But this is not obvious in the aggregate
Table 3.4
Excess of Plositions Filled Over Establishment
Within Ministries, 1990
Posts
Grade
Level Approved Filled Excess
A 25 47 22
B 4,633 9,824 5,191
C 12,419 20,996 8,577
D 4,707 4,934 227
E 6,818 9,941 3,123
F 48,308 54,146 5,838
G 108 123 15
H 6,367 8,460 2,093
J 301 367 66
K 449 803 354
L 1,025 1,217 192
M 93 212 119
N 46 72 26
P 62 79 17
Q 44 58 14
R 3 7 4
S 0 1 1
T 1 2 1
Unclassified 119 457 338
TOTAL 85,528 111,746 26,218
Memo ltems (%)
Excess/total cmployment
(excluding teachers) 9.7
Gross wage bill of cxcess employment/
Gross wage bill of civil service
(excluding teachers) 8.7
Gross wage bill of excess employment/
GDP at market prices 0.5
Source: DPM
- 53 -
data because of the prevalence of vacancies at higher grades within many of these ministries and
because of the relatively free hand with which ministries use emoluments allocated for one grade of
workers for another, without reporting this practice.
3.40 The data in Table 3.4 was compiled on a ministry-by-ministry basis then aggregated for the
civil service as a whole. Employment in the mainstream civil service in excess of the establishment
by grade level by ministry stood at 26,218 in December 1990, equivalent to 9.7 percent of positions
filled, 8.7 percent of the gross wage bill and 0.5 percent of GDP at market prices. Most of this
overstaffing (87.7 percent) occurred in job groups A-G and reflected the freedom ministries have to
fill vacancies at these levels, the limited role of the Publi. Service Commission (PSC) in the hiring
of civil servants, the inability of the Department of Personnel Management (DPM) to limit
recruitment and the ineffectiveness of the Budget Department in adequately monitoring the
expenditures of line Ministries and Departments.
3.41 DPM has primary responsibility for personnel issues and authorizes establishment for
ministries by job group. Meanwhile. PSC is responsible for interviewing and hiring staff above job
group G and must ultimately ratify the hiring of staff at lower levels. Direct responsibility for
approving the filling of positions at these lower levels rests with principal finance and establishment
officers within each ministry. In principle, approval should be given to hire such persons only if the
post is authorized and provided for in the budget. Years ago, there was also a joint DPM/Treasury
committee which was responsible for authorizing recruitment in excess of establishment. But that
committee has not functioned for some time with the result that the Treasury's role in employment
and recruitment has become limited to processing the annual budget. Not surprisingly, the impressive
list of committees which have reviewed the civil service during the past 11 years unaninmously and
forcefully argued that "... the Civil Service [was] over-established, and many lower-level staff Iwerel
seriously under-employed." 3 They also reported a shortage of middle-level techilical and
professional staff.
3.42 Arguably, under-employment need not arise from overestablishment but could he linked to
problems such as insufficient supervision (stemming from a shortage of higher level staff),
inappropriate supervision and lack of delegation (associated with the orientation of higher level staff
toward administration rather than management). Nonetheless, examples documented for Bank staff
include cleaners who are assigned to areas that are so small that each can spend little time cleaning
and much more time socializing with the endless traffic of passersby. In the case of secretarial staff,
pool-typing is often necessary because of the shortage of typewriters. Within such pools,
accountability to higher level staff and responsibility for well-defined outputs are sometimes lost, even
when a typewriter is available and there is work to be done. Among the examples are also references
to staff at higher grades who often move, upon promotion, from a professional scheme of service into
administration. With this, many of them transfer from field positions to senior administrative posts
in headquarters. Horizontal transfers to headquarters also take place from time to time. However,
there is usually no corresponding transfer from headquarters to the field. As a result, many of these
officers are under-employed while others have to be assigned clerical duties.
13/ Bctween 1980 and 1991 these included the Civil Service Review Committee (chairman - S N Waruhiu), 1980,
Working Party on Government Expenditures (chairman - P. Ndegwa), 1982; Civil Service Salaries Review
Committee (chairman. T.C.1 Ram.u), 1985, Presidential Committee on Employment (chairman - P Ndegwa).
1991, and Civil Service Salaries Review Committee (chairman - P. Mbiti), 1991. The most influential report
on the civil service to date is the Report of the Commission of Inquiry (Public Service Structure and
Remuneration Commission), 1970/71, (chairman: D.N. Ndegwa). The subsequent committees and commissions
make copious references to the recommendations of this Commission's report See also World Bank (1989a)
- I
- 54 -
3.43 Wages, Salaries and Allowances. On the general civil service emrnp)yment front, what is
of further concern is whether there is overstaffing given the resources available for wa,ges and
supporting expenditures on O&M. Commissions are set up from time to time to review salaries and
recommend adjustments. Xt Independence in 1963, the Pratt Coommission made recommendation's
which resulted in considerable salary increases. In fact, public sector wages rose by 48 percent in
real terms during 1963-65 compared with 6 percent in the private sector as the Government sought
to Africanize the public sector (Bigsten, 1984). Next was the Millar-Craig Commission which in
1967 argued for wage increases only for civil servants in lower job groups. The Commission was
concerned that salary increases for personnel at higher levels would create cost-push intlation. It
therefore accepted as inevitable "the loss of some high-level manpower to the private sector because
of higher salary levels there ..." (Millar-Craig, 1967, p. 24). The subsequent Commission of 1971
recommended salary increases for all grades of civil servants and successfully arg-ued that these stal'f
be permitted to engage in private business.
3.44 The next commission met in 1979 and, like all other commissions since then, has echoe(d
three main points. First, the steady growth in civil service employment has been accompanied by
stagnation or regression in the salaries and wages paid to civil servants. Although the Government
has acknowledged the need for higher remunerations, salary increases have been held below increases
in the cost of living, partly because of budgetary constraints. This has contributed to the erosioni of
real wages in the Central Government and to a deterioration in the ratio of positions t'illed to
establishment in most ministries during the period 1971-90 (Table 3.3). Second, because of the
practice of granting larger percentage wage increases to staff in the lower ranks vis-a-vis staff at
higher levels, salary erosion has been more severe at the highcr levels. Partly as a result, in
July/August 1991 vacancy rates at these levels were as high as 61 percent in the Office of the
Controller and Auditor General (for Job Groups K and above), and 68 percent in the Management
Consultancy Services Division of the Directorate of Personnel Management (Job Groups H to Q).
Comparable vacancy rates, especially in specialized skills areas are evident across the service. Some
of these positions are not filled because of the acute shortage of personnel country-wide. For instance,
the Government recently estimated that each year Kenya needs an additional 89 civil engineers, 228
physicians and 47 pharmacists. During 1987-1992, however, the Kenyan universities will have
graduated annually about 69 civil engineers, 142 physicians and 31 pharmacists. (Weekly Review,
Feb. 22, 1991, p. 9). However, most positions are not filled because of uncompetitive conditions
of employment, including compensation, in the civil service.
3 45 Third, each commission worried that the wage bill was squeezing O&M expenditures and
thereby, was impacting negatively on the productivity of the civil service. The intractability' of the
wage bill is explained not only by the sheer size and growth in numbers but also by wage creep, low
attrition rates and a complex system of benefits and allowances. By wage creep is meant the
progression of salaries within grades (and sometimes across grades) largely because merit increases
are awarded routinely rather than on the basis of performance. Table 3.5 shows the salary ranges
and increments within ranges. This information, along with data on the age distribution of the civil
service (Table 3.2), is used in Table 3.6 to estimate the impact of wage creep on the total wage bill
during 1992-96 after adjustments are made for retirements. Notice that the attrition rate is low
because of the high concentration of younger workers in the civil service. Notice also that the
majority of those retiring come from lower grades, so that the savings per retiree are small. Not
surprisingly therefore, the wage bill would still increase by 2.6 percent per annum durilng 1992-96
even if there were no revisions of the salary scales and retiring staff were not replaced. With
replacement of all retiring staff but no salary revisions, wage creep alone raises the annual wage hill
by 5.2 percent per annum. Worse still, if vacancies in management positions (H and above) were
55 -
filled, wage creep would expand the wage bill by 10.3 percent per annum (Table 3.6). All this
occuirs before any revision ( t'salaries (Boxes 3.2 and 3.3).
3.46 Apa.t from their hagic salaries, civil servants in Kenya receive housing and other benefits,
aindi pariicipate in a non-contributorv pension scheme (except for staff at grades A and B). Benefits
alppear to) be onc *say of significantly topping up the comnpensation packages of staff in the highest
gradles (Figuie 3.3). With regard to pensions, possible advantages of a contributory scheme may be
tto l, .er cost to the Government and greater mobility for workers wishing to leave the public sector,
pros idod thlat thleir pension contributions are transferable. What is of greater concern, however, are
the housinig benefivts wlich are widely acknowledged as creating anomalies in the wage structure and
distortig tt te housing market.
Table 3.5
Civil Service Salary Scales
1990
Average value of
Average value of increment as %9 of
Basic Pay Scales (K1) No. of Increments increment (K�) minimum salary (%)
Mmi. Max
A 477 759 12 24 4.9
B 558 885 12 27 4.9
C 678 1,068 12 33 4.8
D 819 1,275 12 38 4.6
E 1,068 1,569 11 46 4.3
F i, 275 1,866 11 54 4.2
G 1,674 2,514 11 76 4.6
H 1,938 2,820 10 88 4.6
J 2,334 3,408 10 107 4.6
K 2,820 4,116 10 130 4.6
L 3.408 4,770 9 151 4.4
M 4,272 5,946 9 186 4.4
N 4,770 6,594 9 203 4.2
P 5,730 7,098 6 228 4.0
Q 6,594 7,854 5 252 3.8
R 7,602 9,006 5 281 3.7
S 8,430 10,302 6 312 3.7
T 10,302 12,066 5 353 3.4
Source. DPM
- 56 -
Table 3.6
The Arithmetic of the Central Government Wage Bill
Ilistorical and Prospective, 1986-95
Historical 1986 1987 1988 1989 19r0
Gro%th (%)
Civil se: vants a/ 3.1 5.7 -2.6 3.8 -2.8
Nominal Wage bill 16.0 10.4 28.8 7.2 22.2
M1emo
Retiremcnt as % of employment 2.4 1.9 2.6 2.4 0.9
Growth (%)
Recurrent expenditure b/ 19 0 10.9 14.4 14.0 10.7
Recurrent revenue bl 16.6 16.2 14.6 15.1 14.3
Nominal GDPmp 16.6 11.7 15.1 14.1 16.4
Prospective (without reform) 1992 1993 1994 1995 1996
Growth (%)
Civil servants cl
Without replacement -0.9 -1.0 -1.3 -1.6 -1.1
With replacement overall 0.0 0.0 0.0 0.0 0.0
With replacement (H & above) -0.6 -0.9 -1.1 -1.4 -0.9
With vacancy filling (H & above) d/ 2.5 -3.9 -1.1 -1.4 -0.9
Wage bill el
Without replacement 3.0 2.7 2.5 2.0 2.7
With replacement overall 6.1 6.0 5.3 4.2 4.2
With replacement (H & above) 4.1 4.0 3.6 2.8 3.3
With vacancy filling (H & above) 10.7 10.7 10.3 9.6 10.3
Nominal wage bill f/
Without replacement 18.0 17.7 16.0 14.0 13.9
With replacement overall 22.1 21.0 18.8 16.2 15.4
With replacement (H & above) 20.1 19.0 17.1 18.8 14.5
Witlh vacancy filling (H & above) 26.7 25.7 23.8 21.6 22.5
Memo:
Retirement as % of employment g/ 0.9 1.0 1.2 1 6 1.0
Nominal GDPmp growth (%) h/ 16.0 15.0 13.5 12.0 11.2
Domestic inflation h/ 12.0 7.0 6.0 5.0 5.0
Sources: Statistical Appendix, Tables 2.3 and 5.8; Pensions Departinent; DPM, and staff estimates
Noies:
a/ Excludes TSC, local govemment and parastatals.
bl Calendar year data are simple averages of fiscal year data as shown by IMF staff.
c/ Where applicable, replacement at grade level of position vacated.
d/ All establishment positions filled in year 1990. Establishment positions assumed to be constant
thereafter.
el Wage creep, and where applicable, replacement.
f/ Assumes full indexation to inflation.
gl Assumes the enforcement of mandatory retirement at age 55 and no replacement.
h/ As per the enabling scenario in Chapter 5.
- 57 -
Box 3.2
Salary Increases Announced in September 1991
In September 1991, the Government announced the following adjustments to the salary scaies of mainstream
civil servants. The associated salary increases will be phased over 3 years, commencing July 1, 1991. The
salary scales of teachers were adjusted in a similar manner The implications of these changes for the wage
bill of the central government and the fiscal deficit are explored in Box 3.3.
New Salary Scales for Mainstream Civil Servants
Effective July 1, 1991 % Change
Job Group Minimum KI Maximum K�: Minimum Maximum
A 555 873 16.4 15.0
B 648 1,011 16.1 14.2
C 783 1,200 15.5 12.4
D 939 1,413 14.7 10.8
e 1,200 1,719 12.4 9.6
F 1,413 2,022 10.8 8.4
G 1,833 2,880 9.5 14.6
H 2,172 3,198 12.1 13.4
J 2,688 3,807 15.2 11.7
K 3,198 4,545 13.4 10.4
L 3,809 5,223 11.8 9.5
M 4,707 6,435 10.2 8.2
N 5,223 7,101 9.5 7.7
P 6,213 7,617 8.4 7.3
Q 7,101 8,391 7.7 6.8
R 8,133 9,543 7.0 6.0
S 8,967 10.851 6.4 5.3
T 10,851 12,618 5.3 4.6
Source: DPM
- 58 -
. I_ _ 3.3
Some linplikations of the September 1991 Salary Adjustments
The salarv increases for mainstream cisil servants and teachers will bc phased over 3 years beginning July
1, 1991 as shown bc;Iws Earlier sinulations repoired in Table 3 6 focussed on scenarios in wvhich there were
no salary adjustments Now that this assumption no longer hol 's, the prospects for containing the wagc bill
and achiesing the tazrget fiscal deficit of 2 percent ot GDP (excluding grants) in FY92 and bceyond are even
worse The obvious corollarv is that the case for Ccntral Government adjustment along the lines of para 3.50
becomes even stronger.
Impact of Salarv Adjustment on the Central GovernmLnt Wage Bill
Job Groups in the FY92 FY93 FY94
Mainstream Civil
Service Annual % Change
A-C 26.3 12A4 13.6
D-F 21.4 10.7 8. 1
G-J 15.0 10.2 6.6
K-M 9.9 8.7 7.1
N-Q _ 8.1 7.1 5.6
R-T 5.7 5.0 4.2
Annual % Change in Total Wage Bill
Mainstrea-n Civil
Servants 14.7 10.0 7.3
Teachers 10.7 9.8 9.5
Total 12.8 9.9 8.3
Source. DPM and staff estimates.
Wlicn the salary adjustments are combined with wage creep (net of attrition), the annual wage bill of the main
stream Central Government would probably grow annually dunng 1992-94 on a calendar basis by about 12 2
percent (without replacement), 15.3 percent (with replacement overall), 13.4 percent (with replacement at job
group H and above) and 19 9 percent (with vacancy filling at levcl H and above) (Table 3.6 and Box 3.2)
The undcrlying average nominal GDP growth rate is 14 8 percent. These simulations assume that benefits
arc not adjusted in line with the salarn revisions The implication is that even if revenues were to keep pace
witih nominal GDP grovvth, other expenditures would have to be reduced significantly (in all scenarios) to
achieve the fiscal deficit target of 2 percent (fiscal or calendar basis) of GDP including grants. Since the
scope for cutting debt service obligations is limited, the burden of the cutback would have to be borne by
transfers and O&M expenditures For the former to occur, parastatals would have to exercise much greatcr
financial discipline, and this would he unlikely in the absence of comprehensive parastatal reform Reduction
mn O&M expenditures would worsen an already bad productivity record.
59 -
Ratios of Allowances to Basic Salaries
All Job Groups, 1990
90
80- Legend
70- - Housing Allowanos
--- Other Allowances
60 -
Total Allowances-
50 -
~40,
30-
20-
10"
A B C D E F 6 H J K L M N P Q R S TOt,
Ciil Servie Job Groups
Figure 3.3
- 60 -
3.47 Housing benefits received by civil servants include any one of: (i) rental of government-
owned housing at subsidized rates, (ii) rent-free housing in government institutional housing. (iii)
rental of housing which the government leases at market rates but subsidizes for the occupants; (iv)
allowances for renting accommodation outside of the public sector; and (v) owner-occupied housing
allowance. There is evidence that the system of housing benefits is abused. Only a tew of the eligible
civil servants have access to government owned or rented housing, and allocation of these units is
not always transparent. Some home-owners in the civil service have been known to give up their
own accommodation for rented property while they continue to claim the higher owner-occupied
allowance. Yet others collude with their landlords to defraud the Government by intlating rental
charges. Altogether, housing allowances add up to amounts which were equivalent to 15.8 percent
of the basic wage hill in 1990. Equally disturbing are the anomalies in the compensation packages
of workers at similar grade levels and the distortions which this system has created in the urban
housing market.
3.48 Productivity. Within the broad resource envelope of the Government, expenditures on ' ages
and salaries have been maintained without adequate provisions for O&M. In fact, the shares of
subsidies, transfers (including those provided to TSC for teachers salaries) and wages and salaries--
personal emoluments, gratuity and pensions contributions, and allowances--have been fairly constant
(Figure 3.4). However, increasing debt service obligations appear to have displaced goods and
services (O&M). Figure 3.5 nets out debt service obligations and then shows what share of the
remaining recurrent expenditure is allocated to cover labor costs. Notice *he high share of
expenditure going to labor costs in all sectors. Not surprisingly, Sessional Paper No. I of 1986
lamented that "[w]ith salaries absorbing so much of expenditure, there is not adequate provision for
complementary resources such as transport, typewriters, even paper and pencils, that are required to
make officers productive" (Government of Kenya, 1986, p. 32).
3.49 Next to the O&M problem, the most commonly cited reason for low productivity il the civil
service relates to personnel systems and procedures. The results are universal when there is *-irtual
neglect of the merit principle in determining promotions, weak disciplinary machinery and an
ineffectual personnel appraisal system. Another factor that has been cited as a cause of inefficiency
is the formal approval given to civil servants in the early 1970s to engage in business activities. One
Kenyan researcher concluded that since then "... the efficiency of individual civil servants E ho took
uncontrolled advantage of this relaxation of tradition was .. affected somewhat adversely The
different reports on the civil service issued between 1980 and 1991 repeated the same point,
explaining that the involvement of civil servants in business distracts them from their primary
responsibility. It also creates dual and conflicting loyalties which most often result in officials giving
more of their time to those interests that relate directly to their personal benefit. Officials may even
give undue weight to their personal business interests when making public policy.
D. The Need for Broad Adjustment
3.50 Given the structural problems driving expenditure and undermining productivity, Central
Government adjustment needs to be broad in its vision and reach, with the highest priority going to:
streamlining the functions and organizational structure of government to avoid dulilication and
redundancies and achieve better organizational synergy;
- 61 -
Composition of Current Expenditure
198118289190
120
110- Subsidies
100X-
90 - Transfers
80-
2 60- = Debt Service -Dom.
50- __-_
40 -
30 _ ____________
30 -
20- Wages & Salaries
10 -
81 82 83 84 85 86 87 88 89 90
Year (FY ending year shown)
Figure 3.4
- 62 -
Labor Costs as Share of Recurrent Expenditure by Economic Categories
199190-91/92
80%
75%
Legend
70% --- PubicAdmin.
Ecnomic Sector
65% Social Sector
60% -
55%
50% -- -- . . . .
1990 1991 1992
Years
Figure 3.5
- 63 -
* downsizing staff in line with the rationalized functions and organizational structure; and
* reforming the pay structure and personnel procedures so as to achieve an appropriate mix of
staff at all levels who are motivated and equipped to function effectively and efficiently;
Other issues such as improving training, accountability, and capacity utilization are important.
However, independently, none of these would address the immediate and longer-term need to
generate budgetary savings, improve productivity and enable governmnent structures to better support
the economic and social aspirations of the private and voluntary sectors.
3.51 The case for reducing the complexity of goverrment, eliminating duplication and
discontinuing functions made redundant by reforms elsewhere in the economy is self evident. The
case for comprehensive pay and employment reform is equally forceful. Without it, budgetary
resources would not be available to significantly improve non-wage O&M expenditures or to provide
compensation packages which would attract and retain staff in higher job groups. The point cannot
be overemphasized. Consider again Table 3.6. Next, postulate that the lower cadres of the civil
service are not overstaffed and that their underemployment would disappear if management and
supervision of their work is improved. Make the reasonable assumption that all vacancies at grade
H and above (middle and senior managemcnt) would have to be filled. Account for wage creep but
appropriate all savings from attrition and maintain real wages at their current level. The result is still
unsustainable nominal annual increases in the overall wage hill during 1992-96 which are well above
a reasonable level of nominal GDP growth (24.6 percent compared with 13.5 percent).
3.52 One avenue that could provide preliminary budgetary savings and re-establish discipline
would be to roll back employmett in excess of establishment at each grade within each ministry.
'This could cut the wage bill by 8.7 percent (Table 3.4). A more reasonable expectation would be
for this amount to be used to finance more competitive compensation packages, especially for staff
at higher job grades. But even if there was a one-time cut in the wage bill by the elimination of these
excess korkers, other steps would still have to be taken to prevent the wage bill from growing as
quickly as in Table 3.6 or quicker (albeit from a lower base). Merit increases would need to be
granted more selectively on the basis of performance, vacancies would have to be frozen and
eliminatd except in areas which are critical to the proper functioning of the government, and an
effective system would be required for more effective establishment control. Independent of these
developmnents, streamlining the functions and organizational structure of government would create
redundancies in some parts of the structure and entail retrenchment of workers. Figure 3.6 illustrates
that even if the retrenched civil servanms were to receive pensions based on their years of service,
there would still be savings for the government. This is because the maximum pension entitlement
is limited to 70 percent of the basic wage but this maximum only accrues to those who have worked
for at least 27 years and 9 months. Since the vast majority of those currently in the Livil service have
given fewer years of service (Table 3.2), their pension would be well below 70 percent of their basic
wage. The savings for the Government could therefore be correspondingly greater. Of course, an
appropriate safety net for redundant workers would need to be designed (Chapter 5).
3.53 It must be emphasized that staff reductions and wage cuts are not an end in themselves. It
is true that they can make a significant contribution toward reducing the fiscal deficit and thereby,
reducing inflationary pressure. However, they must go beyond that, to redress the imbalance between
wages and non-wages O&M and ultimately facilitate sustained increases in the productivity of the
Central Government. Without that, the Central Government is unlikely to be able to provide real
64 -
lllustraUon of Possible Savings Under An Early
Retirement Scheme
100%
(Maximum
basic Additimal Wages foregone
salary). potendal after lull' tenure
potential - savings for
sarings Exchequer
from 'eady' ____
retirement
Retrement after
Pension lull' tenure of 27
as years and 9
percentage monts of
of basic serice.
salary
0 Years
Figure 3.6
- 65 -
wage increases that would attract and maintain qualified staff at all levels without independently
crcating destabilizing fiscal pressures.
3.54 A recent World Bank study points out that the task of civil service reform in a difficult
macroc.onol2llc environment "must rank as the most difficult development challenges ever to be faced
by governments and donors. Yet ... the task cannot be assumed away uior can it he delayed."
Experience with civil service reform suggests that although the process can be approached in a
number of different ways, it is likely to be a long-term undertaking and the benefits will take time
to materialize, especially when undertaken within a constrained fiscal environment. While
downsizing tends to have a beneficial effect on the budget, cumulative budgetary savings can take a
number of years to exceed initial costs. Moreover, net savings from downsizing ieave very little
margin for short-term improvements or increased allocations to O&M. This feature of most reform
programs suggests the need to focus on the sequencing between pay and employment reforms. Given
the seriousness of the stabilization problems, there is a strong case for focussing initially on
downsizing staff ;nd reducing expenditure. Since pay improvement is likely to be slow, there may
also he a case for an initial emphasis on decompression rather than overall pay improvement.
Expcrience also suggests that the benefits to civil service reform can be considerably enhanced when
complemented by policies that seek to improve the enabling environment for private sector activity.
A vib.ant and dvnamic private sector will not only help to strengthen the Government's budgetary
position. hut can also play a key role in absorbing displaced civil servants and thus mitigating the
social and political costs of reform (Chapter 5).
14/ de Merode (1991).
Chapter 4
Re-investing in Stabilization and Growth Through Parastatal Reform.
7here is a growing consensus that linlposl-independence state-led industrialization . the state
proved to be ah. '-spired entrepreneurand a bad manager (World Bank, 1989b, p. 38). Properly
guided, it is predomninantlv hile privale sector that has the incentives to use resources more
producmiveh, to make irvestnents that yield higher growth and development, and to make more jobs
at decent incomes on a sustainable basis (Republic of Kenya, 1991a).
Introduction
4.1 Like many of its compatriots, the Kenyan Government followed a policy of direct
participation in productive activities during most of its post-independence period. This strategy
was driven more by pragmatic social, economic and political objectives than by a singalar
ideological commitment to control "the commanding heights of the economy." Among the
immediate post-independence challenges was the need to promote and strengthen local
entrepreneurship, encourage broad-based economic participation, achieve regional balance,
intensify development and sustain growth. Accordingly, many fully-owned Government
enterprises were established in a variety of sectors and locations. Others were joint ventures with
local and foreign investors. A number of partially or fully privately-owned enterprises became
state corporations after the Government intervened to rescue them from collapse. Development
finance corporations (DFIs) were also created to provide funds for promising enterprises in the
private sector.
4.2 In time, however, the multiplication of state enterprises, several of which were sheltered
from domestic and foreign competition, began to conflict with the transitional developmental role
envisaged for most of these enterprises in post-independence development and industrialization.
Generic problems of mismanagement and financial indiscipline began to emerge across a number
of sectors. In 1982, a report found that the Government's investment in state enterprises (about
$1.4 billion) had earned an average rate of return of only 0.2 percent. When another 12
enterprises came under scrutiny 2 years later, they were found to be unable to meet their full
overhead costs. A subsequent review of 16 major agricultural and agro-based state corporations
estimated aggregate losses during 1977-84 equivalent to $183 million at 1986 exchange rates.
Indeed, other studies of selected groups of state enterprises echoed findings of economic
inefticiency and financial weakness.
4.3 The challenge of this chapter is to speak to the recent performance--both economic and
financial--of the parastatal sector as a whole and, likewise, to its impact on the overall economy.
Information not available before is provided on the present composition and structure of the
sector (Section A), its contribution to GDP growth, employment (Section B) and investment
(Section C), its use of resources such as imported imports (Section D) and domestic credit
(Section E), its impact on the fiscal accounts (Section F), its accumulation of external debts
(..ection G), and its overall productivity, investment efficiency (Section H) and financial
performance (Section 1). Readers who are not interested in such details should proceed to Section
J where the parameters and performance of the sector are summarized. The findings are arresting
- 68 -
and disturbing when compared with the performance of the private sector, and pave the way for
the discussion in Sections K and L of the need for and elements of comprehensive parastatal
reform. A summary of the chapter is proviued in Section M. Although parastatals as a group
are of primary interest, the discussion in Sections A-1 identifies parastatals by majority and
minority ownership. The origin of the data used is explained in Box 4.1.
A. Structure and Composition of the
Parastatal Sector
Box 4.1: Data and Terminology
4.4 There are 255 15' commercially-
oriented enterprises--producing goods and To facilitate the analysis presented in this chapter,
services for a profit--in which the the Government collaborated in an ambitious data
Government of Kenya has held equity over gathering exercise. The first step was to identify
and confirm the commercially-oriented enterprises
the last 6 years (Figure 4.1). In just over half in which the Government held majority or minority
(it these the Government is thi. majority equity ovcr the last 6 years. This provided a
equity holder. Equity is held either directly transparent and uniform definitioi of the parastatal
(51 ) or indirectly (200) through majority- sector; that is. commercially-oriented enterprises in
owned DFIs. Four enterprises are majority which the Government holds majority or minority
ownership directly or indirectly. Public regulatory
owned by virtue of equity from the agencies are excluded. Next, standard national
government and majority owned parastatals. accounting methodology was used to prepare
T he commercial activities of the parastatals national income accounts for the enterpris.:s
are as diverse as horse breeding. consulting, comprising the parastatal sector. Some of the
retailing, entertainment (a movie theater), and rclvant data for this exercise were already in the
the operation of an international airline. But Government's master files but others had to be
,he operation obtained through field visits and interviews.
the largest single economic activity of Financial information was obtained in a similar
parastatals is manufacturing, particularly of manner except that more extensive use was made of
t(fod and beverages. In 1990, 60 percent of questionnaires and interviews.
the enterprises were in manufacturing and
mining, 18 percent in distribution, 15 percent Because the returns would be elemental to the
mininance, with thcent reistrinutrans t, operet analysis and conclusions presented in this chapter,
in tinance, widthe restintransport, other they were carefully checked and extensively
services and electricity. discussed with and verified by the government
agencies which processed them. Data on extemal
4.5 Among majority-owned enterprises, debt, imports and exports were also prepared in
manufacturing predominates (40 percent), c;cordanc- with the confirmed list of enterprises.
followed by distribution (26 percent), finance But information on deposits and credit, which w/as
( pcn)tasr(8 n, wobtained from the Central Bank, did not permit
(18 percent), transport (8 percent), with the disaggregation of the regulatory bodies from the
remainder in other services and electricity. commercially-oriented enterprises.
Minority-owned enterprises are even more
concenLrated in manufacturing and mining (76 Annotated tables showing this data are presented in
percent) while the others are in finance (13 Statistical Annex and the Parastatal Sector Financial
percent) and distribution (11 percent). There Survey (1991). A subset of these tables is used in
the rest of this chapter to shed light on the economic
are no minority-owned enterprises in and financial impact and performance of the sector
transport, other services or electricity. as a whole.
15/ A number of these firms are at various stages in the process of liquidation. The count will keep changing as
more firms are wound up.
- 69 -
Enterpises with diredl and
indired cenfta govemmeot
equity 255
MaIority Ownership Minority Ownhip
135 120
Indirect Direct Comied Drec Indired
mrajont1 majority dired and Minoriy tmi
ownership ownership indehsip ownership ownership
86 45 4 6 114
Total direct ownership
55
Total indirect ownership
204
Swate Other Acts DFCK ICDC IDC KTDA KTDC Othe
Corporations
Act 101 34 21 57 24 29 27 _
Figure 4.1: The Structure of Parastatal Enterprise Sector
4.6 Parastatals are mostly medium-sized, employing under 500 persons each. As at end
1990, only 26 percent were large companies. Of these, about one-third had over 2,000
employees each. The largest firms were in manufacturing and mining, and transportation and
communications. Among minority-owned enterprises, 87 percent employ fewer than 500 persons.
Majority-owned enterprises are more evenly distributed across all sizes of employment.
- 70 -
B. Contribution to Growth and Employment
4.7 During 1986-90, the parastatal sector consistently accounted ftr around 11 percent of
GDP. 16/ The contribution of majority-owned enterprises was equivalent to 9.1 percent of
GDP while minority-owned enterprises generated 2.3 percent of GDP (Tables 4.1 and 4.2).
Table 4.1
Value-Added by Majority-Owned Parastatals
as Share of GDP at Factor Cost, 1986-90
(Pcrcentages)
1986 1987 1988 1989 1990 1986-90
Manufacturing& mining 2.1 1.9 1.7 1.5 1.4 1.7
Electricity 0.7 0.7 0.6 0.6 0.7 0.7
Wholesale, retail, hotels & rest. 2.2 2.0 1.8 2.0 1.9 2.0
Transport and communications 4.3 4.5 4.2 4.8 4.7 4.5
Finance, real estate & bus. svcs. 1.1 1.2 1.3 1.3 1.2 1.2
Other services 0.0 0.0 0.0 0.0 0.1 0.0
Less: Imputed bank services -1.0 -1.0 -1.0 -1.1 -0.8 -0.9
Total 9.3 9.4 8.t, 9.2 9.3 9.1
Source: Statisucal Annex, Table la and Statistical Appendix, Table 2. 1.
Table 4.2
Value-Added by Minority-Owned Parastatals
as Share of GDP at Factor Cost, 1986-90
(Percentages)
1986 1987 1988 1989 1990 1986-90
Manufacturing & mining 2.1 2.0 2.0 2.0 1.9 2.0
Wholesale, reail, hotels & rest. 0.2 0.2 0.3 0.2 0.2 0.2
Finance, real estate & bus. svcs. 0.3 0.2 0.1 0.2 0.2 0 2
Less: Imputed bank services -0.2 -0.1 -0.0 -0.1 -0.0 -0.
Total 2.4 2.3 2.3 2.2 2.3 2.3
Source. Statistical Annex, Table lb and Statistical Appendix, Table 2. 1.
Ir% -. n ".1-. o...so lc %
- 71 -
Table 4.3
Contribution of the Parastatal Setor to Sectoral and
Aggregate GDP(fc) Growth, 1986-90 a]
(Percentages)
Majority- Minority- Parastatal
Owned: Owned: Sector:
Overall Weighted Weighted Weighted
GDP Growth in Growth in Growth in
Growth Value Added Value Added Value Added
Mlanufacturing & mining 5.8 -0.1 0.0 -0.1
Electricity and watcr 8.5 5.1 .. 6.9
Wholesale, retail. hotels & rest. 6.0 1.6 0.6 1.8
Transport & comnmunications 3.9 5.2 .. 5.1
Finance, real estatc & bus. svcs. 6.4 1.7 0.0 1.1
Other servicvs 6.5 0.2 .. 8.8
Overall economy 5.0 0.6 0.0 0.5
Source. Statistical Annex, Tables 2a and 2b, and Statistical Appendix, Table 2.2.
a/ The GDP sectoral growth rates of majority- and minority-owned enterprises are weighted by their
respectivc shares of sectoral GDP. Similarly, the GDP growth rate of the parastatal sector as a
whole is weighted by the share of parastatal GDP lo total GDP.
Among rnajoritl -)wned enterprises, transport and communications was the largest contribu:or
while the contribution of other services was negligible. In between were manufacturing and
minin-. even though most parastatals were in this sector; electricity; wholesale trade, Aetail trade,
hotels anu iestaurants: and finance, real estate and business services.
4.8 Among minoritv-owned firms, manufacturing and mining made the largest contribution
to GDP. iJlowed b)y wholesale trade, retail trade, hotels and restaurants, and finance, real estate
and business surv iLes .
4 9 T7he enniribution of l)dldMidtals to growth varied widely across sectors and ownership.
At thle high end (of the scale, the growth of majority-owned enterprises in transport and
communications more than otfset the contraction by other enterprises in this sector (Table 4.3).
Ma oriov-owned enterprises in electricity and water were next. Others made a measurable
poshive conlribution. Notably, minority-ownd enterprises in manufacturing and mining and the
financial sector made negligible contributions to growth. But majority-owned enterprises in
manufacturing and mining were at the other extreme, in that their weighted contribution to overall
mariLu acturing growth was negative. This is especially significant since the majority of parastatals
are in this se:tor.
- 72 -
4.10 Majority-owned enterprises created three and one-half times as many jobs as did minority-
owned enterprises during 1986-90 (Tables 4.4 and 4.5). In fact, the parastatal sector as a whole
put one-tenth as many people to work as did the rest of the economy. Figure 4.2 shows the
sectoral composition of wage employment in Kenya during 1986-90. Within the majority-owned
subsector, manufacturing accounted for 37.5 per,caiz of the jobs but only 18.2 percent of the
subsector's value added (Statistical Appendix and Annex). Among minority-owned enterprises,
the match between workers and output was better in that manufacturing was responsible for 85.7
percent of subsector's jobs and produced 86.5 percent of the subsector's output.
Table 4.4
Wage Employment in Minority-Owned Parastatals
1986 1987 1988 1989 1990
Manufacturing & mining 22,814 22,329 23,246 22,460 22,747
Wholesale, retail, hotels & rest. 2,190 2,809 2,961 2,794 2,711
Finance, real estate & bus. svcs. 1,335 1,105 1,024 997 1,023
Total 26,339 26,243 27,231 26.251 26,481
Source: Staliszical Annex, Table 4b.
Table 4.S
Wage Employment in Majority-Owned Parastatals
1986 1987 1988 1989 1990
Manufacturing & mining 33,549 32,822 33,836 34,067 34,880
Electricity 6,576 7,315 8,137 8,127 7,780
Wholesale, retail, hotels & rest. 9,256 9,777 9,740 10,239 12,520
Trransport and communications 24,843 25,599 29,682 30,087 27,799
Finance, real estate & bus. svcs. 7,985 8,358 8,631 10,017 10,497
OtLer services 1,895 1,895 1,959 1,944 1,904
Total 84,104 85,766 91,985 94,481 95,380
Source- Satisatcal Annex, Table 4a.
4.11 Annual wages and salaries in the parastatal sector (workers compensation from the
production accounts divided by employment) was almost twice the national average during 1986-
90. Annual wages and salaries in the majority-owned sub-sector deviated even further from the
- 73 -
national average. It is not entirely clear why large sectoral discrepancies existed. Of course, the
national average is influenced disproportionately 1by the large number of agricultural workers who
are paid close to the minimum wage. Generally, this appears not to be the case in the parastatal
sector where the production of manufactured goods, transport and communications, and financial
services predominate. Even so, wages and salaries in minority-owned enterprises, where
manufacturing and mining provided 85.7 percent of employment during 1986-90, were closer to
the average for Central Government workers.
4.12 Two related pieces of evidence suggest that the transport and communications and the
financial sectors explain the high average wage level among majority-owned enterprises. First,
these sectors, which respectively accounted for 49.6 percent and 13.4 percent of value-added by
majority-owned firms during the period, were the only 2 which together employed more workers
than manufacturing and mining (42.0 percent compared with 37.5 percent). Second, according
to the National Manpower Survey of Kenya (1986-88), transport and commuunications and
financial services had the highest proportion of workers--10.9 percent and 31 .1 percent
respectively--earning more than KE2,999 per vear. This compares with 1.3 percent in
agriculture, 9.8 percent in manufacturing and mining, 8.1 percent in electricity arid water, 9.4
percent in trade, hotels and restaurants, 5.4 percent in other services and 5.9 percent nationally
(Republic of Kenya, 1989b).
4.13 rurning to the dynamic aspects of employment, annual growth was fastest during 1986-90
in majority-owned trade, hotels and restaurants (6.9 percent), majority-owned finance, real estate
and business services (6.6 percent), minority-owned trade, hotels and restaurants (5.9 percent)
and majority-owned electricity (5.8 percent). Elsewhere in the parastatal sector, employment
growth was sluggish: 0.7 percent and i . 1 percent respectively in minority and majority-owned
manufacturing and mining, and 1.7 percent in majority-owned transport and communications.
In minority-owned finance, real estate and business services, it contracted by 1. I percent.
Among minority-owned enterprises as a group, employment grew by I percent during the period,
less than half the rate (2.7 percent) at which jobs were created by majority-owned enterprises.
Moreover, average real wages in the former contracted by 1.2 percent during 1986-90 but
managed a negligible (0. 1 percent) improvement in the latter (Statistical Annex, Tables 4a and
4b).
C. Contribution to Investment
4.14 During 1986-90, the parastatal sector accounted lor 16 percent of gross fixed capital
formation. Majority-owned firms were responsible for 13.7 percentage points compared with 2.3
percentage points attributable to minority-owned enterprises. At the sectoral level, the most
significant i,.vestments were in majority-owned transport and communications, minority-owned
manufacturing and mining, majority-owned manufacturing and mining, and majority-owned
finance, real estate and business services (Statistical Annex, Tables 13a and 13b).
4.15 Machinery and equipment accounted for the largest share (37.9 percent) of gross fixed
capital formation in the parastatal sector during 1986-90. T ransport equipment was next at 28.1
percent and was followed by non-residential buildings at 12.6 percent, residential buildings (8 1
percent) and land improvements (2.7 percent). This distribution of investment across types of
assets was not very different from the investment pattern in the rest of the economy.
Conposkbon d Modern Seor Empioyeft 1986-9
Employment in Maity.Owned Enterprises' c 'Employnienl in Mnorly-Owned Enterprses
SedcIrM CCar4,~ (1986690) / - So.r Ca(Plo9 (198-90
ms / uh-d wvp r(7 0 am- %)
1 I E (38%1 (42%)
E ll,,=p.,,y r7o ,. e,t, .6
(9) 31%) 14 0 (5%)
U (4%(~~~~~~~~~~~~~~~~~~~~~~a fea,, 4%
Olm r4m (12)((8%
(2%) [Employnt In Rest of the Ecoixorny V l
S-nviCrgosdon (196"0
lt1%) 48 0% . { ger
j41.0%~
lMP. & c ninl
l S~~~~ ~~ ~~~~~~~~~1.0% I M rod Ssat. c l
2.0% lh osw&
21.0% be mk o aw. E
16.0%
210%
sec1
Figure 42: Modern Sector Employment
- 75 -
4.16 Fixed investment growth in the parastatal sector (30.2 percent per annum) far outstripped
fixed investment growth in the rest of the economy (0.5 percent per annum) during 1986-90.
Among majority-owned enterprises, gross fixed capital formation expanded strongly at 19.9
percent per year but among minority-owned firms the average annual expansion was eight-fold
(albeit from a small base). Such dynamism was particularly evident in minority-owned
manufacturing and mining, and minority- and majority-owned finance, real estate and the business
services sector where nmodernization and computerization programs were under implementation.
D. Merchandise Exports and Imports
4.17 Table 4.6 shows the merchandise exports and imports of the major enterprises in the
parastatal sector. These numbers require careful interpretation because they only capture
transactions in which the parastatals are directly involved. For instance, they exclude imports
which may be purchased locally from a second or third party. Furthermore, since the parastatals
enjoy a monopoly in the importation of commodities such as oil and sugar, not all imports
recorded in Table 4.6 were used entirely within the sector. And since nonfactor services are
excluded, the sector's earnings ,-om tourism are not captured. In any case, the magnitude of the
enterprises' value added relative to the magnitude of their external debt obligations suggests that
the sector's net contribution to the service account was negative. In other words, even if all
tourism value added from parastatals were in foreign exchange, it would be insufficient to cover
Table 4.6
Merchandise Exports and Direct and Ex-factory Merchandise inports
of Mkiority-Owned Parastatals, 1987-90)
(US$ millions, percentages)
1987 1988 1989 1990
Merchandise imports a/ 121.1 241.8 379.3 407 2
Merchandiseexports b/ 31.4 41.9 44.3 51.4
Balance -89.7 -199.9 -335.1 -35e 7
Percentage of Economy-Wide Totals
Merchandise imports a/ 7.0 12.0 16.7 18.3
Merchandise exports bl 3.3 3.9 4.5 4.7
Balance 11.5 21.2 26.0 31.3
Source: Ministry of Finance
a/ Includes leases
bl Includes re-exports
their debt service payments which have to be made in foreign exchange. As such, the sector's
overall net contribution to the resource balance appears to be negative.
- 76 -
4.18 In principle, of course, there are no compelling reasons why every sector within an
economy should individually be a net generator of foreign exchange. On the contrary, it would
be understandable if foreign exchange surpluse.s from one sector of the economY were used by
another sector. Likewise, it would be desirable under most circumstances if the sectoral surpluses
fully offset the totality of sectoral foreign exchange deficits across the- economy. On thlik positive
side, the share of imported inputs and capital equipment rose from aro,tid 10 perceni in 19(87 to
about 90 percent in 1988, the two
years for which such details are
available. What is disturbing,
however, is that the share of direct Table 4.7
imports by parastatals in total Parastatal Deposits Witb and Credit From
merchandise imports increased from Commercial Banks and NBFIs
7.0 percent in 1987 to 18.3 percent in 198-90 �/
1990, an increase which is not (Kenya � millions)
entirely explained by crude oil _ .__
imports. It is also of concern that 1986 1987 1988 1989 1990
although parastatals are concentrated
in manufacturing, an activity which Commercial Ban-
has benefiw ed in recent years rom Deposits 110.9 122.2 121.3 232. 1 228 1
renewed efforts at export promotion Adj. bi 18.0 206 38 5 73.6 145 7
by the Government, their exports Adj. Deposits 92.9 101.7 82.8 158.5 82.4
only rose from 3.3 percent of total Credit c/ 137.8 175.9 168.6 136.7 1599
merchandise exports in 1987 to 4.7
percent in 1990. Consequently, the NBFls
share of trade deficit attributable to Deposits 146.8 137.0 144.3 190 6 296 9
the parastatal sector climbed from Adj. bi 52.0 56.6 59.2 75.2 93 7
11.5 percent to 31.3 percent. Adj. Deposits 94.8 80.4 85.1 i15.4 203.2
Credit ci 0 0 9.0 29.1 7.9 29.3
E. Domestic Banking
(Percentage of Commercial Bank Holdings)
4.19 Table 4.7 reports the end-year Commercial Banks
deposit and credit position of the
parastatals during 1986-90 with Deposits 8.5 8.7 8.3 13.6 11.1
domestic banks and near-bank Adj. bi -,.4 -1.5 -2.6 -4.3 -7.1
financial institutions (NBFIs) as well Adj. Deposits 7.1 7.2 5.7 9.3 4 0
as the position of other public Credit ci 6.8 7.2 6.5 4 9 4.6
agencies (excluding the Central (Percentage of NBFI Holdings)
Government aind local authorities)
whose deposits and credit could not NBFis
be netted out from the data base. To
avoid a major distortion, the deposits Deposits 18.2 15.5 13.9 15 U 17 9
of the National Social Security Fund Adj Deposits 11.7 8.5 8.2 9.3 12.3
(NSSF) were subtracted from total Credit c/ 0.0 1.0 2.8 0.6 1.9
deposits.
Sources. CBK and the NSSF.
4.20 As a group, the remaining a/ May include transactions ath regulatory bo iics.
enterprises generally held fewer bi Adju81nent for deposits of the NSSF
deposits in absoluite terms in c/ The NSSF does not use credit from commerciai banik",
commercial banks than they borrowed or NBFls.
from these banks. Among NBFIs,
- 77 -
their deposits consistently exceeded borrowing. The latter is partly explained by the fact that
until 1987, some NBFIs were allowed to offer significantly higher interest rates on deposits. For
example, deposit interest rates offered by NBFIs ranged from 13 percent to 14.25 percent in 1986
but were only between 11 percent and 12 percent for commercial banks. By January 1990,
however, these NBFI deposit rates were of the order of 11.75 percent to 14 percent compared
with 11.5 percent to 13.5 percent for commercial banks. But this interest rate structure does not
explain why the deposits of these enterprises usually accounted for a larger share of total NBFIs
deposits than those of commercial banks. (This was true even after 1986, the year in which a
number of NBFIs encountered financial difficulties).
4.21 Furthermore, Table 4.8 indicates an unhealthy financial situation at end-1990 in that the
deposits of public agencies (including the NSSF) accounted for over 90 percent of the deposits
of one NBFI and between 50 percent and 89 percent of the deposits of another 4 NBFIs. Only
one commercial bank had a very high concentration of parastatal deposits (over 50 percent)
although 4 others had holdings equivalent to between 20 percent and 50 percent of total deposits.
Some of the deposits of the public agencies may have been irretrievable because of the financial
problems facing some of the banking institutions.
4.22 The numbers also say nothing about any preferential treatment which the banking
institutions extended to these public agencies with respect to credit. Table 4.7 does indicate that
commercial banks provided more credit to the public agencies--in absolute terms and as a share
of commercial banks credit exposure-
-than NBFIs but the latter became a
more important source of credit Table 4.8
during 1988-90 when credit ceilings Distribution of Parastatal Deposits With
and interest rate liberalization were Commercial Banks and NBFIs
pursued under the adjustment End-1990 a/
programs.
4.23 As with foreign exchange, Peosits as Share
there is no compelling reason in of Institution's No. of No. of
theory or in practice why the public Deposits (9) Banks NBFIs
agencies as a group should balance ---
their credit from and their deposits 90- 8 1
with domestic banks and NBFIs. 80 -89 -
What is more important is the extent 60 - 69 - -
to which their deposits are critical to 50 - 59 1 1
the financial health of the particular 40 - 49 - 3
banking institutions and the degree to 30- 39 2 7
which they compete with other 20 -29 2 5
10 -19 3 3
segments of the economy for 0 - 9 8 I1
domestic credit. Para. 4.21 has _
already commented on the former. Source: CBK
With 6.1 percent of commercial bank
credit and 1.3 percent of NBFI credit, a] May include transactions with regulatory bodies
public enterprises appear not to have
directly crowded out other economic
actors from domestic financial markets during 1986-90 (based on Table 4.7). In the section
below, the discussion of financial flows between parastatals and the Central Government provide
- 78 -
some clues as to whether trans,fers from the Central Government budget may have heen
substituted for domestic borrowing, and whether these enterprises had an indirect crowding out
effect via their impact on the fiscal deficit.
F. Budgetary Innows and Outflows
4.24 The largest explicit outflow from the Central Government to the enterprises during FY86-
91 was loans (59.5 percent) folioAed by transfers (21.0 percent) and equity purchases (19.5
percent). It should be surmised, however, that prior to this period significant equity purchases
had been made since inflows during FY86-91 were dominated by payments ot dlidends and
profits (Table 4.9). Indeed, they accounted for 81.7 percent of inflows during the period and
were 9 times the equity purchased during these years. By themselves these magnitudes say
nothing about the profitability of the Government's equity holdings. Dividends and profits need
to be related to the Government's initial investment in these enterprises while recent equity
purchases should be assessed against the capital requirements, financing options and potential
profitability of the enterprises which received them. A recent study of 6 parastatals in Kenya,
many of which are very dependent on government equity, concluded that they were either
severely undercapitalized with critical liquidity (and working capital) problems or unlikely to be
able to adequately borrow to meet long-term investment needs. At the same time, several reports
on the return to government equity investments suggest that dividends and profits have been well
* below acceptable levels. Indeed, when profits of the Cential Bank are netted out, what remains
is a minuscule amount of profits and dividends.
4.25 Other adjustments are made in Table 4.9 to reflect taxes collected but not remitted to the
Central Government as well as external debt service payments made by the government for these
enterprises. The foregone tax revenue would have lowered the fiscal deficit. The same is true
of the amounts paid in interest on debt. But even when the government is re-irnbursed by the
parastatals for debt service payments made during the course of the same fiscal year (as occurred
several times during FY91), the government still had to grapple with the adverse consequences
for its cash flow.
4.26 Corporate taxes paid by the parastatals are deliberately excluded from T'able 4.9. The
reason is that such flows are not peculiar to these enterprises and may occur irrespective of their
ownership. Some import duty exemptions are also in this category. Those which are specific
to the parastatals could not be easily netted out fromn the total and are therefore not shown. It
was also not easy to determine the extent to which government guarantees permitted these firms
to be more leveraged and, thereby, to reduce their taxable income by applying eligible interest
payments against income. But even without such fine-tuning of the numbers, it is clear that
overall, there was a net outflow from the Central Government to these enterprises during FY86-
91.
G. External Debt
4.27 At end 1990, the stock of medium and long term PPG external debt contracted by
parastatals (all majority-owned) was $907.3 million (excluding the Nairobi City Commission),
equivalent to 17 percent of Kenya's PPG external debt including IMF. Comparative data suggest
that the commercial terms at which the parastatals generally borrowed compared favorably with
those extended to parastatals in other Sub-Saharan ccuntries.
- 79 -
Table 4.9
Parastatals and the Central Government Budget, FY86-91 a)
(Millions of Kenya pounds)
Prel
FY86 FY87 FY38 FY89 FY90 FY91
Adiusted total inflow to
Central Govt. budget bl 3 29 2 33.6 3510 14 S .4
CBK profiLs n.a. 44.1 41.6 67.8 96.1 97.8
Total intlow to Central
Governmcnt budget 69 26 62 110.6 U2
Loan repayments 7.5 6.4 5.6 15.0 10.0 10.5
Interest payments 11.6 7.6 6.1 9.7 10.0
Dividends and profits 11.8 52.2 63.5 78.1 90.6
Total adjusted outflow from 106.3 10.1 7.4 30.9 42.2 163.2
Central Govt. budget c/
Unremitted taxes d/ - . 0.0 0.0 45.0
Ext. debt service payments - - - 15.3 13.4 66.5
Total outflow from Central 106.3 10.1 7.4 15.6 28.8 51.7
Government budget
Loans 50.0 2.0 5.8 3.5 22.6 47.1
Equity purchases 10.5 7.9 1.6 12.2 6.2 4.6
Transfers 45.9 0.4 0.0 0.0 0.0 0.0
Net inflow to Central Govt. -75.5 56.1 67.8 87.2 81,9 61.5
Net adiusted inflow to
Central Government b/ c/ -75.5 12.1 26.2 4.1 -27.7 -147.8
Memorandum items:
(i n percentages)
Net adjusted inflow to
Central Govemment/GDPe/ -1.1 0.2 0.2 0.0 -0.1 -0.9
Fiscal deficit/GDP fV -5.3 -6.6 -4.2 -4.9 -4.1 -6.8
Sources., Ministry of Finance, CBK and IJMF. FY91 data from Economy Survey.
a/ May include some regulatory agencies.
b/ Excludes profits of CBK.
c/ Adjusted for taxes collected but not remitted and payments of Government-guaranteed external
debts.
d/ By agencies which collect sales and valae-added taxes.
e/ GDP in denominator consistent with GDP used in IMF fiscal data for period.
f/ Includes grants. Consistent with IMF fiscal data.
- 80 -
4.28 Formal guarantees were provided by the CGovernment directly through the Treasury (66.3
percent of the vaiue of the end-1990 stock) and indirectly through government-owned local
commerc.al banks (21.6 percent of the value of the end-1990 stock). A small amount was
guaranteed by private domestic banks and an even smaller amount was contracted without an
explicit guarantee.
4.29 One consequence of the commercial profile of the external debt of most parastatals is that
their debt service accounted for 25.5 percent of Kenya's PPG external debt service obligations
(incl. IMF) at end 1990 but only 17.1 percent of the stock of debt. Moreover, the share of
parastatal debt service in !990 represented an increase from 21.4 percent in 1986. What is even
more disquieting is that recently, the Central Government has had to assume an increasing
amount of these parastatal foreign obligations. This raises the obvious question about why the
loans were borrowed, how they were used and why several borrowers are finding it increasingly
difficult to repay therr.
4.30 Most of the parastatal external debt was contracted by 10 firms. Several are in
transportation and communications, banking and electricity, and some have the capacity to earn
foreign exchange directly. A number are lhgislated monopolies while others enjoy significant
local market share. All are majority-owned by the Government and a few have been able to
borrow externally without the prior clearance of the Treasury and without the conventional
government guarantees. By the nature of their operations, all are users of imported machinery
and equipment and many have undertaken large capital-intensive infrastructural investments. In
fact, their external borrowing has been justified on the grounds that these investments are
essential for Kenya's development and sustained growth.
4.31 It has been suggested that in the Kenyan context, a prudent level of sustainable external
indebtedness for parastatals is one that limits debt service payments to no more than 40 percent
of operating income before depreciation. This assumes an average repayment period of around
10 years, an average interest rate of approximately 10 percent and depreciation of the Kenya
shilling. But several of these firms are indebted well beyond this limit, reflecting in part
problems which they share with their counterparts in developing countries. These problems
include managerial weaknesses which in some cases were compounded by government regulation
of input and output prices, salary constraints on recruiting skilled personnel and foreign exchange
losses. Government as a client has sometimes been delinquent in paying parastatals for services
rendered, and this has undermined their orderly financial management. Some of these firms were
required to pursue costly noncommercial objectives for which they were not adequately
compensated. Other situations involved problems with equipment which were part of donor-tied
aid but which were difficult to service and maintain. At the same time, most enterprises were
undercapitalized, had inadequate working capital and depended on foreign as opposed to domestic
debt. In essence, the debt servicing difficulties experienced by several parastatals recently have
been caused by factors external to themselves as well as internal constraints and managerial
inefflciencies.
H. Evaluating Macroeconomic and Financial Performance
Macroeconomic Performance
4.32 In this section attention shifts from how much parastatals as a group contributed to GDP
to how efficiently this contribution was made. Central to this examination are implicit indicators
- 81 -
of labor productivity, incremental capital-output ratios and changes in total factor productivity
(TFP)j
4-33 On the positive side, the implicit change in labor productivity--the difference between real
output gro%kth and employment--was largest (22 percent per annum) among min . ;ty-owned firms
in trade, hotels and restaurants during 1986-90. Labor productivity was also s-rong in majority-
owned other services (II percent), transport and communications (6.6 percent) and finance, real
estate and business services (4.1 percent). In contrast, implicit productivity increases were
negligible in majority-owned electricity, trade, hotels and restaurants and negative in majority and
minority-o%ned manufacturing and mining.
4.34 As a measure of the productivity of capital, incremental capital output ratios (ICORs) are
a usef',' proxy for the extent to which changes in output coincide with changes in the capital stock
as proxied by gross fixed capital formation. The values shown in Figure 4.3 capture the
relationship between annual changes in ICORs and annual changes in capital. Understandably,
large investments which only yield returns in the distant future would perform badly by this
measure. Ac;cordingly, the ICORs for mining are large or negative. By the same token,
however, it is disturbing that the ICORs for minority and majority-owned manufacturing are
either large or negative. It is equally disquieting that the economy, net of the parastatal sector,
had an average ICOR of 3.9 during 1986-90, which was almost one-half the value for majority-
owned enterprises (7.6) and one-third the value (10.8) for minority-owned firms. 17/
4.35 The change in TFP is a better measure of productivity partly because it recognizes the
fact that labor and capital work together. Independently, the minority-owned sector appears to
use l'abor more efficiently and capital less so. However, the results in Table 4.10 indicate that
the efficiency of labor in this subsector offsets the inefficiency in capital, with the result that the
change in total factor productivity was 1 .2 percent in 1986-90. On the other hand, although the
majority-owned enterprises appeared to use capital mofe efficiently than minority-owned firms,
the difference was not large and did not offset the weak performance of labor productivity. As
a result, the majority-owned enterprises experienced an annual average reduction of 3.0 percent
in TFP during 1986-90. This stands in marked contrast to the rest of the economy (including the
Central Government) where the increase in TFP was 1.9 percent (Table 1.9) and 5.4 percent
(excluding the Central Government) (Table 4. 10).
I. Financial Performance
Background
4.36 Whereas 87 percent of the parastatals provided data for the compilation of the national
accounts (data for the rest were estimated), 18/ around 60 percent of the majority-owned
enterprises provided financial data. Only one major enterprise in this group did not submit
financial returns. For comparison, similar information was collected from about one-third of the
minority-owned enterprises, and several wholly privately-owned firms from a variety of sectors.
These differences in coverage introduce two wrinkles into the discussion of the financial
performance vis-a-vis the macroeconomic performance. First, whereas the conclusions reached
about economic performance apply to the parastatal sector in its entirety, the assessment of
17/ To avoid problems of interpretation, the JCOR for minority-owned firms excludes the figure for 1989 which is
negativc.
18/ This level of reporting was unusually high by Kenyan and international standards. Usually, data is collected for
82
Parastaal and Economy-Wide ICORs Compared
19690
28 -
26-
24 - I
22 - Lr rpMownee
Minor.owned enterp.
18
16 - jv; Rest of ecnomy
14 - Overal economy
*2 -
10-
6- MO 7
2 - ~~~~~~~~~~fo .17
.2 -
1986 1987 1988 1989 1990
Yes
Figure 4.3
- 83 -
Table 4.10
iTFP of the Parastatal and Private Sectors, 1986-90
(Percentages)
1986 1987 1988 1989 1290 198690
Change in 1 FP a/
Private Sector 6.9 1.1 7.8 6.0 5.3 5.4
Paatala -4.5 2.0 -3.5 1.9 -4.8 -1.7
Majorty-Ownod Enterprises -6.6 1.8 -4.7 1.8 .7.2 -3.0
Minority-Owned Enterprises 3.3 1.6 -0.9 -2.7 4.7 1.2
Growth Rate of Value-Added b/
Private Sector c/ 10.2 10.2 10.2 10.2 10.2 10.2
Parastatals 2.9 9.0 5.9 9.4 2.5 5.9
Majority-Owned Enterprises 2.4 10.6 7.1 12.0 2.0 6.8
Minority-Owned Enterprises 5.0 1.9 0.5 -3.4 5.2 1.8
Growth Rate of Labor Inputs dl
Private Sector 5.0 5.4 4.3 1.0 4.2 4.0
Parastatals 1.5 1.4 6.4 1.3 0.9 2.3
Majority-Owned Enterprises 0.6 2.0 7.3 2.7 1.0 2.7
Minority-Owned Enterprises 4.5 -0.4 3.8 -3.6 0.9 1.0
Growth Rate of Capital Inputs d/ e/
Private Sector 2.3 11.7 1.2 6.5 5.4 5.4
Parastatals cl 11.4 11.4 11.4 11.4 11.4 11.4
Majority-Owned Enterprises 15.3 15.3 15.3 15.3 15.3 15.3
Minority-Owned Enterprises 0.5 0.5 0.5 0.5 0.5 0.5
Source. Bank staff estrmales
a! Change in TFP is calculated as the difference between the rates of growth of value-added and
factor inputs (labor and capital) weighted by their income shares.
b/ At factor cost.
c/ Period average.
d/ Weighted by their income shares.
e/ Data on the capital stock is from MPND, Government of Kenya.
financial performance is essentially an analysis of a sub-group. By and large, however, the
excluded majority-owned firms are a numerically smaller sub-group of financially less significant
enterprises. Therefore, although the data inputs do not cover as many firms as those in the
analysis of macroeconomic performance, the discussion of financial performance should still be
interpreted as applying to the parastatal sector in general.
- 84 -
4.37 The second wrinkle has to uk vith comparability between macroeconomic data (especially
those covering domostic credit, external debt, and flows between the Central Government and the
parastatals) and similar data from the financial survey. Because the former data base covers all
firms, its numbers will be given precedence over numbers from the financial survey. But even
if all of the same firms were in both data sets, the macroeconomic performance could still differ
from financial performance (Box 4.2).
Box 4.2
Linkages Between the Macroeovomic
and Financial Performance of
the Parastatl Sector
Analyzing the macroeconomic and financial performance of enterprises is analogous to viewing two sides
of the sarie coin. Each may be peculiar in detail but ordinarily they are complementary ;n perspective.
In this chapter, macroeconomit- performnance focuscs on the magnitude of the enterprises' contribution to
GDP and GDP growth as well as thc quantity of resources used to generate this coaitribution. The former
is measured by value added while the latter is captured by indicators such as labor productivity, the ICOR
and the change in TFP. While higher labor productivity, lower ICORs and faster growth in TFP are
desirable in principle, their pursuit could conflict with the full utilization of the available factors of
production becausc pcrfectly adjustable factor markets do not exist in practice. For example, wages may
not be sufficiently flexible downward for all the labor to be absorbed in production. And even if they were,
eff4ciency might dictate that more capital be used instead of labor.
Given the limited availability of foreign exchange to most developing countries, assessment of
macroeconomic performance also focuses on the balance between direct import consumption and exports
generated within the sector. The sector need not be self-sufficient in foreign exchange. Rather, it should,
in conjunction and in competition with the rest of the economy, utiize and generate scarce foreign exchange
in an efficient manner. There is probably less universal agreement on how performance in this area should
be measured, but indicators such as the composition of imports relative to the rest of the economy, the
external asset/liability balance and the robustness of the overall balance of payments can be useful.
Generally, a firm in the private sector is likely to survive financially in a competitive environment only if
it produces efficiently. Financial survival ordinarily implies generating a current surplus and a satisfactory
return on capital. An efficient production base would support such a surplus but would need to be
complemented by a suitable mix of debt and equity. Frequently, firms in the private sector tend to be
heavily leveraged in part because interest expenditure is tax deductible. Often in the public sector, however,
these relationships become blurred because of non-market sources of financing such as government transfers
and subsidies. Government guaranteed borrowing, price controls, exemption from taxes such as import
duties and non-economic responsibilities also skew this relationship in different directions. Hence, while
it should not be surprising to find inefficient firms in the sector which are surviving financially, it would
not be unreasonable to expect parastatals which are efficient producers to be financially weak. Accordingly,
the discussion of the financial performance of the parastatals has to be supplemented with analysis of the
flows between the sector and the Central Government, as well as their transactions with the domestic banks,
NBFIs and external creditors. Ideally, cross-debts should also be traced and quantified but this proved to
be very difficult.
Ultimately, what is desirable is that the enterprises in the parastatal sector operate in an environment which
forces them to compete on the siame terms, with the most efficient producers, for inputs and markets at homc
and abroad. Survival undcr such circumstances is likely to require and re-inforce efficient production as
well as strong financial performance.
- 85 -
Performance
4.38 Tables 4. 11 and 4.12 contain selected indizators of financial performance for the period
1986-90 for a sub-group of minority- and majority-owned parastatals. The values are simple
averages. Relative to the majority-owned enterprises, the minority-owned enterprises did better
financially. Their averagc gross rate of return for 1986-90 was higher; their net rate of return
was also higher; their current assets/liability ratio was larger respectively; their debt/eq:ity ratio
was greater; their receivables collection period was sho.er; so too was their creditor payment
period.
Table 4.11
Minority-Owned Parastatals: Selected Indicators
of Financial Performance, 1986-90
1986 1987 1988 1989 1990 1986-90
Gross rate of return (%) 38.3 30.4 39.9 46.0 39.7 38.9
Net rate of return (%) 39.4 30.9 40.3 44.7 39.8 39.0
Debt/equity ratio 5.7 7.5 5.5 2.7 2.5 4.8
Current ratio 2.4 2.5 2.0 2.2 1.6 2.1
Receivables coUection period (days) 106.0 123.0 141.0 117.0 113.0 120.0
Creditors payment period (days) 85.0 99.0 102.0 80.0 109.0 95.0
Source: Parastatal Sector Financial Survey, Tables 3a and 3b.
Table 4.12
Majority-Owned Parastatals: Selected Indicators
of Financial Performance, 198W90
1986 1987 1988 1989 1990 1986&90
Gross rate of return (9) 11.6 16.8 16.4 16.8 21.5 16.6
Netrte of return(%) 12.C 19.4 17.2 38.3 23.0 22.0
Dcbt/equity ratio 2.3 1.8 1.9 2.2 2.0 2.0
Current ratio 2.5 1.3 1.2 2.7 1.3 1.8
Receivabics collection period (days) 152.0 163,0 156.0 142.0 165.0 155.6
Creditors payment period (days) 223.0 432.0 432.0 209.0 464.0 352.0
Source: Parastatal Sector Financial Survey, Tables 2a and 2b.
-86 -
4.39 With the exception of textiles and leather manufacturing, the differences in f'iancial
performance between minority-owned and majority-owned enterprises pervade all sectors. This
was particularly pronounced in food and beverages where the minority-owned firms earned gross
and net rates of return averaging 241.6 percent and 261.0 percent respectively (9.5 percent and
5.6 percent respectively in the c.ase of majority-owned firms). Concurrently, the receivable
collection period was 5.2 days for the minority-owned firms as opposed to 44.6 days for their
majority-owned counterparts; the corresponding creditors repayment period was 33.8 days for
minority-owned firms compared with 146.4 days for the majority-owned ones. The debt equity
ratio (0.3 relative to 0.8) and the current ratio (0.4 as opposed 1. 1) were marginally higher in
these minority-owned firms compared with the majority-owned ones.
4.40 The financial sector is another case in which large discrepancies occurred during 1986-90
in the financial performance of the minority-owned enterprises vis-a-vis the majority-owned
enterprises. In the former, the gross rate of return averaged 28.1 percent while the debt/equity
ratio and current ratio were 32.2 and 2.6 respectively. In contrast, the latter had a gross rate of
return of 11.9 percent a debt/equity ratio of 32.2 and a current ratio of 2.6 (Figure 4.4).
Enterprises in the Financial Sector
Selocted Performanco Indicators, 1 988-90
100-
90- Legend
80 - _ Majority-owned
Mlnodty-owned
60 - i , t Wholly private
6 0-
> 40-
30-
20-
10-
Gross retum Net return Deb% Curent ratio
Indicator
Figure 4.4
- 87 -
4.41 The gross rates of return in minority- and majority-owned parastatals fluctuate somewhat
hut generally display an upward trend. Whereas the receivables collection period rises erratically
for majority-owned enterprises, it falls after 1988 for minority-owned firms. Fluctuations are
also evident in the creditors payment period but the trend is toward longer payment periods for
both groups of enterprises. Similarly, debt equity ratios of both groups tended to fall (although
this was more pronounced among minority-owned firms) and current ratios to decline. Among
private sector comparaiors in finance and transportation, the gross and net rates of return also
fluctuated but generally moved upward. The opposite was true in privately owned food ana
beverage manufacturing, In all private sector comparators, however, debt equity ratios and
current ratios remained largely constant while receivable collection period and creditors payment
period rose.
4.42 Although th.e financial survey does not cover all parastatals, the data it generated on
variables such as flows between government and these enterprises, are still useful. For example,
given what is alreadv ki.own from the fiscal accounts, the information from the financial
questionnaires sheds some light on the relative importance of the larger enterprises vis-a-vis the-
smaller enterprises in explaining these transfers. Table 4.9 has already shown that net transfers
from public enterprises worsened progressively during 1986-90. Data from the financial survey
indicate further that during the same period, the total flows--equity, loans and grants--from the
Central Government to the sector were 2.3 times the total flows--dividends, principal and interest
repayments--from the sector to the Central Government. And when adjustments are made for
taxes collected but not remitted and external debt service payments assumed by the government,
the net flows in the financial sruvey worsen in a similar manner to that shown in Table 4.9.
4.43 The questien raised by the data is not simply why any particular parastatal was a financial
success or failure. The universal fact of commercial life-private or public--is that enterprises
malperform for a variety of avoidable and unavoidable reasons. The experience of Veneers and
Zimmermnan illustrates this point (Box 4.3). In any case, an exhaustive treatment of such reasons
would be beyond the scope of this report. What is presented instead in paras. 4.44 and 4.45
below is a summary of the generic problems which are illustrated by the macroeconomic and
financial data. These problems appear to be inherent in public ownership and are distinct from
sector-specific firm-level circumstances irrespective of ownership.
4.44 While it is relatively easy to identify the problems which have affected the performance
of the parastatals, it is much more difficult to apportion precise weights to any single problem.
A pragmatic and simple alternative is to report the concerns about these enterprises which have
been voiced by the Government in its capacity as shareholder and which are corroborated by the
analysis of macroeconomic and financial performance. First, management problems often
originate in poor selection criteria for directors and senior staff (Republic of Kenya, 1979, p. 4)
and desultory, disjointed and ultimately ineffectual board representation of the Government.
Second, enterprises were often undercapitalized because Government, as sole shareholder, was
unable to provide additional resources. At the same time, there was emphasis on creating new
capacity but little provision for working capital. This was particularly troublesome for parastatals
which produced price controlled items and hence could not easily raise their profit margins.
Third, investments were frequently undertaken without adequate assessment of their viability.
"Examples of unsound and poorly controlled investments can readily be found in such areas of
activity as fertilizer, sugar, textiles, and power alcohol. The amounts involved are of such a
magnitude that if they had been directed toward the development of essential rural infrastructure,
several districts could have been radically transformed in terms of both production and
- 88 -
Box 4.3
Veneers and Zimmerman
Not all enterprises in the parastatal sector are financially unviable, but not all funancially viable
enterprises in the parastatal sector are surviving. The discussion of Veneers and Zimmerrnan below
illustrates this pnint but does not dispute the importance of the concerns which led to their closure.
Veneers Kenya Ltd. was started in 1978 to manufacture plywood for a variety of doriestic arid inauistrial
uses, and tea chests for tea exports. Its major share holders - .-ere private opc;ators of a sawmill (35
percent), a local businessman who had been in the logging business for over three decades (33 percent)
and the government-owned Industrial Development Bank (26 percent). The company was located in the
Transmara Forest where it was initially permitted to fell non-indigenous trees and tn!r them into finished
products on site. Studies done by the Ministry of Natural Resources concluded that the company's
operations were not a threat to indigenous trees or the surrounding environment.
By 1979, Vencers was in commercial production and began to pay dividends to all of its shareholders.
After 1984, however, the company's operations were interrupted several times because of the perception
that it was damaging the environment. For example, in June 1984 the company was stopped for 3
months from fellinf trees in Nyangores Forest. In this case, the reason was the preservation of
indigenous trees and protection of the Nandi/Kericho water catchment area. Another ban was imposed
in August 1985 but it was lifted in September in that year after it was confirmed that the company had
not i Adiscriminately felled trees--only 'mutati' species were being cut-and that water catchment function
of the forests had not been compromised. Operations continued utilizing exotic non-indigenous pine
plant'tions at Londiani. This facilitated forestry planting of indigenous species. Still, on February 14,
1987, the company was again ordered to stop all timber felling. It has remained closed resulting in the
loss of around 300 jobs.
Zimmernan (1973) started as a private concem in the taxidermy business in 1944 but expanded into
game ranching when it acquired government equity (51 percent) in 1973 through the Kenya Tourism
Development Corporation. By 1978 the company had around 200 workers, earned mostly foreign
exchange and was among the leaders worldwide in the business. Over the next five years, net profits
averaged around 21 percent of turnover during full years of operation and the government received
dividends equivalent to 95 percent of its original equity investment.
However, in May 1977 the Government banned hunting in Kenya and extended the ban to dealings in
game products from March 1978. In July that year, the company stopped operating and laid off staff.
It remained dormant for over 10 years in the hope that the ban would be lifted from local game which
died naturally or was not endangered, or from imported game which had come from countries where
such a ban did not exist. That hope has faded and the company is now being voluntarily wound up.
- 89 -
employment. This is not to condemn the projects themselves but rather the lack of advance
planning, adequate safeguards for Government investments and good management which has
resulted in uncontrolled cost escalations. inefficient technologies and unprofitable enterprises."
(Republic of Kenya, 1882, p. 42).
4.45 Fourth, financial management and budgetary control were weak, reflecting poor
government supervision and lack of managerial and financial accountability. Parent m nistries,
first in the line of supervision, often failed to issue clear policy guidelines for their enteiprises.
Until very recently, the aur;t function was also underdeveloped and unfocussed. Fifth, attempts
a: reform have tended to L. - 2nd excessively on management changes and to leave the inherent
incentive structure w-liin and surrounding the enterprises untouched. Sixth, it has proven
difficult to legislate financial accountability without excluding mechanisms which promote
productivity and efficient corporate operations. Ex ante controls predominate. Ex post
performance evaluation has been scarce. Ultimately, however, these explanations are not excuses
for the weak macroeconomic and financial performance of a sector which has had preferential
treatment in the competitions for Government contracts, comprehensive import duty exemptions
and preferential access to domestic credit.
J. Transitional Summary and Conclusions
4.46 So far, this chapter has presented and analyzed a wealth of macroeconomic and financial
data on the parastatal sector in Kenya for the period 1986-90. More data can be added hut this
would only re-inforce the broad conclusions already reached which may be synthesized as
follows:
v At end-June 1991, the parastatal sector roughly comprised equal numbers of
majority-owned and minority-owned enterprises. Overall, the enterprises were
most numerous in manufacturing (particularly food and beverages) but several
were involved in distribution, finance, transport, communications and other
services. However, there was greater diversity of sectoral activity among
majority-owned firms than among their minority-owned counterparts who tend
to be concentrated in manufacturing.
* At end-1990, most parastatals were medium-sized employing under 500 persons.
Those that were larger were mostly majority-owned, with the largest firms in
manufacturing and mining, transportation and communications. All told, the
parastatal sector created one-tenth as many jobs as the rest of the economy and
generated slightly more than one-ninth as much value-added.
* As a group, parastatals were not budget neutral. Majority-owned enterprises
received increasingly larger net flows from the Central Government especially
toward the end of the period when the Government had to assume seome of their
external debt service obligations.
* Parastatal deposits were held by commercial banks and NBFIs, but within the
latter, they accounted for a larger share of total deposits. Data on the credit side
suggests that the parastatals were not large direct consumers of domestic credit.
However, because they contributed to the fiscal deficit, they had an indirect
impact via domestic financing of the fiscal imbalance. Moreover, credit to
-90-
parastatals was unresponsive to measures aimed at curtailing monetary expansion
during 1988-90, indicating that the burden of adjustment fell on the private
sector.
Significant external debts were incurred by just over a dozen majority-owa.cd
firms. Most were guaranteed by the Central Government directly while a few
enjoyed guarantees provided by government-owned domestic banks. In general,
these loans bore commercial rates and thus are more burdensome than
comparable Central Government borrowing,
* By 1990, about 40 parastatals accounted directly for approximately one-third of
the trade deficit. Of course, they were not the sole users of some of the items--
notably oil, sugar--which they imported. On the other hand, they contributed
less than 5 percent of merchandise exports, despite the availability of export
incentives and a concentration of parastatals in manufacturing.
* Overall, value added from the parastatals grew as quickly as the rest of the
economy but the sector employed a disproportionately large amount of resources-
-especially labor and capital--in the process. The situation was worse in
majority-owned manufacturing and mining but it was also quite bad in majority-
owned transport and communications and minority-owned finance, real estate and
business services.
* Minority-owned enterprises generally used labor ana capital more efficiently than
majority-owned enterprises but were less efficient than firms which were wholly
privately-owned. The financial performance of these enterprises displayed a
similar pattern. It was especially strong in major;ty-owned trade, restaurants and
hotel, and minority-owned finance, real estate and business services but
particularly weak in majority-owned mining, majority- and minority-owned 'other
services', and minority-owned domestic trade.
: * A re-allocation of productive resources from the parastatal sector could produce
static and dynamic efficiency gains. This is because the productivity deficit
economy-wide appeared to be greatest among majority-owned enterprises.
Moreover, althouglh minority-owned enterprises did better, the change in their
total factor productivity was less than the national average and well-below the
private sector (the rest of the economy excluding the Central Government).
Accordingly, the static efficiency gains are likely to be largest from the majority-
owned subsector. This could also have a significant direct impact on the budget
deficit.
* Reform which encourages greater competition economy-wide could also
eventually produce dynamic benefits beyond those which are suggested by the
performance of the private sector during 1986-90. The TFP recorded by the
private sector was achieved amidst resource and regulatory constraints, some of
which emerge from the parastatal sector and the fiscal imbalance. The latter led
to the imposition of credit ceilings which limited private sector access to credit,
and drove up real interest rates and inflation. The former sometimes operated
91 -
in uncontested markets and often received favorable treatment in contestable
situations.
K. Parastatal Reform
4.47 The Government's past attempts at reforming the parastatal sector have focussed on
strengthening the control mechanisms and the accountability of managers. Lacking an overall
policy framework for the parastatal sector, effort-s to improve efficiency have tended to follow
a case-by-case approach. most often in response to a deteriorating situation in an individual
enterprise or the emergence of a crisis which focuses the public's attention or begins to impact
noticeably on the Government's budget. In such circumstances, the Government has generally
responded by changing management and issuing a set of instructions to deal with the immediate
problem. As a result, progress in parastatal reform has been slow and ad hoc. Moreover,
because the Government's corrective measures have not dealt adequately with the underlying
causes of parastatal inefficiency, reforms are inherently short term in nature and constantly in
danger of being reversed.
4.48 Recently, the Government has come to accept the need for a comprehensive approach to
parastatal rerorm, including a reassessment of the role of the state more in line with Kenya's
development strategy and goals. This reassessment has been prompted in part by budgetary
pressures but also by a growing concern over the low returns to public sector investments and
the realization that unless the large parastatal claim on economic resources can be reduced, the
private sector will be unable to provide the impetus for more rapid and efficient growth.
4.49 The detailed objectives of a parastatal reform program may vary widely but an
overarching aim should be to improve productive efficiency throughout the econormiy, in both the
public and the private sectors. Other important objectives of the program can include:
* reducing the financial and administrative burdens that parastatals impose on the
Government;
* raising revenues from the sale of state-owned assets;
* dispersing widely the ownership of assets previously held by the Government;
* deepening capital markets;
* attract foreign investment, management skills and technology;
* eliminating preferential treatment to allow a level playing field for parastatals and
the private sector; and
* improving the enabling environment for the private sector.
These desirable goals should be pursued, but not allowed to take precedence over the primary
objective of enhancing efficiency.
4.50 Although privatization is often the most visible element of a parastatal reform program,
a clear implication from the set of objectives suggested above is that privatization should not be
- 92 -
viewed as an end in itself, but as a broader effort to promote productive efficiency, strengthen
competitive forces in the economy, and support entrepreneurial development. Experience shows
that divestiture programs that follow or parallel policy, regulatory and institutional reforms have
tended to show better results than programs undertaken in isolation from such reforms. Thus,
the design of the divestiture component in Kenya should be well synchronized wAith the removal
of economic distortions and the development of a supportive macr(oec(nomic, instituti(nal,
managerial, and financial environment.
4.51 As part of its parastatal reform program the Government has decided to adopt the
following categorization of enterprises:
STRATEGIC NON-STRATEGIC 1
VIABLE Retain Sell
| NON-VIABLE Restructure/Retain Liquidate
In line with the Government's definition, strategic in the matrix above refers to enterprises, parts
of enterprises or the commercial functions of administrative/regulatory bodies, that are deemed
vital to national seeurity and those providing essential goods and services, especially
infrastructure services and utilities. All other parastatals would be classified as non-strategic.
4.52 Viable parastatals would cover all enterprises that are commercially profitable under the
current and proposed economic policy environment. All others are deemed unviable. The
category potentially viable has been omitted intentionally, on the grounds that decisions on the
financial and managerial resources required to turn a potentially viable company into a viable
commercial undertaking should be left to the new managers and owners of privatized parastatals.
Thus, the Government should not be responsible for the physical, financial or managerial
rehabilitation of a parastatal prior to privatization. In the long run, the Government will aim at
full divestiture of all non-strategic parastatals. Experience with parastatal reform programs has
shown that classifying all firms at the outset is not necessary; quick action to privatize. liquidate,
or restructure some of the extreme cases is often more important than an exhaustive classitication
and lowers the risk that the reform process will stall through lack of internd' consensus on
parastatals that are politically difficult to classify.
L. A Set of Guiding Principles
4.53 The Government's decision to embark on a comprehensive parastatal reform program is
an important step. Implementation of the program and its sustainability will depend on the
Government's acceptance and adherence to a set of policy principles to guide the reforms. It is
important that these principles be clearly recognized and publicized as they will have major
bearing on the credibility of the reforms and their acceptability by the public at large. no'
20/ The discussion that follows draws from the World Bank's extensive experience in parastata reform anm i s
applicability to Kenya's specific circumstances. For a comprehensive analysis of the World Bank's lcssnn of
experience, see: Shirley and Nellis, 1991.
- 93 -
Transparency or Divestiture
4.54 Given the limited absorptive capacity of Ken, a's private sector and financial markets,
divestiture will necessarily be a long-term process. Experience in many countries that have
embarked on privatization programs strongly suggests that to ensure sustainability and efficiency,
the process must be transparent and must provide equal opportunities to all potential investors.
In this respect, the process by which assets are valued and transacted must follow clearly
articulated and agreed criteria. It must ensure that once the decision to privatize has been taken,
the actual valuation of assets and firms follows strict technical clriteria and negotiations with
potential buyers are, to the maximum extent possible, free of political interference. All
transactions should be conducted in an open and transparent manner, consistent with normal
standards of commercial discretion. At the completion of the sale, all aspects of the transaction
should be in the public domain. This process requires careful handling not only to ensure that
divestiture generates adequate returns but also to avoid claims that the Government is giving away
the public patrimony to preferred purchasers who then enjoy a windfall profit.
An Open Environment for Parastatal Reform
4.55 As suggested above, the main objective of the parastatal reform program should be to
increase the overall efficiency of productive resources by mobilizing the financial and managerial
skills of the private sector in support of economic growth. Recognizing that the existing pool of
private capital and managerial skill is limited, the Government should make it clear that no
specific class of potential participant, either as owner, manager or lessor, will be excluded. In
particular, divestiture to foreign firms or individuals would be welcome, in line with the
Government's foreign investment policies and regulations.
Subsidies and Preferential Treatment
4.56 The most effective way to promote the efficiency of an enterprise, public or private, is
to require it to operate as a profit-making commercial venture in a competitive environment and
without subventions or special privileges. As part of its parastatal reform program, it should be
Government policy to eliminate all subsidies, explicit or implicit, to strategic and viable
enterprises. Subsidies should be considered only for unviable but strategic parastatals or those
parastatal activities of a social or developmental nature undertaken at the explicit request of the
Government. In granting subsidies the following principles will be important: (i) all subsidies
should be transparent and explicitly recognized in the Central Government budget; (ii) cross-
subsidization among parastatals and government departments should be eliminated; (iii) the
Government should explicitly recognize and cost the commercially unviable activities undertaken
by parastatals on its behalf and provide a direct subsidy for them; (iv) the extent of the subsidy
should be determined and reviewed periodically as part of a contractual arrangement negotiated
annually between the Government and the parastatal, and clearly setting out mutual
responsibilities and obligations; and (v) unbudgeted subsidies to parastatals thrG'igh tax or duty
exemptions, below-market lending rates, or other such means should be eliminated.
4.57 With respect to divested enterprises, the following principles will be important: (i)
enterprises will be divested into competitive markets, ensuring that purchasers will not obtain an
intact or unregulated monopoly; (ii) purchasers will not be accorded special protection, privileges,
or access to credit on concessionary terms; (.ii) necessary legal restructuring and labor
retrenchment measures will be undertaken while the parastatal is in public hands, in order to
- 94 -
transfer unencumbered assets to the new private sector owners; and (iv) all sales will be on a
cash-only basis, with the possible exception of shares sold to the workforce of affected
enterprises.
Parastatal Debt and Government Guarantees
4.58 An effective reform effort will need to reduce the existing stock of parastatal debt to a
sustainable level. For those parastatals that remain under state control, the Government should
define appropriate debt/equity ratios on a firm-by-firm hasis and take steps to move toward these
ratios,
4.59 For those parastatals to be divested an imnortant objective should be to effect a transfer
of assets unencumbered by outstanding debt obligations. Experience has shown that where
divested enterprises continue to carry financial obligations to the Government there is a tendency
for the Government, operating as a creditor, to seek to maintain some degree of control or
influence in the operations of the company on the grounds that it has a right to safeguard its
investment. On the part of the new owners, there is the potential that repayments to the
Government will receive low priority, or in an extreme case, even lead to default on the
assumption that since the Government has a strong interest in ensuring the success of the
divestiture program, it will be reluctant to repossess divested assets or force the company into
receivership. To ensure that divested companies are run as commercial ventures, the G( vernment
should assume all the domestic and external liabilities for which it was directly (e.g., for firms
wholly owned by the Government) or indirectly (e.g., through guarantees) liable. The proceeds
of the divestiture should be first applied to recuperate all costs associated with such an assumption
of liabilities.
Regulation, Market Intervention and Commercial Functions
4.60 In Kenya, as in many countries, state ownership has been perceived and structured as an
alternative to regulation or market intervention in a particular sector. As a result, over the years
a number of parastatals have acquired a variety of functions which are in practice incompatible
and distort market mechanisms. Although on productive efficiency grounds the ultimate objective
should be to minimize the extent of government regulatory and marketing interventions, an initial
step must be to recognize that regulation (e.g., for health and safety, competition), market
interventions (e.g., price stabilization in agriculture), and commercially viable activitiec must be
institutionally separate. Without such separation, parastatals may be placed in a position of
pursuing internally inconsistent objectives and, to the extent that regulatory and commercial
functions are combined, providing the parastatals an unfair advantage over the competing private
sector they are empowered to regulate. As part of the parastatal reform program, the
Government should review the various functions of parastatals with a view to separating those
functions that are incompatible. An important principle should be that regulatory and/or
marketing bodies should not undertake commercial activities, either as monopolies or in
competition with the private sector.
4.61 A number of governments have increasingly come to the conclusion that the introduction
of an appropriate legal and administrative framework, rather than ownership, is a more efficient
approach to economic reg.lation. In the case of Kenya, in addition to separating regulatory from
commercial functions and ensuring that private and public enterprises are placed on an equal
regulatory footing, there is a need to substantially reduce and streamline the regulation e~f
- 95 -
economic activities. To the maximum extent possible, Kenya's regulatorv system should move
to indirect, ex post regulation through the legal system rather than direct, ex ante administrative
regulation.
Autonomy and Accountability of Parastatals
4.62 Limited managerial autonomy and independence is a major constraint to improving the
efficiency of those parastatals that will remain under state control. Without autonomy in areas
such as pricing, staffing and investment decisions, maragement's capacity to maximize efficiency
is severely circumscribed. At the same time, managers who have greater freedom to run
parastatals must be held accountable for the performance of the firm. The challenge is to
establish a delicate balance between autonomy and accountability. Accountability is meaningless
without autonomy but autonomy without accountability is license. At present, the Government
believes that parastatal managers have insufficient autonomy and that accountability and
evaluation procedures are inadequate. As part of the parastatal reform program, therefore, it will
be important to take steps to strengthen autonomy of managers and revise reporting and
evaluation systems accordingly.
4.63 In moving to improve the balance between autonomy and accountability a critical step is
for the Government to clearly define its own role vis-a-vis the enterprise. The following roles
have been suggested as appropriate (Jones, 1987): (i) set the basic objectives for the enterprise
(e.g. maximize profits or return on equity); (ii) appoint the managing director and/or the board
of directors; (iii) evaluate performance against the basic objectives, and reward or penalize the
rnanaging director accordingly; (iv) review only those financing decisions that affect public funds
(e.g. requests for government equity, government guarantees); (v) monitor prices or tariffs if the
enterprise is a monopoly; (vi) plan for the long term with regard for the interdependencies of
enterprises (e.g. to phase out activities that might best be left to the private sector); and (vii) do
nothing else.
Parastatal Boards
4.64 In Kenya, there is widespread recognition that the quality of many parastatal boards of
directors has deterioxated as the number and size of these boards has increased. An active and
professional board of directors can be an important asset to a company. In principle, with an
effective board in place, governments can be encouraged to decentralize power to the board and
increasingly rely on an arm's-length relationship. Clearly, the board cannot be the only way to
hold management accountable, particularly when public resources are at stake, but a competent
board can play a constructive role through its policy-making and review functions. A number
of principles are important to improve the quality of boards in strategic parastatals: (i) the board
should he small; (ii) appropriate qualifications for directors should be clearly stated and enforced;
(iii) directors should have fixed terms with a staggered turnover to ensure continuity; (iv)
directors should be compensated adequately but not lavishly; (v) the Government should speak
with one voice at the board and its representative should be of appropriate rank; and (vi) the
Government should regularly evaluate the performance of the board, and if it finds the board's
performance inadequate, dismiss it.
-96 -
Management Salaries and Performance Incentives
4.65 If the Government, as owner of parastatal firms, treats good and bad performers equally,
it should not be surprised by the lack of efficiency and falling productivity of its parastatal sector.
Evaluating the performance of parastatal managers is a difficult but essential process. A complete
performance evaluation system should include: (i) a reliable and timely flow of appropriate
information in standardized form; (ii) objectives, targets, and specific criteria for evaluation; (iii)
an objective and professional oversight body to monitor performance and evaluate results; (iv)
a decision-making body to act on the findings; and (v) a managerial incentive scheme (Shirley
and Nellis, 1991). Given Kenya's limited administrative and technical capabilities, the design
of an appropriate performance evaluation system will be a difficult undertaking. Nonetheless,
the principle that the performance of parastatal managers will be evaluated should be established
at an early stage of the reform process. The early experience with performance evaluation in
Pak-istan and Korea, however, suggests that even technically flawed indicators seem to improve
efficiency, and they clearly raise the attention paid to performance by both management and
government.
4.66 As in most developing countries, salary structures in Kenyan parastatals are linked to the
rigid and bureaucratic rules of the civil service. 21/ Although parastatal salary scales are
higher than those of the civil service, salary adjustments only occur when civil service pay scales
are revised, generally every 4-5 years and following the recommendations of a Salary Review
Commission. Salary structures of managers, in particular, should be roughly competitive with
counterparts in the private sector. In addition, there is a need to develop a system that provides
financial incentives for improved performance. Without improved salaries and performance
incentives, it will be difficult to attract, retain and motivate qualified staff and managers in the
parastatal sector. The most important step toward an effective compensation system is to move
away from a rigid link to the civil service. The best system is one in which the compensation
package and increases are decided by each enterprise on the basis of its market situation and
performance.
Safety Nets
4.67 Parastatal reform tends to be associated wit1 retrenchment. The immediately visible
social costs of privatization and liquidations can be severe in the short to medium run, whereas
the benefits associated with a more dynamic and expanding private sector can only be expected
to -.dterialize over the longer run and they generally tend to be less visible than short-term
retrenchments. Since Kenya does not have a social security system for the unemployed, there
is a need to design a safety net to mitigate the transitional social costs resulting directly from the
parastatal reform program. Issues in the design of safety nets are discussed in Chapter 5.
Institutional Framework
4.68 Managing and designing a parastatal reform and privatization program is a complex
undertaking, and government officials seldom have the needed skills. Successful implementation
of the reform program, especially its divestiture component, will require special technical skills
and administrative capabilities in areas such as asset valuation, legal and contractual matters, the
receivership process, absorptive capacity of the capital market, and the design of information and
performance evaluation systems for strategic parastatals. Moreover, governments are often in
21/ This applies only to enterprises that are wholly- or majority-owned by the Government.
- 97 -
a weak bargaining position--publicly committed to retorm and privatization, burdened by
unattractive parastatals, and short on the information and expertise to effectively dispose of state
assets. A common outcome under such circumstances is that assets are undervalued and the
Government finds it difficult to insulate the process of sale from political interference. In a
number of countries, lack of appropriate institutional mechanisms to oversee and implement the
parastatal program has led governments to temporarily abandon the reform process.
4.69 The Government has decided that the Office of the Vice President and Mi.iistry of
Finance will be responsibie for implementation of the parastatal reform program. The Ministry
will be in charge of developing and implementing the policy and institutional reforms required
to strengthen the enabling environment, improving and streamlining the regulatory framework,
and designing and carrying out the divestiture component. The Government has also set up a
Parastatal Reform Policy Committee (PRPC) to guide the divestiture process. The PRPC is
chaired by the Vice President and Minister for Finance, and ir.cludes: (i) the Ministers of
Planning, Industries, Tourism and Wildlife, Commerce, Office of the President, and Foreign
Aftairs; (ii) 4 Permanent Secretaries; (iii) the Governor of the Central Bank; and (iv) 3 private
sector representatives. The PRPC plans to meet every 2 weeks provided there is a quorum (ie,
at least 4 Ministurs, 2 Permanent Secretaries and one private sector representative--members of
the PRPC cannot delegate).
4.70 Although the PRPC currently has a wide mandate, its terms of reference are loosely
structured, suggesting that its functions and responsibilities will, to a considerable extent, evolve
through practice. Since its first meeting, the PRPC has already initiated actions with respect to
liquidation or divestiture of some public sector assets. It has not, however, established detailed
and transparent criteria for the disposal of these assets. Moreover, an adequately staffed
Technical Unit to support the work of the PRPC has yet to be established. While the PRPC's
functions, procedures and work program are currently evolving, to ensure the success of the
reform program it will be important to establish early a set of guiding principles (along the lines
of those suggested above) and its areas of responsibility. It is equally important to determine
what the PRPC will not do. Experience suggests that the PRPC should be regarded as the
political body to devise, guide and oversee implementation of the divestiture component of the
Govermnent's parastatal reform and private sector development program. Because of its political
nature, the PRPC should be publicly accountable for the divestiture process.
4.71 The PRPC should be involved in policy formulation, decision making, and
implementation oversight and review. Its policy formulation functions should cover: setting
valuation criteria and procedures to effect divestiture; redundancies and safety net provisions; and
allocation of divestiture proceeds. Its decision-making functions should cover: approval of
enterprises to be divested or liquidated, method of privatization, and timetable; acceptance or
rejection of fully determined transactions presented to it by the Technical Unit; periodically report
to the public on privatization decisions taken and progress made; approval of the functions,
staffing, mandate and budget of the Technical Unit; and approval of a pre-qualified pool of
technical expertise from which the Technical Unit can draw for its work. Its review function
should include: reviews of the Technical Unit's adherence to the criteria and procedures laid
down by the PRPC; annual assessment and performance review of the Technical Unit's role in
carrying out divestiture objectives and targets; and monitor implementation of the safety net
component. The PRPC should not be involved directly in the valuation of divestible assets or
in negotiations with potential buyers.
- 98 -
Implementation Issues
4.72 Sequencing Parastatal Reforms. In every country, parastatal reform is a difficult and
lengthy process because of its complex economic, political, and social dimensions. For the
process to be sustainable, it must be handled in stages which take into account a country's
administrative capacity, political factors, and the absorptive capacity of its private sector. In
Kenya, an essential first step has been the hammering out of a political consensus on the need to
adopt a compcehensive and systematic approach to the parastatal sector. It has taken more than
a decade to forge this political and economic consensus which, although present today, needs to
be buttressed by a clear understanding of the principles to be followed, implementation priorities,
and actions to build momentum. Because the Government in Kenya is responding to this
evolving consensus and perceives a window of opportunity, it has chosen to focus on divestiture.
This is appropriate in the Kenyan context but in following this approach there is a danger that
the divestiture process will be hastily implemented and, because of its political visibility, will be
perceived as the sole objective of the parastatal reform program. To guard against this danger,
the Government should ensure that its overall parastatal reform strategy is well disseminated and
understood by the public and decision makers. Although the broad elements of the Government's
parastatal strategy have emerged in various public pronouncements, a first priority is the clear
articulation of policies and principles in a publiciv available document, to be followed up by
periodic restatements of the Government's commitment and progress achieved. This would
ensure that the public's attention is regularly refocussed on the broader framework and objectives
of the parastatal reform program.
4.73 With regard to divestiture, two critical areas need t(o he addressed over the short term
First, as some privatization measures are already in process a priority should be to set and
publicize the selection criteria and the rules and pr(ocedures that will govern the divestiture effort.
Second, the institutional structure iequired to support the re'orri program needs to be decided
and implemented. Most ot the skills required for divestiture and broader parastatal reform do
not presently exist within Kenya's civil service structure. Thus, a major effort to mobilize the
necessary technical skills and institutional capacity will be required. 'hile this is an urgent
priority, no amount of techriical assistance or institutional strengthening will succeed if the
Government itself is unclear or less than fully committed to the broad objectives, principles, and
procedures of a comprehensive parastatal reform program.
4.74 To maintain momentum on divestiture, and while steps are taken to set guidelines,
procedures, and establish the institutional support structure, candidates for divestiture over the
near term should be those that are likely to cause minimum economic and social disruptions, and
where the very nature of the enterprises is likely to make it easier to ensure an efficient and
transparent privatization exercise. Likely candidates are profitable small- and medium-sized
parastatals operating in the tradeable goods sector which have no need for financial, operational,
and legal restructuring, and which will require a minimum of redundancies or social disruption.
4.75 Legal Environment. Experience shows that as governments move from the policy
formulation phase to the details of the parastatal reform and privatization program, they often
tend to overlook the need for legal changes or to underestimate the amount of time required to
effect such changes. However, a reform program designed to encourage greater efficiency in the
whole economy may depend critically on changes in the legal environmerit that can support
increased competition and accountabilit\ in both the private and public sectors. For strategic
parastatals, the laws governing them should support competitiveness and managerial
- 99 -
accountability. To achieve this, countries have opted for one of two broad approaches. One
option is to concentrate on directly legislating the reform of public enterprises, by modifying the
parastatals' enabling acts or the whole State Corporations Act. A second option is to apply the
established private sector commercial code, in Kenya's case the Companies Act, to the parastatal
sector to place firms under a more efficient set of rules and to underscore that they are to be run
as commercial entities. In general, placing as many strategic parastatals under the same
commercial code governing private firms--and ensuring that the code itself supports competitive
markets--will tend to promote competition and nondiscrimination more effectively than special
legal status for parastatals.
4.76 Privatization Options. Different forms of divestiture are possible depending on the type
of enterprise considered. Broadly, privatization can take place through public offering of shares,
private sale, or public competitive tendering. In addition to the main option of sale identified,
the sale of assets to employees and/or management can also be considered. At an early stage it
will be important to develop guidelines to assist in identifying and implementing appropriate
forms of divestiture. Parastatals to be divested partially or fully through the Nairobi Stock
Exchange should comply with a minimum set of conditions or criteria, including: eligibility for
listing on the stock exchange (eg, audited accounts, track record on profitability and dividend
payments, etc.); relatively large and well-known firms; favorable economic and financial
prospects; and prospectus approved by the Capital Markets Authority (CMA). Detailed steps for
privatization should be developed and could include: readying measures (eg, clarifying legal
status and preemptive rights); preparation of valuation; procedures for selection of an agent or
issuing house to handle the sale; preparing and issuing a prospectus approved by CMA;
mechanism to ensure distribution and collection of applications; agreement on measures to deal
with undersold or oversubscribed issues; and development of conditions where different classes
of shares (eg, golden shares) would be applied. In order to assure wide distribution of shares,
where this is an objective, it is important to specify in advance the maximum allowable
percentage of shares to be held by one person or entity, each region, foreign investors, or
employees and management.
4.77 Parastatals which will be sold totally or partially bv private sale to a pre-identified buyer
or group of buyers must follow a transparent procedure which could be ensured by: laying down
criteria for pre-qualification of interested buyers or following an open competitive process;
developing mandatory guidelines for price setting, opening, rankinig, and selection of purchasers;
and setting uniform terms of sale. Parastatals to be sold through an open invitation to bid should
also respond to a set of procedures which could include: conditions for tender, pre-qualification,
evaluation criteria, and regional participation; preparation of tender documents, including
description of assets along with any special requirements such as employee retention, joint-
venture arrangements, local and foreign participation, and specific usage restrictions; advertising
and distribution of tender documents; and criteria for review and evaluation. Participation of
management and employees in the process of privatization, if deemed desirable, could be
facilitated by the introduction of incentives such as discounts on the price of shares. Various
schemes such as Employee Stock Ownership or Employee Participation Plans could be explored.
4.78 Evaluating Trade-Offs. Unless the Governrnent considers the potential trade-offs
between objectives before making decisions, it can make costly errors. Many privatization
programs have focused on short-term revenue gains when long-run net fiscal benefits are by no
means assured. If the sales price of a profitable parastatal plus the present value of future tax
revenues are less than the present value of the net future income stream under state ownership,
- 100-
divestiture worsens the Government's financial position. In some cases, divestiture of an
unprofitable but viable parastatal can quickly eliminate a fiscal drain on the Government, but the
asset transfer can leave the economy wvorse off if extensive concessions are offered to the new
owners. In other cases, short-run revenues can he maximized by selling monopolies, but if as
part of the divestiture process there is no attempt to develop competitive pressures, long run
economic costs can be high. In evaluating these trade-offs it will be important to keep in mind
the primary objective of parastatal reform--increasing productive efficiency--and the guiding
principles should be designed to meet this objective. While other objectives, such as relieving
fiscal pressures can be important, the acid test should be whether the divestiture action will lead,
over the long run, to a more competitive and economically efficient outcec'e.
4.79 Absorptive Capacity. Although in embarking on a privatization program Kenya enjoys
the advantage of relatively dynamic and well-established private sector, a weak capital market and
limited absorptive capacity make it imperative that the financial prerequisites for divestiture be
assessed carefully and the sale of assets be adequately sequenced. In structuring its privatization
program, the Government needs to ensure that the disposal of assets does not overwhelm a thin
market to the point where the process begins to acquire the characteristics of distress sale. At
the same time, although there are clear benefits to the transfer of state assets to the private sector,
the private sector itself will continue to require capital for its own needs, independent of the
privatization program. Thus, there is a need to ensure that the privatization process does not
drive down the price of divestible assets and does not crowd out other economically-efficient
capital needs of the private sector. This will require close coordination of the Government's
privatization program with developments in Kenya's financial and capital markets.
M, Summary
4.80 The findings of this chapter confirm concerns which were preambled in earlier reports
on selected groups of parastatals in Kenya, and elsewhere in the developed and developing world.
In this sense, the conclusions reached in this chapter are anything but new. What is different,
however, is that the documented managerial and financial problems of a few enterprises is now
evident as the endemic plight of many. And the assembled evidence is significantly more robust,
arresting and disquieting than any put together so far. It has also come almost thirty years after
a developmental role was first assigned to the sector, more than enough time for it to demonstrate
its effectiveness, justify its composition and claim on resources, and silence its critics.
4.81 The problems of the sector, their causes and their solutions are neither new nor peculiar
to Kenya. It is true that many of the problems may have become more entrenched because of
the failure of successive attempts at reform. To date, however, such attempts have been piece-
meal and timid. In dhe future, they will need to be bold and decisive.
Chapter 5
Implementing Adjustment and Susts4ning Growth
'1t is the ordinary people who alone can make development sasstainable, and development has not realt'
occurred until it is susiainable' (World Bank, 1990a, p. 8)
Introduction
5.1 The Kenyan economy needs to grow faster. After 27 years of independence GNP per capita
reached $368 in 1990 reflecting national income growth of 1.9 percent per annum during 1968-89.
At this historical growth rate, GDP per capita would double only after 35 years (after around 27
years if population growth declines from 3.8 percent to 3.4 percent). "More rapid growth is essential
to provide both Kenya's families and the Government with the resources to finance long-term basic
needs, even if [this] requirels] a slower growth of basic needs outlays for a time" (Republic of Kenya,
1986, p. 13). In most of the post-independence period, growth appears to have been extensive,
driven more by the quantity of resource inputs such as capital and labor than by productivity
increases. Foreign savings financed a large portion of these capital inputs. The challenge ahead for
economic policy design and implementation is to sustain a higher level of income growth by
significantly raising factor productivity. Such growth would create jobs and could more easily
generate equitable income distribution.
5.2 The Kenyan economy can grow faster. Chapter 1 indicates that it grew strongly in 1990
although a number of enabling factors were less favorable. The analysis in Chapter 4 also shows that
the economy grew strongly throughout 1986-90 in spite of the inefficient use of resources by the
parastatal sector. Indeed, Bank simulations indicate that GDP growth during the period could have
been as much as 2 percentage points higher per year if productivity in the parastatal sector were
similar to that of the private sector. This would cut the time for doubling income per capita to about
17 years. The corollary, of course, is that reform of the parastatal sector would be tantamount to re-
investing in stabilization and sustained growth. Based on the discussions in Chapters 2 and 3, reform
of the civil service would also be an investment in stabilization and growth.
5.3 Like general macroeconomic reform, public sector adjustment must be as convincing about
implementation as it is about concepts and design. It must also handle issues of substance and
perceptions--commitment, ownership, transparency--as well as deal with magnitudes--how much
adjustment, in what sequence, at what cost, with what benefits and at what risks. A subset of these
conceptual and implementation issues is discussed in Section A of this chapter. The rest of the
chapter then looks at parallel developments in the private sector (Section B) and in the general
macroeconomic environment (Section C) that would greatly enhance the chances for successful public
sector adjustment.
A. Some Practical Issues and Lessons of Experience
5.4 Although objectives abound in theory, Bank experience suggests that at the practical
operational level parastatal reform should aim for 3 outcomes:
* reduction in the size of the sector which in many countries became overextended in
a protected industrial environment, and inefficient in the use of productive resources;
- 102 -
* improvement in operational efficiency as the enterprises adapt, or are forced to adapt,
to competitive forces; and
increase in profitability, thus enabling the parastatals to increase their contribution
of taxes and dividends to the Central Government's budget, and to reduce their
dependence on transfers from it.
When the experiences of civil service reforms are distilled, there is cautious optimism for:
* "activist policy" which tackles issues of overstaffing and duplication of institutions;
and
* changing the composition of employment by increasing recruitment of higher level
skills which are necessary for better government.
5.5 Bank experience further indicates that reform takes time. Put differently, "no one [should]
expect the process to be quick, easy, or miraculous in curing either past errors or current ills"
(Conable, 1991, p. 25). Time is required to build consensus beyond the core of political and
technical leadership to other governmental institutions and society at large. Time is also required to
balance objectives, select trade-offs, implement policies and reap benefits.
Redundancies and Safety Nets
5.6 Apart from strong political commitment, two other elements appear to contribute significantly
to su^cessful public sector adjustment. The rest of this section discusses the first of these, namely,
the provision of safety nets for workers who are made redundant. The second element has two
related components: a strong private sector and a healthy macroeconomic environment. These are
covered in Sections B and C below.
5.7 In the short-run, reform of the central government and parastatal sector is likely to entail
some retrenchment of workers. In the case of central government reform, this conclusion is based
on evidence in Chapter 3 suggesting that the Government is functionally overextended, financially
strapped particularly by civil service pay and employment, and a potential liability to sustained
economy-wide growth and development. A similar picture for the parastatal sector emerges in
Chapter 4 although in neither case is it clear exactly how many persons could be affected or how
quickly a less constrained private sector would be able to absorb them. Such details would depend,
among other things, on the phasing of reform efforts and would have to be worked out on a ministry-
by-ministry, firm-by-firm basis.
5.8 Still, experience in several countries offers a number of general lessons for dealing with
employment reform in the specific context of public sector adjustment. First, enforcement of
retirement age, perhaps the least politically sensitive approach, usually does not substantially reduce
the wage bill. The verdict is the same for early retirement schemes which often target persons who
are a few years from normal retirement. Significant savings in the wage bill, in net present value
terms, accrue only with the removal of younger workers. In any case, removal of the senior cadre
of workers, even if they are within a few years of retirement, could rob the public sector of its most
experienced, productive and difficult-to-replace personnel. Not that younger workers are readily
dispensable. In many countries they are concentrated in urban areas and are politically vocal.
Voluntary retirement would not independently solve this problem because it may result in the exodus
- 103 -
of the most able personnel. Left behind may be the vast majority who are less mobile, and still
politically vocal and costly to the public sector.
5.9 Accordingly, a second lesson of experience is that severance packages could be the single
most important factor which determines the willingness of workers to accept redundancies. Several
countries have provided safety nets, including severance packages, which seek to mitigate the adverse
financial and social problems for targeted groups of redundant workers in the context of public sector
adjustment. The severance payments in many cases are decreed by law and are calculated on the
basis of age and length of service. Payment could be made in a lump sum, installments, or in some
combination of the two options. Workers usually prefer lump sum payments, either for starting a
new business or to prevent erosion by inflation. On the other hand, inflation and interest foregone
help to reduce the size and cost of redundancies to governments or employers when payments are
stretched out. The options could be unilaterally decided as part of a general policy or could be
negotiated with workers. Additionally, in the interest of protecting the standard of living of workers,
it may be appropriate to go beyond the legal requirement linking severance payments to salary only,
and to impute some value for other allowances such as housing and medical insurance. This may even
be imperative in instances where the ratio of salary levels to allowances is particularly low. In one
country. for example, public sector employees received only six months salary but were able to
remain in government housing for two years.
5.10 Third, direct payments to workers are generally better than special credit schemes. Where
such schemes were tried, it was often difficult to interest banks in extending credit to relatively small
and potentially high-risk borrowers. Moreover, many retrenched employees who received credit
considered them as merely grants or as a part of their termination package. As a result, defaults on
repayments and the administrative costs of such schemes were high.
5.11 Fourth, training programs for redundant public employees should be flexible and afford them
a range of new and marketable skills. But instead of creating new institutions to provide this training,
excess capacity in existing institutions should be tapped whenever possible. Nevertheless, the general
experience appears to be that training programs provided as part of a safety net for retrenched public
employees are not widely successful. Fifth, there was also little success when employment creation
was attempted through massive public works. Apart from being temporary and costly, the work
usually involved hard manual labor, paid minimum wages, and was thus unattractive to the more
skilled personnel.
5.12 Sixth, the design of safety nets should be supported by reliable data on staffing levels
including 'ghost workers,' and on variables such as age and length of service which may help to
determine their eligibility for retirement. Reliable information should also be obtained on the wage
bill, including benefits and allowances. In some cases, censuses may be necessary. However,
experience with such censuses has shown that they are most successful when their design is kept
simple, are carried out with external technical assistance (whose presence tends to minimize charges
of favoritism and corruption), and when they are supported from the outset by the established system
of manpower planning. In addition to data on personnel and wages, there may be a need for
'functional reviews,' that is, organizational audits which help to determine the number and skills of
personnel required to carry out the objectives of the organization. Of course, data and reviews are
not substitutes for the difficult decisions that have to be taken about who goes and who stays. But
what such information does is place the policy maker in a better position not only to identify how cuts
can be made but also how they can be made less painful.
-104 -
5.13 In the final analysis, what emerges as a rule of thumb is that safety nets should be
administratively simple and flexible. And rather than create new institutions, redundant workers
should he afforded access to the full range of programs, including training, which are already a part
of the economic and institutional mainstream.
B. Private Sector Development
5.14 Where the private sector is strong and growing, it is able to acquire divested assets, absorb
some of the public sector redundancies, generate additional revenues to finance pay reforms, and
generally respond to the incentives in the enhanced competitive environment. Chapters 1-4 above
provide additional reacons why in Kenya a strong private sector should be developed in parallel with
and in support of public sector adjustment. First, because of budgetary constraints and the
destabilizing influence of fiscal imbalances, the public sector cannot expand at rates which would
absorb significant amounts of Kenya's rapidly growing labor force. Second, TFP measurements in
the public and private sectors in Kenya show that there would be distinct payoffs to growth if
resources were shifted to the latter. Third, to grow rapidly, the Kenyan economy will have to
continue to be re-oriented toward the much bigger, but extremely competitive, world market. Players
in that market require a level of adaptability and skills that is very scarce within the public sector.
Over time, therefore, a broader range of private sector expertise, both domestic and foreign, will
need to be cultivated and utilized.
5.15 The Government has been tackling many of the first-order constraints on the development of
major sectors through the agricultural, industrial, financial and export adjustment programs. Kenya
needs a second phase of direct actions to promote the private sector. Presently, the Government will
begin, in conjunction with IDA and other donors, a major assessment of the requirements for
accelerated private sector development. The findings are expected to form the basis for an action
plan which must deal with at least three central issues:
* Uncertainty: An operating environment in which the risks of business enterprises
are understood and are measurable within a reasonable range, is critical to the
development of private firms. In Kenya, there is an unacceptable level of uncertainty
which arises from factors such as (i) macroeconomic imbalances; (ii) unequal case-
by-case treatment of individuals and firms; (iii) poor and uncertain implementation
of commercial legislation and economic regulations; and (iv) insufficient dialogue and
information flows between policy makers and the private sector. The latter is most
noticeable in the legal framework for accounting and auditing where the unreliability
of financial information continues to thwart more rapid deregulation of the tax, trade
and operational framework for private firms and individuals. Uncertainty also arises
because of onerous exit regulations and obstacles to the orderly shutdown of
inefficient or insolvent firms.
* High Costs: Kenya may be characterized as a high cost operating environment.
First, high costs result from the fact that many economic activities are the preserve
of largtly inefficient parastatal firms. To the extent that these parastatals dominate
the basic industries that supply inputs to the rest of the economy, producers bear the
initial adverse effects of such inefficiencies. Ultimately, however, consumers pay the
higher costs and Kenya's competitiveness is compromised. Second, high costs arise
from the nature of government controls--ex ante rather than ex post. Ex ante
controls allow considerable bureaucratic discretion in the application of regulations.
- 105 -
They also permit the use of real resources in wasteful rent-seeking activity and
corrupt practices. The broad scope of controls--at every stage of production and
trade--is a third factor which raises the financial and time cost faced by t-he private
sector in Kenya.
Support Services: As Kenya continues to diversify its economy and integrate its
newer industries more closely with the international economy, it will require modern
and efficient services, specifically physical infrastructure (e.g. industrial and
commercial space, utilities, transport and communications), financial services and
information networks. However, the capacity of the public sector to develop these
services efficiently is limited. In any case, many services can be provided on a
commercial basis by the private sector, as they are in more developed economies.
This will need to be encouraged.
5.16 Actions that would address the issues raised above and increase the scope for private sector
development include:
* reforms in the design and enforcement of commercial law, including the
enforceability of agreements, commitments and contracts, especially by foreigners;
* the enforcement of regulations in a manner designed to preserve the contestability of
markets;
* the removal of barriers to entry to and exit from industry, the speeding-up of
approvals where required, and assurance of the stable and equitable enforcement of
government regulations;
* improvement of physical infrastructure which is contingent not only on the
Government's ability to transfer resources within expenditure categories in a budget
constrained environment, but also to undertake credible institutional reforms that
attract external resources and harness the abilities of the private sector for the
provision of services;
* correcting the weaknesses in the financial system which could undermine long-term
stability in the economy. Among them are: (i) the weak balance sheets of several
large financial institutions, including parastatals, which limit capital mobility within
the system and the development of broader money and capital markets; (ii) the
paucity of services for managing coiporate liquidity, savings, borrowing and
investment; and (iii) the scarcity of equity in the system as a whole;
* efforts to broaden the role of market-based consulting services that provide
information that is timely for and relevant to successful planning, purchasing,
production and trade;
* formalizing public-private sector consultation and creating adequate channels for
receiving and transmitting information to groups with divergent interests. A
mechanism to consult the private sector before major public policy decisions are
made (e.g. before the annual budget of the Government is finalized and presented to
the public) would allow the process of policy formulation to benefit from the varied
-106-
expertise in the private sector, and would also pcrmit the Government to build a
broader consensus than currently existc in support of its economic policies; and
* removal of exchange controls which currently constitute the main instrument
deployed b) the Government for managing its foreign exchange resources. At
present, exchange controls influence all interactions between the domestic and
international economies. The private sector in particular is affected by fluctuations
in the availability of foreign eyxhange for imports and this has adverse effects on
production planning and inventory control. The low priority given to foreign
exchange releases for travel, techrnology contracts, and profits and related remittances
is also a disincentive to foreign investors.
C. General M1edium-Term Mlacroeconomic Considerations
5.17 The macroeconomic environment is important for the success of reform largely because of
its impact on broad sectoral policies aimed at improving the efficiency of resou.-ces allocation nation-
wide as -vell as its impact on initiatives specificallv geared toward private sector development and
growth. The rest of this section sets out some of the key aspects of such a macroeconomic
framework. In doing so, the chapter uses a model of the RMSM-X genre and illustrates three
medium-term scenarios focussing on the behavior of growth, consumption. savings, investment, and
the balance of payments. First, however, it discusses the medium-term outlook for the international
economy as a given and assess-s its likely impact on the Kenyan economy.
The Medium-Term Outlook for the Global Economy
5.18 There is compelling evidence that the world economy faces turbulent times in the near term.
The signs include the slowdown in economic growth in the major OECD countries--US, Canada and
the United Kingdom--and financial stress in the U.S. and Japan which compounds an already tight
global credit situation, the difficulties in reforming the economic systems of Eastern Europe,
stagnation of the Uruguay Round of trade negotiations and a slowdown in the growth of developing
countries. Individually, none of these factors is sufficient to dampen the short-term prospects for the
world economy, but together they constitute a difficult set of external circumstances for developing
countries wishing to improve their overall growth performance which in 1990 (2.3 percent) was their
worst since the last world recession in 1982.
5.19 Growth in the G-7 countries is not expected to improve in 1991, reflecting virtually no
growth in the United States, the United Kingdom and Canada, and slow expansion of the Japanese
and German economies. Their prospects in the longer term will depend largely on the depth and
duration of the recession in the United States, the sustained pace of reform in Eastern Europe and the
stability of the international financial sy 3tem. In any case, it is unlikely that the real LIBOR rate of
5.5 percent in 1980-89 would be exceeded during the 1990s. The corresponding rate of inflation in
the G-7 countries could be similar to 1980-89 as oil prices return rapidly to prewar levels and then
rise steadily in response to market fundamentals. Under these circumstances, the G-7 countries would
repeat the 1980-89 growth performance in the 1990s (World Bank, 1991a, pp. 4345). Irrespective
of how the industrialized countries perform, however, growth in developing countries in the longer-
term will be defined, as in the past, by their policies and by fundamental forces such as international
trade, finance, investment and technological change.
- 107 -
5.20 The specific implications ot these global prospects f0r Kenya are three-fold. First, the
competition for foreign investment will probably intensify as developing countries and Eastern Europe
off-load more and more public assets The response of private creditors at home and abroad to these
opportunities wili depend, to a sign Want degree, on the quality of the enabling environment into
which they are invited to operate. Mleanwhile, changes since 1989 in the global political economy
are redefining the ci iteria for and expectations of economic and financial partnership between donors
and aid recipients. Increased emphasis on decentralized and transparent economic decision-making
presents both a challenge and an opportunity tor Kenya to maximize its access to toreign capital
flows.
5.21 Second. trade, industrial and financial retorms begun in the late 1980s must be sustained and
supported by appropriate stabilization measures, for together they will improve the opportunities for
Kenya to participate beneficially in the global economy. Studies of several developing countries
indicate that the static gains from trade liberalization range from less than one percent to six percent
of GDP. These gains increase when dynamic effects--including economies of scale, higher investment
and savings, improvements in innovation and technical change, and increased speed in disseminating
technical and economic information--are included. Technological change facilitates efficiency gains
and generates higher per capita incomes. During 1980-89 when the industrialized countries grew by
three percent per annum, Sub-Saharan African countries as a group grew by around two percent.
With annual growth in excess or three percent during the period, Kenva demonstrated its ability to
perform above average. Reforms like those identified in Annex I, and Chapters 3 and 4 would enable
Kenya again to grow faster relative to other Sub-Saharan countries and the industrialized nations.
5.22 Third, the management of external assets and liabilities will face new challenges if, as
forecast, there is greater commodity price variability--including coffee and tea--and steadily declining
relative commodity prices. Among some 14 major internationally traded agricultural commodities,
the coefficient of world price variability was highest for sugar (20.4) and lowest for bananas (3.4)
(World Bank, 1991 a, p. 23). For coffee and tea, Kenya's primary agricultural exports, the figures
were 7.4 and 10.7 respectively. Studies indicate that a one percentage point annual increase in
production in industrialized countries--other things remaining unchanged--raises nonoil commodity
prices by two percent in real terms (Gilbert, 1990). But other things do not remain unchanged.
Weather, stockpiling, the behavior ot' cartels, and tariff and non-tariff barriers alter this relationship.
The most reasonable expectation is for these commodity prices to move slowly upward overtime.
Therefore, apart from export diversification and promotion, Kenya will need to find ways to manage
commodity risk as part of a more ambitious strategy for managing external assets and liabilities.
The Medium-Term Domestic Outlook
The Enablin-, Scenario
5.23 The enabling scenario discussed in this section presupposes that the Government needs to
create a macroeconomic environment that supports public sector adjustment. In practice, enhancing
the macroeconomic environment and adjIusting the public sector would have overlapping elements and
would occur concurrently. However, for ease and clarity of exposition, the scenario is developed
and explained as if the two events--preparation for comprehensive public sector adjustment and the
adjustment itself--were strictly sequential. That is, adjustment is assumed (in the enabling scenario)
to take place after 2000.
- 108 -
5.24 In the enabling scenario, econoinic management is motivated by the "v;sion" summarizu.d in
Figure 5.1 and guided by quantitative ecoriomic indicators. It is assumed that the quantitatix e aspec,,'ts
of the scenario illustrate desired directions of change, rather than precise targets.
5.25 The ultimate goal of economic policies in the enabling scernario is to, create macro;oornic
conditions which are conducive to successful public sector adjustment and private sector de\ e.hpment.
Better public sector management should be understood in broad terms. On the ecrnonmic Irtnt. it
means a rationalization of what the public sector does and niore efficient resour; use in doing it.
Also implied is better macroeconomic management, including greater reliance on market flr ces %k here
they work, improvements in the regulatorv environment and generation ot public salvin- s liBtter
public sector management also has to do with issues such as broad-based participation in piiblic po,lic
formulation, decision-making and information flows (Landell-Mills and Serageldin, 1991. p. 3).
5.26 It must be emphasized that, by itself, the enabling scenario would not take the econoniv to
a higher growth path. Such a path would require comprehensive public sector adjustment to sustain
a stable macroeconomic environment, raise efficiency in the Central Government (Chapter 3),
eliminate the productivity deficit of parastatals (Chapter 4), and stimulate private sector- de% elopment
(Section B above). In their absence, the deficit reduction achieved in the enabling scenario--through
revenue measures, savings through the educational sector reforms, and ad hoc cuts in the development
budget--would be in constant danger of being reversed and, indeed, would 'begin to succumb to the
underlying destabilizing pressures during the second half of the decade. As such, the enalhing
scenario is a fragile course from which the economy can rise to a higher growth path through public
sector reforms or from which it can be derailed by destabilizing pressures. The projections in Tahle
5.1 illustrate how these features of the enabling scenario might translate into GDP and sectoral
growth, consumption, savings and investment; and balance of payments performance.
Growth
5.27 In the enabling scenario growth is sustained just below five percent during 1991 95 because
of temporary improvements in stabilization performance, and because adjustment in the agrlcultural,
industrial, financial, export and educational sectors continues. Ordinarily, these poli.ies have the
potential to significantly improve macroeconomic efficiency, stimulate nontraditional exports,
strengthen the balance of payments, reduce Kenya's dependence on external financing and challenge
the economy to accelerate growth beyond historical levels. But this potential cannot be realizexd until
the underlying destabilizing forces on the fiscal deficit are alleviated and resources are reallocated
from the more inefficient parastatal sector to the private sector through parastatal retorm
5.28 Growth is below the average rate for 1986-90 for four main reasons. First. public
expenditure, and thereby aggregate demand, is contained (albeit by ad hoc measures) to reduce
destabilizing pressures originating in fiscal imbalances and to prepare the macroeconomic environment
for more comprehensive reforms. Second, at the sectoral level, agriculture grows below its full
potential because of the sluggishness of commodity prices, especially coffee, vagaries of the weather
and the usual lags between on-going agricultural sector reforms and supply responses. Third. the
manufacturing sector performs well (7.7 percent in 1991-95) but it would do bettelr once
manufacturing enterprises in the public sector are privatized. This builds on the discussi(n it, Chapter
I which concludes that the sector is responsive to market incentives. Furthermore. as stabih!d,tion
pressures diminish, non-traditional manufacturing exports grow above the average for dte reczor.
- 109-
cuoeity Public Rrintonalize and improve
frcue and overall public sedor
forcesano Management Upgrade, overs and
Improve regulatory intastrtre
environmentinrsude
Generate puNbi Manage external shocks
savines invest in peopb
Lt direon d
z- _ __ _ w ____ ___odange
Private Sector Development . Sustained Growth X IYAxes: Move.
ment from
origin is an
7 ' 1wF fimprovement
Promote expor
development and
technology tansfer Raise factor productivity
through foreign and lower 1CORs
investment Investment Accelerate per capita
Encourage domestc Effiaency income growt
sav ,ng Generate employment
Figure 5.1: Dimensions of Public Sector Adjustment
- 110-
Table 5.1
Macroeconomic Indicators in the Enabling Scenario, 1986-2000
Period Averages
198690 1991-95 1996-2000
Average real growth rates (%)
Gross domestic product (mp) 5.8 4.9 3.9
Agriculture 4.3 3.5 3.0
Manufacturing 5.7 7.7 6.0
Services 5.5 4.6 4.0
Merchandise exports (fob) 5.4 6.6 4.5
Merchandise imports (cif) 7.1 6.1 4.1
Monetary variables growth rates (%)
Broad money (M2) 16.9 23.7 21 6
Domestic credit 17.8 20.9 22.8
Private credit 15.4 23.9 19.1
Economic structure and balances (constant prices) as % of GDP
Agriculture 26.2 23.8 22.4
Manufacturing 11.1 10.8 12.4
Services 42.1 43.7 45.2
Gross national savings 12.9 27.7 27.3
Central government savings -0.8 3.1 2.5
Private 13.6 24.6 24.8
Gross domestic savings 15.6 20.6 18.8
Gross investment 19.8 23.1 20.6
Fixed investment 16.1 19.1 18.7
Consumption 84 4 79.4 81.2
Central government 17.7 9.9 12.9
Private 66.7 69.5 68.4
ICOR 3.8 3.4 3.7
Marginal savings rate
Gross national savings -0.1 1.3 -0.4
Gross domestic savings -0.1 0.6 -0.4
Fiscal deficit/GDP (%) 1/ 2/ -6.5 -3.9 -3.8
Grants 1,9 2.0 0.4
Central govt. revenue(%) 1/ 21.4 22.6 23.7
Central govt. expenditure (%) 3/ 27.9 26.6 27.5
Current account deficit/GDP (9) 2/ -7.0 -5.2 -3.7
MLT DS/Exports GS (%) 34.3 28.5 17.6
MLT debt/Exports GS (%) 269.0 289.4 236.8
MLT debt1GDP (%) 64.0 81.1 65.3
Ext. fin. gap p.a. (US$ million) 0.0 70.9 26.7
Source: Stcff estimates.
Note: Fiscal year ends on June 30. Fiscal year GDP is calculated as simple average of calendar year
data.
f. Numerator includes adjustment to cash but excludes grants. Current price data.
2. Numerator excludes grants.
3. Numerator includes net lending.
- Ill -
5.29 Fourth, services (including government and tourism) expand at 4.6 percent in 1991-95. In
line with greater financial discipline, the growth of government administration slows even though
comprehensive reform does not take place. Tourism and the financial sector maintain historical
growth trends but neither approaches their full potential. The reasons are that in the absence of
comprehensive reform, government investment in infrastructure which supports tourism would be
more limited by fiscal constraints and the quality of government administration (including project
implementation) would not improve. This would be particularly disturbing because the constraints
currently faced by the sector include: (i) the uncoordinated development which has resulted in
inappropriate mixes of rival forms of tourist activities; (ii) inadequate infrastructure. including access
roads in areas with considerable potential for expansion; and (iii) unsustainable development of
specific artas such as the Amboseli and Masai Mara Game Reserves.
5.30 On-going financial reforms, independent of parastatal reform, are benefitting the financial
sector. But they will not necessarily improve the efficiency of the large parastatal banks which
dominate the sector. Accordingly, their implicit contribution to the growth of the service sector is
deemed to be modest even in the enabling scenario.
5.31 Beyond the period 1991-95, growth continues on a declining path (3.9 percent in 1996-2000)
because: (i) the underlying destabilizing pressures on the fiscal deficit surface and cause the fiscal
deficit (including grants) to almost double in 1996-2000 relative to 1991-95; (ii) the productivity
deficit of the parastatal sector continues; and (iii) uncertainty about the soundness of Kenya's
economic management causes donors to reduce lending. Growth at the sectoral level follows a
similar pattern.
Consumption, Savings and Investment
5.32 Savings and investment behavior in the enabling scenario would continue to be constrained
by the financial performance of the public sector. Although a measure of financial discipline is
achieved during 1991-95, the public sector is not expected to achieve higher levels of investment
efficiency. In the central government, revenue averages 22.6 percent of GDP during 1991-95 while
overall expenditure is contained. Consumption, linked to the wage bill, is also contained during the
first half of the decade.
5.33 Public investment is reduced in line with greater financial discipline and more selective new
public investments. Indeed, initial progress toward better public investment programming would
include a reduction in the number of projects but the ability of the Government to significantly raise
efficiency through increased O&M expenditures would be very limited. Accordingly, the projections
assume no significant increase in the efficiency of these investments in 1991-95. On the contrary,
efficiency would deteriorate during the second half of the decade if the government does not follow
through with comprehensive public sector adjustment (Table 5.1).
5.34 As the economy stabilizes during 1991-95, the private sector should be expected to invest
more in response to the production incentives evolving under the sector adjustment programs.
Accordingly, private investment rises over the period, pushing total investment to 23.1 of GDP in
1991-95. Of course, it should be higher under more comprehensive public sector reform which
creates new opportunities for profitable investment outlays. However, it falls during 1996-2000 as
economic conditions deteriorate in the absence of such reform.
- 112 -
The Balance of Payments
5.35 The current account deficit is projected as shrinking from 5.2 percent of GDP (excluding
grants) in 1991-95 to 3.7 percent ot GDP (excluding grants) in the second half of the decade. During
1991-95, manufacturing exports are assumed to do well while import growth is expected to be
moderate. Further reductions in the current account do not take place during 1991-95 because the
projections are cautious about the behavior of major commodity exports. Even if coffee production
were to recover, value-added would be low because of the breakdown of the international coffee
agreement. The projections recognize, however, that the prospects for horticultural exports continue
to be particularly good. But growth is below potential because bottlenecks in transportation persist.
5.36 Overall, the enabling scenario is hopeful about the prospects for manufactured export prices.
On the domestic front, manufacturing would benefit somewhat from the on-going efforts to strengthen
the general enabling environment for the private sector and the reduction of effective protection
during 1991-95. But manufacturing firms in the parastatals do not respond to these signals. On the
external front, conditions are expected to be favorable for growth and specific preferential
arrangements are expected to continue. All together, merchandise exports grow by 6.6 percent in
1991-95 but growth slows to 4.5 percent during 1996-2000 as domestic economic conditions
deteriorate.
5.37 On balance, therefore, the current account remains fragile throughout the decade.
Additionally, it is forced to contract during 1996-2000 because the absence of public sector
adjustment limits the opportunities for donor financing.
The Capital Account
5.38 The capital account improves during 1991-95 but remains weak. Plausible reasons are likely
to include: (i) the limited new investment opportunities in the absence of comprehensive parastatal
sector reform; (ii) 'a wait and see' attitude by foreign investors until public sector adjustment begins
or advances; (iii) the slow pace at which improvements in the quality of civil service--including
services in areas such as external resource mobilization and foreign investment promotion--take place
in the absence of comprehensive public sector adjustment; and (iv) negative perceptions about the
quality of governance in the absence of public sector adjustment. Not surprisingly, when adjustment
fails to occur during 1996-2000, the capital accounts weaken further and the willingness of donors
to provide financing weakens as well. Accordingly, a residual external financing gap of $70.9
million is projected for 1991-95 and a much lower financeable gap of $26.7 million for 1996-2000.
Fiscal Performance
5.39 Fiscal performance is a crucial factor in creating the enabling environment. Although
comprehensive public sector adjustment is still down-stream, the Government takes steps to reduce
its crowding out of private sector activity, increase private disposable incomes and improve
investment efficiency. Accordingly, the projections show that the overall fiscal deficit (excluding
grants) would fall from 6.5 percent of GDP in 1986-90 to 3.9 percent in 1991-95. Total revenue
(excluding grants) rises from 21.4 percent of GDP to 22.6 percent of GDP during the first half of
the decade.
5.40 Most of the fiscal adjustment during 1991-95 would come from total expenditure which would
fall from 30.2 percent of GDP as of June 1991 (Table 2.1) to 26.6 percent during 1991-1995. Here
- 113 -
attrition would make a small contribution. Some expenditure cuts would also be achieved by not
filling vacancies and by the reforms in the education sector which increase cost recovery and limit
the growth in teachers. The assumption of parastatal debt by the central government would also be
reduced -nd the development budget would be cLt.
5.41 The projections assume that the Central Government has first claim on domestic credit in the
whole economy and that this pool of credit is determined jointly by the net foreign assets in the
balance of paymints and the money supply. 22/ Therefore, as the fiscal balance improves during
1991 95, the Central Government's claim on domestic resources falls and releases credit for the
private sector Accordingly, Table 5.1 shows that under the enabling scenario, credit to the private
sector would grow at 23.9 percent in 1991-95.
5.42 Without public sector adjustment, however, this is temporary. During 1996-2000, the
underlying pressures arising from overstaffing, wage creep and parastatal inefficiency emerge and
government expenditure begins to rise (relative to 1991-95), averaging 27.5 percent of GDP during
1996-2000. However, because donor funding is limited, the Government is forced to increase its
domestic revenue effort as well as borrowing f.om the domestic banking system. A summary of the
enabling scenario is presented in Table 5.4 at the end of the chapter.
The Adjustment Scenario
5.43 A reminder is offered at the outset. The projections of the adjustment scenario are
illustratve. They should also be interpreted as what would happen during 1991-2000 if
comprehensive public sector adjustment were to occur from the start of the period. Implicit here is
the assumption that the preconditions described in the enabling scenario are already in place at the
beginning of the period of analysis. As such, the adjustment scenario traces the more optimistic
growth path which the economy might be expected to follow. Movement from the growth path of
the enabling scenario to the higher level of the adjustment scenario would depend on the speed with
which the stabiiization pressures are brought under control and public sector adjustment is
implemented.
5.44 Five features of the adjustment scenario should be noted. First, although GDP and sectoral
growth is higher in the adjustment scenario than in the enabling scenario (Table 5.2), the difference
is greater during 1996-2000 than in the earlier period. This is consistent with the argument in para.
5.5 that reform takes time. It also recognizes that the downsizing of the public sector could dampen
growth initially, even though a fairly steady recovery might be expected. Second, the difference in
sectoral growth between the adjustment scenario and the enabling scenario is greatest in services and
manufacturing during 1996-2000. Here the reasoning is that export manufacturing, including agro-
processing, ; the activity which would probably gain the most from comprehensive public sector
reform. In fact, this would not be surprising given the concentration of the existing inefficient
parastatal activitv im this sector, and the broad thrust of on-going sectoral reforms.
5.45 Third, private fixed investment as a percentage of GDP is greater than in the enabling
scenario. Overall investment efficiency, as measured by the ICOR, is also higher. This is based on
221 In turn, the supply of money is based on econometric estimates of the demand for money at given interest
rates. rates of inflation and levels of national income.
- 114 -
Table 5.2
Macroeconomic Indicators in the Adjustment Scenario, 1986-2000
Period Averages
1986-90 1991-95 1996-2000
Average real growth rates (%)
Gross domestic product (mp) 5.8 5.1 7.3
Agriculture 4.3 3.8 4.6
Manufacturing 5.7 7.8 10.2
Services 5.5 5.3 8.6
Merchandise exports (fob) 5.4 7.6 10.9
Merchandise imports (cif) 7.1 7.8 8.1
Monetary variables growth rates
Broad money (M2) 16.9 24.9 21.6
Domestic credit 17.8 20.5 17.4
Privatc credit 15.4 23.9 19.2
Economic structure and balances (constait prices) (% of GDP)
Agriculture 26.2 23.7 21.3
Manufacturing 11.1 10.8 12.1
Services 42.1 43.8 45.3
Gross national savings 12.9 25.8 33.7
Central government saving? -0.8 1.9 6.5
Private 13.6 23.9 27.2
Gross domestic savings 15.6 18.8 22.0
Gross investment 19.8 22.9 26.4
Fixed investment 16.1 19.0 23.2
Consumption 84.4 81.2 77.9
Central govemment 17.7 11.0 10.9
Private 66.7 70.3 67.0
ICOR 3.8 3.2 3.0
Marginal savings rate
Gross national savings -0.1 1.0 0.4
Gross domestic savings -0.1 0.6 0.3
Fiscal deficit/GDP (%) 1/ 2/ -6.5 4.8 -1.8
Grants 1.9 2.5 1.5
Central govt.revenue (%) 1/ 21.4 22.6 24.9
Central govt.expenditure (%) 3/ 27.9 27.4 26.7
Current account deficit/GDP (%) 2/ -7.0 -6.9 -6.0
MLT DS/Exports GS (%) 34.3 29.5 16.3
MLT debt/Exports GS (%) 269.0 289.9 224.7
MLT debt/GDP (%) 64.0 80.7 60.8
External fun. gap p.a. (USS million) 0.0 121.1 65.6
Source: Staff estimates.
Note, Fiscal year ends on June 30. Fiscal year GDP is calculated as simple average of calendar year
data.
1. INumerator includes adjustment to cash but excludes grants. Current price data.
2. Numerator excludes grants.
3. Numerator includes net lending.
- 115 -
Table 5.3
Macroeconomic Indicators in the Reference Scenario, 1986-2000
Period Averages
1986-90 1991-95 1996-2000
Average real growth rates (%)
Gross domestic product (mp) 5.8 2.9 2.3
Agriculture 4.3 2.5 2.0
Manufacturing 5,7 4.0 3.9
Services 5.5 4.0 4.0
Merchandise exports (fob) 5.4 4.5 3.3
Merchandise imports (cii) 7.1 3.4 2.6
Monetary variables growth rates
Broad money (M2) 16.9 21.2 23.6
Domestic credit 17.8 22.7 25.1
Private credit 15.4 14.2 13.9
Economic structure and balances (constant prices) as % of GDP
Agriculture 26.2 24.8 25.0
Manufacturing 11.1 10.3 10.9
Services 42.1 45.1 46.4
Gross national savings 12.9 29.3 31.2
Central government savings -0.8 3.1 6.0
Private 13.6 26.5 25.2
Gross domestic savings 15.6 22,6 22.2
Gross investment 19.8 23.8 25.6
Fixed investment 16.1 17.5 19.6
Consumption 84.4 77.4 77.8
Central government 17.7 11.7 13.2
Private 66.7 65.7 64.7
ICOR 3.8 5.2 7.3
Marginal savings rate
Gross national savings -0.1 17 -0.3
Gross domestic savings -0.1 1.0 -0.3
Fiscal deficit/GDP (%) 1/ 2/ -6.5 -6.4 -2.7
Grants 1.9 1.1 0.5
Central govt. revenue (%) 1/ 21.4 25.0 27.9
Central govt. (%) 3/ 27.9 31.5 30.6
Current account deficit/GDP (%) 2/ -7.0 -3.4 -2.1
MLT DS/Exports GS (%) 34.3 31.0 20.8
MLT debt/Export GS (%) 269.0 311.7 286.6
MLT debt/GDP (%) 64.0 85.9 77.9
Ext. fin. gap p.a. (US$ million) 0.0 32.8 19.2
Sowrce.- Staff estimates.
Note: Fiscal year ends on June 30. Fiscal year GDP is calculated as simnple average of calendar year
data.
1. Numerator includes adjustment to cash but excludes grants. Current price data.
2. Numerator excludes grants.
3. Numerator includes net lending.
- 116 -
the analysis in Chapter 4 which shows that during 1986-90, parastatal enterprises used capital
resources much more inefficiently than the private sector. Fourth, the economy is able to sustain
a larger external financing gap ($121.1 million per year in 1991-95 and $65.6 million per year in
1996-2000) because the donor community is likely to be supportive of such a reform effort. Fifth,
government savings improve and the fiscal deficit (including external grants) contracts further because
of greater fiscal discipline but also because of higher economic growth and additional inflows of
external funding (all relative to the enabling scenario). A summary of the adjustment scenario is
provided in Table 5.4 at the end of the chapter.
The Reference Scenario
5.46 The basic assumption of the reference scenario is that stabilization pressures worsen because
fiscal imbalances are not contained. It is also assumed that no further policy reforms are
implemented in the agricultural, industrial, financial, export and educational sectors and that some
policy backtracking actually takes place. Table 5.3 shows that under these circumstances real GDP
growth could decelerate (relative to the enabling and adjustment scenarios) to 2.9 percent per annum
during 1991-95 and 2.3 percent during 1996-2000. Although the external environment is the same
as in the enabling and adjustment scenarios, the annual growth of merchandise exports would slow
to 4.5 percent and 3.3 percent during 1991-95 and 1996-2000 respectively.
5.47 The deterioration of macroeconomic balances would reduce the scope for donor assistance.
Accordingly, the projections assume that quick-disbursing inflows fall by two-thirds under this
scenario, and that access to commercial borrowing would be limited. This reduction in foreign
exchange receipts in turn reduces import growth. It also affords the economy a smaller external
financing gap ($32.8 million per year in 1991-95 and $19.2 million per year in 1996-2000).
5.48 Weaker export performance causes the debt service ratio to rise to an average of 31 percent
during 1991-95, compared with 28.5 percent in the enabling scenario and 29.5 percent in the
adjustment scenario. Worse still, the debt service ratio under this reference scenario peaks at 34
percent in 1992 before falling to 32.2 percent in 1993 and 29 percent in 1994. In the past, debt
service ratios of these magnitudes were manageable because of strong donor support via the capital
account of the balance of payments. If such support weakens, as assumed under this scenario, Kenya
may be forced to seek debt relief through rescheduling.
5.49 In essence, throughout the reference scenario, the performance of the public sector would
deteriorate. Inflationary pressures would persist and would derail growth via the erosion of
production incentives and the crowding out of private investment. Such developments would also
reduce the scope for balance of payments support, limit access to foreign financing for investment,
and even force Kenya to request debt relief through rescheduling (Table 5.4).
Table 5.4: Summary of Macroeconomic Scenarios
Item Reference Scenario Enabling Scenario Adjustment Sceario
Overall Performance Growth deteriorates rapidly as destabilizing During 1991-95, growth is slightly below Growth rises gradually but steadily
fiscal pressures and financial indiscretion in pre-1986-90 level as financial discipline is above the 1990 level and eventually is
the parastatal sector undernine the imposed on the public sector and sectoral sustained above the 1986-90 average
credibility and effectiveness of sectoral reforms continue. However, this is a rate. It is driven by productivity gains,
reforms in general. Export diversification fragile situation because the underlying rising per capita incomes, strong
and growth, and capital inflows are also destabilizing pressures s 11 exist. In fact, aggregate demand and significant
adversely affected. In consequence, GNP during 1996-2000, the cconomy continues employment generation. By the year
per capita falls to K�317 (in 1990 K�) by along a declining growth path because 2000, GNP per capita rises to K1448
the year 2000. public sector adjustment does not take (in 1990 K�).
place and these underlying pressures
surface. As a result, GNP per capita only
rises to K�378 (in 1990 ICL) by the year
2000, largely because of the declining
population growth rate.
Growth: Stifled by worsening macroeconomic Grows initially because market Expands, initially, by the down-sizing
Private Sector imbalances which originate in unsustainable deregulation, price decontrol, trade of the public sector and the release of
fiscal deficits and foreign exchange crises. liberalization, financial reforms and export investible resources. Later, in response
incentives operate in a more stable to private sector development efforts
economic environment. But deteriorates and imnprovements in macroeconomic
when the environment becomes unstable. incent:ves, growth achieves greater
self- sustained momentum.
Growth: Revenue/GDP chases expenditure/GDP- During the first half of the decade, Revenues/GDP reaches and
Central Govemment The latter creeps upward because public revenuelGDP stabilizes at about 23 occasionafly exceeds 24 percent of
sector reform is postponed. This limits the percent while overall expenditure is GDP while recurrent expenditure is
scope for policy-based extemal funding contained. Later, revenue begins to chase restructured and ralionalized.
which is partly offset by a greater domestic rising govemment expenditure in the Investment is more selective and
revenue effort. absence of public sector adjustment. viable, and is better implemented.
Growth: Real value-added is low and variable across Value added is also low and variable With down-sizing and restructuring of
Parastatal Sector sectors. The deteriorating financial across sectors. But the financial drain on the sector, growth in real value added
performance causes a drain on the budgct of the Treasury is reduced during 1991-95 by and financial performance is higher and
the central government. the clarification and enforcement of more uniform. There are also more
existing fiscal regulations. However, this transparent and programmned financial
weakens during 1996-2000. transfers between the sector and the
I Central Government.
Table 5.4: Summarv of Macroeconomic Scenarios
Item Reference Scenario Enabling Scenario Adjustmn SeariD
Consumption, Savings, Increasingly displaced by public At first, private consumption/GDP rises as Private consumption/GDP also ries as
and Investment: consumption which, along with public public sector consumption contracts. public consumption declines. Later, it
Private Sector investment, is partly financed by private Investment efficiency stabilizes. falls as private investmcat opportunties
savings. Investment efficiency, as measured However, this begins to be reversed multiply with public sector reforn.
by lCORs, declines. during 1996-2000. Investment effiiency improves.
Consumption, Savings, Consumption, linked to the wage bill, Consumption, linked lo the wage bill, is Consumption, linked to the wage bill,
and Investment: absorbs a rising share of govemment contained during the first half of the falls in relation to GDP but expenditure
Central Government expenditure. Investment increases as decade. Investment is reduced in line with for nonwage operations and
budgetary policy is used to stimulate greater financial discipline and sound maintenanee rises steadily. Following
growth, but inefficiencies worsen. public investment programming. Savings rationalization, investment keeps pace
improve and a surplus is generated, with GDP growth in the context of a
However, the situation begins to change in more ambitious and supportive public
the latter half of the year as pressures investment program. Savings become
from the wage bill and inefficient positive and finance a large share of
parastatals surface. domestic investment.
Consumption, Savings Consumption, linked to the wage bill, grows During 1991-95, consumption/GDP falls As reforms in the sector proceed.
and Investment: in relation to parastatal output and GDP. slightly from the 1986-90 level. consumptionfGDP falls and then X
Parastatal Sector Investment becomes more inefficient and Investment and savings increase stabilizes. Investment/GDP also falls
absorbs a larger share of national savings, marginally with respect to GDP. but rises later as enterpnses which
Howevcr, these improvements are eroded remain in the public sector receive
during 1996-2000 because thcy are not upgraded technology and equipment.
locked in by comprehensive parastatal
reform.
Balance of Payments: Traditional exports account for a larger At first, nontraditional exports keep pace The share of nontraditional cxports in
Current Account shareof exports becauscof the disappointing with overall export growth Imports are total cxportv increases Trade in
perfor-mance of nontraditional exports. rationed largely through exchange rate general is buoyant Impirt demand
Imports are constrained through policy, and are partly financed by a weak strengthens hut is rationed bv exchange
administrative delays but initially improving capital account, rate and monetary policy, and sound
Later, these trends arc reversed and the public sector management.
balance of payments is undermined.
Table 5.4: Summary of Macroeconomic Scenaris
Item Reference Scenario Enabling Scenario Adjustment Stnario
Balance of Payments The account weakens. Inflows from official The account improves during 1991-95 but The account is strengthened by larger
Capital Account and private sources decline Rcserves remains fragile. Policy-based donor private capital inflows and policy-based
remain precariously low. Rescheduling of support tapers off us reforms in industry, lending which support the public sector
external debt becomes necessary. trade, finance and agriculture are adjustment program. International
exhausted. nternational reserves initially reserves increase steadily.
stabilize a. a modest level. Absence of
public sector adjustment during 1996-2000
limits the opportunities for donor funding.
Consequently, the account becomes even
more fragile.
.~~~~~~~~~~~~~~~'
BIBLIOGRAPHY
- 123 -
Abken, Peter A. 1991. Beyond Plain Vanilla: A Taxonomy of Swaps. Federal Reserve
Board of Atlanta Economic Review. March/April.
Akach, S.O. 1990. The National Sample Survey Program. In Proceedings of the Symposium
of Producers and Users of Statistics. Nairobi. Central Bureau of Statistics.
Balassa, Bela. 1991. Exchange Rates and Foreign Trade in Korea. Policy, Research and
External Affairs Working Papers, WPS 635. Washington, D.C. World Bank.
Barber, G.M. 1991a. Capital Stock Estimates for Kenya by Industry and Asset, 1972-1989.
Long Range Planning Unit, Ministry of Planning and National Development. Kenya
(mimeo).
-----. 1991b. Consumer Price Indices and Inflation in Kenya. Ministry of Planning and
National Development Technical Paper No. 91-04. Nairobi.
Bigsten, Arne. 1984. Education and Income Determination in Kenya. Vermont, Gower
Publishing Co.
Bruce, C. and Ndii, D. 1991. Framework for Macroeconomic Analysis (App.IeG to Kenya).
Policy, Research and External Affairs Working Papers, WPS 767. Washington, D.C.,
World Bank.
Chhibber, Ajay. 1991. Africa's Rising Inflation: Causes, Consequences, and Cures. Policy,
Research and External Affairs Working Papers, WPS 577. Washington, D.C., World
Bank.
----- and Dailami, Mansoor. 1990. Fiscal Policy and Private Investment in Developing
Countries: Recent Evidence on Key Selected Issues. Policy, Research, and External
Affairs Working Papers, WPS 559. Washington, D.C., World Bank.
Clasessens, Stjin and Qian, Ying. 1991. Risk Management in Sub-Saharan Africa. Policy,
Research, and External Affairs Working Paper, WPS 593.
Conable, Barber, B. 1991. Reflections on Africa: The Priority of Sub-Saharan Africa in
Economic Development. Washington, D.C. World Bank.
Corbo, Vittorio and Fischer, Stanley. 1991. Adjustment Programs and Bank Support:
Rationale and Main Results. Policy, Research and External Affairs Working Papers,
WPS 582. Washington, D.C., World Bank.
Corden, Max W. 1990. Macroeconomic Policy and Growth: Some Lessons of Experience.
Proceedings of the World Bank Annual Conference on Development Economics 1990.
Supplement to the World Bank Economic Review and the World Bank Research
Observer. Washington, D.C. World Bank.
de Merode, Louis. 1991. Civil Service Pay and Employment Reform in Africa: Selected
Implementation Experiences. Africa Technical Department. Washington, D.C. World
Bank.
- 124 -
Easterly, William R. 1989. Policy Distortions, Size of Government, arid Growth. Policy,
Planning and Research Working Papers, WPS 344. Washington, D.C. World Bank.
Ferroni, M. and Kanbur, R. 1990. Poverty-Conscious Restructuring of Public Expenditure.
Social Dimensions of Adjustment in Sub-Saharan Africa Working Paper No. 9. Policy
Analysis. Washington, D.C. World Bank.
Fischer, Stanley and Thomas, Vinod. 1990. Policies for Economic Development. Policy,
Research and External Affairs Working Papers, WPS 459. Washington, D.C. World
Bank.
Galal, Ahmed. 1991. Public Enterprise Reform: Lessons from the Past and Issues for the
Future. World Bank Discussion Papers, No. 119. Washington, D.C. World Bank.
-----. 1989. Institutional Framework for Efficient and Sustainable Restructuring of State-
Owned Enterprises. Public Enterprise, Vol. 9, No. 2., pp. 111-122.
Goldstein, M. and Khan, M.S. The Supply and Demand for Exports: A Simultaneous Equation
Approach. Review of Economics and Statistics. Vol. 60, No. 2.
Grosh, B. 1988. Comparing Parastatal and Private Manufacturing Firms: Would Privatization
Improve Performance. In Peter Coughlin and Gerrishon K.. Ikiara (eds.),
Industrialization in Kenya: In Search of a Strategy. Nairobi: Heinemann.
Harris, John R., Andoh, Edward, Elvo, Kojo and Starr, Martha. 1987. Experimens in
Wage-Bill Containment in Africa. Special Office on Africa. Washington, D.C. World
Bank.
Ibrahim, Tigani E. 1980. Prospects for Export Growth in an African Economy: The Kenyan
Case. World Bank Reprint Series, No. 188.
International Monetary Fund. 1990. Kenya: Monitoring and Evaluation of Public Enterprises.
Washington, D.C. International Monetary Fund.
Jones, Leroy P. 1991. Performance Evaluation for Public Enterprises. World Bank
Discussion Papers No. 122. Washington, D.C. World Bank.
Keynes, John Maynard. 1976. The End of Laissez-Faire (1926). In the Collected Writings
of John Maynard Kenyes. New York: St. Martin's Press.
Kikeri, Sunita. 1990. Bank Lending for Divestiture: A Review of Experience. Policy,
Research and External Affairs Working Paper, WPS 338. Washington, D.C. World
Bank.
Landell-Mills, P. and Serageldin, I. 1991. Governance and the External Factor. World Bank
Annual Conference on Development Economics 1991. Washington, D.C. World Bank.
- 125 -
Lessard, Donald R. Beyond the Debt Crisis: Alternative Forms of Financing Growth. In 1.
Hussain and U. Diwan (eds,). Dealing with the Debt Crisis. Washington, D.C. World
Bank.
Lindauer, David L. 1987. Public Sector Wages and Employment in Africa: Facts and
Concepts. Studies in Employment and Rural Development, No. 68. Washington, D.C.
World Bank.
-----. 1986. Parastatal Pay Policy in Africa. Country Programs Department Discussion Paper
No. 1986-31. Washington, D.C. World Bank.
-----. Meesook, Oey and Suebsaeng, Parita. 1986. Government Wage Policy in Africa:
Summary of Findings and Policy Issues. Country Programs Department Discussion
Paper No. 1986-24.
Lopez, Ramon. 1991. How Trade and Macroeconomic Policies Affect Economic Growth and
Capital Accumulation in Developing Countries. Policy, Research and External Affairs
Working Papers, WPS t25. Washington, D.C. World Bank.
Masuoka, Toshiya. Asset and Liability Management in Developing Countries: Modern Financial
Techniques - A Primer. Policy, Research and External Affairs Working Papers, WPS
454. Washington, D.C. World Bank.
Moran. 1988. A Structural Model for Developing Countries Manufactured Exports.
World Bank Economic Review, Vol. 2, No. 3.
Mukui, John T. 1991a. The Consumer Price Index as a Measure of Inflation in Kenya. In
Proceedings of the Workshop on Consumer Price Index and Urban Household Budget
Survey (forthcoming), Central Bureau of Statistics.
-----. 1991b. Planning Strategy for the 1991/92 Urban Household Budget Survey. In
Proceedings of the Workshop on Consumer Price Index and Urban Household Budget
Survey (forthcoming), Central Bureau of Statistics.
-----. 1979. The Impact of Price Controls on Inflation and Distribution of Real Income
in Kenya. Institute of Development Studies Occasional Papers No. 32, Nairobi. The
University of Nairobi.
Nagda, S. 1991. On Current and Revised Kenyan Consumer Price Indices. In
Proceedings of the Workshop on Consumer Price Index and Urban Household Budget
Survey (forthcoming), Central Bureau of Statistics.
1990. Consumer Price Index. In Proceedings of the Symposium of Producers and
Users of Statistics, Central Bureau of Statistics.
Ndii, D. 1991. Donor Perceptions and Uses of the CPI. In Proceedings of the Workshop on
Consumer Price Index and Urban Household Budget Survey (forthcoming), Central
Bureau of Statistics.
- 126 -
Nellis, John. 1986. Public Enterprises in Kenya - An Institutional Assessment. Mimeo.
Washington, D.C. World Bank.
Nunberg, Barbara. 1989. Public Sector Pay and Employment Reform: A Review of World
Bank Experience. World Bank Discussion Papers No. 68.
Olum. G.H. 1979. Collection of Consumer Price Data in Urban and Rural Areas of Kenya.
Institute of Development Studies Occasional Paper No. 32. The University of Nairobi.
Oyugi, Walter. 1988. Decentralized Development Planning and Management in Kenya: An
Assessment. In Oladipupo 0. Adamolekun (ed.). Decentralized Policies and Socio-
economic Development in Sub-Saharan Africa. Economic Development Institute.
Washington, D.C. World Bank.
Peterson, Stephen. 1991. Analysis and Management of Recurrent Costs: Lessons from
Kenya. Harvard Institute for International Development, Harvard University.
Pfeffermann, Guy P., and Madarassy. A. 1990. Trends in Private Investment in Thirty
Developing Countries. International Finance Corporation Discussion Paper No. 6.
Washington, D.C. World Bank.
Republic of Kenya. 1991a. Budget Speech. Speech delivered to the National Assembly on June
13, 1991 by the Vice President and Minister of Finance, when presenting the Budget for
fiscal year 1991/92.
-. 1991b. Economic Analysis of Public Expenditure, 1989/90-1993/94. Nairobi.
Government Printer.
---. 1991c. Civil Service Salaries Review Committee. Nairobi. Government Printer.
-----. 1991d. Report of the Presidential Committee on Employment. Nairobi. Government
Printer.
-----. 1989a. Development Plan 1989-93. Nairobi. Government Printer.
1989b. An Overview Report of the National Manpower Survey. Ministry of
Manpower Development and Planning.
-----. 1989c. The Regulations of Wages and Conditions of Employment Act (1980).
Nairobi: Government Printer.
-.--- 1988a. Kenya Symposium on Statistical Surveys. Nairobi. Government Printer.
-----. 1988b. Report of the Presidential Working Party on Education and Manpower Training
for the Next Decade and Beyond. Nairobi. Government Printer.
-----. 1987. Wages Guidelines. Mimeo.
- 127 -
-.--- 1986. Sessional Paper No. I of 1986 on Economic Management for Renewed Growth.
Nairobi. Government Printer.
-----. 1985. Civil Service Salaries Review Committee. Nairobi: Government Printer.
-----. 1982. Report and Recommendations of the Working Party on Government
Expenditures. Nairobi: Government Printer.
-----. 1982. Working Party on Government Expenditures. Nairobi: Government
Printer.
-----. 1980a. Civil Service Review Committee. Nairobi: Government Printer.
-.--- 1980b. The Trade Disputes Act. Nairobi: Government Printer.
-----. 1970/71. Report of the Commission of Inquiry: Public Service Structure and
Remuneration. Nairobi: Government Printer.
-----. Various years. Appropriation Accounts of the Government of Kenya.
Ministry of Finance, Nairobi.
----. Various years. Economic Survey. Central Bureau of Statistics. Nairobi.
-----. Various years. Estimates of Recurrent Expenditure of the Government of Kenya.
Central Bureau of Statistics. Nairobi.
-----. Various years. Statistical Abstracts. Central Bureau of Statistics. Nairobi.
-----. Various years. Programme Review and Forward Budget. Ministry of Finance.
Nairobi.
Rodriguez, Carlos Alfredo. 1989. The External Effects of Public Sector Deficits. Policy,
Planning and Research Working Papers, WPS 299. Washington, D.C. World Bank.
Shirley, Mary. 1989a. Evaluating the Performance of Public Enterprises in Pakistan.
Policy, Planning and Research Working Papers, WPS 160. Washington, D.C. World
Bank.
-----. 1989b. The Reform of State-Owned Enterprises: Lessons from World Bank Lending.
Policy, Planning and Research Series, 4. Washington, D.C. World Bank.
-----. 1989c. Improving Public Enterprise Performance. Policy, Planning and Research
Working Papers, WPS 312. Washington, D.C. World Bank.
----- and Nellis, John. 1991. Public Enterprise Reform: The Lessons of Experience.
Economic Development Institute. Washington, D.C. World Bank.
- 128 -
Sulemane, Jose Alves Amad. 1991. Private Investment and Savings: A Case Study of Kenya
(1968-89). M.A. Thesis Submitted to the Faculty of the Graduate School of Vanderbilt
University, April 1991.
Weekly Review, February 22, 1991. Nairobi, Kenya.
World Bank. 1991a. Global Economic Prospects and the Developing Countries.
Washington, D.C. World Bank.
-----. 1991b. Kenya: Human Resources: Improving Quality and Access. Report No. 9023-KE.
Eastern Africa Department. Washington, D.C. World Bank.
-----. 1991c. Kenya: Policy Framework Paper, 1991-93. Prepared by the Government
of Kenya in collaboration with the staffs of the IMF and the World Bank.
--. 1991d. Managing Development: The Governance Dimension. A Discussion Paper.
Washington, D.C. World Bank.
--. 1991e. Report and Recommendations of the President of the International Development
Association to the Executive Directors on a Proposed Credit to the Government of Kenya
in Support of the Education Sector Adjustment Credit, Report No. P-5571-KE.
Washington, D.C. World Bank.
-.-- 1991f. Quarterly Review of Commodity Markets. Washington, D.C. World Bank.
-----. 1991g. The Reform of Public Sector Management: Lessons of Experience. Draft.
Washington, D.C. World Bank.
-----. 1991h. Worid Development Report 1991: The Challenge of Development. New York:
Oxford University Press.
--. 1990a. Institutional and Sociopolitical Issues. Background Paper. The Long-Term
Perspective Study of Sub-Saharan Africa. Vol. 3. Washington, D.C. World Bank.
-----. 1990b. Kenya. Stabilization and Adjustment: Toward Accelerated Growth. Eastern
Africa Department. Report No. 9047-KE. Washington, D.C.
-----. 1990c. Planning Assumptions for Major Macroeconomic Indicators. Washington,
D.C. World Bank, (mimeo).
-----. 1990d. Tourism Development in Kenya. Draft. Washington, D.C.
-----. 1989a. Kenya. Public Expenditure Issues. Eastern Africa Department. Report
No. 7508-KE. Washington, D.C.
-----. 1989b. Sub-Saharan Africa. From Crisis to Sustainable Growth. A Long-Term
Perspective Study. Washington, D.C.
- 129 -
-----. 1988. Employment and Growth in Kenya. Eastern Africa Department. Report
No. 7393-KE. Washington, D.C.
-----. 1987. Kenya: Industrial Sector Policies for Investment and Export Growth. Report
No. 671 I-KE. Washington, D.C.
STATISTICAL APPENDIX
STATISTICAL APPENWIX
Table of Contents
Table No.
Population and Employment
1.1 Population Projections,1979 - 2000
1.2 Population Projections by Sex and Age Groups,1979 - 2000
1.3 Employment by Industry and Sector
National Income Accounts
2.1 Gross Domestic Product by Origin at Current Prices
2.2 Gross Domestic Product by Origin at Constant 1982 Prices
2.3 Gross National Product by Expenditure at Current Prices
2.4 Gross National Product by Expenditure at Constant 1982 Prices
2.5 Gross Fixed Capital Formation by Industry at Current Prices
2.6 Gross Fixed Capital Formation by Industry at Constant 1982 Prices
2.7 Deflators (1982 = 100)
2.8 Incremental Capital - Output Ratios
Balance of Payments and Trade
3.1 Balance of Payments (In Millions of Kenya Pounds)
3.2 Balance of Payments (In Millions of US Dollars)
3.3 Merchandise Exports - Value and Volume
3.4 Value of Exports by Destination
3.5 Exports by Standard International Trade Classification -
Quantum, Price and Value Indices
3.6 Merchandise Imports - Value
3.7 Value of Imports by Origin
3.8 Imports by Standard International Trade Classification -
Quantum, Price and Value Indices
3.9 External Terms of Trade Indices
3.10 Service Transactions and Transfers
3.11 Foreign Exchange Reserves at Years' End
External Debt
4.1 External Long-Term Public Debt Outstanding
Including Undisbursed as of December 31,1990
4.2 External Public Debt DOD and Commitments by Creditor Type for 1980 - 90
4.3 External Public Debt Disbursements and Service Payments by Creditor Type for 1980 - 90
4.4 IMF Position at Year's End
- 134 -
Public Finance
5.1 Summary of Central Government Budget Operations
5.2 Central Government Revenues
5.3 Economic Classification of Central Government Expenditure
5.4a Central Government Recurrent Expenditure by Sector
5.4b Central Government Development Expenditure by Sector
5.5 Central Government Expenditure by Sector
5.6 Local Government Budget Operations
5.7 Public Sector Fixed Capital Formation by Industry
5.8 Public Sector Employment and Wage Bill
Monetary Statistics
6.1 Consolidated Accounts of the Banking System at Year's End
6.2 Change in Money Supply and Sources of Change
6.3 Assets and Liabilities of Non-Bank Financial Institutions at Year's End
6.4 Principal Interest Rates at Year's End
6.5 Exchange Rate Movements
Agricultural Sector
7.1 Agricultural Output, Inputs and Value Added
7.2 Gross Marketed Production at Current Prices
7.3 Sales to Marketing Boards - Quantum, Price and Value Indices
7.4 Principal Crops - Volume of Sales, Average Prices and Producers' Revenue
7.5 Maize - Selected Indicators
7.6 Tea - Selected Indicators by Size of Landholding
7.7 Coffee - Selected Indicators by Type of Landholding
7.8 Selected Agricultural Price Indices
Manufacturing Sector
8.1 Value Added and Output for all Manufacturing Firms and Establishments
8.2 Quantum Index of Manufacturing Production
8.3 Manufactured Exports: Value and Quantum Indices
Energy Sector
9.1 Production,Trade and Consumption of Energy by Primary Source
9.2 Installed Capacity and Electricity Generation
9.3 Electricity Tariffs by Type of Consumer
9.4 Crude Oil and Petroleum Products - Demand and Supply Balance
9.5 Value of Exports and Imports of Mineral Fuels
9.6 Wholesale and Retail Prices of Petroleum Products
- 135 -
Other Sectors
10.1 Tourism Sector - Selected Indicators
10.2 Transport and Communications Sector - Selected Indicators
Prices aRd Wages,n.e.i.
11.1 Annual Average Consumer Price Index
11.2a Nairobi Consumer Price Indices
11.2b Revised Nairobi Consumer Price Indices
11. 2c Nairobi Consumer Price Indices
11.3 Wagt iiarnings by Industry and Sector
11.4 Nominal and Real Wages
Technical Notes
- 136 -
Table 1.1: POPULATION PROJECTIONS, 1979-2000
(In Thousands)
Workihg A8V Total
Yoar Popuabtion It Poputlation
1979 7539 16141
1980 6551 16667
1981 7802 17342
1982 8126 18035
1983 8469 18748
1984 8829 19482
1985 9208 20241
1986 9591 21021
1987 10006 21826
1988 10431 22657
1989 10879 23513
1990 11348 24397
1995 13972 29237
2000 17065 34792
1/ Defined as the age group 15-59.
Sources: Central Bureau of Statistics, Statistical Abstract; and
Population Projections for Kenya, 1980 - 2000, Marci 1983.
- 137 -
Table 1.2: POPULATION PROJECTIONS BY SEX AND AGE GROUPS,1979-2000
(In Millions)
. ^ . <::>. Sox Ago Oroup
. . . :.: : . ~~~Mau Foaulo Uader 10 10-14: }.S.19 10-59 Over 59
1979 7.6 7.7 5.3 2.1 1.7 5.8 0.4
1980 8.3 8.4 6.3 2.2 1.7 4.9 1.5
1981 8.6 8.7 6.6 2.3 1.8 6.0 0.6
1982 9.0 9.1 6.8 2.4 1.9 6.2 0.6
1983 9.3 9.4 7.1 2.6 2.0 6.5 0.7
1984 9.7 9.8 7.3 2.7 2.1 6.7 0.7
1985 10.1 10.2 7.6 2.8 2.2 7.0 0.7
1986 10.5 10.5 7.8 2.9 2.3 7.3 0.7
1987 10.9 10.9 8.1 3.0 2.4 7.6 0.7
1988 11.3 11.4 8.3 3.1 2.5 7.9 0.8
1989 11.7 11.8 8.6 3.3 2.6 8.3 0.8
1990 12.2 12.2 8.9 3.4 2.7 8.6 0.8
1995 14.6 14.6 10.3 4.0 3.3 10.6 1.0
2000 17.4 17.4 11.9 4.6 3.9 13.1 1.2
Memo Items:
Census Results 1979 1989
Population 1/ 15.3 21.4
Note: For assumptions underlying these projections see Technical Notes.
1/ 1989 results are provisionai.
Sources: Central Bureau of Statistics, Statistical Abstract; Population Projections for Kenya,
1980 - 2000, March 1983;and Population Census of 1979 and 1989.
- 13a -
Table 1.3: EMPLOYMENT BY INDUSTRY AND SECTOR
(in Thousands)
Wag Emplyee. 1005.3 1024.3 1046.0 1093.3 1119.4 1174.4 1226.7 1285.4 1342.2 1372.8 1407.7
Agnculture and fortry 231.4 235.5 223.8 231.1 235.4 240.9 241.4 253.0 265.1 261.3 267.5
Mining and quarrying 2.3 2.2 3.0 3.5 4.1 4.8 3.8 6.5 S.2 8.4 1.6
Manufrcturin 141.3 146.3 146.8 148.8 153.1 158.8 166.2 175.0 180.8 112.8 137.7
Electricity and water 10.1 10.2 14.0 17.2 17.4 17.8 18.2 19.2 20.4 22.4 22.0
Construction 63.2 61.3 60.4 60.2 49.3 49.9 55.7 53.2 63.7 63.7 71.4
Traderestaurants and hotels 70.5 72.6 74.9 80.3 84.8 39.7 95.4 105.3 106.7 110.3 113.9
Trnsportandcommunicatizns 55.2 55.4 52.8 55.0 54.1 55.7 62.0 64.4 73.6 75.3 74.2
Finance and busineas services 39.7 39.5 43.7 45.7 50.2 53.4 56.3 57.9 61.3 63.7 65.3
Other services 1/ 392.1 401.3 426.6 451.5 471.1 503.4 520.7 545.9 562.4 578.9 597.1
Private Sector 534.2 540.2 540.4 565.5 578.0 599.7 620.9 653.0 681.8 637.2 713.8
Agriculture and forestry 172.5 173.6 167.5 177.3 181.3 186.0 192.9 198.8 198.4 195.1 202.4
Mining and quarrying 1.7 1.5 1.8 2.1 2.6 3.2 2.3 6.0 7.6 7.8 7.9
Manufacturing 111.4 116.7 116.0 117.1 119.7 123.6 130.1 133.2 141.7 141.8 146.1
Electricity and water 0.1 0.2 0.2 0.1 0.0 0.0 0.0 0.2 0.2 0.2 0.5
Construction 31.7 32.6 32.1 31.4 27.2 25.8 24.8 26.1 31.1 33.4 36.8
Trade,restaurants and hotels 66.0 67.7 69.3 74.6 79.2 83.8 89.1 97.1 98.3 101.4 104.6
Transport andcommunications 23.0 18.9 19.7 21.1 20.1 20.5 19.6 19.7 23.2 24.5 25.9
Financeandbusinessservices 31.9 31.1 34.7 36.1 38.4 40.1 40.7 41.6 44.2 45.3 47.1
Other services I/ 95.9 97.9 99.1 105.7 109.6 116.7 121.4 130.3 137.1 137.7 142.5
Public Sector 2/ 471.6 484.1 505.6 527.8 541.4 574.7 605.8 627 4 660.4 685.6 693.9
Self-employed and family workers 61.9 62.1 62.7 63.2 32.4 33.4 35.4 38.1 43.9 44.3 48.2
Small sce enterprises 3/ 123.1 157.3 172.2 221.4 233.3 254.5 281.1 312.1 346.2 390.0 443.1
- Sit * 1X355.1 X143 -;'.152. 1635.6 17.323 A
Memo Items:
Wage Employees 1005.8 1024.3 1046.0 1093.3 1119.4 1174.4 1226.7 1285.4 1342.2 1372.8 1407.7
ltegular .. .. .. 898.8 982.0 1031.4 1062.3 1093.7 1143.2 1174.9 1220.0
Casual .. .. .. 194.5 137.4 142.9 164.4 191.7 199.0 197.9 187.7
I Community, soial ad pronal srvics.
V Soe SteUziial Appenix Table 5.8 for dtails.
3/I lude urban Informal sector.
SoUc: Centrol Bureau of Statits, Ecoomic Survey, various issna.
- 139 -
Table 2.1: GROSS DOMESTIC PRODUCT BY ORIGIN AT CURRENT PRICES
(In Milhons of Kenya Pounds)
P;� ;- _im tm 190E _ 1 9P =t9S 1 1P- *_- AP
NoorM laay E*mmxny 131.7 150.6 164.7 199.6 215.1 246.9 263.1 297.4 341.9 396.0 425.7
Foreosy and fishing 17.2 20.0 22.7 26.3 29.6 35.0 39.1 45.5 54.7 62.1 65.8
Buwing and costrcwtion 41.6 46.2 49.0 60.0 62.1 76.3 71.3 77.1 14.2 90.4 95.8
WatercolJectio 15.1 17.1 19.5 22.1 24.8 28.1 31.6 35.8 40.7 44.5 46.1
Ownerslip of dwellings 57.3 67.4 73.6 91.2 93.6 107.5 121.4 139.0 162.3 199.0 213.9
Monatury Enmamy 2166.7 250S.7 2884.5 3274.0 3657.3 4171.7 4851.2 5350.9 6129.9 7030.2 820M69
AgncuWture 711.9 819.1 964.1 1126.5 1244.3 1357.2 1598.1 1669.3 1902.7 2033.4 2235.4
Forostry and fshmng 20.0 25.2 30.5 35.3 39.5 44.5 53.0 67.1 31.7 120.3 140.2
Mining and quarrying 5.7 5.9 6.6 7.4 8.5 10.0 11.5 13.3 13.7 18.6 24.4
Manuf6cuuing 295.1 328.2 372.3 408.3 461.0 518.4 608.2 652.5 753.0 855.4 937.4
Buikling and cstruction 105.2 121.0 135.8 137.6 133.6 161.5 175.1 210.3 234. 336.9 591.3
Electricity and water 16.5 20.8 24.8 37.6 43.2 49.5 52.1 55.2 57.6 64.0 79.4
Trade, resturaut & botels 244.7 274.0 306.7 371.0 439.7 520.6 561.0 623.3 712.0 829.1 947.6
Trmasport, storage & comm. 127.3 143.4 185.2 215.9 250.3 296.4 341.1 393.4 433.7 485.8 598.2
Finance & businessservices 135.7 168.8 209.7 248.7 269.0 314.9 365.2 418.7 501.3 576.9 686.7
Ownership of dweUings 146.3 180.2 179.5 196.7 214.5 231.7 263.0 303.6 355.6 393.9 430.5
Domestic sevices 23.3 28.6 32.8 35.6 44.9 51.8 63.0 71.3 83.9 97.5 113.6
Govenment services 332.5 390.9 441.4 475.3 522.2 616.3 756.5 858.4 998.0 1166.6 1323.3
Other services 65.0 73.9 82.5 92.2 107.3 129.6 153.7 181.7 197.9 228.0 251.5
Imputed bank service charges -62.9 -71.2 -87.3 -114.5 -120.2 -130.6 -150.2 -173.0 -246.0 -281.6 -252.5
a333~2~t4~9. 49.1'Z ., .4&1;E;S .tS :
Memo Items:
Total GDP at Factor Cost 1/ 2293.4 2659.5 3049.3 3473.6 3872.9 4418.7 5115.0 5648.2 6471.8 7426.2 8633.6
Agriculture 749.1 8.54.3 1017.3 1188.6 1313.5 1436.7 1690.1 1781.9 2039.1 2271.3 2441.4
Industry 479.2 539.2 608.0 672.9 733.1 843.3 950.3 1044.6 1233.3 1459.3 1824.5
Manufacturin 295.1 328.2 372.3 408.3 461.0 518.4 608.2 652.5 753.0 855.4 937.4
Services 1070.1 1256.1 1424.0 1612.1 1826.3 2133.2 2474.6 2821.7 3199.4 3695.0 4367.7
I/ See Technical Note for aggregarlon scheme
Source: Centrai Bureau of Statisics, Economic Survey, various issues and Minisry of Plaaning.
- 140-
Table 2.2: GROSS DOMESTIC PRODUCT BY ORIGIN AT CONSTANT 1982 PRICES
(In Millions of Kenya Pounds)
19.0 -'; -1911 1912 19- W6 1.15 89 .19 7 1918 19$ 19
Noe-M4my Ecin.a 155.a 159.6 164.7 178.4 185.7 202.4 201.7 208.8 214.S 223.4 229.61
Forstryandfishing 21.0 21.8 22.7 24.9 25.8 28.5 29.2 30.1 31 1 320 32.9
Buldmg and enstructioe 41.1 48.0 49.0 57.2 59.1 70.6 65.3 67.7 68.2 71.5 72.9
WaWewcolIctiu 18.7 19.0 19.5 19.9 20.3 20.7 21.1 21.7 22.6 23.4 24.1
Ownership of dwellings 68.0 70.7 73.6 76.5 S0.6 82.7 36.1 89.3 92.9 96.4 99.7
M a yS 2612.4 2774.0 2834.5 2946.5 2966.0 3110.9 3296.5 3459.6 3643.9 3826.6 4003.3
Agricultue 845.9 897.3 964.1 979.1 941.1 975.6 1023.4 1062.6 1109.3 1152.5 1192.2
Foestry and fishing 27.6 28.4 30.5 32.2 33.3 36.2 39.0 44.6 50.4 53.4 56.0
Minng and quarrying 8.8 5.5 6.6 6.7 7.4 8.1 8.4 9.1 10.2 10.6 11.3
Manufacturing 351.5 364.1 372.3 389.1 405.8 424.1 448.7 474.3 502.8 532.5 560.3
Buildingandcoestruction 126.6 136.7 135.8 112.0 104.5 108.1 112.1 116.7 121.7 128.3 135.1
Electricity and water 21.3 24.6 24.8 26.1 26.8 29.0 31.2 33.6 36.5 39.5 43.7
Trade, restaurants & hotels 318.4 322.5 306.7 315.3 332.6 355.2 390.0 412.5 436.3 455.5 473.7
A Transport, storage&comm. 148.8 151.7 185.2 201.5 202.3 206.5 215.4 224.9 234.0 241.1 249.7
FnFiane & business services 169.2 221.3 209.7 226.0 222.5 244.5 261.0 274.5 291.3 313.1 333.2
| Ownership of dwellings 165.7 181.3 179.5 181.5 184.6 190.3 196.5 205.6 212.2 220.6 229.4
Domestic wsemces 28.3 30.7 32.8 34.9 37.2 39.8 44.0 48.7 55.3 62 4 70.5
GOovemuent services 403.8 425.2 441.4 459.9 473.1 497.3 528.7 554.1 586.2 618.4 646.8
Othor ers.k'.5 75.0 78.0 82.5 86.3 94.2 99.1 104.1 111.7 119.7 127.9 135.9
Imputed rilnk service charges -78.4 -93.4 -87.3 -104.1 -99.4 -103.0 -105.9 -113.4 -121.8 -129.1 -134.0
a ;P i.s---'-- 276&2 293335 3049. 3 3151t5 3313.3 3St2 13668.4 316 405(10 4A3.4
Memo Items:
Totul GDP at Factor Cost 1! 2768.2 2933.5 3049.3 3124.9 3151.7 3313.3 3498.2 3668.4 3858.6 4050.0 4233.4
Agriculture 84.5 947.5 1017.3 1036.2 1000.2 1040.3 1091.5 1137.3 1190.7 1238 0 1281.1
Industry 5749 597.9 608.0 610.9 623.9 660.5 686.8 723.1 761.9 805.8 847.5
Mining 8 8 5.5 6.6 6.7 7.4 8.1 8.4 9.1 10.2 10.6 11.3 1
Manufactunng 351.5 364.1 372.3 389.1 405.8 424.1 448.7 474.3 502.8 532.5 560,3
Other Industry 214.7 228.3 229.1 215.2 210.6 228.4 229.7 239.7 248.9 262 7 275.9
Services 1298.9 1388.2 1424.0 1477.8 1527.6 1612.5 1719.9 1808.1 1906.0 20062 21049 i
1/ See Technical Note for aggregation scheme.
Source: Cenrl Bureau of Statisics, Economic Survey. venous issues and Ministry of Planning
- 141 -
Table 2.3: GROSS NATIONAL PRODUCT BY EXPENDITURE AT CURRENT PRICES
(In Millions of Kenya Pounds)
1960 19$1 t92 1963 1984 1985 19$6 917 196119 1990
IGDP at Factor Cost 2298.4 2659.5 3049.3 3473.6 3S72.9 4418 7 5115.0 5648.2 6471.8 7426.2 8633.6
; Noi-Monetsry 131.7 150.8 164.7 199 6 215 1 246.9 263 8 297.4 341L9 396 0 426.7
I Moetary 2166.7 2508 7 2884.5 3274.0 3657.8 4171.7 4851.2 5350.9 6129.9 7030.2 8206.9
Net Indirect Taxes 397.1 441.3 466.2 509 3 589.6 618 7 759.2 910.9 1079.1 1190.5 1398.9
IndirectTaxes 397.8 442.6 467.7 511.0 591.4 619 7 759.8 911.6 1079.2 1190.5 1399.0
SubsidieS 0 7 1.2 1.6 1 7 1 8 1 0 0 6 0.7 0.1 0.1 0.1
|GDP at Matm Pu*eu 2695.5 3100.8 3515.4 39S2.9 4462.5 5037.3 5874.2 6559.1 7550.9 3616.6 10032.5
Resource Gap 299.4 251.8 131 8 17 8 61.5 53.6 -10.3 334.5 389.5 494.7 527.2
Imports of GNFS I/ 1052.7 1048.7 1009.4 1014.2 1232.0 1328.4 1506.4 1734.1 2054.3 2492.4 3069.4
I Exports of GNFS 753.3 796.9 877 6 996.3 1170.5 1274 8 1516.7 1399.6 1664.9 1997.7 2542.2
Total Resources 2994.9 3352.6 3647.2 4000.7 4523.9 5090.9 5863.9 6893.7 7940.4 9111.3 10559.7
Consumption 2207.2 2494.5 2879.5 3171.4 3598.2 3783.5 4585.5 5301.1 6053.5 6993.1 8184.1
Public 533.8 5764 647.4 733.1 775.6 880.1 1075.9 1217.7 1385.7 1607.5 1841.6
Private 1671.9 1914.3 2232.1 2438.3 2822.6 2920.3 3519.8 4083.4 4661.6 5331.3 6431.5
Statistical Discrepancy 1.5 3 8 -0.0 0.0 -0.0 -16.8 -10.2 0.0 6.2 54.3 -89.0
IGross Investment 787.7 858.1 767.7 829.3 925.7 1307.4 1278.4 1592.6 1886.8 2118.2 2375.6
Gross fixed capital formation 621.0 724.7 668.2 717.5 807.2 901.4 1153.2 1286.7 1516.0 1657.8 2030.3
Public 281.2 322.5 300.9 274.2 336.7 361.5 475.5 467.5 624.7 694.3 956.2
I Pnvate 339.9 402.2 367.4 443.3 470.5 539.9 677.7 819.3 891.2 963.5 1074.1
Changes La Stocks 166.7 133.4 99.5 111.9 118.6 405.9 125.2 305.8 370.9 460.4 345.3
Gross Domestic Savings 488.3 606.3 635.9 811.5 864.3 1253.8 1288.7 1258.0 1497.4 1623.5 1848.4
Net Factor Income -84.0 -97.1 -139.4 -127.2 -150.2 -183.2 -209.2 -248.6 -320.6 -363.1 -385.5
Net Private Transfers 10.1 44.6 45.5 42.2 43.3 67.0 47.2 59.3 79.0 104.4 192.4
Gross National Savmigs 414.4 553.8 542.1 726.5 757.4 1137.5 1126.7 1068.6 1255.8 1364.9 1655.3
GNPW s Muim Nie. 26115 3M.1 361 30S.1 4312.3 4854.1 665.0 10.5 7230.3 VM,4 96.0
11 Dsa for 1989 excludes KL120 million which represents the purchas of one and lIng of another ircft
by Kenya Airways Corporation
Source Central Bureau of Stitcs. EconDomic Survey, vaous issues nd Mmsry of Pling
- 142 -
Table 2.4: GROSS NATIONAL PRODUCT BY EXPENDITURE AT CONSTANT 1982 PRICES
(In Millions of Kenya Pounds)
h.
1980 1981 19t* 1983 1984 1985 1986 198 19s 19*9 1990
GDP at Factor Cost 2768.2 2933.5 3049.3 3124.9 3151.7 3313.3 3498.2 3668.4 3858.6 4050 0 423".4
Non-Monetary 155.8 159 6 164.7 178 4 185 7 202 4 201.7 208 8 214 8 223 4 229.6
Monetary 2612.4 2774.0 2884.5 29465 2966.0 3110.9 3296.5 3459.6 3643.9 38266 4003 8
Net Indirect Taxes 569.0 529 7 466.2 436.5 472 3 466.6 552.9 623 2 691.6 707 o 765.7
Indirect Taxes 569.8 531.0 467 7 438 2 474.0 467.4 553.4 623.7 691.7 707.7 765 7
Subsidies 0.8 1 3 1.6 I.o 1.6 0.8 0.4 0.4 0.1 00 0 1
1GDPatMaftetPrien 3337.3 3463.2 351S.4 3561.5 3624.0 3779.f 4051.1 4291.7 4550.2 4757.6 4999.1
Resource Gap 636.4 352.9 131 8 -33.8 105.8 -21.4 40.2 171.2 232.3 249 8 247 1
Imports ofGNFS It 1524.1 1203.5 1009.4 823.7 970.9 901.7 1053.6 1193.6 1301.4 1258.8 1315.2
Exports of GNFS 887 7 850.6 877.6 857.5 865.1 923.2 1013.4 1022.4 1069.1 1008 9 1068.2
Total Resources 3973.6 3816.1 3647.2 3527.6 3729.8 3758.4 4091.4 4462.8 4782.6 5007.4 5246.2
i
,Consumption 2942.6 2817.2 2879.5 2862.2 3033.6 2867.8 3345.4 3592.3 3833.5 4014 8 4316 0
Public 694.7 657.3 647.4 702.8 702.9 710.0 760.8 785 4 800.0 811 4 848.7
Private 2247.9 2163 8 2232 1 2159.4 2330.7 2171.7 2584.6 2806.9 3031.1 3186.7 3497.4
Statistical Discrepancy -0.0 -3.8 -0.0 0.1 0.0 -13.9 0.0 -0.0 2.4 16 7 -30.1
Gross Investment 1031.0 998.9 767.7 665.4 696.2 890.6 746.0 870.6 949.1 992.7 930.2
Gross fixed capital formation 807.3 847.8 668.2 576.0 593.6 611.1 668.1 708.0 766.7 760.0 760.8
Public 350.5 369.8 300.9 228.4 247.9 245.9 280.7 261.8 320.1 325.8 370.1
Private 456.8 478.0 367.4 347.6 345.6 365.2 387.3 446.1 446.7 434 2 390.7
I Changes mn stocks 223.7 151.1 99.5 89.4 102.6 279.5 77.9 162.6 182.4 232.7 169.4
iGross Domestic Savings 597.5 710.0 635.9 650.9 647.8 854.3 753.1 640.3 702.4 742.8 704.3
INet Factor Income -111.5 -110.5 -139.4 -112.2 -123.8 -135.3 -145.9 -161.0 -193.1 -199.5 -191.5
Net Private Transfers 13.4 50.8 45.5 37.2 35.7 49.4 32.9 38.4 47.6 57.4 95.6
Gross Natonal Savings 499.5 650.2 542.1 576.0 559.7 768.4 640.1 517.7 556.8 600.7 608.3
Capacity to Import 1090.6 914.5 877.6 809.2 922.4 865.4 1060.8 963.4 1054.7 1008.9 1089.3
|Terms of Trade Adjustment 202.9 64.0 0.0 -48.3 57.4 -57.8 47.4 -59.1 -14.4 -0.0 21.2
'Gross Domestic Income 3540.2 3527.2 3515.4 3513.2 3681.4 3722.0 4098.5 4232.6 4535.8 4757.6 5020.3
iGross National Income 3428.7 3416.7 3376.1 3401.0 3557.6 3586.8 3952.6 4071.6 4342.7 4558.1 4828.8
iGNP at Maikt. PMea 3225.S 3352.7 3376.1 3449.3 3500.2 3644.6 3905.2 4L30.7 4357.1 4055.1 4907.6
It See footaote 1. Statical Appendix Table 2 3
Source Central Bureau of StIcs and Miunstry of Planning
- 143 -
Table 2.5 GROSS FIXED CAPITAL FORMATION BY INDUSTRY AT CURRENT PRICES
(mn Millions of Kenya Pounds)
1940 1931 1982 1983 1984 1985 1986 1987 19 1989 1990
iTotal Capital FourmDsaa 621.0 724.7 663.2 717.5 807.2 901.4 1153.2 1286.7 1516.0 1657.S 2030.3
Agrir.i.Iture and forestry 48 2 55 6 Sl 9 54 0 59 0 76 3 90 0 106.7 113.0 11.6 143.3
Mning and quarrxing 5 0 4 9 4 1 5 1 7 1 4 9 7 0 12.7 10 2 10 2 !5.7
Manufacturing 7b 9 90 3 67 0 1117 95 3 1018 161 3 171.8 218.3 253 9 363 3
Electricity and vater 41 3 65.5 75 2 5' ' 37.0 46 3 48 6 62 2 Sl 7 121 1 173.3
Construction 33.4 32 9 28.9 59 4 68 3 49 5 50.3 70 2 70 5 85.2 Ill 6
Trade, restaurants & hoteIs 28 3 19 7 21 8 26 4 24 8 34 5 24.9 24.9 37.5 26 0 40.2
Transport and communication 102 8 113 5 101 5 110 1 149 9 164 2 289.0 306.7 259.2 280.8 321 5
Finrnce & business services 10 2 23 7 9.4 16 7 18.4 19 2 13 5 21 6 44.6 54 5 69.1
Ownership of dwellings 1 106.6 1206 126.5 114 1 134 8 1325 172.8 194.1 213.5 233 5 272.0
Government s.rvices 127.2 144.5 126 7 102 0 153 1 192.4 220.0 230.1 362.6 349.8 447.4
Other services 41 3 53 6 55 3 60 7 59.5 80.0 75 9 85.8 104 8 124.3 72.9
Private Se-tor 2; 339.9 402.2 367.4 443 3 470.5 539.9 677.7 819.3 891.2 963.5 1074.1
Agricuiture and foresEry 39.1 45 9 43.8 45 6 49.9 69.6 85.8 103.7 108.8 114.1 119.6
Mimng and quarrying 5.0 4 8 4 1 5.1 7.1 4 9 7 0 12.7 10.2 10.2 15 7
Manufacturing 73.9 87.7 64.3 108.6 92.2 98 8 156.1 168.0 212.3 232.2 348.2
FlectriLity and water -0.1 0.0 0.0 0 0 0.0 3 0 3.9 2.9 2.1 6.2 4.2
Construction 31.4 30.4 25.4 32 8 42.6 29 5 47.8 66.9 67.0 81.1 95.5
Trade, restaurants & hotels 26.3 18.0 17.7 20 8 22.2 31.4 22.1 22.6 27.8 22.6 33.8
Transport and communication 46.6 62.6 54.2 68.2 84.9 101.0 130.1 181.5 163.5 163.9 176.9
Fmance & business services 1 2 12.6 2.3 7.7 4.3 8 6 8.4 17.0 26.6 25.6 33.5
OwnershisDofdwellungs 1; 79.3 94.4 102.9 95.5 109.7 1143 143.1 160.7 1690 184.5 177.1
Other services 38.8 49.6 52.7 590 57.5 78.9 73.3 83.1 1040 123.1 71.2
Staistical Discrepancy -1.5 -3 8 0.0 -0.0 0 0 0 0 -0.0 -0.0 0.0 -0.0 -1.6
Public Sector 3/ 281.2 322.5 300.9 274.2 336.7 361.5 475.5 467.5 624.7 694.3 956.2
Memo Items:
Total Capital Fonnation 4/ 621.0 724.7 668.2 717.5 807.2 901.4 1153.2 1286.7 1516.0 1657.8 2030.3
Agriculture 48.2 55.6 51.9 54.0 59.0 76 3 90.0 106.7 113.0 118.6 143 3
Industry 156.6 193.5 175.2 233.3 207.7 202.4 267.2 317.0 380.7 470.4 663.9
Manufacturing 76.9 90.3 67.0 111.7 95.3 101.8 161.3 171.8 218.3 253.9 363.3
Services 416.3 475.6 441.2 430.1 540.5 622.7 796.0 863.1 1022.2 1068.8 1223.1
1! [ncludes traditional dwelUngs
2, Derived residually
3' Includes Central Government. Murucipaliies, Councds and parastatals iSee Statistical Appendix Table 5 7 for details)
4/ See Techlucal Note for aggregation scheme
Source Central Bureau of Statisucs. Economic Survey. "anous issues
-144-
Table 2 6 GROSS FIXED CAPITAL FORMATION B3Y INDUSTRY AT CONSTANT 1982 PR3CES
(In Millions of Kenya Pounds)
19@0 191 1912 19n3 19" 1985 1966 19W 19U 19 1990
|TOblCsviC a F tio 307.3 47.5 668.2 576.0 593.6 611 I. 668.1 708.0 766.7 760.0 760.811
Agriculture and forestry 63.1 649 51.9 440 40.7 5 12 54.0 59.1 6).1 550 51.8
MUwng and qUarrying 7 6 6 0 4 1 3 6 4 9 3 1 3 6 6 7 5.4 4 4 5.5
ManufacturUng 110.1 109 7 67 0 81 0 65 7 65.2 83.9 89.6 112.4 110.5 129.5
Electricity and water 49.9 76.0 75.2 49 5 27.0 31.0 29 9 35.7 43.4 58.3 70.6
Construction 48 1 40.2 28 9 41 8 46 9 32.3 27 0 37.2 37.1 37.2 39.9
Trade, restaurants & hotels 39.5 SI 0 21 8 21 4 17 9 24.2 14.2 13.4 19.4 11.5 14.4
Transport and communication 127.8 102 1 101 5 83 3 105 3 106.6 144.8 151.1 115.7 117.2 112.7
FUiance & busuness services 12.7 26.8 9.4 14 3 14.2 13.1 7 6 11.9 23.2 25.5 26.4
Ownership of dwellings 1 133.1 138 3 126.5 101 7 112 5 97 2 119.3 120.0 99.7 114.9 109.7
Govermment services 1602 169.3 1267 88.0 114.7 132.1 138.1 133.9 192.9 165.1 173.7
Other services 55.3 63 6 55.3 47.3 43.9 55. 1 45.5 49.6 57.4 60.0 26.7
Private Sector 2/ 456.8 478.0 367.4 347.6 345.6 365.2 387.3 446.1 446.7 434.2 390.7
Agriculture and forestry 52.4 54 2 43.8 37.4 35.6 47.4 50 3 57.5 58.3 53.1 43.5
Mining and quarrying 7.6 6.0 4 1 3.6 4.9 3.1 3.6 6.7 5.4 4.4 5.5
Manufacturing 105.6 106.6 64.3 78.7 63.5 63.3 81.2 87.7 109.3 100.9 124.2
Electricity and water 00 00 0.0 0.0 0.0 2.0 2.5 1.7 1.1 3.1 1.8 1
Construction 45.1 37.3 25.4 23.2 29.3 18.8 25.4 35.3 35.2 35.2 33.4
Trade, restaurants & hotels 36.6 21.5 17.7 16.3 16 1 22.0 12.5 12.1 14.3 9.9 11.9
Transport and communication 56.8 70.7 54.2 50.7 59.2 65.0 64.6 88.5 70.8 66.0 60.8
Finance & busmess services 1.8 14.2 2.3 6.7 3.1 5.5 4.6 9.3 13.4 11.2 12.3
Ownership of dwellings 2/ 99.1 108.2 102.9 85.1 91.5 83.8 98.8 99.3 81.9 90.8 71.3
Other services 52.0 59.2 52.7 46.1 42.4 54 4 43.9 48.0 57.0 59.6 26.1 1
Statistical Discrepancy -0.0 0.0 0.0 -0.0 0.0 -0. 0 0.0 -0.0 0.1 -0.1 0.0
Public Sector 3/ 350.5 369.8 300.9 228.4 247.9 245.9 280.7 261.8 320.1 325.8 370.1
Memo Items:
Total Capital FornLtion4/ 807.3 847.8 668.2 576.0 593.6 611.1 668.1 7080 766.7 760.0 760.8
Agriculture 63.1 64.9 51.9 44.0 40.7 51.2 54.0 59.1 60.1 55.0 51.8
Industry 215.7 231.9 175.2 175.9 144.4 131.6 144.5 169.2 198.3 210.9 245.4
Manufacturing 110.1 109.7 67.0 81.0 65.7 65.2 83.9 89.6 112.4 110.5 129.5
Services 528.6 551.0 441.2 356.0 408.4 428.3 469.6 479.7 508.3 494.1 463.6
If Includes traditional dweliLngs
2V Denved residually
3/ tInludes Central Government. Munxcipalta. Councils and parasatals (See Sutaucal Appendix Table 5 7 for detals)
4/ See Techiucal Note for aggregasion scheme.
Source Central Bureu of StatUtics. Economic Survey. vnous iasueS
- 145 -
Table 2 7 DEFLATORS
(192 = 100)
*914f0 1931 19f2 1933 19f34 1985 1986 1987 1988 199 1 990
\in M1inetarN E,conomy 84 5 94 5 100 0 III 9 115.9 1(2 0 130 8 142 4 159 2 177 3 185.8
f .resirs drid thshing 81.8 91 8 100 0 105.6 114 9 1 2 9 133.9 (51.2 176 1 194 1 200.4,
Build.nv a d onstru,tion 86.5 96 2 100 105.0 105 0 108 1 109.9 113.9 123.3 126.5 131.4
Water otleciion 80.7 90 I 100.0 111.2 122.4 136.0 1494 1647 180.5 1897 191.1
I)v'nership nf dwellings 85.0 95.3 100 0 119 2 122 5 130 0 141 1 155.6 174 7 206 4 219.6
Monetar\ Econums 82.9 90.4 1000 111 123 3 134.1 147.2 154.7 168.2 183.7 205.0
Aeri .jiture 84 2 91.3 (0X).0 115 1 132.2 139 1 1562 157 1 171.5 181 2 187.5
fIore,iirN and fishing 72 7 88.6 100 0 II1 0 118 7 122 9 136.0 150.5 162.1 226 0 250.1
Mt ini! and quarrsing 65.5 108.4 100 0 110.2 114.8 122 9 136 3 145.5 134 9 175.3 216.8
.Manufacturing 84.0 90.1 100.0 104.9 113.6 122 2 135 6 137.6 149.8 160 6 176.2
Consiru.nion 83.1 88.5 100.0 122.8 127.8 149 4 156.3 180.7 233.5 301.7 437.7
Electr, it. and water 77 3 84.6 100.0 143.9 161.5 170 7 167.0 164.4 158.0 162 0 181.7
Tirdd. restaurants & hotels 76 8 85.0 100 0 117.7 132.2 146.6 143.9 152.3 163 2 182.0 200.1
!trarnsport siorage & comm 85 9 94.5 100.0 107 1 123.7 143 5 158.3 174.9 185.3 201 5 239.5
[;in & ?ousiness ser ices 1 80.2 76.3 100 0 110 0 120 9 128.8 139.9 152.5 172.3 184 2 206.1
0v)nerstip of dwellings 88.3 99.4 100.0 108.4 116 2 121.8 133.8 147.6 167.6 178.5 209.5
Domesri- sersices 82.4 93.3 100.0 102.0 120.6 130 1 143.1 147.4 151.8 156.3 161.0
Governmernt ser ices 82.3 91.9 100.0 103.3 110.4 123.9 143.1 154.9 170.3 188 6 204.6
Other services 86 7 94.7 100.0 106.9 113.9 130.8 147 7 162.6 165.3 178.3 185.0
Le,s imputed bank 80.2 76.3 100.0 110.0 120.9 126.9 141.8 152.5 201 9 218.1 188.4
services and charges
Tota 0G1DP at Factor Cost 21 83.0 90.7 100.0 111.2 122.9 133.4 146.2 154.0 167.7 183.4 203.91
Agriculture.Forestrm & Fishing 83.7 91.2 100.0 114.7 131.3 138.1 154.8 156.7 171.2 183.5 190.6
Industrs 83.4 90.2 100.0 110.1 117 5 127 7 138.4 144.5 161.9 181 2 215.3
Manufacturing 84.0 90.1 100.0 104.9 113.6 122.2 135.6 137.6 149.8 160.6 176.2
Services 82.4 90.5 100.0 109.1 119.6 132.6 143.9 156.1 167.9 184.2 207.5
"el Indirect Taxes 69.8 83.3 100.0 116.7 124 8 132.6 137.3 146.2 156.0 168.2 182.7
iGDP at Mrk.e Ptiesw fll 1195 100.0 1M1.8 123.1 133.3 145.0 IS2.t 165.9 It1.1 200.7
Imports GNFS 69.1 87.1 100.0 123.1 126.9 147.3 143.0 145.3 157.9 (98.0 233.4
! xporLs CiNFS 84.9 93.7 100.0 116.2 135.3 138.1 149.7 136.9 155.7 198.0 238.0
Totaj Resources 75.4 87.9 100.0 113.4 121.3 135.5 143.3 154.5 (66.0 182.0 201.3
Consumption 75.0 88.5 100.0 110.8 118.6 131.9 137.1 147.6 157.9 174.2 189.6
Public 76.8 87.7 100.0 104.3 110.3 124.0 141.4 155.0 173.2 198.1 217.0
Private D' 74.4 88.5 100.0 112.9 121.1 134.5 136.2 145.5 153.8 167.3 183.9
Gross investment 76.4 85.9 (000 124.6 133.0 146.8 171.4 182.9 198.8 213.4 255.4
Fixed Capital Formation 76.9 85.5 100.0 124 6 136.0 147.5 172.6 181.8 197.7 218.1 266.9
Publi, 80.2 87.2 100.0 120.1 135.8 147.0 169.4 178.6 195.2 213.1 258.4
Private 74.4 84.1 100.0 127.5 136.1 147.8 175.0 183.6 199.5 221.9 274.9
iGross Natiaa( Produt 81.0 6i9.6 (00.0 ,a11. 123.2 133.2 14S.l1 152.8 165.9 �'1.1 200.7
P lmp,icit deflator
See Techmcn, Note for aggregation scheme
ii irc, Dcri'cd from Statistical Appendix Tablea 2 1 to 2 4
- 146 -
Table 2.8: INCREMENTAL CAPITAL - OUTPUT RATIOS
Incremental 3-year 5-year
Year Total GDP Onqput ICOR MCWmg Moving
lavestment Aveage Average
1977 815.0 2798.1
1978 1007.4 3045.1 247.0 4.1
1979 766.2 3160.6 115.4 6.6 5.5
1980 1031.0 3337.3 176.7 5.8 6.8 7.8
1981 998.9 3463.2 125.9 7.9 9.5 9.9
1982 767.7 3515.4 52.2 14.7 12.4 10.8
1983 665.4 3561.5 46.1 14.4 13.4 10.8
1984 696.2 3624.0 62.5 11.1 10.4 9.8
1985 890.6 3779.8 155.8 5.7 6.5 7.5
1986 746.0 4051.1 271.3 2.7 4.0 5.4
1987 870.6 4291.7 240.5 3.6 3.3 4.1
1988 949.1 4550.2 258.6 3.7 4.0 3.7
1989 992.7 4757.6 207.4 4.8 4.1
1990 1/ 930.2 4999.1 241.5 3.9
Note: Values are in millions of Kenya pounds at constant 1982 prices.
1/ Provisional.
Source: Staff estimates derived from Statistical Appendix Table 2.4
- 147 -
Table 3.1: BALANCE OF PAYMENTS
(In Millions of Kenya Pounds)
...~~~~~i .m'. 1961.... ... .- .1966 195 1- 96t::- 1917 9 1,|63 19 19|9
Truk (ml) -369.2 -344.3 -291.7 -131.5 -226.5 -271.3 -230.7 -587.4 -696.4 -1067.0 -1144.6
Exports,f.o.b. 1/ 457.5 435.3 509.9 615.8 745.1 773.8 949.4 747.6 902.3 952.7 1153.0
Impo,f,o.b. 2/ 326.7 329.7 301.6 797.3 971.7 1045.6 1130.1 1335.0 1599.2 2019.6 2297.6
Seviem (ml) -14.2 -4.6 20.5 36.4 12.9 35.0 31.4 4.2 -13.1 39.2 166.3
Receipts 315.3 336.7 403.3 405.2 453.2 536.6 597.3 682.3 779.9 1057.4 1401.1
Payments 330.0 341.3 382.3 368.3 445.3 501.7 565.9 673.5 793.6 968.2 1234.3
Truzf (se) 54.7 97.8 72.6 119.6 127.3 157.4 167.9 176.6 307.1 393.5 429.4
Receipts 61.9 112.4 89.6 142.9 154.3 131.2 196.2 211.7 342.1 444.3 493.5
Payments 7.2 14.6 17.0 23.3 27.0 23.3 23.3 35.1 35.1 50.3 64.1
_ 3 ; ~~~-mf ~-25S-14 X-398. F$~s. .19A ..O ."3fi6F? 4 S4
Capitl Accou(mg t) 252.3 148.9 62.0 69.2 125.5 -4.6 102.2 307.2 344,6 681.4 373.6
Private long-term 55.4 1.4 6.0 -3.6 6.8 3.8 25.2 37.0 -1.6 70.8 26.3
Govenmet long-term 146.4 116.9 36.2 66.9 99.7 -20.3 3.8 162.3 256.4 389.6 105.1
Parastuls 1.3 23.0 3.8 15.4 -10.5 -25.7 56.3 61.6 39.4 166.9 72.6
Short-term 49.7 7.8 16.1 -9.5 29.6 37.6 16.9 46.3 50.4 54.2 169.6
Errors and omissions 3.7 12.0 28.5 13.7 -6.9 -10.2 2.3 -5.0 -4.2 -16.7 6.4
Monetary Movements 72.2 90.2 109.1 -57.4 -32.3 94.2 -73.0 104.4 67.7 -80.5 169.9
Change in reserves 17.4 54.3 -16.6 -133.4 -43.0 -18.7 -20.0 124.6 -53.0 -114.2 25.2
Transactionss with IMF 54.8 32.2 108.2 77.1 -1.6 105.2 -54.4 -51.3 109.5 20.9 117.0
Cianotherliabilities 3.8 16.5 -1.1 12.3 7.7 1.4 31.2 11.2 12.7 26.8
I/ Excludig aircraft und shps stores but including re-exports
2/ Includes defence imports and excludes cinematographic films,newspapers and penodicalg and aLrcraft lesse
Source: Centarl Bureau of Statiics. Economic Survey, various issus.
- 148 -
Table 3.2: BALANCE OF PAYMENTS
(in MdUion of US Dollars)
~; - ,,a., im sea i.e 'e sm ';~ se X
Trade (net) -975.6 -669.5 -451.4 -263.1 -321.0 -330.8 -234.7 -712.7 -781.8 -1032.5 -991.6
Exports,f.o.b. I/ 120S.9 943.6 S01.4 392.7 1055.9 941.3 1171.4 907.1 1013.6 921.9 993.3
Impors,f.o.b. 2/ 2134.5 1613.1 1259.8 1155.9 1376.9 1272.6 1456.1 1619.3 1795.4 1954.4 1990.4
Service (net) -37.5 -3.9 32.2 52.3 13.2 42.6 38.7 5.1 -21.1 36.3 144.1
Receipu 334.5 654.7 633.9 537.4 649.3 653.1 737.0 323.5 375.5 1023.2 1213.7
Payments S72.1 663.5 601.6 534.7 631.1 610.6 693.3 323.3 396.6 936.9 1069.7
Trausfers (net) 144.5 190.2 114.1 1IJ.4 130.4 191.6 207.1 214.2 344.7 330.8 372.0
Receipts 163.6 213.5 140.7 207.2 213.6 220.5 242.1 256.3 334.1 430.0 427.5
Payments 19.0 23.4 26.6 33.3 33.2 23.9 35.0 42.6 39.4 49.1 55.5
| .~ 46.6 .48 -MZ.1 . - .. l?2 .*b XtU ;.*3 X. % . -A,
Capital Accotnt (net) 66S.0 289.5 97.4 100.3 177.8 -5.6 126.1 372.7 336.9 659.4 323.7
Private long-term 146.4 2.6 9.4 -5.2 9.6 4.6 31.1 44.9 -1.3 6S.5 22.3
Government long-term 386.9 227.2 56.S 97.0 141.2 -24.7 4.6 196.9 237.9 377.0 91.1
Parastatais 3.4 44.6 5.9 22.3 -14.9 -31.2 69.5 74.7 44.2 161.5 62.9
Short-term 131.3 15.1 25.3 -13.3 41.9 45.8 20.9 56.2 56.6 52.4 146.9
Errors and omissions 9.8 23.3 44.9 19.9 -9.8 -12.4 2.8 -6.0 -4.8 -16.1 5.5
C>*DBboxiS- 7t - EttY@; s4 -16kg*3 *032N1%_SE-st4-.: -
Monetay Movmenots 190.8 175.4 169.8 -83.2 -45.7 114.7 -90.1 126.6 76.0 -77.9 146.4
Change in reserves 46.0 105.5 -26.0 -193.3 -60.9 -22.8 -24.6 151.1 -59.5 -110.5 21.8
Transactions with IMF 144.8 62.6 170.0 111.7 -2.3 128.0 -67.1 -62.3 123.0 20.2 101.4
Changes in other liabiities .. 7.3 25.9 -1.6 17.4 9.4 1.7 37.8 12.6 12.3 23.2
Memo Item:
[Average Exchange Rate (KsahS) 7.6 10.3 1.7 13.8 14.1 16.4 16.2 16.5 17.8 20.7 23.1
1/ Excluding aircraft and ship' ctora but including re-exports
2/ Includes defence inpora and excludes cinematographic films.newspepers and periodicals and aircrft leam.
SouTce: Central Bureau of Stautics, Economic Survey, vanous mues.
- 149 -
Table 3.3: MERCHANDISE EXPORTS - VALUE AND VOLUME
f ._~~~~A
Domstic Exports (In Mlihoos of Kenya Pounds)
Food and live siumalu 43.4 62.0 54.8 S5.2 7S.1 67.6 93.7 110.6 135 3 136 0 194 SI
Matze, unslled 0.0 0.1 0.3 12.2 5 9 1.2 14 7 19 5 21 7 15.6 20 7 1
Pineapples, canned 1 9 12.0 14.5 20.9 25.9 24.4 24.2 25.8 25 1 37.1 43 4
Beverage and tobcco 168.5 171.9 223.8 2865 395.5 421.7 571.1 364.4 435.5 482.9 549.1
Coffee, uroasted 108.1 1094 144.6 160.1 203.6 230.6 383.5 1946 2445 203.3 221 0
Tea 5S.0 61.1 77.6 123.4 189.5 191.7 172.8 163.4 185.3 271 9 3145
j Crude materils, inedible 1/ 45.0 40.6 49.7 48.2 49.1 56.4 59.6 66.3 39.8 90 7 121 3
Sisal fibre ad tow 8.1 8.1 10.8 12.1 12.6 14.4 10.9 9.9 11.9 16.3 189
Munral fuels 162.7 164.1 149.3 134.5 142.6 127.4 107.3 101.S 119.8 113 6 150 4
Atumal & veg. oils & fats 0.6 0.6 0.3 0.9 2.6 1.3 0.6 0.3 1.0 2.3 1.9
Chemicals 22.1 33.1 19.6 27.5 32.5 39.8 43.9 42.8 45 0 58 3 39 6
Manufactured goods 2/ 41.3 38.3 46.1 47.7 50.1 60.1 64.0 59.2 83.1 101.8 108.8
Cement 10.2 14.4 19.8 21.8 11.7 16.3 13.4 10.4 10.4 11.0 12.6
Mach. & transp. equipment 3.0 3.1 2.1 2.5 3.2 3.5 6.4 7.0 7.9 9 3 6.0
Other exports 0.4 0.2 0.1 0.1 0.6 0.3 10.9 0.6 0.2 0.1 0o0
Toul Domeslic Expor 487.6 513.9 545.7 633.1 754.8 785.1 958.0 753.4 917.7 999.8 1232.4
Non-oil Exports 324.9 349.8 396.5 498.6 612.2 657.7 850.1 651.6 797.9 881.2 1081.9
Horticulture 11.4 12.6 13.6 17.5 54.2 53.0 66.1 77.1 94.8 112 1 159 9
Re-exports 28.1 23.4 22.9 19.1 22.1 26.3 28.9 36.5 34.2 19.9 11.7
Food 6.3 6.2 63 4.8 11.7 13.8 15.3 16.3 16.4 0 6 0.1
Macb. & transp. equipment 11.7 7.6 9.7 8.3 6.8 7.4 8.0 13.0 10.4 12.7 4 6
_ X b . 561W41.6 4 2J ~~9S,t.-t9.7. 12440
Exports (In Millions of US Dollars)
Maize, unrmiled 0.0 0.1 0.5 17.6 8.4 1.5 18.1 23.6 24 3 15 1 17.9
Other food4/ 116.2 121.5 86.1 107.2 105.9 82.4 98.2 111.5 128.7 118.8 152.5
Coffee 285.7 212.7 227.2 232.1 288.5 280.7 479.3 236.1 274.6 197.2 191.4
Tea 153.3 118.8 122.0 178.9 268.5 233.3 213.2 198.2 208.0 263.1 272.5
Other beverages and tobacco 6.2 2.7 2.6 4.3 3.3 7.8 12.1 7.8 6.4 6.9 11 7
Petroleum and other energy 430.0 319.1 234.6 194.9 202.0 155.1 133.1 123.6 134.5 114.8 130 3
Horticulture 30.0 24.5 21.4 25.4 76.8 64.5 81.6 93.6 106.4 108.5 138.5
Chermcals 602 64.3 30.8 39.9 46.0 48.5 54.1 52.0 506 56 4 34.3
Manufactured goods 2/ 109.2 74.6 72.5 69.1 71.0 73.1 79.0 71.8 93.3 98.5 94.3
Other merchandise goods 5/ 172.0 106.3 96.1 75.9 30.3 40.8 49.0 40.3 41.9 7 6 34 2
TOW ENV . -:31t 34. - v? 91 11.-9 9O7M? = 1217.1 54': 10687 986.i 1077.71
Volume of Selected Exports (In Metric Tons, unless otherwise specified)
Coffee 80,016 86,171 100,995 90,457 96,914 104,679 126,491 99,977 90,831 98,041 114,384
Tea 74,799 75,350 80,413 99,938 91,198 126,303 116,456 134,627 138,201 163,279 166,405
Petroleum prod. & otenergy 6/ 1,825 1,411 1,000 765 795 731 834 614 828 646 638
Sisal 759 36,397 40,445 38,942 39,120 40,024 31,696 27,913 30,937 32,856 30,125
Cenent 530,393 668,037 737,422 736,318 602,993 485,839 495,623 353,249 346,640 313,884 329,539
Maize, unmilled 20 991 949 122,514 47,434 17,683 227,951 247,688 167,237 110,241 159,883
Horticulture 22,300 23,300 24,600 28,900 103,700 84,500 119,177 146,602 161,754 134,178 188,825
1/ Excluding fuels
2V Excluding chemicals ad processed foods.
3/ Including aimrrt and ' or.
4/ Including animl and vegetable oils and fat
5/ LnludIng re-expons.
6/ In -1ml titras.
Source: C;itral Bureu of Sc.glgic, Srtal Abscc and Economic Survey vaou usuus
-150-
Table 3.4: VALUE OF EXPORTS BY DESTINATION
] ~~~~~~~~~~~~~~~~~~~~~1 X >4 1 191 - IM 19 190 Igo I1
(in Millions of Kenyai Pounds)
European Economic Coummaty 175.1 177.9 197.2 254.8 348.3 346.2 440.5 334.7 453.3 447.4 551.4
Unnied KSdom 51.9 59.S 72.3 96.3 142.3 135.6 143.1 133.1 186.9 191.7 218.3
Ohr Wes ut<ope 23.6 13.9 21.5 24.9 33.7 35.5 50.5 25.2 43.6 42.0 52.8
Eulun Europe 4.9 7.0 S.1 5.5 6.8 13.7 10.7 3.9 6.0 20.1 19.3
USA 16.9 19.5 35.2 39.1 33.8 54.1 35.3 42.6 46.2 49.4 42.6
Canada 5.1 4.0 4.7 5.1 5.9 5.4 9.2 6.3 8.6 10.0 10.9
AfricanCounies 141.0 157.3 160.1 195.7 202.3 206.9 211.4 219.7 243.9 227.1 269.8
Uganda 66.4 52.6 53.5 71.5 67.6 70.1 72.6 69.7 83.7 65.9 64.0
TanzaniA 5.2 6.3 6.3 6.3 9.7 19.2 27.3 19.6 24.3 27.5 32.3
Burumdi 7.3 12.9 13.3 14.7 14.9 8.8 8.9 11.8 - - -
Sudan 9.9 12.4 18.9 24.6 21.0 30.1 21.5 22.2 - -
Rwanda 12.6 21.6 21.9 24.8 26.6 25.3 25.2 23.8 - - -
Other 1 39.5 51.5 40.7 53.9 62.9 53.5 55.9 72.7 135.9 133.7 173.5
Middle East 19.4 25.4 28.1 19.8 25.1 26.4 42.3 30.2 23.6 29.3 48.3
FarEuAtandAustalia 68.0 72.3 53.9 65.3 80.1 84.6 98.2 79.8 76.9 126.7 155.7
Japtn 3.8 3.7 3.5 4.6 6.1 6.2 8.6 7.0 13.7 12.2 .5.1
All other countrier 3.5 3.0 1.1 5.6 3.6 0.9 0.9 0.2 0.7 0 7 1.8
SuboWall 457.5 485.3 509.9 615.8 745.1 773.8 949.4 747.6 902.3 952.7 1153.0
Aircraftandshipsstores 58.2 51.9 58.8 36.4 31.8 37.6 37.5 42.3 49.0 67.1 91.0
T*OQ*00%' ~X. ..., . , UU 776.9 * 11.4. #14 .46 7 9. 9 95- 10197 1244.0
Domestic 487.6 513.9 545.7 633.1 754.8 785.1 958.0 753.4 917.7 999.8 1232.4
Reexports 28.1 23.4 22.9 19.1 22.1 26.3 28.9 36.5 34.2 19.9 11.7
(In Millions of US Dollars)
Memo Items:
_ _ I t - - t t S - 95.- --110.-94 ::.9a. 9#7. .'.jr7 z2.95J&.4X. I61. 1068. 956&. 10T?
Downtic 1288.6 999.1 857.3 917.8 1069.6 955.6 1182.0 914.2 1030.3 967.6 1067.6
Re-exports 74.1 45.4 36.0 27.7 31.3 32.0 35.6 44.2 38.4 19.3 10.1
It Des fot 19U8 ed 19t9 includes Burundi,Sudan and Rwanda.
Sourc: Ccwl Buie of Sstatice, Economic Survey, various soues.
- 151 -
Table 3.5: EXPORTS BY STANDARD INTERNATIONAL TRADE CLASSIFICATION - QUANTUM.PRICE AND VALUE INDICES
(1982= 100)
Quantum Indices
Food and jive animals 80.0 89.0 100.0 105.0 102.0 114.1 126.0 125.0 120.0 133.0 154.0
Beverages and tobacco 135.0 81.0 100.0 155.0 105.0 231.0 340.0 235.0 180.0 136.0 275.0
Crude matenrlsWuedible) I/ 117.0 116.0 100.0 101.0 110.0 116.0 119.0 121.0 153.0 113.0 111.0
Mineral fuels 185.0 140.0 100.0 85.0 84.0 69.0 39.0 78.0 96.0 76.0 75.0
Animal & veg. oils & fats 178.0 211.0 100.0 156.0 460.0 201.0 12.0 116.0 150.0 250.0 146.0
Chenucals 127.0 125.0 100.0 92.0 94.0 106.0 95.0 99.0 33.0 108.0 100.0
Manufactured goods 2/ 111.0 89.0 100.0 83.0 78.0 77.0 99.0 98.0 130.0 133.0 170.0
Mach. & tranap. eqwpment 154.0 102.0 100.0 51.0 38.0 44.0 33.0 34.0 53.0 59.0 25.0
Misc. manufactured articles 120.0 108.0 100.0 76.0 82.0 104.0 144.0 107.0 122.0 130.0 181.0
rowi Eqn .. 109.0 103.0 100.0 96.9 -i- Yj
Non-oil Exports 92.0 94.0 100.0 100.0 98.0 108.0 121.0 119.0 121.0 127.0 143.0
Coffee 79.3 85.3 100.0 89.6 96.0 103.6 125.3 99.0 89.9 97.1 113.3
Tea 93.0 93.7 100.0 124.3 113.4 157.1 144.8 167.4 171.9 203.1 206.9
Price Indices
Food and live animals 95.0 95.0 100.0 126.0 167.0 155.0 188.0 137.0 171.0 162.0 167.0
Beverages and tobacco 90.0 98.0 100.0 108.0 132.0 146.0 148.0 146.0 185.0 209.0 256.0
Crude matenals(inedible) 1/ 88.0 96.0 100.0 107.0 107.0 117.0 121.0 128.0 138.0 198.0 213.0
Minerai fuels 58.0 81.0 100.0 107.0 112.0 114.0 81.0 88.0 84.0 104.0 136.0
Animal & veg. oils & fats 67.0 80.0 100.0 115.0 127.0 142.0 159.0 139.0 137.0 205.0 284.0
Chemicals 72.0 76.0 100.0 120.0 125.0 134.0 167.0 162.0 161.0 178.0 212.0
Manufactured goods 2/ 80.0 91.0 100.0 123.0 128.0 154.0 115.0 117.0 129.0 154.0 155.0
Mach. & transp. equipment 80.0 87.0 100.0 179.0 223.0 208.0 322.0 202.0 293.0 314.0 365.0
Misc. manufactured articles 96.0 76.0 100.0 125.0 170.0 169.0 174.0 177.0 184.0 200.0 224.0
8ia0 9ans.i0
Nont-oil Exports 91.0 93.0 100.0 124.0 154.0 151.0 174.0 138.0 165.0 171.0 178.0
Coffee 94.3 88.7 100.0 123.6 146.8 153.9 214.5 135.9 188.2 145.3 134.91
Tea 80.4 84.0 100.0 128.0 215.3 157.3 153.7 125.8 138.9 172.5 195.9
Value Indices
To11 Euwts , 1 T . 9017 #-5 IlO uI .
Non-oil Exports 82.0 88.2 100.0 125.8 154.4 165.9 214.4 164.3 201.3 222.3 272.9
Coffee 74.8 75.7 100.0 110.7 140.9 159.5 268.7 134.6 169.2 141.0 152.9
Tea 74.8 78.7 100.0 159.1 244.2 247.0 222.7 210.5 238.8 350.4 405.3
I/ Excluding fuels
2/ Excluding chemicls and processed food.
Source: Central Bureau of Sttitc, Economic Survey, various issues.
- 152 -
Table 3.6: MERCHANDISE IMPORTS - VALUE
2-4=''.EG$!=>1IW'i- 1* 1*4 1915I� 1916 '91 11 191
(In Millions of Kenya Pounds)
Food and live animals 47.5 30.2 40.3 38.2 95.9 65.1 74.7 57.1 41.4 74.0 154.6
Beverages and tobacco 3.8 2.7 2.8 2.1 1.9 2.9 2.8 4.1 4.8 5.4 6.7
Crude materals (inedible) 1/ 15.4 18.9 17.2 26.3 29.9 31.2 32.0 39.4 50.2 59.3 64.5
Mireral fuels 325.1 343.0 334.5 333.5 335.8 379.1 243.4 287.1 253.2 355.4 500.7
Animal & veg. otls & fats 22.6 24.2 26.2 45.9 35.7 47.8 46.5 41.6 63.5 71.2 70.0
Chemicals 101.1 103.0 97 6 126.6 133.1 187.2 220.2 255.4 315.5 353.5 339.8
Manufactued goods 2J 130.0 105.0 105.2 103.8 133.8 150.8 168.6 202.3 234.3 351.6 372.2
Machinery & trsnsp. equipment 269.3 251.3 243.3 204.4 294.2 293.3 502.7 491.1 678.7 879.9 946.2
Misc. manufactured artces 43.4 47.6 32.2 24.' 35.6 37.6 46.3 52.3 66.8 83.5 87.7
OtherMisc. import 0 0 1 5 1.0 0.0 1.3 1.2 0.7 0.4 1.3 5.3 3.2
06W. J3'4' - ) 904 1O9L, t1 >* MA.9 I419.Xl 11 2MA 2W.4 ,
'ion-oi Impor" 633.9 584.4 565.9 572.1 761.4 816.9 1094.5 1143.7 1507.0 1883.6 2044.9
(In Millions of US Dollars)
t roto,Bcz. ud i i 110.9 (09 Ci 1250. iS9.2 140.9 15".9 124.7 123.2 145.8 200.4
FPe leutam &Ad othei ef3brgy t59.2 676.o 52S.8 483.5 475.9 461.4 300.4 348.4 289.8 343.9 433.7
,tcaufEtuad gecosos 2i 458.2 216.8 215 9 186.3 240.0 229.3 265.2 309.0 394.7 421.0 398.4
I <iw wmie. imports 0.1 2.9 1.6 o.a 1.8 1.4 0.8 0.5 1.4 5. 1 2.8
hfxiz.u1jLl geIri 309.7 237 180.4 221.8 nl.0 265.7 311.2 357.7 410.6 399.5 350.3
'"nmary 40.7 36.S 2:7.0 38.2 42.4 37.9 39.5 47.8 56.4 57.3 55.9
iMafittucxed 4, 269 0 W(YI I Ji3.X 7S3.6 188.6 227.8 271.7 309.9 354.3 342.1 294.4
C .'pttfll gQo45 71I.7 488.6 �? 3 )T.VG. t16.9 35:O 620.3 595.9 762.0 851.5 819.
foctsl (Lnict Le^cj) XX2514.3 1813.0 1415.0 1312.9 1 xc , I c 1787.6 1736.2 2013.7 2273.2 2222.8
' IExdd7in f0d*
2X Edixsdtn ihwttcs1 aned pmreaszd foed
3�I ntdig .nuaWl and veatctWc ads, and fets.
4! Cbemks E.
V,x:ce Com Fo a '~i,z Stuigwsi we A'~i -~ *E2-'' $ x-
- 153 -
Table 3.7: VALUE OF IMPORTS BY ORIGIN
~ im~ 19 I9@ 1W4 39(5 19(6 19(7 19U NW 19MP
(In Millions of Kenya Pounds)
Europea Economic Community 354.3 329.5 302.7 291.1 398.6 409.2 647.t 621.7 842.2 1012.9 1144.4
Unied Kingbom 162.4 156.9 135.8 121.6 152.3 164.3 208.9 244.1 333.7 35.0 466.7
Other Wetern Europe 39.1 44.9 36.1 55.2 39.7 63.4 58.5 73.2 98.2 121.1 138.3
Eastern Europe 6.6 6.2 5.4 4.1 5.8 8.2 18.8 10.7 18.8 25.6 18.0
USA 61.0 63.7 54.4 56.6 51.1 66.2 65.3 101.1 88.3 164.2 114.4
Canada 5.! 11.7 13.4 7.6 9.1 11.2 6.6 10.9 8.8 5.6 15.7
Africa 29.5 17.4 62.8 22.2 22.0 28.1 36.9 43.2 52.8 73.2 75.7
Middle East 302.2 322.0 287.3 284.1 308.6 363.2 228.0 279.8 253.3 349.7 524.1
Saudi Arabia 168.1 183.3 134.3 68.7 85.1 49 5 39.0 16.5 15.7 42.5 123.4
United Arab Emirates 24.8 86.3 84.1 119.8 123.6 223.5 127.3 228.9 201.4 253.3 339.2
Other 109.2 52.5 69.0 95.6 99.9 90.3 61.8 34.4 36.2 53.9 61.5
FarEastandAusftalia 151.1 133.5 132.5 178.4 258.6 24i.1 266.7 280.4 396.1 477.8 464.1
Japan 88.4 73.5 70.1 85.8 111.8 120.0 146.3 155.7 216.6 245.5 228.5
All other countries 10.2 3.5 5.7 6.5 3.8 5.5 9.4 9.8 6.6 8.9 51.0
________ - 9*.0 93Z4 iOIo = -1196.0 is37>'10430j 1765.1 2.0o 2%54.6
Commemcial 889.2 849.4 843.3 852.6 1050.2 1154.0 1276.0 1346.3 1654.4 2097.3 2397.6
Governm.t 69.9 83.0 57.0 53.1 47.0 42.0 61.9 84.6 110.7 141.7 148.1
(In Millions of US Dollars)
Memo Items:
1a,C.4.. - i ' - .. - >.-. - S4 8113$.* 41.0#S 1:312. 1554.1 1455$.7 -1650.1 14736.2 191.7 2166.7 ~20 .2
Commercial 2349.7 1651.6 1325.5 1236.0 1488.2 1404.6 1574.5 1633.6 1857.5 2029.6 2077.0
Government 184.6 161.3 89.5 76.9 66.6 51.1 76.3 102.6 124.3 137.1 128.3
ILeases 0.0 0.0 0.0 0.0 0.0 0.0 136.8 0.0 32.0 106.4 17.6
Source: Cearal Bureau of Staigics, Economic Survey, vanous issues.
- 154 -
Table 3.8: IMPORTS BY STANDARD INTERNATIONAL TRADE CLASSIFICATION - QUANTUM,PRICE AND VALUE INDICES
(1982= 100)
,is ' - ' ' 11144 t9. IOU 19 Ms low I
Quantum Idices
Foodandlive animals 122.0 63.0 100.0 35.0 206.0 158.0 115.0 113.0 69.0 107.0 .17.0
Beverages and tobcco 191.0 117.0 100.0 72.J 46.0 53.0 45.0 54.0 63.0 59.0 62.0
Crude materimb(inedible) 1/ 97.0 123.0 100.0 138.0 134.0 107.0 129.0 158.0 173.0 157.0 153.0
Minral fuels 130.0 107.0 100.0 92.0 90.0 91.0 94.0 100.0 93.0 101.0 104.0
Animal & veg. oils & fats 68.0 33.0 100.0 72.0 63.0 86.0 112.0 117.0 165.0 141.0 150.0
ChemicAls 135.0 119.0 100.0 35.0 S7.0 74.0 100.0 122.0 126.0 118.0 97.0
Manufactured goods 2/ 190.0 119.0 100.0 72.0 91.0 32.0 97.0 105.0 125.0 127.0 108.0
Machinery & tmnsp.equipment 160.0 124.0 100.0 60.0 84.0 77.0 104.0 102.0 134.0 152.0 135.0
Misc, manufactured articles 216.0 171.0 100.0 73.0 103.0 83.0 105.0 107.0 107.0 123.0 93.0
.15.O 118.0 10.0:� 79.0 93.Q 36.0 101.0-- 106.0 .. t25.0 119.I
Non-oil Imports 153.0 117.0 100.0 72.0 94.0 S3.0 103.0 109.0 12S.0 135.0 126.0
Price Indices
Food and live aniflis 97.0 120.0 100.0 111.0 116.0 102.0 161.0 126.0 150.0 171.0 176.0
Beverages and tobacco 72.0 81.0 100.0 104.0 141.0 190.0 218.0 262.0 269.0 322.0 381.0
Crude materials(inedible) 1/ 94.0 83.0 100.0 111.0 130.0 169.0 155.0 145.0 164.0 220.0 237.0
Mineral fuels 59.0 85.0 100.0 108.0 112.0 127.0 77.0 86.0 79.0 106.0 144.0
Animal & veg. oils & fats 125.0 109.0 100.0 245.0 216.0 213.0 159.0 136.0 147.0 192.0 179.0
Chemicals 77.0 89.0 100.0 153.0 156.0 258.0 227.0 214.0 256.0 308.0 357.0
Manufatured goods 2/ 65.0 83.0 100.0 137.0 140.0 175.0 165.0 184.0 216.0 262.0 329.0
Machinery & transp.equipment 71.0 84.0 100.0 139.0 145.0 156.0 198.0 198.0 208.0 239.0 289.0
Misc. manufactured articles 64.0 86.0 100.0 105.0 108.0 141.0 137.0 152.0 193.0 202.0 278.0
- -z-C>, -?.e > - - . >-. 68. - 7.0 - -'b0 t8S.--11.0 - I5.0 14'1F -9 14P.O. 164.0- 1S* . 2384A-
Non-oil Imports 75.0 89.0 100.0 140.0 143.0 173.0 187.0 185.0 209.0 246.0 287.0
Value hIdices
Non-oil Imports 112.0 103.3 100.0 101.1 134.6 144.4 193.4 202.1 266.3 332.9 361.4
1/ Excluding fuels.
2/ Excluding cheica., .nd proeosed food.
Souree: Cenral Bureau of Saiisas, Economic Survey, various issues
Table 3.9: EXTERNAL TERMS OF TRADE INDICES
(1982= 100)
i 19 Q 1981 1982 1983 19 1 6 16 1 199 I99
Merchandise Goods
Export price index 83.0 91.0 100.0 120.0 144.0 142.0 152.0 126.0 145.0 156.0 169.0
Import price index 68.0 87.0 100.0 128.0 131.0 155.0 147.0 149.0 164.0 198.0 238.0
External terms of trade 122.1 104.6 100.0 93.8 109.9 91.6 103.4 84.6 88.4 78.8 71.0
Non-oil Items
Export price index 91.0 93.0 100.0 124.0 154.0 151.0 174.0 138.0 165.0 171.0 178.0
Import price index 75.0 89.0 100.0 140.0 143.0 173.0 187.0 185.0 209.0 246.0 287.0
External terms of trade 121.3 104.5 100.0 88.6 107.7 87.3 93.0 74.6 78.9 69.5 62.0
Ss
Source: Central Bureau of Statistics, Economic Survey, various issues.
- 156 -
Table 3.10: SERVICES TRANSACTIONS AND TRANSFERS
1. '~~~#~~k%~~ U S9~~ $6jj> 1964' t9C6' 1W1 19t? 1938 1959 I99O
(In Millions of Kenya Pounds)
_ A ,t5. N336.7 403 405.2 456.2 536.6 W3 0.5 779.9 i057.4 J401.1
Nocucor Service Rceipts 295.8 311.6 367.7 330.5 425.4 501.0 567.3 652.0 762 1 1045.1 13S9.2
Freight and insurace 25.6 19.3 29.1 36.5 39.5 33.9 30.0 It 4 40 7 52.3 58.4
Other bt'nspotstiOn 123.3 105.3 116.3 99.8 106.8 125.1 131.7 151.1 170 I 217. 322.8
Forei tavel 8.5 96.2 122.9 130.0 151,7 204.4 248.0 292.1 349 3 432 1 533.3
Odwr 52.9 90.8 99.5 114.2 127.4 137.7 157.6 177.5 2 02.0 343.2 474.7
Factor Servce Receipts 1/ 20.0 25.1 35.6 24.7 32.3 35.6 30.0 30.8 17.8 12.3 11.8 I
Invea"-w income 16.1 16.9 20.0 24.6 32.7 35.5 29.8 30(6 17 7 12.1 5.3
Other 3.9 8.2 15.6 0.2 0.2 0.2 0.2 0.2 0 1 0.2 6.5
_ : : 341.3 3MI; .M3U -44 SCIi I. 0 J- 4.679.5 798.6 9682 1234.-
Nosfactor Service Payments 226.0 219.1 207.9 216.9 260.4 282.8 326.3 399.1 455 1 592.8 771.8
Freight and insurance 137.7 128.7 125.0 96.0 151.6 169.5 189.2 213.7 256.0 329.4 367.8
Other transpoticon 1.3 23.8 24.9 30.1 32.9 33.2 39.5 37.8 47 7 75.7 122.1
Foreign travel 8.6 9.1 7.4 8.3 10.2 12.4 18.2 20.0 20.4 27.6 43.9
Other 61.4 57.6 50.6 82.6 65.7 67.7 79.4 127.6 131 0 160.2 237.9
Factor Service Payments 1/ 104.0 122.2 174.9 151.9 185.0 218.9 239.6 279.4 343.5 375.4 463.0
Investmentincome 91.6 106.4 109.7 139.9 171.8 204.2 222.9 259.9 320.3 347.8 428.4
Other 12.4 15.8 65.3 12.0 13.2 14.7 16.8 19.5 213 2 27.6 34.6
Services (net) -14.2 -4.6 20.5 36.4 12.9 35.0 31.4 4 2 - 18 8 89 2 166.3
Nonfactor 69.8 92.5 159.9 163.6 165.0 218.2 241.0 252.9 307 0 452.3 617.5
Factor -84.0 -97.1 -139.4 -127.2 -152.2 -183.2 -209.6 -248.6 325.7 -363.1 -451.2
_ t . :5 v > g_ : 112.4f t r 211.7 342.1"' ' *44W4^ -40
Private 16.3 56.9 60.0 62.5 65.7 87.5 72.3 90.7 113.1 149.9 250.5
Govermnent 45.6 55.5 29.6 80.4 88.6 93.7 123.9 121.0 229.0 294.4 243.0
ft......:.-140SW-F.; . 14.6 17.0-- Ill. V-0 23.4 28.3 35.1 S.1 50.A 64.1
Private 6.2 12.3 14.5 20.3 22.4 20.6 25.1 31 4 34 1 45.5 58.1
Government 1.0 2.3 2.5 3.0 4.6 3.2 3.3 3.7 1.0 5.3 6.0
Transfers (net) 54.7 97.8 72.6 119.6 127.3 157.4 167.9 176 6 30'.1 393.5 429.4
Private 10.1 44.6 45.5 42.2 43.3 67.0 47.2 59 3 79 fl 104.4 192.4
Government 44.6 53.2 27.1 77.4 84.0 90.5 120.7 117.3 228 1 289 1 237.0
(In Millions of US Dollars)
Memo Itemsn:
Services (net) -37.5 -8.9 32.2 52.8 18.2 42.6 38.7 5.1 '1 I 86.3 144.1
Noafactor 184.5 179.9 251.3 237.2 233.8 265.6 297.4 306.8 344 C 437.7 534.9
Factor -222.0 -188.8 -219.0 -184.4 -215.6 -223.0 -258.6 -301.7 -365.7 -351.3 -390.9
Trnsfer(net) 144.5 190.2 114.1 173.4 180.4 191.6 207.1 214 2 a44 ' 380.8 372.0
Private 26.7 86.7 71.5 61.2 61.4 81.5 58.2 71.9 %8 ' 101 1 166.7 |
Govermnent 117.9 103.4 42.6 112.2 119.0 110.1 148.9 142 i i t 7, 8 205.3'
I/ Maly invegmm income; dlo includes labor income.
Souroe: Cetral Buru of Statks, Economic Survey, various issues.
- 157 -
Table 3.11: FOREIGN EXCHANGE RESERVES AT YEAR'S END
(In Mulions of Kenya Pounds)
Censtal Bak 186.1 124.3 144.9 273.2 313.5 323.9 343.0 219.6 259.1 335.3 300.3
C4u Government 1.1 0.6 0.1 0.2 0.3 0.6 0.6 2.4 3.6 12.2 9.3
Rmer, Trnche - IMF -- 0.1 1.1 6.9 3.3 10.9 12.0 12.3 15.3 17.5 20.3
Commercial BBank 27.3 35.3 31.4 30.5 31.6 32.0 36.9 32.9 42.9 70.1 32.7
Gros Reserves 215.0 160.8 177.4 310.7 353.7 372.3 392.4 267.7 320.3 435.0 . 413.5
Chal in Reerves I/ 48.9 54.2 -16.6 -133.4 -43.0 -13.6 -20.1 124.6 -53.1 -114.1 21.4
Liabilities
U.eoflMFCrgdit 79.3 110.1 213.3 295.3 294.1 400.1 345.7 291.7 401.2 422.1 539.1
SDR Allocatia/Valustion 14.5 22.1 26.0 26.7 27.4 33.0 36.2 38.9 46.1 52.9 63.0
Oher External Banks 2.2 2.3 9.0 3.8 6.1 S.1 4.3 4.7 4.2 4.0 24.7
Commercial Banks 26.0 22.0 23.1 31.3 40.7 40.7 42.7 73.4 77.9 84.1 84.9
TotalLiabilities 121.9 156.5 281.3 357.1 368.1 431.9 428.8 408.7 529.4 563.0 711.6
0e 93 4-- -13 - -46.4. -1.4 -1O9.iA *,'36R 1O9.OS451 -
Change in Net For. Asets I/ 75.2 88.8 108.2 -57.5 -31.9 95.2 -73.1 104.5 67.6 -80.5 170.1
Memo Items: V
Reserves/lmp. GNFS (months) 2.5 1.8 2.1 3.7 3.4 3.4 3.1 1.9 1.9 2.0 1.6
Gross Reserves 568.0 312.7 278.7 450.4 448.3 457.3 489.1 324.2 345.0 402.7 343.4
Change in Reserves 129.4 105.3 -26.0 -193.3 -54.5 -22.8 -25.0 150.9 -57.1 -105.7 17.8
Total Liabilities 322.1 304.3 442.0 517.6 466.5 591.8 534.6 494.9 569.2 521.3 590.9
Not Pwhim 245.9 8.4 -1633 -67.2 -18.2 -134.5 -45.4 -170.7 -224.2 -118.6 -247.6
Chsnge in Net For. Assets 198.7 172.6 170.1 -83.4 -40.5 116.9 -91.1 126.5 72.7 -74.5 141.2
I/ Minus (-) denotes an accumulation
2/ In millions of US dolara ules otherwis specified (end year exchange rates ae used).
Source: Central Bank of Kenya, Rearch Depaqtme; and Central Bureau of Stati
| ~~~~~~~~~~~~~~~~- 138 -
Table 4 I EXTE1NAL LONG-TERM PUBLIC DEBT OUTSTANDING
INCLUDING UNDISBURSED
(As of Decernber 31, 1990. In Millions of US Dollars)
Cnditlc Type *W Cwy &.W.i UWW. Tout
SupplesenCrerhu IIS.6 22.0 140.6
BelSum 47.0 11 3 58.3
Pux1e4d � 9 6.8 7.5
Gerr4ny � l - � l
Japan 10 9 - 10.9
Netherlands 8 0 - S.0
Unuted Kingdom 51.8 3.9 55.7
Untd Siauur 0.1 - 0.1
Fiancll Insiasus 424.9 15S.3 583.2
Belgium 3.2 10.0 13 2
Canada 24 9 - 24.9
France 176.0 61.7 237.7
Multiple lenders 72.7 - 72.7
Netherlands 16.5 - 16.5
Umuted Kingdom 131.6 86.6 218.2
Multtlaterml Loanm 2472.1 771.3 3243.4
African Dev. Bank 108.1 100.6 208.7
Afncan Dev. Fuad 81.0 108.4 189.4
BADEA/ABEDA 16.3 - 16.3
EEC 42.0 14.9 57.0
European Dev. Fund 47 1 - 47.1
European Invest. Bank 79.8 42.9 122.8
[BRD 871.5 5.2 876.7
IDA 1184.1 472.8 1656.8
IFC 94 - 9.4
IFAD 11.9 18.6 30.6
OPEC Special Fund 18.6 7.9 26.5
SAFA (Sp. Ar Fund Af.) 2.2 - 2.2
Bilateral Loans 1431.6 729.8 2161.4
Austrna 16.5 0.8 17.4
Belgiurm 1.0 - 1.0
Caada 57.0 88.4 145.4
China 22.9 2.9 25.9
Denursrk 67.0 9.5 76.5
Finbnd 5 2 - 5.2
Fance 3'6.4 52.7 369.2
Germany, Fed. Rep. 66.6 90.1 156.7
India 1.9 0.6 2.5
Italy 85.1 127.7 212.8
Japan 265.4 254.4 519.8
Netherlands 159 6 0.0 159.6
Saudi Arabia 61.2 59.6 120.9
Sweden 43.9 - 43.9
Switzerland 9.0 - 9.0
Ututed Kingdom 68.2 6.2 74.4
Umuted Stetes 175.1 36.7 211.9
Yugoslavia 9.6 - 9.6
Export Credits 362.6 3.1 365.7
Austra 14 0 - 14.0
Fnnce 214 5 3.1 217.6
Switzerland 68.5 - 68.5
I United Kingdom 41.8 - 41.8
United States 23.9 - 23 9
|Toua Extrnal Public Debi 4809.8 1684.5 6494.4
Nsoe. DA excludes IMF
Surce IBRD.Debitor RepoiLnex System.
-159 -
Table 4.2: EXTERNAL PUBLIC DEBT DOD AND COMMITMENTS BY CRLDITOR TYPE FOR 1980-90
(In Millions of US Dollars)
, ..4 - O$
'T 7-t 11W 1961 8911 1963 19614 1915 166 19 1 I9M1 WQ 190
Ot_ aid Diinmd . 62"4.t 2209.6 23S2.2 23.9 2337.4 2662.4 34663 4 41664 4t17 4W.1
Supliers' credits 18.2 140.6 104.0 70.1 50.5 37.7 27.0 33.6 37.9 71.0 113.6
Funacial insutuions 330.3 384.1 342.9 294.4 232.0 169.4 266.4 276.7 240.0 257.4 424.9
Bonds 10.1 . I - - - - - - - - -
Multiatl loam 632.3 714.3 883.7 993.3 1093.0 1336.3 1615.2 1971.2 1919.3 2126.5 2472.1
IBRD 301.3 351.4 423.6 506.4 582.9 750.9 931.2 1123.3 973.0 t89.0 671.5
IDA 220.0 234.1 318.7 333.9 363.1 408.5 450.9 553.1 672.7 693.1 1154.1
Otber 104.0 128.8 141.5 153.0 146.9 177.0 233.1 239.8 273.5 344.4 416.5
Bilateral loans 622.8 708.0 776.4 825.4 851.9 1025.1 1312.6 1683.4 1648.1 1328.1 1431.6
Exportcredits 290.4 254.5 245.2 205.8 110.1 113.9 245.1 357.6 320.8 334.4 362.6
C3251 4627 611.9 297.6 53S.6 412.5 -4 ;4! 4.>
Suppliers credits 4.0 5.9 - - 12.6 - 15.8 33.4 52.6 25.2 10.7
Financial institutions - 129.7 16.5 5.5 13.2 159.8 41.9 70.1 75.4 100.6 145.6
Bonds - - - - - - - - - - -
Multilaterl loans 243.9 192.0 270.9 177.7 218.0 31.3 148.3 185.0 206.5 529.6 205.8
IBR.D 70.0 83.0 131.1 19.0 145.0 - 32.6 - - - -
IDA 122.0 46.7 113.1 56.7 62.4 6.3 54.3 17.7 141.5 392.5 201.9
Other 51.9 62.3 26.7 102.0 10.5 25.0 61.4 57.3 64.9 137.1 3.9
Bilateral loans 277.2 109.5 281.2 101.8 226.2 217.6 109.8 143.1 201.4 206.7 220.0
Export credits - 25.7 43.3 12.6 65.6 3.9 146.6 23.9 31.1 - -
Memo Items:
Average terms on new commitments:
Interest rate (%) 3.5 8.9 5.5 4.6 6.0 5.3 5.2 3.7 3.8 2.9 4.4
Concessional 1.5 1.8 1.4 1.7 2.2 2.0 1.2 1.4 1.5 1.3 0.9
Non-concessional 8.1 9.2 10.2 10.3 10.1 6.8 6.7 4.6 8.3 7.7 8.5
Private financing 8.0 14.9 9.5 9.9 7.6 9.3 7.4 8.8 7.9 S.1 7.6
Maturity (yea) 31.3 20.1 28.8 30.8 23.5 19.7 20.2 28.9 21.2 28.4 22.6
Grace period (years) 7.8 5.3 6.8 6.8 5.6 6.4 5.4 7.3 6.7 7.9 5.6
Gnntelement(%) 52.8 14.6 36.3 44.1 28.1 34.8 31.6 49.6 46.5 57.1 41.6
Note: Dat eacude IMF.
Sourc4 IBRD,Debtor Reportung System
- 160-
Table 4.3: EXTERNAL PUBLIC DEBT DISBURSEMENTS AND SERVICE PAYMENTS BY CREDITOR TYPE FOR 1980-90
(In Milboos of US Dollars)
Ct,gsaTyp. 191 196 12 13 194 t15 1916 197 5V1 1969 199
DB :s.mw' 516.1 446.0 418.0 3483 375.1 242.2 616.0 541.0 41t.A 61 675.6
Suppliers' credtts 25.4 5.8 - 1.6 8.5 4.0 0.4 18.2 17.0 33.9 52.1
Finacial institutuons 184.2 116.2 25.3 22.3 I.1 14.3 141.2 43.9 33.8 75.0 179.7
Bonds - - - - - - - - - - -
Multilateral loans 157.9 116.4 200.8 155.6 183.2 132.8 127.4 161.3 1I0.9 328.3 314.0
IBRD 45.2 61.5 87.8 100.0 129.6 77.5 51.0 39.5 25.3 17.6 3.5
IDA 71.6 14.8 85.4 19.8 35.6 35.0 29.8 73.3 135.5 226.9 234.2
Other 41.2 40.1 27.6 35.8 17.9 20.3 46.6 48.6 20.0 83.8 76.3
Bilateral loans 85.9 174.2 136.0 145.5 155.8 86.6 205.9 231.2 129.9 135.3 124.2
Export credits 62.7 33.5 55.9 23.3 9.4 4.5 141.0 86.5 40.0 32.0 5.7
Amo.iiaa 113.1 153.3 17Q0 IS4.4 194.S 231.6 215,4 233.4 ,2 3160 2*2.0
Suppliers' credits 24.6 25.8 23.3 26.2 21.9 23.7 15.6 15.6 7.5 1.8 15.0
Financial msttutions 17.4 58.7 64.1 65.7 75.5 86.8 52.1 43.5 58.8 56.4 43.6
Bonds - - 7.4 - - - - - - - -
Multilateral loans 13.1 16.2 21.5 27.0 33.2 46.9 58.5 83.8 97.9 97.0 136.9
IBRD 10.6 11.7 15.6 17.2 21.7 33.6 42.8 60.4 77.2 75.9 95.1
IDA 0.5 0.7 0.8 0.9 1.1 1.5 1.8 2.2 2.8 3.3 4.1
Other 2.0 3.8 5.1 8.8 10.3 11.8 13.8 21.2 17.9 17.8 37.7
Bilateral loans 25.7 28.9 28.4 34.8 39.2 48.5 51.5 52.7 48.2 140.7 61.5
Export credits 32.3 23.7 33.2 30.8 24.9 25.8 37.8 37.7 32.4 20.9 25.0
TiMmt 17W.0 126.7 146.6 124.4 129.8 131.3 159.1 176&. 17.9. 164.? 18S.8
Suppliers' credits 14.2 12.6 9.7 6.6 6.7 4.6 3.1 1.7 1.3 1.5 7.2
Financial insttutions 24.8 39.6 54.4 29.0 23.0 18.7 13.9 19.8 22.8 19.3 23.9
Bonds 1.4 - - - - - - - - - -
Multilateral loans 36.3 35.7 36.8 44.9 58.6 63.4 84.6 98.9 103.4 86.6 101.3
IBRD 31.3 30.2 29.7 36.0 49.0 51.8 72.7 84.7 87.8 74.0 77.7
IDA 1.2 1.6 1.8 1.9 2.6 3.2 3.8 4.5 5.2 5.0 6.9
Otber 3.8 3.9 5.3 7.0 7.0 8.3 8.1 9.7 10.3 7.5 16.7
Bilateral loans 23.7 24.6 27.6 27.4 30.5 33.9 38.9 40.8 42.1 33.0 32.6
Exportcredits 26.5 14.2 1S.1 16.5 11.0 10.7 18.6 14.9 10.3 23.7 23.7
IT 1066i.t6a~ .240.2 2SL0.0- 324.S 3'011 324.5 362.9 374A4 40705.4244 480.1 470.1
Note: Data excludes IMF.
Soume: IBRD,Debtor Reporong Sytem.
Table 4 4: IMF POSITION AT YEAR'S END
(In millions of SDR)
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
Purchases 60.0 30.0 150.4 132.6 46.2 123.1 0.0 0.0 102.6 0.0 0.0
Debt Service 13.1 21.2 40.9 73.0 96.0 104.7 125.8 110.9 88.4 122.0 93.2
Repurchases 7.0 7.2 16.9 43.0 58.0 69.7 89.8 83.9 67.4 98.0 75.2
Charges 6.1 14.0 24.0 30.0 38.0 35.0 36.0 27.0 21.0 24.0 18.0
Net Use of Fund Credit 44.0 23.0 134.8 88.1 -10.6 54.6 -89.8 -83.9 35.2 -98.1 -76.2
(during period)
Quota 103.5 103.5 103.5 142.0 142.0 142 0 142.0 142.0 142.0 142.0 142.0 _
Use of Fund Credit 152.3 175.3 310.1 398.2 387.6 442.2 352.4 268.5 303.7 205.6 129.4
Fund holdings of Kenya currency 255.8 278.7 412.1 530.6 518.7 572.0 482.2 39X.3 4a3.5 335.4 259.2
Reserve position in Fund -- 0.1 1.5 9.6 10.9 12.2 12.2 12.2 12.2 12.2 12.2
Source: IMF, International Financial Statistics, various issues.
- 162 -
Table 5.1: SUMMARY OF CENTRAL GOVELNMENT BUDGET OPERATIONS
(In Millns of Kenya Pounds)
TOWlR awm 611.0 70XJ 763.1 832.1 923.6 1019.6 12093 13t9.6 16135 1918.6 20t7.6 24S73
Cwrent 611.0 701.5 763.1 324.3 920.9 1016.9 1205.6 1336.7 1614.3 1817.4 2081.5 2452.4
Coota1 .. . 7.8 2.7 2.7 3.5 2.9 4.1 31.2 6.1 4.9
ExBps tim ad N Lein 719.9 UQ9 1003.3 900.3 1143.5 1346.0 14733 13S9.7 2042.2 2447.7 2700.4 3327.1
Cur ExpliWu 536.4 672.1 34t.4 S71.9 984.6 1091.3 1250.8 1517.2 1731.0 1967.1 2154.6 2690.3
Capital Expmudinu 149.1 188.8 143.2 142.0 133.3 217.1 177.0 324.6 231.9 413.9 481.7 595.2
Na Landn 34.4 20.0 11.3 -113.1 25.6 36.9 50.5 47.9 29.3 61.7 64.1 41.1
Extnal O 19.1 19.6 19.S 56.3 49.9 70.5 54.3 62.1 159.4 136.7 217.3 425.5
Fusancing of Deficit
External Loans (Net) 74.7 126.8 159.6 91.3 35.8 24.9 -95.0 1.5 71.5 200.0 301.2 268.1
Total Doceede Boffoming 23.9 67.5 167.9 245.6 156.3 87.6 204.2 406.4 225.9 88.0 68.7 88.0
Long-Term (net) 48.6 66.4 44.0 272.2 10.7 6.9 36.3 156.4 220.8 119.1 100.5 63.2
Short-Term (net) -24.7 1.1 123.9 -26.6 145.6 80.7 167.9 250.0 5.1 -31.1 -31.8 l.S
ChiaM tn C h Ralam 8.8 34.5 107.1 324.5 22.0 -143.5 -105.1 -29.5 32.9 -54.5 -25.6 -38.2
Memo Items:
CurrentSurplus 74.6 29.4 -85.3 -47.6 -63.7 -74.4 -45.3 -130.5 -116.7 -79.7 -73.1 -238.4
Overall Deficit (oxcl. gants) -108.9 -179.4 -240.2 -68.7 -219.8 -326.4 -269.0 -500.1 -423.8 -529.2 -612.8 -869.8
1/ Pio to 192113, program gSmm are xdudad.
Sore: CAsk Bueu of Si. Eaoic Survy, vmnou imm.
- 163-
Table 5.2: CENTRAL GOVERNMENT REVENUES
(In Millions of Keya Pounds)
TxfR 515.1 60.6 676.2 715.4 t11. U6.U 1066.6 1240.7 14533 1645.2 1130.6 2097.9
DiuectTm 173.6 198.3 201.1 231.1 251.3 301.0 358.1 385.7 454.5 512.0 599 2 710.0
Onmmand profits 171.9 197.6 199.7 231.2 251.2 301.0 358.1 385.7 454.5 512.0 599.2 710.0
o0. 1.8 0.7 1.5 0.6 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0
ldiectTa. 341.5 410.3. 475.0 484.2 560.6 585.0 701.5 855.0 998.9 1133.2 1231.5 1387.9
On goods ad 232.0 261.2 286.0 301.6 367.0 392.9 457.0 574.4 708.7 805.6 882.8 1072.6
S1 OxN/VAT 154 9 179.4 194.8 195.9 253.7 273.6 303.6 397.5 520.0 538.3 640.4 733.0
n local i ct ., .. .. 123.3 146.5 158.0 191.0 241.8 301.3 351.3 323.7 435.0
on impots. . 72.6 107.2 115.6 112.6 155.8 218.7 237.0 316.6 348.0
Excis duties 59.5 60.2 64.0 74.0 79.4 78.8 89.0 106.3 123.1 137.5 149.4 132.0
Odwr mi and license 17.6 21.6 27.3 31.8 33.9 40.5 64.4 70.6 65.7 79.9 93.1 107.6
On interanat l bad 109.5 149.1 139.0 182.6 193.6 192.1 251.5 280.6 290.2 327.5 348.7 315.3
Import dutie / 102.5 146.0 183.7 175.3 183.5 165.1 211.8 246.7 273.7 301.0 348.0 314.0
Export dutie 7.0 3.1 5.3 6.8 10.1 27.0 39.6 33.9 16.5 26.6 0.7 1.3
Non-tax Ram 92.1 88.8 121.1 116.2 111.3 133.6 145.7 148.9 165.1 274.1 257.0 360.7
Ileo frm property 26.8 38.7 34.0 53.7 54.2 57.5 64.8 60.5 69.6 94.9 100.4 185.9
Currenttransfers 1.0 1.2 1.6 2.6 1.9 2.6 11.4 15.3 8.3 12.9 12.4 5.3
Sales of goods and ervices 46.2 32.8 34.6 30.7 27.5 36.9 38.9 43.4 51.1 76.5 81.8 83 3
Otber 18.8 16.1 51.6 29.2 27.8 36.7 30.7 29.6 36.3 89.8 62.4 86.2
StabsticaI Discrepancy 3.0 4.1 -34.8 0.5 0.6 0.0 -3.0 -0.0 -0.0 -0.7 -0.0 -1.3
Memo Items:
Share of Total Reveux (S)
Tax Revem 84.3 86.8 88.6 86.0 88.0 86.9 88. 893 89.8 85.8 87.7 85.4
Direct Tzx** 28.4 28.3 26.4 27.9 27.3 29.5 29.6 27.8 28 1 26.7 28.7 28.9
Indirct Taxe 55.9 58.5 62.3 58.2 60.7 57.4 58.6 61.5 61.7 59 1 59.0 56.5
On iweraubons. trade 17.9 21.3 24.8 21.9 21.0 18.8 20.8 20.2 17.9 17.1 16.7 12.8
Non-tax Rewme 15.2 12.7 16.0 14.0 12.0 13.1 12.1 10.7 10.2 14.3 12.3 14.7
1/ Before Expot Compation psym.
Source: CAtl Buzmu of Stuadics, Econmic Survey, various au.
-164 -
Table 5.3: ECONOMIC CLASSIFICATION tUF CENTRAL rOVERNMENT EXPENDrr
(in MalLom of Kenys Pounds)
& '~ ~~ .'. -e'.,,t'* �v. '
Clmyt E _ 536.4 62. U38.4 371.9 994.6 10913 1250.8 1317.2 173L0 2967.t 2154.6 260.2
Cae-uiaoe*- Expuudliuu 366.3 419.7 535.9 511.2 594.2 606.9 690.3 112.3 937.3 1067.1 1138.3 1457.3
Wegesme ds 1snr 136.3 172.3 224.4 230.1 264.7 231.7 335.3 391.4 453.6 541.5 555.4 622.5
Othergoodsan ad 229.5 247.0 311.5 281.1 329.6 318.2 354.5 414.4 483.7 526.3 533.3 334.8
Subsudies li 1.0 11.3 15.1 10.5 14.0 14.3 27.4 26.5 29.0 31.1 46.2 62.2
Export co _pmsatw 10.5 13.5 10.5 12.3 12.9 27.3 25.4 23.7 31.0 46.2 62.0
latirest 48.1 68.1 118.5 145.9 173.7 195.9 266.1 300.2 370.4 463.4 500.2 606.3
Dometc . 36.3 51.0 93.1 10-.9 121.9 175.0 191.2 249.5 306.9 339.3 375.2
Foreip .. 31.3 67.5 52.1 64.8 74.0 91.0 102.0 120.9 156.6 160.9 231.6
Trawsfers 121.1 173.0 173.8 204.3 202.7 273.3 267.2 377.7 394.4 404.6 468.S 564.5
To Housebokds V 13.3 11.1 17.0 23.0 19.8 26.4 43.7 32.3 39.2 41.3 70.3
To Entrpreis 3/ 4.4 19.5 8.4 S.4 11.1 0.4 1.0 - 7.0 - 0.0
ToGeneral Govemmen 101.3 140.1 150.7 167.1 165.1 214.4 208.9 331.0 324.4 353.5 336.0
To Rest of Worid 1.2 1.3 2.3 5.1 5.3 31.5 5.8 12.3 10.3 7.0 7.2
To Other 0.3 1.0 0.5 0.7 1.5 1.1 2.7 1.6 13.7 2.3 4.8
Others 0.0 0.0 0.0 0.0 0.0 - 0.0 0.0 0.0 0.2 0.7 0.0
Capital Expeodi 149.1 188.8 143.2 142.0 1333i 217.S 177.0 324.6 2S1.9 418.9 481.7 595.2
Gross fied capital form1noc 143.5 166.9 123.5 134.9 119.0 194.7 150.5 283.7 242.0 374.5 446.9 557.4
Tran fers 5.7 21.S 19.6 7.1 14.4 23.1 26.5 40.9 39.9 44.5 34.8 37.3
Nt Leoing 34.4 20.0 11.8 -113.1 25.6 361 50.5 47.9 29.3 61.7 64.1 41.1
Purchase of equity 4/ 9.5 5.2 7.4 6.0 0.5 5.4 10.5 7.9 7.1 16.7 9.4 4.6
Lans 5/ 55.6 65.6 70.7 31.2 30.7 35.5 47.5 46.4 27.3 61.0 58.1 47.0
Loan Repayments to Governme 30.7 50.8 66.3 150.2 5.6 4.0 7.4 6.4 5.1 16.0 3.4 10.5
Memo Items:
Recurrent Accowmt 549.3 689.3 830.3 967 7 1011.5 1026.7 1346.6 1626.3 1619.0 2336.3 2499.0 3002.0
Development Account 232.1 232.7 292.1 223.0 246.3 508.0 309.1 462.2 403.6 630.4 657.5 994.6
Total 781.3 972.0 1122.3 1190.7 1257.8 1534.7 1655.7 2013.5 2227.6 2966.7 3156.5 3996.6
lea Public Debt Redemption 30.7 40.3 52.8 139.7 105.7 184.7 169.9 192.4 130.2 502.8 453.3 659.0
le" LAn Repymets toGov't 30.7 50.3 66.3 150.2 5.6 4.0 7.4 6.4 5.1 16.0 3.4 10.5
Total Expenditure 61 719.9 830.9 1003.3 900.3 1146.4 134t.0 1473.4 1339.7 2042.2 2447.9 2699.8 3327.1
11 In 1979/80. ds on sAedi eaclude export compsmsie.
21 H-msmo& sd uaWmsporaad aKprts tadic.n prtvs ia*rfk
31 Finmnd s aaencial tspdies.
4/ IDnerptas
5/ Loase to hwusebotdrprsi sa gmwai govemn agaicim.
6/ Include tWadlag.
Sousm: Cea Baar_s d Sof gbtes. Ecomic Survey, va i_
- 165-
Table 5.4e. CENTRAL GOVERNMENT RECURRENT EXPENDITURE BY SECTOR
(In Mia of Kaays Pound)
E.f&PksbL AhaW tk 191.4 193.0 252.7 2419 261.3 2L& _74.3 333.5 449.0 461.0 5492 615.3
Gin,aA Adurabol 44.9 50.7 66.1 64.3 62.3 t6.4 68.3 34.7 94.4 121.4 116.5 149.7
Exml Armin 6.9 3.3 10.3 12.2 13.8 15.6 22.2 27.4 29.0 34.1 42.7 36.6
PublicOrw analdSafaty 35.0 51.6 54.0 34.4 56.2 59.5 69.7 32.4 107.7 134.2 146.1 15t.1
Defe 104.6 31.9 122.4 130.6 129.5 101.3 113.7 144.0 213.0 171.3 243.9 271.4
SociaSa,wim 179.1 231.5 253.3 274.4 :. 7 344.8 422.1 499.5 5743 667 63.1 737.4
Edaacaiu 122.6 162.4 130.6 192.1 210.5 245.4 313.9 371.1 431.0 473.0 522.5 606.5
Healuh 43.7 52.6 59.3 62.0 64.4 72.4 73.3 95.5 104.0 117.5 119.1 133.1
HousinS and Comwm. Wel2fn 2.2 2.6 2.3 3.0 3.1 3.3 2.3 2.0 2.6 4.2 3.2 4.7
Socmi Welfare 10.6 13.9 15.1 17.3 20.6 23.7 26.7 30.9 36.7 37.0 33.4 43.1
E'amondc Svicee 5.0 130.0 126.9 134.3 151.5 199.3 197.0 271.9 214.7 240.3 274.9 274.2
Ga,rnl AAinistaoix 7.6 14.8 11.7 10.7 11.7 9.6 15.2 12.3 21.2 21.0 39.1 25.9
Agric.,Forostry & Fishig 27.5 52.0 45.3 58.6 54.1 97.3 69.7 132.7 73.5 32.7 96.1 92.1
Minin,Manuf. und Constr. 10.8 13.6 14.0 15.0 17.0 24 4 29.9 36.6 36.0 39.2 42.4 39.7
Eectr.,G*s,Stem& Water 9.0 13.2 13.7 13.1 16.4 16.0 13.3 21.4 21.2 24.3 23.5 24.3
Road 14.7 16.8 19.8 16.1 19.6 10.9 10.6 10.6 8.5 10.1 11.4 12.6
Transp. and Communications 4.9 6.2 7.4 7.9 7.4 8.2 8.7 9.3 9.5 10.5 11.9 13.0
Obor I1/ 10.5 13.5 15.1 13.4 25.3 32.9 44.7 49.0 39.8 52.5 50.5 66.7
OtherSniPAw 2t 93.8 134.8 192.3 316.6 299.5 219.3 453.2 516.5 581.0 9983 991.8 1324.6
~~~4k?bIoffr MAW3= 3
U Inciude Expot Compz
2/ 1mudm pubhl debt
Sowrm CltraJ Bureu of Statica, Ezooomic Survey, varo. isai,
-166-
Table 5.4b- CENTRA-. I')'ERNMENT DEV.;.OPMENT EXPENDnTURE BY SECTOR
(In .MJ. am of Key- ?ounds)
Definams & PulbL, A _wumimt:Ww 47.4 60.6 47.': 35.6 39.6 62.1 59.7 147.9 102.1 135.6 14.0 224.9
GOw.l A-muisltr 34.8 45.0 30.t 21.8 21.1 41.0 33.7 110.4 62.9 91.1 139.3 170.9
Exs."1 Aairn 0.1 0.1 0.5 0.0 0.5 1.7 0.5 1.0 1.0 3.2 3.2 '.4
P Oblicr0and -Saty 4.6 7.6 7.9 6.6 6.7 8.6 11.5 13.8 11.8 11.6 16.2 23.7
De_ 7.2 7.8 8.8 7.2 10.5 10.9 13.7 22.8 26.4 29.8 25.4 28.8
SociaSonie 40.5 46.5 50.2 45.0 39.t 56.6 642 104.4 94.6 129.3 107.1 224.5
Educatm 14.5 14.0 17.1 14.3 9.6 14.5 15.8 25.5 25.7 55.1 41.8 96.0
H_lth 10.8 12.7 11.3 7.7 11.9 10.3 14.0 14.7 14.0 2'.5 24.8 54.0
How* Aa_dCoUDImm. Welfbre 8.9 12.1 11.8 7.5 3.0 -- 13.5 11.2 4.1 16.7 9.6 11.5
Socia W.la 6.4 7.8 10.1 15.5 15.5 32 1 20.9 53.1 50.9 36.0 30.8 63.1
E Sonomi 132.9 165.9 1826 138.3 162.9 204.4 176.9 209.9 211.9 365.5 3665 545.3
GOmtl Ad amstmtkm 10.3 12.7 10.8 9.2 20.2 60.4 20.2 12.3 59.6 83.1 106.6 117.1
Agic.,Fornstry & Fis4nS 40.1 56.7 58.5 47.1 39.7 43.0 78.5 101.7 69.1 92.2 72.8 172.1
Mining,Mamf. and Constr. 9.5 21.2 15.5 9.6 19.0 24.6 5.8 6.4 5.8 35.1 44.4 55.5
Ebctr.,Ou,Sum&Water 24.6 27.9 31.1 17.1 21.1 21.3 23.2 40.7 28.9 54.5 71.2 64.7
Road 41.7 40.7 57.9 49.9 47.7 48.3 42.8 39.9 43.0 96.6 59.6 100.3
Trmnp. and Communicati.a. 4.3 3.0 5.2 4.0 4.1 3,6 4.8 6.5 4 1 2.2 7.3 27.9
Other I/ 2.4 3.8 3.7 1.4 x.0 3.2 1.6 2.3 :.4 1.9 4 6 7.7
OehurSwvie2/ 11.2 9.7 ii.f 4.1 4.0 184.7 8.3 0.0 0.( o 0 0.0 0.0
_~~~~~~~~~-- - ----------
1/ Icdm Export Comp_a.
2' If.nd publi d&
3ow_o: C Dta Buru of _Stgies Eoo sunvy, vazwu ms0-m,
- 167 -
Tsble 5.5: CENTRAL GOVERNMENT EXPENMITUR.E BY SECTOR
Delaw* A I%M. AdMWd 23S.t 253.6 300.4 277 301.4 324.9 334.0 486i.4 MIt S9" 733 UO.7
Genrl AdMntraax 79.7 95.8 96.7 86.5 94.1 I21.3 102.5 195.1 l57.3 212.S 25S.7 320.1
Exk.W Afar 7.7 t.9 10.7 12.2 14.3 17.3 23.0 2t.3 30.0 37.3 45.9 31.0
Pubitc Order AM Safrty 39.6 59.2 61.t 41.0 62.9 68.1 81.1 96.1 119.6 145.7 162.3 I18.$
Defene I P.8 89.7 131.1 137.t 140.0 112.2 127.3 166.1 244.3 201.0 269.3 300.2
Social Servicls 219,6 278.0 308. 319.3 331.5 401.7 4863 603.9 669 7660 790.2 1011.
Educaton 137.0 176.3 197.7 206.4 220.1 259.1 329.7 396.5 456.6 533.0 564.3 702.5
Heelth 54.5 65.3 71.1 69.7 76.3 U2.7 92.7 110.3 117.9 139.0 143.9 187.1
Houawing and Comnir l. Welftae 11.1 14.8 14.5 10.5 6.1 3.3 16.3 13.2 6.6 20.9 12.S 16.1
Sociel Welfare 17.0 21.7 25.2 32.8 36.1 55.8 47.6 13.9 St.7 73.0 69.2 106.2
Ecowalc Services 217.9 295.9 309.5 273.2 314.4 404.2 373.9 411.1 426.6 6i5.9 64I.3 619.5
Genetal Admuustratioe 17.9 27.5 22.5 19.9 31.9 69.9 35.4 74.6 80.8 104.1 145.6 143.0
Agnc.,. oresty & Fishing 67.6 108.7 103.1 105.7 93.8 140.8 148.2 234.4 147.6 174.9 168.9 264.2
Mtihng,Manuf. and Comstr. 20.3 34.9 29.5 24.6 36.0 49.0 35.7 43.1 41.8 74.3 86.8 95.2
Electr.,Gms,Stem & Water 33.5 41.1 44.8 30.2 44.5 37.3 41.5 62.1 SO.l 76.8 94.7 19.0
Road 56.5 57.4 77.7 66.0 67.4 59.2 53.3 50.5 51.4 106.7 71.0 112.9
Trusp. and Commumc4tiocz 9.2 9.2 12.6 11.9 11.5 11.8 13.5 IS.S 13.6 12.7 19.2 40.9
other 1/ 12.9 17.2 18.8 14.9 29.4 36.1 46.3 51.3 41.2 54.4 55.2 74.4
Otbor Service. 2t 105.0 144.5 203.9 320.7 303.5 404.0 461.S 516.S 511.0 9913 99t.1 1324.6
Note: Daa in miilimsa of Kcayu pouA W odtuwue "c&ied
11 >dudes Expt GaCompauat.
2/ Include pubLic debt
Soirce: CntrI 11. %U of SA�tAcs, conomn. Survey, varwu uuu,
- 168 -
Table 5.6: LOCAL GOVERNMENT BUDGET OPERATIONS
(In Millions of Kenya Pounds)
-Z ISt t9 I 19 W 9X I9iS/JW 19W 19745 01/S V19 1990d91
T4*a RIWSS $Lt 6ao S009 1A 6.1 114.7 107.2 118.0 1405 2285 3W.1
| Municipal Councic 39.9 49.3 66.0 70.6 60.2 97.2 85.0 96.3 113.6 180.5 240.9
Current Revenue 32.2 37.6 51.2 52.7 46.9 52.7 54.0 77.9 98.9 1!3.1 121.2
Direct taxes 1/ 8.4 15.0 21.2 21.3 19.0 23.5 22.7 27.4 33.1 32.0 33.8
Indirect taxes 1.0 1.2 1.7 1.9 1.0 2.9 3.5 3.1 1.6 3.3 2.3
Nontax revenue 22.8 21.4 23.3 29.6 26.9 26.4 27.8 47.5 64.2 77.7 85.1
Transfers 2.7 2.3 2.6 1.0 0.7 1.0 0.5 0.2 0.3 0.6 0.2
Capital Revenue 7.7 12.3 14.8 17.8 13.3 44.5 31.0 18.9 14.7 67.4 119.7
Lans raised 7.7 12.3 14.8 17.8 13.2 44.5 30.8 18.7 13.8 67.3 118.7
Loan repayment 0.0 0.0 0.1 0.1 0.1 0.0 0.2 0.1 0.9 0.1 1.0
Town,UrbanandCountyCouwcils 11.3 12.1 14.9 15.8 8.4 17.4 22.1 21.2 47.3 48.0 61.2
Current Revenue 10.5 10.6 13.2 12.9 8.3 16.7 21.0 18.9 45.4 45.8 58.6
Direct taxes 1! 0.9 1.3 0.9 1.1 1.0 2.1 1.0 1.2 2.3 2.2 4.6
Indirect taxes 4.6 4.4 6.1 5.6 4.7 10.4 8.3 7.9 9.8 7.2 12.6
Nontax revenue 2/ 5.0 4.9 6.2 6.3 2.6 4.2 11.7 9.9 33.3 36.5 41.5
Traztsfers 0.7 0.7 1.4 0.6 0.4 0.4 0.7 0.6 0.8 0.5 0.4
Capital Revenue 0.8 1.6 1.7 2.9 0.1 0.7 1.2 2.3 1.9 2.2 2.5
Loans raised 0.8 1.5 1.7 2.9 0.1 0.7 1.2 2.2 1.9 2.2 2.5
Loan repaymerit 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0
Taw1 Evoiw_ e 643 7*2 913 62. 75.9 1502 15.2 1392 1465 2483 331.8
Municipal CounLils 53.3 64.9 74S 73.7 65.2 132.1 105.9 117.1 121.3 207.0 271.5
Current Expenditure 30.8 39.0 47.0 50.6 40.9 62.2 60.3 o9.5 73.2 90.0 98.3
Transfers I 0 1.3 1.0 1.1 0.1 1.6 4.7 5.1 2.1 4.5 0.9
Capital Expenditure 22.5 25.8 27.5 23.2 24.3 69.8 45.6 47.6 48.0 117.0 173.2
Gross fixed cap. fonration 16.6 19.7 20.5 16.3 15.7 54.3 31.4 32.1 31.1 98.8 161.0
Debt service 5.4 5.6 6.4 6.6 8.4 15.4 12.5 15.2 16.7 17.4 12.2
Transfers 0.5 0.6 0.6 0.3 0.2 0.2 1.7 0.4 0.2 0.9 0.0
Town,Urban and County Councils 11.1 13.3 16.S 12.5 10.3 18.1 19.3 22.0 25.2 41.3 60.4
Current Expenditure 8.0 9.2 11.! 11.7 7.2 13.8 15.4 17.5 20.0 28.6 40.3
Transfers 0.4 0.6 0.5 0.6 0.2 0.9 0.8 0.5 0.1 1.5 1.6
Capital Expenditure 3.1 4.1 5.7 0.8 3.2 4.3 3.9 4.5 5.2 12.6 20.1
Gross fixed cap. formation 2.6 3.8 5.5 0.6 3.1 3.8 3.3 4.3 4.2 11.8 19.3
Debt service 0.3 0.3 0.2 0.2 0.1 0.3 0.3 0.2 0.7 0.8 0.8
Transfers 0.1 0.1 0.1 0.1 0.0 0.1 0.3 0.0 0.3 0.1 0.0
Owall Oe&A . -i. 1 -16.2 -104- Q2 -7.0 -31S. -110 -21.2 14.4 -19.7 -29.8
Municipal Councils -13.4 -15.0 -8.5 -3.2 -5.0 -34.8 -20.8 -20.3 -7.7 -26.5 -30.5
Town,UrbsnandCountyCotuncils 0.2 -1.2 -1.9 3.3 -1.9 -07 2.9 -0.9 22.1 6.8 0.8 I
I/ Paid by houwiolds and eaterprimca
2/ From 19881S9 onwards. dat includes senroe charges
3/ Includes amortization payments.
Source: Central Bureau of Statisics, Ecoomic Survey, various issue.
- 169 -
Table 5 7: PUBLIC SECTOR FIXED CAPITAL FORMATION' BY INDUSTRY
(In Millions of Kenya Pounds)
Prey.i
1960 iff196 2 196113 1964 1985 1966 1967 1968 1989 t990,
In Current Prices
Total Public Sector 1/ 281.2 322.5 300.9 274.2 336.7 361.5 475.5 467.5 624 7 694.3 956.2
Government Services 128.6 148.3 126.7 102.0 153 1 192 4 220 0 230 1 362 6 349 8 44' 4
Education 20 2 21' 20.9 14 8 165 248 310 31 3 874 543 886
Health 14 1 12 6 8 8 8 3 9 1 10 12.9 12 6 21 5 1 ' 4 't.)2I
Agricultural services 13.1 123 125 10 6 64 104 159 134 195 '! 4 '8
Public administration and 81 3 !01 8 84 5 68 5 121 1 146 5 160 1 172 8 234 2 '61 7 310 6
other gov. services
Public Sector Enterpnses 152.5 1742 174 2 172.1 183 6 169 2 255 6 237.4 262 1 3445 507 2
Agriculture and forestry 9.1 97 8 1 8.4 90 68 4.2 2 9 42 4( 23-
Mining and quarrying 0 0 00 00 00 0 0 0o0 00 00 0o on
Manufacturing 3 0 26 2 7 31 31 29 5.2 3 8 59 21( 151
Electricity and water 41.4 655 75 2 57 2 37 0 43 3 44.6 59 3 79 6 114 9 ;6 I
Construction 2.0 25 3.4 265 256 200 2 5 3 3 36 41 1
Traderestaurants & hotels 2 0 17 41 57 26 3.1 2.8 2 2 97 ;34 64
Transp. and communicr!ion 56.3 50 9 47 3 41 9 65.0 63 2 158 9 125 2 95.7 1 i6 9 !44 6
Fin & business services 9 0 11 1 7 2 90 14 1 10 6 5.0 4.6 18;1 d89 3 56
Ownership of dwellings 2 27.3 263 23 6 18.6 25 1 18 2 29 7 33.3 44 5 49 0 949
Other services 2 5 40 2 6 1 8 20 11 2 6 2 7 0 8 1 ' '
Statistical Di'crepancy 0 0 0.0 0 0 0 0 0 0 -0 0 -0.0 0.0 0 0 0 0 � 5
In Constant 1982 Prices
fTocali Pubi Sctor 1/ 350.5 369.8 300.9 228.4 247.9 245.9 280.7 261.8 320.1 325.8 370.1
Government Services 160.2 169.2 126.7 88.0 114.7 132.1 13S.1 1339 192.9 165 1 173 7
i Education 26.4 25.0 20.9 12.4 12 7 17.4 .9.4 18.3 47.9 26 3 34 9
Health 17.7 14.5 8.8 7 1 7.4 7.9 8.6 7 5 11.6 5 8 '8
Agricultural services 16.5 14.2 12.5 9.2 4.8 7.1 10.3 8.0 10 0 9 8 (0.
Public administration and 99.6 115.5 84.5 59.4 89 7 -32.4 -38.3 -33.7 -69.5 -41 9 -53 3
other gov. services
FPublic Sector Enterprisei 190.3 200.6 174.2 140.3 133.3 113 7 142.6 128.0 127.2 160.6 1965
Agr-ulture and forestry 10 7 10 7 8.1 67 S 1 3.8 3 8 1 5 19 19 s
Munigandquarrying 00 0.0 00 00 00 00 00 00 00 )0 O
Manufactunng 4 5 3.0 2.7 2 3 2 2 1 9 2 7 2 0 3 1 9 54
Electricity and water 49 9 76.0 75.2 49 5 27.0 29 0 27.4 34.0 42 3 55 ' oS 8
Construction 3.1 2.9 3.4 18 7 177 13 5 1.6 1.9 20 20 65
Tradejrestaurants & hotels 2 9 29 5 4 1 5 1 18 2.2 1.7 1 2 51 16 26
rransp. and communication 71.1 31 4 47 3 32 6 461 41 6 80 2 62.5 44 9 5(i2 5(19
Fin & business services 10.9 12.6 7.2 7.6 1 I1 7.6 3.0 26 98 14., 14!
i Ownership of dwellings 2, 34.0 30 1 23.6 166 21 0 13 4 20.5 20.7 17 8 24 1 31 4
Other services 3 3 4 4 2 6 1 3 14 0.7 1 6 1 6 04 0 4 0( 1
j Statistical Discrepancy -0.0 0.0 0.0 0.0 0.0 0 1 -0 0 0.0 -0.1 0 0 1
i/ Includes Ceniral Government. Muiucipaliutes, Councils and parastatais
2/ Includes traditioall dwe' .r.gs
Sour,. Central Bureau of Statist.cs, Economuc Survey. vanous issues
-170-
Table 5.8: PUBLIC SECTOR EMPLOYMENT AND WAGE BILL
. 19 F10 91 9 1949 1941 1916 19 198 1919 1990
PtM.Smcax Wg 1;mpka_t 11 471.6 4841 505.6 52V7.1 41.4 574.7 605.1 627.4 66Qk4 685.6 604
Agzncultureand forestry 58.9 61.9 56.3 53.8 54.1 54.9 55.5 54.2 66.7 66.7 65.1
Mtmng and quarryttg 0.6 0.7 1.2 1.4 1.5 1.6 1.5 0.5 0.6 0.6 0.7
Manufacturing 29.9 29.6 30.8 31.7 33.4 35.2 36.1 36.8 39.1 41.0 41.6
Electncity and water 10.0 10.0 13.8 17.1 17.4 17.8 18.2 19.0 20.2 22.2 21.5
i Construction 31.5 28.7 28.3 28.8 22.1 24.1 30.9 32.1 32.6 35.3 34.6
I Trade,restaurants and hotels 4.5 4.9 5.6 5.7 5.6 5.9 6.3 8.2 8.4 8.9 9.3
Transportandcommunicrtions 32.2 36.5 33.1 33.9 34.0 35.2 42.4 44.7 50.4 51.3 48.3
,Fm. and busmess services 7.8 8.4 9.0 9.6 11.8 13.3 15.6 16.3 17.1 18.4 18.2
Other services 2/ 296.2 303.4 327.5 345.8 361.5 386.7 399.3 415.6 425.3 441.2 454.6
Central Government 214.8 214.5 216.7 226.4 231.1 252.0 259.7 274.4 267.2 277.4 269.7
Teachers Service Comm. 3/ - 110.9 119.0 124.1 132.2 151.0 164.0 173.0 i85.1 195.1 203.6
Parastatals 187.0 87.4 95.7 97.6 95.4 90.4 100.1 97.3 108.2 110.9 114.1
Local Government 39.6 39.7 41.3 45.2 47.7 45.6 43.3 43.5 50.6 48.3 51.8
Other 30.2 31.6 32.9 34.5 35.0 35.6 38.7 39.2 49.3 53.9 54.7
PublacS Wag.Bifl4I 337.3 416.9 464.4 $13.5 567.5 6573 748.$ 046 991.2 1099. 1204.0
Agriculture and forestry 23.3 27.0 2. 9 27.3 28.4 30.3 35.4 37.4 55.3 56.6 59.5
Mining and quarrytng 1.0 1 2 2.6 2.9 3.1 3.4 3.2 1.2 1.5 1.7 1.8
Manufacturtng 23.5 24.8 26.7 29.9 35.7 39 6 42.0 46.5 55.9 63.4 68.8
Electncity and water 7.8 10.2 13.4 17.6 20.4 23.3 26.7 35.9 42.2 53.0 58.6
Construction 15.0 18.1 20.4 22.5 20.0 23.4 25.8 28.0 30.3 37.8 44.8
Trade,restaurants and hotels 4.6 6.2 7.9 8.8 8.9 9.6 10.7 15.6 17.0 19.5 22.0
Transport and communications 35.7 45.2 46.5 49.8 53.7 57.9 75.9 85.6 109.9 117.6 118.4
Fin. and business services 14.3 18.3 20.6 22.3 30.7 38.9 52.8 57.4 67.7 76.4 90.0
Other services 2/ 212.1 265.9 300.5 332.5 366.7 430.9 476.0 497.0 611.4 673.8 740.1
Centra3 Government 153.6 193.3 207.7 227.3 236.7 276.3 320.4 353.7 455.4 488.3 506.7
Teachers Service Comrn. 3/ - 79.8 94.3 103.6 120.7 148.2 180.0 196.5 222.0 238.2 270.4
Parastttals 133.6 89.3 97.1 107.1 124.3 139.9 146.3 147.2 182.4 211.8 243.2
Local Governtment 27.5 28.2 35.9 42.7 43.6 46.8 48.2 49.3 57.2 60.6 73.1
Other 22.6 2G.3 29.4 32.8 42.2 46.0 53.6 58.0 74.2 100.9 110.6
WaspEarini PM E#OpY5 715.3 861.2 9185 972.9 104R.1 1143.1 1235.7 1282.5 1500.9 1604,1 173S.t
CentralGovernment 715.1 901.2 958.5 1004.0 1024.1 1096.5 1233.5 1289.1 1704.3 1760.3 1878.8
Teachers Service Comm. 3/ - 719.6 792.4 834.8 912.7 981.5 1097.6 1135.7 1199.4 1220.9 1328.1
Parastatals 714.4 1021.7 1014.6 1097.3 1302.7 1547.6 1461.5 1512 8 1685.8 1909.8 2131.5
Local Government 694.4 710.3 869.2 944.7 914.7 1026.5 1113.4 1132.2 1130.6 1254.7 1411.2
Other 749.7 832.6 893.3 950.7 1205.0 1291.4 1387.8 1479.1 1504.3 1872.0 2021.9
1/ In thouands.
21 Commuxuty,socisl and personal services
3/ Dats fo: 1979 and 1980 are included in perastaals
4/ In mllions of Kenya pounds
5/ Average wage camungs in Kenya pounds.
Source. Ceniral Bureau of St"ra. Economic Survey, various isues
Table 6.1: CONSOLIDATED ACCOUNTS OF THE BANKING SYSTEM AT YEAR'S END
(In Millions of Kenya Pounds)
-960 16 I i t98 183 19848 A985 1986 1987 198 1989 1990a
: :;9,. 8.' , 9'. .
Money 530.0 597.2 689.3 745.7 816.4 787.0 1043.5 1144.4 1211.5 1315.8 1678.2
Quasi-morney 315.4 362.9 398.6 421.7 497.0 559.4 740.7 838.9 929.4 1101.9 1222.6
-.. .. 9 ..: 4$.4. 9 I.W2 17 ..4. 131S3 1346.5 1784.3 1933.3 2140.9 2417.6 2900.4
Netforignasseft 113.2 16.0 -101.0 -11.3 20.2 -68.2 8.7 -64.1 -193.7 -87.9 -232.5
DomesticCredit 779.9 967.9 1252.4 1253.4 1388.9 1569.0 2018.0 2429.1 2591.2 2770.8 3509.1
C"anl gov met (net) 166.0 292.9 484.1 391.5 436.0 478.5 744.4 967.7 883.5 857.3 1361.9
Oterpblicbodies 26.0 23.7 50.4 92.9 105.7 119.9 139.5 176.9 171.9 137.9 161.5
Private secbor 587.9 651.3 717.8 769.0 847.2 970.7 1134.2 1284.4 1535.8 1775.6 1985.7
Oher item (net) -47.7 -23.7 -63.6 -74.6 -95.7 -154.3 -242.5 -381.6 -256.6 -265.2 -375.8
Source: Central Bureau of Statisics, Economic SuoT Ly. various issues.
Table 6.2: CHANGE IN MONEY SUPPLY AND SOURCES OF CHANGE
(In Millions of Kenya Pounds)
1980 1:[98^ 1982 �983 $1984 i980i'1986 18 11 198I9 1990'
Mony 11.3 67.2 92.0 56.5 70.7 -29.4 256.5 100.9 67.1 104.3 362.4
Qw.'-i-money 27.5 47.5 35.7 23.1 75.2 62.5 181.3 98.2 90.5 172.5 120.8
:: +: w :N~~~~~~~~~~~~~1S9. 33 t ' l45* 47 8>{.9 199527 .0
Net &rignassets -66.2 -97.2 -117.0 89.6 31.5 -88.4 76.9 -72.9 -129.6 105.8 -144.6
Domestic Credit 88.1 188.0 284.5 1.0 135.5 180.2 449.0 411.0 162.1 179.6 738.3
CG i go%unment(net) 9.8 126.9 191.2 -92.6 44.5 42.5 265.9 223.4 -84.2 -26.2 504.6
Oder pbticbodies -20.9 -2.3 26.7 42.5 12.8 14.2 19.6 37.5 -5.0 -34.1 23.6
Privatesectcr 99.2 63.3 66.6 51.1 78.2 123.5 163.5 150.2 251.3 239.8 210.1
Odkeritemns(net) 16.8 24.0 -39.8 -11.0 -21.1 -58.7 -88.2 -139.1 125.0 -8.6 -110.6
Sourm: Derived from Statistidal AppendLx Table 6.1
Table 6.3: ASSETS AND LIABILITIES OF NON-BANK FINANCIAL INSTITUTIONS AT YEAR'S END
(In Millions of Kenya Pounds)
F 0 0' . 0 0 t '^ 19b. ';; t9St ',', lpa t98a ' 1984I :.40:t' 96000900*; 1W :
Liabili*ie
Deposits - 242.6 284.6 358.8 433.6 607.7 701.7 805.5 883.7 1037.9 1274.3 1661.2
Centrl and lCal govemment 25.0 27.5 32.2 29.0 25.6 26.9 23.3 32.6 30.2 32.8 62.3
Oier public sector 67.5 85.9 138.8, 136.9 161.2 155.0 146.8 137.0 144.3 190.5 297.0
OPer depositors 150.2 171.2 187.8 267.8 420.9 519.8 635.4 714.2 863.4 1051.0 1301.9
Other labilities 76.8 105.5 154.0 193.2 258.6 295.0 300.9 231.2 314.7 385.5 464.4
3195 39: :512... 626.8 ;66.3 996.7 10 1114.9 1352.5 16S9.8 212$.6
Assets
Cash and banks 42.4 32.1 69.5 64.1 103.2 98.9 123.5 66.2 114.3 142.3 201.6
Other financial insitiurns 8.5 16.0 35.7 34.2 85.7 75.3 99.0 68.4 91.8 140.5 144.2
Associated companis 37.5 40.4 12.1 4.8 15.6 10.4 12.7 13.6 12.7 22.0 58.2
lnvestments,Binls,Lmns
and Advances - 220.1 283.4 370.4 492.3 613.8 755.7 812.3 913.0 1058.0 1263.5 1612.3
CenbAlandlocalgovermnent 12.1 21.6 29.7 90.2 94.8 138.2 162.2 161.8 136.8 176.5 160.1
Other public sector 1.2 1.3 5.3 3.2 2.9 3.0 7.2 9.0 24.0 7.9 27.7
Private sector 206.8 260.4 335.5 398.9 516.2 614.5 642.8 742.2 897.2 1079.1 1424.4
Other assets 11.1 18.2 25.1 31.5 48.0 56.4 58.9 53.7 75.8 91.6 109.31
Source: Central Bureau of Statistics, Economic Survey and Statistical Abstract, various issues; Research Dept. Central Bank
Kenya.
- 174 -
Table 6 4: PRINCIPAL INTEREST RATES AT YEAR'S END
(In Percentages)
-'" v . X i -o tA > ;X*9 '8; ' 92s t 1t 1 t 1- { tW 199A
Central Bank of Kenya
Discountrate-treasurybills 6.0 10.1 13.4 15.0 12.5 14.1 11.2 13.0 15.0 14.0 15.9
Advances an treaury bills 8.0 10.0 14.5 14.5 12.0 12.0 12.0 12.0 15.0 15.5 18.4
Crop finance scheme
Diconts 8.5 10.3 13.8 13.S 11.3 11.3 11.3 11.3 16.0 16.5 19.4
Advaue 8.0 11.5 14.C 14.0 11.5 11.5 11.5 11.5 16.0 16.5 19.4
Other bills and note
Discounts 8.5 11.5 14.5 14.5 12.0 12.0 12.0 12.0 16.0 16.5 19.4
Advances 8.0 11.5 15.0 15.0 12.5 12.5 12.5 12.5 16.0 16.5 19.4
Kenya Commercial Bank
T;ime Deposits
3-6 months 7.0 10.8- 12.8- 12.0- 11.0- 11.0- 11.0- 9.5- 11.5- 11.5- 13.8-
12.0 13.0 12.5 11.3 11.3 11.3 10.0 12.0 12.0 14.5
6-9 months 6.8 11.0- 13.2- 12.3- 11.5- 11.5- 11.5- 9.5- 12.5- 12.5- 14.0-
12.3 13.6 12.8 11,8 11.8 11.8 10.0 13.0 13.0 14.8
9-12 months 6.4 11.3- 13.4- 12.5- 11.8- 11.8- 11.8- 9.5- 12.5- 12.5- 14.5-
12.5 13.8 13.0 12.0 12.0 12.0 10.0 13.0 13.0 15.8
12 mos. (0.25 - Imil Sh) 6.5- 11.5 13.5 13.0 11.8- 11.8- 11.8- 9.5- 12.5- 12.5- 14.5-
6.8 12.0 12.0 12.0 10.0 13.0 13.0 15.8
Savings deposits 6.0 10.0 12.5 12.5 11.0 11.0 11.0 11.0 10.0 12.5- 13.5
13.0
Loans&advances (maximum) 1/ 11.0 14.0 16.0 15.0 14.0 14.0 14.0 14.0 15.0 15.5 19.0
Other Financial Institutions
Post Office Savings Deposits 6.0 10.0 10.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0
Agric.Finance Corp.loans
Land purchase 9.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0
Seasoal crop loan 11.0 12.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0
Other 10.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0
Hire-purche Companieb .
Merchant Banks:
Dspositr (time) 8.0- 8.0- 13.3- 14.0- 13.0- 13.0- 13.0- 10.0- 10.0- 12.0- 13.5-
11.0 12.0 16.3 16.5 14.5 14.5 14.5 13.5 15.0 15.0 18.0
Loans 10.C- 14.0 16.0 20.0 19.0 19.0 19.0 18.0 18.0 18.0 19.0
14.0
Building Societies
Deposits 6.0- 8.0- 15.3 15.0- 13.0- 13.0- 13.0- 10.8- 11.0- 11.8- 13.0-
9.5 11.5 15.5 14.3 14.3 14.3 12.5 12.5 14.0 15.0
Loans 11.0- 13.0- 16.0 16 0 16.0 16.0 16.0 14.5 14.5 16.5- 19.0
14.0 14.0 18.0
I/ I ons and advsnecs for leIs than 3 yea.
Source: Central Bureau of StaiKics, EoAonimc Survey. vanouA issues; and Central Bank of Kenya.
Table 6.5: EXCHANGE RATE MOVEMENTS
:1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 tw1
End of Period
Ksh/SDR 9.7 12.0 14.1 14.4 1r.2 17.7 19.1 23.4 25.0 28.4 34.3
US$/SDR 1.3 1.2 1.1 1.0 1.0 1.1 1.2 1.4 1.3 1.3 1.4
KshIUS$ 7.6 10.3 12.7 13.8 15.8 16.3 16.0 16.5 18.6 21.6 24.1
Period Average
Ksh/SDR 9.7 10 6 12.0 14.2 14.7 16.7 19.0 21.3 23.9 26.4 31.1
US$/SDR 1.3 1.2 1.1 1.1 1.0 1.0 1.2 1.3 1.3 1.3 1.4
KshIUS$ 7.4 9.0 10.9 13.3 14.4 16.4 16.2 16.5 17.7 20.6 22.9
Indices (1982 = 100) 1/
Real Effective Rate 99.7 96.4 100.0 94.8 101.9 100.5 87.1 78.7 72.5 69.4 61.8
% change -1.0 -3.3 3.7 -5.2 7.5 -1.4 -13.3 -9.6 -7.9 -4.2 -11.0
Nominal Effective Rate 107.6 105.7 100.0 91.9 97.4 93.1 82.9 77.1 73.6 73.4 69.3
% change 0.9 -1.8 -5.4 -8.1 6.0 -4.4 -11.0 -7.0 -4.5 -0.3 -5.5
Note: A reduction in the index indicates a devaluation.
I/ Based on annual average exchange rates.
Source: IMF.
- 176 -
Table 7.1: AGRICULTURAL OUTPUT, INPUTS, AND VALUE ADDED
(In Millions of Kenya Pounds)
Grm Ouitput
Atcurrentlpnces 791.2 917.5 1048.8 1274.1 1412. 1562.9 1814.1 1873.4 2189.0 2381.6 2519.3
Marketedproductiua 353.3 386.9 448.9 555.5 788.8 755.9 938.3 S17.7 945.7 1003.2 1104.1
At contat 1982 prices 945.6 1010.1 1048.8 1121.6 1086.4 1142.4 1217.3 1246.4 1297.8 1345.1 1347.2
Marketed production 443.9 460.6 448.9 475.2 451.2 540.3 549.4 567.1 584.5 623.5 677.3
Value index 75.4 87.5 100.0 121.5 134.7 149.0 173.0 178.6 208.7 227.1 240.2
Quantum index 90.2 96.3 100.0 106.9 103.6 108.9 116.1 118.8 123.7 128.3 128.4
Price index 83.7 90.8 100.0 113.6 130.0 136.8 149.0 150.3 168.7 177.0 187.0
Inputs
Atcurren P.ices 79.3 98.4 84.7 147.5 168.0 205.7 216.0 204.1 286.3 293.2 289.7
At constant 1982 prices 99.7 112.8 84.7 142.6 145.4 166.7 193.9 183.9 188.6 192.6 155.2
Value index 93.6 116.1 100.0 174.2 198.4 242.8 255.0 240.9 338.0 346.1 341.9
Quantum index 117.6 133.2 100.0 168.3 171.6 196.8 228.9 217.0 222.6 227.4 183.1
Priceindex 79.6 87.2 100.0 103.5 115.6 123.4 111.4 111.0 151.8 152.2 186.7
Value Added 1/
Atcurrentprices 711.9 819.1 964.1 1126.5 1244.3 1357.2 1598.1 1669.3 1902.7 2088.4 2229.7
Atconstant 1982 prices 845.9 897.3 964.1 979.1 941.1 975.6 1023.4 1062.6 1109.3 1152.5 1192.0
Value index 73.8 85.0 100.0 116.8 129.1 140.8 165.8 173.1 197.4 216.6 231.3
Quantum index 87.7 93.1 100.0 101.6 97.6 101.2 106.1 110.2 115.1 119.5 123.6
Priceindex 84.2 91.3 100.0 115.1 132.2 139.1 156.2 157.1 171.5 181.2 187.0
Note: lndies as well as value of Inputs are derived
a yar fortndic. 1982.
I/ Montary sctor only, aod excludes forestry and fishing.
Source: Central Bureau of Statistics, Economic Survey, various tasues.
- 177 -
Table 7.2: GROSS MAR.KET6,) PRODUCTION AT CURRENT PRICES
(In Millions of Kenya Pounds)
S~~~~~~ . 4 :... E.>4tt$ . ,A ........ 7 . <.. K ',' '' ;'
00 .�f l. V>&'F|> ,1tflC, W90 1934 t9 Om*6 190 OW
Ceress 35.3 48.2 59.7 31.4 71.4 91.0 107.2 101.0 99.5 116.3 90.9
VWeat 17.7 17.9 22.0 26.9 17.3 26.3 32.9 21.9 35.1 40.0 32.0
Manuz 10.4 23.6 30.3 49.0 49.1 54.6 66.5 63.1 54.2 69.9 56.9
Rice 2.3 2.9 2.9 2.7 3.2 6.3 .. ..
Othen 4.3 3.7 4.0 2.9 1.3 3.4 7.3 11.1 10.2 7.0 2.1
Teorwy Craps 57.3 62.9 64.6 63.2 68.0 33.2 1.20.5 122.2 105.3 126.7 150.4
Pyeuthrnm 9.7 13.4 14.3 5.0 1.9 2.9 4.5 5.6 6.6 10.1 12.6
Sugar Canm 29.5 30.9 29.4 34.3 41.0 46.3 52.3 55.5 68.3 73.4 96.4
Others 13.0 13.6 20.4 23.3 25.1 33.5 63.3 61.1 29.9 38.2 41.4
Permanet Crops 204.5 195.6 232.9 316.6 551.3 459.4 550.3 404.8 501.6 509.7 571.4
Coffee 113.9 10. 5 122.9 166.3 227.7 191.9 233.3 192.2 273.1 243.9 203.4
Sisal 9.7 8.5 12.6 15.5 17.3 15.0 15.4 13.5 13.8 16.6 13.1
Tea 71.5 80.6 93.2 130.3 301.1 247.6 242.3 194.8 203.7 245.3 346.9
Others 4.4 4.1 4.3 4.5 5.6 4.9 4.7 4.3 6.0 3.8 3.1
.tN *d',a x3fl~. 34 t4E 691.2 0M3.6 9'ms 62.0 ICES !$fl 8
ivestock ad Products 56.3 80.2 91.7 94.3 97.6 122.4 159.8 189.7 239.3 250.1 291.4
Catle and calves 33.9 47.5 52.3 51.3 59.0 70.4 84.3 103.9 138.9 149.0 164.0
Dairy produce 15.0 22.8 28.5 32.8 25.8 36.3 56.5 62.1 60.7 66.2 84.3
Others 7.4 9.9 11.0 9.6 12.9 15.8 19.0 23.7 39.7 34.9 43.1
. ~~4LAc*4 .~$ .3 317 S45 io4 roe 4&.-:
Memo Itenl:
Temporary ndustriSl crops 49.2 53.1 53.9 51.2 58.5 65.9 92.7 103.4 93.4 102.6 131.7
Source: Central Bureau of Statistics, Economic Survey, various issues.
- 178 -
Table 7.3: SALES TO MARKETING BOARDS - QUANTUM, PRICE, AND VALUE INDICES
(1982-100)
Qunntun 58.7 S5.5 100.0 105.8 86.7 93.6 104.3 92.4 86.5 97.0 79.9
Price 90.3 93.9 100.0 129.8 139.3 160.7 171.2 179.5 193.6 198.8 242.0
Value 53.0 80.3 100.0 137.3 121.2 150.4 178.6 165.9 167.5 192.8 193.4
Teyportry lnutril Crops
Qu ntum 126.5 121.4 100.0 95.6 104.3 81.7 82.0 89.1 90.9 100.1 99.3
Price 71.0 79.8 100.0 100.7 127.6 137.6 148.5 150.3 173.9 189.3 242.2
Value 89.8 96.9 100.0 96.3 133.1 112.4 121.8 133.9 158.1 190.0 240.5
Permanent Crops
Qumatum 108.2 99.8 100.0 116.4 122.0 112.2 130.9 121.4 142.9 132.0 131.6
Price 91.9 84.1 100.0 118.0 185.7 144.9 181.6 140.7 158.2 154.2 134.8
Value 99.4 83.9 100.0 137.4 226.6 162.6 237.7 170.8 226.1 203.5 177.4
Crops (Sub-total)
Quantum 102.4 106.8 100.0 111.4 102.0 110.3 128.0 119.0 130.4 131.6 116.6
Price 83.8 85.6 100.0 117.9 178.8 145.3 180.0 142.7 159.1 167.4 163.0
Value 85.8 91.4 100.0 131.3 182.4 160.3 230.4 169.8 207.5 220.3 190.1
Livestock and Products
Quantum 80.6 82.0 100.0 100.3 145.9 82.2 92.7 105.1 126.1 127.2 135.6
Price 73.8 85.9 100.0 100.3 105.0 118.9 134.8 150.2 157.4 181.0 197.6
Value 59.5 70.4 100.0 100.6 153.2 97.7 125.0 157.9 198.5 230.2 267.9
Total Groes Marketed Products
Quantum 95.2 98.9 100.0 110.7 117.9 104.6 120.8 116.2 125.2 130.3 120.5
Price 79.6 84.0 100.0 116.9 174.8 139.9 170.8 144.2 161.8 160.9 163.0
Value 75.8 83.1 100.0 129.4 206.1 146.3 206.3 167.6 202.6 209.7 196.4
Memo Items:
5$i &e. --- ja- -. e; w* . 3 t364- .4. 555.4 4,.8 75$.f 93S3 817.7 945.7 WG3. 111144.
Large Farms 168.8 178.6 216.7 271.3 386.2 346.6 515.5 432.1 500.4 508.3 497.6
Smatl Farms 184.5 208.3 232.3 284.1 402.5 409.3 422.8 385.6 445.3 494.9 617.3
Note: Value indice werc denved by multiplying quantum and price indices
/ In mllions ofKaya Poun&.
Source: Caizil Bureu of Stttics, Ecoomic Survey, various issues.
Table 7.4: PRINCIPAL CROPS - VOLUME OF SALES, AVERAGE PRICES AND PRODUCERS' REVENUE
: i9W 2' 190 9$'
1980 19R~~ 1982 1983 14 195 1.986 18 19#4 1989 11990
Wheat
Volume of Sales ('000 mt) 215.7 203.4 234.7 242.3 135.4 193.5 224.7 148.3 220.2 233.2 186.5
Average Price (KSh/mt) 1638.6 1666.7 1875.8 2220.0 2690.0 2710.0 2930.0 2950.0 3405.7 3428.0 4750.0
Producers' Revenue 17.7 17.0 22.0 26.9 18.2 26.2 32.9 21.9 37.5 40.0 44.3
Maize
Volume of Sales ('000 mt) 217.9 472.9 571.3 636.0 560.6 582.9 669.5 651.9 485.3 625.9 509.3
Average Price (KShImt) 953.7 1000.0 1070.0 1540.0 1750.0 1870.0 1980.0 2090.0 2142.3 2233.2 2616.7
Producers' Revenue 10.4 23.6 30.6 49.0 49.1 54.5 66.3 68.1 52.0 69.9 66 6
Sugar-cane
Volume of Sales ('000 mt) 3972.2 3822.0 3107.7 3200.0 3600.0 3500.0 3600.0 3700.0 3800.0 4300.0 4200.0
Average Price (KShImt) 133.0 145.1 170.0 227.0 227.0 270.0 297.0 300.0 358.3 368.0 447.5
Producers' Revenue 26.4 27.7 26.4 36.3 40.9 47.3 53.5 55.5 68.1 79.1 94.0
Coffee
Volume of Sales ('000 mt) 91.3 90.7 88.4 95.3 118.5 96.6 114.9 104.9 124.6 113.1 111.9
Average Price ('000 KSh/mt) 26.3 22.6 27.8 34.9 38.4 39.7 50.2 36.6 44.7 43.1 36.4
Producers' Revenue 120.3 102.4 122.9 166.2 227.8 191.8 288.4 192.1 278.2 243.8 203.4
Tea
VolumeofSales('000mt) 89.9 Qn.9 95.6 119.3 116.2 14'.1 143.3 155.8 164.0 180.6 197.0
Average Price ('000 KSh/mt) 15.9 17.7 19.4 21.8 51.8 ,3.7 33.8 25.0 20.4 27.2 35.2
Producers' Revenue 71.5 80.6 92.8 130.3 3C0:.2 247.6 242.3 194.8 167.0 245.3 346.8
Note: Revenue in millions of Kenya Pounds.
Source: Central Bureau of Statistics, Econom:c Survey, various issues.
Table 7.5: MAIZE - SELECTED INDICATORS
Prov.
197791*0 1980/8t 1981182 1982/83 1983184 1984/85 1985/86 1986&S7 1987/88 1988/89 1989/90
Area ('000 ha) 938.0 1120.0 1208.0 1236.0 1200.0 1130.0 1240.0 1200.0 1100.0 1290.0 1400.0
Production ('000 mt) .. 1755.0 2340.0 2160.0 2070.0 1440.0 2610.0 2700.0 2250.0 2700.0 2790.0
Averageyield(mt/ha) .. 1.6 1.9 1.7 1.7 1.3 2.1 2.3 2.0 2-1 2.0
Percaitaproduction(kg) I/ .. 103.2 132.3 117.4 108.3 72.5 126.5 126.0 101.2 117.0 116.5
Ptrcapitaonisumption(kg) 1/2/ .. 125.0 118.1 105.5 116.5 95.3 115.2 94.6 103.2 116.5 101.1
NCPB operations _
Dnmnesticsales('000mt) 476.1 699.3 268.2 396.0 619.2 794.7 391.5 223.2 500.4 412.2 291.6 o
Domestic sales as percentage .. 32.9 12.8 20.4 27.8 42.0 16.5 11.0 21.8 15.3 12.0
of consumption (%) I
Purchases ( '000 mt) 134.2 382.6 695.7 627.1 498.4 379.7 833.7 718.8 477 2 623.7 550.8
Note: Data by fical years.
1/ 1979 population includes the under - enumemrtion of population (See Technical Note).
2/ Assumes that consumption is production minus net exports and changc in National Cereals and Produce Board (NCPB) stocks.
Sourmc: National Ceeals and Produce Board; Ministry of Supply and Marketing; and Central Bureau of Statistics.
Table 7.6: TEA - SELECTED INDICATORS BY SIZE OF LANDHOLDING
Area ('000 ha)
Smallholders 50.7 53.6 54.7 55.0 56.5 56.5 56.5 56.9 57.7 57.9 67 0
Estates 25.9 26.2 26.4 26.6 26.7 27.3 27.9 28.5 29.1 29.5 30.0
TOWa 76.5 79.7 81.1 81.5 83.2 83.8 84.4 85.4 86.8 87.5 97.0
Pmdocti (-000 mt)
Smaflhodders 34.0 35.8 39.9 51.0 52.7 71.3 68.1 76.9 84.7 100.6 110.0
Esates 55.9 55.1 56.1 68.8 63 � 75.8 75.2 78.9 79.3 80.0 87.0
TOal 89.9 90.9 96.0 119.8 116.6 147.1 143.3 155.8 164.0 180.6 197.0
Average Yield (mt/ha)
Snallholders 670.7 668.1 729.5 927.9 932.8 1261.8 1204.3 1351.7 1468.0 1735.9 1640.7
Estates 2162.5 2106.8 2126.3 2589.7 2391.6 2774.3 2699.8 2765.6 2726.2 2709.4 2902.4
Total 1174.5 1140.0 1184.1 1469.4 1401.1 1754.8 1697.9 1823.9 1889.9 2064.6 2030.6
>~111rIiu~m1u@ V f ; 2t1 21.4 19. 41 24.4 23.2 16.0 11.8 14.2 16.3
(1982 KSh/kg)
Note: Data in calendar years and may differ from those based on crop year.
I! Nominal producer price is deflated by annual average Nairobi consumer price index (Sec Statistical Appendix Table 11. 1).
Source: Tea Board of Kenya; and Central Bu.eau of Statistics, Economic Survey, various issues.
- 182 -
Tabs 7.7: COFFEE - SELECTED INDICATORS BY TYPE OF LANDHOLDING
A ('s000 h)
CoeqPabve 71.2 14.7 97.5 103.1 114.2 116.3 117.7 116 1 117.7 116.4 116.4
Esta: 31.2 32.9 33.6 33.6 35.7 35.7 38.6 38 4 38.6 36.7 36.7
Totdl 102.4 117.6 131.1 136.7 149.9 152.0 156.3 154.5 156.3 153.1 153.1
Productio ( 000 at)
CIoPera 51.9 64.0 52.5 54.1 61.5 64.7 68.4 67.9 84.3 78.3 69.5
8_kmw 39.1 3437 34.4 33.1 49.0 28.9 45.5 36.4 44.4 38.6 34.4
Totl 91.0 98.7 86.9 87.2 110.5 93.6 113.9 104.3 128.7 116.9 103.9
Averap Yield (mthna)
Coopetative 729.9 755.6 538.5 524.7 538.5 556.3 581.1 584.8 716.2 672.7 597.1
E4uah 1253.2 1054.7 1023.8 985.1 1372.5 809.5 1178.8 947.9 1150.3 1051.d 937.3
ToUl 88S.7 839.3 662.9 637.9 737.2 615.8 728.7 675.1 823.4 763.6 678.6
Export ('C00 Mt)
Sal to quota markets 82.0 78.0 84.0 78.0 83.4 79.8 110.3 90.7 73.2 86.7 0.0
Sales to noo-quota arket 2.9 5.7 24.0 8.1 9.3 16.4 13.9 15.0 5.6 14.0 121.2
End-year stocks 19.8 30.9 20.0 21.3 56.3 49.3 60.7 58.9 102.3 120.7 38.2
Real producer price 1/2/ 36.2 27.6 27.8 30.5 30.8 28.7 34.4 23.4 25.8 22.5 16.9
(1982 KSh/kg)
Note: Data by agloutul ya.
It/ Now" poduf - is deflad by anual avaege Nairobi conuumer price indc (See Statstical Appendix Table 11 .1).
2V Caelaur yan begnnig in 19S0.
Soaree: Coffe loaN of Kenya; ad Central Bureau of Statistics, Economic Survey, varous issues.
Table 7.8: SELECTED AGRICULTURAL PRICE INDICES
(1982=100)
X.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~av
1980: 198 1982. 1983 1984 984 1986 1987 1988 1989 19X0
Indices of Prices Received
Sales to wrarketing boards 79.6 84.0 100.0 116.9 174.8 1.9 170.8 i44.2 161.8 160.9 163.0
General index of agricultural 83.7 90.8 100.0 113.6 130.0 136.8 149.0 150.3 168.7 177.0 187.0
cutput prices
Indices of Prices Paid
Purchased inputs 94.2 97.4 100.0 104.2 125.1 120.7 123.2 129.6 145.5 152.2 186.7
00
Index of purchased consumer 69.9 82.7 100.0 113.8 134.0 154.8 159.9 167.8 178.6 188.4 205.9
goods - rural areas
Weightedaverage 77.2 87.1 100.0 111.4 131.8 146.3 150.7 158.8 170.5 181.2 192.0
It Agricultural output pnice index divided by weighted average index of prices paid.
Source: Central Bureau of Statistics, Economic Survey, various issues.
Table 8.1: VALUE ADDED AND OUTPUT FOR ALL MANUFACTURING FIRMS AND ESTABLISHMENT
(In Millions of Kenya Pounds)
I .19*0 A981 ~9$2~ 19*3 19*4 198~ 19*6 19*7 198190 ... D:
11000"A"111"Wil W-111-52.7 002 60.1 1976 964 1'4
Food manufcturing 69.0 73.8 101.4 109.1 137.3 152.3 174.8 209.3 228.8 258.6 289.5
Beveragesandtobacco 29.9 36.4 43.9 47.2 62.5 70.4 72.8 73.1 92.4 107.3 117.1
Chemicals (incl. petroleum) 27.2 35.9 38.4 41.3 53.7 59.8 62.1 68.2 81.2 94.0 105.2
Machinery and trnsp. equip. 49.3 51.8 58.4 62.9 59.8 68.7 76.0 76.6 76.4 85.2 100.6
Oiher manufactnres 113.3 141.3 156.6 168.4 171.0 191.6 222.5 263.0 318.9 361.8 428.9
W 242 .-3535.6 .7. 5---.7 6102.. 7W.286 1 16.3'
Food manufacturing 439.8 597.0 678.1 863.0 1107.9 1310.9 1619.7 1943.0 2246.6 2698.0 3610.0
Beveragesandtobacco 73.8 82.0 114.4 128.4 144.1 216.0 277.4 298.7 338.8 390.9 409.2
Chemicals (incl. petroleum) 262.9 332.2 486.8 473.8 592.6 709.5 895.1 1047.3 1535.2 1713.4 2237.1
Machinery and transp. equip. 149.8 170.3 283.6 213.8 278.8 348.0 409.0 514.5 570.0 683.5 708.4
Other nanufactures 433.7 686.5 661.5 714.0 827.2 951.1 1095.4 1286.2 1412.2 1796.8 1851.6
Source: Catra Bureau of Statistics, Statistical Abstract, various issues.
Table 8.2: QUANTUM INDEX OF MANUFACTURING PRODUCTION
(1982= 100)
Food Manufacburig 107.6 96.9 100.0 105.8 113.6 120.2 128.3 139.8 148.4 151.5 153.4
Beveirgets ad Tobcco 104.5 106.0 100.0 99.2 104.2 111.8 128.4 150.3 156.1 157.8 163.0
Tbextiles 120.3 126.8 100.0 109.6 124.3 130.1 139.2 143.7 147.2 151.0 170.0
Ckdhing 70.9 97.8 100.0 104.7 9S. I 90.7 91.3 92.6 94.8 97.5 89.4
lZaber and footwer 101.5 119.6 100.0 100.3 87.6 86.3 88.3 90.0 94.9 102.0 106.9
Wood and cork pmducts 102.4 95.1 100.0 83.1 69.4 50.3 50.9 51.6 50.3 51.6 53.2
Furmtlue andfixlme 118.2 119.4 100.0 103.4 107.6 110.3 112.0 113.3 112.0 112.3 113.6
Paper and paper products 109.5 94.9 100.0 90.7 96.0 103.0 110.0 119.0 132.6 136.3 142.8
PriC and publishing 68.7 90.8 100.0 105.8 118.2 123.2 130.5 138.6 144.9 146.3 149.6_
Indusbia chemicals 104.9 95.7 100.0 90.4 100.8 98.1 100.0 102.1 109.4 119.0 126.9 oo
Peuleum & other chemicals 104.2 110.6 100.0 104.9 130.7 137.2 148.9 162.0 183.0 211.3 244.3
Rubber products 126.1 133.6 100.0 127.8 149.1 162.0 171.9 l81.5 187.6 202.3 213.6
Plastic products 126.8 107.9 100.0 107.8 113.7 120.9 125.6 129.6 123.8 133.8 138.8
Pottery &glass products 159.7 109.2 llJ0.0 119.4 lSS.S 159.3 159.6 160.7 168.9 186.3 202.3
Non-metallic mineral products 101.4 100.2 100.0 98.0 86.9 97.8 108.3 114.4 112.8 117.9 134.0
Metal products 145.1 132.6 100.0 109.2 100.2 106.3 117.0 130.3 149.2 173.3 198.4
Non-electrical machinery 126.7 104.9 100.0 102.5 105.6 112.2 121.2 130.9 142.0 '35.9 106.2
Electrical machinery 113.0 102.1 100.0 98.9 105.4 110.6 116.6 120.5 135.5 138.7 136.2
Transport equipment 85. 1 101.8 100.0 116.8 100.1 87.2 76.7 70.7 79.1 82.4 87.0
Miscellaneous manufactures 127.5 136.1 100.0 110.1 146.2 187.3 241.1 311.4 333.9 347.5 376.4
M9*4.4 W.97. 1,00 104,5 -1081 1.13,9 120,6 .127.4 13.5.0 143.0 5 .: 4
Growth rate 5S) .3 3.6 2.2 4.5 4.1 4.6 5.9 5.7 6.0 . 53
Source: Central Bureau of Statistics, Economic Survey, various issues.
Table 8.3: MANUFACTURING EXPORTS - VALUE AND QUANTUM INDICES
I.,.1 . , . , 1 198..-.5 -.I986 .,' 19' ' 989 199
. .... x.' . .... ;a .. ..
Y1.';.,'11 K............. . ..... " ','9&'2...... ',116^ .. N.''.''103 .'''16^.-161 131 149.9 162.4 18.I' 1899 242.4 260.1
Processed food 28.8 41.0 30.9 36.0 44.0 4(.1 38.4 42.6 48.1 65.8 92.8
Beverages and tobacco 1/ 2.3 1. 1.6 3.0 2.4 6.4 9.8 6.4 5.7 7.2 13.6
Chemicals 22.8 33.1 19.6 27.5 32.5 39.8 43.9 42.8 45.0 58.3 39.6
Manufactured goods 28.1 26.1 33.1 34.3 33.5 34.2 28.0 29.5 44.1 84.4 80.2
Macbinery and tinp. equip. 3.0 3.1 2.1 2.5 3.2 3.5 6.4 7.0 7.9 9.3 6.0
Misc. nanuf.articles 13.2 12.2 13.0 13.4 16.6 25.9 36.0 29.7 39.0 17.4 28.6
Quantum Indices (1982 - 100)
Beverages and tobacco I/ 135.2 81.4 100.0 155.0 105.0 231.0 340.0 235.0 180.0 186.0 275.0
Chemicals 127.0 125.0 100.0 92.0 94.0 106.0 95.0 99.0 88.0 108.0 100.0
Manufacwured goods 111.0 89.0 100.0 83.0 78.0 77.0 99.0 98.0 130.0 133.0 170.0
Machinery and transp. equip. 154.0 102.0 100.0 51.0 38.0 44.0 38.0 84.0 53.0 59.0 25.0
Misc. manuf.articles 120.0 108.0 100.0 76.0 82.0 104.0 144.0 107.0 122.0 130.0 181.0
We*gdAver ;ge2t3t 1:s.1 1eVZ~9 1{9In: - 82 9 , 49 110.0 102.7 115.S 124.4 150.4
Note: Excludes re-exports.
1/ Excludes coffee and ted.
2/ Weighted according to the shares of 1982 export receipts which are:
Beverages & tobacco: 2.3%
Chemicals: 28.2%
Manufactured goods: 47.7%
Mach.and transp. equipment: 3.0%
Misc. manufactured goods: 18.8%
3/ Excludes processed food as index is unavailbie.
Source: Central Bureau of Statistics, Statistical Abstract and Economic Survey, various issues.
Table 9.1: PRODUCTION, TRADE, AND CONSUMPTION OF ENERGY BY PRIMARY SOURCE
(In Thousands of Metric Tons of Oil Equivalent)
...... 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 199Q
Domestic Energy Production 254.4 340.8 358.3 417.6 413.7 483.8 505.3 524.9 635.0 669.9 689.5
Hydro power 254.4 331.4 335.3 354.7 357.8 403.2 416.7 435.1 557.5 592.6 608.9
Geothermal power -- 9.4 23.0 62.9 55.9 80.6 88.6 89.8 77.5 77.3 80.6
Total Netimport 1903.8 1782.7 1676.7 1549.1 1687.8 1677.1 1778.4 1964.4 1914.5 2018.3 1977.9
Importsofcrudeoil 3075.5 2611.1 2165.5 1940.2 1932.7 1980.7 2006.0 2130.5 2041.8 2100.9 2178.3
Net exports of petroleum -1415.3 -1084.4 -769.4 -434.9 -584.7 -544.9 -699.0 -479.6 -583.1 -470.8 -425.7
Imports of hydro power 75.6 46.6 50.9 43.0 51.6 51.6 56.4 50.6 26.4 26.9 41.8
Coal & coke consumption of oil 60.0 63.8 52.5 63.7 82.7 59.9 67.9 82.2 79.0 91.6 105.8 _
Stock changes 11 108.0 145.6 177.2 -62.9 205.5 129.8 347.1 180.7 350.4 269.7 77.7 o
;21 11 2&9.A 19661. 2101.5 2160.9 2283.7 2489.3 2549.5 2688.2 2667.4
Liquid fuels 1768.2 1672.3 1573.3 1442.4 1553.5 1565.6 1654.1 1831.6 1809.1 1899.8 1830.3
Stock changes I/ 108.0 145.6 177.2 -62.9 205.5 129.8 347.1 180.7 350.4 269.7 71.7
Hydroandgeothermal 330.0 387.4 409.2 460.6 465.3 535.4 561.7 575.5 661.4 696.8 731.3
Coal and colke 60.0 63.8 52.5 63.7 82.7 59.9 67.9 82.2 79.0 91.6 105.8
Memo Items:
Local Production as % of Total 11.8 16.0 17.6 21.2 19.7 22.4 22.1 21.1 24.9 24.9 25.8
Consumption
Per capita consumption in terms 129.5 122.4 112.8 104.9 107.9 106.8 108.6 114.1 112.5 114.3 109.3
of kilograms of oil equiv. _
Note: Fuelwood and charcoal are excluded.
1/ lncluc!es balancing item.
Source: Central Bureau of Statistics, Economic Survey, various issues.
Table 9.2: INSTALLED CAPAl'ITY AND ELECTRICITY GENERATION
~~~.M~~~
IilMdaU C-apmc,ty (0W) 485 540 555 544 544 559 559 575 559 723 723
Hydro 314 354 354 354 354 354 354 354 354 498 498
lTermal oil 172 172 172 160 160 160 160 176 160 180 180
Goethernml -- 15 30 30 30 45 45 45 45 45 45
Gmwraticu of Eeczicity (GWH) 1490 1754 1804 1904 1949 Z155 2307 2454 2844 2900 3044
Hydro 1060 1381 1397 1478 1491 1680 1736 1813 2323 2469 2537
ernnal oil 430 334 311 164 225 139 202 267 198 109 171
Gcoiermal -- 39 96 262 233 336 369 374 323 322 336 oo
00
(00
Now: DJat includes cstimAte for imduWri catblishments with genration capacity.
MW megawatt = I million wafts = 1,000 kilowats.
GWH gigawatt = 000 MW.
Source: Central Bureau of Statistics, Economic Survey, various issues.
Table 9.3: ELECTRICITY TARIFFS BY TYPE OF CONSUMER
(In Kenya Cents per Kilowatt Hour)
SmalIl-scaleconsumers 53.6 53.3 53.5 71.2 81.7 88.1 91.5 101.6 114.1 118.2 120.0
Medium-scaleconsuners 46.1 48.0 64.4 74.9 81.8 88.3 96.9 110.9 116.3 119.2
Large-scale consuners 37.7 31.1 31.3 48.2 59.7 65.8 71.2 81.0 94.0 99.0 101.7
Off-peak 22.2 21.7 22.4 42.7 56.8 65.9 70.9 80.5 94.7 99.6 99.8 oo
co
Pubbec ighting 47.1 48.6 51.9 70.0 98.2 85.9 95.3 102.0 118.8 121.6 122.5
Note: 19s6 dda is for Jiwnay to June only.
Fiwa year ends June 30.
Soure: Kcaya Power an Lighting Company, Annual Reports - 1981,1985.1989 and 1990.
. 1 Q! -
T"bb 9.4: CRUDE OIL AND PETROLEUM PRODUCTS - DEMAND ANT) SUPPLY BALANCE
(In Thoesnds of Metrc Toe)
Dmd
Dainih 1768.2 1672.4 15733 1442.5 IS53.5 1$65.6 1654.1 1831.6 1109.1 1199.S 1931.4
meowur Zinw 300.3 293.5 269.3 256.4 257.7 267.3 295.1 321.8 325.0 376.7 339.9
JggOub hlaat 347.9 343.5 231.3 250.1 239.4 261.0 263.4 2495 254.6 274.3 302.4
Liamtdi_1e 408.5 375.6 373.1 338.9 420.1 447.7 431.0 572.7 537.3 543.6 555.4
Fogi d 462.1 420.4 423.3 346.7 411.4 376.5 371.3 410.8 392.7 371.0 377.4
Odwr 1/ 243.9 234.4 220.S 200.4 204.9 212.6 236.3 276.8 299.5 334.2 356.3
Exporloi 1613.4 1185.8 383.1 648.1 702.4 611.9 815.3 578.3 697.3 533.0 543.6
Petojum hels 1581.3 1169.5 868.0 630.8 615.3 596.8 804.5 571.9 689.9 515.9 534.2
Lubricatngoils 35.5 15.8 14.7 17.1 16.7 14.8 11.0 6.5 6.9 16.4 9.0
Lubricating gm"" 11 0.5 0.4 0.9 0.4 0.3 0.3 0.4 0.5 0.7 0.3
_ . f 25L82 2451*l.2* 225S.9 2177..$ t 2410.4 2506.4 243. 2.47.0
Supply
I npoits 3296.9 2746.8 2234.1 2153.6 2010.4 2067.7 2137.9 2271.1 2186.9 2178.0 2324.1
Crudeoil 3075.5 2611.1 2162.5 1940.2 1874.3 1980.7 2006.0 2130.5 2041.8 2100.9 2178.3
Petroleum fuels 166.5 85.1 101.6 195.9 100.6 51.9 105.4 92.3 106.8 45.2 132.6
Lubricatiagoils 54.8 50.4 20.0 22.5 35.4 35.0 26.0 46.0 38.2 31.7 13.1
Lubricatinggream 0.1 0.2 - - 0.1 0.1 0.5 2.3 0.1 0.2 0.1
Adjustment2/ 89.7 11i.4 172.3 -67.3 245.5 109.8 332.0 139.3 319.5 254.8 150.9
Memo Item:
Not Imporb 1678.5 1561.0 1401.0 1509.3 1308.0 1455.8 1322.1 1692.3 1489.6 1645.0 1780.5
1/ InCdm r.tay u e,liquefled ptroleum gua,viati spirit.llumiauina kwom. and heavy die" oil.
V Adjuimt for inveatory chlung,loss In production and belancing item.
Source: Ccezal Bureu of Statistcs, Economic Survey, vanous iuss.
Table 9.5: VALUE OF EXPORTS AND IMPORTS OF MINERAL FUELS
(In Millions of Kenya Pounds)
196S g n 0 f;1981' 1982 1983 1984 1985 1986 19$7 1988 1989 1990
bnxuipos 325.1 348.0 334.5 333.5 335.8 379.1 243.4 287. 2b8.2 355.4 500.7
Crude petrbomn 256.6 328.0 299.8 280.5 292.4 349.3 207.8 248., 217.9 299.1 422.0
Pnirolemnfiaels 19.7 8.2 22.1 45.6 21.1 12.6 15.9 14.4 18.4 11.2 39.1
LuIricating oils 0.9 11.7 5.8 7.3 12.5 13.4 9.6 15.4 12.8 13.8 6.6
Libduatinggreases 0.1 0.1 0.1 0.1 0.1 0.1 0.5 2.4 1.0 0.4 0.1
OCter 47.8 -0.0 6.7 0.1 9.6 3.7 9.6 6.4 8.1 31.0 32.9
E4xpouS 162.7 164.1 149.3 134.5 142.6 127.4 107.8 101.8 119.8 118.6 150.4
Petbrleum fuels 150.6 152.3 141.7 118.2 131.7 108.6 100.5 96.4 109.2 88.8 14,.1 I
Lulbicatingols 10.0 5.5 7.1 9.7 9.5 9.1 7.0 4.9 5.4 10.5 8.6 t
Lu-xicating greaes 0.4 0.2 0.3 0.5 0.3 0.3 0.3 0.4 0.5 0.8 0.:
Other 1.8 6.1 0.3 6.1 1.1 9.4 0.0 0.1 4.8 18.5 0.2
~ <. I:.) ,' . 162.4 18s.9 185.2 .199.0: 1 '2 251.7 135.6 185.3 138.4 236.8 3S0.3
Soune: CGnrl Bureau of Statistics, Economic Survey, various issues.
Ii
Table 9.6: WHOLESALE AND RETAIL PRICES OF PETROLEUM PRODUCTS
\ _\*~N. . ....... ............. ;~ , ,,-;
Ipnt June ApriL July June Sept.' Bab Se..
\\' - W*I 1916 1937 1937 h8 8 198. 1990 1990
Wbek(KShlmt) I1
liqpefio petroleum gas 6399 5893 6400 6400 6400 7820 11629 14129
Premium psoine 10869 9975 10868 11418 11831 13441 14362 18715
Rogulr gsoline 10512 9734 10622 11051 11337 13551 14127 18533
Maminating erosene 4859 4012 4012 3993 4012 5033 6471 9053
Ligl diesel oil 6365 5525 5886 5886 6005 7227 8275 11764
bIbutrial diesel oil 4019 3136 3982 3982 3982 4668 6089 9034
Ful oi 2408 2003 2408 2413 2408 3164 3509 5405
Rebil (KSh/liter) 2/
Premium/gasohol 3/ 8.6 8.0 8.6 .0 9.3 10.5 11.0 14.4
Regulargasoline 8.1 7.6 8.1 8.4 8.6 10.2 10.7 14.1
Gas oil 5.9 5.3 5.6 5.6 5.7 6.8 7.7 10.9
I/ Mombasa prices which include duty and VAT.
2/ Nairobi prices.
3/ Gasohol was introduced from 1983.
Source: Central Bureau of Statistics, Economic Survey, various issues.
Table 10.1: TOURISM SECTOR - SELECTED INDICATORS
t.,: S7X~~.98l,>b9t' + 1S J.985 A95i.5101|| 9900t
Receipts (KL fillhoas) 82.5 90.0 118.0 122.0 151.7 197.0 248.0 292.1 349.0 432.0 533.0
Pkx>ipls (US$ uilloss) 1/ 218.0 175.0 185.5 176.9 214.9 239.8 306.0 354.4 391.8 418.1 465.2
S M gk+O~~~~~~~~~W .... ... J9. .4 2 '3 ' is00 .*+9,8
EPoaqmw Holiday 290.7 273.9 294.0 285.3 353.4 418.0 476.6 529.1 555.9 642.1 728.9
Burioess 48.9 48.0 47.9 45.0 56.5 59.5 65.7 66.1 69.5 53.8 42.4
Transit 53.7 43.3 39.0 35.7 44.7 52.0 59.1 58.9 61.4 34.5 23.1
OdC r 0.0 0.0 11.2 6.3 7.6 11.1 12.8 7.2 8.1 4.3 6.3
Aveualelngthofstay(days)2/ 15.7 15.0 16.2 15.9 15.9 15.9 15.9 16.0 16.0 13.6 14.3
HoWioccupmcy ('00O/night) 4717.3 4691.0 4628.5 4472.1 4684.3 4818.5 5010.0 5031.3 5134.5 5316.5 6045.9
hkdl occupancy rate (%) 56.7 55.0 51.4 48.6 50.9 53.4 53.5 53.1 52.9 55.2 57.6
Visitorsto ntionalparks('000)31 655.7 730.1 968.0 957.9 1011.4 986.4 925.5 996.0 1095.8 1255.0 1532.2
It See Statil Appendix Table 3.2 for avcrage exchange rate used.
2/ Excludes days stayed by arrivals categorized as 'other'.
31 Includes visitors to game reserves.
Source: Ccetral Bureau G. Statistics, Economic Survey, various issues.
- 194 -
Table 10.2: TRANSPORT AND COMMUNICATIONS SECTOR - SELECTED INDICATORS
(In Millions of Kenya Pounds)
3-;,,, .9S0 t191 19s2 IM9 1914 195 19$6 191 119 19S 90
VaIuI(.twt 362.9 401.1 460.6 512.5 554.2 631.0 7122 .4 931.0 1102.4 1S"'
Road trasport 138.5 141.5 172.3 172.2 196.1 225.6 288.1 311.7 355.2 421.5 450.8
Pasenger 72.9 ;2.8 93.2 102.7 120.9 155 9 197.0 200.7 212.4 244.9 275.7
Freight 65.6 68.7 79.1 69.5 75.2 69.7 91.1 111.0 142.8 176.6 175.1
Railway transport 32.8 42.6 50.0 58.1 62.2 57.7 59.5 60.7 67.9 73.7 96.3
Passenger 3.1 4.2 4.4 5.1 4.5 4.8 5.7 6.3 7.0 8.1 10.3
Freight 29.7 38.4 45 6 53.0 57.7 52.9 53.8 54.4 60.9 65.6 85.0
Water transport 62.7 65.3 54.6 67.5 81.8 89.0 72.6 75.5 79.0 109.9 134.0
Air trsnsport 41.6 39.9 48.4 69.1 73.8 86.8 102.2 131.3 155.0 192.6 268.2
Services incidental to transp. 31.2 37.5 40.3 42.5 36.4 33.8 39.0 45.6 52.2 57.8 80.5
Pipelino 18.6 18.5 20.1 19.1 21.0 23.5 26.5 26.8 27.7 29.2 32.0
Total - Transport Sector 325.4 345.3 385.7 428.5 471.3 516.4 587.9 651.6 737.0 884.7 1061.8
Cotmunicatioas 57.5 63.5 74.9 84.0 82.9 114.6 141.3 14i.8 194.0 217.7 231.1
8''At.'+-e%'4g'%7'.R ' ,. ''''' t., '-tlkkv IMS 00 '-7O n.-I ltt8-<:
Railway transport 30.3 40.0 44.2 51.6 60.5 55.5 56.9 58.3 62.7 75.0 92.1
Passenger 2.9 3.9 4.5 4.9 4.5 4.8 5.7 6.3 7.0 8.1 10.3
Freight 27.4 36.1 39.7 46.8 55.9 50.7 51.2 52.0 55.7 66.9 81.8
Air transport 1/2/ .. .. .. 54.0 (3.0 78.9 96.9 107.4 115.7
Passenger .. .. .. .. 48.9 59.5 71.9 86.8 94.7 101.8
Freight .. .. .. .. 5.1 5.5 7.0 10.1 12.7 14.0 .
I/ Domeiic and IArngtionsi.
2/ After 1989, dat is no longer published.
Source: Central Bureau of Statistics, Economic Survey, various issues.
- 195 -
Table 11.1: ANNUAL AVERAGE CONSUMER PRICE INDEX
(1982= 100)
9190 1* I 1 19 IW3 1914 195 19t6 1917 19 1919 I99,
Urban Population
Nairobi
Lower tncome 74.2 82.9 100.0 111.4 122.9 138.8 144.4 151.8 164.4 180.6 201.8
Middle income 69.8 79.4 100.0 115.2 125.S 139.4 150.1 162.7 182.1 202.0 228.1
Upper mcome 74.0 83.1 100.0 116.9 126.3 136,4 143 5 154.7 173.0 191.9 217.3
Annual Average - Urban I/ 73.2 84.0 100.0 113.9 124.6 135.0 139.8 151.3 166.6 182.2 207.4
Nairobi 1/ 72.7 81.9 100.0 114.5 124.8 138.2 145.9 156.3 173.0 191.3 215.5
Mombasa 2/ 72.1 83.6 100.0 111.5 119.7 126.5 130.1 141.0 157.0 175.2 202.6
Kisumu 2/ 72.1 84.4 100.0 114 2 126.9 139.1 143.6 159.0 173.0 183.8 208.6
Nakuru 2/ 75.8 86.2 100.0 115.5 126.8 136.1 139.5 148.7 163.5 178.5 203.1
Rural Population
AnnulAverage2/ 71.1 82.7 100.0 114.0 134.2 155.7 160.8 168.7 178.5 188.9 206.0
Central 70.4 82.7 100.0 115.6 134.9 146.6 153.5 162.8 173.9 185.6 203 2
Eastem 72.9 83.9 100.0 124.0 144.4 172.8 180.2 187.5 196.8 206.2 222.0
Nyanza 70.5 82.1 100.0 113.3 128.1 140.0 142.3 146.4 157.6 173.9 '91.3
Coast 71.4 81.9 100.0 107.3 131.2 158.7 164.6 180.3 193.7 198.4 'a23.2
Westem 70.5 83.8 100.0 113.5 136.5 164.1 162.1 167.2 173.2 188.0 201.3
Rift Valley 71.0 81.8 100.0 110.1 130.1 151.6 161.9 168.2 175.9 181.2 195.2
cQmas i bit*: St . 11.5 83.0 100. 114,0 132J3 151.5 156,6 165.2 176.1 1W?5 200.3
Memo Items:
'04 l- < #D - -, 16.0 204 - 14.0 - 6 l 14.3 3.3 5 60 6.5 10.0.
Urban Population 12.8 14.8 19.1 13.9 9.3 8.4 3.6 8.2 10.2 9.3 13.9
Nairobi 12.8 12.6 22.2 14.5 9.1 10.7 5.6 7.1 10.7 10.6 12.6
Lower mcome 13.8 11.7 20.6 11.4 10.3 13.0 4.0 S.1 8.3 9 R 11.7
Middle income 11.6 13.8 25.9 15.2 8.9 11.1 7.7 8.4 12.0 10.9 12.9
Upper income 13.0 12.3 20.3 16.9 8.0 8.0 5.2 7.8 11.8 10.9 13.2
Mombasa 13.0 15.8 19.7 11.5 7.4 5.7 2.9 8.4 11.3 11.6 15.6
Kisumu 15.8 17.0 18.5 14.2 11.1 9.6 3.2 10.7 8.8 6.2 13.5
Nakuru 9.9 13.7 16.0 15.5 9.8 7.4 2.5 6.6 9.9 9.1 13.8
Rural Population 12.3 16.3 20.9 14.0 17.8 16.0 3.3 4.9 5.8 5.8 9.1
Central 10.2 17.5 20.9 15.6 16.7 8.7 4.7 6.0 6.8 6.7 9.5
Eastern 7.9 15. 1 19.1 24.0 16.4 19.7 4.3 4.0 5.0 4.8 7.7
Nyanza 11.1 16.4 21.8 13.3 13.1 9.3 1.6 2.9 7.7 10.3 10.0
Coast 16.9 14.6 22.2 7.3 22.3 21.0 3.7 9.6 7.4 2.4 12.5
Western 12.3 18.9 19.3 13.5 20.3 20.2 -1.2 3.1 3.6 8.6 7.1
Rift Valley 15.7 15.3 22.2 10.1 18.2 16.5 6.8 3.9 4.6 3.0 7.7
Note: Indices exclude rert.�
1/ Simple average.
2/ lndicea refer to households in lower;middle income groups.
3/ Weighu are 20% Urban and 80% Rural.
Soure: Central Bureau of Saisics and staff stiates.
Table 11.2a: NAIROBI CONSUMIER PRICE INDICES
(1982= 100)
190 1981," '1982 '193 -1934 1985 1986 1987 1988 1989 1990
:.. :.... ...: 8:L4 100.0 114.5 1249 13.23.2 9.S 215.
Lower income 74.2 82.9 100.0 111.4 122.9 138.9 144.4 151.8 164.4 180.6 201.8
Middle income 69.8 79.4 100.0 115.2 125.5 139.4 150.1 162.7 182.1 202.0 228.1
Upper income 74.0 83.1 100.0 116.9 126.3 136.3 143.5 154.7 173.0 191.8 217.2
;:.: l- *; (%) : t. 14.5 9.0 10.7 5.6 7.1 10.7 10.6 12.7
Lower income 13.8 11.7 20.6 11.4 10.3 13.0 4.0 5.1 8.3 9.8 11.8
Middle income 11.6 13.8 25.9 15.2 8.9 11.1 7.7 8.3 12.0 10.9 12.9
Utpper income 13.0 12.3 20.3 16.9 8.0 8.0 5.3 7.8 11.8 10.9 13.2
Memo Items:
December of each year
Ar%W 1 71.0 85.9 100.0 110.0 120.7 133.0 139.1 151.2 168.2 185.8 220.2
Lower income 73.7 87.9 100.0 109.6 121.6 134.1 139.5 147.4 162.1 176.3 209.0
Middle income 67.7 84.5 100.0 110.1 122.2 136.1 144.0 158.5 176.9 197.7 233.4
Upper icome 71.6 85.1 100.0 110.3 118.5 128.7 133.8 147.6 165.5 183.4 218.3
Avesageincrease(%) 12.6 20.9 16.5 10.0 9.8 10.1 4.6 8.6 11.3 10.5 18.5
Lower income 13.1 19.3 13.7 9.6 10.9 10.4 4.0 5.6 10.0 8.8 18.6
Middle income 11.3 24.8 18.3 10.1 11.0 11.5 5.8 10.0 11.6 11.7 18.1
Upperincome 13.3 18.9 17.5 10.3 7.5 8.6 4.0 10.3 12.1 10.8 19.1
Note: Indices include rent.
I/ Simple average.
Source: Central Bureau of Statistics, Economic Survey, various issues.
- 197 -
Table 11.2b: REVISED NAIROBI CONSUMER l'RICI. 1NOI(JlS
Feb./March 1986 - 1(X))
lncome Groups If Income Groups 2/
YZt/Mantbs . Lower Middle Upper Ave. 3/ Lower Middle Upper Ave. 3/
1990 February 133.9 143.9 150.3 136.4 144 5 162.9 163.4 148.8
March 140.1 150.6 152.8 142.6 151.2 170.5 166.2 155.6
April 142.0 152.0 153.6 144 3 153.2 172.] 167.1 157.5
May 142.8 152.7 154.3 145.1 154.1 172.9 167.8 158.3
June 145.5 155.8 157.8 147.9 157.0 170.3 17 1.6 161 4
July 145.6 155.9 158.1 148.0 157.1 176.5 172.0 161.5
August 147.2 156.9 159.5 149.5 158.9 177.6 173 5 163.2
September 151.9 161.4 164.4 154.2 164.0 182.7 178.8 168.2
October 154.6 164.8 169.1 157.0 166.8 186.6 183.9 171.4
November 159.9 167.6 170.8 161.8 172.6 189.7 185.8 176.5
December 162.1 173.2 177.3 164.8 175.0 196.0 192.9 179.8
1991 January 162.2 173.5 179.4 164.9 175.0 196.5 195.1 180.0
February 167.2 175.5 180.4 169.3 180.5 198.6 196.3 184.7
March 170.2 179.2 183.4 172.4 183.7 202.9 ;99.5 188.1
April 169.9 180.7 184.9 172.5 183.4 204.6 201 1 188.2
May 174.8 184.0 191.0 177.1 188.6 208.3 207.8 193.2
June (Provisional) 175.8 187.2 194.1 178.6 189.8 211.9 211.1 194.9
Memo Items:
Annual Average Increase (%) 4/
1991 February 24.9 21.9 20.1 24.1 24.9 21.9 20.1 24 1
March 21.5 19,0 20.0 20.9 21.5 19.0 20.0 20.9
April 19.7 18.9 20.4 19.5 19.7 18.9 20.4 19..5
May 22.4 20.5 23.8 22.0 22 4 20 5 23.8 22.0
June (Provisional) 20.9 20.2 23.0 20.8 20.9 20.2 23.1 208_
I/ Excluding rent.
2/ Including rent.
3/ Weights of 76.8%, 20.9% and 2.3% for lower, middle and upper Income groups respectively are
applied. They arc obtained from the 1982 Urban Household Budget Survey.
4/ Month on month.
Source: Central Bureau of Statistics.
- 198 -
Table 11.2c: NAIROBI CONSUNMER PRICE, INDICES
(Jan. June 1975 - 100)
Income Groups 1/ Incone Groups 2/
tY 1.M . Lower MiddMe Upper Ave. 31 Loawer Mide Upper Ave 31
1990 February 466.7 498.3 482.9 482.6 490.1 510.5 483.0 494.5
March 477.7 506.0 491.5 491.7 501.6 518.3 491 7 503.9
April 481.8 507.6 495.1 494.8 506.0 520.0 495.2 507.1
May 482.0 508.5 499.2 496.6 506.1 520.9 499.3 508.8
June 486.6 515.8 506.7 503.0 511.0 528.4 506.9 515.4
July 486.8 517.5 508.9 504.4 511.2 530.2 509.1 516.8
August 486.8 518.9 511.7 505.8 511.2 531.6 511.8 518.2
September 497.3 525.7 531.7 518.2 522.2 538.6 531.9 530.9
October 510.9 552.4 546.4 536.6 536.5 565.9 546.5 549.6
November 533.3 561.2 552.0 548.8 559.9 574.9 5 52.2 562.3
December 540.9 583.0 565.3 563.1 568.0 597.2 565.5 576.9
1991 January 540.9 583.7 567.1 563.9 568.0 597.9 567.2 577 7 !
February 542.2 586.7 572.3 567.1 590.3 601.0 572.5 587 .9
March 547.3 595.1 579.2 573.9 574.7 609.7 579.3 587.9
April 550.7 598.3 583.8 577.6 578.3 613.0 584.0 591 8
May 555.8 600.2 590.1 582.0 583.6 614.9 590.3 596.3 i
June 590.3 627.4 600.4 606.0 590.3 627.4 600.6 606.1
Memo Items:
Annual Average Increase (%) 4/
1991 February 16.2 17.7 18.5 17.5 20.4 17.7 18.5 18.9
March 14.6 17,6 17.8 16.7 14.6 17.6 17.8 16.7
April 14.3 17.9 17.9 16.7 14.3 17 9 17.9 16.7
May 15.3 18.0 18.2 17.2 15.3 18.0 18.2 17.2
June 21.3 21.6 18.5 20.5 15.5 187 18.5 17.6
1/ Excluding rent.
2/ Including rent.
3/ Simple average.
4/ Month on month.
Source: Central Bureau of Statistics.
- 199 -
Table 11.3: WAGE EARNINGS BY INDUSTRY AND SECTOR
1960 19t' 3912 196 1914 196. 1919 IePY l>
War EauWq 6641 7#I.t 30.3 95.2 J074.6 12323 13s j. ISitf J 21073 2556.
Agriculture and foreatry 60.3 68.3 67.5 74.8 82.7 91.9 107.4 1204 147.2 156.1 174.9
Mimng and quarrying 1.6 1.8 3.3 3.8 4.3 5.0 4.5 6.6 9.1 10.6 11.3
Manufacturng 106.1 122.2 136.1 149.4 168.7 188.2 212.8 245.4 274.1 306.8 345.1
Elecrncity and water 7.9 10.4 13.5 17.7 20.4 23.3 26.7 36.2 42.5 53.4 59.6
Constructiou 37.5 44.5 43.7 47.5 43.5 47.5 49.6 55.6 67.3 32.3 96.9
Traderesuiurants and hotels 71.6 81.7 87.1 99.9 116.5 131.3 149.3 186.7 214.2 247.0 232.0
Transport and communications 58.1 66.6 71.9 78.1 82.9 90.7 109.3 123.3 161.2 180.2 191.1
Finance and business services 62.0 73.7 80.6 88.6 108.3 128.3 148.8 179.4 200.2 227.1 264.4
Other sernlces 1/ 259.0 319.5 356.6 398.3 447.6 525.6 584.1 644.1 767.9 343.8 931.5
Private Sector 326.7 371.8 395.9 444.7 507.3 575.0 645.0 793.1 S92.5 1007.5 1152.3
Agriculture and forestry 37.0 41.3 41.6 47.5 54.4 61.6 72.0 83.0 91.9 99.5 115.4
Mning and quarrying 0.6 0.6 0.8 0.9 1.2 1.6 1.3 5.4 7.6 8.9 9.5
Manufacturmng 82.6 97.4 109.4 119.5 133.0 148.6 170.8 193.9 213.2 243.4 276.3
Eiectncity and water 0 1 0.2 0.2 0.1 0.0 0.0 0.0 0.3 0.3 0.4 1.0
I Construction 22.5 26.5 23.3 25.1 23.4 24.1 23.8 27.6 37.0 44.5 52.1
I Trade.restaurants and hotels 67.0 75.5 79.2 91.2 107.6 121.8 139.1 171.1 197.2 227.5 260.0
Transport and communications 22.5 21.4 25.4 28.3 29.2 32.8 33.9 37.7 51.3 62.6 72.7
Finance and business services 47.6 55.4 60.0 66.3 77.6 89.8 96.0 122.0 132.5 150.7 174.4
IOther services 1/ 46.9 53.6 56.1 65.9 80.9 94.7 108.1 147.1 156.5 170.0 191.4
Public Sector 2/ 337.3 416.9 464.4 513.5 567.5 657.3 748.5 804.6 991.2 1099.8 1204.0
Memo Items:
Av. Wage Earmings Per Employee 660.3 770.0 822.4 876.4 960.1 1049.3 1136.0 1243.0 1403.4 1535.0 1674.2
Public Sector 715.3 861.2 918.5 972.9 1048.1 1143.7 1235.6 1282.5 1500.9 1604.1 1735.1
Pnvate Sector 611.7 688.2 732.5 786.4 877.7 958.8 1038.8 1205.3 1309.0 1466.1 1615.0
Note Wage anungsi L ildlons of Kenya Pounds
Average wage eanrnigs per employee i Kenya Pounds.
I/ Commuaiysocil and personal services
21 Sec Staulica! Appendix Table 5.8 for detls.
Source Central Bureau of Stanstici. Economic Survey, various lsauc.
Table 11.4: NOMINAL AND REAL WAGES
(Kenya Pounds per Year)
Pwov.
*9&| 1981 1982. 198~ 1984 1985 1986 1987 19S9 19S9 1990
O>O3 fl020 7Z..4 fl'6,4 960.1 '0493 1136.0 1243.0 1403.4 153 1642
Privam sector 611.7 688.2 732.5 786.4 877.7 958.8 1038.8 1205.3 1309.0 1466.1 1615.0
Public sector 715.3 861.2 918.5 972.9 1048.1 1143.7 1235.6 1282.5 1500.9 1604.1 1735.1
_ >:;$AZ 4 317.2 3125$ : 3Z1,. 327.6 334.4 330,$* 320.1
PTinad sector 346.1 346.0 301.6 282.9 289.9 285.5 290.4 317 6 312.1 315.7 308.9
Public sockw 404.9 433.0 387.1 350.1 345.3 340.6 354.4 34j.o 357.4 345.5 331.6!
Memo Items:
Peren change in
Cousmer prices 1/ 12.8 12.6 22.2 14.5 9.1 10.7 5.6 7.1 10.7 10.6 12.6
Realaverage canings 0.9 1.2 -10.4 -6.9 0.6 -1.5 3.0 1.8 2.1 -1.2 -3.1
1/ Composit index of Nairobi lower, middle and upper income indices calculated as an
xverage of the indices for all 12 months.
Source: Cental Buau of StatiJs, Economic Survey, various issues.
- 201 -
Technical Notes
Overview
1. The data in this Appendix is mainly in calendar year with coverage frorn 1980 to 1990
(exceptions are Tables 2.8, 4.1, 5.1 to 5.6, 7.5,7.7, 9.3, 9.6, 1 1.2b and 11.2c). Main sources of data
are the following two publications of Central Bureau of Statistics (CBS): Economic Survey and Statistical
Abstract, supplemented by International Monetary Fund (IMF), International Financial Statistics (IFS);
World Bank, Debtor Reporting System (DRS); National Cereals and Produce Board (NCPB); Ministry
of Supply and Marketing; Tea Board of Kenya; Coffee Board of Kenya; Kenya Power and Lighting Co.
and staff of both CBS and Research Department of Central Bank of Kenya.
2. In compiling the series, the conventions followed are:
(i) Use of the most re .;nt publications to obtain and/or revise all data,
(ii) Use of a single source (whenever possible) for data or, the same subject.
3. The Government of Kenya (GOK) has detailed the methodology for compiling data for:
(i) Value added by industrial origin;
(ii) Public consumption;
(iii) Gross capital formation; and
(iv) External accounts, in the 1977 CBS publication, Sources and Mlethods
Used for the National Accounts of Kenya.
4. Later, CBS reviewed the economic concepts, sources of information used and mode of
presentation of statistics in the Economic Survey and Statistical Abstract. The review has been completed
for public finance and balance of payments data. Some of the recommendations have been introduced
and revisions were made to the data from 1981 onwards. The details of these revisions are documented
and published in the 1987 edition of the Economic Survey.
5. Indices and constant prices are reported with 1982 as base year while values are given in Kenya
pounds. Selected values shown in US dollars were converted from local currency using the average
exchange rate provided and used by the officials at the Central Bank of Kenya (see rates in Table 3.2).
These rates may differ slightly from those in IFS due to different treatment of weekends in the
calculations.
-202 -
Population and Employment
Tables 1.1 and 1.2
6. Demographic analysis and internal consistency checks revealed that the 1979 population census
had an under-enumeration of population estimated at 814,000 persons who are included in the 1979 total
population figure reported in Table 1. 1. This under-enumeration of 1979 population is not disaggregated
by sex and age.therefore the working age population (Table I. ) as well as the
decomposition (f population by sex (Table 1.2) exclude this group.
7. The population projections assume a decline in both fertility and mortality over the period. The
fertility rate is assumed to fall from 7.887 in 1979 to about 5.5 by the end of the century. Mortality
projections are based on 1980 estimates of life expectancy of 54.1 years for males and 56.9 years for
females, and an infant mortality rate of 92 deaths per 1,000 live births. By 2000, the life expectancy of
males is projected to be 58.8 years and 61.5 for females, while the infant mortality rate is expected to
be 60 deaths per 1,000 live births. Life expectancy indicates the number of years a newborn infant would
live if patterns of mortality prevailing (for all people) at the time of birth were to remain the same
throughout the infant's life. Infant mortality rate is the number of infants who die before reaching one
year of age, per thousand live births in a given year.
8. Provisional results of 1989 Population Census show a figure which is 9% below the projected
1989 population. The projections were based on 1979 data which (a) included the under-enumeration of
the population stated in paragraph 6 above and (b) assumed a moderate decline in fertility and mortality
rates (see above paragraph). However, 1989 Kenya Demographic and Health Survey shows significant
declines in fertility and mortality. In actual fact, total fertility rate has declined from 8 children per
woman aged 49 years and above in 1979 to 6.7 children in 1989 compared to the projected figure of 7
children.
Table 1.3
9. Wage employees include casual employees, part-time workers, directors and partners serving on
a regular basis salary contract. Self-employed persons, employees in small scale enterprises and family
workers who do not receive regular wages or salaries are listed separately.
National Accounts
10. The accounts cover production of all enterprise activities in the monetary economy as well as
production in the non-monetary economy if the activity corresponds to one undertaken commercially in
the monetary economy. The non-monetary economy is one in which, even though a proportion of inputs
are purchased from the monetary economy, the output is not sold using money as a medium of exchange.
The benchmark data for the non-monetary economy was 1972 and since then, a grossing-up factor is used
to obtain annual sectoral estimates. In editions of the Economic Survey published before 1987, the non-
monetary economy was called the traditional economy. Gross Domestic product (GDP) by industrial
origin is measured at factor cost while GDP by expenditure is calculated at market prices.
- 203 -
Tables 2.), 2.2& 2.7
11. The aggregation on non-monetary and monetary economy is as follows:
Agricultur - Agriculture, Forestry and Fishinig.
Industry - Mining and Quarrying; Manufacturing; Building and Construction; Water Collection;
Electricity and Water.
Services - Trade, Restaurants and Hotels; Transport, Storage and Communication; Finance and
Business Services, Ownership of Dwellings; Domestic Services; Government Services; Other
Services; and Imputed Bank Service Charges.
Value added in tourism is captured in several sectors, for example, in Trade, Restaurants and
Hotels; and in Other Services.
Tables 2.3 & 2.4
12. The statistical discrepancy arises when the components of Gross Domestic Product are estimated
independently by industrial origin and by expenditure categaries.
Tables 2.4
13. Capacity to Import is defined as the current price value of exports of goods and nonfactor services
deflated by the import price index. Terms of Trade Adiustment is capacity to import less actual exports
of goods and nonfactor services in constant prices. Gross Domestic Income is GDP plus Terms of Trade
Adjustment. Gross National Income is Gross Domestic Income plus Net Factor Income.
Tables 2.5 & 2.6
14. The aggregation of gross fixed capital formation is as follows:
Agriculture - Agriculture and Forestry
Industry - Mining and Quarrying; Manufacturing; Electricity and Water; Construction.
Services - Trade, Restaurants and Hotels; Transport and Communication; Finance and Business
Services; Ownership of Dwellings; Government Services; and Other Services.
Tables 2.7
15. Deflators are constructed at the detailed subsectoral level in the Central Bureau of Statistics,
except for Finance and Private Consumption which are implicit deflators.
- 204 -
Table 2.8
16. Data coverage is from 1977 to 1990. The moving average Incremental Capital-Output Ratio
(ICOR) in year t is defined as follow:
3-Year Moving Average ICOR, = 1/3 (ICOR.,, + ICOR, + ICOR,,1)
5-Year Moving Average ICOR, = 1/5 (ICOR,.2 + ICOR,. + ICOR, + ICORt1 + ICOR,.2
Balance of Payments
Tables 3.1 & 3.2
17. Merchandise imports data for years prior to 1981 are reported only at c.i.f. values. In these
cases, an estimate of 86.2% of this value is used as the f.o.b. value.
Tables .1.3
18. Horticulture includes flowers, fruits, spices and vegetables.
Tables 3.3 & 3.4
19. Data excludes gold and currency but includes re-exports.
Table 3.10
20. Totals for nonfactor services are derived residually.
Tables 4.1 to 4.3
21. Data is from the World Bank, DRS which collects external debt data from member countries.
Debt outstanding includes principal in arrears. Interests in arrears is included in short term debt.
22. Data coverage for Table 4.1 is the stock of debt at December 31, 1990.
Table 4.4
23. Net use of Fund credit does not equal purchases minus repurchases since all purchases do not
constitute a use of Fund credit.
Public Finance
24. The public finance data are on a fiscal year basis. Fiscal accounts presented by the IMF may
differ from the official accounts shown here due mainly to adjustments made in their data to reflect
unpresented checks.
- 205 -
Tables 5.1 to S.5
25. Data coverage is for the period 1979/80 to 1990/91 (where 1979/80 fiscal year begins on July
1, 1979 and ends on June 30, 1980) and pertains to Central Government only.
Table S.2
26. The statistical discrepancy line is introduced to impose consistency with total revenue data in
Table 5.1.
Table 5.6
27. Fiscal year data is from 1985/86 to 1990/91. Prior to 1985/86, data was reported in calendar
year only. Calendar year data is given here for 1980 to 1984.
Table 5. 7
28. The statistical discrepancy line is introduced to impose consistency with the relevant totals in the
National Accounts.
Monetary Statistics
Table 6.1
29. Money comprises the economy's means of payment and includes currency outside banks and
demand deposits (including call and 7 day deposits). This differs from the definition used by IMF.
Quasimoney comprises time and savings deposits. Time deposits bear interest and cannot be withdrawn
instantly without penalty or loss of interest earnings. Savings deposits earn interest and can readily be
exchanged for money.
Table 6.2
30. This table shows the change in year end values.
Table 6.4
31. These nominal interest rates are representative of the rates paid by financial institutions in Kenya
to holders of their quasi-monetary liabilities (i.e. deposit rates) and charged by these institutions on loans
to prime customers (i.e. lending rates). As of 4/90, interest on loans and advances greater than 3 years
is 19%.
Agriculture Sector
Table 7.3
32. Generally, small farms are between 0.2 and 12 hectares in size, while the average size of large
- 206 -
farms is over 700 hectares.
Table 7.4
33. Average prices are for calendar year and may differ from those based on crop years. In the case
of tea and coffee, the prices are for made tea and processed COffee respectively.
Table 7.5
34. Data coverage is for fiscal years 1979/80 to 1989/90.
Table 7.7 s
35. Coverage is for agricultural years 1979/80 to 1989/90. Coftee year 1979/80 begins October 1,
1979 and ends September 30, 1980.
Manufacturing Sector
Table 8.1
36. Value added data for this sector differs from that in National Accounts because "Processing of
Tea" is included here, while it is classified under "Agriculture" in National Accounts.
Energy Sector
Table 9.3
37. Data coverage is 1980 to 1985; January to June 1986 and fiscal years 1987 to 1990. Fiscal year
1987 ends on June 30, 1987.
Table 9.6
38. Dates of effectiveness of the prices range from April 1984 to September 1990.
Other Sectors
Table 10.1
39. Students comprise the major part of visitors categorized as Other.
Prices and Wages, n.e .
- 207 -
Tables 11.1, 11.2a & 11.2c
40. Calculations of Nairohi consumer price indices use the follmAing income groups which were
based on the results of 1974/75 Urban Household Budget Survey:
Lower - Households with monthly earnings below KnSh 699.
Middle - Households with m(onthiv earnings between KSh 700 and KSh 2,499.
Upper - Households with monthly earnings of KSh 2,500 and above.
Table 11.2b
41. Calculations use the following income groups which were based on the results of 1982 Urban
Household Budget Survey:
Lower - Households with monthly earnings below KSh 1999.
Middle - Households with monthly earnings between KSh 2,000 and KSh 7999.
Upper - Households with monthly earnings of KSh 8,000 and above.
Table 11.2b & 11.2c
42. Monthly coverage is from February 1990 to June 1991.
Table 11.3
43. See Statistical Appendix Table 1.3 for the pertinent employment data.
Table 11.4
44. See Statistical Appendix Table 11.2a for the relevant price index.
S JD A N 3I
) F..Won. &dtO~A ."O N
Li/
EVy.SpkqO _ /
I~~~~~.~
UGANDA
I ~~~~~~~~~~~~~~~~~SOV~ALIA
(~~~~~~~~~~~~~~~EO
O C EA N
AFOI (AICCC NCI ,r
~~~~~~~~~~~~~~~~~~~WE ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~NtOO COI
I - - . - SECC'.A - T C, -d ON
Z _ __ _ __ _ __ _ __ _ __ _ _ tN z0
C ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~P. -.i