Agriculture plays an important role in Kenya’s economy. Although its share of gross domestic product (GDP) has declined—from more than two-fifths in 1964 to less than one-fifth in the early 21st century—agriculture supplies the manufacturing sector with raw materials and generates tax revenue and foreign exchange that support the rest of the economy. Moreover, it employs the majority of the population.

In the first years after independence, the government sought to redistribute the land on which most of the agricultural exports were produced. Although there are now thousands of large farms, ranches, and plantations, the majority of the farms are smaller than five acres (two hectares). Tea and fresh flowers are the key foreign-exchange earners. Sisal, cotton, and fruits and vegetables also are important cash crops. Coffee, historically an important foreign exchange earner, still contributes to the economy but began declining in importance and earnings in the 1990s, owing in part to market instability and deregulation. Kenya supplies the majority of the pyrethrum (a flower used to create the nonsynthetic pesticide pyrethrin) to the world market; demand for this product fluctuates depending upon the level of interest in the United States, which is the largest consumer of this commodity. National boards that controlled key export crops such as coffee, tea, and cotton were deregulated beginning in the early 1990s.

The major crops for domestic consumption are corn (maize) and wheat. Sugarcane was an export crop in the 1970s and ’80s, but by the ’90s domestic demand exceeded the supply, and it had to be imported. Livestock (including cattle and goats) is raised and dairy goods are produced primarily for domestic use, and the government maintains a reserve supply of such commodities as skim milk powder, cheese, and butter. Surplus animal and dairy products are exported.

Despite the importance of agriculture to the economic well-being of the country, the lack of water, infrastructure, and arable land (less than one-tenth of Kenya can be used for agriculture) seriously constrains further expansion. Although the government has made efforts to increase irrigation, it is estimated that only one-fifth to one-fourth of potentially irrigable area has been developed.

Forests occupy only a small portion of the land but are extremely important in the domestic economy. Most of the area of forest reserves is wooded bush, bamboo, and grass; the remainder consists of planted softwoods, which now support a domestic paper industry. Forests are vital for conserving Kenya’s soil and water resources, but they are increasingly threatened by a fast-growing population that constantly demands more fuel and settlement areas. As fuel, wood is used primarily for domestic cooking, but deforestation threatens the supply. A tree-planting program has been initiated to grow quick-maturing indigenous and exotic species in ecologically suitable areas.

Fish and marine products represent a small but growing portion of Kenya’s economy and are locally important. Freshwater fish from Lakes Victoria and Rudolf constitute the bulk of the catch. The encroaching water hyacinth on the surface of Lake Victoria threatened this fishery in the 1990s, although this nuisance was countered by several strategies, including the introduction of weevils into the environment. Most of the weed has been successfully eliminated, although the potential for a resurgence remains.

Resources and power

Soda ash (used in glassmaking) is Kenya’s most valuable mineral export and is quarried at Lake Magadi in the Rift Valley. Limestone deposits at the coast and in the interior are exploited for cement manufacture and agriculture. Vermiculite, gold, rubies, topazes, and salt are also important, as is fluorite (also known as fluorspar and used in metallurgy), which is mined along the Kerio River in the north. Deposits of titanium- and zirconium-bearing sands were found in multiple locations northeast of Mombasa and to the south of the city. Exploration for petroleum has so far met with limited success.

Kenya’s economic development has been tied to its ability to improve energy resources. The emphasis since independence has been on producing hydroelectricity, but access to energy is limited in rural areas, since the bulk of electricity is consumed by the two major urban centres of Nairobi and Mombasa. There are hydroelectric plants located on the Tana and Turkwel rivers. Geothermal resources in the Rift Valley have been tapped since the early 1980s to generate electricity and have come to supply a significant amount of Nairobi’s total needs. While the expansion of generating capacity continued through grants from the International Monetary Fund and the World Bank, a severe drought occurred in the northwest part of the country at the end of the 20th century. This led to blackouts that continued into the beginning of the 21st century.

Manufacturing

Kenya is the most industrially developed country in East Africa, but it has not yet produced results to match its potential. Manufacturing is based largely on processing imported goods, although the government supports the development of export-oriented industries. Major industries include agricultural processing, publishing and printing, and the manufacture of textiles and clothing, cement, tires, batteries, paper, ceramics, and leather goods. Assembly plants, which utilize imported parts, produce various kinds of commercial and passenger vehicles and even export a small quantity to other African countries such as Uganda, Tanzania, Rwanda, and Burundi.

Steel processing for reexport and for the construction industry is a growing sector, with about a dozen steel mills in operation. The petroleum industry, which was deregulated in 1994, produces diesel and jet fuel from imported crude oil at a refinery near Mombasa and provides a major source of foreign exchange.

Finance and trade

The state-run Central Bank of Kenya, established by legislation in 1966, regulates the money supply (the monetary unit is the Kenyan shilling), assists in the development of the monetary, credit, and banking system, acts as banker and financial adviser to the government, and grants short-term or seasonal loans. There also are a large number of commercial, merchant, and foreign banks in Kenya. The Nairobi Stock Exchange, founded in 1954, is one of the largest in sub-Saharan Africa.

Agricultural products such as tea, fresh flowers, fruits and vegetables, and coffee constitute the greatest proportion of Kenya’s exports. The remainder of the exports consists of petroleum products, cement, hides and skins, and soda ash. Imports include machinery and transport equipment, chemical products, petroleum and petroleum products, and food and beverages. Among Kenya’s chief trading partners are India, China, Uganda, and Pakistan. Kenya is a member of the East African Community Customs Union.

Services

Kenya is home to some of the rarest and most interesting species of wildlife in the world. Because of this, tourism is one of the country’s major sources of foreign exchange, with visitors coming largely from countries of the European Union. Tourism revolves around a basic framework of national parks, game reserves, and game sanctuaries, where a wide variety of animals and cultural attractions can be enjoyed. The number of tourists began to vary annually in the early 1990s, however, following a period of political unrest and attacks on tourists, and again in the early 2000s, owing partially to the threat of terrorism.

Labour and taxation

Following agriculture, the next largest employment sectors are trade- and service-related industries. Women perform most of the agricultural work, but they participate largely in the informal sector of the economy. The Central Organization of Trade Unions was founded in 1965. Many professions are unionized, including metal workers, airline pilots, game hunting and safari workers, jockeys and betting workers, journalists, and textile workers. Government revenue is derived from taxes on income and profits and on goods and services, from excise duties, and from value-added taxes.