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Kenya Economy - Agriculture & Energy

Agriculture

"Tea, coffee and horticulture top Kenya’s agricultural performance"


Following two decades of slow performance, Kenya’s economy is on the upswing, with the country’s growth rate climbing from 2.8 percent in 2003 to approximately six percent in 2006. Kenya’s Gross Domestic Product (GDP) is estimated to have been $20.77 billion in 2006, up from $16.1 billion in 2004.

Agriculture, accounts for 24.5 per cent of the Gross Domestic Product (GDP), and has expanded by 0.7 per cent within the year to July 2000 relative to 1.2 per cent in 1999. The agricultural sector has recorded a continued decline in performance which is attributed mainly to the prolonged drought, tribal clashes that affected some parts of the country, power rationing, low prices of commodity and high cost of inputs.

The El Nino rains during the first half of the year 1998 boosted the production of tea, sugarcane, maize and wheat while most crops recorded significant price increases. This led to an improved performance in the Gross Domestic Product of the sector in 1998. The second part of the year 1998 saw a decline in the performance of the agriculture sector due to the drought that followed the El-Nino rains.

In 2003, President Mwai Kibaki and his government launched the Economic Recovery Strategy for Wealth and Employment Creation initiative, which includes an agricultural component. By 2005, the agricultural sector had recorded a 6.7 percent growth, mainly as a result of improved earnings from the production of horticultural crops, cereals, tea, sugarcane and dairy goods.

Agriculture propels Kenya’s economy

Agriculture remains the engine of Kenya’s economic growth, accounting for 27 percent of real GDP, 60 percent of the country’s total export earnings, and 45 percent of government revenue. Some 75 percent of Kenyans are employed in the agricultural sector.

But the proportion of Kenya’s economy that relies on agriculture is relatively small compared to its East African Community neighbours. In Uganda, agriculture accounts for 42 percent of GDP. Rural families rely on food crops for their chief source of income. Coffee is the major cash crop, making up approximately 40 percent of export earnings. In Tanzania, agriculture accounts for 50 percent of GDP, 85 percent of exports and employs 90 percent of the workforce. Tanzania’s key exports are coffee, cotton and cashew nuts.

In Kenya, coffee, tea, sisal, pyrethrum, maize and wheat are grown in the highlands on small scale farms. In lower lying areas, coconuts, pineapples, cashew nuts, cotton, sugarcane, sisal and maize are cultivated. In addition – as cattle graze on Kenya’s vast savannahs – dairy products, pork, poultry and eggs are produced. Other cash crops in Kenya include beans, peas, peanuts, carrots, kale, mangoes, passion fruit, sorghum, millet, onions, tomatoes and potatoes.

The horticultural industry is one of the fastest growing agricultural subsectors, contributing more than 10 percent of total agricultural production and employing approximately 2.5 million people in 2005. A major player in this field is Homegrown, a company set up in Kenya and registered as Flamingo Holdings in the UK. The company has been providing flowers and vegetables to the UK market for the last 22 years. Its constant expansion means that it now sells in excess of 30’000 tonnes every year. In the lucrative flower industry, each day the company overseas the picking of 400’000 stems of roses and 400’000 stems of other flowers, which are then put into cold storage before being flown to the UK. More than 1 million bouquets per week end up on the shelves of chains such as Marks & Spencer and Tesco among others.

The big winners in the agricultural export sector are tea, coffee – including Arabica – and horticultural products, such as beans, avocados and flowers. These are only second to tourism as the country’s largest foreign exchange earner. In 2005, 349’083 metric tonnes of horticultural products earned Kenya $584 million, followed by 349’738 metric tonnes of tea fetching $566 million, and 50’019 metric tonnes of coffee earning $131 million. One major coffee exporter is C. Dormans Ltd, a private company that helps small-scale coffee farmers improve quality and receive higher prices. The company is a major buyer of East African coffees and export over 250’000 bags of green coffee every year. Dormans also operates Kenya’s leading roasting operation, which processes 10’000 to 15’000 bags of green coffee per year.

Countries that are major importers of Kenyan agricultural products include Uganda, Tanzania, the UK and Netherlands. Kenya has a significant presence in the EU. For instance, Kenya is Europe’s largest supplier of flowers, providing approximately 25 percent of flower imports to the EU. Also, Kenya is the largest flower exporter globally and produces 70 percent of the world’s pyrethrum, a flower that contains a substance used in pesticides. Kenya’s major agricultural imports are wheat, rice and fertilizers. In 2005, Kenya imported 550’000 metric tonnes of wheat and 175’000 metric tonnes of rice.

Bright future for agriculture predicted

Most importantly, officials are optimistic about the agricultural sector’s future. SAR seeks to raise agricultural sector growth to an average of 5 percent per year after 2007. The horticultural industry is projected to grow 4.3 percent per year up to 2008.
Also, there are manifold opportunities for investment in the Kenyan agricultural sector. These include on-farm and off-farm agro-processing, contractual farming arrangement between small scale farmers and agri-businesses, and the diversification of crops for export. In the flower sub-sector, exports can be expanded from primarily roses to other goods, such as summer flowers, and producers can diversify their bouquet lines and increase the shelf life of their flowers. Officials have furthermore expressed the desire to tap into markets in the EU accession countries, such as Poland, Hungary, the Czech Republic, Slovakia and Slovenia.

Energy

The largest share of Kenya’s electricity supply comes from hydroelectric stations at dams along the upper Tana River, as well as the Turkwel Gorge Dam in the west. A petroleum-fired plant on the coast, geothermal facilities at Olkaria (near Nairobi), and electricity imported from Uganda make up the rest of the supply. Kenya’s installed capacity stood at 1,142 megawatts a year between 2001 and 2003.

Kenya’s total petroleum import bill increased from K£ 478 million in 1991 to K£ 609 million in 1992 which was a 27% increment. The quantity of imported petroleum increased to 2,235 thousand tonnes while that exported was 649 thousand tonnes. The generation of electricity during the same year fell leading to high demand for electricity thereby causing power rationing in some parts of the country.

The state-owned Kenya Electricity Generating Company (KenGen), established in 1997 under the name of Kenya Power Company, handles the generation of electricity, while the Kenya Power and Lighting Company (KPLC), which is slated for privatization, handles transmission and distribution. Shortfalls of electricity occur periodically, when drought reduces water flow. In 1997 and 2000, for example, drought prompted severe power rationing, with economically damaging 12-hour blackouts. Frequent outages, as well as high cost, remain serious obstacles to economic activity. Tax and other concessions are planned to encourage investment in hydroelectricity and in geothermal energy, in which Kenya is a pioneer. The government plans to open two new power stations in 2008, Sondu Miriu (hydroelectric) and Olkaria IV (geothermal), but power demand growth is strong, and demand is still expected to outpace supply during periods of drought.

Kenya has yet to find hydrocarbon reserves on its territory, despite several decades of intermittent exploration. Although Australia continues the search off Kenya’s shore, Kenya currently imports all crude petroleum requirements. Petroleum accounts for 20 to 25 percent of the national import bill. Kenya Petroleum Refineries—a 50:50 joint venture between the government and several oil majors—operates the country’s sole oil refinery in Mombasa, which currently meets 60 percent of local demand for petroleum products. In 2004 oil consumption was estimated at 55,000 barrels a day. Most of the Mombasa refinery’s production is transported via Kenya’s Mombasa–Nairobi pipeline.

Last Updated on Tuesday 24th November 2009

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