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Sectoral Overview

The economic reforms initiated by the NARC Government under the framework paper “Economic Recovery Strategy Paper 2003-2008” have began to yield positive results. The economic indicators show that real GDP expanded by 4.3 per cent in 2004, compared with 2.8 per cent in 2003. Central Bank of Kenya (CBK) analysis, economic activities in Kenya have picked momentum with marked growths in tourism and transport and communication. The economic growth is also strongly supported by significant expansion in export sector, especially horticulture and tea and in the expansion of the private sector credit occasioned by low interest rates. The real GDP growth is anticipated to accelerate to 5 per cent in 2005 and to achieve the projected level of 7 per cent by 2007.

This bright outlook is hinged on sustained good performance in tourism, planned investments in infrastructure, particularly roads and telecommunication and manufacturing sector which is expected to continue benefiting from the extension of (AGOA) Act to 2007. In addition, Kenya being the hub of East and Central Africa it stands to reap from the peace dividend both in Sudan and Somali through reconstruction efforts and trade and investment. To consolidate this recovery the Budget Strategy Paper has outlined measures for implementation that includes putting in place macro-economic policies supported by structural reforms in areas such as public expenditure and financial sector, and the parastatal sector. Also high on the reform agenda is the strengthening of institutions for promoting good governance the rule of law and an enabling environment for private sector development.

Sectoral Priorities

Agriculture and Rural Development

This sector remains the most important vehicle for reducing poverty and eliminating hunger. The government has taken a number of measures to improve the performance of agricultural sector including capitalization of Agricultural Finance Co-operation revival of farmers’ institutions that are key to agricultural growth and strengthening of agricultural research extension services through the implementation of the Kenya-Agricultural Productivity Project supported by the World Bank. The government will further strengthen the sector through the implementation of policies contained in the Strategy for Revitalization of Agriculture (SRA). The strategy will help to transform the sector into a profitable and competitive activity by improving productivity in coffee, cotton and pyrethrum sub-sectors Focus is also being directed towards improving livestock keeping particularly in arid and Semi-Arid areas (ASAL)


The tourism sector has been the backbone of the country’s economic recovery, with an increase of 51.9 per cent in revenue earnings in 2004 compared to previous years. This growth is attributed to the intense marketing strategy targeting the emerging opportunities in Asia. The United States market has also shown a remarkable growth in the number of tourists visiting Kenya despite the travel advisory by the State Department.

Education Reform

The Government of Kenya introduced free primary education in January 2003 and the programme is now firmly on course. Over one million children joined the programme and thereby stretching the government resources. Today Kenya spends about 28 per cent of total government expenditures on education and will continue to give priority to this sector in the quest to achieve the Millennium Development Goals. The education reforms have equally been extended to university education. Kenya has six public universities and private universities with a student population of approximately 40,000. The main challenge is to promote the quality of university education to be globally competitive. The universities are also being prepared to become more self-reliant and to reduce their dependence on the exchequer.


The government is fully focused on achieving universal health for Kenyans under the Millennium Development Goals. Towards this goal, the government will raise spending on healthcare by 30 per cent in FY 2005/2006, and thereby increase the sector’s share of total government expenditure from 8.6 per cent to 9.9 per cent in FY 2005/2006. This share will rise to about 11 per cent by FY 2007/2008. The increased level of funding will enable the government address most of the challenges facing the health sector, including increasing immunization coverage reducing child and maternal mortality rate, reducing malaria in-patient mortality, put in place strategies to reduce HIV/AIDS prevalence and improve access to affordable drugs, improve health service delivery through decentralization of health care services and increase expenditure on preventive and basic health services.

Infrastructure Development

The government accords priority to infrastructure sector to facilitate rapid economic growth. The immediate challenge facing the sector includes mobilizing resources for maintenance, rehabilitation and expansion of road network, decongestion of the parts and lowering the cost of energy. In addition to public sector the government will encourage the participation of private sector in supporting the infrastructure programs. This would be facilitated by strengthening the legal, institutional and regulatory capacity of the agencies responsible for infrastructure development, especially the roads sector.

Air Transport

The government has directed efforts to make Nairobi the regional hub for air transport by improving security and airport facilities. A major modernization programme for Jomo Kenyatta International Airport is on-going and the government is exploring the potential for public private sector partnership in the development and management of international airports.


The energy sector is critical for the performance of the economy and electricity supplies have been inadequate and expensive thereby increasing the cost of production. The reforms in energy sector and new investments in energy sources such as geo-thermal will ensure power supply is adequate and reliable.

Water and Sanitation

The provision of clean, and safe water for all Kenyans is an important objective of the government. With this in mind, Kenya has implemented structural reforms to make water and sanitation services autonomous. The government also plans to enter into partnership with community-based organizations to expand services to the urban poor and rural communities.

Information, Communication and Technology

The government has also embraced information and communication technology and access to market information. In this regard, efforts have been put to facilitate the ICT through development of appropriate policy and legislation.

Port Service

The port of Mombasa remains an important regional gateway. To maintain its competitive edge, the government of Kenya has accelerated reforms to convert it to a landlord point in line with the master plan for the Port. This will facilitate further private sector participation in areas such as container terminal, bulk handling and conventional cargo.

Railway Service

To improve the rail services, the government of Kenya is undertaking a joint process with Uganda to concessioning the Kenya and Uganda Railways to be completed by December 2005. The government will also in partnership with private sector explore the possibility of constructing railway links between Kenya and Ethiopia.

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