Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product i.e. real GDP. In Kenya the key main sectors to achieve economic growth are agriculture which is the mainstay economic growth drivers, energy sector, manufacturing and industry, service sector which is mainly tourism, financial services and banking and also the private sector. All of these sectors are in line with the Kenya Vision 2030, the economic pillar. The key sectors are as discussed below:
1. AGRICULTURE: Agriculture has been the key factor of economic growth of Kenyan economy. It continues to be the key factor that will drive the economic growth of Kenya as it contributes to about 24% of Growth Domestic Product. And for this reason the government should increase budgetary allocation to the agricultural sector up from the Kshs 53.5 billion allocated in National Budget 2012/201 so as to be in line with the Maputo Declaration which requires the budget allocation to agriculture to be atleast 10% of total Government budgets and The government should also subsidize the farm inputs such as fertilizers for the farmers, this will maximize production. Livestock farming also has to be considered.
If the government increases funding to the agricultural sector, such occurrences as food shortages, seasonal inflation and unemployment would be curbed if not avoided. Agricultural sector which includes; •Livestock sector and dairy farming: The livestock sector provides employment opportunities while also increases income. Kenya exports from hides and skins for leather industry earned Kshs 4 billion. Also reforms need to be made on the Kenya Meat Commission. •Fisheries: Kenya earns around Kshs 4 billion from this sector. The sector also employs about 60000 people and also over half a million people depend on this sector for livelihood through trading and fish processing thus thee number of fish processing plants should be increased.
2. TOURISM SECTOR: The service sector of Kenya contributes 63% of Growth Domestic Product and it’s mainly tourism industry which is the country’s principal source of foreign exchange thus the government. The tourism industry along with the government has to take steps to address the security problem and to reverse negative publicity especially after the post-Election Violence of 2007 following disputed General Elections. Such steps among others should include establishing a tourist police and launching marketing campaigns in key tourist origin markets. Former minister of Tourism Najib Balala ran such campaigns in CNN.
3. ENERGY SECTOR: The energy sector an important sector to drive the smooth growth of the economy hence there is need for the Government to put up measures that would help the sector to grow thereby, contributing to the growth of the economy as the sector is depended on by manufacturing and industrial sector and also the agricultural sector. There exists limited power generation and transmission capacity in the country. This is caused by lack of adequate investment in power systems and infrastructure development.
This combined with rapid economic growth, new customer connections and unreliable rainfall patterns have caused the current electricity shortage in Kenya. Though Kenya is not natural resource endowed, the natural resources the country can boast of for energy generation are small hydro, geothermal, coal, biogas, tidal waves, solar, wind and recently the oil exploration in Turkana. The government needs to invest heavily in the energy sector so that there is no over reliance on Hydro power. The government should implement a policy to attract private sector investments in the energy sector i.e. the Kenya Private Sector Power Generation Support Project. In doing so it will boost economic growth and in job creation.
4. INDUSTRY AND MANUFACTURING SECTOR: Kenya boast of being the industrialized country in East Africa, the manufacturing sector contributes to about 15% of Growth domestic Product, this percentage doesn’t as the manufacturing sector is hampered by high energy costs, shortages of hydro telemetric power, poor infrastructure and counterfeits products i.e. cheap imports. Industrial and manufacturing sector has become increasingly significant to Kenya economy due to increased urbanization. Most industrial plants are located in urbanized towns which has led to the reason Kenya has three cities i.e. Nairobi, Mombasa and Kisumu; they include food-processing industries such as grain milling, beer production, and sugarcane crushing. These plants contribute significantly to national income as well as generate employment. Also the oil refinery which processes imported crude petroleum into petroleum products, mainly for the domestic market. In addition, a substantial and expanding informal sector engages in small-scale manufacturing of household goods, motor-vehicle parts, and farm implements.
5. FINANCIAL SECTOR AND BANKING: Kenya is East and Central Africa’s hub for financial services. Most of the banking institution and other financial services firms are located in the urban centres as it is considered that urban people have higher income which is not the case, thus innovation and opening of banking sectors should be put in place in rural areas. Such innovations includes mobile banking which where now rural populations have daily access to financial services as most people now own mobile handsets. MPESA is the widely used mobile banking, it is estimated that MPESA has given access financial services to about 75% of the people. Government thus needs to encourage other mobile money transfers such as Tangaza, Yu cash, and Airtel money. In doing so it will create a competitive environment and thus many people will get access to the financial services. The Nairobi Stock Exchange (NSE) ranks fourth in Africa in terms of Market capitalization.
Stock markets provide market liquidity that enables implementation of long term projects with long term payoffs thereby promoting a country’s economic growth. Moreover, efficient capital markets not only avail resources to investors, they also facilitate inflow of foreign financial resources into the domestic economy. Government needs to institute reforms in the financial sector as capital market development is an important component of financial sector development and supplements the role of the banking system in economic development. Capital markets assists in price discovery, liquidity provision, reduction in transactions costs, and risk transfer.