Kenya is an Eastern African country that is bordered by Ethiopia, South Sudan, Uganda, Somalia, Tanzania, and the Indian Ocean. According to GlobalEDGE (n.d.), its economic system is a mixed one; that is, it includes various forms of private freedom alongside government regulation and centralized economic planning.
While Kenya has no absolute advantage in any area of international trade, there is plenty of comparative advantages it possesses in services production, exporting more services than other nations with similar development levels. The reason why it has such advantages is that compared to these other nations, Kenya ranks higher in financial market development, labor market effectiveness, and innovation area (GlobalEDGE, 2019). Kenya benefits from these advantages because they contribute to its economic growth and, in turn, to its wealth and the wealth of its population.
The country is one of the leaders in producing and exporting services in sub-Saharan Africa (SSA). As per The World Factbook (2022), SSA is a major provider of services to the East African Community (EAC), which, apart from Kenya, includes such countries as Tanzania, Rwanda, Burundi, and Uganda. Kenya is considered to be the telecommunications axis, as well as the financial and distribution center of East Africa, which is why it has a wide range of well-developed service industries and an array of service providers. The World Factbook (2022) notes that all these features make Kenya a lucrative source of growth in the export of services. Moreover, Kenya’s government is seeking to stimulate economic growth by fostering services exports, including professional services.
However, it is important to note that businesses operating in the country face various challenges related to poverty, security, corruption, unemployment, and land ownership. According to GlobalEDGE (2019), Kenya’s gross domestic product (GDP) per capita was a bit over $1,600 in 2017; still, poverty and unemployment prevail at high levels, with around 40% of the population remaining below the poverty line. For Kenya to address the challenges on the road to its successful development, significant and sustained economic growth is indispensable. As per GlobalEDGE (2019), Kenya’s economy increased by nearly 5% in 2017, underpinned by investments in public infrastructure, significant inflows of remittances, low oil prices, and a revival in the tourism industry. It is worth considering that the figures could be higher; 2017 was marked by a drought, which resulted in a crop failure, food insecurity, and high energy prices. In addition to that, there was an investment slowdown in the run-up to the 2017 elections.
Kenya’s services economy is the largest when it comes to the EAC. The World Factbook (2022) reports that, in 2012 – which is when the latest comparative data was released – the country produced $19 billion in services. It accounted for almost half of Kenya’s GDP and about 45% of EAC’s total service output (The World Factbook, 2022). In recent years, services have been a key factor of the nation’s economic growth. They have been growing by 5% annually starting from the 2008 global recession, faster than in the agricultural and manufacturing segments over the same period (The World Factbook, 2022). This sector, which consists mainly of small and mid-sized enterprises, accounts for a substantial share of jobs in the country.
When it comes to these services, first of all, being East Africa’s distribution and transportation center, Kenya is a leader in logistics services. According to The World Factbook (2022), more than half of the services produced by Kenya in 2013 were connected to logistics, predominantly wholesale and retail services ($4.5 billion) and transportation and communications services ($4 billion). Then there is a particular growth in the transportation sector, which has been spurred due to increase in passenger traffic and expanded air traffic volumes in recent years.
For one, The World Factbook (2022) states that, with regard to shipping, the capacity of the port of Mombasa, Africa’s fifth largest, has more than doubled over the past decade. Moreover, the financial services segment in Kenya experienced sustained growth during the decade. With its output being over $2 billion, in 2013, Kenyan banks accounted for more than half of all Eastern African banks (The World Factbook, 2022). In addition to that, Kenya is one of the global leaders in mobile banking: two-thirds of the country’s adult population have access to financial services through M-PESA, a service created by the telecommunications provider Safaricom.
Then there is the information and communication technology industry, which, while being very small in Kenya even 15 years ago, is now a leading economic sector. The World Factbook (2022) reports that the country has some of SSA’s highest penetration rates in terms of mobile and Internet. In 2012, the Internet contributed almost 3% to Kenya’s GDP, in that regard surpassing most SSA countries and other developing nations (The World Factbook, 2022). Furthermore, among the strong emerging sectors are business and professional services, which includes engineering, accounting, and business process outsourcing. There is a number of world-class firms in Kenya providing high-value services in these sectors. Finally, there is the education services, mostly generated by the public sector. With its output being almost $3 billion, they supply the economy with a large amount of highly-skilled providers of professional services (The World Factbook, 2022). For one, a substantial share of EAC’s high-profile professionals – accountants, attorneys, engineers, and others – are Kenyan.
References
GlobalEDGE. (n.d.). Kenya: Introduction. Web.
GlobalEDGE. (2019). Kenya – market overview. Web.
The World Factbook. (2022). Explore all countries – Kenya. Web.