Economic Crisis in Africa: Perspectives on Policy Responses

By Magnus Blomström; Mats Lundahl | Go to book overview

4

REGULATIONS VERSUS PRICE REFORMS IN CRISIS MANAGEMENT: THE CASE OF KENYA

Arne Bigsten

INTRODUCTION

Since independence the Kenyan economy has been exposed to a series of shocks starting with the first oil crisis of 1973-4, followed by a coffee boom in 1975-8. The second oil shock of 1979 was accompanied by a serious drought. The coup attempt in 1982 was followed by yet another drought in 1983-4, and a second, but smaller, coffee boom in 1986. Since then economic conditions have been somewhat more stable, although there has in the last few years been a slump in the coffee market.

I will discuss how policy-makers in Kenya have chosen to meet the shocks listed above, concentrating on the period after the coffee boom. The paper takes a political economy perspective and tries to show why certain policy changes have been easier to undertake than others. Focus will be on the choices made by policy-makers between administrative regulations and the use of markets in bringing about the desired economic adjustment. The constraints on policy reform in Kenya have not primarily been ideological hang-ups, as in Tanzania, but rather the influence of vested interests that stand to lose from the reforms.


INSIDERS AND OUTSIDERS IN THE POLITICAL ARENA

During the colonial period the white settlers formed the political élite and controlled large-scale farming and part of modern industry. A major share of equity was owned by a small Asian minority. After independence President Kenyatta and other members of the emerging African (particularly Kikuyu) élite acquired large areas of land as part of the Africanization of the settler economy. In the largely Asian-controlled urban economy there were also moves towards Africanization. Under the Trade Licensing Act of 1968 firms

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