Kenya - Economic Diversification, Challenges and Opportunities

Kenya - 30 April 2020

Trade topics: Trade and Development

International economic theory states that a country should specialize in the production of goods and services that it can produce at a lower relative opportunity cost and import those goods and services that it can produce at a higher relative opportunity cost. It will also produce and offer for export those goods that it can produce with its most abundant factor. This has led most low income countries to specialize in commodity and primary products based on their resource endowments. These countries have also concentrated on trading with only a few partners and especially the former colonial masters and this has subjected these countries to fluctuations in economic growth and volatility in commodity prices due to lack of diversification. Economic growth in Kenya is currently being driven by traditional sectors such as agriculture and services and it still relies on a few export products for export and a few export destinations. Gender inequality is also high and Kenya’s human resource development index is also very low compared to other countries in Africa and other developing countries. Labor force participation is also skewed against women and industries are located in only a few major towns exacerbating the levels of inequality and in effect leading to low levels of economic diversification. It is therefore imperative that Kenya diversifies its economy in order to increase the sources of income and growth. This paper uses desk research to investigate Kenya’s experience in economic diversification, factors that derail or facilitate its endeavor to diversify its economy and the opportunities that are available for Kenya to take advantage of in order to diversify its economy.