Inefficiency of Aid focused in Kenya
History When Kenya gained their independence in 1963, significant changes in the government were made. Economically speaking, the central government, and the Office of the President in particular were given full economic policy making decisions. This meant that any implementation of any major economic policy initiative would always require the agreement of the President. In the post-Independence years, the Kenyan government expanded its involvement in productive activities through the establishment of new state-owned enterprises (SOEs) and joint public and private ventures in manufacturing and commerce. Additionally, the government created the industrialization strategy in the 1960’s and 1970’s, which was based on import substitution. They were established in order to produce substitutes for previously imported consumer goods. Throughout the 1960s through the 1980’s, the Kenyan government led a decent economy, in fact it was pretty decent. The growth rate of GDP averaged 5.8% annum in 1965-73 and 5.3 1974-80. There were growths it domestic rural incomes, regular exports of goods to Tanzania and Uganda, agricultural sector grew by more than 5%, while the manufacturing sector grew by more than 10%. The overall balance of payments of deficit was extremely manageable, at 3-4% of GDP.
Falling Economy So, then is it that Kenya’s economy had crashed by the early 1990’s? One of the many reasons that affected the economy is the first oil shock in 1973. The five-fold increase in oil prices was a serious damage to Kenyan’s economy because of the country’s total dependence on imported petroleum products. With the economy decreasing at a rapid pace, the Kenyan government responded with measures that set back the economy even more by creating marketing boards, which allowed the government to purchase agricultural goods at government set prices lower than the market prices. This including, other economic policies, such as price controls, which were all enforced by the government blackened Kenya’s macroeconomic situation. In the beginning, these policies worked, but soon they fell. When blamed for the situation, the Kenyan government justified their actions as a natural response to price in fluctuations for agricultural goods. In 1981, when the fiscal deficit rose to 9.3% of GDP, with the balance of payments reaching 12% of GDP, and the inflation rate increasing an average of 12% to18%, the Kenyan government responded by combining forces with the IMF for a stabilization program. The program was successful in that they reduced the fiscal deficit to 3% but did this in the expense of investment and growth.
Problems with Kenya
Like most countries that are significantly poor, it is not just one problem that needs aid, there are many. Kenya has to decide what takes priority in terms of what problems will get help. One of the main reasons Kenya needs aid is to repair the crumbling infrastructure and restore effective delivery of social services. Kenya is considered one of the poorest countries in the world, so it is no surprise that more than half of the population is living in extreme poverty, with the capita income decreasing yearly. Adding to this is the HIV/AIDS virus. The government has to try and eliminate as much of it and prevent the spreading of the virus before it sweeps the country away. More than 140,000 adults died from the virus every year, with the numbers increasing, with more than 1,400,000 infected citizens. The government needs to set up programs like a HIV/AIDS prevention program but cannot afford to. Additional social problems that the government needs to address are the education system for the children. Another huge problem that the government must address is Kenya’s external debt, which is more than $5.1 billion dollars.
The United States is Kenya’s largest aid donor. Last year, in 2005, the United States donated more than 50 millions dollars in aid to Kenya. The aid was to serve in ways that would improve the balance of power among the institutions of government, used for the health issues, education support for youth, improving the general income of the citizens by increasing agricultural and rural enterprise opportunities. In addition to the aid given by the US, Kenya also receives aid from other countries. The overall assistance given to Kenya annually is about $700 million. However, even with millions flowing in, Kenya does not seem to be improving economically. Why?
There are many reasons why aid has not benefited Kenya. The first reason is government corruption. Another reason is that donors will become so involved in their donating country, and not knowing the country’s detailed problem, they will essentially help crowd out private sectors or private investors. By helping out these sectors or investors, they essentially are preventing any growth of entrepreneurship and handicapping economic growth. Really this just means that they are helping out the small percentage of the elite and handicapping and hurting the common man. Another reason why aid has not been beneficial is because of aid dependency. Many countries that receive aid will deliberately widen the financing gap and focus towards consumption, where they will spend a large amount of money of current consumption. Having a bigger financial gap allows countries to demand more aid. Kenya is guilty of doing this. Kenya’s dependency on aid means that original strategy and incentives are changed in order to get more and more aid instead of focusing on ways to alleviate poverty, debt, and other social problems.
