The post-colonial period in Africa saw nationalist aspirations for development entangled with the quest for industrialisation. Both domestic governments and the wider development community assumed that industrial development was the key to modernisation and overcoming the relative underdevelopment of Africa. Although Africa lacked many of the prerequisites necessary for a more spontaneous process of industrialisation, it was widely believed that with planning and a directed and coherent strategy, government policy could overcome the initial constraints upon industrialisation. However, the national experiences of industrial and economic development in this era have been marked by varying degrees of disappointment. Kenya, like much of Africa, has failed to engender the levels of industrial growth and subsequent levels of development to which it aspired.
Much of the explanations for Africa's disappointing record of industrial development have focused on two central factors. The first relates to the structural constraints on the process of development. This includes comparatively low levels of income per capita amongst the indigenous population, low levels of human capital, weak infrastructure, and the lack of an indigenous class of entrepreneurs willing to enter the industrial sector. The second relates to the policies that were pursued in this period and their impact upon the process that unfolded. Notably, state intervention and excessive administrative controls of the economy have been made culpable for Africa's poor performance.
In many ways, these factors are inherently linked to the colonial inheritance. Africa's disappointing record of industrial and economic development cannot be divorced from its historical context. Thus, the impact of the colonial legacy on the path of development that would be embarked upon cannot be neglected. It is therefore necessary to consider the extent to which the socio-economic structures that were in place at the end of colonialism predetermined the pattern of development that would emerge in later years. When evaluating post-independence industrial development, two factors stand out as decisive: ‘colonial underdevelopment’ and the ‘policy inheritance’. This article argues that although these legacies were profound, it was ultimately the dynamics of post-independence realities that determined the path of development.
Colonial underdevelopment: The roots of post-independence crisis
The colonial period witnessed important changes in the structure of the Kenyan economy that had implications for the prospects of industrial development after Independence. The commercialisation of the economy created the basis for consumer demand for manufactures; the growth of agricultural production augmented incomes and stimulated the purchasing power of local consumers; population growth from 5.4 million in 1948 to 8.3 million in 1960, expanded the internal market; and the creation of a significant labour force facilitated further market penetration and established the basis of an industrial work force. In 1942 there were 179,085 registered African labourers in Kenya. By 1952 the total number of Africans in wage employment had risen to 438,702 with 101,568 engaged in commerce and industry (Swainson, 1980:114).
The colonial period also saw the development of an industrial base. At Independence, the manufacturing sector constituted 9.5 per cent of GDP, which was amongst the highest in sub-Saharan Africa at the time (Kilby, 1975:135). During the 1920s a number of processing industries were set up with official assistance. Wheat-milling benefited directly from tariffs and protective railway rates. Similarly, in 1931, an Ordinance was passed giving the government power to give a sisal bag factory a monopoly in the home market to establish a new industry and assist local producers badly hit by falling world prices (Brett, 1973:277). The war and decolonisation eras witnessed further expansion of this industrial base with the proliferation of importsubstituting industries. By 1963 Kenya had local factories in a range of sectors including cement, beer, biscuit, confectionary, textiles, shoes, metal and pharmaceuticals.
Although there were important changes over this period, the failure to significantly develop the Kenyan economy remains one of the most profound colonial legacies. Outside the agro-export sector and the European enclaves, the colonial administration did little to radically transform the economy. One striking feature of the colonial period was the deficient level of infrastructural development beyond what was necessary to sustain the system of international trade. Moreover, the alienation of land for European settlers, the system of discrimination against peasant production and forced mobilisation of an African labour force to service European agriculture undermined indigenous production.
Notably, peasant production for the export sector was constrained for much of this period. In 1946, it was estimated that 72 per cent of the value of Kenyan exports came from coffee, tea, sisal and pyrethrum, and virtually all of this was produced on European estates in the highlands (Colonial Office, 1946:42–43). African farmers were prevented from planting coffee and pyrethrum since producers had to obtain a license to plant these two crops and the government simply refused to grant licenses to African growers. There was also little opportunity for Africans to grow sisal, tea, wheat and sugar – Kenya's other main exports. In these cases expensive machinery was required for either processing or cultivating these crops, making them inaccessible to small scale peasant farmers (Zwanenberg, 1975:40). The only export crops to be grown in significant quantities by Africans were cotton and wattle bark, neither of which was as lucrative as other exports. However, the production of wattle in particular and food produce for the domestic market, notably maize, did enable a proportion of African peasants to accumulate wealth. This process was accelerated after World War Two, as restrictions on the production of commodities like coffee were gradually relaxed (Smith, 1976:124). This trend was reinforced by the 1954 Swynnerton Plan which sought to formally remove restrictions on African farming, promote the cultivation of lucrative cash crops in African areas, initiate land reform, and encourage private property within the reserves (Kenya, 1954).
Although the late colonial period oversaw the development of an agro-export sector that would become the principle engine of growth after Independence, the sector was highly concentrated. Coffee, sisal and tea constituted over 50 per cent of exports in 1965 (Zwanenberg, 1975:189). This dependence on a few commodities, two of which were beverage crops which experience similar movements in international prices, left the economy dangerously vulnerable to the vagrancies of the market and created an unbalanced and weak economic base.
Finally, forced displacement of Africans from the land was at the root of an unemployment problem that would dog the post-independence government and prove decisive in shaping the direction of policy. By the early 1960s it was accepted within official circles that Kenya was facing a major unemployment problem. A statement by the Economics and Statistics Division in 1962 illustrates this well. It argued that amongst the most ‘immediate problems now facing Kenya’, ‘the most important is the mounting levels of unemployment’.1 Similarly, a report on the future of the Kenyan economy claimed that ‘perhaps the most distressing aspect of the present situation is the mounting level of unemployment.’2
The colonial economy not only created a weak socio-economic base from which post-independence states could launch their development projects, but it also sowed the roots of socio-economic problems that would prove decisive in shaping the pattern of development after Independence.
Industrial policy: A colonial inheritance
The second decisive colonial legacy was the ‘policy inheritance’. State intervention in the productive sectors and administrative controls of the market were features of the colonial economy that would be adopted by post-independence states. The Second World War and the decolonisation era witnessed the first real attempt to encourage local industries. This period not only established a policy of state intervention to facilitate industrialisation, it also created a policy framework for industrial development that would survive into Independence.
The war prompted the establishment of a series of inter-territorial government committees, culminating in the East African Industrial Management Board, which sought to organise local manufacturing to make up for the loss of vital imports during the war and to meet some of the needs of the British forces. The plants and equipment owned by the Board were brought after 1945 by East African Industries Ltd (EAI). The British government's Colonial Development Corporation held the majority of shares in EAI whilst the Kenyan government retained a minority. In 1953 Unilever brought into the company and assumed full responsibility of its operations.
Much of the assistance and support to the private sector that had been provided by the Industrial Management Board was taken over by the Industrial Development Corporation (IDC). For much of the colonial period, the IDC acted as a finance agency. It prioritised projects that would contribute to the ultimate good of the colony, that would be self-financing, that were not in direct competition with existing private enterprises, and where the possibility of loans from other lending agencies had been exhausted.3
In addition to financial assistance, a range of incentives were developed over this period to encourage private sector participation in industry. These included pioneer tax relief, an ad hoc system of custom duty refunds, and the provision of buildings in established industrial estates.4 The use of import tariffs as a form of protection for local industries was not formalised into a system until 1959. Import protection to firms before 1958 was on an ad hoc basis and the introduction of a comprehensive tariff system was a response to pressure from both local and foreign manufacturing firms.
Since tariff protection worked on an East African basis it was dependent on agreement from all three territories. By 1961, there was apparent frustration amongst Kenyan officials over the failure to agree on protective tariffs.5 This led to discussions within the Ministry of Commerce and Industry about the viability of quantitative restrictions on imports. A file note from the Permanent Secretary argued that:
There is little doubt that in appropriate cases, where we cannot get agreement on a tariff, that we will have to press the Secretary of State for permission to use quantitative restrictions in order to help selected local industries against unfair competition from imports.6
Industrial licensing was another important form of state intervention in the industrial sector during this period. The policy of licensing had originated during World War Two. The East African Industrial Council licensed desperately needed industries in order to free them from internal competition and to facilitate their creation. The idea was to choose key industrial sectors and then grant wide-ranging and in some cases monopolistic powers to those firms deemed most able to develop an industry. This was formalised with the introduction of the 1948 Licensing Bill (Tignor, 1989:316). Licensing was initially restricted to the textile and pottery subsectors, but was gradually expanded over the next decade and a half.
The decolonisation era witnessed the evolution of institutions and policy instruments that would be inherited by post-independence states. The IDC survived as the main organ of government participation in the industrial sector after Independence. Similarly, the use of financial incentives to attract private capital and the employment of tariffs and industrial licensing to provide temporary protection for nascent industries were practises that were adopted from this period. The colonial era was, thus, crucial in forging the policy and institutional framework that would underscore state policy in the industrial sector after Independence.
The era of liberalism: The development policy paradigm at independence
At its inception the development project embarked upon by the post-independence state was comparatively liberal and, in many respects, continued the colonial policy paradigm. It prioritised the development of infrastructure and social services. The First Development Plan allocated 41 per cent and 12.5 per cent of total expenditure to infrastructure and social services respectively (Kenya, 1964:121–23). It was an explicit government policy that infrastructural development was the principal remit of the state. In a memorandum to the Cabinet Development Committee in 1963, the Minister of Finance and Economic Planning argued that:
The development of roads, schools, irrigation facilities, public utilities, and related kinds of capital formation must be the principal direct and indirect responsibility of government partly because the economic returns are not directly realizable or will occur in the distant future and partly because many sources of international capital for such construction are more readily available to governments than to private enterprise.8
Even though the government accepted the importance of industrial development within its broader strategy, it was felt that this would be the principal focus of the private sector. On this point the First Development Plan is explicit:
If the factories required for rapid industrialisation and economic growth are to spring up throughout the country, the government's limited resources must be supplemented with domestic, private and foreign capital. The Government's policy towards investment and industrialisation is therefore basically positive and non-restrictive, characterised by encouragement and support where needed, in order to secure a maximum rate of economic growth(Kenya, 1964:235).
Since government funds are fully committed in the provision of such things as roads, schools, public utilities, health services, and so on, it cannot yet afford to add all the costs of industrial operation to its bill. In any case the government is not geared to dealing with the day-to-day problems which arise in industrial operations.9
In addition, the state aimed to provide financial assistance to the private sector. The ICD, later renamed the Industrial and Commercial Development Corporation (ICDC), became the main government agency for stimulating small industrial and commercial enterprises under African ownership and management. It was primarily a financing institution which operated a revolving loan fund of £50,000, with extension services provided for recipients of the loan. The ICDC was mandated to provide direct investment or loans to African industrialists for establishing, developing, modernising and improving the conditions of industrial concerns; to extend credit and guarantee facilities to African traders to increase African participation in commerce; to participate in joint ventures with foreign investors by subscribing for and holding shares with the aim of transferring them to Africans when they acquired the necessary capital to obtain them; and later to establish and develop industrial estates in Kenya by creating the necessary infrastructure and erecting factory buildings to be leased to African industrialists and joint venture projects.10
The Development Finance Company of Kenya (DFCK) was another agency through which the government participated in the industrial sector. It was established in 1963, shortly before Independence, as a limited liability company by the government of Kenya, the Commonwealth Development Corporation and the German Development Company. Instead of participating directly in the DFCK, the Kenyan Government became a shareholder via the ICDC, which in principal removed the cooperation between the partners from the political arena (Vinnai, 1973:3).
Where the ICDC concentrated on smaller projects, the DFCK aided projects requiring capital in excess of £20,000. Its main role was to stimulate the flow of private investment, indigenous or foreign, by providing loans or share capital for large industrial ventures. As far as equity investment was concerned, the DFCK was not allowed to gain a controlling interest in aided ventures, essentially prohibiting the establishment of subsidiary companies.
The development framework adopted in the early-post independence period had its antecedent in the decolonisation era. The government focused on creating the foundations for industrialisation and accelerated development. This was achieved through huge investments in infrastructure and social capital; the provision of financial incentives and protection for the private sector; and moderate state intervention in the productive sectors. This development framework appears to have been successful. Kenya boasted GDP growth rates close to 7 per cent and an impressive manufacturing growth rate of 11.5 per cent during this period.
Forced radicalisation: Confronting economic realities
A gradual radicalisation of this initial paradigm was witnessed from the late 1960s. This process of radicalisation manifested itself in two ways: first, in the state assuming a more active role in stimulating and accelerating the process of development; second, in greater emphasis being placed upon the need for rapid industrial development. A file note on the establishment of the 1968 Industrial Estate programme alludes to this changing orientation. It argued that:
The establishment of the Industrial Estate indicates the direction our development [policy] is leaning. We are steadily moving into development with greater emphasis on industry … we must admit that this is an industrial age. If we are going to have a strong and balanced economy, we must have a strong industrial base.11
The launching of the Industrial Estates Programme in 1968 can also be seen as part of this more proactive development framework. Five industrial estates were planned in Kenya. The rationale behind the programme was that the ICDC would nurture inexperienced entrepreneurs by providing them with factory accommodation, financial assistance, and advisory services. Projects were devised by the ICDC's technical team and allocated to selected entrepreneurs on the basis of their relative industrial experience. These projects included: a foundry for the production of quality casting, diesel engines, pumps, agricultural implements, electric motors and generators; a plant for the manufacture of small lathes, bench drills and bench grinders; the manufacture of spare parts for cycles and automobiles; and the manufacture of sewing machines. Projects were chosen on the grounds that they were:
Considered essential both from the point of view of import substitution, but even more so because of their role in the training and development of experienced technical personnel from whom we should gradually build locally oriented technology … the development of the above industries and the training institutions should form part and parcel of an integrated plan of development. They are chosen because of their multiplier effect in industrial development and training.12
Government aims to increase its own participation in the growth of industry, both in terms of the promotion of new projects and in the financing of them. The government is, on occasion, able to take a wider view of industrialization than a single private investor. Linkages between projects may make them viable when carried out together, whereas they might not be viable if considered separately. The government is in a unique position to consider such complementary projects.13
In order to understand this process of radicalisation, it is necessary to look back at the socio-economic constraints that predated Independence. Understanding the impact of these constraints elucidates upon the factors that propelled the adoption of this more transformationist posture. Kenya faced a number of constraints that were pertinent to most newly independent African states. Amongst these was a scarcity of financial and human capital, limited domestic markets, low levels of income per capita and inadequate infrastructure. However, in addition to these wider constraints, it can be argued the Kenyan government identified a particular problem which it perceived to be the most pressing of its time. The search for a panacea would emerge as one of rationales for the direction that policy would take.
Kenya's most pressing problem was unemployment, the roots of which were sown in the colonial period. In a memorandum on the growth of the economy in 1963, the Ministry of Finance and Economic Planning argued that with a population growth rate of 3 per cent, Kenya had one of the highest population growth rates in Africa and, indeed, the world. The impact of this growth was particularly apparent in Kenya's ten largest urban centres, which had witnessed an average annual population growth rate of 5.8 per cent. Given Kenya's large reservoir of unemployed labour, one of the challenges facing the government was the absorption and productive utilisation of this ever increasing labour supply. Moreover, the memorandum claimed that in an economy with excess supply of labour one criterion for assessing economic performance was the rapidity with which this excess supply was being absorbed. It concluded that, on this basis, Kenya had performed poorly over the past decade.14
The solution to this problem lay in accelerated economic development. This entailed a transformation of the agricultural sector, with greater attempts to exploit under and unutilised land. This was the basis of the ‘Back to Land’ movement which comprised an expanded programme of land registration and consolidation, and an expansion of extension services and agricultural development credit.15However, it was apparent that an increase in agricultural land use was insufficient to address the problem. A cabinet memorandum in 1965 argued that:
Even an accelerated consolidation programme is not likely, alone, to solve the unemployment problem … further, as more and more land is taken up the opportunities to create jobs in this way will diminish and increases in mechanisation and productivity on utilised land will tend to reduce the labour force needed in agriculture … development of commerce and industry must therefore proceed both in urban and rural areas in order to lay a basis during the next several years for a sharp acceleration in the growth possible ten years hence.
From growth to crisis
During the first decade of Independence, the Kenyan government maintained an impressive record of macroeconomic management. A cautious financial policy was pursued which saw inflation and external debt kept within manageable levels and avoided major balance of payments disequilibrium. The government was also able to reverse the fiscal position that it had inherited at Independence. It turned the deficit in the recurrent budget into a sizeable surplus, increased its development expenditure sevenfold, and reduced its relative dependence on foreign aid. Government recurrent revenue grew at an impressive average annual rate of 15 per cent between 1965 and 1973 (World Bank, 1975:217). Total tax revenue increased from K£39.8 million in 1964/5 to K£265.9 million in 1976/7. This was a result of an increase in direct taxes from K£14 million to K£108 million and an increase in indirect taxes from K£39.8 million to K£265.9 million, helped in large part by the introduction of a sales tax.16
Impressively, by developing world standards, the government financed 80 per cent of its total (recurrent and development) budget out of recurrent revenue. By the mid-1970s, government revenue accounted for 23 per cent of GDP, an exceptionally high ratio for the developing world. Thus, although recurrent expenditure increased by 11 per cent per annum, the Kenyan government's good revenue performance enabled it to meet its expanding recurrent expenditure whilst making a substantial contribution to development expenditure.17Up to 1970-1, the Government did not have recourse to borrowing from the Central Bank, instead for much of this period it had a positive outstanding balance with the Central Bank.18
A high degree of price stability prevailed during the 1964-72 period with the increase in consumer price index being less than 2 per cent in most years. Price stability, in tandem with government's efforts in fiscal and development fields, contributed to an impressive savings performance in aggregate terms between 1964 and 1972. Gross domestic savings as a proportion of GDP averaged 19 to 20 per cent in most years during this period, again a level of achievement matched by few developing countries.19
Furthermore, Kenya was able to maintain a balance of payments equilibrium, with the balance of payments recording a surplus for much of this earlier period. From the beginning of 1968, foreign exchange reserves accumulated rapidly. In every quarter, except one, the reserves increased. By the end of the first quarter of 1971 these reserves had nearly trebled, and totalled K£89.1 million. In turn external debt was kept low: debt service charges on external debts in 1976/7 amounted to less than 4 per cent of government expenditure, to 1 per cent of monetary GDP, and to 2.3 per cent of the value of exports (Hazlewood, 1979:143).
This macroeconomic record was accompanied by growth rates close to 7 per cent from 1964-72. Kenya thus represents a model in which accelerated development was pursued in the context of macroeconomic stability. This impressive macroeconomic performance distinguishes it from the general perception of macroeconomic mismanagement that has characterised many African states. Kenya was able to maintain a sound macroeconomic framework for over ten years. This achievement alone suggests a level of economic competence that is rarely acknowledged in the African context.
Kenya's impressive record faltered in the second decade of the post-independence period. From 1972-82 the growth rate averaged 4.8 per cent. Although this was high in comparison to much of Africa, it was a significant decline from earlier periods. Kenya's economic performance during the 1970s was dominated by variations in the country's international terms of trade (World Bank, 1983:4). The early 1970s saw a deterioration in Kenya's barter terms of trade which was reflected in a series of balance of payments crisis.
| Year | Index (1964 = 100) |
|---|---|
| 1964 | 100 |
| 1965 | 98 |
| 1966 | 98 |
| 1967 | 97 |
| 1968 | 96 |
| 1969 | 94 |
| 1970 | 100 |
| 1971 | 93 |
| 1972 | 94 |
| 1973 | 91 |
| 1974 | 80 |
| 1975 | 73 |
| 1976 | 86 |
| 1977 | 113 |
| 1978 | 97 |
| 1979 | 89 |
| 1980 | 82 |
| Source: World Bank, Kenya: Into the Second Decade, (Washington 1975:70); World Bank, Kenya: Growth and Structural Change, p. 4. Data from 1973–1980 shown in the source at 1972 = 100 have been converted to 1964 = 100 to make it comparable with earlier years. |
The first of these emerged in 1971. This was followed by a more severe crisis in 1974, led by the rise in petroleum prices. The import bill in 1974 grew by 68 per cent with the value of oil rising 3.5-fold and that of non-oil imports increasing by nearly 50 per cent.20 This also coincided with the aftermath of a severe drought in 1973. The overall balance of payments position changed from a surplus of KSh183 million in 1973 to a deficit of KSh538 million in 1974.21 The unfavourable developments in 1974 lent urgency to the need for corrective measures. In July 1975, the government undertook a three year programme supported by the IMF which sought to attain a target growth rate of 5 per cent, to eliminate balance of payments assistance, whilst implementing structural policies such as a shift of public and private investment towards agriculture, a reform of tariff structure, a gradual elimination of fiscal incentives for certain types of investments, and a possible modification of Kenya's interest rate structure.22 The programme was later abandoned following improvements in the terms of trade in 1976.
A beverage crop boom in 1976-7 saw the value of exports rise by 31 per cent and an improvement in the terms of trade.23 This sharp turnaround in the balance of payments position in 1976 and the substantial overall surplus that emerged was largely due to a 130 per cent rise in export prices for coffee, higher tea prices and the impact of improved weather conditions on coffee and tea production. Imports grew in nominal terms by only 11 per cent and in real terms continued to decline.24 Foreign exchange reserves increased by 80 per cent and reached record levels.25 Sensing a change in its fortune, the government seized this opportunity to embark upon an ambitious development programme. However the boom was short-lived, and Kenya with its ambitious economic policy, had to cope with the over-commitments incurred during the boom years.
In 1978, heavy rains caused a substantial drop in coffee production, and, coupled with an almost 45 per cent reduction in the price of coffee, led to a major reversal in the balance of payments.26 The current account of the balance of payments moved from a surplus in 1977, to a deficit in 1978 equivalent to 12 per cent of GDP, as exports earning declined whilst imports increased by almost 30 per cent. Foreign exchange reserves dwindled from the equivalent of almost five months import cover at the end of 1977, to barely two months at the end of 1978.27
This situation was exacerbated by the closing of the East African market to official Kenyan exports in 1977. At Independence, intra-East African trade occurred within a full customs union which had existed between Kenya, Tanzania and Uganda since 1937. Imbalances in intra-state trade, which had been consistently in Kenya's favour since 1956, were a source of antagonism between the three territories. The 1967 Treaty for East African Co-operation established the East African Community (EAC) and introduced a number of measures to reduce imbalances in trade between members. However, there continued to be friction on different issues. The adoption of import licenses, in addition to conflict in other spheres of co-operation, brought this tension to a head. Following the breakdown of talks between the partners, the EAC collapsed.
The closing of the East African market had an adverse impact upon manufacturing exports. Exports as a percentage of gross manufacturing output decreased from 22 per cent in 1972 to 11 per cent in 1978 (World Bank, 1983:13). More generally, exports to Africa declined from 39.9 per cent in 1973, to 22 per cent in 1977. This was largely due to the collapse of exports to the East African market which fell from 28.7 per cent in 1973 to 12.3 per cent in 1977.28 By 1979 exports to Tanzania amounted to less than 1 per cent of total exports compared to a peak of 10 per cent in 1976, whilst exports to Uganda declined by a third in nominal terms between 1976 and 1979 (World Bank, 1983:26).
Economic paradox: Radicalisation in the face of economic crisis
The economic crises of the 1970s witnessed an intensification of the process of radicalisation that had begun in the late 1960s. One manifestation of this was increased state participation in the productive sectors. In 1967, state enterprises constituted 2 per cent of the total number of establishments and 15 per cent of value added. By the end of the 1970s the state sector had expanded substantially, with a marked increase in joint state-private sector ventures (Swainson, 1980:208). At the beginning of the 1980s there were 200 parastatals, 81 fully owned by the government, 45 majority-owned and 99 with minority ownership (World Bank, 1983:41). This represented a doubling of state involvement from 1976 alone.
Increased radicalisation at a time when the government was in the midst of economic turmoil appears to be somewhat of an anomaly. However, it would be far too simplistic to dismiss this as another symptom of the economic mismanagement that is often assumed to characterise post-colonial Africa. The economic competence exhibited by the Kenyan state in the first decade of independence is deeply inconsistent with this. The adoption of a more radical agenda in such adverse conditions is rooted in the politics of this era. Independence came with inflated expectations about the development of the country, and more specifically the improvements in the standards of living of its population. By the early 1970s, the achievements of the preceding decade had fallen far short of this. Impressive growth rates had failed to translate into significant reductions in poverty and income inequality. The economic crisis highlighted the reality that earlier periods of growth had failed to address deep seated socio-economic problems. Moreover, it magnified the problems of unemployment, income inequality and poverty and reinforced the need for a more radical posture.
Indeed, it is no coincidence that this period ushered in a change in the domestic agenda with greater emphasis on re-distributing the benefits of economic growth, equality and poverty reduction (Kenya, 1974). The ILO Report on Employment, Incomes and Equality: A Strategy for Increasing Productive Employment in Kenya, Sessional Paper No 10 of 1973 on Employment and the 1974-8 Development Plan were all a product of this new preoccupation (See ILO, 1972; Kenya, 1973, 1974).
The policies of this period were underscored by other developments in the political arena. The economic hardship of the early 1970s translated into increasing political dissent and public criticism of Kenyatta and his Kiambu clique (Miller, 1984:51). The assassination of Joseph Mwangi Kariuki in 1975, a Kikuyu MP who had become renowned for his populist politics and his outspoken criticism of Kenyatta's political clique, created an outlet for popular discontent. Although the political situation was stabilised, this underlying political unrest gave greater urgency to the need to address socio-economic problems. Thus instead of interrupting the radicalisation that had begun at the end of the 1960s, the economic crisis intensified this process. The subsequent increase in state participation can be seen as an attempt to propel the growth and transformation of the economy, to generate employment, and to give renewed impetus to the Africanisation programme. In short, the state was endeavouring to address the perceived shortcomings of the first decade of independence.
This shift in the development paradigm ultimately explains the government's more ambitious expenditure programme following the 1976-7 boom. The surplus generated from the boom was to be directed into transforming the structure of the economy and addressing its socio-economic weaknesses. This was a gamble. Had it paid it off, perhaps history would have judged the move as farsighted and courageous. In light of its failure, however, it can only be judged as misconceived and reckless. The tragedy is that this decision to embark upon an ambitious development project in the face of economic crisis in fact exacerbated the situation.
The expansion in government expenditure during the mid-1970s was unmatched by sustained increases in government revenue. Although revenue rose sharply in 1977, further increases in expenditure in 1978 were accompanied by a decline in revenue. As a result, the budget deficit and the need for government borrowing reached record dimensions. This imbalance intensified the crisis of the late 1970s and contributed to economic decline in the 1980s.
Responding to crisis: The changing nature of industrial policy
The post-independence state inherited the policy framework for industrial development from the colonial era. Notably, the system of incentives and the use of protection to stimulate industrial development were adopted from the earlier period. However, the economic crisis of the late post-independence period had a significant impact upon the evolution of industrial policy.
The post-independence period saw the proliferation of administrative controls of the economy. Although the increased use of market controls have been strongly associated with government's protectionist policies, in reality, this was driven less by an industrial strategy and more by the need to mitigate economic problems. The 1971 balance of payments crisis precipitated a shift towards greater administrative control of the economy. Sharpley and Lewis argued that it was not until this crisis that import licensing became an important policy instrument (Sharpley, 1984:60). The subsequent balance of payments crises of the 1970s led to an intensification in the use of this policy tool and the introduction of other administrative controls.
In his 1972 Budget Speech, the Minister of Finance argued that although he was reluctant to impose import restrictions because they might ‘distort the pattern of production … and lead to high domestic costs’ they were deemed essential since the need to ‘safeguard the foreign exchange reserves was … imperative’ (Hazlewood, 1979:152). The crisis also prompted the Kenyan government to move from its relatively liberal foreign exchange regime to a more controlled regime. In a letter from the Permanent Secretary of Treasury, the feasibility of Kenya's liberal foreign exchange policy was called into question:
Developments in the world economy at the present time, and, in particular, the attempts by many of the major industrial countries to conserve their own foreign exchange by the introduction of overseas investment controls, however, cause us some concern and lead us to wonder how long we can continue with the liberal policies we have pursued in the past. … recent changes in the regulations have tightened up control of capital remittances overseas made by migrants and as my Minister announced in the Budget Speech, we propose to introduce regulations to govern the payments of hotel and tour bills by tourist in the form of foreign exchange. 29
That in several cases an import ban provided excessive protection to monopolies which might affect the firm's efficiency and that, if necessary prohibition of competitive imports should be resorted to only in exceptional circumstances. Members of the committee were also cautioned that sometimes the request for a ban on imports reflected a firm's inefficiency in management. Some efficient firms it was noted, did not worry about the competition against their products from similar imports on the domestic market.31
The colonial legacy & post-independence realities
The socio-economic context inherited at Independence had a profound influence on the direction that development policy took. The colonial period left the post-independence state with a massive developmental deficit to fill. More significantly, it saddled the Kenyan government with a disquieting unemployment situation. It was the search for a panacea to this problem that precipitated the radicalisation of policy and the new emphasis upon forced industrialisation. However, the intensification of this process in the context of economic crisis was a product of the dynamics of independence. This, in turn, contributed to a protracted crisis that would span into the 1980s. Similarly, the policy inheritance shaped the development paradigm of the early post-independence era and established a framework for industrial development. The system of state intervention that had been adopted from the colonial era was, however, moulded in response to the crisis of the later period. Ultimately, the proliferation of excessive market controls would distort and strangle the economy, culminating in the economic malaise of the 1980s.
This article argues that the colonial period had two decisive legacies: economic underdevelopment and the ‘policy inheritance’. Although the impact of these legacies was profound, they were necessary but not sufficient to shape the pattern of development that would emerge. Ultimately, it was the dynamics of post-independence realities that would drive the path of development. Radicalisation in the context of economic crisis and the proliferation of administrative controls of the economy were a product of the post-independence experience. Both played a decisive role in cementing and exacerbating the economic decline in Kenya. The post-independence experience of development can thus be seen as a conjunction between the colonial legacy and the post-independence reality.