This Country Economic Memorandum (CEM) -the first since 1995 - is a contribution to thegovernment's economic recovery strategy, and to itsPoverty Reduction Strategy Paper (PRSP), being finalized. Itexamines Kenya's economic performance during the pastdecade, and identifies the structural weaknesses that havecontributed to the decline in productivity, and thecompetitiveness of the economy during this period. It alsorecommends policy, and institutional reforms to revitalizeeconomic growth, and to reduce poverty. The message from theCEM is a sober one: increased poverty is the legacy fromalmost two decades of slow growth; and, the burden ofdisease, particularly malaria and HIV/AIDS will constraingrowth in the years to come. However, given the improvedeconomic policy environment, the potential for economicgrowth is significantly better than the poor performance inthe 1990s would indicate. But even in our high-case scenarioKenya is unlikely to reach the Millennium Development Goalof cutting in half by 2015 the proportion of Kenyans livingin poverty in 1990. Reducing poverty will remain atremendous challenge. The CEM is organized into sixchapters. Chapter 1 reviews recent economic developments,and Kenya's integration with the world economy. Chapter2 discusses trends in poverty, and focuses on the long termeconomic factors that affect productivity, and institutionaleffectiveness. Chapters 3-5 provide detailed analyses of theagricultural, manufacturing, and services sectors,identifying specific cross-sectoral issues, and,recommending policy, and institutional reforms to promotebroad-based economic growth. Finally, chapter 6 discussesthe investment climate, and its relationship to privatesector investment.
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