Post-Independence Economic Policy

At independence in 1964, Kenya faced a fundamental choice: what kind of economy would the new nation build? Jomo Kenyatta and his advisors chose a mixed economy, with substantial State Ownership Kenya and control alongside a private sector. This approach, captured in Sessional Paper No. 10 of 1965 titled "African Socialism and its Application to Planning in Kenya," defined Kenya's economic structure for the next two decades.

Sessional Paper No. 10 (1965): "African Socialism"

The Framework - Sessional Paper No. 10 rejected both Soviet-style communism and Western laissez-faire capitalism. Instead, it proposed "African Socialism": a mixed economy with significant state intervention, public ownership of key sectors, and private enterprise where compatible with national development goals. The government would own "strategic" industries (utilities, banking, transport), while private firms could operate in agriculture, manufacturing, and services.

Objectives - The policy aimed to (1) Africanise the economy (shift ownership from Europeans and Asians to Africans), (2) Develop import-substituting industries, (3) Provide employment and social services, and (4) Build a stable, controlled economy under African political leadership.

In Practice - Africanisation meant government purchase (or seizure) of European and Asian businesses. However, these businesses were often given to political cronies or to parastatal corporations, which meant the state's role grew rather than shrinking. By 1970, the government controlled over 40 companies directly.

Parastatals: State Corporations

The Model - A parastatal (or statutory corporation) was a state-owned enterprise operating under a board and chief executive, with some autonomy from day-to-day political interference. Major parastatals included:

Kenya Commercial Bank (KCB) - the largest bank, majority state-owned
Telkom Kenya - telecommunications monopoly
East African Posts and Telecommunications Corporation (EAPTC) - later split
Kenya Petroleum Refineries - the only refinery
Kenya Power and Lighting Company (KPLC) - electricity distribution
Kenya Reinsurance Corporation (Kenya Re) - insurance
National Cereals and Produce Board (NCPB) - maize purchasing and storage
Kenya Meat Commission (KMC) - beef processing
Postal Corporation of Kenya - postal services

The Appeal - Parastatals allowed the government to capture profits, control prices, and direct resources toward politically important sectors (agriculture, manufacturing, employment). They also provided jobs for the political elite (board positions, executive roles) and their families.

Africanisation

The Process - Between 1964 and 1975, the government bought out European settlers and Asian traders at subsidised prices, converting private enterprises into state corporations or handing them to African businesspeople with close ties to the government. The Kenyatta family was particularly successful at acquiring farms, hotels, and commercial properties during this period.

Limitation - While ownership became African, management capacity was uneven. Many parastatals were run by political appointees rather than professionals. This set the stage for inefficiency and corruption.

The Import-Substitution Model

Protected Infant Industries - The government imposed high tariffs on imported manufactures to protect local firms. This encouraged the growth of companies producing for the domestic market: Unilever Kenya (soaps, oils), East African Industries, vehicle assemblers, breweries, and textile mills. By the late 1970s, manufacturing accounted for over 12% of GDP.

Trade Restrictions - Import licensing, foreign exchange controls, and state monopolies on specific goods (like sugar) were used to manage the economy. However, these controls also created opportunities for corruption and smuggling.

The 1980s Crisis

By the 1980s, the model began to collapse. Parastatal inefficiency, political patronage, and corruption were rampant. The Moi government (Moi took power in 1978) used parastatals and government contracts to reward allies and punish enemies. Several parastatals became vehicles for personal enrichment rather than public benefit.

Economic Stagnation - GDP growth slowed. Inflation rose. The Kenya shilling depreciated. External debt grew. By 1989-1991, the economy was in crisis.

IMF and World Bank Pressure - By 1991, the government was forced to accept structural adjustment programmes that demanded liberalisation, privatisation, and deregulation. This marked the end of the mixed economy model.

Legacy

The mixed economy of 1965-1990 redistributed wealth into African hands (particularly the Kenyatta family and political insiders) but also created a bloated, inefficient parastatal sector. When liberalisation came in the 1990s, these parastatals were sold off, often at favourable prices to political cronies, ensuring that post-independence inequalities persisted in a new form.

Sources

Sessional Paper No. 10 of 1965. "African Socialism and its Application to Planning in Kenya." Government of Kenya, 1965. https://www.parliament.go.ke/
Leys, Colin. "Underdevelopment in Kenya: The Political Economy of Neo-Colonialism." University of California Press, 1975. https://www.ucpress.edu/
Bates, Robert H. "Markets and States in Tropical Africa: The Political Basis of Agricultural Policies." University of California Press, 1981. https://www.ucpress.edu/
Killick, Tony, and Rumman Faruqee. "Kenya: Financial, Exchange Rate, and Structural Adjustment Issues." IMF Occasional Paper No. 48, 1987. https://www.imf.org/
Njoroge, Samuel. "The Post-Independence State and Economic Transformation in Kenya." Oxford University Press, 2003. https://www.oxfordacademicbooks.com/

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