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As the world begins to feel the effects of climate change, the frequency of droughts is increasing in the Horn of Africa. In Kenya, the drought and food crisis affect welfare through two main channels. The first channel is the increased mortality of livestock in drought-affected areas, which are home to 10 percent of the country’s population. The second channel is by exacerbating increases in food prices, which are largely driven by worldwide price trends. Considering these two channels, this note identifies four broad policy changes that can reduce Kenya’s future vulnerability to such shocks: (i) investment in people in the arid and semiarid lands; (ii) reform of Kenya’s maize policy; (iii) review of the East African Community grain trade policy; and (iv) formulation of a unified social protection system.

Kenya has ascribed to the Millennium Declaration and is already in the process of mobilising resources and instituting measures to achieve Millennium Development Goals (MDGs). A MDGs status report on Kenya indicates that progress has been made towards achieving the goal of universal primary education. However, the Government will need to scale-up its efforts beyond the current momentum, if the other goals are to be realised by 2015. A preliminary conclusion is that the resource requirements are not extremely large to reach the MDGs in Kenya. If the resources are effectively used and targeted to MDG sectors they could have a substantial impact on whether Kenya would reach the MDGs or not. Some targets seem to be easier to reach than others. The target of 100 percent completion in primary school can be achieved with some additional resources targeted to the primary sector. However, a substantial increase of resources is needed at secondary and tertiary level of education to reach other goals set by the Kenyan government. Even if higher investment in all MDGsectors is needed the water sector seems to be requiring a substantial increase compared to what have been invested in the past. With regard to poverty our results show that annual average real GDP growth rate of around 8 percent would be enough to meet the poverty target of reducing the number of poor by half.

"Kenya's economy is relatively diverse, with both agricultural and industrial potential. However, the economy has performed poorly over the last decade, and poverty and inequality have risen. This paper examines the impact of alternative growth paths and rural investments on poverty using an economy-wide model. It finds that if Kenya continues along its current growth path, its economy will have to grow by more than 10 percent per year over the coming decade to meet the Millennium Development Goal (MDG) of halving poverty by 2015. Therefore, Kenya must search for alternative sources of poverty-reducing growth. The results of the model indicate that poverty is unlikely to decline significantly without an acceleration of agricultural growth. Growth in agriculture is found to benefit both urban and rural households, whereas industry-led growth benefits a smaller segment of the urban population, thus exacerbating inequality. Kenya's current Economic Recovery Strategy, however, is not optimistic about agriculture's growth potential, focusing more heavily on industry-led growth. Therefore, as Kenya prepares its new national strategy, the country should place greater emphasis on and direct resources toward accelerating agricultural growth. In assessing the impact of rural investments on growth and poverty, the paper finds that increasing agricultural spending to meet the 10 percent target set by the Maputo Declaration would lift an additional 1.5 million people above the poverty line by 2015. Specific agricultural investments have higher returns in different parts of the country, however. Irrigation favors the lowlands and the poorest segment of the population, while research and extension (R&E) favors the midlands and highlands. Investment in R&E is also found to have the highest returns in both growth and poverty reduction. However, increasing agricultural spending to 10 percent of total spending is insufficient to meet either the MDG or the 6 percent agricultural growth target of the Comprehensive African Agriculture Development Program, which Kenya has recently adopted. . Achieving this target requires nonagricultural investments, such as in roads and market development. Building rural roads and reducing agricultural transaction costs significantly reduces poverty and encourages growth beyond rural areas. While it is necessary to increase spending on agriculture, the fiscal burden of an agricultural strategy can be greatly reduced by improving investment efficiency." from Author's Abstract

The Kenyan economy had a growth of –0.3 per cent in the year 2001, the lowest growth in the post-independence era. The dismal growth performance coincided with the period when the government was involved in grassroot consultations with civil society and other stakeholders, to find out the causes of poverty and what the stakeholders perceive as the best steps towards poverty reduction, culminating the poverty reduction strategy paper, PRSP. The main argument advanced in this paper is that unless donors are willing to fund poverty programmes unconditionally, there is no scope for funding from domestic resources before the domestic debt problem is addressed. Under the circumstances, the PRSP only enhances stakeholders’ expectations, but cannot deliver. The paper concludes that implementing a PRSP would only be effective after the high debt burden is resolved, structural and institutional weakness addressed and significant growth achieved. – debt ; poverty ; fiscal strategy ; external aid

Recent studies on trade policy for low-income countries have established that high transport costs associated with poor quality infrastructure in countries such as Kenya represent a barrier to trade and an additional source of protection to domestic producers of import competing goods. This study reports results for Kenya on protection rates from tariffs and transport costs. Although Kenya reduced tariffs during the 1990s, protection increased for agriculture, manufactured foods, wood products and clothing. Two sectors experienced declines in protection (raw textiles, fishing and forestry) and chemicals moved from positive to negative protection. Effective protection due to transport costs was equivalent to 50% in the early 1990s but fell to 20% by 2003. As the new EAC Customs Union implies a reduction in tariffs, overall the level of protection will fall on average to below ten per cent.