Reading the World Bank's first structural adjustment program for Kenya

This weekend, I had the opportunity to read the first structural adjustment program by the World Bank towards Kenya. While there is a lot to unpack about the $70 million credit, I thought it interesting to start by analyzing the World Bank’s diagnosis of Kenya’s pattern of industrialization. It suggested then (1980) that Kenya’s manufacturing had thrived under heavy protectionism and based on import substitution. The manufacturing was oriented towards the wider East African market, which was equally protectionist to external industries. The World Bank, however, noted that this pattern was unsustainable for various reasons.

One, Kenya relied heavily on imports to drive manufacturing and yet undermined its capacity to afford those imports. In other words, by being so protectionist, Kenya introduced an anti-export bias where it made it more profitable to sell its goods domestically than export. It also suggested that the East African Community no longer gave preferential treatment to Kenya’s manufacturing goods. For context, the East African Community had collapsed three years earlier, only to be reinstated two decades later. The World Bank also noted that manufacturing in Kenya was highly capital intensive and yet underutilized its own resources, including labor, to sustain such intensity. In a nutshell, it argued that unless Kenya shifted its strategy, the prospects of manufacturing were dim.

It recommended that the solution was for Kenya to change the system of protectionism and introduce incentives that would improve efficiency and move the industry towards increased exports and utilization of internal resources. The challenge with these propositions, sound as they sounded on paper, was an excessive commitment to theory at the expense of local realities and setting one-sided rules. Think of it as the World Bank being a referee in a boxing match and outlining the rules for the underdog (Kenya) while letting the larger player (the rest of the world) remain at liberty to do as it pleased. Your guess is as good as mine, and Kenya’s industry was significantly weakened in that match, and to this day it has yet to see the light of day.