traditionally, Kenya’s economy was based on farming, herding, hunting, and trade. With the establishment of colonial rule, Kenya was brought into the world capitalist economy. Under the British, Kenya developed an economy based on the export of agricultural products. The colonial government promoted the settlement of European farmers in Kenya to offer a greater supply of exports. From World War I (1914-1918) through the mid-1950s, produce grown on settler farms and estates, such as coffee, sisal (a fiber used to make rope), and tea, controlled Kenya’s exports. Meanwhile, African households were promoted to produce commodities for subsistence and for sale in local markets, and to work on European farms producing export crops.

At the time of freedom, Kenya's economy was characterized by a large orthodox area based on subsistence agriculture and the barter of goods, by a heavy dependence on foreign exchange for agricultural exports such as coffee and tea, and by a strong bond with the international economic system. Since 1963 the government has pursued a policy dedicated to a mixed economy of both privately owned and state-run enterprises. Most of Kenya's business is in private hands, but the government also shapes the nation's economic development through various regulatory powers and “parastatals,” or enterprises that it partly or wholly owns.

Kenya is well placed to serve as an engine of growth in East Africa, but its economy has been stagnating because of poor management and uneven commitment to reform. In 1993, the government of Kenya implemented a program of economic liberalization and reform that included the removal of import licensing, price controls, and foreign exchange controls. With the support of the World Bank, IMF, and other donors, the reforms led to a brief turnaround in economic performance following a time of negative growth in the early 1990s. Kenya's real GDP grew 5% in 1995 and 4% in 1996, and inflation remained under control. Growth slowed after 1997, averaging only 1.5% in 1997-2000. In 1997, political violence damaged the tourist industry, and Kenya's Enhanced Structural Adjustment Program lapsed due to the government's failure to maintain reform or address public area corruption. A new economic team was put in place in 1999 to revitalize the reform effort, strengthen the civil service, and curb corruption. The IMF and World Bank renewed their support to Kenya in mid-2000, but a number of setbacks to the economic reform program in late 2000 have renewed donor and private area concern about the government's commitment to sound governance. Long-term barriers to development include electricity shortages, inefficient government dominance of key sectors, endemic corruption, and high population growth.