In 1997, however, the economy entered a period of slowing or stagnant growth, due in part to adverse weather conditions and reduced economic activity prior to general elections in December 1997. In 2000, GDP growth was negative, but improved slightly in 2001 as rainfall returned closer to normal levels. Economic growth continued to improve slightly in 2002 and reached 1.4% in 2003. it was 4.3% in 2004 and 5.8% in 2005.
An aerial of the cargo terminal at Jomo Kenyatta International Airport, Nairobi, the largest and busiest airport in East Africa

In July 1997, the Government of Kenya refused to meet commitments made earlier to the IMF on governance reforms. As a result, the IMF suspended lending for 3 years, and the World Bank also put a $90-million structural adjustment credit on hold. Although many economic reforms put in place in 1993-94 remained, conservative economists believe that Kenya needs further reforms, particularly in governance, in order to increase GDP growth and combat the poverty that afflicts more than 57% of its population.

The Government of Kenya took some positive steps on reform, including the 1999 establishment of the Kenya Anti-Corruption Authority (KACA), and measures to improve the transparency of government procurements and reduce the government payroll. In July 2000, the IMF signed a $150 million Poverty Reduction and Growth Facility (PRGF), and the World Bank followed suit shortly after with a $157 million Economic and Public Sector Reform credit. The Anti-Corruption Authority was declared unconstitutional in December 2000, and other parts of the reform effort faltered in 2001. The IMF and World Bank again suspended their programmes. Various efforts to restart the programme through mid-2002 were unsuccessful.

Under the leadership of President Kibaki, who took over on December 30, 2002, the Government of Kenya began an ambitious economic reform programme and has resumed its cooperation with the World Bank and the IMF. The new National Rainbow Coalition (NARC) government enacted the Anti-Corruption and Economic Crimes Act and Public Officers Ethics Act in May 2003 aimed at fighting graft in public offices. Other reforms especially in the judiciary, public procurement etc., have led to the unlocking of donor aid and a renewed hope at economic revival. In November 2003, following the adoption of key anti-corruption laws and other reforms by the new government, donors reengaged as the IMF approved a three-year $250 million Poverty Reduction and Growth Facility and donors committed $4.2 billion in support over 4 years. The renewal of donor involvement has provided a much-needed boost to investor confidence.

The Privatisation Bill has been enacted although the setting up of a privatisation commission is yet to be finalised, civil service reform has been implemented and in 2007 the country won the UN Public Service reform award. However a lot of work needs to be done to make the country catch up with the rest of economic giants especially the Far East. The main challenges include taking candid action on corruption, enacting anti-terrorism and money laundering laws, bridging budget deficits, rehabilitating and building infrastructure. This hopefully will help in maintaining sound macroeconomic policies, and speed up the rapidly accelerating economic growth, which is projected to grow to 7.2% in 2007.

In 2007, the Kenyan government unveiled Vision 2030, which is a very ambitious economic blueprint and which, if implemented in its entirety, has the potential of putting the country in the same league as the Asian Economic Tigers. However all these economic projections now hang in the balance following the political uncertainty occasioned by the aftermath of the 2007 disputed Presidential polls, which left the country economically dented.

Nairobi continues to be the primary communication and financial hub of East Africa. It enjoys the region's best transportation linkages, communications infrastructure, and trained personnel, although these advantages are less prominent than in past years. A wide range of foreign firms maintain regional branch or representative offices in the city. In March 1996, the Presidents of Kenya, Tanzania, and Uganda re-established the East African Community (EAC). The EAC's objectives include harmonizing tariffs and customs regimes, free movement of people, and improving regional infrastructures. In March 2004, the three East African countries signed a Customs Union Agreement.