Underdevelopment is a major problem facing many developing countries around the world. Market mechanisms have increasingly been employed in an attempt to overcome the problem of underdevelopment such as low growth and poverty; however the implementation of market centred policies has raised other problems such as institutional mechanisms and the quality of governance within the institutions designed to implement the market oriented policies. This thesis attempts to throw some light on these problems by investigating the case of liberalisation in the Kenyan coffee industry. The thesis concentrates on the question of the extent to which the liberalisation program sponsored by the International Monetary Fund (IMF) and the Government of Kenya (GOK) has been effective in creating an efficiently functioning market within the coffee sector in particular and the Kenyan macro-economy in general. The research finds that on the whole the liberalisation program targeted at the coffee sector has failed to take into account the institutional conditions and the extent of state centred features like rent seeking and centralised decision makings powers within the coffee sector prior to implementing the liberalisation program. The resulting market arrangement has therefore adversely affected the program’s intended recipients, particularly at the level of cooperative institution where the interests of the small-scale farmers are represented. The thesis will elaborate more on this and relate its findings to the macro-economic view of Kenya. The conclusion shows that in order for the Kenyan economy to break free from the problems of underdevelopment and to generate sustainable rates of growth, more attention must be given to improving the quality of governance and to developing a credible set of institutions to support and execute market-friendly economic policies. Good quality governance represented by accountability, transparency, rule of law, stability and efficiency appears to be the missing ingredient in making Kenya a successful economy.

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