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TABLE OF CONTENTS ABBREVIATIONS .................................................................................................................................................................................................................................................. i ACKNOWLEDGEMENTS.................................................................................................................................................................................................................................. ii EXECUTIVE SUMMARY.................................................................................................................................................................................................................................... iii THE STATE OF KENYA’S ECONOMY 1. Recent Economic Developments ...................................................................................................................................................................................................... 2 1.1 The global and regional economy ......................................................................................................................................................................................... 2 1.2 Recent developments in Kenya................................................................................................................................................................................................ 2 1.3 Outlook, risks, and policy recommendations ................................................................................................................................................................. 11 SPECIAL FOCUS 2.1. Context and motivation: Why legal and regulatory barriers to competition matter in Kenya.......................................................... 17 2.2. Economy-wide performance and cross-cutting regulatory barriers to competition in Kenya........................................................ 20 2.3. Case studies on regulatory barriers to competition in select key sectors in Kenya................................................................................. 25 2.4. Policy recommendations.............................................................................................................................................................................................................. 31 LIST OF FIGURES Figure 1: Agriculture and services continue to show resilience............................................................................................................................................. 3 Figure 2: Private consumption remained the largest driver of growth in 2024 .......................................................................................................... 3 Figure 3: The industry sector has shown signs of recovery ..................................................................................................................................................... 3 Figure 4: Employment growth has slowed in recent years....................................................................................................................................................... 3 Figure 5: New wage jobs by sector, 2024............................................................................................................................................................................................. 4 Figure 6: The current account deficit edged up slightly............................................................................................................................................................. 5 Figure 7: Financial inflows have improved.......................................................................................................................................................................................... 5 Figure 8: The Kenya shilling has remained stable against the US$ and slightly depreciated against other major currencies since early 2025................................................................................................................................................................................................................................ 5 Figure 9: Foreign exchange reserves are at record-high levels............................................................................................................................................... 5 Figure 10: Headline inflation remains stable......................................................................................................................................................................................... 6 Figure 11: Private sector credit is rebounding amid falling interest rates and settlement of arrears................................................................ 6 Figure 12: Weak revenue performance and expenditure pressures …................................................................................................................................ 7 Figure 13: … have led to persistent fiscal slippages ....................................................................................................................................................................... 7 Figure 14: The government largely relied on domestic borrowing to meet its rising financing needs.......................................................... 8 Figure 15: … resulting in increased domestic debt......................................................................................................................................................................... 8 Figure 16: Development spending declined over the last decade......................................................................................................................................... 10 Figure 17: … both in absolute terms and as a share of GDP...................................................................................................................................................... 10 Figure 18: Still most development spending goes to infrastructure sector...................................................................................................................... 11 Figure 19: Spillovers from (and potential tradeoffs between) productivity growth in jobs.................................................................................... 17 Figure 20: Capital compensation is higher at the economywide level in Kenya than in the average country in comparable income groups (gross operating surplus ratios across income categories, 2008-2022).................................................................... 18 Figure 21: Sectoral gross operating margins were higher in Kenya than the average lower-middle income country, and they have increased over the last 15 years .......................................................................................................................................................... 18 Figure 22: Typology of market interventions that may hinder competition..................................................................................................................... 19 Figure 23: Overall PMR score .......................................................................................................................................................................................................................... 20 Figure 24: Distortions induced by public ownership (PMR subscore).................................................................................................................................. 21 Figure 25: The Government of Kenya is a key shareholder in businesses beyond just traditional SOEs......................................................... 21 Figure 26: Close to half of all domestic Kenyan BOS are in competitive sectors, especially in services industries................................... 22 Figure 27: Government transfers to state-owned enterprises................................................................................................................................................... 22 Figure 28: Regulatory impact evaluation (PMR subscore)............................................................................................................................................................ 23 Figure 29. Barriers to Trade and Investment (PMR subscore)...................................................................................................................................................... 24 Figure 30: Applied tariffs: Kenya vs. world............................................................................................................................................................................................... 24 Figure 31: Applied tariffs (2023): Kenya vs. peers................................................................................................................................................................................ 24 Figure 32: Landing cost of fertilizer (Ksh per 50kg bag)................................................................................................................................................................. 26 Figure 33: Electricity Sector Institutional Structure........................................................................................................................................................................... 27 Figure 34: Mobile Telecommunications (PMR score)....................................................................................................................................................................... 29 Figure 35: Cheapest price for 1 GB and 20 GB per month data bundle............................................................................................................................... 30 LIST OF TABLES Table 1: Kenya fiscal framework (percent of GDP)............................................................................................................................................................................. 9 Table 2: Kenya’s medium term growt outlook .................................................................................................................................................................................... 13 Table 3: Landing cost of fertilizer (Ksh per 50kg bag)...................................................................................................................................................................... 26 LIST OF BOXES Box 1: Evolution of development spending through FY2014/15 – FY2024/25.............................................................................................................. 10 Box 2: Longer-term Fiscal Revenue and Expenditure Performance....................................................................................................................................... 12 ABBREVIATIONS AEs Advanced Economies LMIC Lower-Middle Income Country AfCFTA African Continental Free Trade Area MDA Ministries, Departments, and Agencies AGOA African Growth and Opportunity Act MFN Most Favored Nation AIA Appropriations-in-Aid MIC Middle-Income Country ALP Administrative and Licensing Procedures MNO Mobile Network Operator BETA Bottom-Up Economic Transformation MNP Mobile Number Portability Agenda MTP IV Fourth Medium Term Plan BOP Balance of Payments mtCO2e Metric Tons of Carbon Dioxide Equivalent BOS Businesses of the State MTR Mobile Termination Rate bbl Barrel of Crude Oil NFSP-2 National Fertilizer Subsidy Program BPS Budget Policy Statement (Phase 2) CAIT Climate Analysis Indicators Tool NCPB National Cereals and Produce Board CAK Competition Authority of Kenya NPLs Non-Performing Loan(s) CBK Central Bank of Kenya NT National Treasury CIF Cost, Insurance, and Freight NTM Non-Tariff Measure DAP Diammonium Phosphate NVSP National Value Chain Support Program EAC East African Community OECD Organisation for Economic Co-operation EMDEs Emerging Markets and Developing and Development Economies OPEC+ Organization of the Petroleum Exporting EPRA Energy and Petroleum Regulatory Countries Plus Authority PFM Public Financial Management ERC Energy Regulatory Commission PPE Personal Protective Equipment FAFB Fertilizers and Animal Foodstuffs Board PMI Purchasing Managers’ Index FDI Foreign Direct Investment PMR Product Market Regulation FiT Feed-in Tariff PPP Purchasing Power Parity FY Fiscal Year Q1, Q2, Q3, First Quarter, Second Quarter, Third GDP Gross Domestic Product Q4 Quarter, Fourth quarter GoK Government of Kenya QEBR Quarterly Economic and Budgetary Review GOSR Gross Operating Surplus Ratio REAP Renewable Energy Auction Policy H1, H2 First Half, Second Half RIA Regulatory Impact Assessment HHI Herfindahl-Hirschman Index RIE Regulatory Impact Evaluation ICT Information and Communication Technology SMP Significant Market Power IMF International Monetary Fund SOEs State-Owned Enterprises IPP Independent Power Producer SSA Sub-Saharan Africa KALRO Kenya Agricultural and Livestock TelCos Telecommunications Companies Research Organization TPA Third-Party Access KETRACO Kenya Electricity Transmission Company US$ United States Dollar KNBS Kenya National Bureau of Statistics VAT Value Added Tax KPLC Kenya Power and Lighting Company November 2025 | Edition No. 32 i ACKNOWLEDGEMENTS The Kenya Economic Update (KEU) is a World Bank report series produced twice a year that assesses recent economic and social developments and prospects in Kenya, and places these in a longer-term and global context. Through special topics, the KEU also examines selected policy issues and medium-term development challenges in Kenya. It is intended for a wide audience, including policymakers, business leaders, financial market participants, and the community of analysts and professionals engaged in Kenya’s changing economy. The production of the KEU is led by the Kenya Economic Policy team (EAEM1). The first part – Recent Economic Developments, Outlook and Risks – was produced by Jorge Tudela Pye, Geraldine Kyalo, Angélique Umutesi, Stanley Mutinda, and Ahya Ihsan. It benefited from contributions from the Global Economic Prospects Group. The second part – Special Topic on Competition Policy was led by the Finance, Competitiveness, and Investment team for Kenya (EAEF1). The team comprised of Ryan Chia Kuo, Isfandyar Zaman Khan, Tania Priscilla Begazo Gomez, Seidu Dauda, Paul Phumpiu Chang, Linda Kirigi, and Nick Brown. Vera Rosauer managed communication and dissemination while Robert Waiharo helped with the design. Logistical assistance during the preparation of this report was provided by Kevin Oranga and Clare Juma. The report was prepared under the overall guidance of Abha Prasad (Practice Manager, EAEM1), Alwaleed Alatabani (Practice Manager, FCI), Marek Hanusch (Lead Economist, EAEM1), Hassan Zaman (Regional Director for Eastern and Southern Africa), Qimiao Fan (Division Director for Kenya, Rwanda, Somalia and Uganda, AECE2) and Anne Margareth Bakilana (Manager, Operations, for Kenya, Rwanda, Somalia and Uganda, AECE2). The report benefited from excellent reviews comments from Samer Naji Matta (Senior Economist, EAWM2), Graciela Miralles Murciego (Senior Economist, EECF2), and Aghassi Mkrtchyan (Lead Economist, EAEM1), and from valuable regular discussions with officials at the National Treasury, Central Bank of Kenya, Kenya National Bureau of Statistics, Competition Authority of Kenya, and International Monetary Fund. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. For questions about this report please email jtudela@worldbank.org and vrosauer@worldbank.org. For information about the World Bank and its activities in Kenya, please visit: https://www.worldbank.org/en/country/kenya ii November 2025 | Edition No. 32 EXECUTIVE SUMMARY Kenya’s monetary and external policy environment is The current account deficit widened to September solid; however, its fiscal outlook places the country at 2025, driven by a recovery of domestic demand. The a crossroads. Real GDP growth slowed to 4.7 percent in current account deficit increased from 1.5 percent of 2024, but it accelerated in the first half of 2025, growing GDP to 2.5 percent in the 12 months to September by 4.9 percent in Q1-2025 and 5.0 percent in Q2-2025. 2025.2 Export of goods grew by 4.0 percent in United The construction sector is recovering, supported by a State Dollars (US$) during the same period, while those reduction in monetary policy rates, increased public of services increased by 7.6 percent. In a similar way, investment, and payment of road arrears. Inflation imports of goods grew by 10.9 percent in 12 months to remains within the Central Bank’s target range, exchange September 2025, while those of services by 7.9 percent. rate has remained stable, and international reserves are at a record high. However, fiscal slippage persists, with Private sector credit is recovering, reflecting a more a wide fiscal deficit, and both interest payments and accommodative monetary policy. After a period of public debt remained elevated. decline throughout 2024 and early 2025, nominal private sector credit grew by 5.0 percent in September Fiscal slippage persisted in FY2024/25 with the deficit 2025 (y/y), reversing the 2.9 percent contraction widening to 5.9 percent of GDP, compared to the recorded in January 2025. The decline in average revised budget target of 4.3 percent. The government's lending rates from 16.9 percent in September 2024 efforts to pursue and maintain fiscal consolidation to 15.1 percent in September 2025 has improved loan continue to be undermined by weak revenue collection affordability, encouraging increased borrowing in and high rigidity of expenditures, which restrict the sectors like construction, trade, consumer durables, and ability to make significant adjustments. In FY 2024/25, agriculture. both the overall and primary balances deteriorated amid revenue shortfalls and mounting expenditure pressures. Real GDP growth is projected at 4.9 percent on The fiscal deficit surpassed the 4.3 percent target set average for 2025-2027; however, the outlook is in Supplementary Budget I, while the primary balance subject to elevated risks. This forecast represents overturned 0.1 percent of GDP surplus in FY2023/24 to an upward revision from the May 2025 edition of the a deficit of 0.1 percent in FY2024/25. Kenya Economic Update and the October Macro- Poverty Outlook. Q2.25 represented an upward surprise The total stock of public debt increased in FY2024/25, in our estimates, particularly the faster-than-expected reflecting ongoing macroeconomic vulnerabilities. A recovery in the construction sector. Low inflation, rise in the primary deficit contributed to a 1.3 percentage easing monetary policy, and improved credit growth point growth in total public debt, with domestic debt are expected to support household incomes and private remaining the largest component and following an investment. Nevertheless, ongoing uncertainties in upward trend. Public debt grew from 67.5 percent of global and domestic trade, alongside the ongoing fiscal GDP in FY2023/24 to 68.8 percent in FY2024/25, with consolidation process, are likely to moderate growth domestic debt representing 53.6 percent of the total. in the near term. Moreover, the share of formal jobs in Kenya is assessed in high risk of debt distress (WB-IMF, Kenya has consistently declined during the last 15 years, 2024).1 Net domestic borrowing rose by 1.2 percentage falling to 15.5 percent in 2024 from 18.5 percent in 2010, points in FY2024/25 to 5.0 percent of GDP relative to while informal job creation work dominates labor market the previous fiscal year. Moreover, the share of treasury outcomes. Overall, Kenya’s economic outlook remains bills in domestic debt rose to 16.4 percent of GDP subject to downside risks that could threaten growth, in FY2024/25 from 11.4 percent in FY2023/24, while job creation, and macroeconomic stability. Ongoing the share of treasury bonds declined over the period, fiscal challenges, including missed consolidation targets representing 45.8 percent of total domestic borrowing. and high recurrent expenditures, remain a key source of Kenya net external financing declined to 1.0 percent of vulnerability. GDP in FY2024/25 from 1.4 percent of GDP in FY2023/24. 1 WB-IMF Staff Country Reports 2024, 316 (2024) accessible on https://doi.org/10.5089/9798400291067.002 2 The Kenya National Bureau of Statistics (KNBS) revised the balance of payments data from 2024 to enhance the recording of cross-border transactions, particularly imports and re-exports of petroleum products under government-to-government contracts. The revisions also incorporate alternative data sources to improve estimates of international trade in services, especially travel and financial services, and include adjustments to re-exports of oil products to the region as well as international travel receipts. These changes are expected to result in a narrower current account deficit by more accurately capturing export earnings and service receipts that were previously underreported. November 2025 | Edition No. 32 iii Executive Summary These macroeconomic and labor market outcomes Kenya further insulates domestic companies from reflect deeper structural challenges with respect to competition from foreign firms and investors. Kenya’s competition. Robust competition is a key enabler of private average Most Favored Nation (MFN) applied tariff rate sector growth, jobs, and investment, as well as consumer was 13.7 percent in 2023, significantly higher than in peer welfare. When competition is vigorous and fair, firms are countries. Non-tariff measures (NTMs) such as import striving to offer lower prices or better quality than their quotas and permitting are also pervasive. NTM-related competitors based on business fundamentals—rather costs amount to over 40 percent ad valorem equivalent. than artificial advantages conferred by discriminatory Furthermore, significant barriers to foreign investment regulations or subsidies. They are rewarded with greater persist in Kenya. Restrictions of foreign equity holdings cut market share and investment when they succeed across sectors such as agriculture, mining, and transport. (between-firm allocative efficiency) and they become more productive in order to stay in business. This dynamic Legal and regulatory barriers to competition are also leads to higher output, more and better-paying jobs, and evident at the sectoral level. For example, the current lowers prices for consumers. design of Kenya’s fertilizer subsidy program establishes exclusive rights for specific firms to distribute subsidized Kenya has a legal and regulatory environment that is fertilizer. This change from the earlier cash voucher-based more restrictive to competition than the “frontier” of model has tripled the distance that farmers must travel to advanced economies with more open markets. According receive fertilizer, led to shortages of the most in-demand to OECD and World Bank’s Product Market Regulation varieties, and generated significant costs for taxpayers. (PMR) database, Kenya has an overall PMR score of 2.92, Within the electricity sector, non-competitive allocation of the highest (i.e., most restrictive) score of any country power purchase agreements and lack robust frameworks with available PMR data and well above the average for for open access to transmission and distribution other middle-income countries (2.27). Relatedly, Kenya’s infrastructure contribute to electricity prices being some relatively high and growing gross operating surplus ratio of the highest in the region. In the telecommunications (GOSR) suggests that weak competition is allowing firms to sector, key priorities to reduce data prices and boost earn rents at the expense of workers and consumers. Areas internet use include formally identifying and addressing of particular underperformance on an economy-wide dominance and significant market power through an basis include distortions induced by public ownership, appropriate mix of ex-ante and ex-post remedies; and regulatory impact evaluation and policymaking more market-based and competitive approaches in radio safeguards, and barriers to trade and investment. communication frequency regulation. More detailed sectoral recommendations—including for sectors not The breadth of SOEs and poor SOE governance examined in this report—are contained in the CAK and structures create significant distortions to fair World Bank’s report From Barriers to Bridges: Procompetitive competition in Kenya. The Government of Kenya holds Reforms for Productivity and Jobs in Kenya (Competition stakes in over 200 business entities operating in the Authority of Kenya & World Bank, 2025) as well as the World domestic economy, with half operating in competitive Bank’s report Spurring Digital Inclusion in Kenya: Analysis of sectors where the rationale for public ownership is Telecom and Mobile Money Markets (World Bank, 2025). unclear. Mixed mandates and lack of profit accountability mean that these SOEs often operate at a loss, forcing the Addressing these barriers to competition could government to financially support them. Fiscal transfers yield significant benefits in terms of growth and to SOEs have averaged 5-7 percent in recent years. This jobs outcomes. Key priorities include a) enhancing dynamic disincentivizes private investment, hurting governance of SOEs to establish competitive neutrality; sectoral productivity and wages. b) expanding policymaking safeguards such as regulatory impact assessments; and c) reducing tariff barriers, non- Kenya’s framework for ensuring fair, transparent, and tariff measures, and foreign investment restrictions. For procompetitive policymaking remains incomplete. While example, reducing barriers to competition in foundational Kenyan law mandates regulatory impact assessment for input sectors such as electricity, telecommunications, subordinate regulations, these requirements do not and transport could boost GDP growth rates by 1.35 extend to primary legislation. Furthermore, Kenyan percentage points. Improving competition could also law does not mandate transparency in interactions lead to more and better jobs in Kenya. Reforms in these between interest groups, lobbyists, and policymakers, sectors could lift annual labor compensation growth rates creating room for well-connected firms to earn undue by up to 2 percentage points, equivalent to over 400,000 competitive advantages. jobs per year at the average wage in Kenya. iv November 2025 | Edition No. 32 The State of Kenya’s Economy Photo: ©Bonney Tunya/World Bank The State of Kenya’s Economy 1. Recent Economic Developments 1.1 The global and regional economy record levels, underpinned by firm investment demand Global economic growth is slowing, reflecting and continued central bank purchases amid elevated heightened trade tensions and the impact of an geopolitical tensions. uncertain global policy landscape. According to recent market forecasts, global growth is projected Despite improved growth outlook, Sub-Saharan to slow to 2.6 percent in 2025, representing one of Africa’s (SSA) economies continue to face constraints the weakest paces of global expansion since 2008. 3 due to limited external financing and escalating debt Despite resilience earlier this year—partly due to the service obligations. Regional output in SSA is forecast front-loading of traded goods in anticipation of higher to accelerate from 3.5 percent in 2024 to 3.8 percent tariffs—, global trade growth of goods and services is in 2025, driven mostly by improved terms of trade and projected to weaken in 2025-26 amid elevated trade declining inflation, which are expected to boost private barriers, heightened policy uncertainty, and shifting consumption and investment. From the production trade dynamics. Although a gradual recovery is expected side, the services sector will drive about 60 percent of in 2027, global trade growth—a key engine of GDP the growth, with ICT, finance, and tourism performing growth and development—is anticipated to remain strongly. In the medium term, output is projected to grow below its pre-pandemic average. Growth prospects by 4.4 percent (2026-27). During 2024, performance remain subdued in both advanced economies and varied across the region, with Nigeria growing by emerging markets and developing economies (EMDEs). 3.4 percent, supported by services and a modest oil According to market forecasts, growth in advanced recovery, while South Africa’s growth slowed to 0.5 economies for 2025 is expected to decelerate to 1.6 percent due to structural challenges and the sharpest percent in 2025, while growth in EMDEs is projected agricultural contraction in nearly three decades. Growth at 4.2 percent in 2025. Global inflation has remained among industrial commodity exporters—such as the elevated and above target in many countries but is Democratic Republic of Congo—reached 4.2 percent, expected to continue to moderate. Market forecasts see while ongoing conflict in Sudan and South Sudan kept inflation slowing to 2.9 percent in 2025 and 2.7 percent GDP 40.0 percent and 9.0 percent below pre-conflict in 2026 alongside lower prices of energy commodities levels, respectively. Non-resource-rich economies and reduced global demand. 4 slowed to 5.7 percent. Elevated levels of government debt, high public deficits, and rising debt service costs Commodity prices have declined this year, primarily have eroded fiscal space in the region, prompting many due to ample global supplies and subdued global countries to undertake fiscal consolidation measures economic activity. Annual average commodity prices to restore macroeconomic stability. These efforts are are projected to decrease by 7 percent in both 2025 and taking place amid high financing needs and declining 2026, as global growth continues to be sluggish and the international development assistance, which is further oil market remains oversupplied. Oil prices have seen a constraining growth. particularly sharp drop during the year, with demand growth projected to remain below 2015–19 levels 1.2 Recent developments in Kenya while worries about the effect of rising trade tensions Kenya’s monetary and external policy environment is have coincided with an increase in oil production from solid; however, its fiscal outlook places the country at OPEC+.5 Brent crude is forecast to average $68/bbl in a crossroads. Real GDP growth slowed to 4.7 percent in 2025 and US$60/bbl in 2026, from US$81/bbl in 2024. 2024, but it accelerated in the first half of 2025, growing Base metal prices are projected to increase 5 percent by 4.9 percent in Q1-2025 and 5.0 percent in Q2-2025. in 2025 and edge up in 2026, reflecting frontloaded The construction sector is recovering, supported by a demand due to the flare up in trade tensions and reduction in monetary policy rates, increased public growing investment in renewable energy and related investment, and payment of road arrears. Inflation infrastructure. Precious metals prices have surged to remains within the Central Bank’s target range, exchange 3 Global growth numbers are derived from forecasts from Consensus Economics as of October 2025. This excludes periods when the global economy contracted and is on par with 2019. In 2020, the global economy is estimated to have contracted by approximately 3 percent due to the COVID-19 pandemic, the deepest global recession since World War II. 4 Inflation numbers are Consensus Economic forecasts as of October 2025. 5 OPEC consists of 13 member countries—Algeria, Angola, Congo (Republic of ), Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela—while the OPEC+ alliance also includes 10 additional producers: Azerbaijan, Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan, and Sudan. 2 November 2025 | Edition No. 32 The State of Kenya’s Economy rate has remained stable, and international reserves Private consumption remains the largest growth driver. are at a record high. However, fiscal slippage persists, Private consumption remained the largest contributor to with a wide fiscal deficit, and both interest payments growth in 2024, though its pace moderated as access to and public debt remain elevated. Kenya continues to credit tightened (Figure 2). Consumption was supported be assessed at high risk of debt distress, underscoring by remittance inflows, which increased by 12.2 percent ongoing challenges in achieving fiscal consolidation. during 2024, and lower inflation. This helped cushion household purchasing power amid broader economic The real economy challenges. Although household credit contracted Economic growth slowed in 2024 but is strengthening early 2025, signs of recovery are showing, with uptake in 2025. GDP growth decelerated to 4.7 percent in 2024, growing by 0.8 percent in July 2025 albeit lower than 7.5 from 5.7 percent in 2023, on account of tight monetary percent growth in July 2024. Real average earnings went policy, ongoing fiscal consolidation, and heightened from contracting in 2023 from 4.1 percent to growing by policy uncertainty following mid-2024 protests. These 0.1 percent in 2024.6 factors dampened investment, curtailed credit growth, and weighed on business sentiment, leading to subdued Sectoral performance was mixed, with agriculture economic activities across several sectors of the economy and services maintaining dominance during the including agriculture and services. Nonetheless, signs first half of 2025. The agriculture sector maintained of recovery are emerging. Quarterly data indicates an strong value-added growth of 5.2 percent in H1-2025 uptick in GDP growth from 4.2 percent in Q3-2024 to 5.1 compared with 5.0 percent in the same period in 2024, percent in Q4- 2024, before reaching 4.9 percent in H1- supported by continued favorable weather. Similarly, 2025 (Figure 1). services grew by 5.2 percent in H1-2025, a decline from 6.5 percent recorded in H1-2024, however close to its Figure 1: Agriculture and services continue to show resilience Figure 2: Private consumption remained the largest driver of growth in 2024 Sectoral Contribution to GDP GDP by Expenditure (Contribution to GDP) 7 12 6 10 5 8 Percentage points Percentage points 4 6 3 4 2 2 1 0 -2 0 -4 Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 -1 2019 2020 2021 2022 2023 2024 Private consumption Government consumption Gross xed investment Inventory and statistical discrepancy Agriculture Industry Service Net taxes on products GDP Net exports GDP Source: World Bank and KNBS Source: World Bank and KNBS Figure 3: The industry sector has shown signs of recovery Figure 4: Employment growth has slowed in recent years Purchasing Managers Index (PMI) Employment Structure and Growth 60 25,000 8.0 Percentage growth in employment 6.0 > 50 indicates an expansion Number of people ('000s) 20,000 4.0 50 15,000 2.0 PMI Index 0.0 10,000 40 -2.0 < 50 indicates contraction 5,000 -4.0 0 -6.0 30 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Jul-24 Oct-24 Jan-25 Apr-25 Jul-25 Oct-25 Wage employment Self employment Informal employment Employment growth Source: Stanbic Bank Source: World Bank and KNBS 6 Kenya Economic Survey, KNBS (May 2025). November 2025 | Edition No. 32 3 The State of Kenya’s Economy 15-year average of 5.4 percent. The industry sector is These macroeconomic and labor market challenges recovering, growing by 3.5 percent in H1-2025, up reflect deeper structural challenges with respect to from 0.3 percent recorded in H1-2024. Growth in competition. Robust competition is a key enabler of industry sector was supported by construction, which private sector growth, jobs, and investment, as well grew by 4.3 percent in H1-2025 after contracting by as consumer welfare. When competition is vigorous 1.6 percent in H1-2024. Increased cement production and fair, firms are constantly striving to offer lower and consumption reflect renewed activity (5.2 percent prices or better quality than their competitors based and 8.9 percent, respectively, in the year to June 2025 on business fundamentals—rather than artificial compared to the same period in 2024). Manufacturing, advantages conferred by discriminatory regulations however, is decelerating, growing by 1.6 percent in or subsidies. They are rewarded with greater market H1-2025 compared with 2.5 percent in H1-2024. The share and investment when they succeed (between- Purchasing Managers’ Index (PMI) lingered below the firm allocative efficiency). This dynamic lowers prices 50.0 threshold from May to August 2025, indicating for consumers and forces firms to become more weak sales and potential business disruptions; however, productive in order to stay in business. In turn, this it recovered in September and rose to 52.5 in October, can lead to higher output and more and better-paying its highest value in the year. (Figure 3).7 jobs. The Special Focus of this KEU analyzes potential avenues to address these challenges. Employment growth in 2024 greatly concentrated in the informal sector, reflecting broader structural External sector challenges in the economy. Employment in both The current account deficit widened to September private and public sectors, excluding small-scale 2025, driven by a recovery of domestic demand. The agriculture and pastoral activities, stood at 20.8 million current account deficit increased from 1.5 percent of in 2024 up from 20.0 million in 2023, a 3.9 percent growth GDP to 2.5 percent in the last 12 months to September (Figure 4). In 2024, the economy added about 782,000 2025.9 Export of goods grew by 4.0 percent in United new jobs, of which nearly 90.0 percent were created in State Dollars (US$) during the same period, while the informal sector, highlighting its continued role as the those of services by 7.6 percent and travel receipts main employment source in the country. With regards growing by 15.3 percent (Figure 6) 10. Horticulture to wage employment, most job creation occurred in export receipts performed particularly well in the public services such as education (+16,700 workers), 12 months to September 2025, with export values while in the private sector, education also added the rising by 11.3 percent in US$. In contrast, tea exports most wage jobs (+7,900), followed by commerce and contracted over the same period by 3.1 percent. In the hospitality (+11,400) (Figure 5).8 same way, imports of goods grew by 10.9 percent in Figure 5: New wage jobs by sector, 2024 30 25 New wage jobs, in thousands 20 15 10 5 0 -5 Agriculture Manufacturing Construction Other industry Business & Commerce and Transport Other services nance hospitality and ICT Private sector Public sector Source: World Bank and KNBS, 2025. Note: Other industry include the mining, electricity, and water sectors; Business and finance include financial, insurance, real estate, and professional services; Commerce and hospitality include wholesale retail and trade, and accommodation and food services; other services include administrative, public administration and defense, education, health, arts, activities of households, extraterritorial activities, and rest of services sector. 7 A PMI reading below 50 indicates sector contraction, a reading of 50 signals no change, and a reading above 50 reflects sector expansion. 8 Kenya National Bureau of Statistics, 2025. 9 The Kenya National Bureau of Statistics (KNBS) revised the balance of payments data from 2020 to enhance the recording of cross-border transactions, particularly imports and re-exports of petroleum products under government-to-government contracts. The revisions also incorporate alternative data sources to improve estimates of international trade in services, especially travel and financial services, and include adjustments to re-exports of oil products to the region as well as international travel receipts. These changes are expected to result in a narrower current account deficit by more accurately capturing export earnings and service receipts that were previously underreported. See Annex 1. 10 Domestic exports refer to goods that are grown, produced, extracted, and manufactured in Kenya. 4 November 2025 | Edition No. 32 The State of Kenya’s Economy Figure 6: The current account deficit edged up slightly Figure 7: Financial inflows have improved External Balances, % of GDP Financial Flows, % of GDP 10 Figures from 2024 onwards re ect a calculations based on new data series 10 Figures from 2024 onwards re ect a calculations based on new data series incorporating revised BOPmethodology by KNBS. incorporating revised BOP methodology by KNBS. 8 5 6 Share of GDP 4 Share of GDP 0 2 0 -5 -2 -4 -10 -6 -8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 -15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2023 2024 2025 2023 2024 2025 Capital account balance Direct investment, net Trade balance Remittances Portfolio investment, net Other investment, net Primary income balance Non-remittance secondary income balance Net errors and omissions Reserves and related items Current account balance - revised Current account balance - previous Current account   balance - revised Current account balance - previous Source: CBK and KNBS Note: The chart includes two data series to reflect both historical trends and newly available figures. The KNBS revised the BOP data from 2020 to enhance the recording of cross- border transactions, particularly imports and re-exports of petroleum products under government-to-government contracts. The revisions also strengthen recording of international trade in services, especially travel and financial services, and include adjustments to re-exports of oil products to the region as well as international travel receipts. Revisions are still ongoing. Please see Annex 1 for more details. 12 months to September 2025, while those of services Foreign exchange reserves in US dollars reached by 7.9 percent. In the 12 months to September 2025, record-high levels. The Kenya shilling has remained machinery and transport equipment imports increased stable against the US dollar, exchanging at an average by 23.4 percent, as activity in the construction sector of Ksh. 129.2 over the last 12 months to September 2025 rebounded. Conversely, oil import bill fell by 10.1 — while depreciating against other major currencies percent, mostly driven by lower global fuel prices. since the beginning of the year. (Figure 8). According to National Treasury of Kenya, the stability is underpinned Financial inflows have strengthened, providing by improved macroeconomic fundamentals, including support to Kenya's external position (Figure 7). improvements in foreign exchange inflows—driven Foreign Direct Investment (FDI) inflows rose by 27.6 by sustained diaspora remittances, strong export percent in the year to September 2025, while diaspora performance, and a rebound in tourism—, which have remittances increased by 7.8 percent during the in return strengthened foreign exchange reserves. 11 same period and continue to be a reliable source of Foreign exchange reserves have consistently remained foreign exchange. In addition to export revenues and above US$10 billion since May 2025 (Figure 9), continued access to external financing, remittances providing an import cover ranging between 4.7 and have supported maintaining the stability of the 5.3 months, above the minimum statutory requirement Kenyan shilling (Figure 8). of four months. Figure 8: The Kenya shilling has remained stable against the US$ and Figure 9: Foreign exchange reserves are at record-high levels slightly depreciated against other major currencies since early 2025 Kenya Shilling Monthly Average Exchange Rate Against Major Currencies Monthly Foreign Exchange Reserves and Import Cover 6.0 210 1.05 12,000 5.5 O cial reserves in million US $ 5.0 190 1.00 Import cover in months 10,000 4.5 4.0 170 0.95 8,000 3.5 3.0 Euro KSh 150 0.90 6,000 2.5 4,000 2.0 130 0.85 1.5 2,000 1.0 110 0.80 0.5 - 0.0 90 0.75 Oct-23 Oct-24 Oct-25 July-24 Apr-23 Apr-24 Apr-25 Jan-23 Jan-24 Jan-24 Jul-23 Jul-25 Jan-22 Mar-22 May-22 Jul-22 Sept-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sept-23 Nov-23 Jan-24 Mar-24 May-24 Jul-24 Sept-24 Nov-24 Jan-25 Mar-25 May-25 Jul-25 Sept-25 O cial reserves Import cover Ksh / US$ Ksh / Pound Sterling Ksh / Euro Euro/US$ (rhs) Minimum import cover requirement (Months) Source: CBK Source: CBK 11 Please see: Mbadi, J. (2025, November 9). The shilling’s stability is supported by strong economic fundamentals. Business Daily Africa. Retrieved from https://www.businessdailyafrica.com/bd/opinion-analysis/columnists/the-shilling-is-supported-by-strong-economic-fundamentals-5259084 November 2025 | Edition No. 32 5 The State of Kenya’s Economy Monetary sector Figure 11: Private sector credit is rebounding amid falling Headline inflation has remained within CBKs target interest rates and settlement of arrears range, supported by easing of global and domestic Monthly Lending Rates, Policy Rate, and Private Sector Credit Growth 20 supply chain disruptions. Since June 2024, inflation has remained within the CBK’s target of +/- 5 percent, reaching 15 4.6 percent in both September and October 2025 year- 10 Percent on-year and coming down from levels above 9 percent in early 2023. However, inflation is at the highest level since 5 July 2024 (Figure 10). The uptick in headline inflation was 0 largely driven by food prices, which rose by 8.0 percent in October 2025 year-on-year, compared to 4.3 percent in -5 Sept-25 Aug-24 Aug-25 Nov-24 Dec-22 Dec-23 Dec-24 Feb-24 Feb-25 May-24 May-25 Apr-24 Apr-25 Sep-22 Sep-23 Sep-24 Oct-24 Mar-22 Mar-23 Mar-24 Mar-25 Jun-22 Jun-23 Jun-24 Jun-25 Jan-24 Jan-25 Jul-24 Jul-25 October 2024. Overall, food inflation accounted for 59.8 percent of the overall increase in headline inflation, up Nominal lending rate Nominal policy rate Nominal growth in private sector credit from 51.7 percent in the same period last year. Fuel prices Source: CBK also rose as the government began gradual increase in pump prices, while core inflation remained stable. The CBK Non-performing loans (NPLs) remain high. The gross has consistently reduced the policy rate from 13 percent NPL ratio came down to 17.1 percent in September 2025, in July 2024 to 9.25 percent in October 2025 in response down from 17.6 percent in June, 2025.12 Past increases to easing inflationary pressures. have been partly attributed to a challenging operating environment marked by constrained cashflows and Private sector credit is recovering, reflecting a more subdued business activity, and public sector pending accommodative monetary policy. After a period of bills. 13 Smaller banks have been more affected by the decline throughout 2024 and early 2025, nominal private NPLs rise due to heightened risk exposure reflecting sector credit grew by 5.0 percent in September 2025 a limited diversification of their loan portfolios, (year-on-year), reversing the 2.9 percent contraction limited credit assessment capabilities, and weaker risk recorded in January 2025 (Figure 11). The decline in management frameworks. Still, Kenyan banks continue average lending rates - from 16.9 percent in September to maintain adequate provisions against loan losses. 2024 to 15.1 percent in September 2025 - has improved Strong capital buffers and liquidity positions are loan affordability, encouraging increased borrowing helping banks absorb the impact of rising NPLs. The in sectors like construction, trade, consumer durables, capital adequacy ratio remained robust at 20.1 percent and agriculture. The recovery in the construction sector in August 2025, staying above the regulatory minimum also reflects, in part, the impact of ongoing settlement of 14.5 percent and signaling room for credit expansion of arrears to suppliers by GoK. The improved access to and strategic investment flexibility for the banking credit in these sectors has supported economic activity sector. However, according to the Kenya Bankers and investment. association, there are capital adequacy concerns among Figure 10: Headline inflation remains stable Monthly In ation Breakdown Percentage point contributions to annual 10 9 8 Upper bound 7 percentage change 6 5 Midpoint 4 3 Lower bound 2 1 0 -1 Nov-24 Dec-24 Nov-23 Dec-23 Aug-25 Aug-24 Sep-25 Aug-23 Sep-24 Sep-23 Feb-25 Feb-24 Feb-23 May-25 Oct-25 May-24 Oct-24 May-23 Oct-23 Jun 24 Mar-25 Mar-24 Jun-25 Mar-23 Jun-23 Apr-25 Apr-24 Apr-23 Jan-25 Jan-24 Jan-23 Jul-25 Jul-24 Jul-23 Core in ation Food in ation Housing, water, electricity, gas & other fuels + transport in ation Source: KNBS 12 Central Bank of Kenya, October 2025. 13 World Bank. (2025). Beyond the Budget: Fiscal Policy for Growth and Jobs, A Public Finance Review for Kenya. 6 November 2025 | Edition No. 32 The State of Kenya’s Economy smaller banks with limited earnings retention, which Revenue performance remained below target, may hinder future growth and undermine resilience notwithstanding gains in VAT, import duty, and to economic shocks. 14 The liquidity condition remains appropriation in aid collections.15 Total revenue, conducive at 59.8 percent in August 2025, signaling including grants, reached 17.2 percent of GDP in FY cautious risk management in favor of ‘low risk’ asset 2024/25—less than the budgeted 17.4 percent in classes such as government securities. Supplementary III, and 17.4 percent in FY2023/24 (Table 1). Lower than budgeted revenue collection Fiscal developments was driven by underperformance in income and excise Fiscal slippage persisted in FY2024/25 with the taxes, consistent with delayed recovery in employment, deficit widening to 5.9 percent of GDP, compared declining wages, and a struggling private sector).16 to the revised budget target of 4.3 percent. The However, VAT and import duties surpassed targets government's efforts to pursue and maintain fiscal reflecting a rebound in imports during the first half of consolidation continue to be undermined by weak FY2025. Appropriation in aid (AiA) also exceeded initial revenue collection, and high rigid expenditures which projections. restrict the ability to make significant adjustments. In FY 2024/25, both the overall and primary balances Expenditure pressures persisted given increasing deteriorated amid revenue shortfalls and mounting domestic debt servicing, grants to SOEs, and use expenditure pressures (Figure 12). The fiscal deficit of goods and services. Interest payments rose to 5.8 surpassed the 4.3 percent target set in Supplementary percent of GDP in FY2024/25 from 5.4 percent of GDP in Budget I, while the primary balance overturned 0.1 FY2023/24, primarily due to domestic interest payments. percent of GDP surplus in FY2023/24 to a deficit of 0.1 In the same way, despite a decline in FY 2024/25, grants percent in FY2024/25. These repeated fiscal slippages to other levels of government including SOEs remain continue to undermine the credibility of Kenya’s fiscal high, reaching 5.7 percent of GDP. In recent years, policy; over the last two years, the fiscal deficit has GoK has consolidated development spending, mostly on average exceeded projections by 1.3 percent of from the infrastructure sector (Box 1). Development GDP (Figure 13). Wider than expected fiscal deficits, spending declined to 3.4 percent of GDP in FY 2024/25 persistent revenue underperformance, heavy reliance from 3.5 percent of GDP in FY2023/24, below its figure on domestic borrowing, rising pending bills, and 10 years ago of 7.9 percent. At the same time, the share growing public debt have all contributed to weakening of rigid expenditure increased – estimated now at 56.4 Kenya’s fiscal position after the initial post-pandemic percent of expenditures or 75.8 percent of revenues improvements. including grants.17 Figure 12: Weak revenue performance and expenditure Figure 13: … have led to persistent fiscal slippages pressures … Percent Deviation from Target 0 10 -2 5 Percent of GDP 0 -4 Percent -5 -6 -10 -8 -15 -10 -20 FY2020/21 FY2021/22 FY2022/23 FY2023/24 FY2024/25 FY2019/20 FY2020/21 FY2021/22 FY2022/23 FY2023/24 FY2024/25 Budgeted Actual Revenue, % of target Expenditure, % of target Source: World Bank calculations based on the National Treasury Source: The National Treasury 14 Kenya Bankers Association (2025). State of the Banking: 2025 Industry Report. 15 In Kenya, appropriation in aid are revenues that government agencies collect directly from their activities, such as service fees and charges. 16 In Kenya, several reforms have been implemented in health taxation, including reforms of tax structures and increases in tax rates. The most recent was implemented in late 2024, resulting in substantial changes in the tax structures and rates of alcohol and tobacco excise taxes. Regarding the former, the tax base was modified from a volumetric system to an alcohol content-based system, meaning that the tax is now applied per centiliter of absolute alcohol rather than the volume of the beverage. World Bank (2025) outlines that the changes are likely to generate declines in tax revenues. The tax increases on wine and spirits are unlikely to offset the decrease in beer revenues as beer dominates the market, which account for 54 percent of total alcohol sales and 63 percent of health tax revenues. 17 Budget rigidities are institutional, legal, contractual, or other constraints that limit the ability of governments to change the size and composition of the public budget, at least in the short term. High budget rigidities limit fiscal space and flexibility, lower spending efficiency, and may force cuts in discretionary spending such as public investment (World Bank, 2025). November 2025 | Edition No. 32 7 The State of Kenya’s Economy The government has recently been making progress with the commercial banks accounting for 42.6 percent in clearing accumulated pending bills, but they of total domestic debt. 19 Overall, the share of treasury continue to post a challenge to Kenya’s public finances. bills in domestic debt – held by the central bank, Despite government efforts to clear eligible pending commercial banks, non-banking institutions, and non- bills, particularly those owed to SMEs, the total amount residents - rose to 16.4 percent in FY2024/25 from 11.4 of pending bills increased in FY2024/25. Pending bills percent in FY2023/24, while the share of treasury bonds by the national government reached KSh 529.5 billion shifted over the same period to 80.8 percent from 85.5 (3.1 percent of GDP) as of June 2025, compared to percent.20 This reflects an increased reliance for short- KSh 516.3 billion in June 2024. County Government term domestic borrowing that could translate in higher pending bills marginally declined to KSh 176.9 in FY rollover risks. Kenya net external financing declined to 2024/25 (1.0 percent of GDP) from KSh 181.98 billion. 1.0 percent of GDP in FY2024/25 from 1.4 percent of The national government established the pending bills GDP in FY2023/24. verification committee to analyze existing pending bills and extended its term to December 2025. The The total stock of public debt increased in FY2024/25, committee has so far recommended, for payment, bills reflecting ongoing macroeconomic vulnerabilities. worth KSh 229 billion (1.3 percent of GDP) out of claims A rise in the primary deficit contributed to a 1.3 received worth KSh 571.6 billion (3.3 percent of GDP) percentage point growth in total public debt, with accumulated recommended to 30 June 2022.18 Pending domestic debt remaining the largest component and bills are highly correlated with NPLs (World Bank, 2025), following an upward trend. Public debt grew from and the government has started settling cleared pending 67.5 percent of GDP in FY2023/24 to 68.8 percent in bills by securitizing existing levies. FY2024/25 (Figure 15), with domestic debt representing 53.6 percent of the total. Kenya is assessed in high risk The sustained increase in domestic borrowing by the of debt distress (WB-IMF, 2024). 21 Rising debt is linked public sector continues to limit Kenya’s private sector to higher debt service costs. Additionally, the average access to credit. Kenya has witnessed a persistent maturity of domestic debt has decreased from 8.5 years increase in domestic borrowing to finance its fiscal in FY2022/23 to 7.4 years in FY2024/25. deficit (Figure 14). Net domestic borrowing rose by 1.2 percentage points in FY2024/25 to 5.0 percent of GDP Kenya’s external debt profile has improved in the short relative to the previous fiscal year and 0.3 percentage term, supported by the appreciation of the shilling points above budget target. While mobilizing resources and government efforts to reduce refinancing risks. within the local economy has reduced reliance on External debt declined in the last two years following external financing, the sustained growth in government the appreciation of the shilling, with the share of borrowing from domestic sources has raised concerns bilateral debt declining and the share of multilateral about crowding out private sector’s access to credit, and commercial creditors increasing. Still, Kenya’s Figure 14: The government largely relied on domestic Figure 15: … resulting in increased domestic debt borrowing to meet its rising financing needs 8 80.0 7 60.0 6 Percent of GDP 33.9 38.1 33.0 32.0 35.5 5 33.1 Percent of GDP 28.7 31.0 40.0 28.4 24.9 4 20.1 22.1 3 20.0 34.1 33.8 34.5 36.9 29.9 32.8 25.1 26.1 27.8 28.6 2 22.7 22.0 1 0.0 FY2013/14 FY2014/15 FY2015/16 FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 FY2021/22 FY2022/23 FY2023/24 FY2024/25 0 FY2019/20 FY2020/21 FY2021/22 FY2022/23 FY2023/24 FY2024/25 Domestic nancing Foreign nancing Domestic External Gross debt Source: The National Treasury Source: World Bank calculations based on the National Treasury 18 For reference: The National Treasury. 2025. Budget Statement FY2025/26. 19 The National Treasury. (2025). Quarterly Economic and Budgetary Review, Fourth Quarter FY2024/25. 20 Other domestic debt stock instruments include overdrafts and advancements, infrastructure bonds, and the savings and development bond. 21 WB-IMF Staff Country Reports 2024, 316 (2024) accessible on https://doi.org/10.5089/9798400291067.002 8 November 2025 | Edition No. 32 The State of Kenya’s Economy external debt remains susceptible to exchange rate risk Moreover, Kenya successfully issued a dual-tranche as 59.8 percent of external debt was denominated in US$1.5 billion (KSh 193.8 billion) Eurobond—US$750 US$ up to September 2025. GoK undertook two liability million for seven years at 7.875 percent and US$750 management operations in October 2025. First, it million for twelve years at 8.8 percent—and bought converted the US$3.4 billion outstanding of Standard back part of a US$1 billion Eurobond maturing in 2028. Gauge Railway debt to China Exim Bank from U.S. dollars The operation registered US$628 million valid tenders to Chinese yuan which, according to media reports, for the repurchase at closure.22 lowers interest payments by about US$215 million. Table 1: Kenya fiscal framework (percent of GDP) FY2021/22 FY2022/23 FY2023/24 FY2024/25 FY2024/25 FY2024/25 Act. Act. Act. Prel. Act. Sup. III Sup. I Total revenue and grants 17.5 16.7 17.4 17.2 17.4 18.0 Tax revenue 13.9 13.2 13.4 12.8 12.8 13.8 Income tax 6.9 6.6 6.7 6.4 6.5 6.8 VAT 4.1 3.8 4.1 3.8 3.8 4.2 Import duty 0.9 0.9 0.9 0.9 0.9 0.9 Excise duty 2.0 1.8 1.8 1.7 1.7 1.9 Non-tax revenue 3.4 3.3 3.8 4.2 4.3 3.9 AIA 2.2 2.2 2.6 2.9 2.8 2.5 Other 1.2 1.1 1.2 1.3 1.5 1.4 Grants 0.2 0.2 0.1 0.2 0.3 0.3 Expenditure and net lending 23.8 22.5 23.0 23.2 23.2 22.3 Recurrent 16.8 16.2 17.1 17.2 17.1 16.2 Wages and salaries 4.1 3.8 3.7 3.6 3.6 3.5 Interest payments 4.6 4.8 5.4 5.8 5.7 5.8 Domestic interest 3.6 3.7 4.0 4.6 4.4 4.3 Foreign interest 1.0 1.1 1.4 1.2 1.3 1.5 Other recurrent 8.1 7.6 8.0 7.8 7.8 6.9 Development 4.3 3.5 3.5 3.4 3.5 3.4 Transfer to Counties 2.8 2.9 2.4 2.5 2.6 2.6 Overall balance (cash basis) -6.2 -5.6 -5.3 -5.9 -5.8 -4.3 Primary balance -1.6 -0.8 0.1 -0.1 -0.1 1.5 Discrepancy -0.3 -0.2 -0.1 0.1 0.0 0.0 Financing 5.9 5.4 5.2 6.0 5.8 4.3 Foreign financing 1.1 2.2 1.4 1.0 1.1 2.0 Domestic financing 4.8 3.2 3.8 5.0 4.7 2.3 Debt gross 68.0 71.9 67.5 68.8 External 33.9 38.1 33.0 32.0 Domestic 34.1 33.8 34.5 36.9 Source: The National Treasury: BROP 2025, QEBR Q4 FY2024/25 August 2025, Budget Statement June 2025, BPS February 2025 22 https://www.treasury.go.ke/wp-content/uploads/2025/10/Press-Release-Kenya-raises-1.5B-at-low-cost-scaled.jpg November 2025 | Edition No. 32 9 The State of Kenya’s Economy Box 1: Evolution of development spending through FY2014/15 – FY2024/25 Government spending in Kenya has declined by more than 3 percentage points of GDP over the past decade, mainly due to cuts in development spending. Development spending as a share of GDP declined from 7.9 percent in FY2014/15 to 3.4 percent in FY2024/25, representing a 4.6 percentage points decrease. Recurrent spending by ministries and agencies only fell after the COVID-19 pandemic, while recurrent spending from consolidated funds like interest payments and pensions increased steadily. Recently, development spending cuts have been used to address revenue shortfalls, affecting both budgeted and actual expenditures. Since FY2022/23, supplementary budgets have resulted in further reductions in development allocations, marking a shift from previous years when such budgets typically increased development spending. Infrastructure spending has experienced the steepest decline among all sectors, now only about a quarter of its level from a decade ago. As a share of GDP, infrastructure development spending has seen the biggest cut and its now around 25 percent of what it was 10 years ago. By FY2023/24, four sectors—energy, infrastructure and ICT; public administration and international relations; environmental protection, water and natural resources; and agriculture— made up more than three-quarters of total development spending. Infrastructure's share of development funding has dropped from 60 percent in FY2014/15 to 32.5 percent in FY2022/23, while agriculture's share more than doubled, rising from 5 to 11.6 percent over the last three years. A key reason for the decline in development spending can be explained by macroeconomic challenges and ongoing fiscal consolidation. Fiscal consolidation efforts to address budget deficits have resulted in reduced allocations for capital expenditure projects, hindering both their scope and implementation. The budget has grown more rigid, with mandatory expenditures such as interest payments and county transfers rising sharply over the past decade. Macroeconomic volatility and frequent supplementary budgets have introduced uncertainty into the budget process, leading to delayed approvals and reallocations that disrupt project timelines. These combined factors have made planning and executing multi-year investments increasingly difficult for MDAs. In addition to budget cuts, Kenya’ s development spending faces governance and PFM constraints that hinder the successful completion of public investments. Many proposed projects lack proper design and costing, leading to procurement delays, construction issues, and cost overruns. The absence of transparent criteria for project selection means some investments are poorly aligned with national priorities, further complicating implementation. Overlapping mandates and procedural non-compliance across ministries and agencies contribute to inefficiencies and audits find procurement breaches. These combined issues slow project execution and reduce public confidence in the management of development programs (World Bank, 2025). Figure 16: Development spending declined over the last decade Figure 17: … both in absolute terms and as a share of GDP Expenditure Decomposition, Percent of GDP Development Spending 30 900,000 9 25 800,000 8 5.7 5.3 5.7 6.7 7 7.0 20 6.0 7.4 7.7 700,000 6 Percent of GDP 8.1 8.5 Percent KSh million 15 8.6 8.7 600,000 5 8.7 9.1 9.0 9.0 8.6 9.0 500,000 4 10 3.8 8.1 8.1 3.6 3.8 3 3.7 3.7 3.1 3.5 400,000 5 2.8 2.9 2 2.4 7.9 7.9 6.7 5.3 5.6 5.7 4.9 300,000 1 4.2 3.5 3.5 0 200,000 0 15 16 17 18 19 20 21 22 23 24 14/ 15/ 1 6/ 17/ 18/ 19/ 20/ 21/ 22/ 23/ FY2014/15 FY2017/18 FY2020/21 FY2023/24 20 20 20 20 20 20 20 20 20 20 FY FY FY FY FY FY FY FY FY FY Development spending actual Development spending budget Development County transfers Recurrent for sectors Other recurrent Development (actual, mapped to sectors, RHS) Source: World Bank calculations based on National Treasury Source: World Bank calculations based on National Treasury 10 November 2025 | Edition No. 32 The State of Kenya’s Economy Box 1: Evolution of development spending through FY2014/15 – FY2024/25 (cont) Figure 18: Still most development spending goes to infrastructure sector Sectors Development Spending, % of Total Development 100 80 60 Percent 40 20 0 FY2014/15 FY2017/18 FY2020/21 FY2023/24 Infrastructure PAIR EWN ARUD Social protection Health Education GECA GJLO Source: World Bank calculations based on National Treasury Note: ARUD = Agriculture, rural and urban development, Education = Education, Infrastructure = Energy, infrastructure, and ICT, EWN = Environment protection, water, and natural resources, GECA = General economic and commercial affairs, GJLO = Governance, justice, law and order, Health = Health, PAIR = Public administration and international relations, Social protection = Social protection, culture, and recreation. 1.3 Outlook, risks, and policy A more accommodative monetary policy and settling recommendations government arrears are expected to support growth Kenya’s real GDP and income per capita are anticipated of private consumption and crowd in private sector to increase gradually over the medium term. Real investment. Private consumption is expected to grow GDP growth is projected at 4.9 percent in 2025. This steadily, supported by favorable agricultural harvests, forecast represents an upward revision from the May low inflation, and resilient remittance inflows. Gradual 2025 edition of the Kenya Economic Update and the recovery in credit to the private sector, aided by October Macro-Poverty Outlook. Q2.25 represented an accommodative monetary policy and projected settling upward surprise in our estimates, particularly the faster- of domestic arrears to the private sector will further than-expected recovery in the construction sector. Low support investment. Furthermore, a stable exchange inflation, easing monetary policy, and improved credit rate underpinned by sound monetary policy and the growth—partially due to accommodative monetary government’s ability to meet upcoming debt repayment conditions—are expected to support household obligations (both domestic and foreign) will sustain incomes and private investment. Nevertheless, ongoing momentum. However, government consumption and uncertainties in global and domestic trade - particularly investment will likely remain subdued, reflecting the the uncertainty regarding the treatment of Kenya’s government's continued planned fiscal adjustments. exports after the end of AGOA - alongside the ongoing fiscal consolidation process, are likely to moderate The outlook anticipates sustained resilience in growth in the near term. The medium-term growth agriculture and a gradual recovery in industry in the forecast is slightly above Kenya’s estimated potential medium term. A robust agricultural harvest, supported growth rate of 4.5 percent, Sub-Saharan African regional by favorable weather conditions and consistent average of 4.4 percent (World Bank, 2025), but below the availability of inputs, is expected to generate positive East African Community, excluding South Sudan average spillover effects on food manufacturing. Moreover, the of 5.5 percent.23 Projected growth in the medium-term is ongoing expansion of geothermal plants is expected expected to support increases in real per capita income, to bring additional 63 megawatts to the national grid but the pace of poverty alleviation will remain low by 2026 and anticipated adequate rainfall will likely unless growth leads to higher incomes and better jobs, stimulate activity in electricity and water supply.24 especially for the poor. Real GDP per capita is projected Nevertheless, construction sector growth is projected to grow by 2.5 percent in 2025 and 3.0 percent in 2026- to remain below historical trends due to reduced public 27, while the international poverty rate is projected to spending on infrastructure. Kenya’s rapidly expanding decline by half a percentage point to 43.2 percent in service sectors—including ICT, financial services, 2026 (Table 2). tourism, and transport—are expected to demonstrate continued resilience, and overall growth in services in the near-term will average 5.4 percent in 2026-27. 23 For reference: World Bank. 2025. Africa’s Pulse. 24 https://www.kengen.co.ke/index.php/information-center/news-and-events.html?start=4 November 2025 | Edition No. 32 11 The State of Kenya’s Economy The current account balance is expected to remain projected low international fuel prices. Lower inflation stable in the medium term, with FDI increasing is expected to support further easing of monetary and exports recovering as the global outlook policy, leading to a decline in interest rates and improves. The stable current account is underpinned stimulating growth of credit to the private sector. by a balanced growth of exports and imports despite ongoing global trade uncertainty, including potential The Government of Kenya projected further fiscal high tariffs and the termination of AGOA. 25 Exports consolidation in the medium term but might not be growth is expected to be supported by adequate enough to significantly change the current upward agricultural harvest, the projected recovery in global trajectory of debt. Revenue measures announced in growth 26—especially in Kenya’s major trading partners the budget speech for FY2025/26 include reducing including SSA—and resilience in tourism. Import a number of tax expenditures and improving tax growth will be supported by increased imports of raw administration. Moreover, the government plans to materials aligned with industry recovery, and stronger achieve expenditure efficiency through implementation household consumption in line with an uptick in of reforms in procurement, wage bill, SOE management private sector credit. Resilient diaspora remittance and privatization, and cash management measures. inflows are expected to continue to support buildup of However, without bolder measures, especially on the forex reserves. The current account will be adequately revenue side, fiscal vulnerabilities will remain, as both financed by private and public capital inflows, revenues and expenditures face long-term challenges including gradual increase in FDI supported by ease (Box 2). World Bank (2025) suggests that to address of global financial conditions and improvement of the the country’s fiscal imbalances, additional structural country’s global ratings. 27 and governance measures should be taken given the interrelated nature of their challenges. It proposes Inflation is projected to stay within the CBK’s target policy packages that combine revenue, expenditure, range in the medium term. The anticipated low governance, and structural measures to enhance inflationary environment is due to adequate harvests the overall policy benefits of fiscal consolidation and low energy inflationary pressures following at the same time of boosting economic growth Box 2: Longer-term fiscal revenue and expenditure performance Over the past 15 years, Kenya has experienced a decline in tax revenues despite sustained economic growth. Kenya's tax revenues are currently below 15 percent of GDP, which is considered the international minimum standard for supporting public services. The largest decrease occurred during the COVID-19 pandemic (FY 2020/21), and levels have not returned to those seen before the pandemic (World Bank, 2025). The reduction in revenues is mainly due to a decrease in income taxes, with personal income taxes accounting for nearly two-thirds of the decline, followed by corporate income taxes. Shifts in the economy have increased the share of sectors that are more challenging to tax, such as the informal sector, leading to a narrower tax base. Moreover, multiple tax exemptions also contribute to this narrowing. Kenya demonstrates low tax buoyancy, indicating limited responsiveness of revenue to economic growth, and low tax efficiency, as tax administrative challenges persist. Moreover, despite sustained decline, reduction in public spending led to Kenya’s budget becoming increasingly rigid. Public expenditure decrease is largely attributable to reductions in development spending. The national budget exhibits increasing rigidity, with statutory expenditures—including interest payments and county transfers—accounting for more than half of domestic revenue. Interest payments have increased over time as a share of GDP, constraining investment in essential public services and key development initiatives. Additionally, inefficiencies in the public wage bill, transfers to State-Owned Enterprises (SOEs), and public financial management continue to undermine the effectiveness of expenditure and the quality-of-service delivery. Suboptimal budget execution, particularly at the county level, further impedes the implementation of critical projects. The progressivity of Kenya’s public spending appears to have diminished as fiscal constraints have tightened. Source: Kenya Public Finance Review, 2025 25 World Bank. 2025. Pathways to Job Creation in Africa. Africa’s Pulse, No. 32 (October 2025). World Bank, Washington, DC. 26 World Bank. 2025. Global Economic Prospects, June 2025. Washington, DC. 27 https://www.spglobal.com/ratings/en/regulatory/article/-/view/sourceId/101641844 12 November 2025 | Edition No. 32 The State of Kenya’s Economy and job creation.28 These packages are designed to remain valid. Kenya’s plans several climate-related leverage complementarities across different policy initiatives, including large-scale reforestation to plant areas, creating synergies that enhance their overall 15 billion trees by 2032 under the Kenya’s National effectiveness and political feasibility. Therefore, Climate Change Security Resilience Program and boosting productivity growth and the equity of the ongoing wetland rehabilitation. These initiatives —are fiscal system, and implementing governance and anti- expected to boost agricultural yields in the medium corruption measures, are key to complementing fiscal term, conserve biodiversity, and improve access to consolidation efforts. resources.30 In addition, the ongoing investment— private and public—in renewable energy expansion The baseline assumes stable weather conditions, but will sustain the country’s reliance on clean energy and Kenya remains vulnerable to climate- change shocks. reduce power outages in case of drought shock. By The Kenya meteorological department forecasts June 2025, 64.6 percent of electricity was generated adequate rainfall in Kenya’s food basket region. 29 from geothermal, wind, and solar.31 Assumptions from the May 2025 economic update Table 2: Kenya’s medium term growth outlook 2022 2023 2024 e 2025 f 2026 f 2027 f Real GDP growth, at constant market prices 4.9 5.7 4.7 4.9 4.9 5.0 Private consumption 2.3 7.5 6.9 4.9 4.8 4.9 Government consumption 8.1 2.0 0.4 1.5 1.9 3.4 Gross fixed capital investment -0.8 1.9 6.2 4.5 5.8 6.0 Exports, goods and services 20.8 11.7 7.5 7.6 8.4 8.6 Imports, goods and services 10.9 1.3 2.7 5.0 5.8 7.2 Real GDP growth, at constant factor prices 4.5 5.9 4.9 4.9 4.9 5.0 Agriculture -1.5 6.6 4.6 4.8 4.5 4.8 Industry 3.9 2.0 0.8 3.5 3.6 3.9 Services 6.6 6.8 6.1 5.3 5.4 5.4 Employment rate (% of working-age population, 15 years+) 63.4 63.2 63.4 63.6 63.6 63.7 Inflation (consumer price index) 7.6 7.7 4.5 5.0 5.0 5.0 Current account balance (% of GDP) -5.1 -3.6 -2.3 -2.8 -3.4 -3.4 Net FDI inflow (% of GDP) 0.2 0.2 0.3 0.4 0.7 1.2 Fiscal balance (% of GDP) /1 -6.1 -5.7 -5.8 -6.0 -5.6 -5.1 Revenues (% of GDP) /1 17.1 17.0 17.5 17.2 17.2 17.6 Debt (% of GDP)/1 67.8 73.4 67.3 68.0 70.1 71.0 Primary balance (% of GDP) /1 -1.7 -0.9 -0.5 -0.5 -0.1 0.3 International poverty rate (US$2.15 in 2017 PPP) 46.9 45.6 44.5 43.8 43.2 42.5 Lower middle-income poverty rate (US$3.65 in 2017 PPP)3,4 67.0 66.1 65.4 64.9 64.5 64.1 Upper middle-income poverty rate (US$6.85 in 2017 PPP)3,4 90.9 89.8 88.8 88.2 87.6 87.0 Greenhouse Gas (GHG) emissions growth (mtCO2e) 2.7 2.9 4.4 5.7 6.2 6.1 Source: World Bank and IMF. Emissions data sourced from CAIT and OECD Notes: e = estimate, f = forecast. 1/ Data in calendar year sourced from IMF WEO, October 2025. According to IMF (2025), Balance of Payments historical data is currently provisional, and reflects revisions to official external sector statistics and staff’s adjustments. 2/ Projection using point to point elasticity at regional level with pass-through = 0.7 based on private consumption per capita in constant LCU. Actual data: 2022. Nowcast: 2023-2024. Forecasts are from 2025 to 2027. 3/ Actual data: 2021. Nowcast: 2022-2024. Forecasts are from 2025 to 2027. 28 Five policy packages are suggested that seek to rebalancing the relationship between (1) the state and its citizens (policy package 1 on governance); (2) the public and private sectors (packages 2 and 3 on boosting the competitiveness of the private sector); and, consistent with the Kenyan government’s strategic focus, (3) consumption and investment (packages 4 and 5 on supporting the poor and reducing the cost of living). 29 Kenya Meteorological Department. 2025. OND 2025 Seasonal Forecast https://meteo.go.ke/our-products/seasonal-forecast/ond-2025-seasonal-forecast/ 30 https://mfa.go.ke/kenya-showcases-climate-security-model-africa-climate-summit 31 KNBS. 2025. Leading Economic Indicators, July 2025 issue November 2025 | Edition No. 32 13 The State of Kenya’s Economy Risks to the outlook much of the population, is particularly exposed Kenya’s economic outlook remains subject to to droughts and floods, threatening food security, downside risks that could threaten growth, job fueling inflation, and eroding household purchasing creation, and macroeconomic stability. These power. Extreme weather events also risk damaging risks are both domestic and external, ranging from critical infrastructure, forcing costly reallocations of persistent fiscal imbalances and climate-related public resources toward emergency response and shocks to growing global uncertainties. While the reconstruction, further straining the budget. economy has demonstrated resilience in recent years, its path forward will largely depend on how effectively Externally, Kenya is exposed to global shocks these vulnerabilities are managed. Ongoing fiscal that could spill over into the domestic economy. challenges, including missed consolidation targets and Heightened geopolitical tensions, and the risk of high recurrent expenditures, remain a key source of renewed global supply chain disruptions could lead vulnerability for Kenya’s economic outlook. Moreover, to higher import costs, particularly for fuel, food, and real wages are falling, and the pace of job creation is industrial inputs. Such developments would not only not enough given Kenya’s increasing workforce. While drive-up inflation but also increase the cost of doing the government has outlined plans to strengthen business and reduce competitiveness. Disruptions in tax administration and improve spending efficiency, the supply of key inputs, such as fertilizers and raw progress to significantly raise revenues has been materials, could further undermine agricultural and limited. Without more ambitious reforms, fiscal and debt manufacturing output, slowing overall economic vulnerabilities are likely to persist. However, austerity momentum. measures alone might not be enough to overcome current fiscal challenges. Strengthening governance, Despite these headwinds, there are still opportunities improving the equitability of the fiscal system, and that could support stronger growth in Kenya. boosting productivity will be essential to support Accelerated progress on economic reforms, particularly sustained and growth-friendly fiscal consolidation. in public financial management, governance, and spending efficiency, could improve investor sentiment Political and social tensions, alongside climate- and unlock new financing avenues. If the global related risks, remain significant threats to Kenya’s economic environment improves, characterized by stable economic outlook. Social and political unrest could commodity prices, a decline in oil prices, and stronger disrupt businesses and weakened investor confidence. demand from trading partners, Kenya could experience If unresolved, these tensions could undermine growth, a more robust recovery than currently projected. These deter investment, and heighten instability. At the same factors, combined with prudent policy choices, could time, Kenya remains highly vulnerable to climate and enhance resilience and set the foundation for more weather-related shocks. Agriculture, which supports sustainable growth in the years ahead. Key policy priorities to address Kenya’s underlying fiscal challenges Policy priority Recommendation Addressing Kenya’s short-term macroeconomic vulnerabilities will lead to increased Build fiscal buffers through fiscal fiscal savings that can support the country to meet its debt obligations (debt consolidation and debt sustainability sustainability), respond to economic shocks (output stabilization), and provide essential public services (allocative efficiency). Promote a more equitable and Enhancing the progressivity of the budget will support the reduction of poverty redistributive fiscal policy and inequality, enhance human capital, and promote social and political cohesion. Increasing productivity by removing market distortions will support economic Put productivity, jobs, and poverty growth for job creation. This approach will further guarantee that the much-needed reduction at the forefront fiscal consolidation is growth-friendly and supports sustained and inclusive growth that benefits the entire Kenyan population. 14 November 2025 | Edition No. 32 The State of Kenya’s Economy Annex 1: Summary of Changes in Balance of Payments (BOP) Data The Kenya National Bureau of Statistics (KNBS) published preliminary revised BOP data from 2020 to 2024 in the 2025 Economic Survey. The changes primarily affected the goods and services accounts as follows. The goods account was revised to reflect the principle of economic ownership, which differs from the physical movement of goods captured in International Merchandise Trade Statistics (IMTS). While IMTS records all merchandise crossing the customs territory, BOP focuses on goods that change ownership, regardless of whether they are physically recorded in IMTS. This conceptual difference necessitated adjustments in valuation, coverage, classification, and timing. A valuation adjustment was also made. IMTS values imports on a Cost, Insurance, and Freight (C.I.F.) basis, whereas BOP requires valuation on a Free on Board (F.O.B.) basis. Consequently, insurance and freight costs were reclassified under the services account—specifically under Insurance and Transport-Freight. Changes were also made on treatment of importation of petroleum products under the Government-to-Government arrangement, which began in March 2023. The first consignment was delivered in April 2023, and under accrual accounting, a trade credit was recognized at the time of importation. The liability was recorded based on the C.I.F. value of the petroleum products and was expected to be settled within 180 days. As payments were made, the liability was reduced based on the invoice amounts. This treatment was consistently applied to subsequent consignments. The import data was further adjusted to include transit petroleum products. This was based on the understanding that importers bear all risks and rewards of ownership, and that entities importing through Kenya must be registered locally. Therefore, all petroleum imports—whether for domestic use or for use by neighboring countries—were treated as imports in the BOP. Petroleum products declared as transit items were reclassified as re-exports. These were then adjusted for transport and trade margins. Transport margins were calculated by applying pipeline tariffs to the volume of product exported via pipeline. Trade margins were derived by applying a wholesale price of KSh 4.18 per litre, as set by the Energy and Petroleum Regulatory Authority (EPRA), to the transit volumes. This adjustment recognized that the resale price of the product differs from its purchase price. Improvements were made to the services account, particularly in the measurement of travel services. Previously reliant on the International Transaction Reporting System (ITRS), the data source was enhanced by building an estimation model relying on administrative records and survey data, notably the Inbound/Outbound Tourism Expenditure (IOTE) Surveys done in 2015. These were complemented by data on international arrivals and departures, resulting in revised estimates for both inbound and outbound tourism expenditures. These revisions were applied retrospectively for the period 2020 to 2024 and were published in Table 6.16 of the 2025 Economic Survey. The revisions are preliminary and subject to further review and validation to improve the estimates introduced. Source: Statistical Release BOP/1/2025, Kenya National Bureau of Statistics November 2025 | Edition No. 32 15 Special Focus SPECIAL FOCUS Photo: ©Sambrian Mbaabu/World Bank 16 November 2025 | Edition No. 32 Special Focus 2. From Barriers to Bridges - Procompetitive Reforms for Productivity and Jobs in Kenya 2.1 Context and motivation: Why legal Robust competition is a key enabler of private sector and regulatory barriers to competition growth, jobs, and investment, as well as consumer matter in Kenya welfare. When competition is vigorous and fair, firms A competitive, productive private sector is key to are constantly striving to offer lower prices or better addressing Kenya’s jobs imperative and achieving quality than their competitors based on business Government’s economic transformation ambitions. fundamentals—rather than artificial advantages The government’s Vision 2030 “aims to transform conferred by discriminatory regulations or subsidies. They Kenya into a middle-income country providing a high are rewarded with greater market share and investment quality of life to all its citizens by 2030.” Its Fourth when they succeed (between-firm allocative efficiency). Medium Term Plan (MTP IV ) and Bottom-Up Economic This dynamic incentives firms to innovate, improve Transformation Agenda (BETA) seek to operationalize management, and adopt better technologies (within- this by adopting a value chain approach wherein key firm effect) (Cirera, Comin, & Cruz, 2022). Relatedly, a sectors will be targeted for “bringing down the cost of level playing field makes investment, including foreign living; eradicating hunger; creating jobs; expanding direct investment, more attractive because investors can the tax base; improving foreign exchange balances; generate returns from investments in more efficient new and inclusive growth.” Across targeted value chains,32 firms and other challengers to incumbents (selection prioritized interventions typically focus on improving effects) (Mistura & Roulet, 2019). For consumers, greater technology adoption and business practices and competition translates to lower-priced and better driving greater investment in productive capacity. products, thus allowing them to either buy more of Overall, the Government of Kenya’s ambition is to create the same products or other products elsewhere in the 1.2 million jobs annually, the vast majority of which will economy, boosting aggregate consumption and welfare be within the private sector (Kenya National Treasury levels (World Bank, 2023b). Finally, lower prices (relative and Economic Planning, 2024); since 2020, This target is to quality) increase aggregate output and therefore between 780,000-925,000 new jobs are being added to demand for jobs as consumers can purchase more for the economy each year (KNBS, 2025). their money and firms can invest profits from productivity gains in other business activities (Dauda, 2020). Figure 19: Spillovers from (and potential tradeoffs between) productivity growth in jobs MEDIUM TO LONG TERM GAINS + PRICE ELASTICITY EFFECT PRICE EFFECT NEW MARKET EXPANSION EFFECT Firms can invest productivity gains in higher Firms pass om some e ciency gains to consumers Firms can invest some of their productivity gains in quality products or products with stronger in the form of lower prices: more demand for the new market expansion activities, leading to higher demand “appeal” (low proce elasticity of demand, same products, leading to more demand for labor demand in new markets, leading to leading to more demand for new products and more demand for labor more demand for labor JOBS EXPANSION AND UPDGRADING JOBS EXPANSION AND UPDGRADING PRODUCTIVE ALLOCATIVE ENTRY MORE BETTER INCLUSIVE EFFICIENCY EFFICIENCY AND EXIT JOBS JOBS JOBS (within a rm) (between rms) (selection) Boosting rm Fostering Improving Increasing Raising capabilities: a better the quality of job earnings, Expanding managerial and allocation entering rms opportunities generating access to jobs worker skills; of resources and fostering stable income, (by age, gender, innovation and across rms the exit of low and improving and skills) technology- productivity working conditions absorption rms capacity LABOR SAVING OR DISPLACEMENT EFFECT Introduction of labor-saving technology, leading to less demand for labor SHORT TERM POTENTIAL TRADEOFF Source: Dauda (2020) 32 MTP IV and BETA target various crop and livestock value chains as well as the textile and apparel and construction/building materials value chains. They also target key enabling service and infrastructure sectors such as transport, information and communications technology, and electricity. November 2025 | Edition No. 32 17 Special Focus High-level data on margins in Kenya suggest Beyond impacts on customer pricing, higher margins that there is significant headroom to improve also have implications on labor compensation (i.e., competition. Gross operating margins or capital jobs), as they suggest relatively lower compensations compensation—defined as the ratio of gross operating to employees. 33 Although competition is not the only surplus to total output (GOSR)—can provide a sense of factor driving GOSR, which is also impacted by levels of whether markets are functioning well or competitive. capital investment and cost of capital, further analysis Higher levels of GOSR could point to weak competitive of Kenya’s market dynamics and regulatory framework pressure, allowing incumbent firms to extract higher suggest significant competitive distortions, as this prices relative to costs. Over the last decade and half special focus will elaborate. (2008-2022), sectoral input-output data from the EORA database suggest gross operating margins across sectors The economy-wide pattern of high margins that are (i.e., economywide) are higher in Kenya than the average suggestive of weak competition also holds across lower-middle-income country (LMIC) (Figure 20). sectors. In all but a few sectors, gross operating margins Figure 20: Capital compensation is higher at the economywide level were higher in Kenya compared to similar sectors in in Kenya than in the average country in comparable income groups comparator economies (Figure 21.a). 34 Not only do (gross operating surplus ratios across income categories, 2008-2022) several Kenyan sectors exhibited higher margins than 40 peers, but all the sectors saw significant increase in their gross operating margins over the 15-year period, 35 2008-2022 (Figure 21.b). 30 Percent 25 Governments influence competition by allocating 35.1 36.1 36.6 32.2 33.4 public resources to support markets and setting 20 28.8 29.2 27.6 27.3 rules. Fundamentally, competition policy consists of 15 19.6 20.9 20.6 two pillars: I) ensuring that government interventions 10 such as state-owned enterprises (SOEs), laws, and regulations—even if well-intentioned—do not hinder 2 7 2 2 7 2 2 7 2 2 7 2 01 01 02 01 01 02 01 01 02 01 01 02 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 08 13 18 08 13 18 08 13 18 08 13 18 competition or create and unlevel playing field; and II) 20 20 20 20 20 20 20 20 20 20 20 20 High-income Upper-income Lower-middle-income Kenya preventing and tackling anticompetitive firm behavior Source: Own elaboration based on indicators calculated for Begazo et al (forthcoming) using EORA Input-Output tables dataset covering 186 countries and 23 sectors, excluding (World Bank, 2023b). countries with low quality data as estimated by the degree of output deviation. Gross operating surplus calculated as the difference between total output and the sum of intermediate consumption, employee compensation, and net production taxes. Values in the graphs are expressed as percentage of sector output. The graph excludes China. Figure 21: Sectoral gross operating margins were higher in Kenya than the average lower-middle income country, and they have increased over the last 15 years a. Margins were higher in most Kenyan sectors than the a. All Kenya sectors have seen increased gross operating average lower-middle income country over 2018-2022. margins over 2008-2022 period. Utilities Mining 8% Post/telecom Transport 7% Hospitality Transport equip. 7% Mining Electrical/machinery 7% Financial/bus serv. Metals 7% Recycling Wood/paper 7% Other Manuf. Construction 5% Petrol/chemical/non-metalic min. Textiles/apparel 5% Wood/paper Food/beverages 5% Construction Petrol/chemical/non-metallic min. 5% Transport Agric Textiles/apparel Recycling 5% Public admin Other Manuf. 5% Retail Post/telecom 4% Maintenance/repair Maintenance/repair 4% Wholesale Retail 4% Food/beverages Wholesale 4% Electrical/machinery Financial/bus serv. 3% Transport equip Utilities 3% Metals Fishing Educ/health/other serv. Educ/health/other serv. 2% Hospitality 2% 0 20 40 60 80 0 10 20 3040 50 60 70 80 Percent Percent Kenya Regional Structural Aspirational UMIC 2018-2022 2013-2017 2008-2012 Source: Own elaboration based on EORA Input-Output tables dataset covering 186 countries and 23 sectors, excluding countries with low quality data as estimated by the degree of output deviation. Gross operating surplus calculated as the difference between total output and the sum of intermediate consumption, employee compensation, and net production taxes. Values in the graphs are expressed as percentage of sector output. The regional peers are Ethiopia, Rwanda, Ghana, Senegal, Tanzania, and Uganda. The structure peers are Bangladesh and Vietnam. The aspirational peers are Morocco, South Africa, and Thailand. 33 Estimated as employee compensation over output based on input-output tables. 34 The pattern of higher-than-average GOSR in Kenya applies to all input-output table sectors outside of wholesale and retail trade, maintenance and repair, education, health, and other services. 18 November 2025 | Edition No. 32 Special Focus This chapter focuses on identifying reform priorities may hinder competition if they a) reinforce dominance for a more procompetitive legal and regulatory and limit entry; b) facilitate collusion or restrict firms’ framework. We start by measuring the degree to choice of strategic variables; and c) discriminate which Government of Kenya interventions impact and provide undue advantages to certain firms over competition. Prior analytical work has highlighted how others (Figure 22). Doing so prevents more efficient Kenyan laws and regulations often restrict competition, or innovative firms from entering or leveraging their including in key enabling service sectors and value chains advantages to gain market share and reduces incentives prioritized by the government’s Bottom-Up Economic for less productive firms to improve. In turn, this lowers Transformation Agenda (BETA) (World Bank, 2023a). productivity (and, by extension, wages) and increases Thus, this chapter provides an overview of how laws, prices relative to quality in the market, generally leading regulations, and other interventions restrict competition to fewer and lower-paying jobs. A broad body of research and distort markets in Kenya and outlines resulting reform links more procompetitive laws and regulations that priorities. In particular, it draws from the CAK and World allow firms to compete fairly with improved market Bank’s report, From Barriers to Bridges: Procompetitive and jobs outcomes, most notably with respect to Reforms for Productivity and Jobs in Kenya (Competition productivity (Dauda, 2020). Authority of Kenya & World Bank, 2025), which provides more detailed analyses and recommendations on more The remainder of this chapter will cover: specific legal and regulatory reforms. a) Cross-cutting legal and regulatory restrictions to competition; Ensuring that government market interventions do not prevent firms from competing on a level playing b) Case studies to illustrate common dynamics at the field is key to achieving private sector investment, sector level; and growth, and jobs. Conceptually, government actions c) Recommendations for Kenya to reform its laws. Figure 22: Typology of market interventions that may hinder competition General typology based on e ects Speci c typology Speci c examples Temporary/Geographic exclusivity Monopoly rights and Limit/ban on permits issued absolute bans on entry Monopoly created through privatization Exclusive access to inputs Rules that reinforce Relative ban on entry or Limit/ban on consumer switching dominance and limit entry expansion of activity Minimum distance rules Incumbents’ opinion needed to enter Requirements for entry / High import tari s/Forex restrictions registry Local content rules General typology based on e ects Speci c typology Speci c examples Association membership needed for entry Rules that facilitate agreements among competitors Enhancement of the power and scope or co-regulation/business associations Rules that facilitate Restrictions on types of products Overly speci c product speci cations collusion or restrict rms' and services, location and choice of strategic variables consumer mobility Limits on consumer/producer ability to choose seller/buyer Min/max prices / recommended prices imposed by government Price controls Ability of business associations to be involved in specifying or enforcing price guidelines General typology based on e ects Speci c typology Speci c examples Discrimination against certain types of rms, e.g., foreign, size Discriminatory application of rules or standards Rules and standards bene ting incumbents/connected rms Lack of standard requirements/criteria Discretionary application of rules to be granted a license Rules that discriminate and provide undue advantages Subsidies, incentives and aids for selected companies within the sector State aid/incentives distorting level playing eld Unequal access to government contracts/ programs Gov entity/SOE acts as regulator and Lack of competitive neutrality service provider vis a vis government entities SOEs exempt from regulation Source: World Bank, 2023(b) November 2025 | Edition No. 32 19 Special Focus 2.2 Economy-wide performance and Africa, China, Türkiye, and Indonesia. More importantly, this cross-cutting regulatory barriers to suggests that Kenya has significant room to unlock further competition in Kenya growth and jobs. As will be covered in subsequent sections, Economy-wide performance the reforms to free up competition do not necessarily CAK and the World Bank collected and analyzed PMR require significantly higher levels of government capacity indicators leveraging the OECD’s methodology, as that only richer countries can achieve, and they can achieve well as indicators for select sectors using the World significant benefits for Kenyan firms and workers. Areas Bank’s ALP methodology. The PMR indicators form a of particular underperformance on an economy-wide comprehensive and internationally comparable set of basis include distortions induced by public ownership, indicators that measure the degree to which policies regulatory impact evaluation and policymaking safeguards, promote or inhibit competition in areas of the product and barriers to trade and investment. We explore each of market where competition is viable. They rely on these cross-cutting themes in turn. 35 information collected through regulatory indicators questionnaires, which are in turn answered based Distortions induced by public ownership on the substance of Kenyan laws and regulations. Kenya ranks third worst in the PMR sample with PMR questionnaires cover cross-cutting, economy- respect to “Distortions Induced by Public Ownership” wide areas such as governance of SOEs and general subscore. Kenya is ahead of only Mexico and Türkiye business entry regulations, as well as key services sectors and rates as significantly more restrictive than the such as utilities, transport, and professional services. A overall sample and MIC averages (Figure 24). This poor subscore is calculated for each questionnaire based on performance is driven by both the prevalence of SOEs in the answers, which is then rolled up into higher-level Kenya, including in markets where private participation intermediate scores and finally an economy-wide score. is viable, and the governance of SOEs in Kenya. Overall, Kenya has a legal and regulatory environment Businesses linked to the Government of Kenyan that is much more restrictive to competition than the (GoK) operate across many sectors of the Kenyan “frontier” of advanced economies with more open economy. Data from the World Bank Businesses of the markets. Based on its laws and regulations as of January State (BOS) database36—which tracks all corporations 2024, Kenya has an overall PMR score of 2.92, the highest where national or subnational governments have direct (i.e., most restrictive) score of any country with available or indirect ownership stake of at least 10 percent. BOS PMR data and well above the average for other middle- database shows that the GoK has stakes in about 209 income countries (2.27) (Figure 23). To a certain extent, business entities operating in the domestic economy this reflects the sample of countries with PMR data, which as of 2023. Approximately 22.5 percent of all BOS are is primarily comprised of advanced OECD economies. traditional SOEs, which tend to be associated with Nevertheless, Kenya still rates as more restrictive than other enterprises where central governments hold direct middle-income countries in the sample such as South equity stakes of at least 50 percent (Figure 25). Kenya’s Figure 23: Overall PMR score 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - Kenya Morocco South Africa China Türkiye Brazil Indonesia Uzbekistan Costa Rica Armenia Luxembourg Colombia Malta Mexico Cyprus Japan Hungary United States Israel Portugal Iceland Canada Belgium Austria Croatia Slovak Republic Greece Korea, Rep. Australia Chile Switzerland Peru New Zealand Bulgaria Italy Czechia Germany Latvia Spain France Slovenia Poland Norway Finland Netherlands Estonia United Kingdom Ireland Lithuania Sweden Denmark Average (All) Average (HIC) Average (MIC) Source: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); WB & OECD PMR indicators (2023) 35 The three cross-cutting themes were identified based on having the largest distance between Kenya’s score and the frontier (i.e., the best practice country). Kenya’s level of PMR underperformance is also high with respect to barriers in service and network sectors, and these themes will be explored in the later section on sector-specific constraints. 36 All information is for 2023. For more details on how the database was constructed, see Dall'Olio et al. (2022a). 20 November 2025 | Edition No. 32 Special Focus Figure 24: Distortions induced by public ownership (PMR subscore) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - Mexico Türkiye Kenya Morocco Uzbekistan China Canada United States South Africa Brazil Costa Rica Croatia Armenia Japan Colombia Chile Poland Cyprus Luxembourg Germany Peru Czechia Australia Indonesia Portugal United Kingdom Israel Spain Hungary Austria Greece Malta Switzerland Slovak Republic Belgium Korea, Rep. France Latvia New Zealand Lithuania Iceland Ireland Estonia Bulgaria Finland Italy Netherlands Sweden Slovenia Norway Denmark Average (All) Average (HIC) Average (MIC) Source: World Bank and OECD score for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); WB & OECD PMR indicators (2023) Figure 25: The Government of Kenya is a key shareholder in businesses beyond just traditional SOEs a. SOEs represent less than half of BOS b. ….are present in several sectors Water supply Financial & insurance Manufacturing BOSs Information & communication Real estate (209, 100%) Transportation & storage Accommodation Agriculture Electricity & gas Professional Wholesale & retail Mining & quarrying Traditional SOEs Admi support Arts (47, 22.5%) Construction 0 10 20 30 40 50 60 70 80 90 Number of BOSs Traditional SOEs (majority, direct, and central) BOSs Source: World Bank Businesses of the State (BOS) database. Note: Information as of 2023 BOS operate across 13 percent of Kenyan subsectors, Kenya’s SOE governance arrangements create and their unconsolidated revenues were equivalent to potential for SOEs to be insulated from market at least 4.2 percent of Kenya’s GDP in 2023. discipline, leading to poor performance. Kenyan SOEs are often insulated from market discipline, reducing Several of Kenya’s BOS operate in commercial sectors incentives for them to become more productive. Kenya’s of the economy where there is a higher risk of their National Treasury (NT ) entered into performance presence distorting markets. Approximately half of contracts with SOEs based on key performance the BOS operate in industries within the competitive indicators (KPI) and related targets (National Treasury, sectors37 of the economy where the economic rationale 2023). However, there is no systematic guidance (e.g., market failures) for the State presence in business that financial targets commensurate with private activities is weak. In several of these competitive sectors, sector benchmarks be achieved. Furthermore, while there is active private sector participation, and their performance bonuses for directors and executives are presence thus poses potentially greater risk in distorting contingent upon meeting KPI targets, failure to do so is markets or could crowd out more private investments not generally considered grounds for removal. (Figure 26). Close to 20 percent of all BOS (or 48 percent of the BOS in the competitive sectors) operate in just Relatedly, Kenyan SOEs’ governance structures may three services sectors: financial and insurance services, cause conflict of interest between policy, political information and technology services, and real estate and commercial objectives since line ministries activities (Figure 26). act both as policymakers for the whole sector and 37 Generally, state participation is natural monopoly sectors tend to be justified because the market structures of these sectors are characterized by high entry costs, scale economies, or sub-additivity cost structures, features that make it economically inefficient for more than one firm to operate and thus rationalize government participation through the establishment of a business. In addition, there are other sectors, beyond natural monopoly sectors (termed as partially contestable), which feature some weaker forms of market failures (e.g., market power and externalities) that limit market contestability and could be addressed through state participation. As such, States businesses in natural monopoly and partially contestable sectors can be justified when their presence are to address market failures or achieve economic efficiency. However, the State’s reach oftentimes extend beyond these justifiable sectors into competitive sectors, where the intrinsic market features (e.g., cost structure, technology, or demand characteristics) do not limit the ability of private players to enter and compete, and thus there is limited economic rationale for government participation in such sectors because private sector participation is viable (Dall’Olio 2022(b)). November 2025 | Edition No. 32 21 Special Focus Figure 26: Close to half of all domestic Kenyan BOS are in competitive sectors, especially in services industries a. Approximately one-half of the BOS are in competitive b. ….with about 20 percent of them operating financial, ICT, sectors of the economy and real estate services. Financial & insurance 24 Manufacturing 23 Real estate 11 Information & communication 11 Accommodation 8 Agriculture 4 Professional 4 Wholesale & retail 4 Natural Monopoly Admi support 2 (43%), 90 Competitive (46%), 96 Transportation & storage 2 Water supply 1 Construction 1 Arts 1 Electricity & gas 0 Mining & quarrying 0 Contestabl Other service 0 e (11%), 23 0 5 10 15 20 25 30 Number of domestic BOS Source: World Bank Businesses of the State (BOS) database Note: Information as of December 2019. shareholders of selected companies. As reflected although they declined slightly to 5.6 percent of GDP in Kenya’s PMR data, Kenyan law does not mandate in FY 2024/25. By contrast, fiscal transfers amount to arms-length ownership arrangements between just 1.5 percent of GDP in Tanzania, which has an SOE governments. Indeed, the State Corporations Act portfolio of comparable size to Kenya’s. SOEs also have (Cap. 446 of 1986) mandates that relevant line ministry financing advantages given their access to on-lent and representatives sit on SOE boards, creating incentives government-guaranteed debt, which rose from 0.8 for SOEs to act in the interests of the ministries rather percent to 1.52 percent of GDP between FY2015/16 and than commercial objectives. While there may be valid FY2019/20 and has likely grown further since (World policy rationales for SOEs to target public service— Bank, 2025). rather than commercial—objectives, Kenya does not mandate functional or accounting separation between Figure 27: Government transfers to state-owned enterprises SOEs’ public service obligations (e.g., Kenya Power and 8 Lighting Company’s Last Mile Connectivity Program) 7 and commercial activities. This lack of separation makes 6 it difficult to distinguish revenues and costs associated 5 with public service obligations, which generally create % of GDP 4 losses, versus those from commercial business, which 3 should ideally be subject to market discipline. 2 As a result, Kenyan SOEs have often performed 1 poorly, nearly 50 percent of Kenyan SOEs failed 0 2019/20 2020/21 2021/22 2022/23 2023/24 to attain agreed performance targets in NT’s most Recurrent Capital Total recent review (National Treasury, 2022). Among the 57 Source: World Bank (2025) enterprises with financial data on profits and losses as of 2023, only 5 showed improved profitability over the As a result of these advantages, SOEs can crowd out preceding five years, indicating significant performance private investment and job creation. With the financial challenges. Notably, SOEs in commercial sectors made advantage of being able to run losses and/or receive an aggregate net loss of about US$45 million in 2023 financing below market rates, SOEs can squeeze out (World Bank, 2025). even more productive private competitors by offering suppliers higher prices and/or charging customers less. To make up for their poor performance, SOEs In the short run, there are advantages for suppliers and are often subsidized, bailed out, or backstopped customers of the SOEs, but this comes at great fiscal financially by the Government of Kenya at great cost and disincentivizes private sector investments and cost to Kenyan taxpayers. Public grants and subsidies productivity improvements—which in turn drive jobs to SOEs amounted to 5-7 percent of GDP annually and wages—in the long run. As a result, cross-country between FY2019/20 and FY2023/24, reaching KES research suggests that greater presence of SOEs in a 1,199 billion—or about US$9 billion—in FY 2023/24, given sector is associated with lower market dynamism: 22 November 2025 | Edition No. 32 Special Focus Doubling SOEs’ market share is associated with 5-30 growth, and job creation. Ex ante assessments can percent less firm entry and 30 percent higher market help ensure that proposed laws and regulations do concentration (World Bank, 2023c). not a) reinforce dominance and limit entry; b) facilitate collusion or restrict firms’ choice of strategic variables; Regulatory impact evaluation and policymaking or c) discriminate and provide undue advantages safeguards to certain firms over others. Related to the lack of Kenya ranks 44th out of 51 countries with respect to these ex-ante checks, there are numerous examples the PMR’s “Regulatory Impact Evaluation” subscore of recent primary legislation that do just that. For and scores worse than overall sample average example, the Sugar Act (2024) restricts firms’ choice (Figure 28). This poor performance is driven by both of inputs and farmers’ choice of sales channels Kenya’s processes for assessing the impact of laws by creating catchment areas where sugar farmers and regulations on competition (or lack thereof ) and are bound to sell to specific mills and allowing for its framework governing interactions and conflicts of centralized price-setting. This prevents more efficient interest between public officials and the private sector. millers from gaining market share by offering higher purchase prices to farmers, hurting farmer incomes and Kenya’s laws governing ex ante regulatory impact sector-level productivity. evaluation cover only subordinate regulations and not primary legislation. Under the Statutory Furthermore, Kenya’s legal framework governing Instruments Act (2013), government authorities interactions between the government and proposing regulations must prepare Regulatory Impact private interest groups creates room for opaque Statements and related analyses detailing the objectives interactions and conflicts of interest. Kenya does of the proposed regulation; assessing costs, benefits, not have laws that outline legitimate and prohibited and market effects of the proposed regulation vis-à-vis interactions between public officials involved in alternatives (including non-regulatory and “do-nothing” regulatory processes with interest groups such as options); and make consultations with stakeholders private firms and trade associations. Nor does it have where the proposal is likely to restrict competition. The legal requirements for public officials to publicize the Competition Act (2010) further empowers CAK to “study groups with whom they have interacted and consulted government policies, procedures and programmes, during policy-making processes. Up until 2025, Kenya’s legislation and proposals for legislation so as to assess legal framework governing public officials’ conflicts of their effects on competition.” While these requirements interest also contained gaps. These include a relatively are fairly comprehensive in line with international best narrow definition of conflicts of interest (e.g., focus on practice, they could be expanded to address potential immediate family but not associates) and weak financial distortions more holistically. interest reporting guidelines that did not cover officials such as Cabinet Secretaries. The recently passed This gap in the regulatory impact evaluation Conflict of Interest Act (2025) aims to remedy these framework creates the potential for laws to restrict gaps, although efficacy of implementation remains to competition and constrain investment, productivity be seen.38 Figure 28: Regulatory impact evaluation (PMR subscore) 6.00 5.00 4.00 3.00 2.00 1.00 - Morocco China South Africa Luxembourg Indonesia Türkiye Hungary Kenya Portugal Brazil Costa Rica Colombia Slovak Republic Iceland Armenia New Zealand Belgium Malta Greece Uzbekistan Bulgaria United States Italy Norway Croatia Japan Slovenia Israel Switzerland Austria Cyprus Czechia Netherlands Spain Sweden Canada United Kingdom Latvia Mexico Australia Chile Finland Germany Estonia Ireland France Korea, Rep. Lithuania Poland Peru Denmark Average (All) Average (HIC) Average (MIC) Source: World Bank and OECD PMR score based on Kenyan laws and regulations; OECD PMR indicators (2024); WB & OECD PMR indicators (2023) 38 For PMR scoring purposes, the Conflict of Interest Act (2025) is not taken into account as the data are as of January 2024 to maintain cross-country comparability. Nevertheless, the Conflict of Interest Act (2025) does not create significant shifts in coding of PMR-relevant variables, with the minor exception of a question around cooling- off periods between a public official’s end of term of and employment in a sector he or she regulated. November 2025 | Edition No. 32 23 Special Focus The lack of transparency and of safeguards against below both the overall sample and MIC averages conflict of interest creates opportunities for less (Figure 29). This poor performance is driven by competitive firms to gain market share. They do so legal and regulatory restrictions on both trade and via their privileged access to government contracts and investment. policy-making processes, impacting productivity (and therefore jobs) and market outcomes such as pricing. Trade-related barriers are the biggest driver of There have been numerous allegations of such improper Kenya’s underperformance on this front. Kenya’s or undisclosed public-private interactions in Kenya, average Most Favored Nation (MFN) applied tariff rate which ranks 121st out of 180 countries on Transparency was 13.7 percent in 2023, significantly higher than International’s Corruption Perceptions Index. For example, in peer countries (Figure 30 and Figure 31). Beyond in 2020, companies linked to politically connected tariffs, non-tariff measures (NTMs) adopt several individuals were alleged to have won lucrative COVID-19 forms in Kenya—including import quotas and import PPE tenders without competitive bidding. Many had no permitting—and affect a significant share of regional prior experience in medical supplies, and some were trade, especially within the EAC. The ad valorem incorporated shortly before winning contracts (Igunza, equivalent of NTMs in Kenya is high and close to 40 2020). At the time, the Public Officer Ethics Act (2003)— percent on average for those products affected by which has since been replaced by the Conflict of Interest them and with higher incidence in processed food (46 Act (2025)—and procurement laws did not require percent), energy-intensive manufacturing (46 percent), robust, real-time disclosure of public officials’ beneficial chemical and plastics (46 percent), and textiles (39 ownership or related-party conflicts, and Kenya lacked a percent). Ultimately, this harms competition for stand-alone lobbying register. domestic markets, reducing incentives for local firms to improve their productivity or lower prices. Furthermore, Barriers to trade and investment it hampers the productivity and competitiveness of Kenya ranks last with respect to the PMR’s “Barriers firms purchasing tariffed goods, which will be more to Trade and Investment” subscore and scores well expensive as a result ( World Bank, 2024). Figure 29: Barriers to trade and investment (PMR subscore) 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - Kenya Brazil Indonesia Uzbekistan China South Africa Morocco Armenia Türkiye Mexico Korea, Rep. Israel Colombia Malta Costa Rica Australia Cyprus Iceland New Zealand Hungary United States Italy Bulgaria Greece Slovak Republic Canada Austria Poland Czechia Slovenia Latvia Croatia Peru Chile Lithuania Switzerland Germany France Ireland Belgium Spain Estonia Luxembourg Finland Portugal Sweden Netherlands Japan United Kingdom Norway Denmark Average (All) Average (HIC) Average (MIC) Source: World Bank and OECD PMR score based on Kenyan laws and regulations; OECD PMR indicators (2024); WB & OECD PMR indicators (2023) Figure 30: Applied tariffs: Kenya vs. world Figure 31: Applied tariffs (2023): Kenya vs. peers 25 KEN 13.7 20 UGA 13.2 15 TZA 12.2 Percent 10 THA 8.0 ZAF 7.1 5 VNM 5.6 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 2 4 6 8 10 12 14 16 Kenya Upper middle income World Percent Source: World Bank (2024) Source: World Bank (2024) 24 November 2025 | Edition No. 32 Special Focus Kenya also underperforms with respect to restrictions different types of procompetitive reform opportunities. on FDI. It ranks 86th out of 104 countries with available Further sectors are covered in the CAK and World data on the OECD’s FDI Regulatory Restrictiveness Bank report From Barriers to Bridges: Procompetitive Index, which measures statutory restrictions to FDI such Reforms for Productivity and Jobs in Kenya , including as caps on foreign equity ownership and screening telecommunications, transport, digital platforms, of foreign investment projects. Foreign ownership professional services (Competition Authority of Kenya restrictions—direct limits or bans on foreign ownership & World Bank, 2025). of firms—are the main driver of this underperformance. Such restrictions continue to span multiple key sectors Fertilizer such as agriculture, transportation, and mining, One of the Government of Kenya’s most notable although there has been recent progress in eliminating interventions in the fertilizer sector is its fertilizer restrictions in telecommunications and broadcasting subsidy program. Before 2022, vouchers with cash services (OECD, 2024). values were allocated to a target group of farmers. These vouchers could be redeemed at private Such restrictions on FDI adversely impact investment, agrodealers ( (World Bank, 2025). Under the National competition, and productivity, in turn constraining Fertilizer Subsidy Program’s (NVSP) decentralized quality jobs. Cross-country research suggests that distribution model, importers, distributors, and retailers relaxing FDI regulatory restrictions (as measured by along the supply chain were otherwise free to import the FDI Regulatory Restrictiveness Index) by 10 percent fertilizer (i.e., set product mix) and set prices according (Mistura & Roulet, 2019) can increase inward FDI stocks to market incentives, without negotiation with GOK. by more than 2 percent on average. Reducing foreign Following the 2020 fertilizer crisis—which was driven equity limitations yields the strongest average impact. by COVID-19-related disruptions, external conflicts, and FDIs tend to positively impact competition, productivity, rising global input costs—GOK modified its approach and wages at the national and sector level. They tend through second National Fertilizer Subsidy Program to increase the productivity of firms receiving foreign (NFSP-2). investment as well as those supplying to investees, while applying additional competitive pressure and Under NFSP-2, GOK has entered framework incentives to improve on domestic competitors (Saurav agreements with select fertilizer importers to sell & Kuo, 2020). Cross-country estimates suggest that fertilizer at fixed, below-market prices. Contracted a 10-percentage point increase in the likelihood of importers commit to making a certain amount of foreign investment—of which laws governing FDI are specific fertilizer types available for sale to any farmer a critical determinant—is associated with a 1.6 percent at fixed, below-market retail prices negotiated with increase in aggregate domestic productivity. Of that GOK. GOK then commits to compensating them increase, between-firm selection and reallocation (i.e., per bag sold. Subsidized fertilizer is distributed on a competition) together account for 1.4 percent (Alfaro & consignment basis (i.e., importers retain ownership Chen, 2017). Relatedly, a similar increase in the likelihood of inventory until it is sold to farmers). Distribution is of foreign investment is associated with a 2.9 percent primarily done through the distribution network of the increase in average wage (Alfaro & Chen, Selection National Cereals and Produce Board (NCPB), an SOE, as and Market Reallocation: Productivity Gains from well as through a few private distributors contracted by Multinational Production, 2018). the importers and the GOK at the margin. As of June 2025, subsidized fertilizer under NFSP-2 accounted for 2.3 Case studies on regulatory barriers 30-40 percent of fertilizer sold in Kenya. to competition in select key sectors in Kenya GOK’s rationale for the shift from NVSP to NFSP-2 The cross-cutting themes of distortions induced by rests on pricing, farmer protection, and soil health SOEs as well as unique sector-specific barriers to grounds. By negotiating in bulk with importers, it competition are evident at the sectoral level. This may potentially obtain better import pricing from the section presents case studies illustrating legal and global fertilizer sector, which has historically been regulatory barriers in the fertilizer, telecommunications, highly concentrated. In addition, the more centralized, and energy sectors. These sectors were selected consignment-based distribution model allows GOK and based on their importance to Kenyan farmers, firms, individual actors to have more control and oversight and consumers as well as their ability to illustrate along the supply chain, versus the traditional private November 2025 | Edition No. 32 25 Special Focus sector distribution model wherein products are sold to supply chain (Tegemeo Institute, 2024). These impacts fragmented wholesalers, distributors, and retailers. This are not offset by lower costs from the theoretical could theoretically allow for more effective policing of advantages of the centralized approach: Estimates misconduct such as adulteration and counterfeiting. of all-in landing costs for fertilizer (that is, the cost to See Table 3 for a comparison of NVSP and NFSP-2. procure fertilizer and transport it to retail outlets) are Finally, by prescribing specific amounts of each type roughly equivalent for NCPB and private players (Opiyo, of fertilizer—and notably excluding diammonium Simba, Njagi, & Olwande, 2023; Ricker-Gilbert, Mather, phosphate (DAP)—NFSP-2 seeks to promote better Maredia, Olwande, & Bin Khaled, 2024). In other words, long-run soil health. based on available estimates, the NFSP-2 system fails to generate net cost efficiencies despite the pooled At the same time, by establishing exclusivity in negotiating power of government, having fewer players the distribution and retail of subsidized fertilizer, earning markups along the supply chain, and delivering NFSP-2 could potentially be generating distribution to fewer, more centrally located NCPB depots. inefficiencies and crowd-out equally efficient Figure 32: Landing cost of fertilizer (Ksh per 50kg bag) competitors. Contracted importers have the exclusive 5,540 right to sell subsidized fertilizer. To reach farmers, the 5,520 importers predominantly rely on the distribution 5,500 network of NCPB, plus a few private distributors with 5,,480 whom they and the GOK have contracted. In practice, Price in KSh 5460 this means most last-mile agro-dealers are unable to 5,440 participate even if they can deliver better service to 5,420 customers (for example, by being closer or offering 5,400 even further discounts). The average distance a farmer 5,380 must travel to reach the nearest NCPB depot is 18 km, 5,360 compared to 6 km to the nearest private agrodealer, 5,340 CAN Urea NPK 23:23:0 more than doubling transportation costs incurred Private agrodealer NCPB by farmers on average. Loss of business at private Source: Opiyo, et al. (2023) Note: Landing cost refers to the cost to procure fertilizer and transport it to retail outlets. distributors and agro-dealers is also estimated to have It includes CIF import costs, wholesaler and distributor margins (for private sector), and resulted in the loss of over 200,000 jobs along the transport costs, among other items. Table 3: Landing cost of fertilizer (Ksh per 50kg bag) NVSP (previous program) NFSP-2 (current program) Redeemable for specific types of fertilizer Redeemable for cash value to be spent on Vouchers fertilizer and/or other inputs and targeted to a at subsidized retail price set by GOK after negotiation with contracted importers. specific group of more vulnerable farmers Accessible to any farmer. Carried out individually by private importers on Carried out at pre-specified quantities by specific Fertilizer importation commercial basis importers within NFSP-2 framework agreement. Country-level product mix set by GOK based on Country-level and local market mix determined national agronomic analyses; local allocation Product mix by market price signals and commercial of country-level mix determined by quantity incentives demanded. Subsidized retail prices and per-bag Wholesale and retail prices set individually by Pricing compensation to importers set by GOK under firms according to commercial incentives framework agreement negotiated with importers. Distribution points chosen by contracted importers and GOK (mostly NCPB, with a few All agro-dealers eligible to participate subject to Distribution contracted private distributors depending on registration; closer to farmers on average management of commercial risk); farther from farmers on average. Inventory bought and sold at each step of Importer owns inventory and therefore bears Inventory model and the value chain; less centralized oversight commercial risk until sale to farmer (unless NCPB commercial risk over supply chain and potential abuses (e.g., and other contractors explicitly accept liability); adulteration) more centralized oversight over supply chain. Source: Elaboration based on discussion with GOK and private sector 26 November 2025 | Edition No. 32 Special Focus Furthermore, NFSP-2’s approach to determining Finally, although the allocation of contracts to product mix has shifted the market away from the fertilizer suppliers under the framework agreement earlier, market-determined product mix, affecting the for NFSP-2 has nominally been open, implementation uptake of market-specific blends and organics. Before has lacked transparency. Notably, the contracted firms, the implementation of NFSP-2, market signals governed details of their offers, and identities of unsuccessful the product mix in the market, with diammonium applicants have not been disclosed publicly. Indeed, phosphate (DAP) accounting for 37 percent of fertilizer some stakeholders have made allegations of imported by volume in 2019-2022 according to the misconduct—including counterfeiting despite greater United Nations Commodity Trade Statistics Database supply chain centralization—and conflicts of interest (UN COMTRADE) data. DAP is not a subsidized product in the program’s implementation (Herbling, 2024; under NFSP-2. As a result, DAP’s share of the market Auditor General of Kenya, 2024). Other issues such as dropped to less than 25 percent after 2023, while a transportation cost that affect fertilizer prices are yet to previously obscure product type, the NPK 23:23:0 blend, be addressed. assigned a significant portion of the subsidy program, saw its share rise significantly. The government’s Electricity justification for this relates to DAP’s potential impact Over the past decade, Kenya has undertaken on soil acidity. However, the Kenya Agricultural and significant electricity sector reforms, most notably Livestock Research Organization’s (KALRO) fertilizer through the Energy Act, 2019. The Act laid the recommendations are more nuanced than a blanket foundation for a more liberalized and competitive exclusion of DAP, especially considering many farmers’ market framework. It established the Energy and ability to obtain higher yields in the short term from Petroleum Regulatory Authority (EPRA) under Section DAP than from NPK 23:23:0. Rather than excluding DAP 9, replacing the former Energy Regulatory Commission outright, expanded extension efforts, such as mobile (ERC) and expanding its mandate over licensing, tariffs, tools for dissemination of fertilizer recommendations and competitive neutrality. The Act also introduced and AgTech solutions, could promote more optimal provisions for functional unbundling of the generation, long-run fertilizer choices while still preserving flexibility transmission, and distribution and retail segments in for farmers. Furthermore, select market-specific blends order to encourage private investment in generation by and organics have also disappeared from the market independent power producers (IPPs) and prevent self- since NFSP-2, suggesting that the impacts on soil preferencing by firms that play across segments (e.g., a health may not be uniformly positive, either (Tegemeo distribution provider favoring its own generation affiliate Institute, 2024). in terms of infrastructure access) (Figure 33). Building Figure 33: Electricity Sector Institutional Structure MINISTRY OF ENERGY ENERGY AND PETROLEUM Recommend REGULATORY AUTHRORITY policy direction Dispute resolution Energy and Issue Policies and in the sector petroleum tribunal Regulations Issue and enforce license IMPORT requirements NuPEA GENERATION KenGen GDC IPPs FROM (TANESCO. PPA and network contracts Steam UETCL & EEU) review and Implementation and Enforcement development approvals Regulation Development, MINIGRIDS TRANSMISSION KENTRACO KPLC EXPORT TO UGANDA AND TANZANIA REREC KPLC PRIVATE DISCOs MINIGRIDS Retail Tari DISTIBUTION Approval Consumer and investor protection RETAIL TO CONSUMERS Source: MICDE (2024) November 2025 | Edition No. 32 27 Special Focus on the Act, the Government of Kenya also introduced urgent need to expand generation capacity at a time a Feed-in Tariff (FiT ) system and later the Renewable of supply shortfalls, the subsequent evolution of the Energy Auction Policy (REAP) to incentivize renewable market and introduction of the REAP offer important generation. These reforms were further reinforced by opportunities to bring down costs in the future. the Energy (Electricity Market, Bulk Supply and Open Access) Regulations, 2024, which mandated open In the transmission and distribution segments, access to transmission and distribution infrastructure on implementation of open access also remains non-discriminatory terms. Theoretically, this paves the incomplete. The Energy (Electricity Market, Bulk Supply way for wholesale electricity markets and arrangements and Open Access) Regulations, 2024 establish the right such as IPPs contracting directly with end users without to non-discriminatory open access and wheeling/use- having to build their own separate transmission and of-system charges subject to EPRA approval. However, distribution infrastructure. this framework constitutes only a negotiated third- party access (TPA) model 39 with regulatory oversight. Nevertheless, lack of competitive neutrality and EPRA does not mandate reference access offers (i.e., incomplete operationalization mean that the benefits standard terms under which TPA must be granted) of these reforms are yet to be fully realized. Key issues or publish guidance on standard access agreements. include (a) incomplete implementation of the REAP and In practice, the existing framework thus still presents lack of competitive neutrality vis-à-vis Kenya Electricity transaction cost-related barriers to third parties seeking Generating Company (KenGen) in the generation infrastructure access since they must negotiate from segment; and (b) incomplete implementation of the ground up with KETRACO and KPLC and appeal if open access to the transmission and distribution they are unable to come to mutually agreeable terms. infrastructure owned by Kenya Electricity transmission Company (KETRACO) and Kenya Power and Lighting Telecommunications (KPLC), respectively. The telecoms sector naturally tends towards consolidation, requiring unique regulatory The REAP is yet to be implemented in practice, limiting approaches for ensuring fair competition. As with entry into the generation segment on an open and other physical infrastructure sectors, economies of competitive basis. The REAP mandates that all new scale mean that dominant providers have lower per- Power Purchase Agreements (PPAs) between IPPs and customer costs than new entrants, and high capital KPLC, the de facto distribution and retail monopoly, costs for initial investments create barriers to entry be done on an open auction basis. However, as of for new investments. Furthermore, network effects in September 2025, no guidelines have been published digital markets mean that consumers have incentives on how such auctions should be carried out, and to use the services of the largest providers. In this none have been executed in practice, in part due to a context, competition and better deals for consumers moratorium on new PPAs imposed by the Government cannot always be sustained simply by removing of Kenya. As a result, KPLC remains locked into an older anticompetitive rules; rather, pro-market regulations set of pre-moratorium, pre-REAP PPAs, many of which are necessary. were negotiated on a bilateral basis—and therefore not open to competition—and are of very high cost. Kenya telecommunications sector has a relatively Historically, state-owned KenGen received preferential robust legal framework underpinned by the Kenya access to many of these PPAs. It received direct Information and Communications Act (1998). Since assignment of PPAs without competition, benefitting 2013, it has steadily made improvements such as: (a) the from the lack of clear and transparent criteria for removal of local equity participation requirements; (b) deciding whether projects were allocated to public the introduction of frequency spectrum management entities or private investors. The fact that PPAs have not guidelines and a framework for secondary spectrum been allocated to the most efficient and lowest-cost transfers (Communications Authority of Kenya, 2020; generators has contributed to Kenya having some of Communications Authority of Kenya, 2022); (c) the the highest electricity tariffs in East Africa. Although reduction of call termination rates; (d) the enhancement initial bilateral processes were in part motivated by the of mobile number portability (MNP) and elimination of 39 The OECD describes negotiated TPA as access rights and prices to the network are negotiated between the transmission network operator or owner and the third-party network user. Such arrangements are usually subject to an appeal process if parties cannot agree on the TPA. The appeal can be done to the competition agency or a ministry or another third body. 28 November 2025 | Edition No. 32 Special Focus porting fees; (e) the elimination of exclusive contracts unfavorable terms for access, creating inefficiency in between mobile payment providers and agents; and (f ) the use of current infrastructure and higher costs for the rollout of interoperability across mobile payment smaller companies and potential entrants. Studies from platforms. peer countries have shown that the transfer of towers by telecom companies to independent tower operators Nevertheless, significant gaps remain for ensuring has generated lower prices for consumers. In Kenya, competition due to stalled amendments and delays both independent tower providers operate along the in issuing critical implementing regulations. Kenya’s main mobile telecom company in the tower segment, PMR score for telecommunications lags South Africa, while the main mobile operators, the government Brazil and Morocco, and the three benchmark averages through the One Government Network, and energy (Figure 34). As of September 2025, the Kenya Information state-owned operators operate fiber networks for and Communications Regulations (2025) remain backbone services. pending, with regulatory impact assessments (RIA) only published in August 2025. There are several key issues Spectrum management that these regulations are expected to address. Critical Spectrum management could be improved to allow priorities to address include the lack of regulatory clarity for freer and fairer competition. While the adoption on infrastructure sharing, radio spectrum management, of the Frequency Spectrum Management Guidelines gaps with respect to the assessment of market power 2020 has resulted in more competitive allocation and ensuing remedies, and high and distortionary of spectrum, concerns remain around transparency interconnection costs. This section will now explore and fairness. The use of administrative allocation, each of these areas in turn. where the Communications Authority directly awards spectrum bands to mobile operators, coupled with a Infrastructure sharing lack of transparency in the process (with transparent, There is room to improve Kenya’s framework for uniform, and fair criteria for spectrum allocation and telecommunications infrastructure sharing. Active pricing as well as clear eligibility and access rules), and passive infrastructure sharing is permitted may hinder effective competition among mobile under the Kenya Information and Communications operators. By contrast, switching from administrative (Interconnection and Provision of Fixed Links, Access allocation to competitive auctions could ensure that and Facilities) Regulations (2010), which are currently spectrum is allocated to the players able to put it to undergoing revision (with the revised regulations under the most productive and valuable use (World Bank Parliamentary scrutiny). Yet, Kenya lacks updated rules Group, 2023). 40 Furthermore, despite the publication and effective enforcement mechanisms. In practice, of the frequency transfer guidelines mentioned above, sharing agreements are negotiated between parties no evidence is readily available that a robust system of on a discretionary basis, with limited transparency frequency trading has begun. The guidelines promise or regulatory oversight. As a result, incumbents with that the Communications Authority will maintain a extensive infrastructure can delay, restrict, or set public register of transfers, but this was not evident Figure 34: Mobile telecommunications (PMR score) 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - Indonesia China Uzbekistan Kenya Morocco South Africa Brazil Switzerland Armenia Türkiye Chile Colombia Japan Luxembourg New Zealand Mexico Czechia Ireland Estonia Sweden Israel Malta Iceland Slovenia Finland United States Canada Slovak Republic Cyprus Korea, Rep. United Kingdom Germany France Costa Rica Greece Poland Peru Latvia Spain Italy Hungary Lithuania Australia Belgium Portugal Norway Croatia Bulgaria Austria Netherlands Denmark Average (All) Average (HIC) Average (MIC) Source: World Bank and OECD analysis based on Kenyan laws and regulations 40 GSMA, 2022. The Mobile Economy in SSA 2022. Available at: https://www.gsma.com/solutions-and-impact/connectivity-for-good/mobile-economy/wp-content/ uploads/2022/10/The-Mobile-Economy-Sub-Saharan-Africa-2022.pdf November 2025 | Edition No. 32 29 Special Focus at the time of writing. Coupled with this, the lack of competitors and international benchmarks. Safaricom’s clear usage obligations means that operators may mobile broadband prices for monthly 1GB and 20GB find it difficult to sell frequency bands they are under- bundles are higher than those of its competitors in utilizing, leading to inefficient spectrum utilization. Kenya and higher than in key regional comparators, Importantly, the regulations do not include provisions such as Ghana, Nigeria, Rwanda, and Zambia (World on explicit appeal or dispute resolution mechanisms. Bank, 2025). Jointly, these issues act as a brake on new potential telecom market entrants. While Kenya’s legal framework provides the basic legal framework for ex ante and ex post measures Market power assessments and remedies to identify market dominance and curb anti- There are signs that incumbent firms are likely to competitive behavior, the Communications Authority possess significant market power (SMP), risking has not formally designated players as dominant higher prices for consumers and necessitating more or holding SMP. Such a designation would allow the proactive regulatory approaches. Kenya’s digital Communications Authority to impose regulatory markets remain highly concentrated with elevated obligations on firms found to have SMP under the law Herfindahl-Hirschman Index (HHI)41 scores of over (e.g., asymmetric infrastructure access obligations, 5000 in mobile subscriptions and mobile broadband quality-of-service obligations). Despite these and almost of 10,000 for mobile money transaction unconcluded processes, the Communications Authority volume (World Bank, 2025). A comprehensive market has pursued several targeted ex ante measures to study commissioned by the Communications Authority address some of the market distortions. These have in 2016 confirmed the presence of dominant firms in included tariff approvals and a progressive reduction key segments. (Analysys Mason, 2018). The historic in mobile termination rates. While this strategy has incumbent operator Safaricom was found to have yielded some results, they remain limited, perpetuating SMP in two retail markets—mobile communications the status quo with spillover effects across adjacent and mobile money—as well as the wholesale digital markets. telecommunications towers market. Several remedies were proposed; however no formal determination of Interconnection dominance or enforcement of measures have followed. Kenya has yet to fully implement cost-oriented or Market power may be allowing some providers in pro-competitive mobile termination rates (MTRs). Kenya to charge prices that are higher than domestic MTRs are fees paid by MNOs to other operators when a customer places a call from their network to Figure 35: Cheapest price for 1 GB and 20 GB per month data bundle the other operator. These create club effects that 20 favor larger operators, because networks with fewer customers must pay MTRs on a higher share of calls Price of monthly data bundles (US$) 15 their customers make (Begazo, Dutz, & Blimpo, 2023). The MTR caps set by the Communications Authority are 10 higher than rates in comparable peers like Tanzania and Ghana and significantly above cost (World Bank, 2025). In 2022, CA has commissioned a study, which found 5 that the cost of mobile call termination in Kenya is KES 0.06 per minute, well below the MTR price cap of 0.58 0 MTN MTN MTN MTN Airtel Safaricom introduced in 2021 and the cap of 0.41 introduced in Rwanda Nigeria Zambia Ghana Kenya Kenya March 2024 (World Bank, 2025). Mobile termination Cheapest price for 20 GB per month Cheapest price for 1 GB per month rates for voice and SMS are important for the poorest - Source: Adapted from (World Bank, 2025) Airtel data bundle cost reflects a 3GB per month data bundle, which is the lowest half of the bottom 40 percent of population only have standalone monthly data bundle. 1GB data bundle is available under daily validity or monthly as part of the Unliminet bundle that includes minutes. https://www.airtelkenya. a basic phone and daily use of phone calls is over four com/internet-amazing-data-bundle times that of internet (Findex 2025). 41 HHI is a measure of the market share of firms in relation to their industry and is an indicator of the competition among them. In telecom, HHI is calculated by adding the squares of each operator’s market share (by subscribers) within a given market segment with more weight given to segments where few operators hold large shares. HHI ranges from 0 to 10,000, with higher values representing greater concentration: values <1,500 imply a competitive market; 1,500-2,500 moderately concentrated market; and >5,000 highly concentrated market. 30 November 2025 | Edition No. 32 Special Focus 2.4 Policy recommendations services, communications, finance, transport and Reforming laws and regulations so that markets are tourism sectors, as well as AfCFTA commitments on more open to competition on a level playing field non-tariff barriers. Relatedly, it should amend laws and regulations to remove or substantially reduce would yield significant economic benefits. Reducing restrictions on foreign equity participation across barriers to competition in key input sectors such as sectors in Kenya, retaining foreign equity limits energy, telecommunications, transport, and professional only where strong national interest or security services could increase gross domestic product (GDP) considerations exist. growth rates by up to 1.35 percentage points, through effects across sectors. Improving competition could Unlocking pro-jobs and -growth competition in also lead to more and better jobs in Kenya, as measured Kenya also requires removing barriers at the sectoral by economy-wide labor compensation, which accounts level in agriculture and network industries. For for the number of jobs and average wages. Reforms in example, in the fertilizer sector, this entails improving key input sectors could lift annual labor compensation the fertilizer subsidy program to integrate competition growth by up to 2 percentage points, equivalent to over principles in the selection of participating firms in 400,000 jobs per year at the average wage in Kenya. the programs, better targeting to minimize market distortions and a transition to a system that facilitates Key economy-wide priorities to achieve these greater private sector participation—especially by last- outcomes include the following: mile agro-dealers—and better leverage price signals • Enhancing governance of SOEs to establish competitive to guide product allocation. Within the electricity neutrality: Kenya should ensure that subsidies sector, key reform priorities include the full, open, and and grants to SOEs are tied to clear public policy transparent implementation of the Renewable Energy objectives and measurable outcomes. It should Auction Policy and open access regulations. Within further separate SOEs’ commercial operations from the telecommunications sector, key priorities include public service functions and discontinue financial formally identifying and addressing dominance and support for the former. Support such as loan significant market power through an appropriate mix guarantees and fiscal transfers should be targeted of ex-ante and ex-post remedies; more market-based narrowly for critical public services or infrastructure, using needs-based allocation formulas. and competitive radio communication frequency regulations, and pro-competitive mobile termination • Establishing competition and transparency safeguards rates. More detailed sectoral recommendations— in policymaking: Kenya should expand the scope including for sectors not examined in this report—are of requirements for regulatory impact evaluation in the Statutory Instruments Act (2013) to cover contained in the CAK and World Bank’s report From primary legislation. It should also ensure robust Barriers to Bridges: Procompetitive Reforms for Productivity implementation of the Conflict of Interest Act and Jobs in Kenya (Competition Authority of Kenya & (2025). This entails detailed operationalization of World Bank, 2025) as well as the World Bank’s report rules around financial disclosures, asset reporting Spurring Digital Inclusion in Kenya: Analysis of Telecom for policymakers, and cooling off periods for and Mobile Money Markets. public servants via implementing regulations and guidelines for the Act. Finally, Kenya should pass Improving competition could also laws and regulations to establish a comprehensive lead to more and better jobs in lobbying and influence-transparency framework that Kenya, as measured by economy- mandates registration of all entities and individuals wide labor compensation who seek to influence legislation, regulations, or public policy. These laws and regulations should clearly outline allowable and prohibited interactions. • Removing undue barriers to trade and investment: Kenya should reduce tariff levels at least in line with AfCFTA commitments and other trade agreements. It should fast-track tariffs reductions for key imported inputs (chemicals, food additives, packing materials) used by domestic producers and exporters. It should also implement the AfCFTA joint services “offer” to open markets in the business Photo: ©Sambrian Mbaabu/World Bank November 2025 | Edition No. 32 31 REFERENCES Agriculture and Food Authority. 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