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Photos: Sambrian Mbaabu/World Bank. 2025 TABLE OF CONTENTS Acknowledgments............................................................................................................................................................................................................................. i Acronyms ................................................................................................................................................................................................................................................. ii Executive summary............................................................................................................................................................................................................................ 1 I. Context and motivation: Why legal and regulatory barriers to competition matter in Kenya ............................................ 7 Competition, jobs, and productivity in Kenya.............................................................................................................................................................. 7 The role of government ............................................................................................................................................................................................................ 10 II. Economy-wide performance and cross-cutting regulatory barriers to competition in Kenya ............................................. 15 Economy-wide performance.................................................................................................................................................................................................. 15 Distortions induced by public ownership...................................................................................................................................................................... 17 Incomplete policymaking safeguards............................................................................................................................................................................... 21 Barriers to trade and investment ......................................................................................................................................................................................... 24 III. Deep dives on regulatory barriers to competition in select key sectors in Kenya......................................................................... 29 Agribusiness ..................................................................................................................................................................................................................................... 29 Fertilizer ...................................................................................................................................................................................................................................... 29 Sugar ........................................................................................................................................................................................................................................... 33 Electricity ............................................................................................................................................................................................................................................ 39 Information and communications technology........................................................................................................................................................... 44 Telecommunications............................................................................................................................................................................................................ 44 Digital markets ....................................................................................................................................................................................................................... 49 Transport ............................................................................................................................................................................................................................................. 53 Air transport ............................................................................................................................................................................................................................. 53 Rail transport ........................................................................................................................................................................................................................... 57 Water transport ...................................................................................................................................................................................................................... 58 Road transport ....................................................................................................................................................................................................................... 60 Professional services..................................................................................................................................................................................................................... 61 IV. Recommendations: A path towards greater competition and more and better jobs ................................................................ 67 Works cited ............................................................................................................................................................................................................................................. 72 Annex .......................................................................................................................................................................................................................................................... 76 FIGURES Figure 1: Spillovers from (and potential trade-offs between) productivity growth in jobs .............................................................. 8 Figure 2: Capital compensation is higher at the economy-wide level in Kenya than in the average country in comparable income groups .......................................................................................................................................................................... 9 Figure 3: Sectoral gross operating margins were higher in Kenya than the average LMIC, and they have increased over the last 15 years ............................................................................................................................................................................................... 9 Figure 4: Categorization of government interventions in markets and the role of competition policy in addressing risks............................................................................................................................................................................................................. 10 Figure 5: Economy-wide PMR score and subscore structure............................................................................................................................... 16 Figure 6: Structure of simplified version of the ALP questionnaire................................................................................................................... 16 Figure 7: Overall PMR score ...................................................................................................................................................................................................... 17 Figure 8: Distortions induced by public ownership (PMR subscore)............................................................................................................... 18 Figure 9: GOK is a key shareholder in businesses beyond just traditional SOEs....................................................................................... 18 Figure 10: Close to half of all domestic Kenyan BOSs are in competitive sectors, especially in services industries.............. 19 Figure 11: Government transfers to SOEs............................................................................................................................................................................ 20 Figure 12: Regulatory impact evaluation (PMR subscore)......................................................................................................................................... 22 Figure 13: Barriers to trade and investment (PMR subscore)................................................................................................................................... 24 Figure 14: Applied tariffs: Kenya versus world.................................................................................................................................................................. 24 Figure 15: Applied tariffs (2023): Kenya versus peers.................................................................................................................................................... 24 Figure 16: Outright restrictions to competition in fertilizer (ALP index score)............................................................................................. 29 Figure 17: Fertilizer distribution channels in Kenya....................................................................................................................................................... 31 Figure 18: Outright restrictions to competition in sugar (ALP index score)................................................................................................... 33 Figure 19: Area under cultivation by ownership of anchor sugar factory (ha, thousands)................................................................... 35 Figure 20: Domestic sugar production by ownership of anchor sugar factory (MT, thousands)..................................................... 35 Figure 21: Cane-to-sugar ratio by factory (2023)............................................................................................................................................................ 35 Figure 22: Net losses of state-owned sugar millers....................................................................................................................................................... 35 Figure 23: Domestic sugar production and sugar imports in Kenya (MT, thousands)............................................................................ 36 Figure 24: Domestic and imported sugar wholesale prices (KES/MT, thousands)..................................................................................... 36 Figure 25: Year-on-year change in sugar prices ............................................................................................................................................................ 37 Figure 26: Institutional structure of Kenya’s electricity sector................................................................................................................................. 40 Figure 27: Electricity (PMR score).............................................................................................................................................................................................. 40 Figure 28: General theory of change of electricity sector reforms....................................................................................................................... 42 Figure 29: Mobile telecommunications (PMR score).................................................................................................................................................... 45 Figure 30: Regulatory Watch Initiative attainment levels........................................................................................................................................... 45 Figure 31: Cheapest price for 1 GB and 20 GB per month data bundle........................................................................................................... 48 Figure 32: Features of digital platforms that can create anticompetitive behaviors................................................................................ 50 Figure 33: Overall supporting framework for commercial platforms................................................................................................................. 52 Figure 34: Air transport (PMR score)........................................................................................................................................................................................ 54 Figure 35 Rail transport (PMR score)...................................................................................................................................................................................... 57 Figure 36: Water transport (PMR score)................................................................................................................................................................................. 58 Figure 37: Road transport (PMR score).................................................................................................................................................................................. 60 Figure 38: Professional services (PMR scores).................................................................................................................................................................... 61 Figure 39: Percentage of countries with price controls in professional services industries................................................................. 63 BOXES Box 1: CAK and competition policy in Kenya.............................................................................................................................................................. 11 Box 2: Typology of market interventions that may hinder competition.................................................................................................... 13 Box 3: PMR and ALP methodologies................................................................................................................................................................................. 15 Box 4: SOEs in Kenya’s sugar sector.................................................................................................................................................................................... 34 Box 5: Potential impacts of reform and implementation considerations in Kenya’s sugar sector............................................. 38 Box 6: Theory of change and enabling factors for competition in electricity sector......................................................................... 42 Box 7: Independent power transmission regulation.............................................................................................................................................. 43 Box 8: Effective telecommunications infrastructure sharing............................................................................................................................. 46 Box 9: Spectrum frequency auctions in Africa............................................................................................................................................................ 47 Box 10: Business models, anticompetitive market outcomes, and relevant regulation...................................................................... 49 Box 11: Market studies for pro-competition advocacy: CAK and around the world............................................................................. 51 Box 12: Examples of economic air transport regulation in various countries............................................................................................ 56 Box 13: Benefits of port modernization and vertical separation........................................................................................................................ 59 Box 14: Best practices on price regulation that Kenya can learn from other jurisdictions................................................................ 64 Box 15: Estimating the impact of pro-competition reforms on GDP and labor compensation.................................................... 76 Box 16: Estimating labor compensation and growth effects from GOSR reductions........................................................................... 78 TABLES Table 1: Summary of recommendations ........................................................................................................................................................................... 3 Table 2: Foreign ownership restrictions in key sectors in Kenya......................................................................................................................... 26 Table 3: Comparison of NVSP and NFSP-2........................................................................................................................................................................ 30 Table 4: Sugar factories in Kenya (2023)............................................................................................................................................................................. 34 Table 5: Summary of recommendations............................................................................................................................................................................ 68 ACKNOWLEDGMENTS This report is a joint product of the Competition Authority of Kenya (CAK) and the World Bank. Key authors include Dr. Adano W. Roba (Director, CAK), Ninette K. Mwarania (Manager, CAK), Cecilia Kyenze (Senior Analyst, CAK), Ryan Kuo (Economist, World Bank), Tania Begazo (Senior Economist, World Bank), Linda Kirigi (Consultant, World Bank), Seidu Dauda (Senior Economist, World Bank), Paul Phumpiu Chang (Senior Economist, World Bank), and Nick Brown (Consultant, World Bank). The team is also grateful for inputs from the Energy and Petroleum Regulatory Authority (EPRA), Public Procurement Regulatory Authority (PPRA), Communications Authority (CA), Privatization Commission, Government Investment and Public Enterprises (GIPE), Ministry of Roads and Transport, Office of the Data Protection Commissioner (ODPC), Kenya Civil Aviation Authority (KCAA), Kenya Ports Authority (KPA), Kenya Law Reform Commission (KLRC), Kenya Investment Authority (KenInvest), Estate Agents Registration Board (EARB), State Department for Investment Promotion, Marek Hanusch, Jorge Tudela, Ghada Elabed, Djeniffer Melo, Dusko Vasiljevic, Mits Motohashi, Grace Njeru, and Aalok Raj Pandey. i ACRONYMS AfCFTA African Continental Free Trade Area AFA Agriculture and Food Authority ALP Anticompetitive Laws and Policies BETA Bottom-Up Economic Transformation Agenda BOS Businesses of the State CA Communications Authority of Kenya CAK Competition Authority of Kenya CBK Central Bank of Kenya CIF Cost, Insurance, and Freight CoG Council of Governors COMESA Common Market for Eastern and Southern Africa CPPI Container Port Performance Index CRASA Communications Regulatory Authorities of Southern Africa DAP Diammonium Phosphate EAC East African Community EACC Ethics and Anti-Corruption Commission EPRA Energy and Petroleum Regulatory Authority FAFB Fertilizers and Animal Foodstuffs Board FDI Foreign Direct Investment FiT Feed-in Tariffs GDP Gross Domestic Product GIPE Government Investments and Public Enterprises Department GoK Government of Kenya GOSR Gross Operating Surplus Ratio HHI Herfindahl-Hirschman Index IATA International Air Transport Association ICT Information and Communications Technology IPPs Independent Power Producer ISIC International Standard Industrial Classification KAA Kenya Airports Authority KALRO Kenya Agricultural and Livestock Research Organization KCAA Kenya Civil Aviation Authority KenInvest Kenya Investment Authority KETRACO Kenya Electricity Transmission Company Ltd. KMA Kenya Maritime Authority KNBS Kenya National Bureau of Statistics KNCCI Kenya National Chamber of Commerce and Industry KPA Kenya Ports Authority KPI Key Performance Indicator KPLC Kenya Power and Lighting Company KQ Kenya Airways ii KRA Kenya Revenue Authority KRC Kenya Railways Corporation LMIC Lower-Middle-Income Country LSK Law Society of Kenya MCPAT Markets and Competition Policy Assessment Toolkit MFN Most-Favored Nation MIC Middle-Income Country MNO Mobile Network Operator MNP Mobile Number Portability MSMEs Micro, Small, and Medium Enterprises MOU Memorandum of Understanding MTP IV Fourth Medium Term Plan MTR Mobile Termination Rate NFSP-2 National Fertilizer Subsidy Program Phase 2 NCPB National Cereals and Produce Board NT National Treasury NTM Non-Tariff Measure NVSP National Value Chain Support Program OECD Organization for Economic Co-operation and Development PPA Power Purchase Agreement PPP Public-Private Partnership PMR Product Market Regulation REAP Renewable Energy Auction Policy RIA Regulatory Impact Assessment SAATM Single African Air Transport Market SAM Social Accounting Matrix SDF Sugar Development Fund SGR Standard Gauge Railway SME Small and Medium Enterprise SMP Significant Market Power SOE State-Owned Enterprise TEU Twenty-foot Equivalent Unit TPA Third-Party Access UN COMTRADE United Nations Commodity Trade Statistics Database USSD Unstructured Supplementary Service Data WASG Worldwide Airport Slot Guidelines WBG World Bank Group WIOCC West Indian Ocean Cable Company WTO World Trade Organization YD Yamoussoukro Decision iii EXECUTIVE SUMMARY K enya has made important progress in its economic transformation agenda in the past decade, but significant legal and regulatory hurdles continue to impede competition across multiple sectors. Overcoming these barriers is essential because competition is key to increasing the number of jobs to match Kenya’s growing workforce and improving productivity to enable higher pay. Overall, there is significant room to make Kenya’s regulatory framework less restrictive to competition. Kenya has the highest Product Market Regulation (PMR) score among the available sample of high- and middle-income countries (2.92 compared to an average of 2.27 in middle-income countries and 0.88 for the top five performers), reflecting substantial barriers to market entry, distortions from public ownership, and limitations on trade and investment. • Distortions from public ownership: The prevalence and governance of state-owned enterprises (SOEs) — over 200 — create market distortions given the fiscal support, procurement preferences, and other undue advantages that SOEs often receive in Kenya. As a result, SOEs often lack market discipline and perform poorly, generating significant fiscal costs, crowding out private investment, and hurting customers and suppliers. • Inadequate policymaking safeguards: Kenya has a framework for regulatory impact assessment (RIA) that includes competition, but this covers only implementing regulations and not primary legislation. In addition, Kenya lacks rules governing allowable interactions between interest groups, lobbyists, and policy makers and systems to ensure transparency in such interactions. • Barriers to trade and investment: Significant non-tariff barriers, tariffs, and restrictions on foreign direct investment (FDI)—such as foreign equity ownership caps—limit competition from foreign investors and suppliers. This in turn deters investment and constrains productivity and job creation. Legal and regulatory barriers to competition are also evident at the sectoral level, especially in key input sectors for businesses across the economy. • Agribusiness (fertilizer and sugar): The fertilizer subsidy program establishes exclusive rights for distribution of subsidized fertilizer, affecting access to fertilizers and preventing price signals from guiding product allocation. In the sugar sector, catchment areas, price restrictions, and import protection for domestic millers create inefficiencies and protect less competitive players. • Energy: Historically, the lack of transparent, competitive tenders for new electricity generation capacity has weakened competition at the generation level and increased electricity costs. In addition, state support and the incomplete implementation of open access regulation have weakened competitive pressure and incentives for greater efficiency of state-owned monopolies in electricity transmission, distribution, and retail across all consumer segments. • Information and communication technology (ICT) (telecommunications and digital markets): Weak rules on infrastructure sharing, spectrum management, and regulation of operators with significant market power (SMP) do not enable competition, contributing to higher data prices and a persistent usage gap. Digital markets face issues related to potential tying and bundling practices, platform data practices, unfair trade practices and regulatory gaps. • Transport (air, rail, maritime, and road): Air transport faces restrictive regulations on route and frequency approvals, slot allocation, and foreign ownership caps. Rail transport is dominated by state-owned monopolies with restrictions on private entry. Competition in maritime logistics is near nonexistent, mainly due to vertical integration under the state-owned Kenya Ports Authority (KPA). Road transport is hampered by fragmented county-level regulations and cabotage restrictions. • Professional services: Restrictions on foreign entry, price controls, advertising limitations, and bans on inter- professional practices limit competition, innovation, and consumer choice. 1 Executive Summary KEY RECOMMENDATIONS The report proposes a comprehensive set of reforms to dismantle barriers and foster a more competitive economy. Key cross-cutting recommendations include the following: • Reform SOE governance and operations: Enhance governance, accountability, and performance linkages for SOEs; discontinue transfers to commercial SOEs; and improve targeting of transfers based on socioeconomic impact. • Strengthen competition policy and enforcement: Expand RIAs to cover primary legislation, ensure robust implementation of conflict-of-interest laws, promote transparency in public-private interactions, and boost competition law enforcement and advocacy, including collaboration between CAK and sectoral regulators. • Reduce trade and investment barriers: Lower non-tariff and tariff barriers to trade, fast-track reductions for key imported inputs, fully implement African Continental Free Trade Area (AfCFTA) commitments, and remove regulatory restrictions on FDI. The report also contains a wide range of sector-specific reforms in the agribusiness, electricity, ICT, transport, and professional services sectors (Table 1). Some of these reforms are already being adopted or under consideration; nevertheless, accelerated progress is needed. Based on estimated impacts on jobs and room to improve laws, regulations, and competitive dynamics, top priorities include the following: a) Reforming the fertilizer subsidy scheme to integrate competition principles in the selection of participant companies and allow further participation of private distributors and retailers; b) Allowing more private participation through auctions and open access to transmission and distribution in the electricity sector; c) Regulating market power and access to spectrum and infrastructure more robustly in the telecommunications sector; and d) Ensuring competitive neutrality, strengthening the independence of regulators, and reducing barriers to foreign investment in the transport sector. Creating institutional structures to champion, implement, and track such reforms is critical. The Competition Authority of Kenya (CAK), which has advanced an increasingly broad competition agenda in recent years, should focus advocacy efforts on some of the key reforms and boost enforcement against anticompetitive behavior. However, transitioning to a highly competitive economy will require a whole-of- government effort and significant cooperation with stakeholders across the economy. Addressing these barriers to competition could yield significant benefits for growth and jobs outcomes. Reducing barriers to competition in key input sectors such as energy, telecommunications, transport, and professional services could increase gross domestic product (GDP) growth rates by up to 1.35 percentage points. Improving competition could also lead to more and better jobs in Kenya, as measured by economy- wide labor compensation, which accounts for the number of jobs and average wages. Reforms in key input sectors could lift annual labor compensation growth by up to 2 percentage points, equivalent to over 400,000 jobs per year at the average wage in Kenya. 2 Executive Summary TABLE 1: Summary of recommendations Section Recommendation Responsible authority Impact1 Timeframe2 Economy-wide Improve the effectiveness of subsidies and National Treasury (NT), High Long term performance - grants to SOEs by tying them to specific Government Investments distortions introduced public policy objectives and measurable and Public Enterprises by public ownership performance outcomes (GIPE) Discontinue fiscal transfers to commercial NT, GIPE SOEs and improve targeting and prioritization of transfers based on socioeconomic impact and need considering defined public service obligations Strengthen legal and regulatory frameworks NT, GIPE governing SOE loan guarantees by establishing and enforcing clear eligibility criteria for approval Economy-wide Expand RIA to cover primary legislation Parliament of Kenya; Medium Short term performance - RIAs Kenya Law Reform and policymaking Commission safeguards Ensure robust implementation of the Ethics and Anti-Corruption Conflict of Interest Act (2025), including Commission (EACC) detailed guidance on asset disclosure Outline allowable public-private interactions Parliament of Kenya; EACC in policymaking and mandate transparency in interactions between interest groups and policymakers Economy-wide Systematically reduce statutory barriers to Parliament of Kenya; Medium Medium performance - trade, including tariff and non-tariff barriers Kenya Revenue Authority term barriers to trade and (KRA) investment Remove regulatory restrictions to FDI, Parliament of Kenya; especially foreign equity ownership limits Kenya Investment Authority (KenInvest) Agribusiness - fertilizer Consider modifications to the subsidy Ministry of Agriculture and High Short term program to expand retail outlet coverage Livestock Development and leverage price signals and/or more transparent and competitive allocation of importer contracts under subsidy framework agreement 1 Impact estimates are based on estimates of value added and labor intensity of the sector itself, GDP and labor spillovers to other sectors, and the presence of competitive distortions in the sector (as approximated via PMR and ALP scores and gross operating surplus ratio [GOSR]). 2 Timeframe estimates are based on global experience with similar reforms as well as analyses of affected interest groups. Sectors where reforms are more complex to implement and that confront more powerful interest groups are classified as longer-term priorities. 3 Executive Summary Section Recommendation Responsible authority Impact Timeframe Agribusiness - sugar Consider relaxing non-tariff barriers by Parliament of Kenya; KRA Medium Medium weakening the Sugar Board’s mandate to term limit importations and restricting its ability to impose import limits for individual companies. In addition, Kenya could ease duty-free caps imposed on Common Market for Eastern and Southern Africa (COMESA) sugar imports, and reconsider the level of its 100 percent tariff on non-COMESA exports. Remove farmgate price controls and Parliament of Kenya; legally mandated catchment areas for cane Ministry of Agriculture and sourcing Livestock Development Reevaluate the relationship between the NT, GIPE; Privatization Government of Kenya (GOK) and state- Commission owned sugar mills and ensure competitive neutrality between state-owned and private mills (for example, cessation of fiscal transfers and debt bailouts) Electricity Increase the transparency of power EPRA; Kenya Power and High Medium procurement through a competitive process Lighting Company (KPLC); term for power purchase agreements (PPAs). NT; CAK (reform advocate) Ensure competitive neutrality between EPRA; Ministry of Energy KenGen and private independent power products (IPPs) (for example, ringfencing of fiscal transfers for public service obligations, private sector-benchmarked performance targets, cessation of de facto PPA preferences). Fully implement open access regulations EPRA; Kenya Electricity allowing transparent and nondiscriminatory Transmission Company access to transmission and distribution Limited (KETRACO) infrastructure. Publish transparent regulations enabling EPRA; Ministry of Energy; private participation in transmission and CAK (reform advocate) distribution segments (for example, clear and transparent licensing rules). ICT - Use upcoming updated infrastructure Communications High Medium telecommunications sharing regulations to promote competition Authority of Kenya (CA); term in the provision of ICT infrastructure Ministry of and encourage infrastructure sharing by ICT and Digital Economy; ensuring appropriate compensation to CAK (reform advocate) infrastructure owners. Update the ICT Act and frequency spectrum CA; Ministry of ICT and regulations to prioritize market-based Digital Economy allocation mechanisms (for example, auctions), allow secondary trading, and mandate transparency in spectrum allocation via publishing decisions, fee structures, and usage obligations Conduct a study to formally designate CA; CAK (reform advocate) operators with SMP or dominance; impose Ministry of ICT and Digital remedies as relevant and update the ICT Economy Act to strengthen provisions related to SMP designation and available obligations 4 Executive Summary Section Recommendation Responsible authority Impact Timeframe ICT - digital markets Pass the Competition Bill amendment to Parliament; CAK Medium Short term restrict anticompetitive digital practices (for example, tying or bundling of products, self-preferencing by digital platforms) and define an internal enforcement strategy Expand CAK’s use of market studies to CAK identify competition risks in digital markets and propose remedies Establish a coordination mechanism CAK; CA; Office of the Data between CAK and other agencies that have Protection Commissioner; oversight of digital markets Central Bank of Kenya (CBK); Insurance Regulatory Authority Transport - road Rationalize, streamline, and harmonize Council of Governors Medium Long term trucking and other transport-related (CoG); Ministry of levies (for example, cess, vehicle branding Transport licenses) across counties Review and ease cabotage restrictions, Ministry of Roads and including rules on foreign firms lifting Transport freight within Kenya Transport - air Ensure competitive neutrality between Ministry of Roads and Medium Medium Kenya Airways (KQ) and competitors (for Transport; Kenya Civil term example, cessation of fiscal transfers, Aviation Authority (KCAA); favoritism in slot and route allocation) Kenya Airports Authority (KAA); CAK (reform advocate) Remove the foreign ownership cap on Ministry of Roads and airlines Transport; KCAA; CAK (advocate) Fully and formally incorporate International KCAA Air Traffic Association (IATA) Worldwide Airport Slot Guidelines (WASG) Strengthen KCAA’s economic regulation KCAA; Ministry of Roads function and establish a clear framework for and Transport the oversight of airport services and charges Transport - rail Consider liberalizing the rail sector by Ministry of Roads and Medium Long term establishing an independent operator and Transport; Parliament; unbundling infrastructure ownership and Kenya Railways operation from rail service delivery Corporation (KRC) Transport - water Separate port regulation from port Kenya Maritime Authority Medium Long term operation (KMA); KPA; Ministry of Transport Professional services Reconsider controls on foreign participationParliament of Kenya; Law Medium Short term in professional services Society of Kenya; National Treasury (accountants); Reduce the number of exemptions granted Institute of Certified Public for professional association minimum prices Accountants of Kenya; Reduce controls on advertising Ministry of Transport and Infrastructure Remove bans on inter-professional practices (engineering); Engineers Board of Kenya; Ministry of Land, Housing & Urban Development (architects); Board of Registration of Architects; CAK (advocate) 5 CHAPTER 1 CONTEXT AND MOTIVATION: WHY LEGAL AND REGULATORY BARRIERS TO COMPETITION MATTER IN KENYA I. CONTEXT AND MOTIVATION: WHY LEGAL AND REGULATORY BARRIERS TO COMPETITION MATTER IN KENYA Competition, jobs, and productivity in Kenya A competitive, productive private sector is key to addressing Kenya’s jobs imperative and achieving the economic transformation ambitions of the Government of Kenya (GOK). The government’s Vision 2030 “aims to transform Kenya into a…middle-income country providing a high quality of life to all its citizens by 2030.” Its Fourth Medium Term Plan (MTP IV) and Bottom-Up Economic Transformation Agenda (BETA) seek to operationalize this by adopting a value chain approach wherein key sectors will be targeted for “bringing down the cost of living; eradicating hunger; creating jobs; expanding the tax base; improving foreign exchange balances; and inclusive growth.” Across targeted value chains,3 prioritized interventions typically focus on improving technology adoption and business practices and driving greater investment in productive capacity. Overall, the GOK’s ambition is to create 1.2 million jobs annually, the vast majority of which will be within the private sector (Kenya National Treasury and Economic Planning, 2024). However, Kenya has not met this target in recent years, adding between 780,000 and 925,000 jobs each year since 2020 (KNBS, 2025). Robust competition is a key enabler of private sector growth, jobs, and investment, as well as consumer welfare. When competition is vigorous and fair, firms are constantly striving to offer lower prices or better quality than their competitors based on business fundamentals—rather than artificial advantages conferred by discriminatory regulations or subsidies—and they are rewarded with greater market share and investment when they succeed (between-firm allocative efficiency). This dynamic incentivizes firms to innovate, improve management, and adopt better technologies (within-firm effect) (Cirera, Comin, & Cruz, 2022). Relatedly, a level playing field makes investment, including foreign direct investment (FDI), more attractive because investors can generate returns from investments in more efficient new firms and other challengers to incumbents (selection effects) (Mistura & Roulet, 2019). For consumers, greater competition translates to lower-priced and better products, allowing them to either buy more of the same products or other products elsewhere in the economy, boosting aggregate consumption and welfare levels (World Bank, 2023b). Finally, lower prices (relative to quality) increase aggregate output and therefore demand for jobs as consumers can purchase more for their money and firms can invest profits from productivity gains in other business activities (Dauda, 2020). 3 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. 7 Context and Motivation FIGURE 1: Spillovers from (and potential trade-offs between) productivity growth in jobs Source: Dauda (2020) High-level data on margins in Kenya suggest significant headroom to improve competition. Gross operating margins or capital compensation—defined as the ratio of gross operating surplus to total output (gross operating surplus ratio [GOSR])—can provide a sense of whether markets function well or are competitive.4 Higher levels of GOSR could indicate weak competitive pressure, allowing incumbent firms to extract higher prices relative to costs. Over the past decade and half (2008-2022), sectoral input-output data from the Eora database suggest gross operating margins across sectors (that is, economy-wide) are higher in Kenya than the average lower-middle-income country (LMIC) (Figure 2). Margins were about 2.7 percentage points higher in Kenya than in the average LMIC over the 2013-2017 period and roughly 1.5 percentage points higher over the 2018-2022 period.5 Average economy-wide margins in Kenya increased by about 9 percentage points over the 2008-2022 period. Beyond impacts on customer pricing, higher margins also have implications on labor compensation (that is, jobs), as they suggest relatively lower compensations to employees6 in Kenya than in the average LMIC. Although competition is not the only factor driving GOSR, which is also affected by levels of capital investment and cost of capital, further analysis of Kenya’s market dynamics and regulatory framework suggests significant competitive distortions, as this report will elaborate upon in subsequent sections. 4 Empirical analysis for the EU finds a significant correlation between unadjusted gross operating surplus and proxies for competition (Przybyla & Roma, 2005). Nevertheless, it is important to note that GOSR is an imperfect measure of the extent of competition. High levels of GOSR can be due to various factors, including the level of capital investment and the cost of capital. Thus, GOSR may capture other issues beyond competition. While a comparison of sectoral GOSR across countries can help identify sectors where competition may be limited, the ratio alone cannot definitively measure the extent of competition. It must be combined with other indicators such as market concentration, entry barriers, pricing behavior, and regulatory environment. In addition, assessment of competition must be made at a more granular level since competition takes place at the relevant market level, which is defined by a combination of the relevant products and geographic scope. Nevertheless, this report uses GOSR as a high-level proxy given the lack of available data for more robust measures of competition (for example, recovery of markups from firm-level data). 5 These differences in mean gross operating margins between Kenya and the average for LMIC are statistically significant for the 2012-2017 and 2018-2022, and 2012-2022 periods, with p < 0.0442, p < 0.001, and p < 0. 0000, respectively. While the mean annual output growth rate for Kenya was statistically significantly higher than the average for LMIC for the 2012-2017 period, it was higher but statistically insignificant for the 2018-2022 period. 6 Estimated as employee compensation over output based on input-output tables. 8 Context and Motivation FIGURE 2: Capital compensation is higher at the economy-wide level in Kenya than in the average country in comparable income groups (GOSRs across income categories, 2008-2022) 40 35 30 Percent 25 35.1 36.1 36.6 32.2 33.4 20 28.8 29.2 27.6 27.3 15 19.6 20.9 20.6 10 2008-2012 2013-2017 2018-2022 2008-2012 2013-2017 2018-2022 2008-2012 2013-2017 2018-2022 2008-2012 2013-2017 2018-2022 High-income Upper -middle-income Lower -middle-income Kenya Note: Analyses 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 graph excludes China. Source: Begazo, Pierola, Goodwin, Dauda, Gramegna and Licetti (Forthcoming) The economy-wide pattern of high margins that suggest weak competition also holds across sectors. In all but a few sectors, gross operating margins were higher in Kenya compared to similar sectors in comparator economies (Figure 3a).7 Not only did several Kenyan sectors exhibit higher margins than peers but all the sectors saw significant increase in their gross operating margins over the 15-year period, 2008-2022 (Figure 3b). FIGURE 3: Sectoral gross operating margins were higher in Kenya than the average LMIC, and they have increased over the last 15 years a. Margins were higher in most Kenyan sectors than the b. All Kenya sectors have seen increased gross operating margins average LMIC over 2018-2022. over 2008-2022. 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% Food/beverages 5% Wood/paper Petrol/chemical/non-metallic min. 5% Construction Agric Transport Recycling 5% Textiles/apparel Other Manuf. 5% Public admin Post/telecom 4% Retail Maintenance/repair 4% Maintenance/repair Retail 4% Wholesale Wholesale 4% Food/beverages Financial/bus serv. 3% Electrical/machinery Utilities 3% Transport equip Fishing Metals Educ/health/other serv. 2% Educ/health/other serv. Hospitality 2% 0 20 40 60 80 0 10 20 30 40 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. Note: Gross operating surplus is 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 structural peers are Bangladesh and Viet Nam. The aspirational peers are Morocco, South Africa, and Thailand. 7 The pattern of higher-than-average GOSR in Kenya applies to all input-output (IO) table sectors outside of wholesale and retail trade, maintenance and repair, education, health, and other services. 9 Context and Motivation The role of government Governments influence competition by allocating public resources to support markets and by setting rules. The World Bank’s Markets and Competition Policy Assessment Toolkit (MCPAT) is a guide for understanding how policy can positively shape markets and address market failures that affect competition. Figure 4 summarizes these different channels, the market failures that the government typically addresses in each role, and the role of competition policy and relevant pro-competition tools in each area. Fundamentally, competition policy consists of two pillars: (I) ensuring that government interventions such as state-owned enterprises (SOEs), laws, and regulations—even if well-intentioned—do not hinder competition or create and unlevel playing field; and (II) preventing and tackling anticompetitive firm behavior (World Bank, 2023b). FIGURE 4: Categorization of government interventions in markets and the role of competition policy in addressing risks How governments shape markets: An analytical framework RESOURCES RULES Channel Allocating public resources to support market creation Setting rules and parameters for the markets to operate Financier International Regulator and Market Gov Role Supplier Buyer (Subsidies) rule maker supervisor referee Statutory requirements (e.g., licenses, standards) Enabling Ex ante procompetition Changing the Exposure to competition Provision of Public regulation (e.g., network relative costs for international and tackling goods and procurement industries). certain market markets, trade, services, anticompetitive players FDI co-investor (SOEs & Regulation to balance risk practice government taking & stability ( nancial (Competition (Industrial (FTA+ FDI (SOEs/SOFIs, PPP) agencies) sector) law’s policies, state aid) provisions) + enforcement) Regulation of scarce resources (e.g. mining, water) Natural Market Public good, Asymmetries of Coordination Natural monopoly, entrenched Anticompetitive failure being monopolies, externalities, information, failures across market power, asymmetry of behavior and addressed public goods, under-provision externalities countries information, externalities mergers externalities Risks to Resource competition Crowd-out private Facilitate cartels, misallocation, Monopoly Restrict entry, raise costs from gov’s rm, resource restrict entry/exit a ected, rights, entry of competing, role misallocation participation unlevel the restrictions unlevel playing eld playing eld Role for Pillar II: Prevent and Pillar I: Ensure government interventions to solve market failures are pro-competition, competition tackle anticompetitive do not hinder contestability, or create an unlevel playing eld policy and rm behavior the MCPAT Rationale for SOEs Competition for Principles to Pro-competitive product market regulation; Competition competitive the market mitigate distortive Competition advocacy tools framework; Pro-competition neutrality (pro-competitive e ects and (national + subnational) E ective tools Competition tender design) transparent enforcement for PPP allocation Subsidy control Source: World Bank (2023b) 10 Context and Motivation This report focuses on measuring the degree to which GOK interventions such as SOEs, laws, and regulations affect competition and on identifying reform priorities for a more procompetitive legal and regulatory framework (that is, Pillar I of MCPAT). GOK, most notably through the Competition Authority of Kenya (CAK), has a long history of championing procompetitive reforms and combating anticompetitive firm behavior (Box 1). Nevertheless, prior analytical work has highlighted how Kenyan laws and regulations often restrict competition, including in key enabling service sectors and BETA priority value chains (World Bank, 2023a). Thus, this report identifies laws, regulations, and other interventions that could restrict competition and distort markets in Kenya at the economy-wide level as well as in select key sectors and outlines resulting reform priorities. It presents results from a review of key areas using the Product Market Regulation (PMR) indicators of the Organisation for Economic Cooperation and Development (OECD), the World Bank’s MCPAT toolkit, interviews with key public and private stakeholders, and sector-specific data sources. BOX 1: CAK and competition policy in Kenya Kenya began pivoting toward a free market in the 1980s, and at the turn of that decade, the Restrictive Trade Practices, Monopolies and Price Control Act came into force. This legislation created the Monopolies and Prices Commission, a department within the Ministry of Finance, which mainly regulated mergers and acquisitions and restrictive trade practices to a limited extent. The government’s Economic Recovery Strategy for 2003–2007 noted that to achieve improved competition in markets, it was necessary to, among others, enact relevant laws supportive of competition, harmonize competition policy with sectoral regulatory laws, and give the competition agency more autonomy and budgetary support to build institutional capacity. Subsequent reforms led to the enactment of the Competition Act, Cap 504, and the establishment and operationalization of CAK in August 2011. In 2014, the Competition Act was amended to introduce the leniency program allowing undertakings participating in cartel activities to cooperate with CAK during investigations in exchange for leniency. In 2016, further amendments empowered CAK to compel reluctant undertakings to provide information during an inquiry or sectoral study. Further, the Abuse of Buyer Power provisions were incorporated into the Competition Act. In 2019, further amendments empowered CAK to monitor sectors prone to Abuse of Buyer Power and required professional bodies to seek an exemption to set prices. In 2023, CAK initiated the process of amending the Competition Act to accommodate learnings from its enforcement experience, infuse international best practices, and expand the scope of the law for better mandate execution. The Competition (Amendment) Bill, 2025, seeks to address new areas of enforcement such as digital markets (global platforms) and superior bargaining position. Since its inception, CAK has been active in promoting competition in Kenya. At the outset, low staffing levels and budgetary constraints limited the scope of enforcement initiatives. In addition, many businesses that had normalized anticompetitive practices like price fixing and cartelization were keen on continuing with the now-illegal conduct. To tackle these challenges, CAK prioritized building internal capacity through recruitment and raising awareness regarding its mandate among key stakeholders. CAK has developed four strategic plans to guide its operations: • In the first plan, which covered FY2013/14-2016/17, CAK focused on establishing structures to support its growth. It was during this period that enforcement frameworks were developed, including the applicable rules and guidelines. CAK was equipped with both human and financial resources. In addition, the law was gradually tested, and soft enforcement prioritized to occasion behavior change by elucidating the benefits of competition law. During this phase, CAK concentrated on key enablers of economic growth: the telecommunications, agriculture, and banking sectors. Some outcomes of these actions included reduced unstructured supplementary service data (USSD) prices in telecommunications, the rollout of compliance programs, and policy change recommendations to enhance the banking sector’s competitiveness. • The second plan focused on testing the Competition Act through both soft and hard enforcement techniques. During the four years to June 2021, CAK sought to benefit through the enforcement of Abuse of Buyer Power, shielding businesses from exploitation by powerful buyers. It is during this period that CAK interrogated the operations of digital lenders, highlighting consumer welfare concerns and recommending policy changes to the Central Bank of Kenya (CBK). Additionally, consumer savings of KES 900 million were achieved when CAK prosecuted a cartel by paint manufacturers. 11 Context and Motivation • During the third plan, which ended on June 30, 2025, CAK ventured into novel areas of enforcement. In partnership with the Public Procurement Regulatory Authority (PPRA), it prioritized public procurement by investigating bid rigging cases. GOK spends 40 percent of its annual budget on procurement. Therefore, sanctioning bid riggers ensures that value for money through competitive bidding is realized. Moreover, fines of over KES 1.5 billion were imposed on those contravening the law in the steel and retail sectors. Additionally, a high number of consumer concerns were resolved, mostly on e-commerce and digital finance, ensuring that issues on quality, data privacy, disclosure, and transparency were addressed. • The fourth plan, running to June 2028, focuses on sustaining CAK’s enforcement efforts, especially in digital markets, by harnessing capacity in data science, strategic collaborations, and advocacy and enhancing CAK’s presence in the regions. Furthermore, this plan has programs that will contribute to government priorities as outlined in the Bottom-Up Transformation Agenda. CAK has also played a leading role in regional cooperation on competition. As the implementation of the African Continental Free Trade Area (AfCFTA) Competition Protocol begins, CAK has aligned its tools and instruments to reduce the compliance costs and requirements for businesses in Kenya. Further, by working closely with regional bodies like the Common Market for Eastern and Southern Africa (COMESA) Competition Commission and the East African Community Competition Authority, CAK will contribute to the growth and sustainability of businesses in Kenya and the region at large. CAK has acted in a range of sectors to protect competition. In addition to actions in digital market studies and professional services described in relevant chapters, it has investigated the cement and animal feeds sectors. In cement, CAK screened for possible collusion facilitated by the East African Cement Producers Association (EACPA). CAK issued a desist order to the association and continued to monitor the sector; a later study found that consumer prices fell by an average of KES 55 per 50-kg bag relative to the baseline, producing total consumer savings estimated at KES 1.48 billion. In the animal feeds sector, a market study identified high market concentration alongside vertical integration with animal feed input supply across the COMESA region. Suppliers of animal feed inputs with market power were able to set markups on these inputs to smaller feed producers in Kenya, which led to the exit of multiple smaller producers and higher prices for farmers. The study recommended corrective enforcement, and a follow-up study to monitor compliance will be undertaken in the upcoming fiscal year. Source: Submission from CAK Ensuring that government market interventions—whether in the form of SOEs, procurement, or regulations—do not prevent firms from competing on a level playing field is key to achieving private sector investment, growth, and jobs. Conceptually, government actions may hinder competition if they (a) reinforce dominance and limit entry; (b) facilitate collusion or restrict firms’ choice of strategic variables; and (c) discriminate and provide undue advantages to certain firms over others (see Box 2). Doing so prevents more efficient or innovative firms from entering or leveraging their advantages to gain market share and reduces incentives for less productive firms to improve. In turn, this lowers productivity (and, by extension, wages) and increases prices relative to quality in the market, generally leading to fewer and lower-paying jobs. A broad body of research links more procompetitive laws and regulations that allow firms to compete fairly with improved market and jobs outcomes, most notably for productivity (Dauda, 2020). 12 Context and Motivation BOX 2: 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 (2023b) The remainder of this report will proceed as follows: • Chapter 2 presents an overview of economy-wide legal and regulatory obstacles to competition. It further explores specific competition-related topics that cut across sectors and value chains, including barriers to trade and investments, SOEs, and regulatory impact assessment (RIA). • Chapter 3 presents deep dives into how legal and regulatory barriers to competition affect select key sectors, including the agribusiness, infrastructure, and professional services sectors. • Chapter 4 presents recommendations for Kenya to reform its laws and regulations to unlock the potential of competition to drive private sector growth, jobs, and investment. It also estimates the aggregate impact that removing barriers to competition could have on growth, jobs, and investment in Kenya as a whole.  13 CHAPTER 2 ECONOMY-WIDE PERFORMANCE AND CROSS-CUTTING REGULATORY BARRIERS TO COMPETITION IN KENYA II. ECONOMY-WIDE PERFORMANCE AND CROSS-CUTTING REGULATORY BARRIERS TO COMPETITION IN KENYA Economy-wide performance T o assess the impact of Kenya’s laws and regulations on competition, the World Bank collected and analyzed PMR indicators leveraging the OECD’s methodology, as well as indicators for select sectors using the World Bank’s Anticompetitive Laws and Policies (ALP) methodology. Box 3 summarizes the methodologies behind the indicators and scores.8910 BOX 3: PMR and ALP methodologies PMR The OECD’s PMR indicators form a comprehensive and internationally comparable set of indicators that measure the degree to which policies promote or inhibit competition in areas of the product market where competition is viable. PMR indicators have been used to monitor the regulatory achievements of OECD countries and to evaluate the effectiveness of policies introduced throughout the years. Moreover, PMR indicators have been widely used to help policy makers draw a clear picture of regulations in different countries, with the objective of identifying gaps in regulations and/or room for improvements. The OECD PMR indicators rely on information collected through regulatory indicators questionnaires developed by the OECD. Figure 5 summarizes how the economy-wide score is calculated.8 At the lowest level, each subscore is calculated on a scale of 0-6 based on the questionnaire responses and OECD’s scoring formulas, with 0 being the least restrictive and 6 being the most restrictive. Scores at higher levels of aggregation are simple averages of the subscores at the next-lowest level, giving equal weight to each subscore. Beyond economy-wide thematic areas such as governance of SOEs, the PMR also calculates sector-specific scores for network sectors such as energy and transport and professional services such as the legal profession. ALP The World Bank’s ALP questionnaire identifies per se regulatory restrictions to competitive markets, aiming to complement the sectoral coverage of PMR data. The ALP questionnaire covers major barriers to competition related to regulations that restrict entry or reinforce dominance, facilitate collusion, and/or protect vested interests. The ALP allows policy makers to identify and address key de jure regulatory barriers that are potentially harmful to competition and market dynamics. The ALP relies on information collected through a questionnaire developed by the World Bank. The questionnaire is based on the World Bank’s MCPAT. Figure 6 summarizes the structure of the ALP questionnaire.9 The ALP is generally applied at the four-digit ISIC10 level, which allows for more meaningful interpretation of findings that closely align with relevant markets. The responses to the ALP questionnaire are coded as 1 or 0, with 1 indicating the presence of per se restrictions to competition (that is, laws or regulations that inherently restrict competition). At the lowest level, the ALP score is the count of ones, and higher-level scores are the average of subscores, giving equal weight to each subscore. Source: World Bank, 2023b. 8 For further details on the questions, scores and weights used for the OECD methodology, refer the OECD website: https://www.oecd.org/en/ topics/sub-issues/product-market-regulation.html. 9 For further details on the ALP methodology, see World Bank. 2023. The Business of the State. Washington, DC: World Bank available at https:// bit.ly/Business_of_the_State_MainReportEN. 10 International Standard Industrial Classification. 15 Economy-wide Performance and Cross-cutting Regulatory Barriers FIGURE 5: Economy-wide PMR score and subscore structure Product Market Regulation 2023 methodology Distortions induced by Barriers to domestic state involvement and foreign entry Distortions Involvement in Regulations Admin. and Barriers in Barriers to induced by business impact regulatory service & trade and public ownership operations evaluation burden network sector investments Quality and Retail price Assessment of Administrative Barriers to controls and impact on requirements for Barriers to entry FDI scope of public in service sectors ownership rregulation competition LLCs and POEs Barriers to Involvement in Communication and trade facilitation business oper. Interaction with simpli cation of Barriers to entry Governance in network stakeholders admin. and in network sectors of SOEs sectors regulatory burden Tari barriers Involvement in business oper. in services sectors Public procurement FIGURE 6: Structure of simplified version of the ALP questionnaire Anti-competitive Laws and Policies (ALP) methodology Rules reinforinge dominance or Rules facilitating collusive outomes Rules discriminating and limiting entry or increasing costs to compete protecting vested interests Limits on Price Con icts Choice of Discrimination of Harm to number of Other entry restrictions controls Quotas or interest strategic foreign rms competitive rms variables neutrality Only SOEs Limits on entry in at Financial allowed to least one market of advantages operate the sector via Regulatory Other initiative only advantages Incumbents involvement in entry decisions Horizontal or vertical integration prohibition Minimum capacity requirements A licensing process only Other requirements Note: The ALP questionnaire is based on the World Bank’s MCPAT. 16 Economy-wide Performance and Cross-cutting Regulatory Barriers Overall, Kenya has a legal and regulatory environment that is much more restrictive to competition than the ‘frontier’ of advanced economies with more open markets. Based on its laws and regulations as of January 2024, Kenya has an overall PMR score of 2.92, the highest (that is, most restrictive) score of any country with available PMR data and well above the average for other middle-income countries (2.27) (Figure 7). To a certain extent, this reflects the sample of countries with PMR data, which primarily includes advanced OECD economies. Nevertheless, Kenya still rates as more restrictive than other middle-income countries in the sample such as South Africa, China, Türkiye, and Indonesia. More importantly, this suggests that Kenya has significant room to unlock further growth and jobs. As will be covered in subsequent sections, the reforms needed to free up competition do not necessarily require much higher levels of government capacity that only richer countries can achieve, and they can deliver significant benefits for Kenyan firms and workers, as discussed above. Areas of particular underperformance on an economy-wide basis include distortions induced by public ownership, regulatory impact evaluation and policy-making safeguards, and barriers to trade and investment. This report will now explore each of these cross-cutting themes in turn.11 FIGURE 7: 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) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD PMR indicators (2023). Distortions induced by public ownership Kenya ranks third worst in the PMR sample for the ’Distortions Induced by Public Ownership’ subscore, ahead of only Mexico and Türkiye, and is significantly more restrictive than the overall sample and middle-income country (MIC) averages (Figure 8). This poor performance is driven by both the prevalence and governance of SOEs in Kenya. The three cross-cutting themes were identified based on having the largest distance between Kenya’s score and the frontier (that is, the 11 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. 17 Economy-wide Performance and Cross-cutting Regulatory Barriers FIGURE 8: 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) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD PMR indicators (2023). Businesses linked to the GOK operate across several sectors of the Kenyan economy. Data from the World Bank Business of the State (BOS) database12—which tracks all corporations where national or subnational governments have direct or indirect ownership stake of at least 10 percent—show that GOK has stakes in about 209 business entities operating in the domestic economy as of 2023. Approximately 22.5 percent of all BOSs are traditional SOEs, which tend to be associated with enterprises where central governments hold direct equity stakes of at least 50 percent (Figure 9). Kenya’s BOSs operate across 13 percent of Kenyan subsectors13 and their unconsolidated revenues were equivalent to at least 4.2 percent of Kenya’s gross domestic product (GDP) in 2023 (World Bank, 2025).14 FIGURE 9: GOK is a key shareholder in businesses beyond just traditional SOEs a. SOEs represent less than half of BOSs… b. ….which are present in several sectors Water supply Financial & insurance Manufacturing Information & communication BOSs Real estate (209, 100%) Transportation & storage Accommodation Agriculture Electricity & gas Professional Wholesale & retail Mining & quarrying Admi support Traditional SOEs 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 BOS database Note: Information as of 2023. 12 The World Bank BOS database maps the footprint of the state within the corporate sector and across economic activities based on a uniform definition. Given that the BOS dataset tracks all corporations where national or subnational governments have ownership stake of at least 10 percent, either directly or indirectly, these entities are referred to as the BOSs, rather than SOEs, which tend to be associated with a much higher ownership threshold of 50 percent or more stakes. The information for Kenya is based on publicly available data expanded through information gathered by the country team. 13 They operate in 71 unique 4-digit industries out of the total 563 4-digit NACE industries covered by the database. State business entities operating in sectors such as public administration and defense and activities of extraterritorial organizations are excluded because corporations in these sectors provide public goods, while those operating in education and human health sectors are also excluded because they are characterized by externalities. In addition, some business entities operating in these excluded sectors are either not capable of generating profits or their purpose is not for market production. Thus, government participations in these sectors are justified or firms owned by governments operating in these sectors could not be categorized as state businesses under the above definition. 14 It is important to note that the domestic BOS revenue share is Kenya’s GDP should be considered as a lower bound figure given that only about 61 percent of BOS have unconsolidated revenues data. If consolidated revenues are included, then the revenue share of GDP of Kenya’s BOS is at least 8 percent, with about 63 percent BOS having either unconsolidated or consolidated revenues. 18 Economy-wide Performance and Cross-cutting Regulatory Barriers Several of Kenya’s BOSs operate in commercial sectors of the economy where their presence poses a higher risk of distorting markets. Approximately half of BOSs operate in industries within the competitive sectors15 of the economy, where the economic rationale (for example, market failures) for a State presence in business activities is weak. In several of these competitive sectors, there is active private sector participation, and thus their presence poses potentially greater risk of distorting markets or crowding out more private investment (Figure 10). Close to 20 percent of all BOSs (or 48 percent of BOSs in the competitive sectors) operate in just three services sectors: financial and insurance services, information and technology services, and real estate activities (Figure 10). FIGURE 10: Close to half of all domestic Kenyan BOSs are in competitive sectors, especially in services industries a. Approximately half of BOSs are in competitive sectors b. ….with about 20 percent of them operating in financial, information of the economy… and communication technology (ICT), and real estate services. Financial & insurance 24 Manufacturing 23 Real estate 11 Information & communication 11 Accommodation 8 Agriculture 4 Professional 4 Natural Monopoly Wholesale & retail 4 (43%), 90 Competitive Admi support 2 (46%), 96 Transportation & storage 2 Water supply 1 Construction 1 Arts 1 Electricity & gas 0 Mining & quarrying 0 Contestable Other service 0 (11%), 23 0 5 10 15 20 25 30 Number of domestic BOS Source: World Bank BOS database Note: Information as of 2023. Kenya’s SOE governance arrangements create potential for SOEs to be insulated from market discipline, leading to poor performance. Kenyan SOEs are often insulated from market discipline, reducing incentives to become more productive. Kenya’s National Treasury (NT) entered into performance contracts with SOEs based on key performance indicators (KPIs) and related targets (National Treasury, 2023). However, there is no systematic guidance requiring that financial targets commensurate with private sector benchmarks be achieved. Furthermore, while performance bonuses for directors and executives are contingent upon meeting KPI targets, failure to do so is not generally considered grounds for removal. Relatedly, Kenyan SOEs’ governance structures may cause them to prioritize policy and political objectives over commercial ones. As reflected in Kenya’s PMR data, Kenyan law does not mandate arms-length ownership arrangements between governments. Indeed, the State Corporations Act (Cap. 446 of 1986) mandates that relevant line ministry representatives sit on SOE boards, creating incentives for SOEs to act in the interests of the ministries rather than commercial objectives. While there may be valid policy rationales for SOEs to target public service—rather than commercial—objectives, Kenya does not mandate functional or accounting separation between SOEs’ public service obligations (for example, the Last Mile Connectivity Program of Kenya Power and Lighting Company [KPLC]) and commercial activities. This lack of separation makes it difficult to distinguish revenues and costs associated with public service obligations, which generally create losses, from those of commercial business, which should ideally be subject to market discipline. 15 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, et al., 2022). 19 Economy-wide Performance and Cross-cutting Regulatory Barriers As a result, Kenyan SOEs have often performed poorly, and nearly 50 percent of Kenyan SOEs failed to attain agreed performance targets in NT’s most recent review (National Treasury, 2022). Among the 57 enterprises with financial data on profits and losses as of 2023, only 5 showed improved profitability over the preceding five years, indicating significant performance challenges. Notably, SOEs in commercial sectors made an aggregate net loss of about US$45 million in 2023 (World Bank, 2025). To make up for their poor performance, SOEs are often subsidized, bailed out, or backstopped financially by GOK at great cost to Kenyan taxpayers. Public grants and subsidies to SOEs amounted to 6-7 percent of GDP annually between FY2019/20 and FY2023/24, reaching KES 1,199 billion—or about US$9 billion—in FY2023/24. By contrast, fiscal transfers amount to just 1.5 percent of GDP in Tanzania, which has an SOE portfolio of comparable size to Kenya’s. SOEs also have financing advantages given their access to on-lent and government-guaranteed debt, which rose from 0.8 percent to 1.52 percent of GDP between FY2015/16 and FY2019/20 and has likely grown further since (World Bank, 2025). FIGURE 11: Government transfers to SOEs 8 7 6 5 % of GDP 4 3 2 1 0 2019/20 2020/21 2021/22 2022/23 2023/24 Recurrent Capital Total Source: World Bank (2025) As a result of these advantages, SOEs can crowd out private investment and job creation. With the financial advantage of being able to run losses and/or receive financing below market rates, SOEs can squeeze out even more productive private competitors by offering suppliers higher prices and/or charging customers less. In the short run, suppliers and customers of the SOEs benefit, but this comes at great fiscal cost and disincentivizes private sector investments and productivity improvements—which in turn drive jobs and wages—in the long run. As a result, cross- country research suggests that greater presence of SOEs in a given sector is associated with lower market dynamism. Doubling SOEs’ market share is associated with 5-30 percent less firm entry and 30 percent higher market concentration (World Bank, 2023c). Within Kenya, although further study is needed, descriptive analyses of firm-level data suggest that the labor productivity of SOEs is 72 percent lower on average than private firms with minority government stakes in the same sector16, weighing down overall sector productivity and wages. A further examination of the impact of SOEs, among other legal and regulatory barriers to competition, in Kenya’s sugar sector is in a later section of this report on sector-specific issues. The comparison of log revenue per worker in 2023 among BOSs that are SOEs versus non-SOEs was done using an ordinary least squares 16 (OLS) regression of log revenue per worker in 2023 on a dummy variable equal to one if the BOS is majority-owned by the central and/or local government (that is, SOE) and zero otherwise, while controlling for fixed effects (one-digit sector and whether the BOS operates in competitive, contestable or natural monopoly sectors) and clustering standard errors at the one-digit sector level. The result shows that SOEs had on average 72 percent lower revenue per worker, in log terms, than other BOSs. This result is only suggestive as further study is required to assess its robustness given that the sample size is relatively small (only 77 out of the 209 BOS had revenue per worker data in 2023). 20 Economy-wide Performance and Cross-cutting Regulatory Barriers To reduce market distortions and fiscal costs from SOEs, Kenya should consider the following policy reforms:17 • Enhance the governance, accountability, and performance linkages of transfers to SOEs. Improve the effectiveness of subsidies and grants by tying them to specific public policy objectives and measurable performance outcomes: In general, there should be a separation of commercial functions from public service delivery obligations to ensure that transfers do not cross-subsidize commercial activities or distort pricing mechanisms in markets. Use of performance-based contracts—such as the results-based financing model in the water supply and sanitation sector—should be expanded to other strategic SOEs, including transport entities. These should include development of KPIs that reflect both financial performance (for example, return on equity and equity/assets ratio) and operational and efficiency measures (for example, quality and accessibility of service, labor productivity, and utilization of production capacity). It is also important to strengthen oversight and accountability by the National Treasury of Kenya and the Office of the Controller of Budget through rigorous monitoring and evaluation frameworks, mandatory public audits by the Office of the Auditor General, and by action on audit reports that flag issues—in some cases, relatively significant issues. • Discontinue transfers to commercial SOEs and improve targeting and prioritization of transfers based on socioeconomic impact and need: Prioritize and align subsidies and grants with national development priorities by focusing on SOEs that deliver public policy obligations, such as critical services to underserved populations, or high-impact infrastructure. This can be implemented through a needs-based allocation formula that considers financial viability, service coverage, and regional disparities—for instance, providing higher grants to water utilities in arid counties than to revenue-generating urban utilities. For commercial SOEs, transfers should be removed, and requirements should be put in place to generate rates of return comparable to similar private businesses (over a reasonable period), thus minimizing distortions in competing with the private sector. A framework to assess public service obligations and avoid overcompensation should be developed. • Strengthen legal and regulatory frameworks governing SOE loan guarantees by establishing and enforcing clear eligibility criteria for approval: These criteria can include financial health assessments, performance benchmarks, and comprehensive risk mitigation plans to ensure that guarantees are granted only to creditworthy and well- managed entities, and for projects corresponding to specific and agreed public policy goals and priorities. In parallel, improved transparency and accountability in the reporting of contingent liabilities can be achieved by aligning disclosure practices with international standards. This will enhance fiscal oversight and support better risk management. Incomplete policymaking safeguards Kenya ranks 44th out of 51 countries for the PMR’s ’Regulatory Impact Evaluation’ subscore and scores worse than both overall sample average, although its performance is close to the MIC sample average (Figure 12). This poor performance is driven by both Kenya’s processes for assessing the impact of laws and regulations on competition (or lack thereof ) and its framework governing interactions and conflicts of interest between public officials and the private sector. 17 Recommendations are drawn from World Bank (2025). 21 Economy-wide Performance and Cross-cutting Regulatory Barriers FIGURE 12: 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) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD PMR indicators (2023). Kenya’s laws governing ex ante regulatory impact evaluation could be expanded to address potential distortions more holistically. Under the Statutory Instruments Act (2013), government authorities proposing regulations must prepare Regulatory Impact Statements and related analyses detailing the objectives of the proposed regulation; assess costs, benefits, and market effects of the proposed regulation relative to alternatives (including nonregulatory and ’do-nothing’ options); and consult with stakeholders where the proposal is likely to restrict competition. The Competition Act (2010) further empowers CAK to “study government policies, procedures and programmes, legislation and proposals for legislation so as to assess their effects on competition.” While these requirements are fairly comprehensive in line with international best practice, they cover only subordinate regulations and not primary legislation. This gap in the regulatory impact evaluation framework creates the potential for laws to restrict competition and in turn constrain investment, productivity growth, and high-quality job creation. Ex ante assessments can help ensure that proposed laws and regulations do not (a) reinforce dominance and limit entry, (b) facilitate collusion or restrict firms’ choice of strategic variables, or (c) discriminate and provide undue advantages to certain firms over others. Related to the lack of these ex ante checks, there are numerous examples of recent primary legislation that do just that. For example, the Sugar Act (2024) restricts firms’ choice of inputs and farmers’ choice of sales channels by creating catchment areas where sugar farmers are bound to sell to specific mills and by allowing for centralized price setting, as a subsequent section of this report will cover in greater detail. This prevents more efficient millers from gaining market share by offering higher purchase prices to farmers, hurting farmer incomes and sector-level productivity. Furthermore, Kenya’s legal framework governing interactions between the government and private interest groups creates room for opaque interactions and conflicts of interest. Kenya does not have laws that outline legitimate and prohibited interactions between public officials involved in regulatory processes and interest groups such as private firms and trade associations. Nor does it have legal requirements for public officials to publicize the groups with whom they have interacted and consulted during policy-making processes. Until 2025, Kenya’s legal framework governing public officials’ conflicts of interest also contained gaps with respect to a relatively narrow definition of conflicts of interest (for example, focus on immediate family but not associates) and weak financial interest reporting guidelines that did not cover key officials such as Cabinet Secretaries. The recently passed Conflict of Interest Act (2025) aims to remedy these gaps, although efficacy of implementation remains to be seen.18 18 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) 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. 22 Economy-wide Performance and Cross-cutting Regulatory Barriers The lack of such transparency and conflict of interest safeguards creates opportunities for less competitive firms to gain market share via their privileged access to government contracts and policy-making processes, impacting productivity (and therefore jobs) and market outcomes such as pricing. Numerous allegations of such improper or undisclosed public-private interactions have surfaced in Kenya, which ranks 121st out of 180 countries on Transparency International’s Corruption Perceptions Index. For example, in 2020, companies linked to politically connected individuals were alleged to have won lucrative COVID-19 personal protective equipment (PPE) tenders without competitive bidding. According to this allegation, many had no prior experience in medical supplies, and some were incorporated shortly before winning contracts (Igunza, 2020). At the time, the Public Officer Ethics Act (2003)—which has since been replaced by the Conflict of Interest Act (2025)—and procurement laws did not require robust, real-time disclosure of public officials’ beneficial ownership or related-party conflicts, and Kenya lacked a stand- alone lobbying register. In 2024, it was also alleged that British American Tobacco had lobbied GOK to relax health warning requirements for nicotine pouches, an interaction not publicly disclosed publicly by the government (Marsh & Chapman, 2024). While these remain allegations, they point to a common perception of conflicts of interest that can have a chilling effect on the market. To ensure government laws, regulations, and policies are designed in a procompetitive and transparent manner, GOK should consider the following: • Expand RIA to cover primary legislation: Expand the scope of requirements for regulatory impact evaluation in the Statutory Instruments Act (2013) to cover primary legislation as well as subordinate regulations, as is currently the case. This would help ensure that bills considered by the Kenyan Parliament do not unduly restrict competition and help shape public consultations and debate over bills. • Ensure robust implementation of the Conflict of Interest Act (2025): Further operationalize rules around financial disclosures, assets, and cooling-off periods via implementing regulations and guidelines for the act. These rules should cover, among other areas, mechanisms and procedures for opening, maintaining, and publicizing registers for conflicts of interest, as well as elaboration of definitions and procedures surrounding whistleblower protections. In parallel, adequate resourcing and capacity-building of the Ethics and Anti-Corruption Commission (EACC) are essential to ensure robust enforcement. • Outline allowable public-private interactions and mandate transparency in interactions: Pass laws and regulations establishing a comprehensive lobbying and influence-transparency framework that mandates registration of all entities and individuals—whether in-house or consultant lobbyists—who seek to influence legislation, regulations, or public policy. This framework should also mandate timely public disclosure of lobbyists’ interactions with public officials and include a public, searchable lobbying register capturing the identity of lobbyists, the clients or interests they represent, the specific matters discussed, and any written submissions such as letters, policy briefs, or draft regulations. Complementary rules should require senior public officials to log and publish all meetings and correspondence with lobbyists. 23 Economy-wide Performance and Cross-cutting Regulatory Barriers Barriers to trade and investment Kenya ranks last on the PMR’s ‘Barriers to Trade and Investment’ subscore and scores well below both the overall sample and MIC averages (Figure 13). This poor performance is driven by legal and regulatory restrictions on both trade and investment. FIGURE 13: 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) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators 2024; World Bank and OECD PMR indicators 2023. Trade-related barriers are the biggest driver of Kenya’s underperformance on this front. Kenya’s average most favored nation (MFN) applied tariff rate was 13.7 percent in 2023, significantly higher than in peer countries (Figures 14 and 15). Beyond tariffs, non-tariff measures (NTMs) adopt several forms in Kenya—including import quotas and import permitting—and affect a significant share of regional trade, especially within the East African Community (EAC). The ad valorem equivalent of NTMs in Kenya is high, averaging close to 40 percent for affected products, with higher incidence in processed food (46 percent), energy-intensive manufacturing (46 percent), chemical and plastics (46 percent), and textiles (39 percent). Ultimately, this harms competition in domestic markets, reducing incentives for local firms to improve their productivity or lower prices. Furthermore, it hampers the productivity and competitiveness of firms purchasing tariffed goods, which will be more expensive as a result (World Bank, 2024). FIGURE 14: Applied tariffs: Kenya versus world FIGURE 15: Applied tariffs (2023): Kenya versus peers 25 KEN 13.7 20 UGA 13.2 15 TZA 12.2 Percent 10 THA 8.0 5 ZAF 7.1 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 Economy-wide Performance and Cross-cutting Regulatory Barriers Kenya also underperforms regarding restrictions on FDI. It ranks 86th out of 104 countries with available data on the OECD’s FDI Regulatory Restrictiveness Index, which measures statutory restrictions to FDI such as caps on foreign equity ownership and screening of foreign investment projects. Foreign ownership restrictions—direct limits or bans on foreign ownership of firms—are the main driver of this underperformance. These restrictions continue to span multiple key sectors such as agriculture, transportation, and mining, although there has been recent progress in eliminating restrictions in telecommunications and broadcasting services (Table 2) (OECD, 2024). Such restrictions on FDI adversely affect investment, competition, and productivity, in turn constraining quality jobs. Cross-country research suggests that relaxing FDI regulatory restrictions (as measured by the FDI Regulatory Restrictiveness Index) by 10 percent (Mistura & Roulet, 2019) can increase inward FDI stocks by more than 2 percent on average, with reducing foreign equity limitations yielding the strongest average impact. FDI tends to positively affect competition, productivity, and wages at the national and sector level as it increases the productivity of firms receiving foreign investment as well as those supplying to investees, while applying additional competitive pressure and incentives to improve on domestic competitors or investee firms (Saurav & Kuo, 2020). Cross-country estimates suggest that a 10 percentage point increase in the likelihood of foreign investment—of which laws governing FDI are a critical determinant—is associated with a 1.6 percent increase in aggregate domestic productivity. Of that increase, between-firm selection and reallocation (that is, competition) together account for 1.4 percent (Alfaro & Chen, 2017). Relatedly, a similar increase in the likelihood of foreign investment is associated with a 2.9 percent rise in average wage (Alfaro & Chen, Selection and Market Reallocation: Productivity Gains from Multinational Production, 2018). To better harness trade and foreign investment to benefit Kenyan firms and workers, Kenya should consider the following: • Reduce statutory barriers to trade, including non-tariff barriers: Lower tariff levels at least in line with AfCFTA commitments and other trade agreements, and fast-track tariff reductions for key imported inputs (chemicals, food additives, and packing materials) used by domestic producers and exporters. Fully implement the AfCFTA joint services ‘offer’ to partially or completely open markets in the business services, communications, finance, transport, and tourism sectors, as well as AfCFTA commitments related to non-tariff barriers. • Remove regulatory restrictions to FDI: Amend laws and regulations to remove or substantially reduce restrictions on foreign equity participation across sectors in Kenya (see Table 2). The gains from implementing such trade and investment measures would be substantial for Kenya. Recent modeling exercises suggest that robust AfCFTA integration regarding tariffs, non-tariff barriers, FDI restrictions, and cross-country regulatory harmonization could deliver strong benefits versus baseline projections in Kenya (Echandi, Maliszewska, & Steenbergen, 2022): • Exports predicted to be 40 percent higher by 2035. • FDI stock predicted to be 92 percent higher by 2035. • Formal jobs predicted to grow by 2.6 percent by 2035. • Formal wages predicted to increase by 22.9 percent by 2035. • Income predicted to increase by 12.8 percent by 2035. • Real GDP predicted to be 4.9 percent higher by 2035. 25 Economy-wide Performance and Cross-cutting Regulatory Barriers TABLE 2: Foreign ownership restrictions in key sectors in Kenya Sector Restriction Legal basis Freehold and leasehold ownership of agricultural land Land Control Act No. 34 of Agriculture by non-citizens (including a body corporate not wholly 1967, as amended owned by one or more citizens) is prohibited. A foreign equity restriction in the licensing of internal and Legal Notice No. 167 - The international air services prohibits the issuance of a license Civil Aviation (Licensing of unless the applicant satisfies the authority that at least Air Services) Regulations, Air transport 51 percent of the voting rights are ultimately held by the 2018 state, a citizen of Kenya, or both, and that the aircraft used meets specified registration and operational standards. A foreign contractor, including a firm incorporated in National Construction Kenya in which 51 percent of the shares are held by a Authority Act No. 41 of non-Kenyan, is prohibited from undertaking construction 2011, as amended works whose value is below limits set in the regulations National Construction (works classified as NCA-2 to NCA-8 in the regulation). Authority Regulations, Construction Foreign contractors may only register and undertake works Legal Notice No. 74 of classified as NCA-1 (whose value is superior to the NCA-2 2014, as amended threshold). In such cases, foreign contractors are required to give an undertaking that it will subcontract or enter into a joint venture with a local person or local firm for not less than 30 percent of the value. A foreign firm may only be registered as an engineering Engineers Act No. 43 of consulting firm if the firm is incorporated in Kenya and a 2011, as amended Engineering services minimum of 51 percent of its shares are held by Kenyan citizens. At least 15 percent of the paid-up equity share capital of a The Capital Markets derivatives exchange shall be held by a Kenyan entity. (Derivatives Markets) Financial services Regulations, 2016, Part II, Section 17(1) One-third of the paid-up capital of an insurer should be Insurance Act No. 1 of Insurance, reinsurance, owned by citizens of the East African Community Partner 1985, as amended and pension activities States. Foreign investment in auxiliary insurance services is prohibited. Companies wishing to be considered for a Postal and Communications Authority Courier Operators license must allot a minimum of 20 of Kenya (CA), procedure Land transport percent of their total shares to individual Kenyan citizens at for Licensing Postal/Courier the end of three years of operation. Operators Only citizens of Kenya may qualify for admission as Advocates Act No. 18 of advocates in the country and to hold ownership in law 1989, as amended firms. Foreign advocates may be admitted to practice in Legal services Kenya, at the discretion of the Attorney-General, only in a specified suit or matter as authorized by the Attorney General. 26 Economy-wide Performance and Cross-cutting Regulatory Barriers Sector Restriction Legal basis Persons applying for a license relating to small-scale mining Mining Act No 12 of 2016 operations should be a Kenyan citizen or a body corporate where 60 percent of the shares are held by Kenyan citizens. With respect to large-scale mining operations, the licensee is required to list at least 20 percent of its equity on a local stock exchange within three years after commencement Mining and quarrying of production. Individuals or entities cannot engage in mineral dealings without a mineral dealer’s license or permit, which is exclusively available to citizens of Kenya or to corporations where at least 60 percent of the shareholding is held by Kenyan citizens, with limited permissions for holders of specific licenses. A license can only be granted to a maritime service Merchant Shipping Act provider (comprising local shipping lines, port/terminal No 4 of 2009, as amended operators and other auxiliary services) who is a citizen, or MERCHANT SHIPPING Water transport in case of a company, where 51 percent of the share capital (MARITIME SERVICE is held directly by a Kenyan. PROVIDERS) REGULATIONS, 2011 Ownership of land by non-citizens (including a body Constitution of Kenya, corporate not wholly owned by one or more citizens) can 2010 Urban land only be by way of 99-year leases. Land Act No. 6 of 2012, as amended Source: OECD FDI Regulatory Restrictiveness Index - Regulatory Database 27 CHAPTER 3 DEEP DIVES ON REGULATORY BARRIERS TO COMPETITION IN SELECT KEY SECTORS IN KENYA III. DEEP DIVES ON REGULATORY BARRIERS TO COMPETITION IN SELECT KEY SECTORS IN KENYA Agribusiness T his report’s analysis of regulatory barriers to competition in agribusiness focuses primarily on the fertilizer and sugar subsectors. These sectors were chosen based on the availability of comparable ALP data for global benchmarking and their importance to broader agricultural sector performance and consumer spending in Kenya. While recognizing that market failures along agribusiness value chains require government intervention, embedding procompetition principles in the design of government interventions in the sector can help create the right incentives for firms to compete and deliver the best deals for farmers and consumers. Fertilizer Kenya’s legal and regulatory environment governing fertilizer is more restrictive than most countries with available data. Kenya has more outright restrictions to competition than the sample average for both the manufacture and trade of fertilizer (Figure 16). FIGURE 16: Outright restrictions to competition in fertilizer (ALP index score) 30 25 20 Percent 15 10 5 0 Egypt, Arab Rep. Angola Ethiopia Pakistan Tunisia Kenya Bangladesh Colombia Indonesia Philippines Argentina Côte d'Ivoire Mexico Morocco Nepal Peru Romania Russia Serbia Türkiye Viet Nam Manufacture of fertilizer Wholesale and retail trade of fertilizer Avg. (manufacturing) Avg. (wholesale and retail trade) Source: World Bank analysis based on Kenyan laws and regulations One of GOK’s most notable interventions in the fertilizer sector is its fertilizer subsidy program. Before 2022, vouchers with cash values were allocated to farmers under the National Value Chain Support Program (NVSP). These vouchers could be redeemed at private agrodealers (World Bank, 2025). Under the NVSP’s decentralized distribution model, importers, distributors, and retailers along the supply chain were otherwise free to import fertilizer (i.e., set product mix) and set prices according to market incentives, without negotiation with GOK. Following the 2020 fertilizer crisis—which was driven by COVID-19-related disruptions, external conflicts, and rising global input costs— GOK modified its approach through the second National Fertilizer Subsidy Program (NFSP-2). 29 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Under NFSP-2, GOK has entered framework agreements with select fertilizer importers to sell fertilizer at fixed, below-market prices. Contracted importers commit to making a certain amount of specific fertilizer types available for sale at fixed, below-market retail prices negotiated with GOK. GOK then commits to compensating them per bag sold. Subsidized fertilizer is distributed on a consignment basis (i.e., importers retain ownership of inventory until it is sold to farmers). Distribution is primarily done through the distribution network of the National Cereals and Produce Board (NCPB), an SOE, as well as through a few private distributors contracted by the importers and the GOK at the margin. As of June 2025, subsidized fertilizer under NFSP-2 accounted for 30-40 percent of fertilizer sold in Kenya (Figure 17). Unlike the NVSP, fertilizer subsidies are now accessible to any farmer, meaning the subsidy influences the whole market and not just targeted smallholders. GOK’s rationale for the shift from NVSP to NFSP-2 rests on pricing, farmer protection, and soil health grounds. By negotiating in bulk with importers, it may potentially obtain better import pricing from the global fertilizer sector, which has historically been highly concentrated. In addition, the more centralized, consignment-based distribution model allows GOK and individual actors to have more control and oversight along the supply chain, versus the traditional private sector distribution model wherein products are sold to fragmented wholesalers, distributors, and retailers. This could theoretically allow for more effective policing of misconduct such as adulteration and counterfeiting. Finally, by prescribing specific amounts of each type of fertilizer—and notably excluding diammonium phosphate (DAP)—NFSP-2 seeks to promote better long-run soil health as DAP has been linked to soil degradation. See Table 3 for a comparison of NVSP and NFSP-2. TABLE 3: Comparison of NVSP and NFSP-2 NVSP (previous program) NFSP-2 (current program) Redeemable for cash value to be spent on Redeemable for specific types of fertilizer at subsidized Vouchers fertilizer and/or other inputs and targeted to a retail price set by GOK after negotiation with contracted specific group of more vulnerable farmers importers. Accessible to any farmer. Fertilizer Carried out individually by private importers on Carried out at pre-specified quantities by specific importation commercial basis importers within NFSP-2 framework agreement. Country-level and local market mix determined Country-level product mix set by GOK based on national Product mix by market price signals and commercial agronomic analyses; local allocation of country-level mix incentives determined by quantity demanded. Wholesale and retail prices set individually by Subsidized retail prices and per-bag compensation to Pricing firms according to commercial incentives importers set by GOK under framework agreement negotiated with importers. All agro-dealers eligible to participate subject Distribution points chosen by contracted importers to registration; closer to farmers on average and GOK (mostly NCPB, with a few contracted private Distribution distributors depending on management of commercial risk); farther from farmers on average. Inventory bought and sold at each step of Importer owns inventory and therefore bears commercial Inventory model the value chain; less centralized oversight risk until sale to farmer (unless NCPB and other and commercial over supply chain and potential abuses (e.g., contractors explicitly accept liability); more centralized risk adulteration) oversight over supply chain. Source: Elaboration based on discussion with GOK and private sector. 30 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors FIGURE 17: Fertilizer distribution channels in Kenya 30-40% Collectively 40-50% Source: Estimates and elaboration based on data from Kenya National Bureau of Statistics (KNBS), publicly announced figures, and discussions with GOK. At the same time, by establishing exclusivity in the distribution and retail of subsidized fertilizer, NFSP-2 could potentially be generating distribution inefficiencies and disadvantaging more efficient competitors. Contracted importers have the exclusive right to sell subsidized fertilizer. To reach farmers, the importers predominantly rely on the distribution network of NCPB, plus a few private distributors with whom they and the GOK have contracted. In practice, this means most last-mile agro-dealers are unable to participate even if they can deliver better service to customers (for example, by being closer or offering even further discounts). The average distance a farmer must travel to reach the nearest NCPB depot is 18 km, compared to 6 km to the nearest private agrodealer, more than doubling transportation costs incurred by farmers on average. Loss of business at private distributors and agro-dealers is also estimated to have resulted in the loss of over 200,000 jobs along the supply chain (Tegemeo Institute, 2024). These impacts are not offset by lower costs from the theoretical advantages of the centralized approach: Estimates of all-in landing costs for fertilizer (that is, the cost to procure fertilizer and transport it to retail outlets) are roughly equivalent for NCPB and private players (Opiyo, Simba, Njagi, & Olwande, 2023; Ricker-Gilbert, Mather, Maredia, Olwande, & Bin Khaled, 2024). In other words, based on available estimates, the NFSP-2 system fails to generate net cost efficiencies despite the pooled negotiating power of government, having fewer players earning markups along the supply chain, and delivering to fewer, more centrally located NCPB depots. Furthermore, NFSP-2’s approach to determining product mix has shifted the market away from the earlier, market- determined product mix, affecting the uptake of market-specific blends and organics. Before the implementation of NFSP-2, market signals governed the product mix in the market, with diammonium phosphate (DAP) accounting for 37 percent of fertilizer imported by volume in 2019-2022 according to the United Nations Commodity Trade Statistics Database (UN COMTRADE) data. DAP is not a subsidized product under NFSP-2. As a result, DAP’s share of the market dropped to less than 25 percent after 2023, while a previously obscure product type (the NPK 23:23:0 blend) that was assigned a significant portion of the subsidy program, saw its share rise significantly. The government’s justification for this relates to DAP’s potential impact on soil acidity. However, the Kenya Agricultural and Livestock Research Organization’s (KALRO) fertilizer recommendations are more nuanced than a blanket exclusion of DAP, 31 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors especially considering many farmers’ ability to obtain higher yields in the short term from DAP than from NPK 23:23:0. Rather than excluding DAP outright, expanded extension efforts, such as mobile tools for dissemination of fertilizer recommendations and ag-tech solutions, could promote more optimal long-run fertilizer choices while still preserving flexibility for farmers. Furthermore, select market-specific blends and organics have also disappeared from the market since NFSP-2, suggesting that the impacts on soil health may not be uniformly positive, either (Tegemeo Institute, 2024). Finally, although the allocation of contracts to fertilizer suppliers under the framework agreement for NFSP-2 has nominally been open, implementation has lacked transparency. Notably, the contracted firms, details of their offers, and identities of unsuccessful applicants have not been disclosed publicly. Indeed, some stakeholders have made allegations of misconduct—including counterfeiting despite the purported benefits of greater supply chain centralization—and conflicts of interest in the program’s implementation (Herbling, 2024; Auditor General of Kenya, 2024). Other issues such as transportation cost that affect fertilizer prices are yet to be addressed. Beyond the subsidy program, Kenya also has a relatively restrictive de jure framework for entry, although it is not currently enforced in practice. The Fertilizers and Animal Foodstuffs Act (No. 20 of 2015) mandates that any firm wishing to manufacture or sell fertilizer in Kenya be licensed by the Fertilizers and Animal Foodstuffs Board (FAFB), a more restrictive requirement than in countries such as Peru and Viet Nam, which do not impose such compulsory sectoral licensing. Furthermore, representatives of the Fertilizer Association of Kenya are meant to sit on the FAFB, meaning incumbents are involved in entry decisions, creating room for regulatory conflicts of interest. In practice, the FAFB has not been formed, and compulsory licensing requirements are not enforced, so the actual impact to competition has been limited. Nevertheless, this legislation undermines contestability and creates uncertainty and the potential for competitive barriers in the future. RECOMMENDATIONS To enhance the competitive environment in the fertilizer sector, GOK should consider the following reforms: - Consider modifying NFSP-2 to allow more last-mile retailers to participate and leverage price signals, while boosting ag-tech solutions for extension services. For example, under the earlier NVSP modality, targeted smallholder farmers received vouchers that were redeemable for cash value at private agrodealers, who could be reimbursed in real time by commercial banks acting as fund managers. Relative to the current model, this approach would allow farmers to more freely choose products and suppliers based on their needs and the merits of individual suppliers, enabling more efficient products and firms to gain market share by offering superior value for money. It would also allow price signals to better guide allocation of product types and quantities. Indeed, early evaluations of NVSP showed positive impacts on access, productivity, and market engagement as well as superior value for money (Vutukuru, 2022; World Bank, 2025). Enhanced extension services for farmers, relying on digital and AI solutions, would be a necessary complement to further boost farmers’ ability to select the most appropriate fertilizer and promote soil health. - Increase transparency and competitiveness of NFSP-2 framework agreements with importers. Even if the existing NFSP- 2 voucher and distribution model is retained, the allocation of contracts could be made more transparent and competitive. For example, allocation of contracts for the next framework agreement could involve bidding based on lowest retail price subject to fixed per-bag GOK subsidy or bidding for the lowest subsidy. Better targeting of the support would help enhance the benefits for vulnerable farmers, enhancing the effectiveness of the program. Anticartel enforcement by CAK should complement these efforts to deter bid rigging or other anticompetitive agreements between competitors. 32 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Sugar Kenya’s legal and regulatory framework for sugar is also more restrictive than average. Kenya has more outright19 restrictions to competition than the sample average for both the manufacture and trade of sugar (Figure 18). FIGURE 18: Outright restrictions to competition in sugar (ALP index score) 60 50 40 Perent 30 20 10 0 es ol a co ny a p. bi a re an sia ye am pi a es h ia ia a ia ico pa l ru ia in g oc Re oi ist ni rki io an rb tin es ex Ne Pe ss p An or Ke ab m d' Iv k Tu Tü N h ad om Se n n Ru ilip Ar ol o Pa iet Et gl ge do M Ph M t, C te V Ba n R Ar In yp Cô Eg Manufacture of sugar Wholesale and retail trade of sugar Avg. (manufacturing) Avg. (wholesale and retail trade) Source: World Bank analysis based on Kenyan laws and regulations. Various restrictions prevent new or more efficient sugar millers (that is, manufacturers) from expanding in the domestic market: • Catchment areas: The Sugar Act (No. 11 of 2024) establishes catchment areas for sugar farmers, allowing them to sell only to millers in those areas (with a few exceptions at the margin), with the stated aim of preventing ‘cane poaching’, the practice of farmers breaking sales contracts with millers who invested in them before harvest to sell to higher bidders after harvest. Contract enforcement and higher transparency on advanced payments, input supply, and selling conditions are key to productive farmer-miller relationships. However, strict and permanent catchment areas artificially prevent farmers from obtaining better prices, more favorable terms, or more reliable payment from more efficient millers outside their catchment areas, even if they wish to enter advance contracts. It also creates a situation wherein the state faces pressure to keep inefficient state-owned mills in operation to protect the farmers who have no choice but to sell to them.20 Reforming this rule in the tea sector allowed for innovation (such as the production of purple tea) and boosted prices for farmers. • Price restrictions: The Sugar Act provides for a Pricing Committee that could forestall farmgate price competition among millers or prevent prices from responding to market signals.21 • Licensing: The Sugar Act mandates that all millers entering the market or adjusting their capacity must obtain a license from the Sugar Board, which includes incumbent industry representatives. Beyond raising barriers to entry, this creates room for conflicts of interest wherein incumbents may prevent entry or expansion by competitors.22 Reforming this rule in the tea sector enabled the entry of new processors that targeted niche markets with better compensation for farmers. 19 Outright restrictions refer to laws or regulations that explicitly establish per se restrictions on competition (e.g., explicit ban on entry by certain types of players, restrictions on pricing). 20 The precise catchment areas have yet to be officially defined as of September 2025, so it remains to be seen how many millers cover each catchment area. 21 As of February 2025, the Pricing Committee has yet to formulate recommendations, so the level of price recommendations and whether they will be binding remains to be seen. However, even non-binding recommendations can serve as a focal point for collusion. 22 Indeed, draft regulations published by the Sugar Board in April 2025 establish “existing mills and availability of adequate sugar crop” as licensing criteria, allowing for the regulator and incumbents—rather than the market—make judgments on market need. 33 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors There are substantial barriers to trade that reduce competition by protecting domestic producers. Under the Sugar Act, the national Sugar Board has an explicit mandate to allow importation only if there is a deficit in local production volumes. The board has the power to impose limits on importation by individual companies. Imports from COMESA are supposed to be duty-free, but Kenya has repeatedly applied for and obtained COMESA approval for ‘safeguard measures’ (that is, non-tariff barriers) that allow it to cap duty-free COMESA imports, typically at 200,000-350,000 MT, well below national consumption (USDA, 2021). Imports in excess of the cap are subject to the same duty as imports from all other countries, which is a 100 percent ad valorem tariff. In some years of acute domestic shortage such as 2023, GOK has temporarily waived these caps, but rarely for long enough to fully alleviate upward price pressure and prevent millers from earning rents. Such trade barriers protect local millers in general but especially less efficient state-owned mills, which are less likely to be cost-competitive compared to imports without tariff and quota protection (see Box 4).23 BOX 4: SOEs in Kenya’s sugar sector Both state-owned and private millers produce refined sugar from sugarcane in Kenya. Historically, there have been 17 different sugar mills (11 private and 6 state owned) in Kenya, of which 14 (9 private and 5 state owned) were at least partially operational as of 2023 (Table 4). Private companies accounted for over 85 percent of domestic production by volume in 2023, up from 70 percent in 2017 as state-owned millers have faced operational or financial difficulties (Figure 19). However, farmers tied to state-owned sugar millers continue to account for nearly 30 percent of land under sugarcane cultivation (Figure 20), in part due to operational inefficiencies and restrictions on the mills to which individual farmers can sell, as will be discussed below. TABLE 4: Sugar factories in Kenya (2023) Area under cultivation Area harvested Sugar produced Factory Ownership (ha) (ha) (MT) Transmara 13,966 7,897 106,884 Private Sukari 29,919 18,114 81,759 Private Kibos 11,273 2,811 61,696 Private West Kenya 49,688 14,621 58,027 Private Naitiri 28,546 9,412 42,695 Private Butali 17,988 5,743 34,945 Private South Nyanza 7,129 4,019 31,463 State-owned Mumias 11,006 4,091 13,049 State-owned Muhoroni 15,256 2,776 9,138 State-owned Chemelil 18,970 2,573 8,406 State-owned Busia 11,211 3,213 7,269 Private West Valley 5,671 2,160 6,718 Private Olepito 10,151 3,727 6,591 Private Nzoia 16,934 2,007 5,262 State-owned Kwale 7,467 Private Soin 2,850 Private Miwani 991 State-owned Source: Agriculture and Food Authority (AFA) Yearbook of Statistics 2024; Company Documents and Reports 23 34 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors FIGURE 19: Area under cultivation by ownership of anchor FIGURE 20: Domestic sugar production by ownership of sugar factory (ha, thousands) anchor sugar factory (MT, thousands) 300 900 800 250 700 200 600 189 500 150 176 696 96 123 160 135 139 400 605 490 100 300 337 407 262 200 338 50 96 80 63 67 70 100 62 62 113 104 85 97 105 67 - - 40 2017 2018 2019 2020 2021 2022 2023 2017 2018 2019 2020 2021 2022 2023 State-owned Private State-owned Private Source: AFA Yearbook of Statistics 2024 Source: AFA Yearbook of Statistics 2024 In general, state-owned millers tend to perform worse than their private counterparts due to outdated machinery, less efficient management practices, and financial difficulties. They produce less refined sugar per ton of sugarcane crushed, a critical metric of operational efficiency for sugar millers (Figure 21). Relatedly, they have been consistently loss- making. Over the three years ending June 30, 2023, state-owned Nzoia, South Nyanza (Sony), Muhoroni, Chemelil, and Miwani23 collectively incurred over KES 17 billion in net losses, with Nzoia accounting for the majority (Figure 22). None were profitable on a net basis for even one year; they were mostly unprofitable even in terms of operating profits (that is, before debt and taxes). Muhoroni and Miwani are currently under receivership. FIGURE 21: Cane-to-sugar ratio by factory (2023) FIGURE 22: Net losses of state-owned sugar millers Transmara 18,000 Naitiri Butali 16,000 Sukari 14,000 South Nyanza 12,000 Olepito West Kenya 10,000 West Valley 8,000 Kibos Busia 6,000 Chemelil 4,000 Mumias Muhoroni 2,000 Nzoia - -4 1 6 11 16 2020/2021 2021/2022 2022/2023 Cumulative State-Owned Private Nzoia South Nyanza (Sony) Muhoroni Chemelil Miwani Source: AFA Yearbook of Statistics 2024 Source: AFA Yearbook of Statistics 2024; KNBS Economic Survey 2024 Note: Cane to sugar ratio denotes the number of tons of sugarcane that a Note: Year-on-year change calculated in nominal KES terms; years denote the factory uses to produce one ton of refined sugar on average; lower numbers 12 months ending on June 30 of the second year displayed. imply higher efficiency. Underperformance of state-owned millers also spills over to their farmers under contract. On average, plantations under contract with state-owned millers have reduced yields due to lower quality of extension service and input provision by the millers (USDA, 2024). The financial difficulties of state-owned millers have also led to workers and farmers not receiving payment (The Star, 2024). As of November 2025, the GOK has sought to increase private investment and market discipline through the leasing of state-owned mills. However, there is potential room for improvement in the implementation of leasing arrangements, both in terms of the leasing processes themselves and the overarching market conditions under which leasing occurred (see Box 5). Mumias is excluded from this analysis as it was not operational some years and subsequently leased to a private operator. Miwani was 23 generally not operational in milling but did engage in selling of sugarcane. 35 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Finally, GOK support to state-owned sugar mills distorts competition by giving them undue advantages over private competitors. State-owned sugar mills constitute roughly 15 percent of the market in Kenya and are generally loss-making and inefficient, dragging down Kenya’s overall sector performance and hurting farmers and consumers alike (see Box 4). They are insulated from market competition by the protections mentioned above as well as direct financial support provided by GOK. In 2023, GOK wrote off KES 117 billion in debts owed by state-owned millers to GOK, including Sugar Development Fund (SDF) loans tax penalties owed to the NT, on top of a similar KES 62 billion in write-offs in 2020 (Mbula, 2023). It has also provided grants on multiple occasions to financially struggling state-owned millers, such as the recent payment of a KES 150 million bonus to Mumias farmers and a nonreimbursable grant of KES 166 million to Muhoroni in 2022 to pay farmers and other suppliers (Kamau, 2020; Office of the Auditor General, 2023). Beyond generating fiscal burdens, such transfers from Kenyan taxpayers to state-owned mills also create an unlevel playing field between private and state-owned mills, preventing more efficient firms from expanding and putting resources to higher-value use. As of November 2025, the GOK has sought to increase private investment and market discipline through the leasing of state-owned mills, although competition concerns remain in the implementation of leasing processes, both in terms of the leasing processes themselves and the overarching market conditions under which leasing occurred (see Box 5). These barriers to competition on a level playing field contribute to Kenya’s sugar industry being generally less efficient and costlier, hurting Kenyan consumers, retailers, and wholesalers. Domestic production is typically higher cost than imports. Figure 24 shows average ex-factory prices for domestic production (that is, the price at which sugar millers sell refined sugar to wholesalers and retailers) as well as cost, insurance, and freight (CIF) import prices. CIF prices are consistently lower than domestically produced sugar, with the gap widening significantly recently. Despite their higher costs relative to imports, domestic sugar millers have remained in business due to the restrictions on competition discussed above. For example, in 2022 and 2023, domestic ex-factory prices rose by more than 40 percent per year, growing much faster than cane prices paid to farmers and CIF import prices, translating to increases in retail prices, especially in 2023 (Figure 25). While price increases are partially attributable to cane shortages, the spread in growth rates suggests that benefits from higher prices accrued to millers (as opposed to farmers) and that trade barriers prevented imports from placing downward pressure on wholesale and retail prices. FIGURE 23: Domestic sugar production and sugar FIGURE 24: Domestic and imported sugar wholesale imports in Kenya (MT, thousands) prices (KES/MT, thousands) 1,600 180 1,400 160 1,200 140 120 1,000 321 426 100 990 800 442 608 80 284 459 600 60 400 797 40 700 604 200 491 441 473 376 20 - - 2017 2018 2019 2020 2021 2022 2023 2017 2018 2019 2020 2021 2022 2023 Domestic Production Imports Domestic Production (Ex-Factory Price) Imports (CIF) Source: AFA Yearbook of Statistics (2024) Source: AFA Yearbook of Statistics (2024) 36 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors FIGURE 25: Year-on-year change in sugar prices 50 41% 41% 40% 40 30 23% 20% 20% 18% Percent 20 15% 10 9% 10% 5% 7% 6% 1% 0 -4% -4% -3% -2% -10 -6% -6% -6% -4% -11% -12% -20 2018 2019 2020 2021 2022 2023 Domestic Ex-Factory Price Imported Sugar (CIF) Cane Price Paid to Farmers Retail price Source: AFA Yearbook of Statistics (2024), KNBS Economic Survey (2024) Note: Year-on-year change calculated in nominal KES terms. Removing barriers to competition in Kenya’s sugar sector could benefit workers, farmers, and consumers alike. This entails relaxing tariff and non-tariff barriers to sugar imports, ensuring competitive neutrality between state-owned and private sugar mills (for example, cessation of transfers to state-owned mills) and eliminating catchment areas and farmgate price regulation for purchases of cane from farmers by millers. Box 5 contains detailed recommendations for removing barriers to trade, domestic competition, and competitive neutrality. RECOMMENDATIONS To improve competition in the sugar sector, GOK could consider the following reforms: - Reduce trade barriers to sugar. Consider relaxing non-tariff barriers by weakening the Sugar Board’s mandate to limit importations and restricting its ability to impose import limits on individual companies. In addition, Kenya could ease duty-free caps imposed on COMESA sugar imports and reconsider the level of its 100 percent tariff on non- COMESA exports. - Remove farmgate price controls and cane sourcing catchment areas. Doing so could allow farmers to change buyers after each season, obtain fairer terms and enable the more efficient sugar mills to expand operations, increasing productivity across the sector. Enhanced access to finance for inputs and transparent and enforceable contract farming agreements should accompany these measures to prevent unfair poaching. - Ensure a level playing field. Ceasing fiscal transfers to state-owned mills—especially after leasing processes have been completed—and ensuring that these firms operate in an environment where they have incentives to become more efficient and compete would benefit the government exchequer and decrease distortions in the market. For more detailed analyses of reform impacts and implementation considerations, see Box 5.24 24 37 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors BOX 5: Potential impacts of reform and implementation considerations in Kenya’s sugar sector Trade barriers Eliminating trade barriers to sugar would greatly benefit domestic consumers and firms using sugar as an input (e.g., food processing firms). This could be done by phasing out of the quota on duty-free COMESA imports and/ or the reduction or outright elimination of duties on ex-COMESA imports. Prior studies have found that a 20 percent decrease in sugar prices—a conservative estimate far below the spread between Kenyan and CIF import prices—could lift 40,000 Kenyan families out of poverty given that somewhat inelastic demand for sugar (Argent & Begazo, 2015).24 The need for trade protection for Kenya’s sugar sector is questionable. Proponents of trade barriers have cited the need to protect local farmers. However, as noted previously, rents from protection have generally accrued to millers rather than farmers, as evidenced by ex-factory price growth outpacing farmgate price growth in 2022 and 2023. Furthermore, that sugar factories in Kenya are generally operating below capacity suggests that there is a shortage of cane in the market, meaning that demand and prices for local cane could potentially be held steady even if some inefficient mills were to close due to import competition (Argent & Begazo, 2015). More fundamentally, the GOK should evaluate the long-run prospects for competitiveness in sugar in general to validate the case for trade protection. Research generally shows that trade protection is welfare-positive only insofar as it is temporary and allows the protected domestic industry to become competitive and outgrow the need for protection (Melitz, 2005). Even then, it would be critical to outline a timebound plan to transform the sugar sector towards long-run competitiveness without compromising the welfare of sugar consumers, especially poor households (Argent & Begazo, 2015). Barriers to domestic competition Removing legal and regulatory barriers to domestic competition could also pave the way for higher sector-wide productivity and better earnings for farmers and workers. Eliminating mandatory catchment areas—while still adopting other mechanisms to encourage farmer-miller contract enforcement—and farmgate price controls would allow farmers to obtain the best terms possible and the most efficient millers to expand their operations and gain market share. This could materially improve the livelihoods of farmers who are forced to sell to lower- or sporadically- paying state-owned millers under the status quo. According to the latest estimates, at least 67,000 sugarcane farmers currently sell to Nzoia, 27,000 to Mumias, and 25,000 to South Nyanza (Sony). Competitive neutrality and state-owned sugar mills GOK could reduce competitive distortions and generate significant cost savings from reevaluating its relationship with state-owned sugar mills. Since sugar is a commercial sector that is not a natural monopoly, there is not a clear public policy rationale for state ownership and operation, especially given the private sector already constitutes the majority of the market. State-owned sugar mills have been nearly universally unprofitable in recent years, generating fiscal costs as the GOK is effectively forced to internalize losses in the absence of sustainable turnarounds or willingness to let the state-owned mills close. As noted previously, cumulative losses in the 3 years leading to June 30th, 2023, exceeded KES 17 billion, and the government has engaged in very large debt write-offs recently, including one of KES 117 billion in 2023. This could entail allowing for private sector ownership or management of currently state-owned mills and/or the reduction of fiscal support. Recognizing the fiscal burdens, the GOK has considered private sector ownership or management of state-owned mills, proposing full privatization and leasing of the mills’ assets and farmer relationships to private players (while still retaining ultimate ownership) at various points (Ambani, 2024). While such efforts are laudable conceptually, executing privatization and leasing plans in an open, transparent, and procompetitive manner is critical. Failure to do so—or to execute parallel reforms on aforementioned barriers to trade and domestic competition beforehand—could result in the creation of dominant players or capture by vested interests at the expense of taxpayers and consumers (e.g., undue allocation to lower bidders). Even perceptions or Beyond distributional impacts, reducing or removing tariffs would also carry fiscal costs in the form of loss tariff revenue. Precise information 24 on dutiable imports per year and the rate applied (i.e., 100 percent general rate versus the lower 10 percent rate) are not available given that duty-free import licenses do not always correspond with the quotas communicated by government. In addition, as mentioned previously, import volumes tend to be volatile relative to the duty-free import quota. Nevertheless, in typical years without negative domestic production shocks, we estimate annual tariff revenues to be in the range of KES 4-8 billion, and they may exceed KES 20 billion in years of domestic shortage when quotas are not relaxed to match. 38 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors accusations of misconduct can hold back such processes, as evidenced by the lawsuits brought by losing bidders for the lease of Mumias (Andae, 2022). Similarly, successful efforts must often be accompanied by restructuring of troubled firms to establish clarity and closure on outstanding obligations to suppliers, workers, and lenders and align stakeholders accordingly. Failure to do so has put recent privatization efforts at risk due to stakeholder opposition (Kenya News Agency, 2024). At the very least, the GOK should set clear boundaries on financial support offered to state-owned millers and transparently report the support offered, seeking to preserve competitive neutrality as much as possible. The Government of Kenya has recently conducted tendering processes for the leasing of Chemelil Sugar Company, Muhoroni Sugar Company, Nzoia Sugar Company, and South Nyanza (Sony) Sugar Company, although the extent to which these processes align with best practices and ultimate impacts remain unclear. The tenders were for leases of 30 years, with the Government of Kenya writing off liabilities owed to the government, including debts to the Kenya Sugar Board and tax penalties and interest, as well as taking responsibility for settlement of the companies’ preexisting arrears owed to farmers and workers. West Kenya Sugar Company was awarded the lease for Nzoia, Kibos Sugar and Allied Industries for Chemelil, Busia Sugar Industry for Sony, and West Valley Sugar Company for Muhoroni. Encouragingly, the tenders were done on an open basis, with scoring criteria clearly communicated in tender documents. Nevertheless, proceeding with leasing—especially incumbents such as the winning firms—without corresponding reforms related to Sugar Act (e.g., trade barriers, sugar catchment areas, and farmgate price controls) risks the creation of private entities with undue market power over farmers, suppliers, and customers. Furthermore, as of September 2025, the extent to which competition, environmental, and worker impact assessments were done in advance of award is unclear, as are the exact details of the resulting lease contracts (e.g., guardrails around workers made redundant or owed arrears). Thus, whether the leasing will lead to meaningful improvements in outcomes for Kenyan farmers, workers, and consumers remains to be seen. Electricity Over the past decade, Kenya has undertaken significant electricity sector reforms, most notably through the Energy Act, 2019, which laid the foundation for a more liberalized and competitive market framework. The act established the Energy and Petroleum Regulatory Authority (EPRA), which has a wider mandate than its predecessor, the former Energy Regulatory Commission (ERC). The EPRA has greater powers over licensing, tariffs, and competitive neutrality (see Figure 26 for market structure). The act also separated the generation, transmission, distribution, and retail segments which had previously been vertically integrated. This reform enables private participation and competition in the sector (see Box 6). It also encourages the development of renewable energy projects through provisions for feed-in tariffs (FisT) and the Renewable Energy Auction Policy (REAP). These reforms were reinforced by the Energy (Electricity Market, Bulk Supply and Open Access) Regulations (2024), which mandate that distribution and transmission licensees provide nondiscriminatory open access to market participants, subject to agreements (called ‘wheeling’ agreements) approved by the authority. Despite these changes, Kenya’s PMR score remains high, with scores consistently above comparator countries and international benchmarks (Figure 27). The key regulatory issues include absence of transparent, least-cost competitive tenders for power purchase agreements (PPAs); a lack of competitive neutrality between the state-owned Kenya Electricity Generation Company (KenGen) and private operators; ineffective implementation of wholesale markets and open access regulations; and issues with private participation in transmission. 39 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors FIGURE 26: Institutional structure of Kenya’s electricity sector 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 NuPEA IMPORT requirements GENERATION KenGen GDC IPPs FROM Implementation and Enforcement (TANESCO. PPA and UETCL & EEU) network contracts Regulation Development, Steam development review and approvals MINIGRIDS TRANSMISSION EXPORT TO UGANDA KENTRACO KPLC AND TANZANIA REREC KPLC PRIVATE DISCOs MINIGRIDS Retail Tari DISTIBUTION Approval Consumer and RETAIL TO CONSUMERS investor protection Source: MICDE (2024) FIGURE 27: Electricity (PMR score) 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - Kenya Morocco Costa Rica South Africa Malta Indonesia Uzbekistan China Korea, Rep. Cyprus Colombia Brazil Türkiye Armenia Mexico Peru Israel Switzerland Poland Iceland Japan Croatia Lithuania Bulgaria New Zealand Canada Belgium Latvia Luxembourg Hungary Slovenia United States Finland Austria Ireland Czechia Slovak Republic Norway Greece Chile France Australia Sweden Germany Estonia Italy Spain Portugal Netherlands United Kingdom Denmark Average (All) Average (HIC) Average (MIC) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD PMR indicators (2023) A lack of transparent competitive tenders for new electricity generation capacity harms independent power producers (IPPs) and could be increasing effective generation costs. At present, most electricity produced is sold to state-owned KPLC under long-term PPAs. KPLC is the legacy utility that previously owned and operated all electricity infrastructure and still operates the electrical grid, supplies electricity at the retail level, and owns and operates some transmission and distribution infrastructure. Historically, PPAs were allocated in an opaque manner without explicit requirements for open bidding or competitive awards based on least cost principles. Many of the initial non-competitive, bilaterally negotiated PPAs were motivated by the government’s desire to urgently add generation capacity in the wake of the 1999-2000 power crisis. In practice, state-owned KenGen received many such PPAs; it appeared that private participation occurred only where KenGen was unable to finance new investments (Apergi, et al., 2024). 40 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors The Government of Kenya has made encouraging reform progress to make PPAs more competitive in the future, but robust implementation is key. Going forward, new regulations provide for competitive procurement of new capacity through REAP. However, as of November 2025, REAP has not been substantively implemented, with no published guidance on auctions and no auctions conducted. New PPAs have also been limited by a moratorium that was imposed in 2021 and not fully lifted until November 2025. The EPRA should use this opportunity to fully implement the new regulations and implement competitive least-cost principles.25 More generally, state support for KenGen undermines a competitive landscape in Kenya’s generation sector. As an entity with 70 percent state ownership, KenGen may be directed by policy makers to act toward public policy goals rather than commercial interests and thus not be subject to the same financial performance standards as private competitors, in turn allowing it to crowd out private competitors (see above discussion on SOEs). In addition, operational independence across the electricity sector is undermined by shared board members and state-appointed senior officials in different bodies. Incomplete implementation of open access rules for transmission and distribution infrastructure constrains new entrants in the generation sector. The Energy (Electricity Market, Bulk Supply and Open Access) Regulations (2024) establish that operators of transmission and distribution infrastructure must provide nondiscriminatory open access to their infrastructure. In practice, this means that they must allow IPPs to connect to their infrastructure to supply power to the grid on the same terms as any generation facilities they may own. It also means allowing bulk consumers that may sign PPAs directly with generators equal access. Infrastructure operators achieve this by signing ‘wheeling’ agreements. The regulations set requirements for these agreements: there should be clear (published) application pathways and timelines, an appeals process, and ‘use-of-system’ costs charged by infrastructure owners must be approved by the EPRA. In practice, details on key procedures and reference documents like standard agreements have not been published by infrastructure owners. As a result, third-party access to transmission and distribution infrastructure remains higher risk, as the terms and charges for grid connection cannot be known in advance and IPPs still risk facing higher costs than KenGen. Full enforcement of these regulations would enhance access to grid infrastructure. In the future, regulations could go further by moving from a negotiated model to an ‘ex ante’ framework, where all wheeling charges and conditions are fully published in advance and grid connection is automatically approved subject to these conditions, so that non-discriminatory access at fair charges is possible.26 While the law permits private participation, competition in the provision of transmission infrastructure is not possible without transparent regulation. Kenya Electricity Transmission Company Limited’s (KETRACO) monopoly in transmission and KPLC’s dominance in distribution limit entry. While transmission and distribution are natural monopolies, limited competition in the construction, operation, and maintenance of network assets has allowed some countries to introduce private sector participation in the sector. KETRACO has taken steps in this direction. A public- private partnership (PPP) deal with Adani Holdings was announced in 2024 but suspended shortly after following claims of misconduct (Ngugi, 2025). A separate PPP agreement with Indian company POWERGRID and investor Africa50 to construct transmission infrastructure was announced in 2022 (Africa50, 2022). KETRACO announced in a press release that it is conducting these agreements under the existing PPP Act (Kenya Electricity Transmission Company Limited, 2024). However, the lack of clear licensing pathways, operational rules, and contractual frameworks discourages further private participation and limits the extent to which KETRACO can achieve value for consumers through competitive tenders. 25 The moratorium was initially imposed to investigate the high retail cost of electricity. While a lack of competition and non-application of least- cost principles was likely one factor in driving PPA costs higher, another was the use of ‘take-or-pay’ clauses, where KPLC agrees to pay for a pre-specified amount of power, regardless of whether it is actually used by the grid. Dollar-denominated PPAs also drove high costs, given the devaluation of the Kenyan shilling. As the operating reserve (the difference between available supply and peak demand) shrinks, the EPRA must make new design choices for new PPAs. While take-or-pay clauses raise the cost of PPAs and therefore bills for consumers, international investors may baulk at contracts that lack some kind of commercial guarantee. Careful design will be required to both increase competition by attracting multiple bids while avoiding higher retail prices (Dyk, 2020). 26 Formally, Kenya currently has a ‘negotiated third-party access’ (TPA) framework with regulatory oversight. 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. 41 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors BOX 6: Theory of change and enabling factors for competition in electricity sector FIGURE 28: General theory of change of electricity sector reforms Intermediary Long term 1990s mode power sector reforms outcomes Outcomes outcomes Independent regulator Economic e ciency Less political Private investment Corporate, commercial decisions E cient pricing utilities Legislation Less con ict Technical e ciency Economic Seperate utilities of interest surplus Secure supply Private sector Better participation management Lower costs Less scal burden Market competition Source: Lee & Usman (2018) Note: Inferred simple ‘theory of change’ of 1990s model sector reforms leading to various outcomes. Until the 1990s, state-owned and vertically integrated utilities were the norm in the electricity sector globally. Reforms spread after early and successful implementation in Chile (with the Electricity Act 1982) and the UK (the Electricity Act 1989). Power sector reform is generally seen to entail four components: the creation of an independent regulator; vertical separation of generation, transmission and distribution; private sector participation (in generation in particular); and the introduction of market competition. The theory of change in Figure 28 demonstrates how these four reforms taken together are intended to drive lower costs for consumers. Power sector reforms have not always delivered the promised benefits. A recent World Bank report examining reform processes across developing countries found that hoped-for savings and efficiency gains were not always achieved. In particular, it found that regulatory frameworks by themselves are not sufficient for efficiency gains and must be accompanied by appropriate follow-through (Foster & Rana, 2019). There are several critical enabling factors for successful power sector reforms and open access regimes: • Strong sustained political commitment to liberalization and competition in the electricity sector. The hoped-for benefits need to be well understood by the government and well communicated to the public. • Legislation that mandates open access, supports competition, and allows separate contracting for energy and network services. • A market structure that supports both legal and functional unbundling of generation, transmission, and distribution. • A professionally strong, autonomous, and credible regulatory body committed to promoting and protecting competition. • An independent and efficient transmission system operator that operates neutrally toward power sellers and buyers. • Transmission and distribution pricing that is cost-reflective and transparent. • A transmission infrastructure system planning process that is transparent and open, including input from stakeholders across the sector. • Transparency of information on the real-time availability of transmission capacity. Source: Rudnick & Velasquez (2018) 42 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors BOX 7: Independent power transmission regulation Competition in the development of electricity transmission infrastructure is a relatively new phenomenon globally. During the first phase of electricity sector liberalization globally, transmission owners largely continued to build, own, and operate transmission assets, despite having their distribution and generation segments unbundled. The logic of vertical separation was largely that while transmission tends toward natural monopoly, the generation segment is naturally much more competitive. In recent years, however, innovative regulatory approaches have enabled competition in the construction of transmission assets through competitive procurement and build-own-operate- transfer (BOOT) models. In the United States, competition in transmission infrastructure development began in the 2010s. The Federal Energy Regulatory Commission (FERC) issued Order 1000 in 2011, which mandated that independent system operators carry out regional planning processes and effectively removed a ‘right of first refusal’ for incumbent transmission operators to construct new infrastructure (Joskow, 2020). Other developed markets are catching up more slowly: the UK’s electricity system operator submitted a request to the regulator for a first competitive transmission tender only in 2024 (Grimwood, 2024). Within Africa, Uganda has been an early mover in regulating for independent power transmission. The regulatory authority published independent power transmission regulations in 2023 (Electricity Regulatory Authority of Uganda, 2023). The regulations clearly set out the conditions under which the system operator may invite bids for a competitive tender for transmission projects in their development plan and define a process for companies to privately initiate potential transmission projects. The regulations also mandate that tariffs are conducted on a cost- of-service methodology to ensure a reasonable rate of return—this creates confidence for potential investors. Under the regulations, five companies have submitted applications for independent transmission licenses (according to the Electricity Regulatory Authority’s (ERA) website). Other examples on the continent of independent power transmission being pursued are limited. In April 2025, the South African government published draft regulations for independent power transmission, including license conditions and remuneration rules (Carey-Anne Jennings, 2025). Other countries, like Tanzania, are following a route similar to Kenya: starting by negotiating specific PPP transmission deals, with formalized independent transmission regulations to come later (Daily News, 2024). These barriers to competition contribute in part to Kenya’s high electricity tariffs. About 76 percent of Kenyans have access to electricity—higher than most regional peers—but electricity costs are among the highest in Africa, hurting competitiveness. For example, a 2025 Parliamentary Budget Office (PBO) report found that Kenyan households pay an average of US$0.26 per kilowatt-hour, compared to US$0.17 in Uganda, US$0.09 in Tanzania, US$0.12 in South Africa, and US$0.006 in Ethiopia. As discussed, KPLC’s tariffs are high in part because it is locked into historical high-price PPAs that were not issued on a competitive basis (World Bank, 2025).27 Theoretically, customers can avoid high KPLC prices by contracting directly with IPPs. Indeed, burgeoning rooftop solar installations for commercial and industrial customers suggest that this may be an attractive option. However, the lack of clear rules for open access to transmission and distribution infrastructure presents barriers to those wishing to purchase more power than rooftop space alone can provide, thus necessitating access through KETRACO and KPLC infrastructure. RECOMMENDATIONS To deliver a more competitive electricity sector, GOK could consider the following reforms: • Increase the transparency of power procurement through a competitive process for PPAs. New PPAs should be conducted based on sound principles of reliable supply and least cost to consumers. This could entail more robust implementation of the REAP. • Ensure competitive neutrality between KenGen and private IPPs. KenGen should not be given fiscal transfers or guarantees that allow it to maintain performance below private sector benchmarks and should not be favored in ways that crowd out competition (for example, de facto PPA preferences). 27 Other drivers include the need to recoup investment costs associated with rural electrification, tying into aforementioned themes around the need to ringfence subsidies spent on public service obligations. 43 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors • Fully implement open access regulations to ensure that private players are not disadvantaged. This should include enforcing measures that require transparency and nondiscrimination in grid connection, and preventing wheeling/ use-of-system agreements that disadvantage certain players. • Publish transparent regulations to enable private participation in the transmission and distribution segments. Publishing independent transmission operator regulations would create a standardized process that allows private sector players to participate in the construction and operation of infrastructure. Indeed, many of the above areas are already being discussed as part of Kenya’s National Energy Compact under the Mission 300 initiative. Capitalizing on this momentum will be key. Information and communications technology Telecommunications Kenya’s telecoms sector underpins the digital economy, providing the backbone for connectivity, mobile money, and broadband services that drive growth and innovation across industries. Competition in the underlying infrastructure is therefore a key driver of growth in the digital economy, as more affordable access to telecom networks can accelerate growth in digital sectors and overall job growth (Bahia, et al., 2021). In Kenya, mobile broadband networks cover 98 percent of the population, and 87 percent of population aged 15 years and above use mobile phones daily. However, only 37 percent use the Internet daily, and 23 percent use it only weekly, monthly, or less than once a month. Data costs are an inhibitor of Internet use for many, although hardware affordability is also a factor: Of the population without smartphones, 23 percent do not own one due to data costs (Findex 2025). The telecoms sector naturally tends toward consolidation, requiring unique regulatory approaches to ensure fair competition. As with other physical infrastructure sectors, economies of scale mean that dominant providers have lower per-customer costs than new entrants, and high capital costs for initial investments create barriers to entry for new investments. Furthermore, network effects in digital markets mean that consumers have incentives to use the services of the largest providers. In this context, competition cannot always be sustained simply by removing anticompetitive rules; rather, promarket regulations are necessary. For example, obligations are generally imposed on operators with significant market power to protect consumers and enable competition as well as network efficiency. For example, infrastructure sharing regulations that require infrastructure owners to offer open access to mobile network operators (MNOs) or Internet service providers on nondiscriminatory terms and at fair charges allow operators to compete on prices, coverage, and customer service rather than their access to land or permits for infrastructure, which often favors older and larger players. However, gaps remain in Kenya’s legal and regulatory framework to ensure competition in telecommunications. Its PMR score for telecommunications lags South Africa, Brazil, and Morocco, and the three benchmark averages (Figure 29). In a different index developed by the Regulatory Watch Initiative (led by the World Bank), Kenya lags peers across a range of telecoms subindices: in regulatory framework and licensing, fair markets, international access, and regulatory governance (Figure 29).28 Kenya has a relatively robust legal framework underpinned by the Kenya Information and Communications Act (1998). Since 2013, it has steadily made improvements such as the removal of local equity participation requirements;29 the introduction of frequency spectrum management guidelines, and a framework for secondary spectrum transfers (Communications Authority of Kenya, 2020; Communications Authority 28 Regulator Watch Initiative, led by the World Bank and built on the conclusions of the 2016 World Development Report on Digital Dividends, supports governments in developing telecom policies and regulations. It analyzes 81 indicators grouped in five clusters: (a) regulatory frameworks and licensing, (b) fair markets, (c) international access, (d) regulatory governance, and (e) data governance. The index covers 66 countries. Each score is out of 100, where 100 represents the ‘best practice’ for the topic area. 29 In 2023, Kenya amended its National Information, Communications and Technology Policy Guidelines, lifting the local equity participation restriction that required ICT firms to maintain at least 30 percent Kenyan ownership (through Gazette Notice 11079 dated 22 August 2023). https://new.kenyalaw.org/akn/ke/officialGazette/gazette/2023-08-22/187/eng@2023-08-22) 44 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors of Kenya, 2022); the reduction of call termination rates;30 the enhancement of mobile number portability (MNP) and elimination of porting fees;31 the elimination of exclusive contracts between mobile payment providers and agents; and the rollout of interoperability across mobile payment platforms.32 Nevertheless, significant gaps remain due to stalled amendments and delays in issuing critical implementing regulations. Currently, the Kenya Information and Communications Regulations (2025) are pending, with RIAs only published in August 2025.33 Several key issues are expected to be addressed by these regulations. Critical priorities to address include the lack of regulatory clarity on infrastructure sharing, radio spectrum management, gaps in the assessment of market power and related remedies, and high and distortionary interconnection costs. This section will now explore each of these areas in turn. FIGURE 29: 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) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD PMR indicators (2023). FIGURE 30: Regulatory Watch Initiative attainment levels 90 80 70 60 50 40 30 20 10 0 Ethiopia Egypt Morocco Rwanda Tanzania Kenya India South Africa Peru Regulatory framework and licensing Fair markets International access Spectrum management Regulatory governance Source: World Bank (2023c) 30 The CA has reviewed termination rates multiple times., See “ Determination on Mobile and Fixed Termination Rates - Interconnection Determination No. 4 of 2023”, available at https://www.ca.go.ke/sites/default/files/2023-11/Determination%20on%20Mobile%20and%20 Fixed%20Termination%20Rates-%20Interconnection%20Determination%20No.%204%20of%202023.pdf; https://www.ca.go.ke/consumers- enjoy-lower-calling-rates-following-drop-interconnection-rates. The Kenya Information and Communications (Interconnection) Regulations, 2025 have been developed to, among other objectives, establish a regulatory framework for interconnection between licensees and their subscribers under the act. See https://ict.go.ke/sites/default/files/2025-08/30-07-25%20%20KICA%20INTERCONNECTION%20 REGULATIONS%202025%20Final.pdf. 31 The CA published guidelines on provision of MNP services and subsequently eliminated porting fees (CIO Africa, 2016). Despite MNP being launched there were several implementation issues and uptake of the services has been slow. This comes at a time when mobile numbers have become digital identities, useful for activities such as making digital payments and receiving government services. 32 Interoperability of mobile payment providers has largely been introduced including merchant payments and so on. However, full agent interoperability (float management) has not been achieved. See (World Bank, 2025). 33 See notice of publication of RIAs. 45 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Infrastructure sharing There is room to improve Kenya’s framework for telecommunications infrastructure sharing to boost network efficiency and support competition. Although active and passive infrastructure sharing is permitted under the Kenya Information and Communications (Interconnection and Provision of Fixed Links, Access and Facilities) Regulations (2010), Kenya lacks updated rules and effective enforcement mechanisms to ensure non-discrimination and prompt dispute resolution. In practice, sharing agreements are negotiated between parties on commercial basis, with limited transparency or regulatory oversight. As a result, players with extensive infrastructure can delay, restrict, or set unfavorable terms for access, creating inefficiency in the use of current infrastructure and higher costs for smaller companies and potential entrants. (see Box 8 for case studies from peer countries where transferring towers from telecom companies to independent tower operators has generated lower prices for consumers). The Ministry of ICT and the Digital Economy published draft infrastructure regulations in August 2025. Ensuring these are fully comprehensive and enforced will be critical to enhancing competition in data and voice markets.34 While non-discriminatory access and appropriate service standards are critical for operators that access infrastructure, appropriate compensation to infrastructure owners is necessary to avoid undermining incentives to deploy infrastructure. Implementation must strike the right balance. BOX 8: Effective telecommunications infrastructure sharing Infrastructure sharing in telecoms has several theoretical benefits: by minimizing inefficient parallel construction, prices are lowered for consumers, service availability is improved, and environmental disruption is minimized. In a context of dominant utilities that vertically integrate tower and fiber backbone ownership and provision of wholesale and retail services, careful regulation is required to drive a shift toward open access. There are some well-accepted basic principles that should be followed in regulating infrastructure sharing. The guidelines below, developed by Communications Regulatory Authorities of Southern Africa (CRASA), demonstrate key issues in such regulations. CRASA Guidelines on infrastructure sharing: • The regulatory framework should apply equally to all sector participants. • All types of sharing—for towers, physical sites and buildings, electric power supply, rights of way, and other technical components—should be permitted as long as competition is not adversely affected. • All sector participants should have the right to request the sharing of infrastructure. • All sector participants when requested should be obliged to enter into negotiations. • Operators designated as having significant market power (SMP) in a passive or active infrastructure market should be required to publish a reference offer, approved by the regulator in advance, to facilitate faster sharing of their infrastructure. • Commercial terms for infrastructure sharing should be transparent, fair, and nondiscriminatory. • The approval process for new infrastructure should be timely and effective and should encourage infrastructure sharing. • Dispute resolution process should be transparent, timely, and effective. • The infrastructure sharing regulatory framework should consider the national broadband plan, universal access and service fund (UASF) policy, and future technology development. Source: Digital Regulation Platform (2022) Besides Safaricom, Airtel, Telecom and Jamii Telecom are registered as Tier 1 operators, while there are 13 community network and service 34 providers and more than 150 Tier 2 and Tier 3 network operators. Furthermore, boosting Telkom viability would likely entail access to infrastructure in an initial phase to be able to compete on coverage. 46 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Amongst other variables, tower divestiture plays a key role in lowering retail prices as it improves network availability, capex efficiency, and sharing incentives. Some examples are shown below: Nigeria: After the three largest MNOs in the Nigerian mobile market transferred their assets to independent tower companies, which then leased this infrastructure on a shared basis, the price of mobile internet access as a percentage of gross national income per capita declined by 3 percent. Colombia: The two largest MNOs transferred a large portion of their tower portfolio to an independent company in 2011. The price of calls as a percentage of income per capita declined by 1.5 percent in the following year, and the price of mobile broadband also fell by 3.3 percent per year between 2012 and 2017. Myanmar: The price of mobile calls decreased from 4.6 percent of income per capita in 2014 to 1.8 percent in 2015, and the price of mobile broadband fell from 10.2 percent of income per capita to 2.4 percent one year after the transfer of 1,250 towers from Digicel to the tower company Edotco. Source: (Strusani & Houngbonon, 2020). Spectrum management Spectrum management could be improved to allow for freer and fairer competition. While the adoption of the Frequency Spectrum Management Guidelines 2020 has provided for a more competitive allocation of radio spectrum to mobile operators, concerns remain around transparency and fairness. The use of ‘administrative’ allocation, where the CA directly awards spectrum bands to operators on a first-come, first-serve basis for all bands (independently of their scarcity and commercial value), coupled with a lack of transparency in the process, may hinder effective competition among mobile operators. By contrast, switching from administrative allocation to competitive auctions when demand exceeds supply could ensure that spectrum is allocated to the players able to use it most productively and valuably (World Bank Group, 2023).35 Furthermore, despite the publication of the frequency transfer guidelines mentioned above, no evidence is readily available that a robust system of frequency trading has begun. Clear rules on spectrum allocation and fees are also essential for license renewals. BOX 9: Spectrum frequency auctions in Africa Various countries in Africa have used different auction approaches to award spectrum licenses in recent years. The most common format for spectrum auctions globally is the ‘simultaneous multi-round auction’, in which bands are auctioned simultaneously with transparent, open bids, allowing telecom companies to observe the price preferences of competitors. This is a common approach used by the American FCC and was also used in South Africa in 2022 (Coleago Consulting, 2022). Other formats include ‘clock’ auctions, where bidders state their preferred license bids as the price rises on a ‘clock’ (Coleago Consulting, 2022). The appropriate auction design choice depends on the lots being auctioned—how many there are, whether they are fungible, and how many bidders are expected. Key to a successful auction in either case, however, is transparency regarding the conditions of the licenses available and the requirements for bidders. In 2021, Ethiopia suffered a setback as only two consortia (led by MTN and Safaricom) placed bids. This was blamed on opacity in the bidding process, including a lack of clarity on whether successful bidders could launch their own mobile money services in Ethiopia (Mitchell, 2021). To achieve value for money in an auction, countries must carefully select the conditions of their licenses. Such auctions often include coverage requirements, which countries use to enforce wider telecommunications access to their rural populations. Stringent requirements, however, are likely to reduce the price bidders are willing to pay for licenses. Tanzania, for instance, imposed more severe coverage requirements and as a result chose a low reserve price to ensure bids were still received (Coleago Consulting, 2022). Auction design features can also be leveraged to enhance the competitive environment. Pro-competition design choices available to policy makers include (a) ‘set-asides’ for new entrants, (b) spectrum caps that prevent a single operator holding too many licenses in a single area, and (c) selective credits or subsidies on new entrants (Cramton, Kwerel, Rosston, & Skrzypacz, 2011). Within Africa, a Tanzanian auction successfully resulted in new entry by using spectrum caps and without imposing set-asides (Coleago Consulting, 2018). In South Africa, spectrum caps and a preliminary ‘opt-in’ round where only smaller players were able to enter was conducted and enabled the expansion of smaller players. GSMA, 2022. The Mobile Economy in SSA 2022. Available at: https://www.gsma.com/solutions-and-impact/connectivity-for-good/mobile- 35 economy/wp-content/uploads/2022/10/The-Mobile-Economy-Sub-Saharan-Africa-2022.pdf. (GSMA, 2022)Invalid source specified. 47 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Market power assessments and remedies There are signs that incumbent firms are likely to possess SMP in Kenya, risking higher prices for consumers and necessitating more proactive regulatory approaches. Kenya’s mobile markets remain highly concentrated with elevated Herfindahl-Hirschman Index (HHI)36 scores of over 5,000 in mobile subscriptions and broadband and almost 10,000 for mobile money transaction volume (World Bank, 2025). A market study commissioned by the CA in 2016 indicated the presence of a firm (Safaricom) with SMP in mobile communications and mobile money. However, these findings have not yet been institutionalized through a formal designation of dominance by the authority. (Analysys Mason, 2018). Market power may allow some providers in Kenya to charge prices that are higher than domestic competitors and international benchmarks. Mobile broadband prices for monthly 1GB and 20GB bundles in Kenya exceed those in key regional comparators, such as Ghana, Nigeria, Rwanda, and Zambia (World Bank, 2025). While prices can account for other drivers, they are a market signal that is worth assessing in more detail, in particular in the low-consumption segments that typically face less competitive pressure. FIGURE 31: Cheapest price for 1 GB and 20 GB per month data bundle 20 Price of monthly data bundles (US$) 15 10 5 0 MTN Rwanda MTN Nigeria MTN Zambia MTN Ghana Airtel Kenya Safaricom Kenya Cheapest price for 1GB per month Cheapest price for 20 GB per month Source: Adapted from World Bank (2025) Note: (*) Airtel data bundle cost reflects a 3GB per month data bundle, which is the lowest stand-alone 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.com/internet-amazing-data-bundle. The absence of an updated market assessment and formal designation of players as holding SMP prevents the CA from imposing procompetitive remedies to counteract market power. Such an assessment and designation would allow the CA to impose regulatory obligations on firms found to have SMP under the law (for example, asymmetric infrastructure access obligations, accounting separation, quality-of-service obligations). Enforcing procompetitive obligations on dominant operators plays a critical role in leveling the playing field by removing entry and expansion barriers for smaller and new providers, ensuring cost-based access to essential infrastructure, and lowering consumer switching costs to enhance market contestability. Interconnection Kenya has yet to fully implement cost-oriented or procompetitive mobile termination rates (MTRs). MTRs are fees paid by MNOs to other operators when customers place a call from their network to the other operator. These create ‘club effects’ that favor larger operators because networks with fewer customers must pay MTRs on a higher share of calls their customers make (Begazo, Dutz, & Blimpo, 2023). The CA has maintained the MTR cap at KES 0.41 per minute, which is significantly above cost and higher than rates in peers like Tanzania and Ghana (World Bank, 2025). 36 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. 48 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Mobile termination rates for voice and SMS are important for the poorest Kenyans: Half of the bottom 40 percent of population only have a basic phone. For this segment, the share using phone calls daily is over four times that of daily internet use (Findex 2025). RECOMMENDATIONS To deliver a more competitive telecommunications sector, GOK should consider the following policy options: • Use the upcoming infrastructure sharing regulations to promote competition both in the provision of ICT infrastructure and through encouraging infrastructure sharing. Specific measures could include a framework for infrastructure sharing, eliminating unnecessary infrastructure duplication and maximizing the use of existing infrastructure, promoting competition in the future provision of infrastructure, and creating a dispute resolution mechanism. • Update radio communications frequency (spectrum) provisions in the ICT Act and regulations to reduce barriers to entry in telecommunications. An updated spectrum policy37 and regulations that prioritize market-based allocation mechanisms, allow secondary trading, and enhance transparency in spectrum allocation by publishing decisions, fee structures, and usage obligations would enhance competition. (World Bank, 2025). • Conduct updated market studies to formally identify operators with SMP or dominance; impose remedies as relevant. An updated market assessment to inform decisions on a formal designation would allow the authority to design and enforce appropriate procompetitive obligations on firms with market power. Kenya should update the 2022 study and define appropriate obligations such as cost-based MTR caps or consider asymmetric or zero MTRs for smaller operators. Furthermore, the amendments to the ICT Act could strengthen provisions on the available obligations that could be imposed on operators with SMP. Digital markets Kenya’s leading role in digital technology adoption on the African continent presents growth opportunities but also challenges for competition law enforcement. Digital platforms enhance overall market efficiency by reducing costly intermediation, leveraging economies of scale and network effects, and improving the allocation of resources through better matching mechanisms (World Bank Group, 2018). At the same time, digital business models can present challenges to market competition and require innovative and proactive approaches on the part of regulators (see Box 10). BOX 10: Business models, anticompetitive market outcomes, and relevant regulation Digital platforms have a greater tendency to tip toward dominance. This is driven by network effects and strong economies of scale and scope that arise from high fixed cost-low variable cost structures. Given their multisided nature, dominance on one side of the platform can influence anticompetitive behavior on another side of the platform. Vertically integrated digital operators have an incentive to abuse their position as platform owners when they compete with third parties selling on their platforms. They are incentivized to engage in self-preferencing and tying or bundling of products in adjacent markets. Figure 32 shows different business models in digital markets and anticompetitive market outcomes. From a regulatory standpoint, abuse of dominance rules are critical in digital markets. Exclusionary conduct targeting rival firms has emerged as the most prevalent form of anticompetitive behavior investigated by competition authorities in Africa’s digital markets (World Bank Group, 2023). Provisions that prohibit exclusionary conduct (such as tying, bundling or self-preferencing) are examples of digital competition policy. Further, given that data are a critical and competitively valuable asset that enables rapid scaling and targeted service delivery in digital markets, it is necessary to facilitate and regulate responsible access to public data. This, while ensuring merchants have greater visibility into platform-generated data, can empower businesses to better respond to consumer preferences and foster innovation (Nyman & Barajas, 2021). 37 The draft National Spectrum Policy that could potentially address these concerns is yet to be finalized and adopted. 49 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors FIGURE 32: Features of digital platforms that can create anticompetitive behaviors You are more likely to see... If... Self-preferencing The platform is vertically integrated. Tying and bundling The platform is part of a conglomerate. Exclusive contracts The platform relies on businesses as suppliers. The platform invests in/promotes one or more of its users. Most-favored-nation/pary clauses Pricing is set by business users. Collusion/collusive algorithms Pricing is set by the platform. One side multi-homes while the other single-homes, Collusion/collusive alogarithms or if there is low product di erentiation. Use of data on rivals to build own product line Historical data are important for product development. Mergers focused on data acquisition Exploitative data practices The platform’s revenue is based on advertising. High barriers to entry Key data for the platform’s operations are personal data that must be observed or inferred. Sources: Nyman & Barajas (2021), World Bank Group (2023) GOK has made strides in its policies toward digital markets in recent years. It has developed targeted national strategies such as the ICT Masterplan and the Digital Economy Blueprint, which aim to position digital infrastructure, services, and innovation at the core of Kenya’s economic development agenda (World Bank; CCRED, 2023c). It has updated its legal frameworks to deal with the challenges of digital markets with the Computer Misuse and Cybercrimes Act (2018) and Data Protection Act (2019). Changes have also been introduced in the country’s approach to mergers in transactions involving firms operating in digital markets by developing new guidelines for relevant market definitions.38 Amending Kenya’s competition law framework to account for the peculiarities of digital markets is critical. CAK has played a central role by advocating for procompetitive reforms, but it has used its formal powers to intervene in digital markets in a limited way partly due to gaps in the framework. To address this gap, CAK has developed a draft Competition (Amendment) Bill, which explicitly incorporates digital markets into the competition framework. Digital markets are a priority area in CAK’s multi-year strategic plan (Owino, 2025). The outcome of these cumulative efforts is that the new draft bill contains important measures to enhance competition in digital markets. These include a clear definition of digital activities and guidance for assessing dominance in digital markets as well as inclusion of unfair trade practices related to abuse of superior bargaining position, including by digital intermediation platforms. Once the bill is passed, CAK could take these further by leveraging the legislation to develop guidelines to prevent and prohibit anticompetitive practices like tying and bundling of products and digital platform self-preferencing as well as unfair trade practices that affect suppliers on digital platforms. Delivering impact with any new authorities it receives, however, is likely to require capacity building in the authority in terms of staffing and skills. Implementing new protections for digital markets should not detract from CAK’s ‘core’ activities, including anticartel enforcement and market investigations. Additional resources may be required to use the powers outlined in the new bill. Competition Authority of Kenya (CAK) Relevant Market Definition Guidelines https://cak.go.ke/arch/sites/default/files/Guidelines%20on%20 38 Relevant%20Market%20Definition%20(1).pdf 50 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Although Kenya has conducted some market studies, it could do more to understand evolving market dynamics, monitor trends, identify potential anti-competitive risks in digital markets, and motivate remedies as relevant. Market studies are important tools that have led to better outcomes in Kenya and globally. They support enforcement actions and generate policy and regulatory recommendations (Nyman & Barajas, 2021). CAK has conducted two market studies in digital markets to date (see Box 11). Following the digital credit market inquiry, CAK’s advocacy efforts with mobile phone operators, banking institutions, and micro-finance institutions, as well as collaboration with the CBK, resulted in the implementation of recommendations that have increased the transparency of costs and prices in the mobile money market (Nyman & Barajas, 2021). Nevertheless, the multitude and ever-evolving nature of digital markets means that further studies in collaboration with relevant regulators are critical. BOX 11: Market studies for pro-competition advocacy: CAK and around the world In the global competition policy landscape, market studies are considered a flexible and useful tool for competition authorities to advocate for greater competition and identify emerging competition risks. This is particularly useful in areas of rapidly changing technologies, such as digital markets (OECD, 2020). CAK has conducted two studies of digital markets in the recent past. 1. Digital credit market study In 2020, the Authority carried out an inquiry into the Kenya Digital Credit Sector aimed at identifying potential consumer protection risks and outcomes. The inquiry highlighted the following: • Late or missing payment for mobile loans, with 77 percent of borrowers reporting at least one late payment. • Multiple borrowing as 33 percent of borrowers reported having multiple mobile loans. • Consumer price awareness issues with most consumers being unable to recall the price of borrowing. • Probable fraud in digital financial services. • Data protection issues regarding consumer information. The recommendations included policies to develop a more competitive digital credit ecosystem, standards on fees for digital credit to ensure consumer understanding, pricing rules to ensure that strong repayment behavior results in improved terms of credit over time, mandatory periodic reports to lenders on the total charges paid, the expanded use of administrative data as a digital credit market monitoring tool, and aggregated complaints information submitted by lenders to monitor consumer risks in digital financial services. 2. Online food delivery platforms The authority studied online food delivery platforms to understand regulatory and policy options for competition and consumer protection. The major findings were as follows: • A lack of explicit regulations on online platforms in Kenya. • Platform terms and conditions often did not permit opting out of any customer data sharing. • Delivery delays and products not meeting consumers’ expectations were the most common complaints raised by food and grocery platform users. The study recommended continuous monitoring of the online food and grocery market for anticompetitive conduct and the need for consumer awareness campaigns to educate consumers on their rights and responsibilities relating to e-commerce. Moreover, collaboration through a referral mechanism and the establishment of a network of regulators to ensure consistent decisions and comprehensive complaints handling would enhance consumer welfare. 51 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Around the world, similar studies have led to subsequent enforcement action. In Spain, the national competition authority conducted a market study on competition in digital tourist accommodation markets. Its conclusions led it to challenge in court a municipal regulation in the city of Madrid that required a minimum of five nights for tourist accommodation in private homes (The World Bank, 2017). The challenge was successful, and later analysis showed that ending the regulation led to the entry of at least 6,000 non-hotel establishments in the market. In Zimbabwe, banks filed a complaint with the competition authority that EcoCash, the dominant mobile money operator, was not sharing data on a nondiscriminatory basis as required by regulation. The telecoms authority then conducted a market study to analyze competition dynamics in the mobile money market. This informed a reduction in the prices EcoCash could charge for its data, leading to an overall reduction in mobile money transfer transaction costs for consumers (Ncube, 2023). In Mexico, a fintech market study led to the development and implementation of a new Fintech law which adopted recommendations from the study including facilitation of access to user data and the prohibition of excessively high charges for data. Following the passage of the law, 96 new fintech firms were established in the country (Nyman & Barajas, 2021). Source: Submission from CAK. The rapid growth and transformation of Kenya’s digital services and platforms demand a more coordinated regulatory approach with other agencies (Figure 33). While multiple regulatory tools exist to promote competition, greater cooperation and regulatory alignment are essential to enable further growth of the sector and to address gaps in procompetitive regulations (World Bank; CCRED, 2023c). Despite having bilateral Memoranda of Understanding (MOUs) in place, enhanced coordination mechanisms such as a multiagency committee would allow regulators with overlapping mandates—such as the Communication Authority, Office of the Data Protection Commissioner, Central Bank, and CAK—to share intelligence on market developments and harmonize enforcement actions. This would in turn ensure that regulatory gaps are bridged and Kenya’s digital ecosystem remains both dynamic and inclusive. FIGURE 33: Overall supporting framework for commercial platforms Provides cross cutting support to private platform creation, adoption and proliferation Informs interventions for private creation, adoption and proliferation Source: World Bank Group (2019) 52 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors RECOMMENDATIONS To ensure digital markets become more competitive and generate larger benefits to consumers, GOK could consider the following policy options: • Continue advocating for the Competition Bill amendment and leverage it to prohibit anticompetitive digital practices and discourage unfair trade practices in digital markets. This should include guidelines that restrict tying or bundling of products and self-preferencing by digital platforms. • Expand CAK’s use of market studies to identify competition risks in digital markets. As demonstrated by the other country case studies, the expanded use of these tools could help identify consumer harms and recommend remedial action. • Establish a coordination mechanism between CAK and other agencies with oversight of digital markets. A lack of coordination with the CA and others currently allows some competition risks in digital markets to fall through the cracks. Transport Air transport Kenya’s air transport sector is important to the economy, contributing 1.1 percent of GDP (IATA, 2025). The market is open, and carriers providing domestic services are free to set their own fares.39 Kenya also participates in regional air transport agreements.40 International connectivity has also expanded, with Kenya’s connectivity index rising by 34 percent within Africa and 30 percent with all other countries (IATA, 2025). As of 2024, 81 scheduled airlines were operating in Kenya (KNBS, 2025), and by late 2024, more than 30 additional carriers had applied for licenses to enter or expand (Kenya Association of Travel Agents, 2024). At the same time, the market has seen both new entrants and exits in domestic and international passenger transport, underscoring its dynamism but also the challenges of sustaining long-term competition.41 Kenya’s air transport sector has progressively opened through international alliances and code-sharing agreements, alongside commitments under the African Union’s Yamoussoukro Decision (YD), the Single African Air Transport Market (SAATM), and regional bilateral agreements. The YD is a treaty framework for the liberalization of air transport between African countries, calling for signatories to respect freedoms of the air and liberalize the market by offering nondiscriminatory and tariff-free airport access, and supporting fair competition between African airlines. Before signing the YD, Kenya had already established a series of bilateral airline service agreements. The African Civil Aviation Commission assesses that only 18 percent of their existing commitments are in compliance with the YD (African Civil Aviation Commission, 2023). To address this, Kenya has revised air service agreements with Rwanda, Tanzania, Uganda, and Ethiopia, and partnership agreements with airlines such as South African Airways, enabling more frequent services and improved route access (Jonga, 2021). Charter airlines have also grown in tourist regions (Business Daily Africa, 2018). However, Kenya’s air transport sector remains restrictive, with PMR scores above those of South Africa, Morocco, Indonesia, Peru, and benchmark averages (see Figure 34). This high score is driven by preferential treatment for the state-owned national carrier, discretionary route and frequency approvals, inefficient slot allocation rules, and a lack of independent airport oversight. 39 Regulation 63 of the Civil Aviation (Licensing of Air Services), Regulations 2018 provides for the free fixing of tariffs http://kenyalaw.org:8181/ exist/kenyalex/sublegview.xql?subleg=CAP.%20394#/akn/ke/act/ln/2018/167/part_I 40 Kenya is part of the East African Community Treaty (Article 92) https://www.eala.org/uploads/The_Treaty_for_the_Establishment_of_the_East_Africa_Community_2006_1999.pdf, Liberalization of Access to Air Transport Markets in Africa and Liberalization of Air Transport Services of the COMESA - https://www.comesa.int/eight-comesa- countries-have-signed-the-air-transport-market-agreement/ 41 Fly 540, Silverstone airlines. See (ACF, 2021)for more on entry and exit. Recently Flynas airlines and Fly Dubai have started operations in Kenya and Turkish airlines has resumed its scheduled fights. 53 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors FIGURE 34: Air transport (PMR score) 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - Costa Rica China Kenya Lithuania Cyprus Armenia Slovenia Peru Belgium Hungary Türkiye Israel Indonesia Mexico Japan Morocco Uzbekistan Estonia Latvia Luxembourg Poland South Africa Czechia Switzerland Iceland Sweden Norway Australia Chile Colombia United States Canada Austria Bulgaria Croatia Portugal Netherlands France New Zealand Brazil Finland Slovak Republic Germany Korea, Rep. Spain Greece Ireland Malta Italy United Kingdom Denmark Average (All) Average (HIC) Average (MIC) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD PMR indicators (2023). The state holds a majority stake in the national carrier Kenya Airways (KQ), which has long benefited from preferential support. In 2021, a US$1 billion restructuring package for KQ was announced, comprising the assumption by GOK of US$827 million in debt (including US$750 million already state-guaranteed) and an additional US$473 million in direct budgetary support (IMF, 2021). Despite this assistance, KQ continues to incur heavy losses and request bailouts. Such state support through debt guarantees, payment holidays, and direct transfers distorts competition by shielding KQ from market risks faced by rival carriers (Alushula, 2023). This undermines efficiency and deters private investment, and has contributed to the exit of competitors such as Southeast Airlines, which cited pressure from KQ’s subsidiary Jambojet.42 Air carriers operating in Kenya are required to obtain approval from the Kenya Civil Aviation Authority (KCAA) for their routes43 and the frequency44 of their flights, with approval being seen as discretionary. There is a perception that decisions sometimes go beyond technical or safety considerations and instead seem to favor KQ. Some stakeholders have alleged that airlines including Emirates (Horn Diplomat, 2017), Fastjet (Business Daily Africa, 2015), and TUI (Akinyi, 2025) appear to have been disfavored by KCAA in this area. According to these allegations, Emirates and TUI had licenses for flights withdrawn despite being in compliance with full bilateral air service agreements between Kenya, the United Arab Emirates and the Netherlands, respectively. Such actions, if true, raise significant competition concerns, as regulatory processes risk being used to shield incumbents. The State Department for Aviation recently announced the implementation of new guidelines to ensure ‘fair and balanced opportunities’ for foreign airlines while ‘safeguarding the country’s strategic interests.’ It remains to be seen whether the implementation of these guidelines will increase transparency and fairness in route regulation (Birns, 2025). 42 ‘Southeast Airlines was charging KES 4,950 for a one-way ticket to Mombasa, about KES 1,000 more than Jambojet but comparatively cheaper than what other established commercial operators on the route such as Fly 540 offer.’ Business Daily. ‘Southeast halts Kenya operations as high costs hurt’. May 17, 2015. https://www.businessdailyafrica.com/bd/corporate/companies/southeast-airlines-halts-kenya-operations-as-high-costs-hurt--2087360 43 Carriers operate routes specified in their licenses granted by the KCAA. The authority approves routes based on a number of factors including whether or not the applicant has sufficient aircraft to cope with the proposed route schedule and the interests of the public - see Regulations 6 (b) and 7 of the Civil Aviation (Licensing of Air Services), Regulations, 2018 https://www.kcaa.or.ke/sites/default/files/regulation/The%20Civil%20Aviation%20(Licensing%20of%20Air%20Services)%20 Regulations%2C%202018.pdf 44 Art. 6 (d) states that the carrier has to submit a flight timetable and obtain approval by the authority before operation. https://www.kcaa.or.ke/sites/default/files/regulation/The%20Civil%20Aviation%20(Licensing%20of%20Air%20Services)%20 Regulations%2C%202018.pdf 54 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors The absence of a transparent and efficient slot allocation mechanism creates barriers to effective competition. A study by the African Competition Forum (ACF) on the airline industry highlighted that KQ and its low-cost subsidiary, Jambojet, disproportionately control high-demand morning slots on domestic routes, which are typically associated with higher fares (ACF, 2021). Guidelines from the International Air Traffic Association (IATA) state that slots at congested airports should be allocated in a fair and transparent way that promotes competition. Specifically, priority should always be given to historic holders of slots that fulfill their obligations to maintain them; the remaining slots should be allocated according to operational, environmental, and other local guidelines; and the process should be conducted in a way that promotes competition, connectivity and fairness (for example, by considering how long an airline has been on a waiting list) (IATA, 2024). Regionally, South Africa has embedded the IATA’s guidance in its own regulations, requiring that slot coordination promotes competition (Government of South Africa, 2013). The lack of comparable regulations in Kenya means limited transparency in how slots are allocated at Nairobi and other airports. The over representation of Jambojet in more valuable domestic slots suggests that airport slot allocation is not addressing competition risks as international guidelines would require. This could damage external airline confidence in Kenyan airports and reduce their ability to produce comparable offerings for travelers (Competition Authority of Kenya, 2015). Kenya continues to maintain a 49 percent cap on foreign ownership of local air carriers, a rule that restricts FDI and deters deeper market entry by international airlines. This requirement is set under the Civil Aviation (Air Service Licensing) Regulations (2018), which mandate that applicants for air service licenses must be incorporated in Kenya with 51 percent of its voting rights held by Kenyan citizens. While the rule is intended to ensure effective control remains domestic, it may hinder liberalization efforts in conformity with the YD and the SAATM, which encourage greater cross-border investment and integration (Omarjee, 2025). Easing the ownership cap could unlock foreign capital, improve fleet modernization, and enhance Kenya’s competitiveness as a regional aviation hub. Kenya’s aviation regulator lacks the authority to provide effective economic regulation of airports and related services. The KCAA, established under the Civil Aviation Act,45 is mandated to perform economic oversight and ensure fair practices in aviation. Economic regulation is essential to ensure that airport fees and processes are fair in the context of a monopoly on civilian airport services, held by the Kenya Airports Authority (KAA). Without competition, an economic regulator must ensure that such fees do not exceed cost recovery levels. In practice, however, KAA still holds the authority to set charges and fees for the use of its infrastructure, rendering KCAA’s economic regulation role relatively ineffective. For example, controversy has arisen over KAA’s increases in air passenger fees and parking fees.46 Another option to deliver better value for money in Kenya’s airport sector would be to introduce competition in airport operation. Breaking KAA’s monopoly and permitting other companies to operate airport infrastructure could reduce KAA’s market power and likely lower fees for airlines. Kenya has begun exploring private sector involvement in the airport sector, including with the proposed PPP deal with Adani Airport Holdings Limited in 2023. This proposal proved highly controversial and was later canceled due to concerns around transparency in the award process (Mutua, 2024). A precondition of effective private sector involvement in the airports sector would be a transparent framework and regulations for sector governance. KCAA would need to be empowered to govern such competition and given the authority to set rules over airport charges and operations equally across different providers (EcoFin Agency, 2025). 45 KCAA is mandated to regulate civil aviation and perform economic oversight of air services, including protecting consumer rights, ensuring fair trading practices, and safeguarding the environment. 46 KAA has had some issues with regards to fees such as doubling the air passenger fee and parking fees https://www.businessdailyafrica.com/bd/corporate/companies/kenya-airports-authority-doubles-air-passenger-charges--2005384 https://www.businessdailyafrica.com/bd/economy/uproar-as-airport-authority-raises-parking-fees-at-nairobi-s-jkia-2197544 55 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors BOX 12: Examples of economic air transport regulation in various countries Economic regulation in the aviation sector is important to ensure that airports cannot abuse their market power to raise costs for customers. Several countries around the world demonstrate the importance of such regulatory frameworks when enforced effectively. Australia and New Zealand have light-handed approaches that allow flexibility while ensuring fair pricing and investment. Australia’s framework monitors airport performance, enabling airports to set charges and negotiate with airlines within competitive constraints. Over AUD 8 billion was invested in infrastructure between 2002 and 2019, with Sydney Airport’s passengers increasing from 28 million to over 44 million. New Zealand’s approach emphasizes transparency and accountability, leading to significant infrastructure investments and improved service quality. Auckland Airport’s passenger numbers rose from 14 million in 2012 to over 21 million in 2019, with NZD 1.2 billion invested in capital projects over five years. In Japan, the Civil Aviation Bureau of the Ministry of Land, Infrastructure, Transport, and Tourism regulates airport charges to ensure high service standards and operational efficiency. Yet, Osaka’s Kansai International Airport (KIX) and Itami Airport (ITM) operate under a light-handed regulatory approach with a dual-till regime, balancing aeronautical and commercial revenues to enhance service quality and efficiency. However, airports subject to stricter regulatory frameworks where a price regulator oversees and approves operating costs and investments often produce the most contentious price-setting engagements. Appeals and challenges of price determinations occur most frequently at the most regulated airports. • Emphasizing competition policy and monitoring rather than prescriptive ex ante regulation ensures positive outcomes for consumers and efficient airport operations. • Flexible and transparent approaches: Implementing flexible, light-handed, and transparent economic regulatory frameworks creates fertile grounds for investment in airport infrastructure and the diversification of revenues. Source: Airports Council International (2024) RECOMMENDATIONS To encourage new entry in the aviation sector and provide greater benefits to consumers, GOK could consider the following: • Kenya should seek to restore neutrality in the airline sector and refrain from decisions that can be seen as favoring KQ. This could include a halt on net fiscal transfers to KQ, replacing them with performance-based contracts. This should also include clear, transparent licensing criteria for flight routes and slots, limited to technical and safety grounds, and the elimination of discretionary decisions. • Removing or progressively reducing the foreign ownership cap on airlines could enhance foreign investment and encourage innovation and fleet modernization in Kenya. Although the existing cap serves a public policy purpose, Kenya could explore hybrid joint venture requirements, rather than total liberalization, which allow increased foreign participation while retaining critical national control. • Kenya should consider fully and formally incorporating IATA Worldwide Airport Slot Guidelines (WASG). This should include rules on slot use, no-use, waiver, and transfer policies, to ensure neutrality, transparency, and efficient allocation of scarce airport capacity. • Strengthen KCAA’s economic regulation function and allow it to effectively regulate KAA’s fees and charges. This should include an appropriate tariff review mechanism. The proposed Civil Aviation (Amendment) Bill seeks to reinforce KCAA’s role in overseeing airports, and this should be accompanied by enhanced economic regulatory capacity to ensure a procompetitive environment in airports. • Consider a regulatory framework to introduce competition in the airports sector. A framework for open, transparent, and competitive awarding of PPPs or private airport management contracts could deliver lower fees for airport customers. To do this, KCAA would need the authority to transparently regulate fees charged by KAA and future potential operators. 56 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Rail transport Kenya’s PMR score in the rail transport sector is the highest of all countries in the dataset. This is largely due to significant constraints from public ownership, vertical integration, and a highly concentrated market structure (see Figure 35). FIGURE 35 Rail transport (PMR score) 6.00 5.00 4.00 3.00 2.00 1.00 - Kenya Uzbekistan Morocco Costa Rica Israel China Mexico Australia Chile South Africa Armenia Colombia Switzerland Indonesia Ireland New Zealand Korea, Rep. Japan Finland Brazil Spain United States Canada Luxembourg Netherlands Slovenia Peru Greece Türkiye Italy Croatia Czechia Poland Germany Slovak Republic Austria Latvia France Lithuania Estonia Portugal Bulgaria Belgium Hungary Sweden Norway United Kingdom 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); World Bank an OECD PMR indicators (2023). Monopolies for the state-owned Kenya Railways Corporation (KRC) in freight and passenger services inhibit competition. KRC holds exclusive control over infrastructure and operations for freight and passenger services on both the Standard Gauge Railway (SGR) and meter-gauge lines. There are no active private operators,47 effectively eliminating competitive pressure that could otherwise drive efficiency, service quality, and innovation. In the passenger segment, services are exclusively government-operated, with fares set unilaterally and without private sector competition. This has direct consequences for consumers; for instance, when KRC doubled fares on inter-county and express SGR services, passenger traffic declined sharply. Relatedly, Kenya’s rail sector continues to face competition concerns due to vertical integration, the absence of a dedicated infrastructure manager, and unclear access rules. KRC retains control over both rail infrastructure and operations. The lack of functional separation heightens the risk of conflicts of interest and restricts competing operators from entering. This, in turn, stifles innovation, delays service improvements, and leads to inefficient use of costly infrastructure assets. Other African countries have begun to address similar challenges through structural reforms, establishing independent regulators and unbundling infrastructure owners and operators from rail service providers. For example, South Africa has recently opened its freight rail network, allowing 11 private train operating companies to access the freight network. The policy keeps the rail infrastructure (tracks, signals) under state control while granting open access rights to third-party operators similar to models in Europe and North America (EcoFin Agency, 2025). Similarly, the National Railways of Zimbabwe has opened up to private players in a bid to boost freight volumes, especially given growing commodity exports (Reuters, 2024). The Railways Bill (2024) proposes the existence of an independent regulator and other changes that might introduce competition, though this remains in draft form.48 47 The one exception is a private company (Magadi Soda Railway Company) that transports soda ash to Mombasa for export. Previously, a private consortium provided rail transport, but the contract was terminated in 2017 through a court order with the government taking over the assets. The East African (2017, 01 April). ‘ Kenya ends Rift Valley Railways contract’ https://www.theeastafrican.co.ke/business/Kenya-ends- Rift-Valley-Railways-contract/2560-4040424-lofuc0z/index.html 48 https://smc-legal.com/2024/10/23/kenyas-railways-bill-2024-a-new-framework-for-rail-transport/ 57 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors RECOMMENDATIONS To promote competitiveness in the rail sector, GOK could consider the following: • Consider liberalizing the rail sector by establishing an independent operator and unbundling infrastructure ownership and operation from rail service delivery. These structural reforms are a prerequisite to potential competition in the rail sector which could drive improvements in quality and cost for passengers and freight customers. Granting licenses to other rail operators is essential to deliver improvements to customers. To succeed, other licensees would require a guarantee of fair access to infrastructure on terms agreed with an independent regulator. Water transport The maritime transport sector is key to Kenya’s trade and economic growth. Handling over 2 million TEUs in 2024,49 Mombasa serves as Kenya’s primary seaport and the largest in East Africa.50 It also gives Kenya a vital role in regional trade as the main source of goods flowing to Kenya’s landlocked neighbors (Uganda, Rwanda, and South Sudan). Kenya has started to expand and modernize its port and infrastructure (Beja, 2025) but the port still suffers from numerous challenges: capacity constraints, inefficient processes and documentation, infrastructure limitations, and environmental challenges.51 A recent World Bank report ranks the Port of Mombasa at 375 out of 400 world ports on its 2024 port performance index (Container Port Performance Index [CPPI]) (World Bank, 2025).52 Despite this strategic importance, Kenya’s regulatory framework for maritime freight is more restrictive than the MIC average (Figure 36). A major contributor is the lack of vertical separation between regulatory, operational, and commercial functions in port operations, which significantly limits competition and undermines efficiency. FIGURE 36: Water transport (PMR score) 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - Uzbekistan Costa Rica Brazil Kenya Türkiye Indonesia Mexico Chile Colombia Morocco Slovak Republic Austria Hungary Peru United States Australia Korea, Rep. Japan Portugal Poland Czechia Canada Malta China Latvia Iceland Luxembourg New Zealand Greece Norway Finland United Kingdom Croatia Switzerland Lithuania Ireland Israel Bulgaria Germany Slovenia Estonia Sweden Belgium Netherlands South Africa France Spain Italy Cyprus Denmark Average (All) Average (HIC) Average (MIC) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD PMR indicators (2023). 49 TEU = Twenty-foot equivalent unit https://www.kpa.co.ke/Media/Read/2 50 Mombasa port is managed by the KPA which owns and operates the port facilities. The port includes Kilindini Harbor, Port Reitz, Port Tudor, the Old Port, and the whole of the tidal waters encircling Mombasa Island. The port authority exclusively provides pilotage, tug, mooring, dockage, buoyage, anchorage, security, stevedoring and shore handling services within the port. https://lca.logcluster.org/kenya-211-port- mombasa#:~:text=Mombasa%20port%20is%20managed%20by,tidal%20waters%20encircling%20Mombasa%20Island. Some specific terminals and services at the port are operated by private entities under concession agreement, for example, two bulk oil and cement handling facilities, and a dedicated conveyor belt for handling bulk grains under private leasing arrangements. KPA presentation https://www.transportevents.com/presentations/capetown2017/PatrickNyoike.pdf 51 https://www.csm.tech/blog-details/mombasa-port-navigating-current-challenges-and-embracing-technological-solutions 52 CPPI measures the time container ships spend in port. Average CPPI is set to zero in 2024. A higher CPPI means better performance. 58 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors The absence of independent terminal operators and transparent access rules enables preferential treatment, monopoly pricing, and restricted entry, ultimately harming downstream logistics providers. The KPA holds the authority to operate and regulate all ports on Kenya’s Eastern Seaboard. Its exclusive operational role prevents competition from independent terminal operators that could drive down costs by providing an alternative service. Alternative governance arrangements like the landlord port model, where terminal facilities are leased to private operators with long concessions, could drive efficiency gains and attract external investment in logistics. Other countries in Africa provide a demonstration of how to achieve this (see Box 13). BOX 13: Benefits of port modernization and vertical separation Senegal Dakar has recorded one of the largest efficiency gains in Sub-Saharan Africa. Its CPPI value rose from -82 in 2023 to 23 in 2024, while the number of port calls also increased. With this improvement, Dakar is the highest-ranked port in Sub-Saharan Africa in 2024. The port, operated by DP World since 2008, has undergone significant investment, including the installation of new cranes, expansion of its yards, and the development of a port community system. Dakar’s performance also reflects improvements in hinterland connectivity and trade facilitation. Road links have been upgraded, rail rehabilitation toward Mali is under way, and a single-window customs system is reducing dwell times. Liner shipping connectivity has increased, with Dakar now receiving direct services from Asia (World Bank, 2010; Seatrade, 2024; and DP World, 2024) South Africa Cape Town improved its CPPI score by nearly 240 points between 2023 and 2024, one of the strongest gains globally. Cape Town has invested in new cranes and equipment, upgraded warehousing capacity, and introduced innovative measures such as hydraulic shore-tension units and a predictive wind model, developed with the Council for Scientific and Industrial Research to mitigate weather-related disruptions. A helicopter piloting service has also been launched to improve ship access during periods of high swells. Coega (Ngqura) Port also improved by more than 160 index points, even as more than half of all ports worldwide saw their performance worsen during the same period. These improvements reflect targeted investments, operational reforms, and adaptive measures to handle rerouted traffic. Durban, South Africa’s principal gateway, has benefited from modernization initiatives, including the acquisition of new tugboats, ship-to-shore cranes, haulers, and trailers. Daily operational meetings and a container management system have enhanced cargo handling and turnaround efficiency. A request for proposals to bring in private sector participation at Durban Container Terminal further signals an ambition to align with global best practices. The establishment of a National Logistics Crisis Committee and, more recently, a dedicated unit to accelerate private sector participation in the sector, further underlines South Africa’s commitment to long-term reform. The corporatization of Transnet National Ports Authority and the transition toward a regulated landlord port model are part of this broader transformation agenda. Early data available for 2025 confirm that the investments and improvements have already had measurable positive impacts on performance. Based on latest data provided by Transnet, between mid-2024 and August 2025, vessel anchorage in South African ports went down by about 75 percent, gross crane moves per hour improved by 13 percent, and ship working moves went up by 25 percent. Source: (World Bank, 2025). RECOMMENDATIONS To safeguard and enhance competitiveness, the main recommended policy option for GOK is to separate port regulation from port operation, as well as embrace technological solutions and operational reforms to modernize port services to meet growing regional demand. 59 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Road transport Kenya scores relatively well in the road transport sector, with its PMR score below the MIC benchmark but still above the overall average (Figure 37). Key obstacles to competitiveness in the sector include local taxes creating transaction costs and international cabotage restrictions that constrain competition. FIGURE 37: Road transport (PMR score) 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - Türkiye Switzerland Slovenia Colombia Costa Rica Israel Armenia Korea, Rep. Brazil South Africa Uzbekistan Morocco Kenya Hungary Peru Estonia Indonesia Mexico Czechia China Japan Greece Germany Ireland Norway Lithuania Belgium Portugal Spain Poland Latvia United States Bulgaria Netherlands Slovak Republic Italy Cyprus Iceland France Canada Austria Australia Finland Croatia United Kingdom Luxembourg Malta Sweden New Zealand Chile Denmark Average (All) Average (HIC) Average (MIC) Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD PMR indicators (2023). Truckers face high transaction costs due to fragmented county-level regulations, with varying licensing, parking, weighbridge, and enforcement requirements across counties. County governments impose multiple levies, such as cess fees and permits, particularly on goods like extractives transported across borders. A 2019 Kenya National Chamber of Commerce and industry (KNCCI) report highlighted how these duplicative charges disproportionately burden businesses, especially micro, small, and medium enterprises (MSMEs) (KNCCI, 2019). The problem has persisted, with increases in cess and related fees prompting the Kenya Transporters Association (KTA) to petition the President for intervention (Kinyanjui, 2025). The continued escalation of these fees risks harming the road logistics sector as unofficial fees distort the cost of transiting particular routes, raising costs for some operators versus others. Excessive transaction costs may deter new firms from entering, lowering productivity across the sector. Additionally, politically connected firms may be able to bypass fees and gain unfair competitive advantages. Restrictions on foreign haulers carrying freight into Kenya undermine efficiency in cross-border trucking. These ‘cabotage restrictions’ limit the amount of domestic freight that can hauled by foreign operators and require extra permits or local partners, which increases their operating costs.53 A 2019 CAK market study found that customs licenses restrict operators to transit cargo linked only to their home countries, barring them from handling third-country traffic. These rules force many trucks to return empty even when cargo is available, leading to wasted capacity and higher costs (Competition Authority of Kenya, 2019). RECOMMENDATIONS To increase competitiveness in the road transport sector, GOK could consider the following: • Increase coordination across county governments to ensure that trucking levies, if and when necessary, are transparent, predictable, and harmonized. The National Transport and Safety Authority (NTSA) should convene local authorities to discuss options for limiting and aligning local road freight levies. • Review and ease cabotage restrictions, including rules on foreign firms lifting freight within Kenya, to reduce inefficiencies and improve regional competitiveness. 53 With exception of specific countries (cabotage, domestic freight pick up) permitted under Article 90 (t) of the Treaty for the Establishment of the East African Community. 60 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Professional services Kenya’s professional services sector, including the legal, accounting, architecture, and engineering professions, plays a critical enabling role across the economy. Over the past decade, notable reforms have been pursued, particularly through the advocacy of CAK. The 2019 amendment to the Competition Act introduced section 29, which mandates professional associations to apply for exemptions where their rules may distort competition. Some regulation on professional services competition can be justified because of market failures. Professional services suffer from information asymmetry because customers cannot easily discern the quality of providers. Professional associations that license practitioners help remedy this by providing a guarantee of quality, and can also at times maintain quality through minimum price guarantees. However, these mechanisms are easily prone to abuse, so careful regulation is required. Despite recent changes, the PMR indicators show that Kenya has significant restrictions on competition in professional services. Kenya is above the MIC benchmark in all five recorded categories and has the highest PMR score for the dataset in the real estate services sector (see Figure 38). The most restrictive regulations include limits on provision of services by non-Kenyans, price controls, advertising restrictions, and rules on interprofessional practices that dampen incentives to compete. Kenya’s legislative agenda has recently moved toward more formal regulation of professional fields, proposing statutory registration, licensing, and oversight measures to govern conduct and accountability.54 FIGURE 38: Professional services (PMR scores) 6.00 a) Lawyers 5.00 4.00 3.00 2.00 1.00 - Brazil Türkiye Morocco Slovenia Kenya South Africa Hungary Israel Greece Costa Rica Malta Uzbekistan Czechia Luxembourg Korea, Rep. Estonia Bulgaria Iceland China Slovak Republic Poland Cyprus Latvia Lithuania France Switzerland Portugal Germany Belgium Ireland Norway Croatia Mexico New Zealand Spain Japan United States Italy Austria Indonesia Sweden Finland Netherlands Canada United Kingdom Colombia Australia Peru Armenia Chile Denmark Average (All) Average (HIC) Average (MIC) b) Accountants 6.00 5.00 4.00 3.00 2.00 1.00 - Türkiye Brazil Morocco China Indonesia Japan Korea, Rep. Mexico Kenya Italy Colombia France Germany Portugal Canada Netherlands Austria Luxembourg Armenia Malta Costa Rica Peru Belgium New Zealand South Africa Norway Slovak Republic Latvia Hungary Greece United Kingdom Czechia Uzbekistan Ireland Australia Israel Iceland Cyprus Switzerland Finland Croatia Estonia Bulgaria Spain Slovenia Chile Lithuania Poland United States Sweden Denmark Average (All) Average (HIC) Average (MIC) 54 Proposed legislation includes: Institute of Bankers Bill (2024) which is still at the legislative proposal stage and the Environmental Professionals Institute of Kenya Bill (2024), Insurance Professionals Bill (2024), the Public Relations and Communications Management Bill (2024), the Medical Social Workers Bill (2024) and the Agricultural Professionals Registration and Licensing Bill (2024). https://mwc.legal/kenyas-move-towards- regulating-professionals/ 61 - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 Kenya Türkiye Türkiye Italy South Africa Kenya Uzbekistan Morocco Mexico Canada Iceland Slovak Republic Indonesia Mexico PMR indicators (2023). Austria Slovak Republic Cyprus United States Brazil Germany Canada Türkiye United States Luxembourg Belgium Portugal Kenya United States Cyprus Belgium Canada Malta Luxembourg Italy Czechia Indonesia Sweden Hungary Korea, Rep. Austria Brazil France Slovenia Bulgaria South Africa Japan South Africa Cyprus Mexico Italy Bulgaria Australia Poland Malta Hungary Slovenia Hungary Korea, Rep. Greece Poland Average (All) Average (All) Average (All) China Costa Rica Czechia France Iceland Slovenia Croatia Indonesia Greece Denmark Peru Lithuania China 62 Malta Israel Norway Lithuania Austria c) Architects Czechia Armenia Costa Rica Iceland d) Civil engineers Average (HIC) Average (HIC) Average (HIC) Greece Latvia e) Real estate agents Israel Spain Peru New Zealand Germany Brazil Slovak Republic Colombia Portugal Spain Chile Israel Ireland Croatia Colombia United Kingdom China Armenia Portugal Ireland Latvia Average (MIC) Average (MIC) Average (MIC) Luxembourg Uzbekistan Spain Germany United Kingdom Croatia Finland Korea, Rep. Chile Peru Estonia Estonia Bulgaria Switzerland Australia Poland Japan Japan Costa Rica Belgium Switzerland Lithuania France Uzbekistan Armenia New Zealand Ireland Latvia Norway Netherlands Colombia Morocco New Zealand Chile Australia Norway Estonia Netherlands United Kingdom Sources: World Bank and OECD scores for Kenya based on Kenyan laws and regulations; OECD PMR indicators (2024); World Bank and OECD Switzerland Denmark Denmark Morocco Finland Finland Netherlands Sweden Sweden Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Deep Dives on Regulatory Barriers to Competition in Select Key Sectors Foreign entry into Kenya’s professional services is subject to significant constraints across several fields. In the legal profession, section 12(a) of the Advocates Act (Cap 16) limits admission primarily to citizens of Kenya, Uganda, Burundi, Rwanda, and Tanzania, with only narrow exceptions for Commonwealth lawyers or foreign advocates who may receive temporary practice rights at the Attorney General’s discretion. The absence of clear and transparent rules makes this process uncertain and limits cross-border mobility. In the case of estate agents, the Estate Agents Act (Cap 533) explicitly requires Kenyan citizenship, thereby excluding foreign professionals entirely. In engineering, section 22 of the Engineers Act (Cap 530) empowers the Engineers Board of Kenya (EBK) to evaluate foreign qualifications, while section 22(b) of the act requires that consulting engineering firms be incorporated in Kenya with at least 51 percent of shares held by Kenyan citizens, restricting foreign commercial participation. Similarly, in architecture, neither the law nor the Board has issued clear procedures for recognizing foreign degrees, though in practice some foreign-trained architects are licensed. Collectively, these restrictions reduce labor mobility, stifle competition, and limit consumer choice. It is therefore recommended that Kenya establish clear rules for recognizing foreign qualifications to facilitate the mobility of professionals. Kenya maintains formal price controls in several professions. Fees charged by members of several professions have long been self-regulated by their respective professional associations. These professions include legal, architecture, engineering, and estate agency services (see Figure 39). One key objective of the fee regulation is to prevent undercutting among members to maintain professional standards. Consequently, binding minimum fees are imposed by the respective professional bodies for all legal, architecture, and estate agency services and for some engineering services (see Figure 39). It is not clear that price minimums continue to serve a public policy purpose. The available evidence suggests that price minimums only improve quality and prevent adverse selection in the absence of other entry restrictions (OECD, 2007). Since professional associations in Kenya already have practice licenses, these minimums may therefore be counterproductive. The pattern of OECD countries moving away from price controls lends credence to the suggestion that they may no longer be serving a useful purpose (see Figure 39). FIGURE 39: Percentage of countries with price controls in professional services industries 70 60 58% 53% Yes Yes 54% 50 48% 47% 47% Yes Yes 39% 40% 40% 40% 40% 40 36% Percent 32% 31% 32% 30 23% 24% 20% No 19% 20 17% 11% 10 0 1998 2003 2008 2013 2018 1998 2003 2008 2013 2018 1998 2003 2008 2013 2018 1998 2003 2008 2013 2018 2018 Accountants Lawyers Architects Engineers Estate agents % of OECD countries with price regulation Price reguled in Kenya? 0.35 Yes Yes % of OECD countries 0.3 Yes Yes 0.25 No 0.2 0.15 0.1 0.05 0 1998 2008 2018 2024 1998 2008 2018 2024 1998 2008 2018 2024 1998 2008 2018 2024 2018 2024 Accountants Lawyers Architects Engineers Estate agents Binding maximum prices for some or all services Binding minimum prices for some or all services Non-binding recommended prices for some or all services Binding minimum prices for some or all services in Kenya? Source: World Bank and OECD analysis. Note: Several OECD countries have moved away from the imposition of binding minimum prices for some or all services over the last 20 years, with either binding maximum and/or non-binding recommended fees for some or all services being preferred. 63 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors BOX 14: Best practices on price regulation that Kenya can learn from other jurisdictions Price regulation in professional services varies depending on the context and goals of regulation. Best practices observed across various jurisdictions include the following: • Regulation by default with exemptions: Competition law can prohibit price regulations by professional bodies by default while allowing professional associations to apply for exemptions from competition authorities. This places the burden of proof on those seeking to apply price minimums or maximums to demonstrate that their proposals are in the public interest and proportionate. • Activities to regulate: Pricing guidelines are set for standard, well-defined services. • Type of fee regulation: Maximum, rather than minimum, prices are preferred to ensure access to justice, affordability, and protection of clients from excessive pricing. • Transparency of regulation: Prices are derived transparently and minimums do not exceed the true cost of providing the services for which they are set. For lawyers, for instance, the fees depend on the complexity of the case (scope of legal services provided and time and effort required), the skills and experience of the lawyer, and the geographical location. Processes for establishing fee guidelines should include broad stakeholder consultations covering providers, clients, and the government, among others. For example, in Italy, the fee schedules are established every two years by the Ministry of Justice on the recommendation of the National Lawyers Council (CNF). • Administration of regulation: Pricing rules can be set either by the government or by professional associations directly. Self-regulation can reduce the effort required by the government to ensure appropriate pricing levels and offer greater flexibility. However, such bodies can lack accountability mechanisms and may abuse their authority. Public bodies may be more likely to set pricing rules in the public interest; the decision to delegate to professional associations should depend on public sector capacity and associations’ track record in setting fair rules. CAK has recognized competition issues arising from professional associations setting pricing rules and noted impacts on MSMEs. It has actively sought to enforce the provisions of the Competition Act that require professional associations to seek exceptions to charge minimum prices. In 2021, CAK issued a notice to remind professional associations of this requirement and threatened noncompliant organizations with fines (Cliffe Dekker Hofmeyr, 2021). The Law Society of Kenya (LSK) subsequently presented legal challenges to the act. The latest court ruling as of November 2025 rejected this appeal (Kiplagat, 2022). Nevertheless, as of November 2025, price regulation may still persist in practice, with the Remuneration Order continuing to be available for download from LSK’s website.54 Source: Elaboration based on analysis of Kenyan laws and regulation. Restrictions on advertising in professions such as law and architecture limit consumer awareness and shield incumbents from competition. The LSK developed Marketing and Advertising Rules in 2014, establishing the conditions under which advocates can advertise. While this represents progress, the guidelines remain relatively restrictive, continuing to constrain the ability of legal practitioners to differentiate themselves and compete on service offerings (World Bank, 2023a). International experience shows the benefits of liberalization: in the United States, the landmark Bates v. State Bar of Arizona (1977) case removed blanket restrictions on lawyer advertising, significantly expanding consumer choice. 55 The ban on inter-professional practices (lawyers, accountants) restricts innovation and consumer choice. By preventing bundled or integrated services—such as combining tax law and accountancy—these rules protect incumbents but raise transaction costs for businesses that must separately procure related services. The restrictions also deter the formation of larger, multidisciplinary firms that could achieve efficiencies of scale and compete regionally. In the UK, liberalization under the Legal Services Act (2007) allowed Alternative Business Structures (ABS), enabling lawyers, accountants, and 55 Available for download as of November 7, 2025, under the “LSK Acts” tab here: https://lsk.or.ke/downloads/. 64 Deep Dives on Regulatory Barriers to Competition in Select Key Sectors other professionals to form integrated practices.56 This led to lower costs, more diverse service offerings, and new business models. Removing Kenya’s restrictions would reduce barriers to entry, encourage competition, and enable consumers and businesses to access more efficient, integrated solutions. RECOMMENDATIONS To deliver a more competitive professional services sector, GOK could consider the following reforms: • Kenya should reconsider its strict controls on foreign participation in professional services. While these restrictions serve a public policy objective, loosening them could increase the productivity of Kenyan service providers by increasing competition and encouraging knowledge transfer. • Reducing the number of exemptions granted for minimum prices in professional services would likely enable lower prices for clients. The available evidence suggests that these restrictions are no longer serving to mitigate market failures. • Kenya could likely assist clients and consumers in discovering better service providers by reducing controls on advertising. • Removing the ban on inter-professional practices could increase innovation and client choice. Allowing bundled service providers would also enable new entrants to disrupt the market by offering innovative models that reduce transaction costs for clients. 56 Legal Services Board. Alternative Business Structures: Fact Sheet 2 – Ownership and Management of Legal Firms. London: Legal Services Board, n.d. https://legalservicesboard.org.uk/Projects/abs/pdf/fact_sheet_5.pdf 65 CHAPTER 4 RECOMMENDATIONS: A PATH TOWARDS GREATER COMPETITION AND MORE AND BETTER JOBS 66 IV. RECOMMENDATIONS: A PATH TOWARDS GREATER COMPETITION AND MORE AND BETTER JOBS In summary, Kenya has significant headroom to improve its legal and regulatory framework toward competition. Table 4 provides an overview of key recommendations at the economy-wide and sector-specific levels, as covered in greater detail in previous sections of this report. Overall, key improvements entail a combination of legislative changes, enhancements in regulations, and better implementation of laws and regulations, including issuance of additional guidelines and clarifications. Procompetitive reforms could boost GDP growth by more than one percentage point per year. To estimate GDP impacts, this report leverages findings from cross-country research by Barone and Cingano (2011) and data from Kenyan input-output tables (see Annex I for further methodological details). It estimates the impact of procompetitive reforms in key input services sectors such as electricity, transport, telecommunications, and professional services. Based on these estimates, procompetitive reforms in a single input services sector could increase real GDP growth by 0.27 to 0.41 percentage points. Undertaking reforms in all four sectors could boost real GDP growth by up to 1.35 percentage points. Such reforms would also lead to more and better jobs in Kenya. To estimate jobs impacts, this report extrapolates labor compensation growth impacts from estimated impacts on sectoral value added. It assumes a constant ratio of labor to value added in affected sectors. Reductions in overall regulatory restrictiveness in the electricity, telecommunications, transport, and professional services sectors are associated with increases in labor compensation growth of between 0.4 and 0.6 percent per reformed sector. Annual labor compensation growth could increase by up to 2 percentage points if the restrictiveness of regulations were to be uniformly lowered in all four services sectors. That is equivalent to over 400,000 jobs per year at the average wage in Kenya.57 57 In addition to the estimation of jobs impacts derived from GDP impact estimates, estimations of the impact of GOSR reductions (as a proxy for improvements in competition) on labor compensation were also conducted. In general, the GOSR-based estimations reinforce the finding that improvements to competition are likely to increase labor compensation economy-wide. However, further research is required to derive more precise estimates from this alternative methodology (e.g., through computable general equilibrium models). This is a priority for future research. Refer to Annex II. Jobs impact estimation for additional methodological details. 67 Recommendations TABLE 5: Summary of recommendations Time Section Recommendation Responsible authority Impact58 frame59 Economy-wide Improve the effectiveness of subsidies National Treasury High Long term performance and grants to SOEs by tying them to (NT), Government - distortions specific public policy objectives and Investments and Public introduced by measurable performance outcomes. Enterprises (GIPE) public ownership Discontinue fiscal transfers to NT, GIPE commercial SOEs and improve targeting and prioritization of transfers based on socioeconomic impact and need considering defined public service obligations. Strengthen legal and regulatory NT, GIPE frameworks governing SOE loan guarantees by establishing and enforcing clear eligibility criteria for approval. Economy-wide Expand RIA to cover primary Parliament of Kenya; Medium Short term performance - RIAs legislation. Kenya Law Reform and policymaking Commission safeguards Ensure robust implementation of Ethics and Anti- the Conflict of Interest Act (2025), Corruption including detailed guidance on asset Commission (EACC) disclosure. Outline allowable public-private Parliament of Kenya; interactions in policymaking and EACC mandate transparency in interactions between interest groups and policymakers. Economy-wide Systematically reduce statutory Parliament of Kenya; Medium Medium performance - barriers to trade, including tariff and Kenya Revenue term barriers to trade and non-tariff barriers. Authority (KRA) investment Remove regulatory restrictions to FDI, Parliament of Kenya; especially foreign equity ownership Kenya Investment limits. Authority (KenInvest) Agribusiness - Consider modifications to the Ministry of Agriculture High Short term fertilizer subsidy program to expand retail and Livestock outlet coverage and leverage price Development signals and/or more transparent and competitive allocation of importer contracts under subsidy framework agreement. 58 Impact estimates are based on estimates of value added and labor intensity of the sector itself, GDP and labor spillovers to other sectors, and the presence of competitive distortions in the sector (as approximated via PMR and ALP scores and gross operating surplus ratio [GOSR]). 59 Timeframe estimates are based on global experience with similar reforms as well as analyses of affected interest groups. Sectors where reforms are more complex to implement and that confront more powerful interest groups are classified as longer-term priorities. 68 Recommendations Time Section Recommendation Responsible authority Impact58 frame59 Agribusiness - sugar Consider relaxing non-tariff barriers Parliament of Kenya; Medium Medium by weakening the Sugar Board’s KRA term mandate to limit importations and restricting its ability to impose import limits for individual companies. In addition, Kenya could ease duty-free caps imposed on Common Market for Eastern and Southern Africa (COMESA) sugar imports, and reconsider the level of its 100 percent tariff on non- COMESA exports. Remove farmgate price controls and Parliament of Kenya; legally mandated catchment areas for Ministry of Agriculture cane sourcing. and Livestock Development Reevaluate the relationship between NT, GIPE; Privatization the Government of Kenya (GOK) and Commission state-owned sugar mills and ensure competitive neutrality between state- owned and private mills (for example, cessation of fiscal transfers and debt bailouts). Electricity Increase the transparency of power EPRA; Kenya Power High Medium procurement through a competitive and Lighting Company term process for power purchase (KPLC); NT; CAK (reform agreements (PPAs). advocate) Ensure competitive neutrality EPRA; Ministry of between KenGen and private Energy independent power products (IPPs) (for example, ringfencing of fiscal transfers for public service obligations, private sector-benchmarked performance targets, cessation of de facto PPA preferences). Fully implement open access EPRA; Kenya Electricity regulations allowing transparent Transmission Company and nondiscriminatory access Limited (KETRACO) to transmission and distribution infrastructure. Publish transparent regulations EPRA; Ministry of enabling private participation Energy; CAK (reform in transmission and distribution advocate) segments (for example, clear and transparent licensing rules). 69 Recommendations Time Section Recommendation Responsible authority Impact58 frame59 ICT - Use upcoming updated infrastructure Communications High Medium telecommunications sharing regulations to promote Authority of Kenya (CA); term competition in the provision of Ministry of ICT infrastructure and encourage ICT and Digital infrastructure sharing by ensuring Economy; appropriate compensation to infrastructure owners. CAK (reform advocate) Update the ICT Act and frequency CA; Ministry of ICT and spectrum regulations to prioritize Digital Economy market-based allocation mechanisms (for example, auctions), allow secondary trading, and mandate transparency in spectrum allocation via publishing decisions, fee structures, and usage obligations. Conduct a study to formally designate CA; CAK (reform operators with SMP or dominance; advocate) impose remedies as relevant and Ministry of ICT and update the ICT Act to strengthen Digital Economy provisions related to SMP designation and available obligations. ICT - digital markets Pass the Competition Bill amendment Parliament; CAK Medium Short term to restrict anticompetitive digital practices (for example, tying or bundling of products, self- preferencing by digital platforms) and define an internal enforcement strategy. Expand CAK’s use of market studies CAK to identify competition risks in digital markets and propose remedies. Establish a coordination mechanism CAK; CA; Office of between CAK and other agencies that the Data Protection have oversight of digital markets. Commissioner Central Bank of Kenya (CBK) Transport - road Rationalize, streamline, and harmonize Council of Governors Medium Long term trucking and other transport-related (CoG); Ministry of levies (for example, cess, vehicle Transport branding licenses) across counties. Review and ease cabotage restrictions, Ministry of Roads and including rules on foreign firms lifting Transport; freight within Kenya. 70 Recommendations Time Section Recommendation Responsible authority Impact58 frame59 Transport - air Ensure competitive neutrality Ministry of Roads and Medium Medium between Kenya Airways (KQ) and Transport; Kenya Civil term competitors (for example, cessation of Aviation Authority fiscal transfers, favoritism in slot and (KCAA); Kenya Airports route allocation). Authority (KAA); CAK (reform advocate) Phase out the foreign ownership cap Ministry of Roads and on airlines. Transport; KCAA; CAK (advocate) Fully and formally incorporate KCAA International Air Traffic Association (IATA) Worldwide Airport Slot Guidelines (WASG). Strengthen KCAA’s economic KCAA; Ministry of Roads regulation function and establish a and Transport clear framework for the oversight of airport services and charges. Transport - rail Consider liberalizing the rail sector by Ministry of Roads and Medium Long term establishing an independent operator Transport; Parliament; and unbundling infrastructure Kenya Railways ownership and operation from rail Corporation (KRC) service delivery. Transport - water Separate port regulation from port Kenya Maritime Medium Long term operation. Authority (KMA); KPA; Ministry of Transport Professional services Reconsider controls on foreign Parliament of Kenya; Medium Short term participation in professional services. 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Thus, pro- competition reforms in network sectors can enhance not only their economic performance but can also trickle down and boost the economic outcomes of downstream sectors. Barone and Cingano (2011) found that countries with less restrictive network sector regulations (25th percentile, like the UK) experienced value-added growth approximately 0.8 percentage points higher than those with more restrictive regulations (75th percentile, like Spain). The methodology used here combines estimated coefficients from Barone and Cingano (2011) and technical coefficients from sectoral input-output tables. It involves the below steps: 1. The value added for each sector of the economy and each sector’s total direct input requirements from the input sectors of interest (for example, electricity) is measured. This information is obtained from input-output tables or social accounting matrices (SAMs). An input-output table shows the relationship between different sectors of an economy. It shows the value of inputs from each sector of the economy needed to produce the total output in a specific sector in one year. 2. Technical coefficients that show the total direct input required to produce one unit of output are calculated for all sectors. The coefficient is the ratio of the value of intermediate input bought from the input sector in a year to the sector’s gross output value for the year. 3. Sectors that rely more intensively on the output of the input sectors (termed ’input-dependent’ sectors) are identified. The methodology classifies a sector as input-dependent if its input usage of the input sector output (that is, the technical coefficient) exceeds the average of the technical coefficients across all sectors. 4. The estimated coefficient of additional value-added growth associated with a significant reduction in the regulatory restrictiveness in each input sector is determined. A significant decrease in relative regulatory restrictiveness is defined as an improvement of at least two quartiles in the distribution of countries according to their regulatory restrictiveness. Barone and Cingano (2011) found that a significant decrease in a given input sector’s restrictiveness is associated with an increase in its downstream input-dependent sectors’ value-added growth rates of between 0.75 and 1.4 percentage points. 5. Value-added gains are calculated by first multiplying the value added of input-dependent sectors by the estimated coefficients of additional value-added growth and then totaling across input-dependent sectors. 6. The labor compensation gains are calculated using the value-added gains by sector and assuming that labor compensation will grow by that same percentage as value added (that is, assuming a constant ratio of labor to value added). The labor compensation gains are summed up across sectors and expressed as percentage of the initial total labor compensation. 76 Annex Using the above methodology, this report estimates the potential gains from pro-competition reforms in the electricity, transport, telecommunications, and professional service sectors. Expected impact of network sector reforms on GDP Estimated impact on Assumed multiplier effect in Number of input- Input sector annual value added input-dependent sectors dependent subsectorsa (p.p.) (p.p. of value added) Electricity 0.30 - 0.57 0.75 -1.4 16 Transport 0.42 0.75 16 Telecommunications 0.45 0.75 13 Professional servicesb 0.30 - 0.32 0.75 - 0.8 8 Total effect on value added 1.48 - 1.76 — — (GDP at factor costs) Total effect on GDP at market 1.35 - 1.61 — — prices Note: p.p. = percentage point. a. Subsectors included in the latest available social accounting matrix (2021). b. Calculated based on other services excluding finance, water, and trade. Expected impact of network sector reforms on labor compensation Estimated Assumed multiplier Number impact on effect in input- of input- Input sector annual labor dependent sectors dependent compensation (p.p. of value subsectorsa (p.p.) added) Electricity 0.44 - 0.83 0.75 -1.4 16 Transport 0.56 0.75 16 Telecommunications 0.51 0.75 13 Professional servicesb 0.43 - 0.46 0.75 - 0.8 8 Total effect 1.95 - 2.37 — — Note: p.p. = percentage point. a. Subsectors included in the latest available social accounting matrix (2021). b. Calculated based on other services excluding finance, water, and trade. Nevertheless, caveats apply: 1. The estimated coe_icients of additional value-added growth from a reduction in regulatory restrictiveness in service sectors from Barone and Cingano (2011) were for OECD countries. 2. Some sectors are broadly defined and hence estimated gains could be higher than anticipated. For example, the professional service sector is included in ‘other sectors’ of the Kenya’s SAM used. Source: (World Bank, 2015). 77 Annex Annex II. Jobs impact estimation based on GOS Reductions BOX 16: Estimating labor compensation and growth effects from GOSR reductions The methodology for estimating the labor compensation effects of a reduction in GOSR approximates how reduction in possible excess GOSR (capital compensation over output) may generate positive labor compensation by improving allocative efficiency, enhancing cross-sector spillovers, and increasing value added.   Understanding GOSR and the growth mechanism. The GOSR measures capital compensation as a share of gross output— showing what proportion of total production accrues to capital owners (as profits, interest, rents, and depreciation). When GOSR is high relative to productive benchmarks, it signals potential inefficiency: excess rents extracted by capital that could be more productively deployed elsewhere in the economy.  Reducing GOSR frees resources that flow back into the economy through two channels:   1. Direct reallocation: the freed resources can be redistributed to workers, increasing labor compensation and purchasing power.   2. Growth through efficiency gains: lower capital rents reduce inefficiencies, improve cross-sector connectivity, and strengthen spillover effects, enhancing productivity across the economy. This creates a spillover cascade effect across interconnected sectors.  Estimating the structural relationship with spillover cascade effects: Using panel data covering multiple countries, sectors, and years, we estimate how labor compensation responds to changes in GOSR while accounting for spillover dynamics and productivity effects. The econometric approach controls for permanent country, sector, and time characteristics—isolating how GOSR reductions affect both factor income distribution and economic efficiency. Model estimation60: - : permanent country characteristics (institutions, geography) - : permanent sector characteristics (technology, price elasticity) - : Permanent country-sector characteristics (comparative advantage) - : Common sectoral trends (sectoral technological change). These are the fixed effects in the econometric model that control for time-invariant factors affecting labor compensation.61 Results: 60 Model associated elasticities: 61 To address mechanical collinearity among accounting identities (Output, Value Added, and Gross Operating Surplus are mechanically related), we employ Frisch-Waugh-Lovell residualization. When variables are correlated, we can estimate the effect of one variable net of others by first regressing that variable on all other variables, then regressing the dependent variable on the resulting residuals. This two-step approach yields identical coefficients to the original specification but eliminates mechanical collinearity: the residuals have zero correlation with excluded variables by construction, variance inflation factors approach one, and all variable information is preserved. This technique is particularly useful when dealing with national accounts data where accounting identities create perfect multicollinearity between gross output, value added, and factor income components. 78 Annex Estimated labor compensation response to changes in GOSR Continuous Groups Quadratic 0.243*** 0.111*** -0.256*** (-0.0293) (-0.0238) (-0.0618) 0.0770*** 0.0738*** (-0.0184) (-0.0181) 0.00408*** 0.000278 -0.00392*** (-0.000923) (-0.000353) (-0.00091) 0.370*** -0.408*** -0.419*** (-0.0592) (-0.0553) (-0.0566) 0.348*** -0.315*** -0.330*** (-0.0984) (-0.0957) (-0.0977) 0.0204*** (-0.00206) 134669 134669 134669 0.974 0.975 0.975 Standard errors in parentheses. * p<0.10, ** p<0.05, *** p<0.01. Note 1. Using panel data covering 134,669 country-sector-year observations, we estimate the statistical relationship between labor compensation and GOSR while controlling for spillover effects and productivity dynamics. The analysis employs multiple fixed effects to account for permanent country characteristics (institutions, geography), sector-specific technologies (production functions, price elasticities), country-sector comparative advantages, and common sectoral trends (technological change). We estimate three alternative specifications to test the robustness of results: (i) a linear spillover specification, (ii) a grouped specification allowing discrete shifts in effects across sector categories, and (iii) a quadratic specification allowing for non-linear spillover effects. All three specifications explain approximately 97.5 percent of the variation in labor compensation, with all key coefficients statistically significant at the 1 percent level. The quadratic specification is preferred as it captures diminishing returns to spillover intensity—consistent with economic theory suggesting that spillover benefits taper at higher connectivity levels. The preferred specification indicates that the responsiveness of labor compensation to GOSR changes varies systematically across sectors based on their spillover characteristics. Sectors with lower initial spillover connectivity show greater responsiveness to GOSR reductions, suggesting these sectors have more scope to benefit from efficiency-enhancing resource reallocation. Note 2. The analysis and follow-up simulations for the total direct and indirect effect of reductions in the GOSR employ a partial equilibrium framework that isolates factor income distribution effects while holding sectoral output and prices constant. While this approach is technically sound for identifying direct redistribution mechanisms within sectors, it does not capture general equilibrium adjustments—such as changes in relative prices, factor reallocation across sectors, or feedback effects through aggregate demand—that would occur following actual policy implementation. The results should be interpreted as indicative estimates of the mechanical effects of GOSR reductions under static conditions rather than as predictions of actual economy-wide outcomes. The underlying econometric model estimates reduced-form associations between GOSR and labor compensation from panel data, which, while statistically robust, do not establish causal effects. These estimates are best understood as a preliminary analytical tool suitable for identifying priority sectors and orders of magnitude, pending more detailed computable general equilibrium or sectoral modeling for policy simulation. 79 Annex Simulating GOSR reductions and calculating savings reinvestment: The policy simulations model moderate scenarios: reducing GOSR by 3 to 5 percent across sectors represents reductions in excess capital rents toward more efficient benchmarks. We calculate (a) the resources freed by reducing capital’s share of output, (b) how these freed resources (‘savings’) are reinvested in the economy through increased labor compensation and productivity enhancements, and (c) the additional value added growth generated through improved spillover connectivity and allocative efficiency. Capturing the spillover cascade effect: The spillover cascade operates through enhanced connectivity (better connected sectors benefit from knowledge flows that spread across the network), improved allocative efficiency (resources move to more productive uses in multiple sectors), and reduced rent-seeking (fewer resources locked in unproductive returns, freeing capital for productive investment). The result is that value added grows even as its distribution is reallocated, creating economic expansion that amplifies through cross-sector linkages. Policy Interpretation and Implementation: The methodology shows that reducing GOSR through efficiency-enhancing competition policies can generate ‘win-win’ outcomes: simultaneously improving allocative efficiency, increasing labor compensation, and expanding value added through spillover cascades. Achieving these gains requires policies that reduce rent-extraction opportunities and improve market efficiency—competition policy reforms, and regulations enhancing the contestability of industries by reducing barriers to entry, and competitive initiatives strengthening spillover connectivity. The spillover cascade mechanism is central: Well-functioning sectors with strong spillovers naturally exhibit lower GOSR because resources are allocated efficiently rather than captured as rents. Policies moving high-GOSR sectors toward these efficient benchmarks unlock growth by improving productivity and connectivity and by creating cascade effects that benefit workers, consumers, and the broader economy through propagating efficiency gains, while maintaining adequate returns to productive capital investment. 80