KENYA’S manufacturers are a worried lot after a drop in the sector’s contribution to the economy last year, with the country’s business environment proving difficult for industries and investors.
According to the Economic Survey 2026 by the Kenya National Bureau of Statistics (KNBS), the sector’s contribution to the economy slowed down to 7.1 per cent last year compared to 7.3 per cent in 2024.
This, as the economy slowed down with economic growth rate declining from 4.7 per cent in 2024 to 4.6 per cent in 2025.
The drop in the manufacturing sector performance came as industries navigated a tough business environment ,occasioned by high operating costs and competition from cheap imports.
Employment in the sector increased by 5.2 per cent to 388,564 persons in 2025 to account for 11.7 per cent of total formal wage employment.
Agro-based manufacturing contracted by 1.2 per cent, compared to a 7.9 per cent growth in 2024, with the contraction driven by a 24.8 per cent drop in sugar output and a five per cent per cent drop in fruit and vegetable processing.
While sub-sectors such as cement (production) and steel grew, owing to sustained activities in the construction sector, most sub-sectors performed dismally, a move that has worried industry players.
This makes the country’s ambitious plans of having the sector contribute at least 20 per cent to the GDP by 2030 look like a mare dream.
The sector lobby group–Kenya Association of Manufactures (KAM) now says industries in the country are facing numerous challenges, with last week’s rise in fuel prices adding to the pain of producing in Kenya, where costs remain elevated.
Kenya’s unstable tax policy environment including taxation of raw materials, especially excise duty, is among the major hindrance to the sectors growth, according to KAM chief executive, Tobias Alando.
The sector is also struggling with cash flow amid the accumulation of VAT refunds which stood at Sh35 billion by the end of Feb 2026.
Kenya’s private sector has also witnessed rising regulatory burden on businesses, driven mainly by state agencies which industry players say have become notorious with introduction of levies and fees.
For instance, the Kenya Bureau of Standards (KEBS) levy, Standards (Standards Levy) Order, 2025, introduced through Legal Notice No. 136 of 2025, amended the framework governing the Standards Levy payable to KEBS, by setting the levy at 0.2 per cent of a manufacturer’s monthly turnover, capped at Sh4 million annually.
The National Environment Managment Authority (NEMA) has also effected the Extended Producer Responsibility (EPR) fee of Sh150 on five broad categories of products imported as inputs for manufacturing.
Kenya Nuclear Regulatory Authority on the other hand is implement mandatory screening of all cargo entering or exiting Kenyan ports, which it says is aimed at detecting and prevent illicit trafficking of special nuclear and other radioactive materials.
This comes at an extra fee for importers, with manufacturers who are among the biggest port users being hard hit. The move comes at time when the Port of Mombasa is battling congestion.
There are about 38 government agencies which have over the years intervened in the cargo clearance processes with their services also coming with charges, a move that is blamed for delays and increasing the cost of doing business.
KRA, Kenya Bureau of Standards, immigration, Port Health and Kenya Plant Health Inspectorate Service (KEPHIS) are considered the primary agencies, after the government in 2020 issued a memo sending over 20 state agencies out of the port.
The move to improve efficiency and cut bureaucracy has however not made any major progress as the number still remains high, amid introduction of new levies and fees to support the agencies’ operations amid duplication of roles.
The Anti-Counterfeit Authority, Agriculture and Food Authority, National Biosafety Authority, Weights and Measures, Kenya Wildlife Services among other agencies have also been intervening on cargo.
“We cannot continue to compare our port with best performing ports while we have so many government agencies interventions impacting the clearance process and place all the blame on KPA,” Shippers Council of Eastern Africa (SCEA) chief executive, Agayo Ogambi, said yesterday.
SCEA represents the interests of importers, exporters and other stakeholders in the logistics and shipping industries across Eastern Africa.
“Targeting the port- for revenue generation evidenced by the many agencies showing up at the port “to inspect” is counter productive both in the long and short term, besides being expensive and creating bureaucracy,” Ogambi said.
Manufacturers in Kenya are also struggling with high energy costs (fuel and electricity), cross-county levies, among other challenges.
Kenya’s average industrial power tariff is between $0.18 (Sh23.26) and $0.23 (Sh29.73) per kilowatt hour, depending on the tariff category, with SMEs having even higher costs.
Some of the African countries that would be competing with Kenyan manufacturers offer better and more favourable electricity tariffs, according to a regulatory Audit Report by KAM with support from Trademark Africa and funding from the Foreign, Commonwealth and Development Office.
For instance, South Africa and Egypt have tariffs averaging $0.03 (Sh3.88) per KWh, Morocco and Ethiopia $0.05 (Sh6.46).
Tanzania and Uganda have average tariffs of $0.08 (Sh10.34) and $0.18 (Sh23.26) per KWh, respectively.
“High production costs due to costs associated with high taxes, fees at national and county governments, where other countries have better industrial policy, such as lower production costs, reduce Kenya’s competitiveness,” the report notes.
Kenyan products end up being more expensive on the shelves with consumers paying the ultimate price, with Kenya losing both in the export markets and from cheaper imports.
It reduces Kenyan manufacturers’ capacity to access other African markets due to potentially high product prices resulting from the high cost of doing business in Kenya.
Cheaper imports from China and other African countries, including Egypt, continue to dominate the Kenyan market.
“There are opportunities that can be leveraged to revitalise the manufacturing sector. We have regional and international export market opportunities and preferential domestic market access through Buy Kenya Build Kenya and local content policies,” Alando told the Star.
However, the country must ensure tax predictability and reduce the cost of doing business.
Alando noted that the recent 50 per cent reduction in VAT on fuel from 16 per cent to eight per cent was a good gesture and inspires the country that the government is keen to alleviate the pain on the mwananchi and businesses.
However, there is still scope for the government to do more bearing in mind that taxes, fees and levies constitute about 46 per cent of the price of fuel.
“The government can reduce or remove some of the levies such as RDL (Railway Development Levy) or reduce VAT further even if temporarily to cushion the economy,” he said.
The government should also widen the scope of intervention by direct injection of money into the economy for example making a one-off payment to outstand VAT refunds.
It should increase monthly allocation from Sh3 billion to Sh5 billion to stop further buildup of VAT claims. This, KAM says, will inject liquidity into the economy and ensure economic activity does not slow down.
Further, the government should allocate funds to purchase locally manufactured goods in its public projects.
“The 2025 Preferential Master Roll has a list of 1,148 locally manufactured products available in abundance in the country from which the government can chose from,” said Alando.
