Kenya’s ambitious target to raise the manufacturing sector’s contribution to the economy to 20 per cent by 2030 is now drifting away from reach, manufacturers have warned.
This is on the back of persistent high taxes on industrial inputs and cost of operations, which is making the country’s industrial output uncompetitive in a market that attracts cheaper imports and competes with low-cost producing countries in the export markets.
Industry players say the introduction and increase of excise duty on key production inputs such as industrial sugar, wood-based panels and other intermediate goods risks raising factory-gate costs.
Manufacturers in the country are already grappling with expensive energy, regulatory charges and competition from cheaper imports, the Kenya Association of Manufacturers says.
The warning comes amid a drop in manufacturing’s contribution to the economy in 2025, which fell to 7.1 per cent from 7.3 per cent in 2024, leaving the sector well below the government’s long-term 20 per cent ambition.
The Kenya National Bureau of Statistics (KNBS) said manufacturing’s real value added grew by 2.0 per cent in 2025, down from stronger performance in some subsectors, with weaknesses in food-related industries weighing on overall growth.
Manufacturers now fear the operating environment could make it harder to reverse the decline in the sector’s share of GDP and attract the investment required to expand production, create jobs and increase exports.
“Kenyan manufacturers must produce competitive products. One of the reasons undermining competitiveness is costs,” KAM chief executive, Tobias Alando told the Star during an industry event in Nairobi.
Manufacturers argue that taxing industrial inputs increases the cost of production before a product reaches the market, making locally produced goods more expensive relative to imported finished products.
The concern has intensified following the Finance Act, 2026, which raised excise duty on specified imported sugar to Sh40 per kilogram, from Sh7.50 previously, subject to specified exclusions.
Industry players calculate the increase for affected sugar imports at about 433 per cent.
They say the measure could have significant consequences for manufacturers of beverages, confectionery, pharmaceuticals and baked products that require industrial-grade sugar as an input.
Manufacturers are also concerned about excise duty on wood-based panels, including particleboard and medium-density fibreboard (MDF), which are important inputs for the furniture and construction industries.
Industry players say the additional taxation could undermine the tax differential that previously made it more attractive to import raw materials and manufacture finished furniture locally.
They argue that making locally manufactured furniture more expensive could give imported finished products a greater price advantage, potentially weakening investment in domestic furniture production.
The industry also points to excise taxes and other charges affecting inputs such as printing inks, resins and kraft paper, which are used across packaging, printing, beverages and other manufacturing value chains.
They say the cumulative effect is more important than any single tax because factories operate through interconnected supply chains in which the cost of one input is transferred to subsequent stages of production.
“Excise duty is not a tool of industrial protection,” manufacturers argue, warning that its increasing application to raw materials and intermediate inputs risks undermining the competitiveness of domestic value addition.
Although production volume increased by 2.1 per cent in 2025, overall manufacturing growth remained modest. KNBS reported that sugar processing declined by 24.8 per cent during the year, while agro-based manufacturing contracted by 1.2 per cent.
There were however areas of stronger performance such as non-metallic mineral products, mainly cement, which grew by 17.1 per cent, while motor vehicle, trailer and semi-trailer manufacturing expanded by 15.2 per cent.
Wood and wood products grew by 5.8 per cent and basic metals by 4.9 per cent.
The latest quarterly figures also show some improvement, with manufacturing growth accelerating to 4.4 per cent in the first quarter of 2026 from 2.8 per cent in the corresponding quarter of 2025.
However, manufacturers say sustaining that momentum will require policies that lower, rather than increase, the cost of production.
The sector is a significant source of formal employment and government revenue. KNBS reported that formal manufacturing employment rose 5.2 per cent to 388,564 people in 2025.
Manufacturers therefore want the government to review taxes on industrial inputs, reduce the cost of electricity, eliminate duplication of levies and improve regulatory predictability.
The industry says such measures would allow factories to invest in machinery, expand capacity and compete more effectively in regional and international markets.
