World Bank warns political interference weakening Kenya’s state-owned enterprises
The report urges the government to strengthen governance frameworks, ensure transparency, and tie public funding to measurable outcomes.
Kenya’s state-owned enterprises (SOEs) are facing growing challenges as political interference and weak governance undermine their efficiency, forcing them to rely heavily on public funds.
The World Bank, in its latest "Kenya Economic Update", warns that “these firms are shielded from market rules that apply to other players”, creating an environment where taxpayer money is often spent without delivering results.
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This has turned some of the country’s key SOEs into costly, inefficient operations that struggle to compete with private-sector companies.
According to the report, many SOEs are steered more by short-term political priorities than long-term commercial objectives.
The current system of performance contracts, meant to hold executives accountable, is largely ineffective.
While the National Treasury sets key performance indicators (KPIs) and targets for these enterprises, the benchmarks are not in line with private-sector standards.
As a result, the system does not exert real financial pressure on executives or create consequences for poor performance.
Accountability remains minimal.
World Bank notes, “While performance bonuses for directors and executives are contingent upon meeting KPI targets, failure to do so is not generally considered grounds for removal.”
This lack of enforcement allows underperformance to continue unchecked, with little impact on leadership or operations.
The report also highlights widespread conflicts of interest across SOEs. In many cases, the same ministries responsible for setting sector policies also sit on the boards of enterprises operating in that sector.
“For instance, Kenya Airways has a board member from the Ministry of Roads and Transport, with the Principal Secretary for Aviation serving as a director. Likewise, Kenya Power and Lighting Company (KPLC) and KenGen include board representatives from the Ministry of Energy and Petroleum,” the World Bank explains.
This dual role of policymaker and board member complicates decision-making and often prioritises political interests over efficiency or financial performance.
The World Bank warns that without reforms, these challenges will continue to affect the country’s economy.
The report urges the government to strengthen governance frameworks, ensure transparency, and tie public funding to measurable outcomes.
“Kenya should ensure that subsidies and grants to SOEs are tied to clear public policy objectives and measurable outcomes,” it advises.
Improved oversight and accountability are crucial if the government wants SOEs to contribute meaningfully to national development rather than draining public resources.
The international lender adds that enhancing governance in SOEs could improve competitiveness, reduce inefficiencies, and create a more predictable and stable environment for investors.
It calls on the government to adopt clear, enforceable standards for performance, reduce political interference in operational decisions, and establish mechanisms that hold executives accountable for both success and failure.
Without these reforms, SOEs are likely to continue operating in a manner that is both costly and unsustainable, limiting their ability to drive economic growth and serve the public effectively.
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