Why Kenya is currently not the best destination choice for investors - KAM
KAM says the country’s business environment is rallying behind its aforementioned neighbours in critical industry aspects such as the cost of production.
Investors in the current landscape are more likely to relocate or establish manufacturing businesses in neighbouring countries: Uganda, Tanzania, Rwanda and Burundi rather than in Kenya, the Kenya Association of Manufacturers (KAM) has said.
This is on the back of the unfavourable business environment that is currently affecting manufacturers in the country, which could also deter potential new investors.
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This would then mean that hopes to cure the country’s persistent unemployment crisis and rising poverty levels will remain an unlived dream.
In its 2025 Manufacturing Priority Agenda report, KAM says the country’s business environment is rallying behind its aforementioned neighbours in critical industry aspects such as the cost of production.
Firstly, it highlights the high cost of power, a key tenet of production, saying the high and rising energy cost is one of the impediments to manufacturing and to new investments in the country.
“Long periods of waiting for new connections to manufacturing facilities leading to delays in the turn-around time of the investment is a major factor of concern to manufacturers and investors,” the report reads.
It further states that the current high cost of electricity reduces the competitiveness of finished goods in Kenya, highlighting that the cost of power is higher in Kenya compared to its comparator countries.
Cost of power
Analysis as of December 2024 shows the cost of a unit (kWh) of Kenya’s electricity for business stood at Sh33.23 compared to Uganda’s Sh23.02 and Tanzania’s Sh11.25.
Ethiopia and Egypt, on the other hand, had prices of Sh3.88 and Sh2.33, respectively.
To reduce the cost of electricity to industries and other commercial enterprises, KAM calls for the review of the time of use (ToU) tariff during off-peak hours.
“Review of ToU is essential to reduce curtailed energy, which has been on an upward trend,” KAM said.
Notably, the curtailed energy increased from 23.7 GWh in July 2023 to 141.6 GWh in June 2024, representing a total of 812 GWh curtailed during that financial year.
“This amount of energy serves as a convincing case to allow for uptake of ToU.”
Curtailed energy refers to available energy at the source that cannot be delivered to the customer.
On the other hand, ToU tariffs charge different rates depending on the time of day, with off-peak hours typically being cheaper.
KAM further proposes the removal of the (6%) growth requirement criteria from the ToU tariff conditions, saying the move would make the tariff system more accessible or flexible for manufacturers.
“The uptake of ToU and predictability of the same will serve as an incentive for manufacturers to operate during off-peak periods to increase production and without necessarily shifting their operations.”
Cost of fuel
KAM further says the manufacturing sector heavily relies on motorised transport for both industrial inputs and the distribution of finished goods.
As a result, the cost of diesel directly affects the cost of finished goods.
Among the comparator countries in the region, Kenya ranks second, following Uganda, with higher diesel prices.
As of February this year, analysis shows a litre of diesel in Kenya was going at Sh165.5, second highest to Uganda’s Sh175.9.
In Tanzania, Ethiopia and Egypt, a litre of diesel sold at Sh135.8, Sh100.9 and Sh34.9, respectively.
Regulatory burden
Nevertheless, the manufacturers’ body decries the ever-increasing fees, levies and charges by government agencies.
“These charges are the equivalent effect of a tax and therefore increase the cost of doing business,” KAM said.
“Subsequently, they undermine the competitiveness of the manufacturing sector in Kenya.”
It gives an example of the Third Schedule of the Crops (Nuts and Oil Crops) Regulations, 2020, which provides a two percent import levy on raw materials and a 0.25 percent export levy on finished goods.
This increases the cost of manufacturing and penalises exports, which contradicts the government’s goal of growing domestic industry and promoting exports, KAM says in part.
“Another example is tea which was the leading export commodity by Kenya in 2023, valued at Sh188.74 billion, faces at least 31 fees, levies or charges.”
The umbrella body, therefore, says a comprehensive review of existing regulations and institutions would be a major step towards fostering a business-friendly environment.
Speaking during the report launch on Thursday, KAM Chief Executive Tobias Alando called for intentionality in policy reforms to enhance the sector’s global competitiveness.
“We must be deliberate about creating a predictable tax environment that fosters business growth. Our focus should be on export competitiveness, SME development, and a regulatory framework that supports industrial expansion,” Alando said.
He was echoed by the Cabinet Secretary, Ministry of Investments, Trade, and Industry, Lee Kinyanjui, who highlighted the need for collaborative solutions to longstanding barriers.
“Energy costs remain a significant concern, and it is important to explore ways of making manufacturing more competitive,” Kinyanjui said.
“Additionally, we need to reassess multiple levies imposed at the county level to ease the cost burden on industries. A balanced approach to taxation, one that considers long-term industrial growth, will be key to unlocking the sector’s full potential.
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