Kenya Businesses Buckling Under Shifting Policy, Tax, Lobby Says

Most Kenyan manufacturers are operating at less than half of their capacity, weighed down by taxes and government policies that have reduced competitiveness and purchasing power.

About 60% of manufacturing companies have frozen expansion plans to gauge how the government’s next budgeting cycle will impact operations, according to Tobias Alando, acting chief executive officer at the Kenya Association of Manufacturers.

“One of the major issues is unpredictable tax and policy,” he said in an interview. “We have a scenario where every new fiscal year, every new budget period, we see taxes imposed in the budget that are affecting manufacturing, particularly affecting inputs.”

In the two years since President William Ruto has been in power his government has introduced a raft of new tax measures, which earlier this year stoked protests that left more than 60 people dead and weighed on economic growth.

Over the same period, the Stanbic Bank Kenya purchasing managers’ index has averaged 48.9, below the 50 threshold separating expansion from contraction.

Stunted Growth

Kenyan industries contribution to GDP has stagnated in recent years

Manufacturing’s contribution to overall output has plateaued in the past three years at just over 7% and growth in the sector stagnated at 2% in 2023, according to government data. The last time the industry’s contribution to gross domestic product was in double-digits was in 2015, coming in at 10%.

The high taxation, other than making Kenyan products uncompetitive, has also squeezed consumer purchasing power, Alando said. Electricity, for example, costs 70% more than neighboring countries due to many levies and duties, he added.

This story originally appeared on Bloomberg.