Unstable tax policy environment, high cost of doing business among major concerns. 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.