Expensive Electricity, High Registration Costs Limiting Investment in Kenya: AfDB
High electricity prices and costly business registration are major obstacles to investment growth in Kenya, according to the African Development Bank (AfDB)’s Kenya Country Focus Report for 2025.
The report notes that business capital growth is significantly constrained by several factors, including high informality, burdensome registration costs—estimated at 15% of Gross National Income (GNI) per capita—and expensive electricity, currently at USD 0.15 per kilowatt-hour. Poor infrastructure compounds these challenges.
Micro, Small, and Medium Enterprises (MSMEs), which make up 75% of Kenya’s private sector and contribute 40% of the GDP, are disproportionately affected. Many face limited access to affordable credit due to high interest rates, rigid collateral requirements, low financial literacy, and poor rural banking infrastructure.
Additionally, government-run initiatives such as the Uwezo and Hustler Funds have been unable to meet the demand for startup capital. AfDB recommends expanding affordable financing, digitizing table banking, simplifying business regulations, reducing service fees, and increasing awareness of available funding options to bolster business capital.
The report also flags weak institutions, corruption, and capital flight as significant barriers to investment. ‘State capture’ and an inefficient judicial system marked by slow dispute resolution and judicial corruption contribute further to investor uncertainty.
Kenya’s volatile tax policies were cited as another major challenge. Frequent changes—like increased capital gains tax and newly introduced taxes on digital assets—undermine the stability of the tax regime and create compliance risks for businesses.
To improve the investment climate, AfDB recommends several reforms, including mobile-based tax filing, reducing non-essential government spending, and refinancing expensive debt with longer-term concessional loans.
Despite these hurdles, Kenya’s economy showed resilience, growing 4.9% year-on-year in Q1 2025, driven by strong performance in agriculture and manufacturing. In 2024, GDP growth stood at 4.6%, down from 5.6% in 2023, primarily due to weak industrial activity, low investment, and climate shocks.
Inflation eased to 4.5%, and a stronger shilling enabled the Central Bank to ease monetary policy.
Looking ahead, AfDB projects a cautiously optimistic outlook for Kenya, citing favorable weather, improved macroeconomic conditions, lower lending rates, and falling global oil prices. However, downside risks remain, including declining foreign aid, rising trade tensions, and potential policy reversals.
To build resilience, AfDB urges Kenya to expand its tax base by formalizing the informal sector, enhance compliance through digital tax education, and eliminate inefficient tax incentives.
The report also advises scaling up value addition in agriculture, mining, and renewable energy, expanding credit guarantee schemes from Ksh100 million to Ksh5 billion, and simplifying regulations for MSMEs.
Further, it calls for deepening capital markets through green and SME bonds, leveraging diversified investments from pension and insurance funds.
The National Treasury anticipates a 5.3% GDP growth in both 2025 and 2026, backed by a stable macroeconomic framework and ongoing structural reforms.
In other news:Pneumonia Leading Cause of Death in Men in 2024 – Report
Expensive Electricity, High Registration Costs Limiting Investment in Kenya: AfDB