Kenya's ambitious target to raise the manufacturing sector's contribution to the economy to 20 percent by 2030 is now drifting away from reach. Manufacturers have warned that persistent high taxes on industrial inputs and the cost of operations are making the country's industrial output uncompetitive. This is in a market that attracts cheaper imports and competes with low-cost producing countries in export markets.
The sector's contribution to the economy fell to 7.1 percent in 2025 from 7.3 percent in 2024. The Kenya National Bureau of Statistics reported that manufacturing's real value added grew by 2.0 percent in 2025, down from stronger performance in some subsectors. Weaknesses in food-related industries weighed on overall growth. Manufacturers now fear the operating environment could make it harder to reverse the decline in the sector's share of GDP and attract the investment required to expand production, create jobs, and increase exports.
Industry players say the introduction and increase of excise duty on key production inputs risks raising factory-gate costs. The Finance Act, 2026, raised excise duty on specified imported sugar to Sh40 per kilogram, from Sh7.50 previously. This increase of about 433 percent could have significant consequences for manufacturers of beverages, confectionery, pharmaceuticals, and baked products that require industrial-grade sugar as an input.
Manufacturers are also concerned about excise duty on wood-based panels, including particleboard and medium-density fibreboard. These are important inputs for the furniture and construction industries. The additional taxation could undermine the tax differential that previously made it more attractive to import raw materials and manufacture finished furniture locally.
The industry points to excise taxes and other charges affecting inputs such as printing inks, resins, and kraft paper. These are used across packaging, printing, beverages, and other manufacturing value chains. The cumulative effect is more important than any single tax because factories operate through interconnected supply chains in which the cost of one input is transferred to subsequent stages of production.
Although production volume increased by 2.1 percent in 2025, overall manufacturing growth remained modest. KNBS reported that sugar processing declined by 24.8 percent during the year, while agro-based manufacturing contracted by 1.2 percent. However, there were areas of stronger performance, such as non-metallic mineral products, mainly cement, which grew by 17.1 percent.
Manufacturers want the government to review taxes on industrial inputs, reduce the cost of electricity, eliminate duplication of levies, and improve regulatory predictability. The sector is a significant source of formal employment and government revenue, with formal manufacturing employment rising 5.2 percent to 388,564 people in 2025.
Key points
- The Kenya Association of Manufacturers warns that high taxes and operating costs are making the country's industrial output uncompetitive.
- The sector's contribution to the economy fell to 7.1 percent in 2025 from 7.3 percent in 2024.
- Manufacturers are urging the government to review taxes on industrial inputs and reduce the cost of electricity.
