The World Bank has released a Country Private Sector Diagnostic report outlining structural barriers holding back private investment in Kenya. According to the report, despite Kenya's relatively strong economic fundamentals, its growth potential remains constrained. The report notes that Kenya has several competitive advantages, including a diversified economy, a skilled workforce, and significant agricultural and renewable energy assets.
The report identifies high electricity tariffs, governance weaknesses, and limited access to finance as major constraints. Kenyan firms pay approximately KSh 33.80 (USD 0.26) per kilowatt-hour, one of the highest in the region, and 75% of businesses report experiencing frequent power outages. Water access compounds these difficulties, with more than 37% of firms citing insufficient water supply.
Governance remains a significant deterrent to private investment in Kenya. The country ranks in the bottom third of the Transparency International Index, and one in three firms reported receiving requests for bribes. The report warns that such conditions create an uneven playing field and raise the cost of doing business for law-abiding companies.
Regulatory complexity adds further pressure on investors. Investors contend with multiple tax levies at both national and county levels, frequent policy changes, and inconsistent enforcement. Some 25.3% of firms identified licensing and permits as a major or severe constraint. The devolved system of government has introduced overlapping regulations across counties that firms operating nationally find costly to navigate.
Access to affordable capital is another critical obstacle to private investment in Kenya. Government borrowing has crowded out private sector lending, with credit to businesses falling from 36.7% of GDP in 2015 to 29.1% in 2024. The financing gap for micro, small, and medium enterprises is estimated at more than KSh 2.5 trillion.
Insecure land tenure and outdated land records also deter investment, particularly in agriculture, tourism, and real estate. Climate change is a growing investment risk, with recurring droughts and floods disrupting agricultural output, damaging infrastructure, and increasing operational costs across multiple sectors.
The World Bank recommends a long-term, economy-wide reform agenda alongside targeted sector-specific actions to unlock investment, create formal employment, and advance the goals set out in Kenya Vision 2030. Coordinated action could address the identified barriers and improve the business environment in Kenya.
Key points
- High electricity tariffs and governance weaknesses are major barriers to private investment in Kenya.
- Limited access to finance and regulatory complexity also hinder private investment.
- The World Bank recommends a long-term reform agenda to address the identified barriers.
