Inside industries’ 2026 wish list amid 20% GPD contribution plan

An enabling business environment backed by a predictable tax regime, efficient logistics system; and reduced power costs top manufacturers’ 2026 wish list, as they seek to reverse last year’s volatile performance.

This is in addition to addressing unfair competition, counterfeits and illicit trade with the help of the government, as the influx of cheap imports and counterfeit goods continue to undermine local manufacturers.

This, even as the sector remains among top employers in the country, including the Fast Moving Consumer Goods segment, albeit stunted growth and contribution to the economy.

According to industry lobby­–Kenya Association of Manufacturers (KAM), the sector continued to show uneven and volatile performance in 2025, reflecting the impact of global and domestic pressures.

Ongoing geopolitical tensions and shifts in global trade patterns, combined with local challenges such as high raw material costs, inefficient logistics, heavy taxation and elevated energy prices, continued to weigh on growth.

While the sector has demonstrated capacity for strong expansion in the past, peaking at 11.3 per cent growth in the second quarter of 2021, recent performance has been more constrained with the sector accounting for a paltry 7.3 per cent of GDP in 2024, the Economic Survey 2025 shows.

“Compared to previous years, 2025 marked a period of heightened pressure rather than expansion. The sector showed slower growth, reduced relative contribution to GDP and widening competitiveness gaps within the region,” KAM chief executive, Tobias Alando, told the Star.

Some of the challenges that inhibit the manufacturing sector’s growth, as outlined by manufacturers, include high utility costs (power and water) as well as frequent power outages and surges disrupt production.

Insufficient domestic demand due to limited local market demand also restricts production scale and profitability.

Infrastructure challenges, whereby poor road networks, drainage and unreliable transport systems on the other hand hinder logistics and operations.

Industries have over the years also decried heavy tax and regulatory burden which poses hurdles in licensing and compliance.

Manufacturers also face harassment from regulatory officials such as Kenya Bureau of Standards (Kebs), National Environment Management Authority (NEMA) and county government, KAM notes, with frequent introduction or increases in fees, levies and taxes without evaluating their cumulative impact on the cost of doing business, hampering businesses’ plans, due to unpredictability and instability.

Local industries also suffer from unfair competition, illicit trade and counterfeits with the influx of cheap imports and counterfeit goods undermining local manufacturers.

KAM has also listed burdensome and overlapping taxes from national and county governments characterised by excessive taxes on raw materials, machinery and operations as a major challenge which subsequently reduces competitiveness.

There is also limited access to affordable credit where despite recent cuts in the benchmark rate by the Central Bank of Kenya, high interest rates and limited financing options continue to hinder expansion and modernisation of business, especially SMEs.

 Market access barriers due to non-tariff barriers and limited export support also restricts growth, Alando noted.

These challenges are said to undermine the country’s plan to grow the sector’s contribution to the GDP to an average 20 per cent by the year 2030 under the Kenya Manufacturing Agenda 20 by 30, a strategic goal set by the governmenment with local industries as the drivers. 

Overall, while manufacturing remains economically important, its current trajectory indicates that earlier growth expectations have not been realised, underscoring the need for targeted reforms to address long-standing bottlenecks.

“These trends underscored the need for urgent policy and structural interventions, particularly the establishment of a predictable and supportive policy framework, to reverse the decline and reposition manufacturing as a competitive industrial driver in the years ahead,” said Alando.

Despite the difficult operating environment, manufacturing remained a critical pillar of the economy, employing approximately 362,200 and contributing about 18 per cent of total tax revenues.

Overall, the sector’s 2025 performance can be characterized as resilient but pressured, demonstrating growth potential, but highly sensitive to cost structures, energy prices and broader global economic conditions.

“This year, we hope to reverse this trend and increase the manufacturing sector’s contribution to the GDP. This can only be achieved by creating an enabling business environment, through resolution of the challenges facing manufacturers. We hope to have a stable and predictable tax and regulatory environment; efficient transport and logistics system; and reducing the cost of power,” Alando said.