Manufacturing contribution to GDP slows to 7.1% as operating costs bite

Kenya's manufacturing sector’s contribution to the economy slowed down in 2025, as industries navigated a tough business environment occasioned by high operating costs and competition from cheap imports.

The Economic Survey 2026 by the Kenya National Bureau of Statistics (KNBS) shows the sector accounted for 7.1 per cent to the GDP, a slight drop from 7.3 per cent in 2024.

Total manufacturing output grew by a mare two per cent to Sh3.8 trillion, supported by expansion across both domestic-focused and export-oriented activities.

“The sector’s overall growth was however, constrained by slowed activities across various food-related segments, particularly production of sugar and soft drinks,” KNBS says.

Sugar production declined by 24.8 per cent to stand at 613, 000 metric tonnes in 2025.

Although production of soft drinks increased by 4.9 per cent to 703.7 million litres in 2025, this growth was slower compared to 15.6 per cent recorded in 2024.

The volume of processed milk increased from 619.1 million litres in 2024 to 701.5 million litres in 2025.

Similarly, processing of meat and meat products, as well as grain milling, increased by 9.8 and 3.4 per cent, respectively, in the period under review.

Agro-based manufacturing, however, contracted by 1.2 per cent, compared to a 7.9 per cent growth in 2024.

According to the government statistician, the contraction was driven by a 24.8 per cent drop in sugar output and a five per cent drop in fruit and vegetable processing.

Cement production, however, rose from 8.85 million tonnes in 2024 to 10.4 million tonnes, thanks to increased construction activities in the country, including the government's Affordable Housing Project.

The quantities of basic metals manufactured also grew by 4.9 per cent in 2025. Consumer goods production and other sub-sectors remained stable but manufacturers struggled with unpredictability in taxes and cheap imports mainly from China.

The indices for the manufacture of food products and water supply increased by 0.7 per cent.

“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,” the survey states.

Credit advanced to enterprises in the manufacturing sector increased from Sh560.6 billion as at December 2024 to Sh593.9 billion as at December 2025.

Lending by Development Bank of Kenya and Kenya Development Corporation, however, declined, but the number of approved projects rose to 17 in the same period.

During the year, proposed investments fell from Sh17.4 billion to Sh12.2 billion, even as zones gazetted by the Export Processing Zones Authority increased to 114 in 2025.

The slowdown in 2025 dents Kenya’s ambitious plans of growing the manufacturing sector’s contribution to GDP to 20 percent by 2030.

The industry, led by the Kenya Association of Manufacturers (KAM), has been calling on the government to urgently implement reforms to address the rising cost of regulation and duplication of levies that are undermining local industries’ competitiveness.

These are adding to the production costs that have traditionally been pushed up by the high cost of power and costly raw materials, amid a lack of tax predictability, which are hurting investments.

Manufacturers want the government to reduce power tariffs, remove taxes on industrial inputs and create a predictable regulatory environment to make Kenya competitive.

"Kenyan manufacturers must produce competitive products. One of the reasons undermining competitiveness is costs,” KAM chief executive, Tobias Alando, told the Star during a recent industry event in Nairobi. 

A 2025 regulatory audit by KAM also shows that illicit trade accounted for between 8.9 per cent and 9.3 per cent of GDP in recent years, exceeding the sector's contribution of seven per cent.

KAM board vice chair, Hitesh Mediratta, said: “We need to see how the private sector and government can collaborate over the next year to ensure that manufacturing increases, we create jobs.”