Kenya’s manufacturing sector is experiencing a slowdown, with industry players pointing to unpredictable taxation, regulatory burdens, and high operational costs as key factors dampening growth. The Kenya National Bureau of Statistics (KNBS) recently reported a 2.3% growth rate in the manufacturing sector during the third quarter of 2024, a modest increase that fails to reflect the sector’s potential.
The Kenya Association of Manufacturers (KAM) has reiterated calls for a more predictable tax regime, arguing that frequent policy shifts create uncertainty and deter investment. KAM Chief Executive Tobias Alando emphasized that the sector has set an ambitious goal of contributing 20% to GDP by 2030, a target that requires job creation, increased government revenue, and a conducive business environment.
The sector’s performance has been driven primarily by the food sub-sector, particularly sugar production. However, other segments, such as cement production and vehicle assembly, have faced significant challenges due to high costs and competition from cheaper imports. The lack of reliable and affordable electricity further compounds the problem, making Kenya less attractive for large-scale industrial operations.
Exit of Major Companies
In recent years, several multinational corporations have either downsized or exited Kenya due to the high cost of doing business. Major firms such as Procter & Gamble, GlaxoSmithKline, Johnson & Johnson, and Tile & Carpet have either relocated or reduced operations. Homegrown automotive manufacturer Mobius Motors was forced to shut down last year due to mounting debts and a tax dispute with the Kenya Revenue Authority (KRA).
To address the exodus of businesses, President William Ruto established a ten-member task force in December to investigate why companies are opting to leave Kenya. The findings are expected to inform policy adjustments aimed at making Kenya more competitive.
Impact of Rising Taxes on Consumers and Businesses
The government’s aggressive taxation measures, including deductions for the Social Health Insurance Fund and affordable housing, have reduced disposable income for many Kenyans. The doubling of PAYE and NSSF deductions means that close to 50% of salaries now go toward taxes, further reducing consumer demand.
Employers are also struggling to comply with the “one-third rule,” which mandates that employees must take home at least one-third of their basic salary after deductions. According to the Federation of Kenya Employers (FKE), the high tax burden is making it difficult for firms to sustain employment levels, contributing to job losses.
KAM has urged the government to introduce a stimulus package to revive struggling industries, create jobs, and boost economic growth. As Kenya aims for industrial expansion, manufacturers stress that predictable taxation and a supportive business environment will be crucial in driving sustainable economic development.
