Kenya has strong foundations for private-sector growth, including a large domestic market, regional connectivity, a relatively skilled workforce and opportunities in agriculture, renewable energy and tourism. However, the latest Country Private Sector Diagnostic says high utility costs, unreliable services, regulatory uncertainty, governance weaknesses and limited access to finance are preventing the country from translating those advantages into stronger private investment, exports and formal job creation.
Electricity is one of the clearest pressure points. Business tariffs are estimated at around $0.26 per kilowatt-hour, while about 75% of firms report frequent power outages, increasing operating costs for companies that must absorb interruptions or invest in backup power.
Key Overview
- Electricity tariffs are about $0.26 per kWh, among the highest in the region.
- Around 75% of firms report frequent electricity outages.
- More than 37% of firms reported insufficient water supply.
- 25.3% of firms identify licensing and permits as a major or very severe constraint.
- Around one-third of firms report receiving requests to pay bribes.
- Private-sector credit fell from 36.7% of GDP in 2015 to 29.1% in 2024.
- Kenya’s MSME financing gap is estimated at more than KSh2.5 trillion.
- Reforms in three priority sectors could unlock up to $1.5 billion in additional private investment.
High Electricity and Water Costs Raise Business Expenses
The diagnostic identifies infrastructure and access to basic inputs as major barriers to investment. Although Kenya has expanded roads, ports and other transport infrastructure, firms still face expensive and unreliable utility services.
Electricity tariffs of roughly $0.26 per kWh are described as among the highest in the region. At the same time, three-quarters of surveyed firms experience frequent outages, creating additional costs through lost production, damaged equipment and the need for generators or alternative energy systems.
Water supply presents another challenge. The 2025 enterprise survey covered 1,024 firms, and the diagnostic reports that more than 37% experienced insufficient water supply, compared with 17.2% among lower-middle-income economies.
These infrastructure constraints can be especially costly for manufacturers, hotels, agricultural processors and other businesses that require reliable power and water to maintain continuous operations.
Taxes, Licensing and Regulation Add Uncertainty
Businesses also face a complex regulatory environment. While Kenya’s corporate income tax rate is broadly comparable with regional peers, firms must navigate multiple national and county levies, frequent tax changes and administrative requirements.
Licensing remains a notable concern, with 25.3% of firms describing business licences and permits as a major or very severe obstacle. Companies operating across several counties can face additional complexity because taxes, fees and regulatory requirements may differ between jurisdictions.
The report argues that policy uncertainty itself can discourage investment. Businesses making long-term decisions on factories, equipment or expansion need greater predictability over future tax obligations, licences and regulatory compliance costs.
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Corruption Continues to Weigh on Investor Confidence
Governance weaknesses are another constraint identified in the diagnostic. Around one-third of surveyed firms reported receiving requests to pay bribes, adding an informal cost to business operations and increasing uncertainty.
Corruption can affect investment decisions in several ways, including raising transaction costs, slowing approvals and creating concerns about whether regulations are applied consistently.
For investors comparing Kenya with alternative locations, the issue is therefore not only the formal cost of doing business but also the predictability and transparency of administrative processes.
Private-Sector Credit Has Lost Ground
Access to finance is also restricting business expansion. The diagnostic says government borrowing has contributed to crowding out private-sector credit, leaving less capital available for productive investment.
Credit to the private sector fell from 36.7% of GDP in 2015 to 29.1% in 2024, while micro, small and medium-sized enterprises face an estimated financing gap of more than KSh2.5 trillion, equivalent to over $19 billion.
Limited long-term financing is particularly challenging for companies seeking to modernise equipment, expand production or undertake investments that may take years to generate returns.
Reforms Could Unlock $1.5 Billion in Investment
Despite the constraints, the report identifies significant investment opportunities in avocado and mango exports, coastal tourism and manufacturing of medical consumables.
With complementary public investment and policy reforms, the three sectors could unlock up to $1.5 billion in incremental private investment and create about 80,000 more and better-paid direct jobs over the medium term compared with a business-as-usual scenario.
The recommendations include reducing regulatory uncertainty, improving infrastructure reliability, making licensing and taxation more predictable and addressing sector-specific barriers that prevent commercially viable projects from attracting capital.
Kenya therefore faces a competitiveness challenge rather than a shortage of investment opportunities. Its market size, location and diversified economy provide a strong base, but lowering operating costs and improving regulatory predictability will be important if those advantages are to translate into faster private-sector investment and formal job creation.
Sources: World Bank Group / IFC / World Bank Enterprise Surveys
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