NAIROBI - Kenya's manufacturing sector is facing a critical juncture, struggling to expand its contribution to the national economy amid deep-seated structural challenges. The country's economic model, characterized by the export of raw, unprocessed goods and the import of finished products, continues to undermine efforts towards industrialization, job creation, and economic self-reliance. This long-standing issue is now compounded by an unpredictable policy environment and high operational costs, casting a shadow over the sector's future and the country's Vision 2030 development goals.

According to the most recent data, the manufacturing sector's contribution to Kenya's Gross Domestic Product (GDP) has been a cause for concern. The Economic Survey 2025 revealed a significant contraction in the sector's share of GDP, which fell to 7.2 percent in 2024 from about 12 percent a decade earlier. World Bank data from 2023 shows the figure at 7.6 percent, well below the global average of 12.05 percent, indicating a prolonged period of stagnation. While there were modest signs of recovery in 2024 with a 4.4 percent growth in output, this progress is fragile and threatened by underlying economic pressures.

A Cycle of Raw Exports and Finished Imports

Kenya's trade imbalance remains a fundamental obstacle. The nation's primary exports are agricultural products like tea, coffee, and horticultural produce, often shipped in their raw form. In the first half of 2025, export earnings dropped for the first time in six years, largely due to a decline in tea sales, widening the trade deficit to KSh 783.91 billion. Conversely, the country's main imports consist of high-value finished goods, including machinery, petroleum products, motor vehicles, and plastics. This trade structure effectively exports jobs and value-addition potential that could be harnessed locally.

This dynamic was highlighted in a United Nations Conference on Trade and Development (UNCTAD) report, which categorized Kenya as one of 16 commodity-dependent countries in the COMESA bloc, a status linked to lower development and higher poverty rates. The economic principle is straightforward: the value of manufactured goods is significantly higher than that of the raw materials used to produce them. By exporting raw commodities, Kenya loses out on the substantial economic benefits generated during the manufacturing process, such as skilled job creation, technology transfer, and increased revenue.

Domestic Headwinds: Policy, Costs, and Competition

The challenges for local manufacturers are not just external. A survey by the Central Bank of Kenya (CBK) in June 2025 revealed that nearly a quarter of manufacturing firms had reduced their full-time workforce over the preceding three months, citing high operational costs, cash flow problems, and weak consumer demand. Frequent and unpredictable shifts in taxation policy, such as the anticipated Finance Bill 2025, create an unstable climate that discourages long-term investment. Manufacturers consistently cite the high cost of electricity and fuel as major impediments to competitiveness, with Kenyan energy prices often exceeding those of regional competitors like Tanzania and Egypt.

Furthermore, the influx of cheaper imports continues to squeeze local industries. This competitive pressure, combined with regulatory bottlenecks and delayed payments from the government, severely affects the cash flow and stability of manufacturing enterprises. According to the Kenya Association of Manufacturers (KAM), creating a predictable tax and policy environment is essential for the sector to become globally competitive and scale up effectively.

The Vision 2030 Imperative

These persistent challenges jeopardize the goals of Kenya's Vision 2030, the national development blueprint launched in 2008. The vision aims to transform Kenya into a newly industrializing, middle-income country, with the manufacturing sector targeted to grow its contribution to GDP by at least 10 percent annually. President William Ruto's administration has reiterated this commitment under the Bottom-Up Economic Transformation Agenda (BETA), with ambitious plans to raise the manufacturing sector's GDP share to 15 percent by 2027 and 20 percent by 2030.

Achieving these targets requires a fundamental shift. Policy interventions must focus on creating a stable and competitive business environment. This includes addressing the high cost of energy, providing tax incentives for local value addition, investing in infrastructure, and protecting local industries from unfair competition. Efforts to encourage import substitution in sectors like textiles, footwear, and edible oils are seen as viable opportunities to spur local production. Without bold and sustained reforms to break the cycle of raw material exports and tackle domestic operational hurdles, the manufacturing sector's potential to drive Kenya's economic transformation will remain unfulfilled.