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Tax, power costs dominate manufacturers’ reform push in 2026 outlook
Kenya Association of Manufacturers CEO Tobias Alando.
Manufacturers want the government to undertake urgent policy interventions, including establishing a stable and predictable tax and regulatory environment, to reposition manufacturing as a competitive industrial driver in the years ahead.
The Kenya Association of Manufacturers (KAM) says the policy and structural interventions should also extend to the provision of efficient transport and logistics systems, and the reduction of power and water costs.
KAM Chief Executive Officer Tobias Alando said the manufacturing sector has continued to decline due to heavy taxation, burdensome and overlapping taxes from national and county governments, high utility costs, infrastructure challenges, unfair competition, illicit trade, and counterfeits.
In an outlook for the manufacturing sector for 2026, Mr Alando said limited access to affordable credit, market access barriers, and insufficient domestic demand have hampered the sector’s growth.
“Manufacturers also face harassment from regulatory officials such as the Kenya Bureau of Standards (Kebs), the National Environment Management Authority (Nema), and county governments,” Mr Alando said.
“Additionally, the government introduces or raises fees, levies, and taxes without evaluating their cumulative impact on the cost of doing business, hampering business planning due to unpredictability and instability.”
Kenya Association of Manufacturers CEO Tobias Alando.
He decried the burdensome and overlapping taxes from national and county governments, characterised by excessive taxes on raw materials, machinery, and operations, which subsequently reduce competitiveness.
Mr Alando said the high cost of power and water, as well as frequent power outages and surges, disrupt production.
He added that unfair competition, illicit trade, and counterfeits have led to an influx of cheap imports and counterfeit goods, undermining local manufacturers.
“The heavy tax and regulatory burden poses hurdles in licensing and compliance,” he said.
“High interest rates and limited financing options hinder expansion and modernisation of businesses, especially small and medium enterprises (SMEs).”
Mr Alando also cited infrastructure challenges, saying poor road networks, inadequate drainage, and unreliable transport systems hinder logistics and operations.
KAM wants the government to address market access barriers, noting that non-tariff barriers and limited export support restrict growth.
Mr Alando flagged insufficient domestic demand as another key challenge, saying limited local market demand restricts production scale and profitability.
He said while manufacturing remains economically important, its current trajectory shows earlier growth expectations have not been realised, underscoring the need for targeted reforms to address long-standing bottlenecks.
“These trends underscore 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,” Mr Alando said in a statement.
“Next year, we hope to reverse this trend and increase the manufacturing sector’s contribution to the Gross Domestic Product (GDP).”
He said this can only be achieved by creating an enabling business environment through resolving the challenges facing manufacturers.
“We hope to have a stable and predictable tax and regulatory environment, efficient transport and logistics systems, and reduced power costs,” he said.
“The sector has shown slower growth, a reduced relative contribution to GDP, and widening competitiveness gaps within the region.”
KAM said in 2025, Kenya’s manufacturing sector continued to show uneven and volatile performance, reflecting the impact of global and domestic pressures.
“While the sector has demonstrated capacity for strong expansion in the past, peaking at 11.3 percent growth in the second quarter of 2021, recent performance has been more constrained. By 2024, manufacturing accounted for 7.3 percent of GDP,” Mr Alando said.
“Despite the difficult operating environment, manufacturing remained a critical pillar of the economy, employing approximately 362,200 people and contributing about 18 percent of total tax revenues.”
KAM said the sector’s 2025 performance can be characterised as resilient but pressured, demonstrating growth potential while remaining highly sensitive to cost structures, energy prices, and broader global economic conditions.
Mr Alando said that compared to previous years, 2025 marked a period of heightened pressure rather than expansion.
He added that over the past decade, the sector’s share of GDP has declined steadily, falling from higher levels in 2015 to 7.3 percent in 2024.
Mr Alando said this performance remains below the ambitious targets set under Kenya Vision 2030, which envisioned manufacturing contributing 20 percent of GDP.
