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Navigating tariff tempest: Kenya’s moment of truth
The surge in trade policy uncertainty following successive waves of US tariffs has led to a volatile financial environment, characterised by capital flow pressures and heightened global risk aversion.
As global uncertainty deepens amid rising tariffs and geopolitical fragmentation, Kenya remains one of sub-Saharan Africa’s more resilient economies.
While we remain cautiously optimistic of Kenya’s outlook, there is need for strategic action as downside risks persist.
Kenya’s economy is expected to expand by 5.5 percent in 2025, up from 4.5 percent in 2024, driven by monetary easing, a stable currency, and strong remittances.
However, recent 10 percent US tariffs on all imports, imposed in April this year, have cast a shadow over the country's most valuable export corridor, apparel, under the African Growth and Opportunity Act (Agoa).
Data shows Kenya exported goods worth over $737.3 million to the US in 2024, down 17 percent from 2023, while imports from the US surged to $782 million.
Of these exports to the US, nearly 70 percent are apparel exports thereby making the tariff impact significant. Furthermore, Kenya is the second-largest SSA exporter of textile and apparel products to the US under Agoa.
Kenya’s textile and apparel sub-sector directly employs over 66,000 people and 150,000–200,000 workers indirectly.
But the dual threat of Agoa’s looming expiration (set for September 2025) and rising US protectionism is prompting policymakers to pivot.
The government is intensifying regional trade integration efforts through AfCFTA, EAC and Comesa, while also reviving domestic cotton production and textile manufacturing to reduce dependency on US buyers.
In April 2025, industry leaders and the State Department for Investment Promotion convened to strategise around Agoa extension, cost competitiveness and new market entry.
A shift is also underway to expand Kenya’s export offerings to include macadamia nuts, where Kenya ranks among the world’s top five exporters. At present, Kenya is targeting greater penetration into Asian and European markets, alongside traditional US buyers.
Kenya’s banking sector has weathered many storms and fared better than many of its SSA peers. However, global financial risks are intensifying.
The surge in trade policy uncertainty following successive waves of US tariffs has led to a volatile financial environment, characterised by capital flow pressures and heightened global risk aversion.
In this context, Kenyan banks must maintain strong liquidity buffers to absorb any shocks arising from sudden capital outflows and/or possible exchange rate volatility.
At the same time, banks must continue supporting domestic credit growth, particularly to export-driven industries and small businesses.
An over-reliance on government securities to manage risk, though prudent in the short term, risks crowding out credit to the real economy if left unchecked.
There is a growing need for banks to also introduce more sophisticated financial products, including currency hedging, supply chain finance, and trade credit insurance, to help businesses navigate the new volatility in global trade and finance.
Navigating a fragmented economy
In its April 2025 World Economic Outlook, the International Monetary Fund's (IMF’s) global projections reflect deepening geo-economic fragmentation.
Since 2022, trade flows between geopolitical blocs have declined by more than 2.5 percentage points compared to intra-bloc trade. The new tariffs have accelerated this trend.
Kenya, a globally connected economy, must therefore respond by rapidly expanding regional trade ties, investing in local manufacturing capacity, and building resilience against external shocks.
The IMF’s projections show global Gross Domestic Product growth slowing to 2.8 percent in 2025, down from 3.3 percent in 2024, with global trade volume growth expected to slow sharply to just 1.7 percent.
The economic headwinds Kenya faces are therefore real, particularly given its openness to international trade. However, strategic responses can turn these challenges into opportunities.
For Kenya, this means crafting more bilateral deals, i.e. with the US, to preserve access amid the shifting rules of global commerce to protect critical exports.
Safeguarding liquidity and ensuring banks continue lending to the private sector will be equally essential.
Furthermore, accelerating industrial upgrading, promoting value-added agriculture, and expanding regional market linkages will be key to sustaining growth.
Kenya must also broaden the availability of financial risk management tools to shield exporters from currency and market volatility.
Despite the turbulence, Kenya is better positioned than many other emerging markets, supported by a strong financial system, proactive policy frameworks and a diversified economic structure. Yet resilience will require active adaptation.
In a world of fragmented trade, high uncertainty, and tightening financial conditions, the country’s ability to move decisively will determine whether it merely endures or thrives.
