Kenya faces a pivotal moment in its economic trajectory. The recently released Economic Survey 2025 paints a concerning picture regarding the manufacturing sector’s performance, a crucial pillar for sustained development and prosperity.
The data reveals a substantial contraction in the sector’s contribution to the gross domestic product (GDP), plummeting from about 12 percent in the 2012-13 fiscal year to a disconcerting 7.2 percent in 2024.
This significant decline is more than just a statistical anomaly; it fundamentally jeopardises Kenya’s long-term ambitions for a comprehensive structural transformation of its economy and presents a formidable challenge to the nation’s capacity for job creation, particularly for its burgeoning youth population, and the pursuit of inclusive economic growth that benefits all segments of society.
While there have been modest indicators of recovery within the sector in 2024, including an output growth of 4.4 percent and a marginal 1.9 percent increase in employment, these nascent signs of progress are unfortunately overshadowed by the urgent and critical need for decisive and impactful policy interventions.
These interventions must be robust and strategically designed to not only sustain the current recovery but, more importantly, to fundamentally reverse the downward trend that has characterised the manufacturing sector over the past decade.
Without such bold action, the potential for manufacturing to serve as a key driver of economic advancement and social well-being in Kenya remains severely constrained.
To effectively rejuvenate Kenya’s manufacturing landscape and unlock its latent potential, the nation must prioritise the development and implement a comprehensive and forward-looking industrial policy.
This policy framework must not be a mere collection of isolated initiatives but rather a cohesive and integrated strategy that incorporates proven methodologies and best practices gleaned from international experience, and thoughtfully adapted to the specific and unique challenges confronting Kenya.
By meticulously studying and drawing valuable lessons from the successes of other nations, such as Vietnam, which has demonstrably revitalised its manufacturing sector through well-calibrated strategic interventions, Kenya can and should chart a proactive and ultimately rewarding course towards industrial resurgence.
The case of Vietnam offers a particularly compelling and instructive example of how strategic government policies can catalyse a remarkable transformation in the manufacturing sector. In 2024, Vietnam’s manufacturing sector made a substantial contribution of about 16.6 percent to its GDP, demonstrating a robust and sustained growth trajectory.
The country achieved impressive export figures, surpassing $400 billion underpinned by a remarkably diversified export portfolio of high-value goods such as electronics, textiles, and agricultural products. Vietnam’s rapid and successful industrialisation can be largely and directly attributed to deliberate and strategic government policies.
These policies include significant state-supported financing mechanisms aimed at fostering industrial development, implementing measures to ensure competitive energy costs for manufacturers, and a steadfast commitment to the liberalisation of its market to attract domestic and foreign investment.
Vietnam has strategically emphasised the integration of its small and medium-sized enterprises (SMEs) into global supply chains. This has enhanced its competitiveness on the international stage and contributed to the overall dynamism of the manufacturing ecosystem.
Drawing inspiration from successful models and tailored to Kenya’s specific context, several key policy reforms are paramount for the revival of the nation’s manufacturing sector.
First, addressing energy costs is paramount. A fundamental obstacle hindering the competitiveness of Kenya’s manufacturing sector is the high cost of electricity. Kenyan manufacturers grapple with electricity prices that outstrip those faced by their regional competitors such as Tanzania and Egypt.
To cultivate a more attractive and viable operating environment for manufacturers, decisive action is required within the power sector. This includes pursuing full liberalisation and drawing lessons from the successful reforms in the telecoms sector in the late 1990s.
Such reforms can inject much-needed competition into the energy market, leading to lower prices and greater reliability in energy supply. This, in turn, would be a significant draw for investment, particularly in energy-intensive industries that are crucial for a diversified manufacturing base.
Second, access to affordable capital is crucial. The ability of manufacturers, especially SMEs, to access financing at reasonable rates and with suitable tenors is essential for investment in technology upgrades, expansion of production capacity, and overall growth.
The government’s domestic borrowing practices must be reviewed and revised to mitigate the unintended consequence of crowding out credit available to the private sector.
This is crucial to ensure that manufacturers have access to the financial resources they need.
Significant reforms to the Kenya Development Corporation are essential to transform it into an effective institution capable of facilitating the provision of long-term loans with single-digit interest rates tailored to the unique needs and timelines of industrial development projects.
Historical analysis of the developmental trajectories of countries like China and Vietnam underscores the pivotal role that state-backed financing has played in driving industrial modernisation and fostering a vibrant and dynamic SME sector, which forms the backbone of a robust manufacturing ecosystem.
Third, reducing the cost of doing business through regulatory simplification is necessary. Kenya’s manufacturing sector is currently burdened by a complex and often overlapping web of county levies and various trade barriers that significantly hinder its overall competitiveness.
Streamlining these cumbersome processes, eliminating redundant regulations, and removing these fragmented impediments will be essential to creating a unified and seamless national market. This will provide manufacturers with the necessary scale and efficiency in their operations to thrive in an increasingly competitive global landscape.
Kenya’s manufacturing sector stands on the precipice of a potentially transformative turnaround. However, realising this potential requires unwavering courage, a strong sense of commitment, and effective collaboration from all key stakeholders, including the government at all levels, the private sector representing businesses of all sizes, and a vibrant and engaged civil society.
To transform Kenya from a nation heavily reliant on imports to a competitive and dynamic manufacturing powerhouse that can compete on the global stage, the time for decisive and impactful action is now.
The writer is a public policy expert and former CEO at Kenya Association of Manufacturers (KAM).
