Kenya’s investment landscape continues to face significant obstacles due to high operational costs, according to a new report by the African Development Bank (AfDB). The 2025 Kenya Country Focus Report highlights expensive electricity, costly business registration, and a weak institutional framework as key barriers limiting business growth and investor confidence.
The AfDB notes that registering a business in Kenya costs 15% of the Gross National Income (GNI) per capita, while electricity costs stand at USD 0.15 per kilowatt-hour figures that rank among the highest in the region. These factors are hampering the expansion of business capital, particularly for Micro, Small, and Medium Enterprises (MSMEs), which account for 75% of the private sector and contribute 40% to the country’s GDP.
The report further reveals that MSMEs face limited access to affordable credit due to high interest rates, stringent collateral requirements, low financial literacy, and inadequate rural banking services. Government-run funds such as Uwezo and Hustler Fund are said to be insufficient in meeting the capital needs of budding entrepreneurs.
To address these challenges, AfDB recommends expanding access to affordable financing, digitizing table banking systems, simplifying business regulations, lowering service fees, and boosting awareness of funding options.
Beyond financial constraints, institutional weaknesses such as corruption, slow judicial processes, and ‘State capture’ are also deterring investors. The report highlights judicial inefficiency and unpredictable tax policies including recent increases in capital gains tax and the introduction of digital asset levies as major risks for businesses. These frequent changes create compliance burdens and undermine investor confidence.
Despite these challenges, the Kenyan economy showed modest growth, expanding by 4.9% in the first quarter of 2025, driven by agriculture and manufacturing. This follows a 4.6% growth rate in 2024, down from 5.6% in 2023, affected by low investment and climate-related shocks. However, inflation has dropped to 4.5%, and a stronger shilling has enabled monetary easing.
Looking ahead, the AfDB sees potential for recovery through improved macroeconomic conditions, stable weather, lower lending rates, and declining global oil prices. It urges reforms such as mobile-based tax filing and refinancing expensive debt to boost long-term growth and investor confidence.
