Industry under pressure: Costs bite into Kenyan manufacturers’ margins
A new study by the Kenya Institute for Public Policy Research and Analysis (KIPPRA) highlights a troubling trend: persistently high production costs are eroding profitability for Kenyan manufacturers. While the sector has long been touted as a backbone of GDP growth and job creation, rising expenses—from taxes to energy and imported inputs—are narrowing margins and slowing expansion plans.
Taxation and policy costs weigh on competitiveness
According to the report, corporate taxes, levies, and other policy-induced costs contribute to a higher cost of doing business in Kenya. Manufacturers face a layered tax environment, with value-added taxes on inputs, excise duties, and compliance costs that cumulatively affect cash flow and investment readiness. The study suggests that these fiscal pressures can discourage new capital expenditure and keep efficiency gains from scaling up at a time when regional peers are expanding capacity.
Input prices and exchange rates amplify price pressures
Beyond taxes, the cost of inputs—ranging from raw materials to component parts—has surged in several sectors. Fluctuations in the exchange rate further complicate budgeting for import-dependent manufacturers, causing volatility in unit costs and pricing. When cost structures are volatile, firms may delay modernization or, in some cases, reduce workforce hours to maintain short-term solvency.
Power costs and reliability as a bottleneck
Energy is a recurring theme in the study, with electricity prices and supply reliability cited as limiting factors for production efficiency. For manufacturers that rely on consistent power for production lines and processing, interruptions and costlier kilowatt-hour rates translate into reduced output and higher unit costs. The report argues that improving the energy landscape could unlock meaningful gains in productivity and export competitiveness.
Consequences for profitability and investment
Overall profitability in the manufacturing sector is pressured as costs outpace revenue growth in some sub-sectors. The study notes a deceleration in new plant and equipment investments, with firms prioritizing cost containment and gradual optimization over bold, efficiency-driven expansion. This environment risks slowing employment creation and limiting the sector’s contribution to economic diversification and resilience.
Policy recommendations and potential remedies
KIPPRA’s researchers propose a multi-pronged approach to restore profitability and competitiveness. Key recommendations include simplifying the tax regime for manufacturers, rationalizing levies, and accelerating reforms to reduce the cost of doing business. On energy, the study advocates for predictable tariff structures, improved grid reliability, and targeted subsidies or incentives for energy-intensive industries during peak investment periods. Additionally, improving access to affordable finance, streamlining import processes for essential inputs, and enhancing local supply chains could mitigate input cost pressures.
What this means for business leaders
For executives, the findings underline the importance of scenario planning and hedging against cost shocks. Firms may benefit from strengthening procurement strategies, optimizing energy consumption, and exploring diversification into higher-value-added activities where margins are more resilient. Collaboration with policymakers to design cost-efficient incentives could help restore investment confidence and sustain job creation in the medium term.
Conclusion: A path to sustainable growth
The KIPPRA study serves as a diagnostic of the fundamental cost constraints facing Kenyan manufacturers. By addressing taxation inefficiencies, stabilizing energy costs, and improving input accessibility, the sector can regain momentum, boost profitability, and contribute more robustly to Kenya’s growth trajectory.
