NAIROBI, Kenya, July 10 – For decades, Kenya has enjoyed a reputation as East Africa’s investment gateway, attracting multinational corporations with its strategic location, relatively sophisticated financial sector, modern transport infrastructure and access to a regional market of more than 300 million people.
But that advantage is no longer guaranteed.
Across Africa, countries such as Rwanda, Tanzania, Ethiopia and Egypt are aggressively positioning themselves as investment destinations through cheaper energy, tax incentives, improved infrastructure and streamlined regulation, intensifying competition for foreign direct investment (FDI).
As governments across the continent compete for global capital, a growing question is emerging among investors: Can Kenya still compete?
While the country remains one of Africa’s largest economies and continues to attract multinational firms seeking a regional base, economists and business leaders say high electricity costs, an unpredictable tax regime and bureaucratic inefficiencies are steadily eroding Kenya’s competitiveness.
The debate comes as President William Ruto’s administration pursues export-led industrialisation under the Bottom-Up Economic Transformation Agenda, banking on increased investment to drive manufacturing, create jobs and expand exports.
According to the World Bank, Kenya attracted an estimated $1.5 billion (Sh194 billion) in foreign direct investment in 2024. Although respectable, the figure trails Ethiopia, which has consistently attracted larger inflows through industrial parks, manufacturing incentives and major infrastructure investments.
Kenya’s advantage
Despite growing competition, analysts say Kenya retains structural strengths that many regional competitors are still trying to build.
The Port of Mombasa remains East Africa’s busiest seaport, while Jomo Kenyatta International Airport serves as one of Africa’s leading aviation hubs.
Together with the Standard Gauge Railway, an expanding road network and one of the continent’s most developed banking sectors, they continue to make Kenya an attractive regional headquarters for multinational corporations.
“Kenya is Investing over 180 billion in modern roads, including the 223-km Nairobi-Nakuru-Mau Summit and Nairobi-Mai-Maju-Naivasha dual carriageways through public-private partnerships,” the President said during the Jamhuri Day celebrations on December 12, 2025.
“In 2026, the Standard Gauge Railway will extend from Naivasha to Kisumu and Malaba, alongside the Eldoret-Uganda oil pipeline, opening new transport corridors across the region,” he added.
The country also boasts a relatively skilled workforce, vibrant technology ecosystem and access to both the East African Community and COMESA markets.
These advantages have enabled Kenya to remain the preferred regional base for hundreds of international companies.
But investors increasingly argue that geography alone is no longer enough.
Rising cost of doing business
The biggest concern raised by manufacturers is cost.
Electricity remains among the most expensive production inputs in Kenya, significantly increasing operating expenses for industries competing in international markets.
Commercial consumers pay up to Sh24 per kilowatt-hour, compared to approximately Sh13.06 in South Africa, Sh12.25 in Tanzania and roughly Sh2.56 in Ethiopia.
For exporters selling into highly competitive global markets, those differences can determine where factories are located.
Sunripe Vertical Agro Managing Director Tiku Shah says manufacturers cannot simply pass higher production costs on to overseas buyers.
“If power costs go up, we can’t simply increase prices because most exporters are locked into supply contracts. We therefore need government support through the right policy instruments to remain competitive.”
He argues that lowering electricity costs would immediately improve Kenya’s competitiveness by reducing production costs for exporters.
Recognising mounting concerns, the Ministry of Energy has proposed removing foreign exchange adjustment charges while suspending a planned electricity tariff increase of between 14 and 31 percent in an effort to cushion households and businesses.
Uncertainty over taxes
Beyond energy costs, businesses say frequent tax changes have made long-term investment planning increasingly difficult.
Manufacturers argue they shoulder a disproportionate share of Kenya’s tax burden.
According to the Kenya Revenue Authority, the manufacturing sector contributed Sh462 billion in taxes during the 2025/26 financial year, up from Sh423 billion the previous year, making it the country’s single largest taxpayer.
Mentoria Economics Chief Economist Ken Gichinga says the country’s tax burden is closely linked to years of heavy public borrowing.
“Kenya’s high tax regime is born out of a history of heavy government borrowing which demands high debt service. Heavy borrowing crowds out the private sector by taking away much-needed credit from the productive arms of the economy.”
He says repeated tax increases eventually become counterproductive.
“The subsequent high taxation is often inflationary and market-distorting, and eventually pushes people to find cheaper substitutes, sometimes in the informal black markets.”
Instead of imposing additional taxes on compliant businesses, Gichinga argues that government should broaden the tax base while reducing borrowing.
“Implementing a progressive tax base can spur entrepreneurship and boost the economy.”
Competitive regional rivals
Kenya’s biggest challenge may not be its own policies alone, but the speed at which competitors are improving.
Rwanda has built a reputation for predictable regulation, rapid business registration and efficient public services, making it one of Africa’s strongest performers on ease-of-doing-business indicators.
Tanzania has invested heavily in ports, railways, roads and power generation while maintaining lower electricity costs for industry.
Ethiopia has transformed itself into one of Africa’s leading manufacturing destinations through industrial parks, abundant low-cost electricity and large-scale logistics investments centred around Addis Ababa.
Egypt, meanwhile, continues to leverage its vast domestic market, industrial free zones, export incentives and the strategic Suez Canal to attract manufacturers targeting Europe, the Middle East and Africa.
According to Gichinga, these investments are steadily narrowing Kenya’s traditional advantage.
“These countries are putting up strong investments in strategic infrastructure such as airports, meetings and conferences facilities that boost tourism and productivity. On the other hand, Kenya is spending more on affordable housing than on roads.”
Bureaucratic obstacles
Investors also point to bureaucracy as an increasingly costly barrier.
Despite reforms aimed at improving the ease of doing business, lengthy approval processes, overlapping regulatory requirements and delays in obtaining licences continue to increase operational costs.
Gichinga believes governance challenges remain a significant drag on competitiveness.
“Conflict of interest is a major challenge in Kenya, where projects are pursued for private interest than for public good. This gravely undermines the national agenda and reduces the competitiveness of the country.”
He also argues that better policy coordination could unlock greater domestic production.
“Kenya is always importing grain such as wheat and rice even when the country has so much idle land that could easily feed the country and even have enough for export.”
Utake Coffee Chief Executive Officer Mbula Musau says exporters continue to lose valuable time navigating administrative processes that delay shipments and increase costs.
He says simplifying export procedures and improving coordination among government agencies would significantly enhance Kenya’s competitiveness in international markets.
So, can Kenya still compete?
Economists argue the answer is yes—but not indefinitely without reform.
Kenya still possesses many of the ingredients investors seek: political influence within the region, a sophisticated financial sector, a growing consumer market, strong logistics infrastructure and an experienced workforce.
Yet those strengths are increasingly being offset by higher operating costs and policy uncertainty.
As Rwanda improves regulatory efficiency, Ethiopia expands manufacturing capacity, Tanzania lowers production costs and Egypt strengthens industrial incentives, Kenya can no longer rely solely on its historical position as East Africa’s commercial hub.
Maintaining that status will require more than geography. It will depend on whether the country can reduce the cost of doing business, deliver predictable tax policies, improve regulatory efficiency and invest in infrastructure that directly enhances productivity.
In the increasingly competitive race for global capital, economists say Kenya still has the fundamentals to remain a regional investment leader—but only if policy begins to move as quickly as its competitors.
