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Kenya at a Crossroads: The Imperative Of Self-Reliance And Good Governance

BY Steve Biko Wafula · February 4, 2025 03:02 pm

Kenya stands at a pivotal juncture, where the choices made today will significantly influence its future trajectory. The nation’s economic potential is undeniable, yet challenges such as corruption, an unpredictable business environment, and a complex tax system threaten to undermine progress. Addressing these issues is crucial for Kenya to achieve sustainable development and economic self-reliance.

Corruption remains a pervasive issue in Kenya, infiltrating various sectors and hindering economic growth. Transparency International’s 2023 Corruption Perceptions Index ranked Kenya 126th out of 180 countries, highlighting the severity of the problem. This pervasive corruption not only deters foreign investment but also increases the cost of doing business, as companies often encounter demands for bribes and informal payments to ‘get things done’. Such practices erode public trust and divert resources away from essential services and infrastructure projects.

The business environment in Kenya presents a mix of opportunities and challenges. According to the World Bank’s Ease of Doing Business Index 2019, Kenya ranks 56th among 190 economies globally. While this indicates a relatively favorable position, specific areas such as trading across borders (ranked 112th) and registering property (ranked 122nd) reveal significant bureaucratic hurdles. These inefficiencies can discourage entrepreneurs and investors, limiting job creation and economic diversification.

A complex and unpredictable tax system further complicates the business landscape. The Kenyan taxation system encompasses income tax, value-added tax (VAT), customs, and excise duties. Frequent changes and a lack of clarity in tax regulations create uncertainty for businesses, making long-term planning challenging. Simplifying the tax code and ensuring consistency would foster a more predictable environment, encouraging investment and compliance.

The global economy is rapidly evolving, with technological advancements reshaping industries and labor markets. Artificial Intelligence (AI) and digital technologies are at the forefront of this transformation. A report by Microsoft and industry experts emphasizes that Africa, including Kenya, has a unique opportunity to influence the future of work by leveraging AI. However, this requires substantial investment in digital infrastructure and skills development to ensure the workforce can adapt to new technologies.

Kenya’s demographic trends present both opportunities and challenges. The nation has a young and growing population, which could be a significant asset if harnessed effectively. However, high unemployment rates among the youth pose a risk to social stability and economic progress. Protests in recent years have highlighted the frustration of young Kenyans facing limited job prospects and economic hardships. Addressing these concerns through job creation and inclusive economic policies is essential.

The agricultural sector remains a cornerstone of Kenya’s economy, employing a significant portion of the population. However, reliance on primary goods whose prices remain low hampers economic growth. Diversifying into value-added agricultural products and investing in agro-processing industries could enhance income and reduce vulnerability to global commodity price fluctuations.

Infrastructure development is vital for economic self-reliance. While Kenya has made strides in improving its infrastructure, gaps remain, particularly in rural areas. Enhancing transportation networks, energy supply, and digital connectivity can stimulate economic activities, facilitate trade, and attract investment. Public-private partnerships could play a crucial role in mobilizing resources for these projects.

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Education and skills development are critical to preparing the workforce for future challenges. Aligning educational curricula with market needs, promoting vocational training, and encouraging innovation can equip individuals with the skills required in a dynamic economy. This approach will also support the adoption of new technologies and enhance productivity.

Healthcare is another area that demands attention. A healthy population is more productive and can contribute effectively to economic activities. Strengthening healthcare systems, ensuring access to essential services, and addressing public health challenges are fundamental to human capital development.

Environmental sustainability is increasingly important in economic planning. Kenya’s economy is vulnerable to climate change impacts, which can affect agriculture, water resources, and energy supply. Implementing sustainable practices, investing in renewable energy, and promoting environmental conservation can mitigate these risks and support long-term economic resilience.

Regional integration offers opportunities for market expansion and economic collaboration. Engaging actively with regional economic communities can open new markets for Kenyan products, facilitate the movement of goods and services, and attract investment. However, this requires harmonizing regulations, improving infrastructure, and enhancing competitiveness.

Financial inclusion is essential for economic empowerment. Expanding access to financial services, particularly for underserved populations, can stimulate entrepreneurship, enable savings and investment, and reduce poverty. Mobile banking and fintech innovations have shown promise in enhancing financial inclusion in Kenya.

The informal sector constitutes a significant part of Kenya’s economy. Formalizing this sector through supportive policies, access to credit, and capacity building can enhance productivity, increase tax revenues, and improve working conditions. Recognizing and integrating the informal economy into national planning is crucial for inclusive growth.

Trade policies should aim to enhance competitiveness and diversify export markets. Reducing trade barriers, improving product standards, and engaging in strategic trade agreements can boost exports and reduce the trade deficit. Supporting small and medium-sized enterprises (SMEs) to access international markets is also vital.

Public sector reforms are necessary to enhance efficiency and accountability. Streamlining government operations, reducing bureaucratic red tape, and implementing performance-based management can improve service delivery and build public trust. Anti-corruption measures should be strengthened to ensure public resources are used effectively.

Social protection programs can mitigate the adverse effects of economic transitions. Implementing safety nets, unemployment benefits, and support for vulnerable groups can promote social cohesion and provide a buffer against economic shocks. These programs should be designed to be sustainable and targeted to those most in need.

Urbanization presents both challenges and opportunities. Managing urban growth through effective planning, infrastructure development, and service provision can enhance the productivity of cities and improve living standards. Addressing informal settlements and ensuring affordable housing are critical components of urban policy.

Energy security is fundamental to economic activities. Investing in diverse energy sources, particularly renewables, can ensure a stable and sustainable energy supply. This approach not only supports industrial activities but also contributes to environmental sustainability.

Legal and regulatory frameworks should be conducive to business operations. Ensuring property rights, enforcing contracts, and protecting intellectual property are essential for attracting investment and fostering innovation. Regular reviews of laws and regulations can ensure they remain relevant and supportive of economic activities.

Cultural factors also play a role in economic development. Promoting a culture of entrepreneurship, innovation, and accountability can drive economic activities and enhance governance. Public awareness campaigns and education can instill these values in society.

International partnerships can provide support for Kenya’s development agenda. Engaging with development partners, international organizations, and foreign investors can bring in resources, expertise, and market access. However, these partnerships should be aligned with national priorities and promote self-reliance.

Monitoring and evaluation mechanisms are essential for assessing the effectiveness of policies and programs. Establishing robust systems to track progress, identify challenges, and inform decision-making can enhance policy implementation and outcomes.

Public participation in governance can enhance accountability and inclusivity. Encouraging citizen engagement in policy formulation, budgeting, and monitoring can ensure that development initiatives reflect the needs and aspirations of the population.

Addressing inequality is crucial for social stability and sustainable development. Implementing policies that promote equitable access to resources, opportunities, and services can reduce disparities and promote social cohesion.

The role of the private sector is pivotal in driving economic growth. Creating an enabling environment for businesses, supporting SMEs, and fostering public-private partnerships can stimulate investment and job creation.

Agricultural modernization can enhance productivity and income. Adopting modern farming techniques, improving access to markets, and providing support services to farmers can transform the agricultural sector.

Tourism is a significant contributor to Kenya’s economy, yet it remains vulnerable to external shocks such as global recessions and security concerns. To build resilience, Kenya must diversify its tourism offerings beyond wildlife and coastal attractions. Promoting cultural tourism, eco-tourism, and conference tourism can attract a broader range of visitors. Additionally, investing in infrastructure, digital marketing, and security measures will enhance Kenya’s competitiveness as a global destination.

The manufacturing sector, often touted as a key pillar for economic growth, struggles due to high production costs, unreliable energy supply, and regulatory hurdles. According to the Kenya Association of Manufacturers (KAM), manufacturing’s contribution to GDP has stagnated at around 7-9% over the past decade. For Kenya to industrialize, policies must prioritize reducing the cost of production, improving infrastructure, and enhancing access to affordable financing. Additionally, integrating artificial intelligence (AI) and automation can drive efficiency, but this requires upskilling the workforce to match emerging technological needs.

Kenya’s financial sector remains robust but uneven in terms of access and cost. While mobile money platforms like M-Pesa have revolutionized financial inclusion, traditional banking services remain expensive for many. Reports from the Central Bank of Kenya indicate that high-interest rates and stringent lending conditions limit access to credit, particularly for SMEs. Streamlining banking regulations, expanding microfinance options, and leveraging fintech solutions can improve access to finance, enabling businesses to grow and innovate.

Youth unemployment remains one of the most pressing issues facing Kenya. According to the Kenya National Bureau of Statistics (KNBS), youth unemployment hovers around 39%, with thousands of graduates entering the job market annually but finding few opportunities. Without structural reforms to align education with market needs, the country risks wasting its demographic dividend. Vocational training, apprenticeships, and entrepreneurship support programs should be expanded to equip young people with practical skills that match industry demands.

The labor market is also undergoing significant transformations due to the rise of gig work and remote employment. Reports such as the Future of Work by the World Economic Forum highlight that digital and remote jobs will dominate the next decade. Kenya must capitalize on this shift by investing in digital infrastructure, improving internet connectivity, and equipping its workforce with digital skills. If properly harnessed, platforms like Upwork, Fiverr, and Toptal can enable Kenyan professionals to earn globally competitive incomes without leaving the country.

Education reforms are essential for long-term economic transformation. While Kenya’s literacy rate is relatively high, the quality of education often fails to meet industry standards. Reports by the Global Competitiveness Index indicate that Kenya ranks poorly in the quality of math and science education, limiting the country’s capacity to compete in knowledge-intensive industries. Curriculum reforms, teacher training, and investments in STEM education are necessary to prepare students for the future economy.

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Healthcare challenges continue to undermine productivity. According to the World Bank, Kenya loses billions annually due to absenteeism and reduced productivity linked to preventable diseases. Poor healthcare access, high costs, and underfunded public hospitals contribute to inefficiencies in the workforce. The controversial Social Health Insurance Fund (SHIF) is intended to address these issues, but concerns over mismanagement and corruption raise doubts about its effectiveness. Strengthening public health systems, expanding universal healthcare coverage, and ensuring accountability in healthcare financing are critical to safeguarding the workforce’s well-being.

Urbanization is accelerating, with cities like Nairobi, Mombasa, and Kisumu experiencing rapid population growth. However, unplanned urban expansion has led to congestion, inadequate housing, and strained infrastructure. The real estate sector is riddled with speculative investments and rising housing costs, making home ownership inaccessible to many. Government-backed affordable housing projects could help alleviate the crisis, but transparency and proper planning are necessary to avoid pitfalls seen in previous initiatives.

Climate change poses an existential threat to Kenya’s economy, particularly agriculture, which employs over 70% of the rural population. Reports from the UNDP indicate that erratic weather patterns, prolonged droughts, and unpredictable rainfall threaten food security. Without climate-resilient policies, Kenya risks recurrent food crises that destabilize both the economy and social order. Investing in irrigation, climate-smart agriculture, and afforestation projects will help mitigate these risks.

Kenya’s energy sector must transition towards sustainability. While renewable energy, particularly geothermal and wind power, accounts for over 70% of Kenya’s electricity, millions of households remain off-grid. Reports from the International Energy Agency (IEA) indicate that expanding electrification, particularly in rural areas, can unlock productivity and drive industrialization. Moreover, reducing reliance on expensive thermal power plants can lower the cost of doing business and attract manufacturing investments.

Kenya’s public debt continues to be a ticking time bomb. As of 2024, the country’s debt stands at over KES 10 trillion, with debt servicing consuming nearly 60% of government revenue. The IMF and World Bank have repeatedly warned that Kenya is at risk of debt distress. Unless the government adopts prudent fiscal management, renegotiates unfavorable loans, and prioritizes domestic revenue mobilization, the nation faces the possibility of economic stagnation or even default.

The taxation system requires urgent reforms to create a predictable and business-friendly environment. Kenya Revenue Authority (KRA) has often resorted to aggressive tax collection tactics, creating an adversarial relationship with businesses. Instead of overtaxing the formal sector, expanding the tax base by formalizing informal businesses and eliminating loopholes that allow multinational corporations to evade taxes should be prioritized.

Corruption, the elephant in the room, continues to bleed Kenya’s economy dry. The Ethics and Anti-Corruption Commission (EACC) estimates that the country loses at least KES 700 billion annually to corruption. Grand corruption scandals in infrastructure, healthcare, and procurement have eroded public trust. Until decisive action is taken—such as strengthening the judiciary, protecting whistleblowers, and fast-tracking corruption cases—the cycle of impunity will continue to hinder economic progress.

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Regional trade opportunities remain largely untapped. The African Continental Free Trade Area (AfCFTA) presents a massive opportunity for Kenya to expand its exports and integrate into larger value chains. However, infrastructural inefficiencies, non-tariff barriers, and inconsistent policies limit cross-border trade. Harmonizing regional policies, improving logistics, and ensuring Kenyan products meet international standards will be key to benefiting from the AfCFTA.

The informal economy, which accounts for over 80% of Kenya’s employment, needs structured support. While it provides livelihoods for millions, lack of regulation leaves workers vulnerable to exploitation and financial insecurity. Policies that encourage formalization without imposing burdensome regulations can help small businesses thrive while contributing to the tax base.

Public sector efficiency must improve to support economic growth. Government agencies often suffer from bureaucratic inefficiencies that slow down service delivery. Digitizing public services, reducing redundancies, and ensuring accountability in service provision will enhance efficiency and reduce corruption risks.

Kenya’s external relations play a crucial role in economic growth. Strategic partnerships with global economic powers, participation in international trade agreements, and attracting foreign direct investment (FDI) can strengthen the country’s economic resilience. However, these engagements should be structured to avoid exploitation and prioritize national interests.

Innovation and research remain underfunded, yet they are key to long-term growth. According to UNESCO, Kenya spends only 0.8% of its GDP on research and development, far below the recommended 2%. Strengthening research institutions, funding local innovations, and incentivizing private sector involvement in R&D can boost industrial competitiveness.

Lastly, leadership will determine whether Kenya rises or falls. Economic transformation requires visionary leadership that prioritizes long-term prosperity over short-term political gains. Political stability, adherence to constitutional governance, and an empowered electorate that demands accountability will be the ultimate determinants of Kenya’s future.

Kenya must decide: will it embrace bold reforms, self-reliance, and good governance, or will it continue down the path of economic mismanagement and crisis? The choice is urgent, and the time to act is now.

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Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters. He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com

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