The 2026 OECD Peer Review of Competition Law and Policy presents a compelling paradox at the heart of Kenya’s economic trajectory- a structurally diversified, regionally dominant economy constrained by persistent regulatory rigidities.
- •As of early 2025, Kenya’s GDP stood at approximately US$ 132 billion, with growth of 4.8% in 2024.
- •The services sector, accounting for 54% of value added and 45% of employment- anchors economic transformation, while agriculture remains indispensable, sustaining over 70% of the rural population.
- •Yet beneath these numbers lie a structural inefficiency, a competition framework that has not kept pace with the evolving complexity of the economy.
The OECD characterizes Kenya’s regulatory environment as “restrictive,” with limited progress over the past decade. This is reflected in a Product Market Regulation (PMR) score of 2.92- well above the average for peer middle-income economies- indicating elevated barriers to entry and a significant state footprint in commercial activity.
At the centre of this distortion is the scale of state participation. Kenya currently has over 200 State-Owned Enterprises (SOEs), many operating in competitive sectors. The OECD notes that this raises concerns of “market distortions and potentially crowding out private operators.”
In an increasingly competitive global economy, the ability of markets to remain open, contestable, and efficient will ultimately determine Kenya’s long-term competitiveness.
From a macroeconomic standpoint, this structure creates allocative inefficiencies. Capital is not necessarily flowing to its most productive use, while private sector dynamism- particularly in high-growth sectors such as ICT, logistics, and professional services- is constrained.
The most consequential insight from the OECD review is not diagnostic- but perspective. Targeted pro-competition reforms present a clear and quantifiable growth dividend. Reducing barriers in foundational sectors such as electricity and professional services could increase annual GDP growth by approximately 0.55 percentage points.
More significantly, broader reforms- particularly those addressing trade and investment frictions- could raise real GDP by 4.9% and expand formal employment by 2.6% by 2035.
This is not marginal upside- it is structural transformation. Competition reform represents one of the most underleveraged policy tools available to Kenya today, capable of delivering productivity gains, enhancing firm-level efficiency, and catalyzing inclusive growth without imposing additional fiscal pressure.
One of the most pragmatic recommendations is to “ringfence” CAK funding, insulating its budget from fluctuations tied to fines and fee revenue, and providing the stability required for long-term oversight.
However, realizing this upside hinges on institutional capacity- specifically, the effectiveness of the Competition Authority of Kenya (CAK). While Kenya has established a “modern competition regime,” enforcement remains underdeveloped. Activity has been limited, with a reliance on settlements, low penalties, and weak deterrence effects.
Critically, the CAK’s budget and staffing levels are “low by international and regional standards,” constraining its ability to undertake high-impact enforcement in complex markets.
This creates a policy disconnect, the legal framework exists, but enforcement credibility- arguably the most important signal to markets- remains weak. One of the most pragmatic recommendations is to “ringfence” CAK funding, insulating its budget from fluctuations tied to fines and fee revenue, and providing the stability required for long-term oversight.
A further structural tension lies in how Kenya evaluates mergers. Current practice places significant weight on “public interest” considerations- particularly employment protection- often at the expense of pure competition analysis. While socially intuitive, this approach risks undermining long-term market efficiency.
The OECD recommends narrowing or separating public interest considerations to ensure merger assessments remain anchored in competition principles- efficiency, consumer welfare, and market contestability.
In an increasingly competitive global economy, the ability of markets to remain open, contestable, and efficient will ultimately determine Kenya’s long-term competitiveness.
