Once vaunted as East Africa’s export nerve center, Kenya now lags behind a growing cadre of nimbler African economies such as Mozambique, Rwanda, Senegal, and Cameroon in global export competitiveness.
- •Kenya’s African Transformation Index (ATI) rating for export competitiveness has sunk from 7.9 to 4.7 over the past two decades, according to a joint report by the African Center for Economic Transformation and the Kenya Institute for Public Policy Research.
- •Despite years of policy declarations about diversification, the number of distinct products Kenya has exported has plateaued, and access to new markets has been marginal.
- •The report warns that unless Kenya prioritizes diversification, export performance, productivity, and technological integration, it risks becoming a cautionary tale of growth without change.
“The lack of sophistication, narrow range of export products, and evidence of self-selection (with only the most productive firms venturing into the export market) limit the country’s effort to engage in more complex exports that could improve the country’s competitiveness,” the report noted.
According to the new data showing a staggering 40% decline in the country’s export competitiveness, five traditional export commodities including tea, flowers, coffee, refined petroleum, and gold account for 45% of total export earnings, down from 59% in 2000.
The services sector grew to 58.5% of GDP by 2018, but this expansion failed to drive economic transformation, as manufacturing remained flat at 10% of GDP, and agro-processing MSMEs are stuck in low productivity and remain isolated from global value chains.
To boost export competitiveness, Kenya has been urged to harness its geothermal potential to lower energy costs and develop industrial parks that use geothermal electricity and heat as direct industrial inputs. Complementary strategies include revising export policies, nurturing diversification in productivity, and leveraging AfCFTA to expand manufacturing and exports.
Critically, most of Kenya’s micro, small, and medium enterprises (MSMEs) are geared towards satisfying domestic demand, with only a few taking export ambitions and innovation seriously. This is not entirely their fault as Kenya is plagued with regulatory barriers, credit constraints, infrastructure gaps, and volatile policy environments that impede opportunities to scale-up.
Despite the proliferation of export zones and business incubators, the domestic business environment remains inhospitable for transformative enterprise. High input costs, policy uncertainty, and complex licensing processes deter potential exporters.
Productivity and Training
Kenya’s performance on productivity is similarly weak, with a score of 7.7, ranking the country 22nd out of 30 African peers in African Transformation Index (ATI) productivity metrics. Job creation is heavily tilted toward the informal sector, which now accounts for over 83% of employment. These jobs tend to be poorly paid, precarious, and unproductive.
High-growth sectors such as finance and ICT generate few employment opportunities, while traditional sectors like agriculture continue to absorb labor with little productivity.
Educational disparities compound the issue. Women represent only 29.2% of science, technology, engineering, and mathematics (STEM) workers, and female participation in technical and vocational training is significantly lower than male counterparts. As a result, the pipeline of skilled labor needed to modernize industry and adopt higher technologies remains underdeveloped.
Industrial expansion in Kenya is also limited by the scarcity in practical skills needed to spur productivity. In response, both the government and industry associations have stepped in with training programs and machinery support, though these efforts remain constrained by limited resources.
“Although MSME owners frequently invest in in-house training or upskilling to bridge this gap, the process is both time-consuming and financially burdensome. Tertiary education often focuses on theoretical knowledge, using outdated teaching materials and consequently failing to meet industry needs,” the report stated.
In human development, Kenya has made some strides as its well-being score on the ATI has risen by 13.2 points since 2000. Despite this progress, many new jobs lack stability, benefits, or formal protections. Working conditions in manufacturing MSMEs remain poor, and gender disparities still persist. Welfare-enhancing measures exist in some firms but are relatively sparse and poorly enforced.
Recent reforms, including the 2019 Competence Based Curriculum Policy and the 2024 National Skills Development Policy, aim to close the skills gap by drawing industry directly into the design, delivery, and assessment of education. The new curriculum has drawn criticism over the years for being too detached from the material realities of Kenyan schools, which continue to face shrinking allocation of funds and little investment.
What Kenya Can Do to Stem the Tide
The report also notes that Kenya scores above the continental average in terms of technological upgrading, buoyed by progress in ICT infrastructure and its burgeoning digital services sector. However, these gains are uneven as most MSMEs continue to operate with outdated equipment. The penetration of fifth-generation technologies is limited to urban areas, while many rural businesses still use second-generation tools.
A key constraint in tech adoption is affordability of high-cost equipment, compounded by the limited access to leasing or credit arrangements. While the government has developed a National Digital Masterplan and invested in 5G infrastructure, uptake among smaller businesses remains marginal. The report also highlights the disproportionate challenges faced by women entrepreneurs in acquiring and using technology due to financing gaps and digital illiteracy.
For Kenya to improve its tech adoption and live up to its ‘Silicon Savannah’ tag, the report suggests a mix of targeted interventions including equipment leasing, tax incentives for machinery purchases, and integration of the informal manufacturing sector into formal value chains. The government must also fund open innovation platforms, hackathons, and AI pilot programs while strengthening IP infrastructure and supporting local fabrication of affordable, gender-inclusive technologies.
The report suggests establishing one-stop shops at the county level for MSME licensing, reforming the microfinance sector to deliver affordable loans, and creating a real-time digital platform for business support services.
Long-term reforms call for a national MSME financing strategy, development of a raw materials’ policy, and stronger intellectual property frameworks. The government has been urged to provide targeted export support for women-owned firms, including market training, subsidies, and trade fair sponsorships.
The economic gains of the early 2000s, including GDP growth rates that peaked at 8.1% in 2010 and 7.6% in 2021, now stand in stark contrast to a faltering transformation agenda. With youth unemployment rising, export earnings stagnating, and productivity declining below previously weaker African economies, Kenya must decide whether to continue down a path of shallow expansion or embrace the deeper but more difficult work of structural transformation.
