A Comparative Analysis of Policy and Regional Friction (2025 – 2026)

By Abdul Bagha | Managing Partner, Innovus Risk and Advisory LLP | Founding Partner, WONE Global

I have spent over 28 years in the finance profession. Most of that time was spent as an external auditor working for mid to large-sized audit firms, navigating the inner workings of everything from SMEs to large conglomerates across banking and insurance, retail trading and manufacturing, and the NGO sector. I also had the privilege of serving as a Group CFO for a major FMCG group for four years.

Throughout these nearly three decades, I have been a first-hand witness to the changing pulse of the Kenyan boardroom. In the mid-2000s, conversations were defined by enthusiasm – hopeful, aggressive, and expansionist. Today, that tone has shifted. The prevailing mood in 2026 is one of apathy and caution.

While the cost of doing business has skyrocketed, consumer purchasing power has evaporated. We are witnessing a pincer movement: businesses cannot afford to produce, and customers cannot afford to buy.

THE TURNING POINT

The Covid-19 Pandemic was a catalyst, not just a disruptor. It forced a brutal frugality upon us. Remote work – once a fringe concept – became the standard, and business owners began a permanent realignment toward “cautious spending.”

However, external shocks were only part of the story. Our internal fiscal environment has been equally punishing. By late 2025, Kenya’s foreign debt commitments reached approximately $40 billion. The weight of servicing this debt, coupled with the persistent shadows of wasteful spending and corruption, has created a suffocating environment for the private sector.

 The Great Migration: Why Are Brands Leaving?

As of January 2025, over 200 companies were listed for dissolution. This included icons like CMC Motors and D.T. Dobie – names that have been synonymous with the Kenyan landscape since pre-independence.

The exodus isn’t just local; global giants are also leaving. Brands like Procter & Gamble, GSK, and Bayer have scaled back or exited, moving toward neighbours like Tanzania, Uganda, Rwanda, and Ethiopia.

What is driving this capital flight? To understand that, we must look at the “Friction” between Kenya and its neighbours.

Kenya Vs Our Neighbours: The Strategic Value Proposition

In 2026, Kenya remains the “Gateway to East Africa,” but it is a gateway with a high toll. We offer the most mature talent pool in the
region – specifically in Fintech and AI – and our infrastructure (like the Naivasha dry port) is world-class.

However, policy sophistication is being undermined by structural operating costs.

      1. The Energy Bottleneck

Energy is the lifeblood of manufacturing, and currently, Kenya’s cost of energy is too high

• Kenya: $0.10 – $0.20 per kWh
• Ethiopia: $0.003 – $0.06 per kWh
• Uganda: $0.065 per kWh (for large industry)

Despite having 950 MW of geothermal capacity, historical contracts and grid expansion costs mean the “green energy dividend” hasn’t reached the end-user. Meanwhile, Tanzania and Uganda are using power pricing as an aggressive competitive weapon to lure manufacturers away from Nairobi.

      2. The Labour and Logistics Gap

Kenya has the region’s most structured labour market, with a minimum wage between $117 and $145. While this supports a middle class, it creates a cost disadvantage against Ethiopia, where labour costs are roughly 25% of the value-added per worker.

Furthermore, the pump is punishing the producer. Retail fuel in Nairobi (approx. $1.42/L) remains significantly higher than in Dar es Salaam ($1.07/L) or Addis Ababa ($1.10/L). This flows directly into the price of every loaf of bread and bag of cement moved across the country.

      3. Cost of Living: The Benchmark Commodities

To understand why the consumer is struggling, we only need to look at the “Big Three” commodities. In 2026, the price divergence is stark:

4. Business Environment

The ease of doing business in East Africa is influenced by regional trade agreements and the elimination of non-tariff barriers. Rwanda continues to lead the region in business sentiment, though Kenya remains a preferred hub for ICT and financial services.

Kenya’s corporate income tax (CIT) remains unchanged at 30 percent, though the government has introduced an Alternative Minimum Tax (AMT) of 2.5 percent of turnover to ensure a minimum tax contribution from loss-making entities. Tanzania has also doubled its AMT rate from 0.5 percent to 1 percent for companies with unrelieved losses for three consecutive years.

The Geopolitical Wildcard

Regional integration is deepening through a “tripartite” alliance of Kenya, Rwanda, and Uganda, focusing on open borders. This has been a saving grace for many, allowing Kenyans to work in Rwanda for up to six months visa-free.

However, global headwinds are picking up. The U.S. “Liberation Day” tariff package of April 2025 has disrupted global value chains. While the direct hit to East Africa is manageable, the resulting uncertainty is dampening the appetite for long-term industrial investment in 2026.

Strategic Conclusions: A Choice of Two Paths

The East African economic frontier in 2026 is a theatre of fierce competition.

• Ethiopia is the growth engine (despite currency volatility).
• Tanzania and Uganda are leveraging cheap power to challenge our industrial dominance.
• Rwanda has become the region’s most efficient administrative hub.

Kenya is at a crossroads. We are currently a high-cost service economy trying to compete in a region that is winning the war on structural costs. For policymakers, the Bottom-Up Economic Transformation (BETA) agenda and tax reforms must move beyond mere revenue mobilization. If we do not reduce the cost of power, fuel, and logistics, we will continue to see a reallocation of industrial capital to our neighbours. The next two years will determine if Kenya reinvents itself as a competitive hub or remains a sophisticated but expensive spectator in its own backyard.

For more clarification or personalized sensitization/Training on the above taxes get in touch with us at info@innovus.co.ke or 0712812812 / 0732812812.