CEOs urge State relief package as Iran war drives up firms' costs

Business leaders are now calling on President William Ruto’s government to roll out a comprehensive relief package, including subsidies and lower employee taxes to shield companies from surging energy and import costs triggered by the war in Iran.

This is according to two Central Bank of Kenya (CBK) surveys reviewed by Financial Standard. 

The surveys, conducted in March, show that while most chief executives remain cautiously optimistic about the economy’s medium‑term prospects, the escalating Middle East conflict is pushing up input costs and squeezing profit margins.

Executives are now pressing for urgent state intervention. 

“The conflict is expected to create short‑term pressures through elevated global oil prices, increasing the cost of fuel and energy inputs,” CBK’s March Market Perceptions Survey noted.

Higher energy costs were cited as a key risk to production processes, logistics and transportation, potentially slowing economic activity.  

More than eight out of ten respondents warned that higher fuel prices “pose a significant medium‑term inflation risk, particularly for a fuel‑import‑dependent country like Kenya.” 

In response, CEOs are calling for a mix of tax relief and direct subsidies. Their key demands include a temporary reduction in taxes on oil products to cushion the economy against global shocks, lower employee taxes to boost purchasing power and stimulate domestic demand, and simplification of the tax system to reduce compliance costs. 

The CBK’s March CEOs Survey, which gathered views from more than 1,000 private‑sector leaders, also flagged the rising cost of doing business as a major constraint.  

Respondents pointed to inflationary pressure, high energy prices and persistent tax burdens as the main domestic factors holding back expansion.

Many executives argued that without a state‑backed relief package, the war’s fallout could derail the nascent recovery. 

To ease liquidity pressures, business leaders are also urging the Ruto government to accelerate the settlement of pending bills owed to contractors and suppliers.

“Accelerated settlement of pending government bills to contractors and suppliers would ease pressure on bank balance sheets and support liquidity circulation in the economy,” the Market Perceptions Survey says.

Faster payment of these arrears, executives argue, would inject much‑needed cash into the private sector and stimulate activity. 

Despite the headwinds, the surveys show that firms recorded a better quarter than a year earlier.

The CEOs Survey found that business activity in the first quarter of 2026 remained broadly stable compared with the fourth quarter of 2025, with demand orders holding up and production volumes steady.  

Many firms reported that they are operating below or near full capacity, giving them room to meet unexpected increases in demand.

Sales growth was driven by an expanded product and market portfolio, increased digital marketing efforts and improved branding. 

The better performance was partly due to seasonal factors and the easing of credit conditions following the CBK’s cumulative rate cuts. However, the outlook is mixed.  

While a larger share of CEOs expect an increase in demand orders in the second quarter, production volumes are expected to remain broadly unchanged.

Purchase prices are seen rising further, reflecting higher global commodity prices, but most firms said they would absorb the extra costs to retain customers rather than pass them on. 

Employment expectations, however, remain positive. Most firms expect to increase hiring in 2026 compared with 2025.  

The CBK’s Market Perceptions Survey shows that bank respondents are the most optimistic about hiring, with recruitment aimed at supporting business growth and attracting new talent.

Non‑bank private‑sector firms also expressed optimism across most sectors, with hiring largely intended to support business expansion, replace exiting staff and bring in fresh skills. 

Beyond Kenya, several countries have already moved to shield their economies from the Iran-war shock. Spain approved a €5 billion ($5.8 billion) aid package in March, cutting electricity VAT from 21 per cent to 10 per cent and introducing fuel subsidies of up to €0.30 per litre.  

The European Union is weighing electricity tax cuts and targeted subsidies, while Brazil has expanded fuel tax cuts and subsidies.

Singapore recently raised its corporate tax rebate from 40 per cent to 50 per cent and widened energy‑efficiency grants to help firms manage rising energy and logistics costs. 

The government has already taken a first step. Amid soaring fuel prices, it reduced value-added tax (VAT) on petroleum products from 16 per cent to 13 per cent last week and later to eight per cent for three months, bringing pump prices down by up to Sh10 per litre.

But CEOs say more is needed. Their recommendations, outlined in both surveys, also include promoting transparency in credit pricing to foster fair competition among banks; reducing the number of business operating licences and associated fees; ensuring certainty in tax and levy regulations; and strengthening good governance across the public sector.

Some executives also called for measures to lower the cost of energy, including through direct subsidies.

The CBK conducts the Market Perceptions Survey before each Monetary Policy Committee meeting to obtain perceptions of banks and non‑bank firms on key economic indicators and the CEOs Survey every two months to capture firm‑level views on the business environment.

Both are used to inform monetary policy decisions.