Reduced incomes, cash-starved private sector strain economy

Kenyans are grappling with reduced disposable income as increased statutory deductions and higher taxes—both direct and indirect—weaken their spending power.

On the other hand, businesses have also been cash-starved on account of a tough operating environment that include non-payment of pending bills by the government as well as sluggish demand for products.

The result has been that nearly all the economic sectors grew at a slower pace last year.

According to the ="https://www.standardmedia.co.ke/amp/opinion/article/2001518661/the-latest-economic-survey-says-a-lot-on-rutos-presidency">Economic Survey 2025<, the economy grew at a slower rate of 4.7 per cent compared to 5.7 per cent a year earlier, weighed down by tighter monetary policies, high energy and food prices. 

The number of jobs created by various sectors stood at 782,000 in 2024, a decline from 801,800 that were created in 2023, reflecting the slow down in major sectors. 

The drop in jobs created last year was despite an expected boom for the construction sector, which was set for an expansion as the government continued the rollout of its Affordable Housing Programme.  The sector contracted by 0.7 per cent last year from a growth of three per cent in 2023 . 

Key inputs

Credit from commercial banks to the construction sector also dropped to Sh528 billion last year from Sh602.7 billion in 2023.

“The contraction was reflected in the decline of key inputs such as cement and iron and steel imports in the construction sector,” reads the Economic Survey in part, which also noted the number of houses that the government construction reduced by 50 per cent when compared to what it delivered in 2023. 

“In addition, the number of residential housing units completed by the State Department for Housing declined from 3,357 units in 2023 to 1,655 units in 2024.”

The sector faces more hurdles should proposals made in the Finance Bill 2025 go through.

In the Bill that will be subjected to public participation in the coming days, the National Treasury has proposed removing the tax exempt status of supplies to the affordable housing programme.

It has, however, proposed lowering the export and investment levy for steel bars used in construction from 17.5 per cent to five per cent, a move expected to play a part in lifting the construction sector but benefits might be eroded by high taxes on supplies to affordable housing projects.

The information and Communication sector recorded a decelerated growth of seven per cent last year. This is compared to a growth of 10.3 per cent in 2023.

Agriculture, which last year increased its contribution to Kenya’s economy to 22.5 per cent from 21.5 per cent in 2023, also faltered.

The sector registered a slower growth of 4.6 per cent, which is in comparison to a growth of 6.6 per cent in 2023.

The Economic Survey attributed this to varied weather patterns last year, noting that while the long rains were above-average, short rains were below average, leading to mixed performance of the various crops”.

This had the impact of ="https://www.standardmedia.co.ke/national/article/2001518377/maize-production-in-2024-drops-despite-govt-claims-of-record-harvest">reducing maize production< in the country by 6.1 per cent to 44.7 million 90 kilogramme bags in 2024 from 47.6 million bags in 2023.

Maize is a staple in Kenya but the local production has over the years been unable to meet demand and the country always resorts to importation to bridge the shortfall. The drop in production last year was despite subsidised fertiliser to farmers that was expected to increase production.

Other food crops that declined include potatoes, whose production dropped from 2.3 million tonnes to 2.2 million tonnes in 2024.

Manufacturing, which has for years been tipped to have immense potential but which the country has been unable to tap, grew 2.8 per cent last year, a faster growth than 2.2 per cent recorded in 2023.

Ambitious plans

Manufacturing is seen as key to growing employment and houses many micro, small and medium enterprises, which are key for the government Bottom-Up Economic Transformation Agenda (Beta).

="https://www.standardmedia.co.ke/article/2001518355/clinker-imports-dip-93pc-as-construction-sector-growth-slows?utm_cmp_rs=amp-next-page">The sector’s contribution< to GDP declined to 7.3 per cent from 7.5 per cent in 2023.

Manufacturing has been in an ambitious plan to increase its contribution to the GDP to 20 per cent by 2030 but says there is a need for the government to put in an enabling framework for the sector to grow.

The State Department for Industry, which oversees putting in place a conducive environment for the sector, has been allocated Sh8.68 billion next financial year, an increase from Sh7.3 billion it had been allocated over the current financial year.

The financial and insurance sector recorded a growth of 7.6 per cent in 2024 compared to 10.1 per cent growth in 2023.

However, last year the financial sector reduced lending to the private sector following the increase in interest rates.

According to the Economic Survey, commercial banks and non-bank financial institutions lending to the private sector declined by 6.6 per cent to Sh2.67 trillion as at December 2024 from Sh2.86 trillion in 2023”.

On digital lending, Safaricom’s Fuliza platform disbursed Sh981.6 billion in the financial year to March 2025, a 17.7 per cent growth from Sh833.8 billion advanced in the previous year. This translated to Kenyans borrowing about Sh2.69 billion a day.

The value of loans disbursed through Safariom’s M-Shwari platform, a micro loan product offered in partnership with NCBA, dropped 6.4 per cent to Sh96.4 billion from Sh103 billion the previous year.

Reflecting on the performance, Safaricom CEO Peter Ndegwa said Kenya’s economy experienced different challenges that hit consumers in various ways including reduced disposable income.

“In the year under review, we experienced various challenges such as macroeconomic pressures around increased fiscal pressure, high interest rates and shrinking consumer wallets due to increased pressure on disposable incomes.

‘‘The trends impacted our operating environment,” he said when the firm released full-year financial results on Friday.

Timiza, a banking and loans product in partnership with Absa Kenya, also registered mixed results, with the total number of active customers declining 19.8 per cent to 89,100 in the year to March 2025 from 111,100 over a similar period in 2024

According to the survey, businesses and households stayed away from buying new cars, due to declining disposable income, high interest rates and soaring taxes.

Last year

 The total number of newly registered vehicles, according to the Economic Survey, dropped by 21.4 per cent to 93,646 units last year from 119,205 units in 2023.

The number of newly registered vehicles last year was the lowest since 2017. The number of motorcycles registered also continued on a decline in recent years and hit the lowest in 16 years last year.

The Survey shows that newly registered motorcycles and three-wheelers stood at 72,868 in 2024. This is from a peak of 291,553 in 2021 after which it has registered a significant decline.

Last year was the slowest since 2008 when the government extended to the Transport sector incentives as it sought to deal with youth unemployment.

 Over 2024, hard hit were sales of vehicles used by businesses across different industries including lorries and trucks, where newly registered units dropped 60 per cent from 13,635 in 2023 to 5,456 in 2024, while trailers followed a similar trend, declining by 66.7 per cent to 2,123 in 2024.

Vans and pick-ups dropped by 54.6 per cent to 5,879 in 2024 from 12,957 in 2023 while tractors, used mostly in agriculture, dropped 67.5 per cent. Buses and coaches, largely used by the matatu industry, dropped 53.5 per cent.

Saloon cars, mostly used by private motorists, dropped 15.9 per cent.