Revealed: Why local companies are shutting down

Manufacturers have issued a fresh warning to President William Ruto's administration, saying the country's industrial base is crumbling, factories are closing, and without urgent intervention, thousands more jobs will vanish.

A newly published industry audit titled the Kenya Association of Manufacturers (KAM) Regulatory Audit Report 2025, reviewed by Enterprise, lays bare what it says is a toxic operating environment that is rendering local production uncompetitive and driving investors to the exit door. 

The report cites what it termed punitive taxation, regulatory chaos, overlapping mandates, and arbitrary county levies, which players warn are suffocating the very sector that could transform Kenya's economy.

The report’s findings come at a time economists say manufacturing is the classic pathway out of poverty.

They say it is the sector that lifted Asian economic powerhouses like Singapore from a tropical trading post to a first-world economy in a single generation and South Korea from an aid recipient to an industrial powerhouse, and that continues to pull millions across Asia into the middle class. 

Economists also reckon that for Kenya, a nation of 55 million people with soaring youth unemployment, a vibrant manufacturing sector represents the difference between perpetual aspiration and genuine prosperity.

Yet the sector's contribution to the gross domestic product (GDP) has collapsed  to just 7.3 per cent in 2024, a far cry from the 20 per cent target Ruto has set for 2030, and light-years behind the 20-30 per cent shares that powered Asia's tiger economies during their take-off decades. 

Manufacturers are appealing to the Ruto administration to turn back the tide before it's too late.

"Instead of industrialising, Kenya is deindustrialising," the KAM report warns, citing the work of economist Dani Rodrik on "premature deindustrialisation," the phenomenon of manufacturing shrinking at income levels far below those of early industrialisers.

"High and unpredictable taxation is a core challenge," the report states.

Since President Ruto took office, manufacturers say they have been battered by a cascade of new levies that have made production in Kenya more expensive than importing finished goods.

These include the 1.5 per cent Affordable Housing Levy deducted directly from gross salaries, matched by employers. 

The Social Health Insurance Fund (SHIF) takes another 2.75 per cent. National Social Security Fund (NSSF) contributions have jumped to five per cent of pensionable income. 

For a company with 100 employees earning an average of Sh30,000 monthly, these statutory deductions alone exceed Sh240,000 each month.

Beyond payroll, a new 0.2 per cent standards levy on manufacturing turnover has taken effect. Import duties on raw materials have also risen. The Railway Development Levy climbed from 1.5 per cent to 2.5 per cent. 

Players say every stage of production now attracts a charge, eroding margins that could otherwise fund expansion and hiring. They say navigating Kenya's regulatory bureaucracy is itself a costly and time-consuming enterprise. 

In the pharmaceutical sector, companies must obtain 57 separate licences, permits, and charges administered by 11 different national agencies plus county governments. 

The annual compliance bill for a single pharmaceutical manufacturer now exceeds Sh3.5 million.

Some agencies – including Kentrade, the Pharmacy and Poisons Board, and the Veterinary Medicines Directorate – charge fees in US dollars rather than Kenya shillings. 

"This imposes extra costs on manufacturing due to currency fluctuations," the audit notes, exposing firms to costs entirely beyond their control.

The Directorate of Occupational Safety and Health Services (DOSHS) conducts separate annual audits for health and safety, fire safety, and risk assessment, charging for each, when a single consolidated inspection would suffice. 

"These activities could all be conducted as one activity under the title occupational safety audit and apply one charge," manufacturers argue. 

The directorate also requires annual training for first aid, occupational safety, and fire safety, even when the same employees attend year after year.

While national taxes are massive, players say county-level levies are bleeding businesses dry.

For instance, they said no county government has adopted a legally-mandated tariff pricing policy since the requirement was introduced in the County Governments Act of 2012. 

The result, manufacturers say, means fees are arbitrary, lack justification, and escalate annually without any guiding framework.

Counties also impose "cess" on goods crossing their borders, charges courts have declared illegal, disrupting the free movement of trade within Kenya. 

For instance, a truck carrying manufactured goods from Nairobi to Mombasa can be stopped multiple times, each county demanding its own fee. 

Vehicle branding fees are also required by every jurisdiction a truck passes through, even when the company already holds a licence in its home county. “No vehicle should be subjected to multiple branding fees," the report insists.

Nairobi County's wall branding fees have jumped by Sh80 to Sh100 per square metre. 

New charges have appeared, including occupation certificates at Sh50,000, permits for temporary site toilets at Sh100,000 annually, and parking fees for lorries at Sh225,000. 

The regulatory landscape is also cluttered with agencies pursuing identical objectives. NEMA, DOSHS, and county governments all claim authority over air pollution, effluent discharge, and fire safety. 

Businesses undergo repeated inspections for the same processes, losing time and money, while regulators sometimes shut down operations arbitrarily during enforcement.

"There is no standardised and harmonised compliance enforcement mechanism on businesses, which results in unpredictability," the audit states. Factory managers lose working hours escorting different inspectors through the same facilities, addressing the same issues, and paying separate fees.

The abstract numbers translate into real hardship. Multiple companies have either scaled down or closed entirely, the report notes, citing "high taxation on industries and consumers" as a primary cause.

A Central Bank of Kenya survey cited in the report found that 21 per cent of manufacturing firms identified increased taxation as the primary constraint on expansion, while 23 per cent cited the broader business environment.

As local production costs soar, imported goods have become more attractive. 

The Africa Continental Free Trade Area (AfCFTA), while offering export opportunities, also exposes Kenyan manufacturers to competition from countries with far better industrial policies.

South Africa and Egypt offer electricity at $0.03 per kilowatt-hour, a fraction of Kenyan rates. Morocco and Ethiopia charge $0.05, Tanzania charges $0.08. All maintain more favourable tax regimes. 

Kenya ranks 19th in Africa for merchandise exports, behind much smaller economies; its manufacturers are struggling to compete even within the continent.

Meanwhile, illicit trade, counterfeit and substandard imports, now accounts for an estimated 8.9 to 9.3 per cent of GDP, in some years exceeding the entire manufacturing sector's contribution. 

Legitimate producers face unfair competition from goods that skirt taxes, standards, and duties.

With the situation growing desperate, manufacturers are appealing directly to President Ruto to reverse course before more companies collapse and jobs disappear.

Their wish list includes freezing all taxes affecting manufacturing for at least five years. 

"Taxes, levies, and fees should not be revised annually," the report demands, "with any changes ideally remaining stable for at least five years" to provide the predictability investors require.

Second, they want the government to roll back import duties on raw materials. 

The Import Declaration Fee and Railway Development Levy should return to 1.5 per cent, not the current 2.5 per cent. All government charges must also be payable in Kenya shillings, not US dollars.

Third, they are calling for harmonisation of the regulatory mess. 

Overlapping mandates between NEMA, DOSHS, and counties must be resolved, with national agencies s0etting standards and counties handling enforcement. 

Multiple audits should be consolidated into single inspections and mandatory staff safety training should be required once every three years rather than annually.

Fourth, they want an end to predatory county levies. 

Cess on cross-border goods must be eliminated and vehicle branding fees should apply only in a company's home county. 

Counties must finally adopt legally-required tariff pricing policies to make fees transparent and cost-reflective, using the model policy developed by the Commission on Revenue Allocation.

They are also calling for the enforcement of anti-counterfeit laws rigorously. 

The National Baseline Survey on Counterfeit and Other Forms of Illicit Trade found illicit trade valued at Sh826 billion in 2018, more than the manufacturing sector's entire contribution to GDP. 

That gap has only widened. Players are also asking for designated land for industrial use. 

Counties should zone and allocate land with appropriate infrastructure at fair rates to promote manufacturing localisation, rather than forcing industries to compete for expensive, unsuitable parcels.

A national programme to review businesses facing distress should also be implemented.

Companies that have declared closure or scaled down operations should receive targeted interventions to address specific industry challenges and reverse the decline.

They also want Kenya to prepare for AfCFTA strategically. 

A national implementation strategy should target each manufacturing sub-sector, addressing tariff liberalisation impacts and focusing on export market access. 

A dedicated business preparedness programme should help local manufacturers compete across Africa.

"For Kenyan manufacturers to remain viable and sustainable, efforts must be made to reduce the regulatory burden and harmonise conflicting and duplicative fees, levies and charges," the report says.