The World Bank has flagged Kenya’s “unfair” business practices, warning that competition-limiting policies discourage foreign investment and stifle economic growth and job creation.

In its latest Kenya Economic Update (November 2025), the bank says Kenya’s business environment is more restrictive than that of other frontier markets, deterring private investment.“Kenya has a legal and regulatory environment that is more restrictive to competition than the ‘frontier’ of advanced economies with more open markets,” the report notes, citing distortions caused by public ownership, weak regulatory safeguards, and barriers to trade and investment.

An open market is an economic system where prices are driven by supply and demand rather than government control, characterised by free competition and the absence of artificial barriers such as taxes, subsidies, or restrictive regulations.

Kenya’s overall Product Market Regulation (PMR) score stands at 2.92 — the highest and most restrictive among countries with available data, and far above the average for middle-income economies (2.27). According to the World Bank, weak competition allows firms to earn rents at the expense of workers and consumers.

The PMR indicator, developed by the Organisation for Economic Co-operation Development (OECD) and the World Bank, measures how regulations and public policies affect competition in product markets.

In Kenya, formal job creation has declined steadily over the past 15 years, with the share of employment falling to 15.5 percent in 2024 from 18.5 percent in 2010, while informal sector work continues to dominate the labour market.

The World Bank also faults Kenya for shielding domestic companies from foreign competition. Kenya’s average Most Favoured Nation (MFN) applied tariff rate was 13.7 percent in 2023 — significantly higher than in peer countries.“Non-tariff measures (NTMs) such as import quotas and permitting are also pervasive. NTM-related costs amount to over 40 percent ad valorem equivalent,” the report says.“Furthermore, significant barriers to foreign investment persist in Kenya. Restrictions of foreign equity holdings cut across sectors such as agriculture, mining, and transport.”The Bretton Woods institution adds that Kenya’s framework for fair and transparent policymaking remains incomplete. While regulatory impact assessments are required for subordinate regulations, they are not mandated for primary legislation.“Kenyan law does not mandate transparency in interactions between interest groups, lobbyists, and policymakers, creating room for well-connected firms to earn undue competitive advantages.”Major distortionsState-owned enterprises (SOEs) are also cited as major distortions. The government holds stakes in more than 200 commercial entities, half of which operate in competitive sectors where public ownership lacks clear justification. Weak governance and mixed mandates mean many SOEs operate at a loss, forcing the government to provide financial support.

Fiscal transfers to SOEs have averaged five percent to seven percent in recent years, a trend the World Bank says discourages private investment and undermines productivity and wages.

The shift from a cash voucher model has tripled the distance farmers must travel to access fertiliser, created shortages of high-demand varieties, and increased taxpayer costs.

Priority reformsIn telecommunications, the lender says priority reforms should include addressing dominance and significant market power, alongside adopting more competitive approaches to radio frequency management to reduce data prices and expand internet use.

The bank says removing barriers to competition would significantly boost growth and employment. Key priorities include strengthening SOE governance to ensure competitive neutrality and expanding regulatory impact assessments. Reducing tariffs, non-tariff measures and foreign investment restrictions would also be critical.

Reforms in foundational sectors such as electricity, telecommunications, and transport could raise GDP growth by 1.35 percentage points.“Improving competition could also lead to more and better jobs in Kenya. Reforms in these sectors could lift annual labour compensation growth rates by up to two percentage points, equivalent to over 400,000 jobs per year at the average wage in Kenya,” the report says.

Competition Authority of Kenya (CAK) Director-General David Kemei said the agency has made key interventions against anti-competitive practices, including in agriculture, where an inquiry into the animal feeds market found high concentration and input pricing issues.“The recommendations called for addressing anti-competitive conduct, improving cross-border regulations, and easing county-level barriers to the movement of goods across counties within Kenya,” Mr Kemei said.

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