Manufacturing share in economy dips to 7.1 per cent as costs squeeze growth

Kenya’s industrial sector faced a tougher operating climate in 2025, with rising production expenses, import pressure, and uneven performance across key industries slowing its overall momentum, even as output in some sub-sectors expanded.

Data contained in the Economic Survey 2026 by the Kenya National Bureau of Statistics (KNBS) shows that manufacturing accounted for 7.1 per cent of the country’s Gross Domestic Product, a decline from 7.3 per cent recorded in 2024. Despite the reduced share, total production in the sector edged up to Sh3.8 trillion, driven by growth in selected industries serving both local and external markets.

“The sector’s overall growth was however, constrained by slowed activities across various food-related segments, particularly production of sugar and soft drinks,” KNBS says.

One of the weakest performers was sugar, where output dropped by 24.8 per cent to 613,000 metric tonnes in 2025. Soft drinks production moved in the opposite direction, rising by 4.9 per cent to 703.7 million litres, although this was lower than the 15.6 per cent expansion recorded the previous year. Processed milk also posted gains, increasing from 619.1 million litres in 2024 to 701.5 million litres in 2025.

Further gains were recorded in meat processing and grain milling, which rose by 9.8 per cent and 3.4 per cent respectively during the review period. Even so, agro-based manufacturing as a whole declined by 1.2 per cent, reversing a strong 7.9 per cent growth registered in 2024. The contraction was mainly attributed to reduced sugar production and a five per cent fall in fruit and vegetable processing.

In contrast, industrial construction materials performed better. Cement output climbed from 8.85 million tonnes in 2024 to 10.4 million tonnes in 2025, supported by increased building activity linked to housing and infrastructure projects. Basic metal production also expanded by 4.9 per cent, reflecting steady demand from the construction industry.

Manufacturers of consumer goods recorded relatively steady performance, though they continued to face pressure from unstable tax policies and increased inflows of cheaper imported goods, especially from China. The indices covering food manufacturing and water supply posted a modest increase of 0.7 per cent.

Employment in the sector improved, rising by 5.2 per cent to 388,564 people in 2025, representing 11.7 per cent of total formal wage jobs. Credit extended to manufacturing firms also grew, increasing from Sh560.6 billion in December 2024 to Sh593.9 billion in December 2025. However, financing from Development Bank of Kenya and Kenya Development Corporation declined, even as approved projects increased to 17 over the same period.

Investment activity, however, showed signs of slowing, with planned investments falling from Sh17.4 billion to Sh12.2 billion. At the same time, the number of Export Processing Zones rose, with gazetted zones increasing to 114 in 2025.

The mixed performance comes at a time when the country is trying to expand manufacturing’s contribution to the economy to 20 per cent by 2030. Industry stakeholders say the current conditions are making that target harder to achieve.

Manufacturers, led by the Kenya Association of Manufacturers, continue to raise concerns over rising production costs, overlapping regulatory charges, and multiple levies that increase the cost of doing business. They also point to high electricity costs, expensive raw materials, and unpredictable tax changes as key challenges affecting competitiveness.