World Bank reveals that Kenya’s sectoral operating margins have consistently exceeded the average for middle-income countries, pointing to weak competition across the economy.
Between 2008 and 2022, all sectors recorded significant margin increases, with most Kenyan sectors outperforming regional, structural, and aspirational peers, highlighting persistent limited competitive pressure across industries from manufacturing to services.
The report issued on Wednesday reaffirms that Kenya’s high operating margins are not isolated to a few sectors but reflect an economy-wide pattern of limited competition.
According to the World Bank, “In all but a few sectors, gross operating margins were higher in Kenya compared to similar sectors in comparator economies.”
The report illustrates that Kenyan companies, whether in mining, transport, hospitality, or financial services, have maintained stronger profitability compared to peers in other low- and middle-income countries.
The report details the performance across multiple industries, including utilities, mining, postal and telecom services, transport, hospitality, electrical machinery, and financial and business services.
Its methodology calculates gross operating surplus as the difference between total output and the sum of intermediate consumption, employee compensation, and net production taxes.
By expressing these values as a percentage of sector output, the analysis allows for cross-sector comparison both within Kenya and against international peers.
Regional peers in the analysis include Ethiopia, Rwanda, Ghana, Senegal, Tanzania, and Uganda.
Structural peers encompass Bangladesh and Vietnam, while aspirational peers are Morocco, South Africa, and Thailand.
Despite the diversity of these comparator economies, Kenyan sectors consistently registered higher operating margins, with no sector showing a declining trend over the 15-year period.
The data points to a persistent lack of competitive pressure across industries.
“Not only did several Kenyan sectors exhibit higher margins than peers, but all the sectors saw a significant increase in their gross operating margins over the 15-year period, 2008-2022,” the report states, highlighting the systemic nature of the issue.
From manufacturing to retail and public administration to education and health services, Kenyan businesses appear to operate in an environment that allows sustained profitability.
Sectors such as food and beverages, construction, textiles and apparel, metals, and transport equipment all recorded notable margin growth, signaling opportunities for policy interventions to stimulate competition.
It concludes that these findings carry important implications for Kenya’s economic policy.
Elevated and rising margins across sectors suggest that businesses face limited competitive pressure, which could have downstream effects on prices, productivity, and innovation.
As Kenya continues to grow economically, the World Bank’s analysis highlights the need for targeted measures to enhance market competition.
Strengthening competitive frameworks could ensure that the benefits of Kenya’s economic growth are more widely shared, while also encouraging efficiency and innovation in sectors where margins have historically remained high.
The report provides policymakers and industry stakeholders with a comprehensive view of profitability trends across Kenya’s economy, serving as a benchmark for potential reforms in market regulation and sectoral competition.
