In 2024, out of the total 782,300 new jobs created in Kenya, 90% were in the informal economy, up from 84% in 2014. This presents a multi-pronged challenge of low productivity, inadequacy of safety nets such as pension and medical cover for the growing working population, and unpredictable incomes which leave households vulnerable to emerging shocks.
According to the World Bank’s latest report From Barriers to Bridges: Procompetitive Reforms for Productivity and Jobs in Kenya, the country’s capacity for creation of formal sector jobs has deteriorated over the last decade. The operating environment has become increasingly challenging, and businesses have scouted out ways to tighten control on their overheads.
As the country grapples with how to fashion, a policy mix that will unlock job creation in the formal sector, addressing bottlenecks that undermine the creation of a vibrant, competitive private sector landscape should be front and center.
According to the report, pro-competitive reforms should be a priority in Kenya’s quest to address the structural challenges that presently confront its economy and labor market. More robust competition lowers prices for consumers, thereby increasing demand for output and labor. It also opens the door to productivity-enhancing investments by firms, leading to higher wages and growing firms that create more employment.
The impacts could be transformative:
- Procompetitive reforms in key services sectors such as electricity, transport, telecommunications, and professional services could boost the country’s Gross Domestic Product (GDP) growth rate by 1.35 percentage points, unlocking much-needed output expansion. If sustained over a prolonged horizon, such output expansion would steadily enhance per capita income, socio-economic standards of living, and Kenya’s transition from lower to upper middle-income status.
- Reforms would also be catalytic for the creation of quality employment opportunities. If implemented fully, they could increase annual labor compensation growth up to 2.0 percentage points, equivalent to over 400,000 jobs per annum at the present average wage in the country.
So, what can Kenya practically do to stir up procompetitive reforms and strengthen job creation within the formal economy?
- At an economy-wide level, several interventions could go a long way in creating an enabling environment for competition to yield optimal outcomes in Kenya’s economy and the labor market:
- Whereas state-owned enterprises (SOEs) play a pivotal role in the country’s economy, their recurrent access to exchequer support inadvertently creates an unlevel playing field vis-à-vis private competitors, undermining competitiveness in the markets in which they operate. The government should improve targeting and prioritization of financial support and loan guarantees for SOEs based on impact and need for public service obligations. On this front, the Government Owned Enterprises Bill of 2025, which seeks to designate these entities as public limited liability companies and extract efficiencies, is indeed a step in the right direction. Beyond its passage, robust implementation will be key.
- Significant restrictions on foreign investment and trade persist in Kenya. Reevaluating measures such as foreign equity ownership restrictions and non-tariff barriers would increase Kenya’s access to critical inputs, technology, and global best practices. Relatedly, harnessing momentum related to the African Continental Free Trade Area (AfCFTA) is critical.
At the sector level, focused interventions could present a game changer in unleashing pro-jobs competitiveness in Kenya. For example:
- Within agriculture, the backbone of Kenya’s economy, improving the fertilizer subsidy program should be a top priority. The current program gives a small number of importers and distributors the exclusive right to sell a few pre-specified fertilizer types at fixed prices. Wider and more flexible private sector participation could decrease transportation costs for farmers, harness market signals to achieve more suitable product selections, and drive greater efficiency of public spending. For instance, competition principles could be introduced to competitively select companies participating in the program and define the level of subsidies. The government could further consider issuing e-vouchers that targeted farmers can spend in lieu of cash on inputs and at outlets of their choosing.
- Competition could be leveraged to address the high cost of energy, which has remained a critical impediment to private sector growth in Kenya. Increasing transparency in the procurement of electricity through competitive processes for power purchase agreements (PPAs) would be a major step. The National Assembly’s lifting of the moratorium on new PPAs on November 13th, 2025, is an important step towards this end. Another welcome development is the Renewable Energy Auction Policy (REAP), which mandates that the Ministry of Energy and the Energy and Petroleum Regulatory Authority implement competitive procurements of new energy projects. Finally, full implementation of the Energy Act of 2019’s provisions around open access would facilitate generators’ ability to reach consumers directly, further accelerating growth in Kenya’s burgeoning commercial and industrial electricity segment.
- The telecommunications sector has been a critical pillar in Kenya’s economic growth, the development of connectivity, and deepening of formal financial inclusion across the country. However, gaps remain regarding data costs, internet use by individuals, and adoption of digital technologies by businesses. More robust regulation of dominant players; updated rules on infrastructure sharing, radiofrequencies management and interconnection; and addressing gaps in the frameworks governing digital markets are necessary. Doing so would prevent undue market bottlenecks and lower costs for consumers.
Recent developments indicate that Kenya does not have a dearth of pro-competitive legislation that can help unlock productivity and stir up formal sector job creation. Doubling down on reform momentum is key to an economy that is fairer, more dynamic, and better able to generate job opportunities worthy of Kenya’s talent.
