Nairobi — Kenya's attractiveness to investors is being eroded by factors such as high business costs and policy uncertainty.
As a result, Kenya is being compared by investors with other regional markets that have lower costs and more predictable policies.
Capital Business sat down with PwC Eastern Africa's Advisory - Transactions Services Partner Isaac Otolo to discuss Kenya's investment landscape and the reforms needed to boost investor confidence. Here is what he had to say.
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Kenya has often been cited as having a high cost of doing business, driven by factors such as high taxes, expensive energy and regulatory costs. In your view, how do these factors affect investor confidence and discourage investment?
These factors affect investor confidence in two ways: they reduce returns, and they increase uncertainty. And in investment decisions, uncertainty can be just as damaging as cost.
Kenya's challenge is not simply that some business costs are high; it is that investors often perceive the operating environment as both expensive and unpredictable. A relatively heavy tax burden, frequent tax changes, high electricity costs, and a fragmented compliance environment all make it harder for businesses to plan, price, and invest for the long term.
For many investors, especially in manufacturing and other cost-sensitive sectors, power is not a secondary issue -- it is a core competitiveness issue. The same applies to regulation. If firms must navigate multiple licences, recurring fees, and overlapping national and county requirements, the compliance burden becomes a real deterrent to investment.
There is also the issue of input costs. Where local inputs are either unavailable or uncompetitive, firms are forced to import, which lengthens working capital cycles and increases foreign exchange exposure. That further weakens the business case.
Kenya still has strong fundamentals: market size, strategic location, private sector depth, and relatively sophisticated financial and logistics ecosystems. But investors are making comparative decisions. If another market offers lower friction, more predictable policy, and a clearer path to returns, capital will naturally become more cautious about Kenya.
At the end of the day, investors do not only price in cost -- they price in certainty. And where both cost and uncertainty are high, investment slows.
What policy measures should the Government implement to attract new investors and retain existing ones?
The first and most important step is to restore policy predictability. Investors can work within many kinds of operating environments, but they struggle where the rules are constantly shifting. A stable, transparent, and consultative tax policy framework would send a very powerful signal that Kenya is serious about competitiveness.
Second, the government needs to simplify the regulatory environment. That means reducing unnecessary licences, lowering compliance costs, and harmonising requirements between the national government and county governments. Investors should not have to spend excessive time and capital navigating administrative duplication.
Third, Kenya must strengthen its investment promotion and investor retention architecture. Attracting new investment is important, but retaining and expanding existing investment is equally important. In many cases, the most credible source of future investment is a company that is already operating in the market and has confidence in the environment.
That is why institutions such as the Kenya Investment Authority need to be empowered not just as marketing agencies, but as strategic facilitators of investment origination, aftercare, and problem-solving. The same applies to Special Economic Zones and the Nairobi International Financial Centre, which can play a much bigger role if backed by consistent policy and effective execution.
Finally, Kenya should use its diplomatic footprint more strategically. Economic officers in embassies and missions abroad should be actively identifying investors, promoting specific opportunities, and connecting them to responsive institutions at home.
In short, the government should focus less on one-off signals and more on building a business environment that is stable, efficient, and credible. That is what attracts long-term capital.
Why are countries such as Tanzania, Uganda, Rwanda and Ethiopia increasingly becoming preferred investment destinations compared to Kenya?
Because competition for investment in the region has become far more deliberate. These countries are not necessarily replacing Kenya, but many are becoming more aggressive and more strategic in how they attract capital.
In some cases, they are offering lower operating costs, more targeted tax incentives, easier access to land, faster approvals, or more streamlined business setup processes. For investors, especially those in cost-sensitive sectors, those advantages can be decisive.
Some of these countries are also posting strong growth rates and presenting themselves as reform-oriented markets with room for first-mover advantage. That naturally attracts investor attention.
However, this should not be overstated. Kenya still has significant structural advantages, including a larger and more diversified economy, deeper capital markets, a more mature private sector, stronger logistics linkages, and a more established role as a regional commercial hub. The issue is not that Kenya has lost relevance. The issue is that it can no longer rely on reputation alone.
Regional peers are improving their proposition, and investors are comparing jurisdictions in increasingly practical terms: cost, speed, policy certainty, market access, and ease of operation. Kenya therefore has to compete with renewed urgency.
Leadership in investment attraction is no longer inherited. It has to be defended through reforms.
Beyond taxation and the cost of doing business, what other structural or policy challenges do you believe are undermining Kenya's competitiveness?
One of the biggest is governance -- particularly corruption, whether actual or perceived. Corruption raises the cost of doing business, distorts competition, and weakens trust in institutions. For investors, it creates doubt about whether decisions are rules-based, transparent, and fair. That is a major deterrent to long-term capital.
A second challenge is public sector efficiency. Investors are heavily influenced by the day-to-day functionality of the state: how quickly goods clear at ports, how efficiently permits are issued, how predictable customs processes are, how responsive public agencies are, and how smoothly work authorisations are handled. If those systems are slow or inconsistent, they become a hidden but significant tax on investment.
A third issue is skills and workforce readiness. Kenya has a young population, and that is often cited as an advantage. But competitiveness does not come from demographics alone -- it comes from whether the labour force has the technical, digital, managerial, and industrial skills that investors need. That alignment is becoming increasingly important.
There is also a need for a stronger pipeline of investment-ready opportunities. Investors are more likely to commit capital where projects are well structured, commercially credible, supported by reliable data, and backed by institutions capable of moving efficiently from interest to execution.
So beyond tax, the real competitiveness question is this: does Kenya offer investors a system that is transparent, efficient, and reliable? That is where the next phase of reform must focus.
Question 5: Looking ahead, what sectors have the greatest potential to attract investment if the right reforms are implemented?
Kenya's greatest strength is that it is not dependent on a single sector. It has a diversified economy, and that creates multiple investment pathways if the policy environment is right.
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Energy is one of the clearest opportunities, especially in areas that can reduce industrial power costs, improve reliability, and support the broader transition to cleaner and more efficient energy systems. If Kenya gets energy reform right, the benefits will extend well beyond that sector and improve competitiveness across the economy.
Manufacturing also has significant upside, particularly in agro-processing, pharmaceuticals, textiles, construction materials, and export-oriented production. But manufacturing investment will only scale if firms can operate in a cost environment that allows them to compete regionally and globally.
Agriculture remains central, but the real investment story is in value addition -- processing, cold chains, storage, logistics, and integrated supply chains. Kenya should be thinking beyond production and toward building higher-value agribusiness ecosystems.
Technology will continue to be a major area of opportunity. Kenya has already established itself as a leader in innovation and digital finance, but there is still room to attract more investment in digital infrastructure, enterprise technology, business process outsourcing, and broader tech-enabled services.
Tourism, hospitality, logistics, healthcare, education, and financial services also remain strong opportunities, particularly if reforms reduce friction and improve investor confidence.
The key point is that Kenya does not suffer from a shortage of investment opportunities. The real issue is whether it can create an environment in which those opportunities translate into bankable, scalable, and competitive returns.
Final thought
Kenya remains one of the most important economies in Africa, with strong fundamentals and significant long-term potential. But in a region where more countries are actively competing for capital, Kenya must treat competitiveness as a constant discipline. Investors will continue to come where there is opportunity -- but they will stay, scale, and reinvest where there is also certainty, efficiency, and trust.
