Most businesses in Kenya are less optimistic about growth in coming months, largely attributed to the high cost of living and an unfavorable regulatory environment, a move likely to hurt job creation.
Only 65 business owners out of every 100 ( 65 per cent) remain optimistic about growing their revenue in 2025.
According to findings by the Kenya National Chamber of Commerce and Industry (KNCCI), 2025 Business Barometer, this is a slight decline from previous quarters, with 24 per cent of respondents indicating they do not expect revenue growth in 2025, up from 22 per cent in Q4/2024 and 15 per cent in Q3/2024.
According to chamber, the high cost of living, high taxes and unfavorable policies are major reasons for potential stagnation or drop in revenue at 43.7 per cent and 28.2 per cent respectively.
These elements have pushed up production costs for many companies, with the barometer indicating that 55 per cent of businesses expect an increase in their cost of production in 2025.
This is a notable rise from last year, when 54 per cent of businesses anticipated higher production costs in Q4/2024, and only 35 per cent expected increases in Q3/2024.
Other reasons for possible drop in revenue include low sales, financial constraints, increased competition and climate change.
“The cost of raw materials is rapidly increasing while sales are very low. “Extreme scarcity of currency in circulation that is leaving people with nothing to spend on beauty services, also some taxation policies on the commodities we’re dealing with are unfavourable, making our services expensive and scaring our customers.”
Save for mining, all sectors have a majorly positive outlook for revenue growth in 2025 with education ( 92 per cent) and ICT ( 77 per cent) being the most optimistic.
The report based on a comprehensive survey conducted with 1981 businesses from all sectors, both formal and informal, and across all sizes, reflecting a broad spectrum of the Kenyan business landscape further shows that 60 per cent of businesses do not expect to increase their workforce in 2025, a significant shift from previous years when employment growth expectations were more optimistic.
“This marks a clear departure from the previous year’s surveys, where only 47 per cent of respondents expected a reduction in workforce size in Q4/2024, and only 25 per cent in Q3/2024. The negative outlook on employment growth is linked to a decline in sales and an increase in operational cost,’’ the report reads.
While education ( 69 per cent) and energy ( 67 per cent) sectors remain the most optimistic about hiring in 2025 retail and wholesale ( 26 per cent) and mining ( 14 per cent) are at the opposite end of the spectrum.
“We have to use technology instead of human labour and build on the skills of those who will remain. Lower production rate and shrinking market hence layoffs and higher production costs coupled with clamor for salary increments from unions.”
In terms of environmental responsibility, 43 per cent of the businesses surveyed have implemented climate change mitigation and adaptation measures, with tree planting and waste management initiatives being the most common actions.
However, the report also reveals that 85 per cent of businesses are not receiving any external support for climate action, with financial constraints and limited technical expertise cited as the primary barriers to effective implementation.
The report identifies three key needs for the private sector in 2025: access to capital, an improved regulatory environment, and access to markets.
"These are seen as essential factors for businesses to thrive in an increasingly competitive and complex economic environment. Addressing these challenges will be critical to supporting sustainable growth for Kenya’s private sector,’’ the report reads.
According to KNCCI President Erick Rutto, looking ahead, high taxation, unfavorable policies, and limited access to capital are identified as the biggest obstacles to the growth of Kenya’s private sector in 2025.
He adds that businesses remain concerned about these factors and their potential to hinder economic progress and the overall competitiveness of the business environment.
“In 2025, private sector sentiment is generally less optimistic compared to the last two quarters of 2024, with a growing negative outlook on revenue, workforce size, and the cost of primary inputs. This underscores the urgent need for revitalization measures to proactively enhance Kenya’s business environment,’’ says Rutto.
For most businesses, 2024 was a year to forget. The year was characterised by economic hardships that were compounded by higher taxes and statutory deductions, which culminated in widespread protests that forced the government to withdraw the Finance Bill 2024.
The economy grew at its slowest
pace in four years at 4.6 percent
in the second quarter of the year -
compared to 5.6 per cent in quarter
two of 2023.