Robust growth faces challenges from fiscal consolidation and high debt

Kenya has maintained +4.8% growth in 2024 even amid substantial political uncertainties and social unrest. In 2025, growth is expected to reach +5% and to remain elevated thereafter. In 2024, inflation in Kenya has been on a downward trajectory from the 7.7% reached in 2023, likely to reach 5.1% in 2024 and a slightly higher 5.2% in 2025. The central bank has responded by decreasing the policy rate, easing financial constraints. Factors such as a stable macroeconomic environment, sustained investor confidence and a thriving services sector, particularly in telecommunications and financial services, have fueled the country's economic potential.

The economic and structural reforms implemented by the Ruto Administration has boosted confidence in financial markets, with the shilling becoming one of the best performing currencies in 2024. However, the finance bill presented to parliament in early 2024 sparked protests and civil unrest due to tax increases on food, transportation and money transfers. After weeks of protests, the police turned violent, causing the deaths of 50 demonstrators. As a result, the current President cancelled the bill, raising questions about the risks of a sovereign default, and reshuffled his cabinet, incorporating members of the main opposition party. Since then, the government has slowly normalized and the businesses environment is back to normal.

Kenya’s economic structure remains among the most diversified and developed on the continent. Services represent around 70% of total GDP, with the private sector playing a significant role. Nairobi has become a hub for many international firms operating in East Africa. Tourism reached a historical record during the 2024 summer and given Kenya’s superior infrastructure, Nairobi’s airports act as a hub for the entire region. Together with tourism, ICT and finance firms have also strengthen their presence in Kenya over the last few years. In early 2024, a USD1bn+ investment into cloud and cybersecurity infrastructure was announced by G42 and Microsoft. The agricultural sector, which accounts for around 20% of Kenya’s GDP, has been enjoying growth thanks to the improved output of Kenya's main exports: tea, flowers and coffee. Furthermore, these top exports have been enjoying high global prices, which have helped reduce Kenya's current account deficit. By September 2024, the revenue for the coffee and tea sectors had already reached the total of the previous year.

Violence is not absent from Kenya’s political system. During the post-presidential election period, tensions erupted during the summer of 2024 in opposition to tax increases. Such episodes, which can be explained by many historical and political factors, are also an example of the inequalities in Kenyan society. On top of that, conflicts to the north of Kenya both in Somalia, Sudan and Ethiopia create a latent risk of possible cross-border spillovers, given the relative stability of Kenya.

The difficulties of implementing organic reforms while maintaining internal cohesion are reflected in the approach to foreign relations from international investors to trade policy. The current administration revised the terms and partly cancelled infrastructure projects contracted by Chinese companies with the previous government, and also cancelled a bid won by an Indian conglomerate worth USD2.6bn. The Ruto Administration maintained strong ties with the US during Joe Biden’s Presidency as Kenya became the first Sub-Saharan African nation to be a major non-NATO ally. During the Biden Presidency, Kenya and the US also signed a major trade and investment partnership, which came after years of negotiations of a free-trade agreement during the first Trump Administration. It remains a question mark what the Trump Administration's position will be on its commercial ties with Kenya and the African continent. The US is Kenya’s second major export partner, after the EU. Hence, possible US tariffs on Kenyan imports could hurt the Kenyan economy.

With the EU, its main trade partner, Kenya signed an economic partnership agreement (EPA) in June 2023, expanding on an interim accord in effect since 2017. The EU is Kenya's first export destination and second-largest trading partner, totaling EUR3.3bn of trade in 2022 – an increase of +27% compared to 2018. Once ratified, the EPA will open new export potential for Kenya via duty‑free and quota‑free entry into the EU market and make the country more appealing to EU investors. The EPA will create significant economic benefits for Kenya, as well as help for climate-change mitigation. The EPA also provides tools for dispute resolution. Other components, such as trade in services, competition policy and intellectual property rights, could be added to the EPA over time. The deal means Kenya has bypassed the fellow Eastern African Community (EAC) member states in implementing the agreement between the two sides, after a previous version of the accord between the EU and the EAC stalled. Tanzania and Uganda declined to approve the agreement for various reasons, while Rwanda signed the previous EPA but did not ratify it.