IN BRIEF
-Kenya’s economy expanded by 4.6% in 2025, but growth is increasingly concentrated in services and recovery sectors rather than broad-based industrial expansion
-Tourism, construction, mining and ICT are among the fastest-growing areas, driven by demand recovery, public investment and digital adoption
-Agriculture remains foundational but is losing momentum due to climate volatility and mixed commodity performance
-Manufacturing is growing weakly, with internal divergence between non-food resilience and agro-processing contraction
-Trade deficits, falling investment in manufacturing and sectoral inefficiencies point to structural constraints on long-term growth
-The economy is shifting toward consumption-led and service-led expansion, raising questions about productivity, exports and job quality
Kenya’s latest economic data paints a picture less of uniform recovery than of divergence. Beneath the headline GDP growth of 4.6 per cent in 2025 lies a bifurcated economy: one part accelerating on the back of services, infrastructure and post-pandemic rebounds; the other constrained by structural inefficiencies, climate risks and weak industrial deepening.
The result is a growth model that is holding up in aggregate terms but increasingly uneven in composition — and therefore more exposed to medium-term vulnerabilities.
Growth engines: a service-led expansion takes hold
The most dynamic areas of Kenya’s economy are clustered around services and recovery sectors, suggesting a continued shift away from traditional production toward consumption and connectivity.
Tourism and hospitality stand out. Accommodation and food services expanded by 15.6 per cent, one of the fastest growth rates across the economy. This surge reflects a strong rebound in international travel, improved conference tourism, and higher bed occupancy rates — effectively a normalization after pandemic-era suppression. The implication is that Kenya is benefiting from global mobility trends, but also becoming more exposed to external demand cycles.
Construction also re-emerged as a major growth pillar, expanding by 6.8 per cent after a contraction the previous year. This rebound is closely tied to public infrastructure spending — notably housing and transport — and signals the continued centrality of fiscal policy in driving domestic demand. It also explains the parallel strength in construction-linked manufacturing such as cement and fabricated metals.
Mining and quarrying delivered an even sharper turnaround, growing by 14.9 per cent after a contraction in 2024. The rebound was driven by increased extraction of materials used in construction, reinforcing the extent to which sectors are interconnected around infrastructure-led growth.
Meanwhile, financial services (6.5 per cent growth) and ICT (4.8 per cent) underline the steady expansion of Kenya’s modern service economy. Digitalisation, mobile financial services and rising connectivity continue to underpin productivity gains in these sectors, even if their employment elasticity remains limited.
Transport and storage, a proxy for broader economic activity, grew modestly at 3.7 per cent. Growth here was uneven: rail and pipeline transport expanded, but air transport and road freight showed signs of contraction, indicating shifting logistics patterns and cost pressures.
Energy also played a supportive role. Electricity demand rose by 9.6 per cent, while generation increased by 6.8 per cent, largely driven by renewable sources such as geothermal and wind. This expansion signals both industrial demand recovery and improved access — a key enabler for long-term productivity.
Agriculture: resilient but constrained
Despite these gains, agriculture — still the backbone of the economy, contributing over 20 per cent of GDP — is showing signs of structural strain.
The sector grew by 3.1 per cent in 2025, down from 4.4 per cent the previous year. The slowdown reflects increasingly erratic weather patterns: above-average long rains coupled with weak short rains led to mixed crop outcomes. Staple crops such as maize and potatoes improved, but beans declined, while key cash crops such as tea and sugarcane registered significant drops.
This pattern highlights a deeper issue: climate variability is no longer a cyclical risk but a structural constraint. Even as horticulture exports performed strongly — with earnings rising 5.3 per cent — the volatility in core crops underscores the fragility of agricultural productivity.
For policymakers, the implication is stark. Without irrigation expansion, climate adaptation and value chain upgrading, agriculture will struggle to sustain its role as a stable growth anchor.
Manufacturing: growth without transformation
Manufacturing remains the clearest example of Kenya’s structural growth challenge.
The sector expanded by just 2.0 per cent in 2025, slower than the overall economy and below its potential as a driver of industrialisation. While non-food manufacturing showed resilience — supported by construction demand — agro-processing contracted, dragged down by declines in sugar output and fruit and vegetable processing.
More tellingly, investment signals are weakening. The value of new manufacturing investment projects fell from KSh 17.4 billion in 2024 to KSh 12.2 billion in 2025, alongside a drop in the number of projects.
This suggests that, despite policy support under industrialisation strategies, the sector faces persistent constraints: high input costs, limited scale, and competition from imports. The result is a pattern of “growth without transformation” — output expands modestly, but structural upgrading remains elusive.
Trade and external pressures: a widening imbalance
Kenya’s external position reflects the same structural asymmetry.
The trade deficit widened to KSh 1.7 trillion in 2025, driven by faster growth in imports relative to exports. Export growth was modest at 0.6 per cent, compared to 2.5 per cent for imports, underscoring the economy’s reliance on external supply chains.
At the same time, external liabilities continued to rise, pushing the country further into a net borrowing position. While foreign direct investment increased, much of the financing remains debt-driven, including sovereign bond issuance.
These dynamics point to a familiar constraint: Kenya’s growth model remains consumption- and import-dependent, with insufficient export diversification to balance external accounts.
Declining and lagging segments
Several sectors illustrate where pressures are most acute.
Agro-based manufacturing is in outright contraction, reflecting both agricultural supply constraints and limited processing capacity.
Transport subsectors show mixed decline: air transport output fell sharply, while road transport value also dipped, partly due to cost pressures and shifts in freight dynamics.
Mining output values declined in absolute terms despite volume recovery, suggesting price effects or compositional changes.
Even within services, there are warning signs. Newspaper circulation continues to decline (from broader ICT trends), while some education and training outputs show stagnation — subtle indicators of structural shifts in consumption and labour markets.
What it means: a narrowing growth base
The emerging picture is of an economy that is growing, but in a narrower and more uneven way.
First, growth is increasingly service-led. Tourism, finance and ICT are driving expansion, but these sectors are less effective at generating large-scale employment compared to manufacturing or agriculture. This helps explain why most new jobs — 87 per cent — are still being created in the informal sector.
Second, the industrial base is not deepening. Manufacturing’s slow growth and declining investment suggest that Kenya is not yet achieving the structural transformation needed to move up value chains.
Third, climate risk is becoming central. The volatility in agriculture is not episodic but systemic, with direct implications for food security, inflation and export earnings.
Finally, external imbalances persist. A widening trade deficit and rising external liabilities indicate that growth is not yet self-sustaining.
The strategic question
Kenya’s economy is not underperforming in headline terms — 4.6 per cent growth remains solid by regional standards. But the composition of that growth raises harder questions.
Can a service-led model deliver sufficient employment?
Can manufacturing be revived as a true engine of transformation?
And can agriculture adapt fast enough to climate realities?
Until those questions are resolved, Kenya’s economy will continue to expand — but along a path that is structurally constrained, externally dependent, and uneven in its distribution of opportunity.
