As we step into 2025, Kenya’s economic outlook presents a mix of cautious optimism and pressing challenges. The past year was marked by a sluggish recovery, but with key trends and policies shaping the financial horizon, there are reasons to stay hopeful. Here’s an overview of what lies ahead for Kenya’s economy in 2025 and how it could impact businesses, investors, and households.

Economic Growth Prospects

After a difficult 2024, where the economy grew at its slowest rate in four years (4.6% in Q2), Kenya is poised for moderate recovery. The Central Bank of Kenya (CBK) projects a growth rate of 5.5% for 2025, while the IMF’s more conservative forecast pegs it at 5.0%. Key growth drivers include agriculture, financial services, and infrastructure development, but the economy’s success will hinge on navigating external and internal pressures.

Inflation Relief and Currency Stability

2024 closed with a silver lining: inflation dropped to a 17-year low of 2.7% in October, largely due to declining food and energy prices. Meanwhile, the Kenyan shilling, which depreciated sharply early in 2024, regained strength, ending the year at Sh129.29 to the dollar. These developments eased the cost of imports and household spending but sustaining these trends will be crucial for long-term stability.

Investments and Financial Markets

Kenya’s financial markets had a stellar 2024, with the Nairobi Securities Exchange (NSE) recording a 34.8% increase in investor wealth. Bonds and fixed deposits also offered high returns, although interest rates are expected to decline in 2025. This shift could push more capital into equities, boosting stock prices further. For investors, this presents an opportunity to diversify portfolios and capitalize on emerging market potential.

Taxation and Revenue Measures

The government’s ambitious tax revenue target of Sh2.732 trillion for the 2025/26 fiscal year signals higher taxes on the horizon. Key measures include increased excise duties on products like alcohol and internet data, alongside broader tax enforcement. Businesses and individuals should prepare for tighter fiscal policies, which may impact disposable income and operational costs.

Employment and Social Security

Starting February 2025, employees will see higher National Social Security Fund (NSSF) contributions, as the government implements its third year of graduated increases. While aimed at enhancing retirement savings, this move adds to payroll costs for employers and reduces take-home pay for employees. Balancing these adjustments with workforce retention and productivity will be key for businesses.

Trade and Global Partnerships

One of the biggest uncertainties in 2025 is the expiration of the African Growth and Opportunity Act (AGOA) in September. This trade pact has enabled Kenya to export billions of shillings’ worth of apparel to the U.S. duty-free. While there is optimism about its renewal, shifts in U.S. trade policy under the new administration could complicate negotiations. Businesses reliant on AGOA should explore contingency plans and alternative markets.

Banking Sector Consolidation

The recently enacted Business Laws (Amendment) Act, 2024, will require commercial banks to increase their minimum statutory capital to Sh3 billion by December 2025. This regulation is likely to drive mergers and acquisitions, resulting in fewer but stronger financial institutions. For consumers, this could translate to better services, but small banks face the challenge of raising additional funds.

Energy Security and Forex Stability

The government’s extended fuel import deal with Gulf oil firms will continue to ease forex pressures and stabilize fuel prices. This initiative, introduced in 2023, has reduced monthly dollar demand by oil importers, benefiting both the local currency and inflation rates. A stable energy sector will be pivotal for economic recovery and industrial growth.

How to Prepare for 2025

• For Businesses: Adapt to new tax policies and consider optimizing operations to absorb increased costs. Diversify export markets to mitigate risks from AGOA uncertainties.
• For Investors: Take advantage of equity market opportunities as capital shifts away from bonds. Keep an eye on emerging sectors like green energy and tech for long-term growth.
• For Households: Focus on managing disposable income wisely amidst higher payroll deductions and potential tax increases.