NAIROBI, Kenya- High electricity prices, costly power contracts and inefficiencies at the Port of Mombasa are raising the cost of doing business and holding back Kenya’s manufacturing and trade potential, the World Bank has said.
In its latest Kenya Economic Update, the lender said governance weaknesses in the energy and logistics sectors were worsening costs for businesses, reducing competitiveness and limiting the country’s ability to create more productive jobs.
The report shows that Kenyan businesses pay about 17.5 US cents per kilowatt-hour of electricity, compared with 7.8 cents in Viet Nam, 10 cents in South Africa and 11.8 cents in Uganda.
The World Bank said Kenya’s business power costs are more than double those in Viet Nam and close to 50 per cent higher than those in Uganda.
While Kenya has expanded electricity access and built a diverse renewable-energy mix, the report said power costs remain a major concern for manufacturers and other businesses.
Power contracts under scrutiny
The World Bank linked part of the problem to weaknesses in the procurement and management of power-purchase agreements between State-linked entities and independent power producers.
It said opaque contracting, conflicts of interest and the inconsistent use of competitive processes had contributed to higher-cost power agreements.
A 2021 analysis cited in the report found that only 24 per cent of 42 power-purchase agreements signed by Kenya Power were known to have gone through a competitive process.
The World Bank noted that competitively procured solar projects can be significantly cheaper than directly negotiated deals, while Kenya’s Renewable Energy Auction Policy, drafted in 2021 to improve competition, has not yet been fully operationalised.
The report also highlighted high transmission and distribution losses, which have remained above 23 per cent against a regulatory target of 16.5 per cent. It said losses were linked to underinvestment in the grid, rapid rural access expansion, theft and billing anomalies.
A simulation in the report found that a permanent 10 per cent reduction in electricity costs could raise GDP by about 0.27 per cent, private investment by 0.33 per cent and the real wage bill by 0.29 per cent under conservative assumptions.
The World Bank recommended transparent and competitive auctions for new power projects, disclosure of beneficial owners of independent power producers, stronger oversight of State-owned energy firms and the implementation of open-access regulations that would allow large customers to buy electricity directly from lower-cost suppliers.
Mombasa and inland transport costs
The report also identified logistics as a major cost burden for businesses, particularly firms involved in manufacturing, agriculture and exports.
It said the Port of Mombasa ranked 375th out of 403 ports in the World Bank’s 2024 Container Port Performance Index, down from 326th out of 348 ports assessed in 2022.
According to the report, congestion, multiple inspections, system downtime, rising charges and bribery risks contribute to costly delays at the port.
The World Bank said shipping a 20-foot container from China to Mombasa costs about $2,000, while moving the same container from Mombasa to Nairobi can cost an additional $850 to $1,250.
That inland leg, spanning about 480 kilometres, is more expensive than transporting a similar container over an equivalent distance by road in Europe, the report said.
Businesses also face multiple roadblocks, weighbridges, police checks and county cess charges along inland transport routes. The World Bank said such costs are particularly damaging to agricultural producers and exporters handling perishable goods.
It cited a government-backed roadblock reduction initiative seeking to cut the number of police checkpoints between Mombasa and Malaba from between 22 and 27 to a maximum of five, while reducing travel time from about 80 hours to between 36 and 40 hours.
The World Bank said Kenya could reduce the cost of doing business by streamlining customs and inspection procedures, digitising port processes, improving staffing incentives at key agencies and setting clear national-county agreements on roadblocks and transport charges.
It warned that unless these bottlenecks are addressed, high power and logistics costs will continue to erode the competitiveness of Kenyan firms and slow investment in sectors expected to drive jobs and exports.
