NAIROBI, Kenya — Kenya is spending billions of shillings propping up loss-making state enterprises that continue to underperform despite repeated bailouts, a new report by the World Bank and the Competition Authority of Kenya (CAK) has revealed.
The report shows that the government now holds equity stakes in more than 200 business entities—far beyond traditional public-interest sectors—creating what analysts describe as one of the most interventionist state footprints in the region.
Almost half of these firms operate in fully commercial sectors such as finance, ICT, real estate, and retail.
According to the findings, Kenyan SOEs have posted persistently poor performance, with nearly 50 P.c failing to meet agreed targets under National Treasury performance contracts.
Public grants, subsidies, and bailouts to these firms have averaged between 6 and 7 P.c of GDP annually over the last five years—equivalent to more than Sh1 trillion per year.
“This model is fiscally unsustainable and economically distortionary,” the report warns. “SOEs are insulated from market discipline, accumulate losses, and crowd out more productive private investment.”
Economists say the situation has become untenable at a time when the government is seeking to cut expenditure and grow revenues. In 2024, Treasury slashed development spending to manage the deficit, even as fiscal transfers to struggling SOEs—including Kenya Airways and several sugar millers—continued.
Private-sector leaders have long argued that public enterprises use guaranteed access to credit, political support, and regulatory privilege to undercut private competitors. “We operate in sectors where some SOEs can run losses indefinitely, yet we must meet payroll every month,” said a senior executive in the ICT sector who requested anonymity.
The report recommends that Kenya discontinue non-essential fiscal transfers to commercial SOEs and introduce strict transparency requirements for public financial support.
It further urges functional separation of public service obligations—such as last-mile electricity connectivity—from commercially viable operations, arguing that lumping the two allows inefficiencies to fester unseen.
CAK Director-General Adano W. Roba said the findings “should prompt a profound reconsideration of the state’s role in competitive markets”, adding that Kenya must enforce competitive neutrality to restore investor confidence.
The debate is likely to intensify as Parliament prepares to review the State Corporations Act. Lawmakers have previously questioned ballooning SOE debts, including government-backed loans that push fiscal risk onto taxpayers.
With the government targeting Sh3.4 trillion in revenues in FY2025/26, analysts say the country can no longer afford to subsidise persistent losses.
“Kenya’s job creation and productivity goals depend on a vibrant private sector. That cannot happen if state enterprises dominate commercial sectors but remain chronically unprofitable,” the report concludes.
