The manufacturing and construction sectors, crucial drivers of Kenya’s economy, faced significant contractions in 2024, severely impacting the country’s overall performance. The nation’s GDP growth slowed to 4% in Q3 2024, a sharp decline from the 6% recorded in the same period in 2023, highlighting the challenging environment for these critical industries.
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A “moderate rebound” in the industrial sector is on the horizon for 2025, according to analysts at Cyton Investments. This recovery is expected to be bolstered by government interventions under the Bottom-Up Economic Transformation Agenda (BETA), which aims to stimulate wealth creation, employment generation, and poverty alleviation through the manufacturing sector.
Manufacturing and Construction Performance
The Kenya National Bureau of Statistics (KNBS) reported a 2.3% growth in manufacturing in Q3 2024, a slight drop from the 2.8% growth seen in 2023. This decline was attributed to reduced activity in galvanised sheet production, cement manufacturing, and motor vehicle assembly.
Meanwhile, the construction sector experienced a contraction of 2%, compared to a 4% growth the previous year. The slowdown resulted from decreased credit availability and weakened demand for essential inputs like cement. Credit to the sector fell by 13.6%, from Sh149.6 billion in 2023 to Sh129.2 billion in 2024, exacerbating the sector’s struggles.
The World Bank emphasizes the importance of technology adoption in accelerating growth for middle-income nations like Kenya. In its recent report, the bank highlighted that investing in global technologies and fostering a conducive environment for innovation can significantly boost economic performance.
Kenya has made strides through initiatives such as the digital superhighway project, which includes the expansion of fibre-optic networks, but more remains to be done. Aligning statutory policies and infrastructure with the needs of modern industries is vital to ensuring sustainable growth.
Despite progress, inadequate infrastructure continues to hinder industrial expansion. Investors face additional costs related to transportation and energy supply, while inefficient government spending further stifles progress. Projects often remain incomplete or fail to deliver results despite substantial budget allocations, discouraging potential investors.
Deputy President Kithure Kindiki recently addressed these inefficiencies, warning underperforming contractors. “Where we get contractors who are being paid and have not delivered, we will cancel those contracts. Those who want to go to court can proceed as we move on with the development agenda,” he stated, signaling a stricter stance on project oversight.
Despite these challenges, several factors are poised to drive growth in the industrial sector:
- Rising demand for data centres and cold storage facilities in the Nairobi Metropolitan Area.
- Expansion of e-commerce, fueling the need for high-quality warehouses.
- Government initiatives such as Special Economic Zones (SEZs) and Export Processing Zones (EPZs), which continue to attract international investors.
The construction sector requires targeted interventions to address declining credit availability and inefficiencies in project execution. Enhanced project management and better access to financing are critical to unlocking the sector’s potential and ensuring its contribution to Kenya’s economic recovery.
The government’s commitment to supporting industries through policy adjustments and infrastructure development offers a glimmer of hope. According to KNBS, integrating global technologies, focusing on e-commerce and data centres, and improving project execution are essential steps toward creating a vibrant, sustainable economy.
Kenya’s industrial sector may have faced setbacks, but with strategic interventions, it is well-positioned to drive the nation’s economic recovery and foster long-term growth.
