Historically, Africa has played a limited role in global trade, accounting for just 2.1 per cent in 2022, with intra-African trade at 17.5 per cent in 2020. Fragmented domestic markets, high trade costs and weak industrial bases have constrained economic growth and slowed structural transformation for decades, limiting the continent’s ability to fully benefit from its resources and production capacity. Kenya is no exception, as many of these structural barriers continue to shape the performance of its manufacturing industry and its ability to compete beyond domestic borders.
The African Continental Free Trade Area seeks to change this. Connecting 54 countries with a combined GDP of USD 3.4 trillion and a population of 1.4 billion, it is the largest trade agreement in the world by membership. By creating a unified market, it aims to stimulate industrialisation, deepen trade links and foster regional value chains.
This continental transformation presents a timely opportunity for Kenya. As one of East Africa’s leading economies, AfCFTA offers a pathway to scale up production, attract investment and create high-quality jobs. However, realising this potential will depend not only on market access but also on how effectively the agreement is implemented across member states and how well domestic constraints are addressed.
Kenya’s Manufacturing Sector: Crisis and Opportunity
Kenya has long been regarded as an economic hub in East Africa, with a relatively diversified industrial base and a strong private sector. This promise, however, has not translated into sustained growth for the manufacturing sector.
Over the years, the sector has experienced a steady decline, with its contribution to GDP falling from 10.1 per cent in 2014 to 7.6 per cent in 2023. It employs only 7 per cent of the workforce, well below the global average of 14 per cent. This premature de-industrialisation has unfolded even as the service sector has expanded at 6.5 per cent annually, compared with manufacturing growth of 2.5 per cent. Productivity remains low, energy costs are high and the broader business environment continues to pose significant challenges. In 2025, a third of firms cited taxation as their biggest obstacle, while access to finance, political instability, informality and corruption were also among the top 10 obstacles they faced.
At the same time, the sector’s decline does not tell the whole story. Kenyan firms remain relatively strong in innovation and management. A 2025 survey showed 35 per cent of manufacturers introduced a new product in the past three years, compared with 27 per cent in Sub-Saharan Africa, while 29 per cent introduced a new process compared with 19 per cent in the region. This underlying dynamism, combined with access to a larger integrated market under AfCFTA, gives Kenyan manufacturers the potential to overcome the limitations of a small domestic market and scale up production.
Realising these gains will require addressing long-standing supply-side barriers. The Kenya Association of Manufacturers has consistently highlighted the need to reduce customs delays, ease regulatory bottlenecks and lower fixed costs, all of which continue to limit firms’ ability to compete both regionally and globally. With the right policy and infrastructural support, Kenya’s manufacturing sector could regain momentum and play a central role in economic growth and job creation.
How AfCFTA Will Impact Kenyan Manufacturing: New Evidence
Against this backdrop, new analysis using advanced economic modelling provides insight into how AfCFTA could reshape Kenya’s manufacturing sector (The research by John Mburu, Dr. Angelica Njuguna, and Dr. Shadrack Mwilaria report is still a work in progress and expected to be published by mid-2026). By lowering tariff and non-tariff barriers, the agreement is expected to increase overall manufacturing output by 1.73 per cent, equivalent to USD 1.2 billion or KES 159.5 billion.
The gains are likely to be uneven, with some industries expanding rapidly while others remain stable or face modest declines. Rubber and plastics, along with chemicals and pharmaceuticals, are projected to benefit the most. In the case of rubber and plastics, output could increase by nearly 270 per cent, rising from USD 541 million to USD 1.5 billion, with employment more than doubling. These gains are driven by the sector’s ability to scale production and compete in a larger market.
By contrast, larger and more established sectors such as food, beverages and tobacco, and metals and metal products are expected to see limited change, indicating stability rather than disruption. Meanwhile, resource-intensive and labour-intensive sectors such as textiles, apparel and leather, and wood and paper may experience modest declines of less than 3 per cent. This uneven pattern highlights both the opportunities and the adjustment challenges that come with deeper regional integration.
At the heart of these changes is a transformation in how firms participate in trade. Growth is driven not only by expanding existing firms but by enabling more businesses to enter export markets. By reducing fixed costs and easing regulatory barriers, AfCFTA makes it easier for micro, small and medium-sized enterprises to trade across borders. This expansion at the extensive margin is particularly important for job creation, given that MSMEs employ over 85 per cent of non-farm workers and contribute 40 per cent of GDP. Even small improvements in their ability to access markets can have wide-reaching economic effects.
Seizing the Opportunity: Policy Implications
The emerging picture is clear. AfCFTA has the potential to support a meaningful, though uneven, transformation of Kenya’s manufacturing sector. It is not a silver bullet, but it provides a powerful framework through which long-standing structural constraints can be addressed.
Although implementation remains gradual, early signs are encouraging. In 2023, AfCFTA contributed to 3.2 per cent growth in intra-African trade. Looking ahead, the World Bank projects a 32 per cent increase in trade within the continent, which could lift at least 30 million Africans out of extreme poverty by 2035. The United Nations forecasts a 35 per cent rise by 2045 under full implementation. These projections signal a significant transformation in how African economies will trade and grow.
To fully realise these gains, policy action must focus on the fundamentals that shape firm competitiveness. Streamlining customs and licensing processes, reducing the fixed costs of doing business and providing targeted support to high-growth sectors such as rubber and plastics will be critical. Just as important is ensuring that smaller firms are able to participate in regional trade, as their expansion will drive much of the employment impact.
By aligning national industrial policy with the opportunities offered by a continental market, Kenya can move beyond incremental improvements and pursue a sustained path to industrial growth. Effective implementation of AfCFTA could reverse the decline of the manufacturing sector, repositioning it as a central pillar of economic transformation, supporting job creation, strengthening regional trade links and contributing to long-term inclusive growth.
Written by John Mburu– Program Manager, Expertise Global
