The World Bank has identified corruption and rent-seeking as major obstacles to Kenya’s economic growth and job creation, warning that weak governance is undermining the country’s efforts to achieve upper-middle-income status.
In its November 2026 Kenya Economic Update, the global lender said systemic governance challenges were increasing the cost of doing business, weakening public finances and limiting opportunities for businesses and workers.
The report, titled Special Focus on Governance Constraints to Economic Growth and Job Creation, estimates that ambitious anti-corruption reforms could increase Kenya’s Gross Domestic Product (GDP) by 22.3 per cent by 2035 compared to a scenario without reforms.
The reforms could also raise household consumption by 27 per cent and generate up to 7.7 million additional and better jobs.
Under a moderate reform scenario, the economy could expand by 8.7 per cent above the no-reform baseline.
The warning comes against the backdrop of an improving economic outlook, with Kenya’s real GDP growth accelerating to 5.2 per cent in the first half of 2026, up from 4.6 per cent in 2025.
The expansion was largely supported by strong performance in the industry and services sectors.
However, the World Bank noted that employment growth had not translated into sufficient improvements in job quality, with 83.8 per cent of jobs remaining informal in 2025.
The report identified four major channels through which corruption affects the economy, including public finances, electricity and logistics costs, private sector performance and the livelihoods of informal workers.
On public finances, the lender said corruption and collusion contribute to tax non-compliance, excessive tax exemptions and inflated procurement costs.
These practices, it noted, could widen Kenya’s annual fiscal deficit by an estimated two percentage points of GDP while increasing government borrowing costs.
The country’s fiscal deficit widened to 6.8 per cent of GDP in the 2025/26 financial year, exceeding the initial target of 4.7 per cent.
Gross public debt also stood at 69.9 per cent of GDP at the end of June 2026, with interest payments consuming an estimated 5.8 per cent of GDP.
The report further raised concerns over high electricity and logistics costs, which it linked to governance weaknesses and inefficiencies.
Businesses in Kenya pay more than twice as much for electricity as their counterparts in Vietnam and about 50 per cent more than businesses in Uganda.
The World Bank attributed the high power costs partly to opaque and non-competitive Power Purchase Agreements, alongside conflicts of interest in the energy sector.
In the transport sector, the Port of Mombasa was ranked 375th out of 403 ports in the Container Port Performance Index, with administrative delays, multiple inspections and alleged bribe demands contributing to inefficiencies.
The report also highlighted the impact of corruption on businesses, particularly medium-sized enterprises, with 48.2 per cent reporting that they had to offer gifts to get things done.
Firms exposed to bribery were found to record weaker performance in innovation, research and development, labour productivity and sales growth.
Informal sector workers were also identified as bearing a significant share of the burden, with boda boda operators and market vendors losing between five and 20 per cent of their daily earnings to bribe demands by traffic police and municipal inspectors.
To address the challenges, the World Bank recommended stronger fiscal discipline, improved transparency in public procurement and stricter enforcement of conflict-of-interest regulations.
It also called for the full implementation of electronic government procurement, integration of verified beneficial ownership information across public registries and systematic follow-up on reports by the Auditor-General.
Other proposed measures include introducing competitive and transparent energy auctions, streamlining port operations, reducing inland roadblocks and protecting informal workers from discretionary enforcement practices.
The lender said implementing the reforms could help reduce public debt pressures, improve the business environment and create more productive employment opportunities.
