Mass Closure of Companies Now Raise Concerns on Unemployment Rate

Mass closure of companies amid rising unemployment in Kenya, now reflects deeper structural challenges in the country’s economic fabric, which hints on the side need signaling for urgent policy intervention.

This trend can now be attributed to systemic issues, which among other factors, include inconsistent regulatory frameworks, high electricity costs at $0.17 per kilowatt-hour (nearly five times higher than Egypt and Ethiopia), coupled with an unpredictable tax regime, limited access to affordable credit for SMEs, and the spillover effects of global economic volatility.

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For ages, Kenya has been a country, hugely relying on private-sector-driven growth, with SMEs accounting for approximately 80% of employment. However, there are some factors that have posed challenges to business confidence in the country. They include hiked taxation, unpredictable policy shifts, and inflationary pressures have eroded business confidence.

Considered a key issue is the government’s addiction on borrowing heavily on domestic market, which crowds out private-sector borrowers, particularly SMEs. Referencing to the year 2024, Kenya’s domestic debt stood at KES 5.7 trillion, with banks channeling up to 55% of their lending portfolios to government securities, attracted by rates as high as 14.5% on treasury bonds-significantly higher than the average SME lending rates of 12-13%, which also carry higher risk.

This preference highlights a systemic issue where low-risk, high-return government borrowing stifles private-sector access to affordable credit, leaving SMEs struggling for capital.

How long can an economy sustain growth when its entrepreneurial engine is deprived of the fuel it needs to thrive?