Kenya’s fiscal incentives aim to turn climate credentials into industrial advantage
Kenya imported $296 million worth of solar photovoltaic modules between 2020 and 2024, revealing substantial demand that domestic manufacturing could potentially capture. The government now proposes redirecting such expenditure toward local production through a suite of tax incentives designed to attract investment in clean technology manufacturing.
The policy framework, detailed in Sustainable Energy for All’s Kenya Green Manufacturing Policy and Investment Guide published in April 2025, targets manufacturers of solar equipment, batteries, and electric vehicles. Companies operating within Kenya’s Special Economic Zones receive a 0% corporate tax rate for the first ten years of operation, followed by a reduced rate of 15% for the next ten years, compared to the standard 30%. Additional benefits include full exemption from tax, duties and fees on imported goods, zero-rated VAT on goods from local suppliers, and 100% allowance on capital expenditure on building and machinery.
The incentives build on Kenya’s renewable energy foundation. Kenya’s installed renewable energy capacity grew from 1.6 gigawatts in 2015 to 2.8 gigawatts in 2024, led by geothermal and hydropower. The country’s Energy Transition and Investment Plan, ratified in 2023, projects that power demand will grow twenty-fold to 2050, from 9 terawatt-hours in 2020 to 190 terawatt-hours in 2050. The plan identifies six main decarbonisation technologies: electrification, energy efficiency, renewables, low-carbon hydrogen, battery electric technologies and clean cookstoves, which together cover 89% of CO2 abatement under net zero versus business as usual in 2050 and beyond.
Kenya’s economy recorded 5.6% GDP growth in 2023, with GDP reaching $108 billion. Yet manufacturing’s contribution remains modest. The sector has long underperformed relative to policy ambitions, constrained by infrastructure deficits, skills gaps, and regulatory inconsistency.
The government has established twelve gazetted Special Economic Zones with more planned, according to the Kenya Special Economic Zones Authority. These include the Dongo Kundu SEZ adjacent to Mombasa Port, focused on manufacturing and assembly; the Naivasha SEZ along the Standard Gauge Railway line, targeting green energy; and Konza Technopolis, designated as a hub for green energy engineering under Kenya’s Vision 2030 development programme.
Private zones supplement public facilities. Tatu City SEZ, developed by Rendeavour, operates as Kenya’s first mixed-use SEZ, located 35 kilometres from Jomo Kenyatta International Airport. The zone provides space for light industrial and logistics operations. Nairobi Gate Industrial Park, positioned along the Eastern Bypass 30 minutes from the airport, offers logistics, warehousing, and distribution facilities with “build-to-suit” options.
Export Processing Zones provide alternative incentives. The Export Processing Zones Authority, established in 1990, offers a ten-year corporate tax holiday, ten-year withholding tax holiday, 100% investment deduction on new investment, and perpetual exemption from payment of stamp duty on legal instruments. Companies also receive perpetual exemption from VAT and customs import duty on inputs.
Sector-specific incentives target clean technologies. The government provides VAT exemption on specialised equipment for the development and generation of solar and wind energy, including photovoltaic modules, direct current charge controllers, direct current inverters and deep cycle batteries. Solar and lithium-ion batteries receive zero-rated VAT. Manufacturers of solar equipment benefit from VAT exemption on inputs or raw materials supplied to solar equipment manufacturers for manufacture of solar equipment or deep cycle-sealed batteries.
Electric vehicle assembly receives targeted support. The Finance Law 2025 retained the 15% corporate tax rate for companies engaged in local motor vehicle assembly. Excise duties for electric vehicles stand at a preferential rate of 10%, while electric motorcycles receive exemption from the $100 excise duty applied to conventional motorcycles. Companies establishing new assembly plants using completely-knocked-down parts qualify for reduced corporate tax rates, extendable for an additional five years upon achieving 50% local value addition.
The National Automotive Policy, developed in 2019, emphasises government support for research and development of electric vehicle technologies, including batteries and charging stations. However, more elaborate tax measures remain under development. The Draft National E-Mobility Policy, issued by the Ministry of Roads and Transport in March 2024, outlines Kenya’s electric vehicle strategy but awaits final enactment.
Administrative requirements impose substantial compliance burdens. Companies must obtain certificates of incorporation from the Business Registration Service, personal identification numbers from Kenya Revenue Authority, business permits from county governments, and Environmental Impact Assessment licences from the National Environment Management Authority. Manufacturing facilities require product quality certifications from the Kenya Bureau of Standards. Solar photovoltaic manufacturers need licensing from the Energy and Petroleum Regulatory Authority.
Environmental regulations mandate systematic assessments. Every project proponent must submit an Environmental Impact Assessment conducted by licensed experts registered with the National Environment Management Authority before project commencement. The authority charges 0.05% of project cost for assessment fees. Ongoing projects require periodic Environmental Audits to verify compliance with approved environmental management plans.
Kenya’s fiscal position constrains expansion of tax incentives. Public debt stood at 70.0% of GDP as of June 2024, 20 percentage points higher than the International Monetary Fund threshold of 50% for developing countries. The collapse of the Finance Bill 2024 amid public protests created revenue shortfalls only partially offset through spending cuts, keeping borrowing needs elevated.
Regional competition intensifies pressure. Ethiopia offers decade-long corporate tax holidays, subsidised land leases, and lower labour costs. Tanzania positions itself as an electric vehicle assembly hub for southern Africa. If Kenya’s incentives succeed in attracting investment, neighbouring countries may respond with even more generous terms, potentially triggering competitive subsidisation that erodes collective tax revenue across East Africa.
The policy framework identifies critical actions for implementation. These include strengthening enforcement of national targets for renewable energy adoption, introducing stable and progressive industrial policy for achieving higher local content, adjusting import duties to support local assembly versus finished goods imports, updating legal frameworks to reduce regulatory delays, mobilising early-stage funding for project preparation, establishing dedicated funding facilities for green technology manufacturing, strengthening curriculum development for manufacturing-specific skills, and leveraging the East African Community and African Continental Free Trade Area to develop regional supply chains.
The Kenya Investment Authority, established in 2004 and regulated by the Investment Promotion Act, provides support for incoming investors. The authority assists investors in obtaining licences, permits, incentives and exemptions; liaises with government agencies for additional approvals; and provides post-implementation services. Foreign investors must apply for an Investment Certificate enabling entry with proposed investments starting at $100,000.
Kenya’s electricity access has expanded rapidly, with urban electrification reaching 100%. The country remains on track to achieve universal access by 2030. However, affordability of electricity remains challenging. Industrial electricity tariffs, while competitive regionally, are undermined by transmission losses and reliability issues outside major urban centres, often necessitating backup diesel generators that increase effective costs.
Whether fiscal incentives translate into manufacturing capacity depends on factors beyond tax policy: infrastructure reliability, skills availability, regulatory consistency, and political stability. Kenya’s track record suggests policy design frequently exceeds implementation capability. The Manufacturing Priority Agenda issued by the Kenya Association of Manufacturers in 2024 advocates for increasing global competitiveness, following export-led industrialisation, developing small and medium enterprises, and promoting agro-industry value chains—objectives that have featured in successive policy documents with limited realisation.
The Energy Transition and Investment Plan identifies $600 billion of near-term investment opportunities associated with Kenya’s pathway to net zero by 2050. The plan emphasises that localised cleantech manufacturing is highly attractive and competitive to drive domestic demand and create high-skilled jobs, for which further capacity building is necessary. By 2050, the plan projects that electric vehicles dominate the fleet and are practically the only actively sold new cars in the country.
Success requires addressing structural constraints that have long impeded industrial development. Without substantial improvements in administrative capacity, infrastructure provision, and regulatory predictability, even well-designed incentives risk delivering limited results. Kenya’s renewable energy advantages create genuine opportunities, but converting those opportunities into sustained manufacturing employment demands more than favourable tax treatment. It requires institutional capabilities that successive governments have struggled to build.
