Unpredictable government policies have overtaken tax incentives as the biggest concern among foreign investors eyeing Kenya, signaling the weak spot for the State as it seeks to woo fresh global capital.
The shift points to a fundamental change in what multinationals prioritise when choosing investment destinations across the world.
This comes after the 2026 World Investment Report by the United Nations Conference on Trade and Development (UNCTAD) estimated Kenya received a record $3.2 billion (Sh413.6 billion) in foreign direct investment last year, a 37.7 percent jump from revised $2.32 billion (Sh299.9 billion) in 2024.
Kenya Investment Authority (Invest Kenya) chief executive John Mwendwa says policy predictability is the issue raised most frequently in meetings with prospective investors, reflecting growing concern over abrupt regulatory changes.
“Top of mind, the first thing that investors want is predictability,” Mr Mwendwa said in an interview with Business Daily. “Predictability enables them to plan and model assumptions that resonate with their expectations.”
Multinational companies making long-term investments, he said, increasingly want governments to provide stable tax, regulatory and policy environments that allow them to forecast returns with greater certainty.
Mr Mwendwa acknowledged that investors become uneasy when governments introduce policy changes without adequate consultation or advance notice, forcing businesses to revisit investment assumptions after capital has already been committed.
“Sometimes when changes occur that investors say are not pre-communicated, it becomes an issue,” he said.
Apart from policy uncertainty, investors also raise concerns over the speed of regulatory approvals, including company registration, land titling, work permits and licensing.
Invest Kenya is attempting to address those concerns through an investment deal room that brings together government agencies to resolve bottlenecks affecting strategic projects.
The concerns mirror longstanding complaints by business lobbies, who say an increasingly complex and unpredictable regulatory environment has become one of the biggest drivers of business costs and, in some cases, forces entrepreneurs to abandon investment projects altogether.
The Kenya Association of Manufacturers (KAM) says delays in obtaining licences and permits have prompted some investors to shelve projects, while an expanding web of compliance obligations is making it harder for firms to innovate and compete.
“The excessive red tape and compliance requirements imposed by labour laws, tax regulations and other legal obligations result in increased expenses for businesses,” KAM says in one of its policy reports.
The lobby says lengthy bureaucratic procedures divert resources away from core business operations, while frequently changing regulatory barriers discourage new enterprises from entering the market, limiting competition and slowing economic growth.
Businesses have also complained of overlapping requirements imposed by national and county governments, arguing that multiple agencies often perform duplicative regulatory roles that inflate compliance costs.
Depending on the sector, companies may be required to secure close to 20 licences and permits covering business registration, environmental compliance, occupational safety, food processing, waste management, water and sewerage, construction, noise control and county levies.
Kenya has traditionally competed for foreign investment through tax incentives, special economic zones and aggressive investment promotion campaigns led by senior government officials.
But Mr Mwendwa said investors now evaluate a much broader ecosystem before committing capital.
“Our view is investors are not only looking for incentives; they are looking at an ecosystem,” he said.
That ecosystem includes skilled labour, reliable infrastructure, affordable energy, market access, efficient public institutions and confidence that the rules governing investments will remain stable throughout a project’s lifespan.
Mr Mwendwa argued Kenya remains well positioned because of its skilled workforce, electricity generated largely from renewable sources and preferential access to major export markets across Africa, the United States, the United Kingdom, the United Arab Emirates and China.