Kenya is losing up to Sh1 trillion in economic activity every year through quieter, less scrutinised foreign procurement deals embedded deep within corporate cost structures.
A technical policy report backing the proposed Local Content Bill, 2025, presented to Parliament by Laikipia Woman Representative Jane Kagiri, suggests multinational companies operating in Kenya routinely route billions of shillings in service costs through foreign group entities. This effectively exports value before profits are declared and taxes assessed.
The proposed law before Parliament seeks to address this by requiring companies to source at least 60 percent of their goods and services from local enterprises.
The report, based entirely on audited financial statements, traces payments for software licences to foreign parent firms, network maintenance contracts awarded through global vendor frameworks, and distribution services channelled via overseas procurement hubs.
An analysis of three Nairobi Securities Exchange-listed firms – Safaricom, East African Breweries Limited (EABL) and British American Tobacco Kenya (BAT Kenya) – shows a combined Sh59 billion in service costs routed abroad in the latest financial year ended in 2025 through related-party arrangements and multinational procurement chains.
Hidden outflows
The costs include technology licensing, network maintenance, logistics, warehousing and professional services – functions the report’s authors argue Kenyan firms are largely capable of delivering at scale.
Safaricom paid Sh37.1 billion in fees to Vodafone for maintenance of M-Pesa platforms and networks, EABL wired Sh20.9 billion to Diageo for distribution and maintenance, while BAT routed spending towards freight and logistics managed via a London-based global consortium, the report notes.
“What we have found, consistently, across three different companies, is the same structural pattern: revenue generated in Kenya, services procured abroad,” the report states.
While the Sh59 billion figure relates to three firms, the report extrapolates the pattern across Kenya’s foreign-controlled corporate sector, estimating annual service cost leakage of between Sh136 billion and Sh185 billion.
When combined with offshore insurance flows – where as much as Sh50 billion in premiums is ceded annually to global reinsurers – the total outflow through procurement structures rises to between Sh182 billion and Sh214 billion.
Applying standard economic multipliers for developing economies, the report estimates this translates into between Sh910 billion and Sh1.07 trillion in lost domestic economic activity each year.
“At the central estimate and the 5× multiplier [which the IMF endorses for labour-intensive service sectors in developing economies], Kenya's corporate procurement architecture costs the domestic economy approximately Sh1 trillion in foregone economic activity every year,” the report states.
“[This is] not lost to recession, not destroyed by drought, not eroded by conflict, [it is] foregone because the procurement architecture of Kenya's foreign-controlled corporate sector routes spending to foreign group entities instead of Kenyan enterprises.”
Policy shift
This finding reframes the long-running debate on capital flight, shifting focus from dividends—which are visible, taxed and regulated—to operating expenses that quietly erode the domestic economy upstream.
Unlike dividends, which are paid after profits are declared, service costs are booked earlier in the income statement, reducing taxable income and the pool available for shareholder distribution.
“Service costs are deducted before profit is calculated. They reduce the tax base, they reduce the dividend pool, and they transfer value out of Kenya’s economy through the cost structure itself: before any profit line is struck,” the report notes. “When Safaricom routes its platform licence fees to a Vodafone group entity rather than paying a Kenyan software firm, or when EABL channels its distribution spend through Diageo Great Britain rather than contracting Kenyan logistics companies directly, those transfers do not trigger the political response that dividend repatriation does.”
The findings suggest the issue is systemic rather than company-specific. The procurement model identified in the three major publicly-traded firms is described as the default operating structure for multinational enterprises, particularly in the absence of legal requirements to source locally.
Under this model, companies generate revenue in Kenya but rely on global supply chains – usually controlled by parent companies – for key services. While legal and disclosed, these arrangements embed outflows within operating expenses, the report suggests.
The proposed Bill, currently before the Departmental Committee on Trade, Industry and Cooperatives, seeks to attach criminal liability to this procurement model.
Under Clause 4(8), companies that fail to comply with local sourcing rules face a minimum Sh100 million corporate fine, while chief executives risk at least one year in jail. The inclusion of jail terms signals a shift from voluntary guidelines to binding obligations.
Enforcement risk
The law seeks to force multinationals to rewire procurement structures that have long favoured offshore suppliers. Proponents of the proposed law argue that previous attempts to encourage local participation have failed largely because they lacked consequences.
Clause 4(3) of the Bill requires foreign firms to source at least 60 percent of goods and services locally across sectors including financial services, insurance, construction, transport, logistics and security. This is aimed at redirecting billions in corporate spending toward Kenyan enterprises.
The Bill also imposes a series of sweeping obligations designed to rebuild domestic capacity and close leakage channels. Clause 4(4) requires foreign companies to invest in building the technical capacity of Kenyan firms, tying market access to knowledge transfer and supplier development.
Clause 4(5) goes further in the food and beverage sector, mandating 100 percent local sourcing of agricultural inputs where domestic alternatives exist.
In the labour market, Clause 4(7) introduces an 80 percent Kenyan workforce requirement across all levels, including management and technical roles, which are sometimes held by expatriates in banking, insurance, and professional services.
The report, which serves as an evidentiary companion to the Bill, argues the procurement model driving outflows is structural and can only be addressed through legislation.
“[This] is not a market outcome. It is a procurement architecture. And architecture is precisely what legislation can change,” it states.
The report cites KCB Group as a local benchmark, noting the bank generates hundreds of billions in revenue while sourcing most services domestically, resulting in minimal foreign leakage.
It also flags insurance as a major but underreported channel of capital flight, with billions wired annually to offshore reinsurers.
The effect is amplified in infrastructure projects, where the report highlights a “triple external drain”: Kenya borrows externally to finance projects, hires foreign contractors to build them, and insures them through foreign reinsurance markets.
“Approximately Sh25 billion in insurance premiums attached to Kenya’s infrastructure pipeline since 2010 has been ceded offshore,” the report states, citing firms including Munich Re, Swiss Re, Hannover Re and Lloyd’s syndicates. “These are projects financed with borrowed money, predominantly from China Exim Bank, the World Bank, and bilateral development finance institutions,” the report reads.
“Kenya is therefore simultaneously paying interest on borrowed capital to build its infrastructure, paying foreign contractors to build it, and paying foreign reinsurers to insure it.”
