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The fragile return of jobs in Kenya’s uneven labour market
Corporate Kenya added workers through much of 2025 as demand recovered and business confidence improved. But most of the new jobs were temporary, informal and poorly paid.
The labour market showed resilience in 2025 as rebounding consumer demand lifted private sector activity, helping firms to sustain jobs and employ additional workers, but on temporary contracts.
Increased hiring on temporary and informal contracts in corporate Kenya, however, offered workers little job security or prospects for higher pay, as wage growth remained largely muted for most of the year.
Firms added staff for much of the year in response to recovering sales and improving business confidence, according to the monthly Stanbic Bank Kenya Purchasing Managers Index (PMI), which interviews about 400 corporate managers.
Hiring momentum strengthened in the second half of the year, tracking a turnaround in output and new orders after a mid-year slump triggered by anti-government street protests, weak consumer spending, and tight financial conditions.
Between May and August, firms reported declining sales, shrinking order books, and reduced activity amid high prices, weak customer cash flows, and disruptions associated with political unrest.
Employment, however, proved relatively resilient during that downturn, as many firms opted to retain staff in anticipation of a recovery, despite declining backlogs.
PMI findings suggest employment expanded for 10 consecutive months through November, and job creation in the final quarter was among the fastest in more than two years.
The data indicate that most companies opted to pad their workforce with temporary labour, reflecting a trend seen earlier in the year when firms hired casual staff to meet rising orders without locking in long-term costs.
In April and May, for example, PMI surveys showed hiring concentrated in services, wholesale and retail, and construction, largely through short-term contracts. Manufacturing lagged during the first quarter, but gained traction later in the year as demand recovered and inventories rebuilt.
“Employment levels ticked up at one of the fastest rates this year due to the improving economic conditions,” said Christopher Legilisho, an economist at Standard Bank, commenting on the November PMI data.
Even as demand strengthened later in the year, most companies held back on permanent hires, with between 97 percent and 99 percent of firms reporting no change in wages in most months. This offered no relief to Kenyan workers who have, on average, endured negative pay for the last five years, analysis of annual economic surveys by the Kenya National Bureau of Statistics shows.
Inflation-adjusted real wages continued to drop after recording a decline of 0.3 percent last year, as employers remain reluctant to offer bigger pay rises to cover the rising operating costs.
A study by the World Bank Group and the State-run Competition Authority of Kenya stated the pattern of temporary hires reflects deeper, decades-long structural challenges in Kenya’s economy.
Operating challenges such as high electricity and logistics costs, and weak competition in key sectors continue to discourage firms from scaling up operations and committing to formal employment.
Formalising jobs
The reluctance to create formal jobs is nothing new in Kenya, where employers remain conservative in their staffing decisions, often citing shrinking backlogs.
Kenya’s share of formal jobs has fallen from 18.5 percent in 2010 to 15.5 percent in 2024, according to the World Bank’s and CAK’s study.
The share of permanent jobs has fallen even as the country’s gross domestic product (GDP) — a measure of all economic activities by the government, companies and individuals — expanded at an annual average of more than five percent and generated hundreds of thousands of jobs each year.
For instance, nearly nine in 10 of the 782,000 jobs created in 2024 were informal, a trend the joint World Bank and CAK report links partly to weak competition and high input costs that limit firm growth.
“When you have competition, prices go down, and Kenyans can buy more for their money,” said Ryan Kuo, the World Bank’s economist for finance, competitiveness and investments. “That means more demand for goods and services, which means more jobs within the economy.”
Mr Kuo added that stronger competition also boosts productivity, enabling firms to generate more value per worker and pay higher wages.
Kenya, he noted, has unusually high gross operating surpluses compared with competitive advanced economies — a sign that dominant firms may be charging above-cost prices due to limited competitive pressure.
Dominant firms
The bank’s latest Kenya Economic Update, released on November 24, 2025, indicates that entrenched market dominance and weak competition in critical sectors such as electricity, telecommunications, and fertiliser distribution are raising business costs, suppressing investment, and constraining the expansion of firms that typically generate formal employment.
The report identifies Safaricom in telecommunications and Kenya Power in electricity distribution as dominant players operating under weak competitive pressure.
Kenya Power’s near-monopoly over electricity distribution, the Bank says, gives it significant influence over tariffs and reliability, translating into high prices, limited alternatives and slow efficiency gains.
These factors have particularly weighed on the manufacturing sector, which is widely viewed as one of Kenya’s most promising sources of large-scale formal jobs.
Manufacturers have long cited high electricity costs as a major barrier to scaling operations, investing in new capacity and expanding payrolls.
Similarly, the World Bank says Safaricom’s dominance in mobile money and data services has shaped pricing and market access in ways that smaller digital firms struggle to overcome.
The report notes that Safaricom’s mobile broadband prices for monthly bundles are higher than those of its competitors in Kenya and in regional peers such as Ghana, Nigeria, Rwanda, and Zambia.
More distortions
The World Bank also flags distortions in agriculture, where the State-funded fertiliser subsidy programme relies on a narrow distribution chain dominated by leading suppliers Yara and ETG. Weak competition in subsidised input markets has reduced availability of high-demand fertiliser blends, created geographic distortions and locked out private players, suppressing agricultural productivity and slowing growth in formal jobs across agri-processing, logistics and retail.
In transport, opaque licensing regimes for new players in sub-sectors such as air freight services, regulatory fragmentation, and barriers to market entry have raised logistics costs, squeezing margins for manufacturers and exporters and further discouraging investment in labour-intensive activities.
“These distortions are feeding directly into Kenya’s shrinking share of formal jobs,” the World Bank said, linking weak competition to elevated input costs, subdued investment, and limited firm growth.
The structural pressures partly explain why wage growth has remained subdued as output and hiring, tracked by the PMI, picked up.
Staff costs rose only marginally for most of 2025, with a brief rise in June driven by overtime and in August, when manufacturers adjusted pay to reflect cost-of-living pressures.
By November, wage inflation had slowed to its weakest pace of the year.
The 2025 PMI data shows that businesses are responding to stronger sales by adding workers, but the World Bank’s findings suggest that without deeper competition reforms, the recovery may struggle to translate into sustained wage growth and a durable revival of formal employment.
