Starting and growing a business in Kenya is becoming more difficult when corruption, regulatory barriers and politically connected competitors distort the market, the World Bank has warned.
In its November 2026 Kenya Economic Update, the lender says higher levels of administrative corruption are associated with lower registration of new businesses, suggesting that governance weaknesses are discouraging entrepreneurs from entering the formal economy.
The report argues that corruption creates an uneven playing field by protecting politically connected and potentially less efficient businesses from competition. New firms can face unofficial payments, complicated licensing processes and unpredictable regulatory decisions, raising the cost of entering markets.
These challenges can be particularly damaging in highly regulated sectors, where access to licences, permits, public contracts and other government-controlled resources can determine whether a business is able to operate and compete.
The World Bank says available evidence suggests that connected firms have a significant presence in Kenya’s economy. When businesses with political or official connections receive preferential treatment, newer companies without those networks can struggle to compete, regardless of their efficiency or the quality of their products.
The lender also links weak competition to market concentration, where a small number of established businesses can retain significant market power. This can allow firms to capture economic rents at the expense of workers and consumers rather than compete through lower prices, innovation and improved productivity.
Kenya's regulatory environment adds to the challenge. The report references the country's Product Market Regulation score of 2.92, the highest and most restrictive among countries with available data, compared with an average of 2.27 for middle-income countries.
The World Bank says this points to significant restrictions on competition within the economy. Such barriers can make it harder for new businesses to challenge established players and expand into sectors where regulatory approvals and government decisions carry substantial weight.
Weak enforcement of commercial laws and delays in the courts further increase the risks for entrepreneurs. Businesses that encounter disputes over contracts or regulatory decisions may face lengthy legal processes, higher costs and uncertainty over whether judgments will be enforced.
The report notes that 70 per cent of firms surveyed in the 2022 Business Integrity Survey identified slow-moving court cases, sometimes lasting many years, as a key driver of corruption.
The findings have wider implications for employment and economic growth. New businesses are an important source of competition, innovation and job creation, but barriers to entry can prevent productive entrepreneurs from expanding and hiring workers.
The World Bank argues that reducing corruption, simplifying regulations, strengthening judicial independence and ensuring fair access to public resources would help create a more competitive business environment.
For Kenya, the challenge is not simply to increase the number of businesses registered, but to ensure that entrepreneurs can enter markets and compete on merit rather than connections or their ability to meet unofficial demands.
