Kenya losing Sh194 billion annually to graft, hurting economic growth - AfDB

Corruption and illicit financial flows cost Kenya as much as $1.5 billion (Sh194 billion) annually – funds that could transform health, education, and infrastructure, the African Development Bank (AfDB) has said.

The African Economic Outlook Kenya Country Focus Report, released in Nairobi on Wednesday further shows that inefficiencies in public spending cost the country at least Sh650 billion, equivalent of five per cent of its gross domestic product, while tax exemptions and incentives account for an additional $800 million (Sh105 billion) in lost revenue each year.

These losses, according to the bank, significantly undermine Kenya's ability to finance its own development and economic growth, resorting to borrowing, with interest on loans alone way above education and health budgets.

“Corruption and illicit financial flows cost the East African nation as much as $1.5 billion annually – funds that could transform health, education, and infrastructure development,” AfDB’s report reads.

The report notes that state capture—where political elites dominate lawmaking and enforcement—is subverting the rule of law and creating uncertainty, which discourages investment and hinders capital mobilisation.

“Investors fear biased rulings, delays, and lack of transparency, increasing operational risks and deterring investment,” the AfDB said.

“Ultimately, the rule of law, upheld by robust law enforcement and an independent judiciary, remains the foundation for sustained economic growth, social equity, and public trust in governance.”

The figure is, however, much conservative compared to the Ethics and Anti-Corruption Commission’s (EACC) report that indicated that the country is losing an estimated Sh608 billion or 7.8 per cent of Gross Domestic Product (GDP) to corruption annually.

Last year, the country was ranked in the bottom third of Transparency International’s Global Corruption Perceptions Index (CPI), alongside countries such as Sri Lanka, Angola, Ecuador, and Uzbekistan.

According to the 2024 CPI, Kenya was ranked 121st out of 180 countries, signaling persistent governance and integrity challenges.

The country obtained a score of 32 out of 100, a slight improvement from 31 points in 2023.

However, the score remains below both the Sub-Saharan Africa average of 33 and the global average of 43. A score below 50 indicates serious levels of corruption in the public sector.

Kenya’s CPI score has remained largely stagnant over time. A five-year trend analysis shows a minimal change, with just a one-point increase between 2020 (31 points) and 2024 (32 points).

Historically, Kenya’s corruption ranking has averaged 125.57 from 1996 to 2024, peaking at a high of 154 in 2010 and recording a low of 52 in 1996.

Despite these governance challenges, the AfBD expects Kenya’s economic growth to accelerate to five per cent in 2025, up from 4.7 per cent in 2024, driven by strong performance in agriculture and services.

 However, growth is projected to slow slightly to 4.8 per cent in 2026.

“Rising poverty, high unemployment, and growing inequality indicate that Kenya’s economic growth has not been fully inclusive,” the report warns.

AfDB's forecast mirrors that of the Kenyan government, but is higher than that of the World Bank and the International Monetary Fund (IMF), which estimates Kenya's gross domestic product to drop to 4.8 per cent from a previous estimate of five per cent. 

The multilateral institution projects that the continent’s GDP will grow from 3.3 per cent to 3.9 per cent in 2025, and to four per cent in 2026. The downward revisions are primarily due to the expected impact of the ongoing Washington-led global tariff war, which is expected to affect African exports and disrupt value chains.