The Kenya Private Sector Alliance released its Q2 2026 Business Climate Index indicating declining business confidence at 42.8 points, down from 47.3 in Q1. The survey included 300 companies representing manufacturing, retail, hospitality, and service sectors. Respondents cited inflation pressures, particularly in input costs and energy bills, as primary concerns affecting profitability. Currency depreciation against the dollar increased imported goods costs, squeezing margins across sectors. Government policy uncertainty regarding taxation and regulation added to business hesitation.
Manufacturing sector sentiment declined most sharply with 38% reporting reduced production capacity utilization. Energy costs increased 18% year-over-year, making industrial operations increasingly uncompetitive. Retail businesses faced consumer spending pressures as disposable incomes declined in real terms. Tourism sector showed slight improvement following international visitor recovery. Technology and financial services demonstrated resilience with growing export opportunities and digital transformation demands.
Employment outlook deteriorated with 45% of surveyed companies planning workforce adjustments. Wage inflation pressures competed with business viability concerns. Youth unemployment remained elevated at 34% nationally. However, agriculture and agribusiness segments reported optimistic sentiments following improved weather patterns and favorable commodity prices during the 2025-2026 season.
KEPSA recommended policy interventions including targeted tax incentives for export-oriented manufacturers, energy subsidy programs for industrial users, and infrastructure investment acceleration. Business leaders called for dialogue with government regarding fiscal policy coordination. Long-term economic confidence depended on inflation stabilization and currency strengthening. Improved business environment conditions were expected if macroeconomic indicators stabilized during the second half of 2026.
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