Kenya’s small and medium-sized enterprises (SMEs) remain the quiet stabilisers of the economy, even as rising costs, weak consumer demand, and financing constraints continue to squeeze businesses, according to the Central Bank of Kenya (CBK) CEOs Survey released in November 2025.
The survey, conducted ahead of the Monetary Policy Committee meeting, captures the views of chief executives across key sectors including manufacturing, agriculture, tourism, financial services, ICT, and professional services. While the respondents are largely leaders of medium and large firms, the findings closely reflect the operating environment faced by SMEs, which form the backbone of Kenya’s private sector.
The headline message is one of cautious optimism.
Confidence Holds, but It Is Conditional
Most CEOs surveyed expressed positive growth expectations for their companies, sectors, and the Kenyan economy over the next 12 months. This confidence is supported by favourable weather conditions boosting agriculture, a relatively stable macroeconomic environment, easing inflation, a stable exchange rate, and declining bank lending rates following monetary policy easing since August 2024.
For SMEs, these macro signals offer some relief. Lower inflation reduces pressure on input costs, while declining interest rates improve the affordability of credit—at least in theory.
However, CEOs were clear that optimism is fragile. High costs of doing business, multiple taxes and levies, reduced consumer purchasing power, geopolitical tensions, and uncertainty around U.S. trade policy changes were cited as major threats to growth. These challenges disproportionately affect SMEs, which typically operate with thinner margins and limited buffers.
Festive Season Boost Masks Structural Strain
Business activity improved in the fourth quarter of 2025 compared to the previous quarter, largely due to festive-season demand. Firms reported higher sales, increased orders, stronger production volumes, and modest growth in employment.
For SMEs, Q4 remains the most important trading period of the year, particularly for retailers, manufacturers, hospitality businesses, and service providers. Many rely on festive cash flows to clear debts, restock, and prepare for the new year.
But the CBK survey also signals caution. CEOs expect business activity to moderate in the first quarter of 2026 as seasonal demand fades. This pattern highlights a long-standing structural weakness for SMEs: growth remains heavily consumption-driven and cyclical, rather than anchored in sustained demand.
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Capacity Exists, Cash Does Not
One of the survey’s most revealing findings is that most firms are operating below or near full capacity. In practical terms, this means Kenyan businesses—including SMEs—can meet an unexpected rise in demand without major new investments in machinery or labour.
The binding constraint is liquidity.
CEOs pointed to delayed payments, pending bills, reduced revenues, and difficulties accessing affordable credit as key operational challenges. Although most respondents reported declines in lending rates since 2024, access to credit remains uneven. High collateral requirements, slow loan processing, and cautious bank lending practices continue to limit financing—particularly for SMEs and sectors perceived as higher risk.
In effect, cheaper credit has not fully translated into easier credit.
Digital Shift Accelerates, with Growing Pains
Technology adoption is no longer optional. About 90 percent of surveyed firms reported automating or digitising processes over the past year. Investments include digital payments, billing systems, cloud computing, analytics, compliance tools such as eTIMS, and customer engagement platforms.
For SMEs, this reflects both opportunity and pressure. Digitisation improves efficiency, transparency, and customer reach, but it also comes with high upfront costs and skills requirements.
CEOs highlighted challenges such as limited budgets, lack of in-house technical skills, resistance to change, cyber risks, and unreliable internet infrastructure. These barriers are often more acute for smaller firms with limited resources.
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External Shocks Add New Risk Layer
Nearly half of CEOs expect to be affected by recent U.S. trade tariffs and policy changes. Key concerns include reduced exports following the expiry of the African Growth and Opportunity Act (AGOA), higher import costs, donor funding cuts affecting healthcare and hospitality, and potential supply chain disruptions.
SMEs operating in export-oriented sectors, manufacturing, tourism, and donor-linked value chains are expected to feel these impacts most sharply.
How Businesses Plan to Grow
Despite the challenges, CEOs outlined clear strategies for growth over the next 12 months. The most cited drivers include improving operational efficiency, strengthening customer focus, adopting technology, diversifying products and markets, and managing costs and risks more aggressively.
At the same time, the most significant domestic constraints to growth remain unchanged: high cost of doing business, increased taxation, weak consumer demand, and regulatory burdens.
What It Means for SMEs
The CBK CEOs Survey paints a picture of resilience under pressure. Kenyan businesses are adapting, but the margin for error is narrowing.
For SMEs, the message is pragmatic. Survival and growth will depend less on macro optimism and more on disciplined execution—tight cash flow management, selective technology investment, customer retention, and diversification.
For policymakers, the signal is equally clear. Faster payment of pending bills, reduced taxes and levies, improved access to affordable credit, and streamlined regulation are not optional reforms. They are critical to sustaining the SME sector that underpins Kenya’s economic stability.
As 2026 approaches, Kenya’s SMEs are not asking for guarantees. They are asking for room to breathe—and a business environment that rewards effort rather than punishes it.
