GSG Impact launches “Secondary Mobilisation” report on SME Finance at Financing for Development
1 July, 2025
Kenya: the country you can’t afford to ignore
Kenya is in the sweet spot now. It is still eligible for Official Development Assistance (ODA), as a lower middle income country. Yet it has been progressing fast towards the middle-income country status. It is vital that Kenya takes advantage of this to leverage more private sector investment.
One could say that Kenya is crowded with impact investors: it’s the first destination of impact investment flows in East Africa, and the second in Africa as a whole (after South Africa). More than 100 impact investors are operating in Kenya. Between 2005 and 2015, they invested more than USD 4bn in Kenya (the equivalent of roughly half of foreign direct investment (FDI) in the same period).
The momentum in Kenya is strong. FDI flows increased by 27% to USD 1.6 billion in Kenya (in a period when FDI fell by 13% globally). Investor preference towards impact also grew by 10% between 2016 and 2018. These are crucial signals at a time when more local and private capital are needed to help achieve the SDGs in the country. The stakes are high: 80% of the population is younger than 35 and 39% of the population lives in poverty.
Kenya is demonstrating leadership in social and environmental action. The country is well ahead in its energy transition towards renewables, with half of its electricity coming from geothermal sources and Africa’s largest wind farm. The access to electricity rate in Kenya jumped considerably from 19% in 2010 to 75% by 2018, as a result of public and private investors, both commercial and impact. They focused their efforts on the energy sector, and invested heavily in off-grid energy and last-mile distribution projects, such as Sanergy or Sunculture (2018 GSG Millennial Honour Awardee).
“Governments provide an enabling environment, but we’ve seen corporates encourage young people to be their own bosses.”
Kenya: the country you can’t afford to ignore
At a social level, in 2018 the government announced an ambitious five-year development plan: the Big 4 Agenda. This agenda outlines Kenya’s four main priorities, aligned to the SDGs:
The government has acknowledged the importance and significance of entrepreneurs and investors as the key to achieving this agenda.
With the support of UNDP, and in collaboration with the government, the impact investment sector is working to set up a National Advisory Board (NAB). A NAB will support the country in achieving the SDGs. It will also help address market barriers to unlocking private capital for impact.
47% of investments in Kenya originates from investors based in Europe and North America. There has been a recent spike in Silicon Valley investors coming to Kenya. Market players call them “helicopter investors”: they fly in and out without real knowledge of the realities on the ground. This creates a ‘bubble’ in company valuations, especially for tech-enabled companies. Another consequence of this trend, is that more than 90% of funding for East African start-ups goes to expats, and not to local founders. Women founders receiving investment are under-represented, too.
“The risks of investing in Kenya and more generally in Africa may be viewed differently by outside observers than by investors on the ground. Not to mention the myriad of investment opportunities that local investors are discovering every day.”
Kenya: the country you can’t afford to ignore
Building on recent government initiatives and other market evolutions, the future Kenyan National Partner could work on untapped opportunities for policy change and other interventions. This would unlock significant pools of local capital for impact:
The Ministry of Trade recently led a policy hackathon to improve coordination and support to SMEs and social enterprises. New policies are being designed as a result.
Ms. Betty Maina, Kenya Impact Dialogue
“Governments have the basic responsibility of creating the environment and policies to transform their countries. Within our Government department, we have a project to support incubation and start-ups, to aid SMEs in improving their managerial and technical capabilities.”
Kenya: the country you can’t afford to ignore
This is the rough estimate we made based on the spectacular growth of the country’s impact investment industry. We also believe that the country could even achieve this faster if the Kenyan ecosystem sets up an active GSG National Partner. GSG National Partner is a local platform representing all the stakeholder groups needed to redirect significant capital flows towards social and environmental impact and achieve the SDGs. Private-sector-led, yet in close partnership with the national government, a GSG National Partner raises awareness, creates market intelligence, changes policies, and mobilizes additional financial resources for public good. We see that in 32 other countries in the world: a GSG National Partner is the basic infrastructure to accelerate such change.
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