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Over the past month, Kenya’s finance cocktail circuit and the public alike have been set alight by the Kenya Pipeline Corporation (KPC) Initial Public Offer (IPO) – and for good reason. To begin with, the IPO is primed to be the largest IPO (by value) on the Nairobi Stock Exchange (NSE) since Safaricom’s listing in 2008. The IPO is also set to further revitalize and turbo-charge retail investing in the NSE with 20 per cent of the 11.8 billion offer shares worth KSh21.26 billion being allocated to local retail investors. According to the prospectus issued by KPC, the sale is geared towards “broadening the shareholding of state-owned corporations among Kenyans, as well as to deepen the capital market and raise resources for infrastructure development.”
Before the KPC IPO took the news headlines by storm, there was the imminent divesture of the government from Safaricom. The government sought to reduce its stake in the company to 20 per cent by offloading a 15 per cent stake to Vodacom Group Limited for Ksh204.3 billion. The divesture of the government from both KPC and Safaricom is part of a State-Owned Entities (SOEs) reform agenda following the signing of the Extended Fund Facility (EFF) and Extended Credit Facility ECF agreements with the International Monetary Fund (IMF) in April 2021. The ECF and EFF programmes would later be terminated by “mutual consent” in March 2025. However, with the government seeking a new IMF programme and the signing of the Privatization Act, 2025, which cleared the sale of 11 state corporations, and legal hurdles overcome, privatization is expected to go into full swing.
Still, problems of old continue to linger. Parliament remains divided on the sale of KPC, with opposition MPs alleging that the sessional paper on its privatization didn’t appear on the original Order Paper for the October 1 2025 sitting, but was instead belatedly slipped in via a supplementary order paper, hurriedly debated and hastily passed. The IPO was contested in court by activist Okiya Omtata, who argued that there was inadequate public participation in the decision to privatize. Omtata and his co-petitioners argued that the move to privatize KPC overrides sovereign policy and is a smokescreen meant to satisfy the conditions stipulated in the IMF’s seventh and eighth reviews. The High Court dismissed the petition on the grounds that the petitioners had failed to prove any violations of the constitution.
In other quarters, concerns have been raised over the process of recruiting transaction advisers. In his column in the Nation on 21 October 2025, veteran columnist and former Managing Editor of The EastAfrican, Jaindi Kaisero writes:
The Tender Timeline has also raised eyebrows. For example, the legal advisory tender was advertised on October 10, with submissions due by October 21- Just 12 days. Top Corporate lawyers say that’s far too short to assemble a qualified team, conduct conflict checks, and prepare a credible proposal. The result? A thin field of bidders dominated by incumbents or insiders privy to the process. Such compressed timelines undermine fair competition and fuel perceptions of pre-selection and procedural unfairness- the very issues that have derailed past privatizations.
In a separate commentary, Kisero also raises concerns about advisory fees. He questions why, despite the absence of an underwriter, the IPO prospectus still provides for a “success fee” payable to transaction advisers. In a best efforts issue – where advisers bear no obligation to absorb unsold shares – such a provision not only defies commercial logic but also creates fertile ground for rent extraction, or more bluntly, corruption.
The furore raised by the recent privatization forces us to contend with Kenya’s chequered privatization history.
A history of privatization in Kenya
Post-independence, the government rapidly expanded parastatals to meet the goals of Sessional Paper No. 10 of 1965: accelerating economic and social development, redressing regional economic imbalances, and promoting citizen participation in the economy.
The government had inherited the colonial state’s legal and ownership structures, including of enterprises that had been created through Acts of the colonial parliament, such as the Kenya Meat Commission. At the same time, the state gradually increased its stake in private companies considered strategically important, purchasing equity in firms like the East African Power and Lighting Company (later Kenya Power). This blend of inherited institutions and progressive acquisition reflected the new government’s attempt to consolidate control over key sectors of the economy in a period when state participation was widely viewed as essential for national development.
In parallel, many private investors, particularly foreign ones, actively sought the state’s involvement in joint ventures to secure continued political and financial backing. As the economy evolved, several firms that had begun as wholly or partially private entities eventually became government-owned because the state repeatedly intervened to rescue financially distressed companies, often through the conversion of unpaid loans or outstanding tax liabilities into equity. Development Finance Institutions (DFIs), originally established to support projects unable to access conventional financing, also found themselves unable to recycle their investments and thus transformed unintentionally into long-term holding companies. Similarly, government investments in ventures requiring risk capital – or in sectors where local entrepreneurs initially lacked adequate skills and resources – hardened into permanent state holdings, largely because there was no deliberate policy to divest these assets as Kenyan citizens grew wealthier and more experienced in business.
By the 1970s, however, it had become increasingly clear that the government had bitten more than it could chew. Many parastatals had become heavily indebted and unable to meet their obligations owing to inefficient allocation of meagre capital and mismanagement. This deterioration was starkly captured in the 1982 Report of the Working Party on Government Expenditures, which revealed that the government’s investment of roughly US$1.4 billion in state enterprises was generating an average return of only 0.2 per cent. A subsequent review of sixteen major agricultural and agro-industrial parastatals estimated cumulative losses of US$183 million (calculated at 1986 exchange rates) between 1977 and 1984.
The decline was not only financial but also operational. Between 1986 and 1990, productivity (measured as the difference between growth in value added and factor inputs – labour and capital) in state-owned enterprises fell by approximately 2 per cent per year. Over the same period, the private sector moved in the opposite direction, registering productivity gains of about 5 per cent annually.
It is against this backdrop and the signing of an Enhanced Structural Enhancement Facility (ESAF) with the IMF in 1989 that privatization in Kenya kicked off in earnest.
The first wave of privatizations (1992–2002) emerged from the July 1992 Policy Paper on Public Enterprise Reform and Privatization, which identified 240 commercial public enterprises with government equity and classified 207 as non-strategic for divestiture while retaining 33 deemed strategic. The programme was presented as an efficiency-enhancing and fiscally responsible reform intended to reduce the state’s financial burden, attract private investment, and improve competitiveness. Institutionally, the process was administered by the Parastatal Reform Programme Committee and followed structured procedures, including valuation, due diligence, choice of divestiture method, competitive bidding, and execution. By 2002, most of the non-strategic enterprises had been fully or partially privatized. On paper, therefore, the first wave represented a coherent and procedurally organized reform effort aligned with broader public sector restructuring.
Yet its economic depth was limited. As Mary Thuita argues in a journal article, the enterprises divested were largely small and of modest macroeconomic significance, meaning that the reform did not fundamentally alter the commanding heights of the economy. Moreover, the programme operated without a comprehensive statutory framework and was later associated with concerns about opacity and weak oversight. Crucially, privatization did not resolve structural deficiencies that had long plagued state corporations, overemployment, undercapitalization, politicization, and governance failures. Even where ownership changed, institutional weaknesses persisted. The separation between commercial and regulatory functions, which later became central to reform logic, was still evolving. In effect, the first wave reduced some fiscal exposure but left intact many of the deeper governance pathologies that had undermined public enterprise performance.
In reflection, the first wave appears less a decisive structural transformation and more a transitional phase in Kenya’s political economy. It signalled ideological movement toward market orientation while preserving caution around strategic assets. The programme demonstrated that ownership reform alone is insufficient without strong regulatory institutions, legal safeguards, and inclusive participation mechanisms. Its limitations exposed the need for a firmer legislative architecture and clearer governance frameworks – developments that would later inform subsequent privatization reforms. Thus, the first wave’s historical significance lies not only in the enterprises it divested, but in the institutional lessons it revealed about the limits of privatization absent systemic governance reform.
The second wave of privatization (2003–2008) was undertaken under the Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC) 2003–2007 and marked a decisive shift from the modest divestitures of the 1990s. While the first wave had largely disposed of smaller, non-strategic enterprises under a weak institutional framework, the second wave moved decisively into high-value and politically sensitive sectors, most notably telecommunications. Key transactions included the IPOs of KenGen, Kenya Reinsurance Corporation, and Safaricom, the concessioning of Kenya Railways, the second offer of Mumias Sugar, and the sale of 51 per cent of Telkom Kenya to a strategic partner. These transactions mobilized over KSh80 billion, significantly contributing to fiscal recovery and development financing. Institutionally, this phase was strengthened by the enactment of the Privatization Act 2005, which established the Privatization Commission and formalized procedures, including cabinet and parliamentary approval of privatization programmes.
However, through a report aptly entitled Deliberate Loopholes, AfriCOG would later reveal the glaring malfeasance that characterized the second wave of privatization. Through the report, AfriCOG put to question the Telkom privatization process. The report highlights a rushed pre-election process: bids opened on 12 November 2007, a winner was declared four days later, and the deal concluded six days before the general election. France Telecom bought 51 per cent of Telkom for KSh26 billion, while the government absorbed KSh68.8 billion in debt and simultaneously removed Telkom’s most valuable asset – its 60 per cent stake in Safaricom valued at between KShs120 and KSh144 billion – raising profound questions about whether Kenya received fair value.
Safaricom’s ownership transition was even more troubling. AfriCOG uncovered the mysterious transfer of 10 per cent of Safaricom to an offshore shell, Mobitelea Ventures, whose beneficial owners were unknown to parliament or the public. The PIC reported contradictory documents, missing files, and even falsified evidence – including a letter with a non-existent postal code – meant to justify these transactions. AfriCOG quotes the PIC’s damning conclusion of “a conspiracy (…) to defraud the public of its shares in Safaricom”.
The second wave demonstrated fiscal ambition and capital market sophistication, yet also exposed how strategic divestiture, when insulated from scrutiny, risks concentrating gains while socializing liabilities.
Taken together, the first and second privatization waves illustrate that privatization in Kenya has been less a linear retreat of the state than a reconfiguration of power within it. Legal reform without political will proved insufficient.
The nexus
Kenya’s renewed privatization push has fundamentally been presented as a fiscal necessity. Public debt has risen sharply over the past decade, and debt servicing now absorbs a substantial share of ordinary revenue. In such an environment, divesting public assets appears pragmatic, even inevitable. Yet privatization is never merely a fiscal exercise. It is a structural decision about how economic power, risk, and strategic control are distributed within a nation.
To understand today’s reform moment, one must revisit the three phases in Kenya’s political economy: post-independence consolidation, structural adjustment retrenchment, and the contemporary return to divestiture.
At independence in 1963, Kenya inherited an economy structured for colonial extraction rather than national development. Under Jomo Kenyatta, the country adopted a mixed-economy model. Unlike the sweeping nationalizations implemented by Julius Nyerere in Tanzania, Kenya pursued gradual state participation in strategic sectors while preserving space for private capital.
The logic was developmental rather than ideological. Domestic capital markets were shallow, indigenous African capital was limited, and infrastructure required long-term financing unattractive to short-term private investors. As Robert Bates argued in Markets and States in Tropical Africa, post-independence African governments often intervened in markets to compensate for structural distortions and weak domestic capital accumulation. State ownership in utilities, transport, and agricultural marketing boards was viewed as an instrument of sovereignty and economic direction.
Institutions such as the Kenya Meat Commission and Kenya Power became tools of industrial policy. Ownership was not simply about profit; it was about leverage.
Yet the model contained institutional weaknesses from the outset. Boards were politically appointed. Performance incentives were poorly aligned. Over time, politicization eroded efficiency. By the 1980s, several state corporations were loss-making and dependent on Treasury support. Bates later observed in Beyond the Miracle of the Market: The Political Economy of Agrarian Development in Kenya that state interventions frequently faltered not because markets were inherently superior, but because governance institutions failed to discipline public enterprises.
This deterioration was domestically generated. Patronage, fiscal indiscipline, and political interference weakened parastatals long before structural adjustment arrived. That distinction is critical.
When Kenya entered adjustment programmes with the International Monetary Fund and the World Bank in the late 1980s and early 1990s, macroeconomic pressures were acute. Foreign exchange reserves were depleted, fiscal deficits were widening, and quasi-fiscal losses from public enterprises were mounting. These programmes mandated trade liberalization, exchange rate reform, and public enterprise restructuring – including privatization.
Privatization thus emerged at the intersection of domestic crisis and external conditionality. It served several purposes: reducing fiscal burdens, signalling macroeconomic discipline, and aligning Kenya with global market orthodoxy. But its outcomes were uneven. Some firms improved profitability and gained access to capital markets. Others were transferred under opaque processes that failed to eliminate political influence. Governance problems did not disappear; in some cases, they merely shifted from public to private hands.
African evidence shows ownership alone does not drive performance – institutional quality does. Strong regulation and competition enhance efficiency; weak or captured systems entrench private monopolies and rent seeking.
Kenya’s current privatization moment unfolds under renewed fiscal pressure. Rising debt servicing obligations create incentives to unlock asset value. Yet there is a crucial distinction between privatizing to improve long-term allocative efficiency and privatizing to bridge short-term fiscal gaps. The former constitutes structural reform; the latter risks becoming liquidation.
Kenya’s economic history offers three lessons. First, post-independence consolidation was strategically rational but institutionally fragile. Second, SAP-era privatization addressed fiscal pressures but did not automatically cure governance deficiencies. Third, ownership reform without institutional reform merely shifts the locus of inefficiency.
The debate is not state vs. market, nor Bretton Woods dictates, but weak vs. strong institutions. Well-governed SOEs outperform poorly regulated monopolies; strong private firms beat captured public ones. Ownership serves, governance decides.
As privatization 3.0 accelerates, institutional maturity is tested. Governance and regulatory strengthening must precede divestiture. Strategic criteria must be explicit rather than reactive.
Economic control without accountability breeds inefficiency. Divestiture without regulation breeds rent seeking. Kenya has experienced both dynamics in different eras.
The challenge now is not to repeat either, but to transcend both.
