Why new law will be a game changer for State enterprises

On very rare occasions does our Parliament and the Executive combine forces to enact consequential legislation that is prejudicial to their political interests. One such rarity occurred recently with enactment of the Government Owned Enterprises Act, 2025.

The law seeks monumental reforms of Kenya’s State-Owned Enterprises (SOEs), providing, at the legislative level, a transformative shift in how such enterprises are governed and operated. Previous attempts to make these policy and legislative changes have been laughed out of town. Of course the ultimate test of the legislation is the manner of its implementation. Kenya has no shortage of laws that were on paper transformative but which were eventually sacrificed on the altar of politics.

That said, the new law, if implemented, promises a departure from a history of inefficiency of government enterprises. For decades, many state-owned enterprises, popularly known as parastatals, have been an inefficient drain the national budget, being avenues for siphoning public funds and then demanding costly bailouts.

The new Act addresses this head-on by fundamentally restructuring the governance and operational framework for these entities. On governance, the Act puts a stop to the culture of public sector jobs being for the boys. It promotes appointment of professional and skilled boards, a crucial step toward improved corporate governance.

Critically, it exempts persons who have been affiliated with political parties from joining parastatal boards for five years. How that clause passed Parliament is the stuff of wonders.

On institutional transformation, the Act reconstitutes existing government entities into public limited liability companies under the Companies Act. This simple but powerful change subjects SOEs to the same rigorous standards of corporate governance expected in the private sector.

The Act mandates the adoption of annual business plans and signing of performance contracts with the National Treasury. This should foster a culture of performance management, ensuring that SOEs are not just consuming state resources but are also meeting clearly defined commercial targets. Furthermore, the Act brings clarity to the financial relationship between the State and its enterprises. It explicitly allows the government to assign specific public service obligations to certain entities, but crucially, requiring that these non-commercial activities be funded through transparent subsidies or direct budgetary allocations . This eliminates the long-standing ambiguity that allowed loss-making SOEs to claim “public interest” as justification for poor financial performance.

The result is cleaner, auditable accounts and a clearer separation between business activity and social obligations. The move towards commercially-focused entities with transparent accounts creates a revenue focused approach and a stronger compliance environment, making it easier to determine taxable income and reducing the political sensitivity around tax enforcement. This clarity is vital for improving domestic revenue mobilisation.

The Act also provides a clear legal framework for privatization and restructuring, a process seen as a tool for long-term economic transformation . By turning SOEs into limited liability companies, the path is paved for strategic divestitures, such as the recent highly successful initial public offering (IPO) of the Kenya Pipeline Company (KPC). The KPC IPO was oversubscribed by 105.7%, raising a substantial Sh112.3 billion for the government. The positive implications of the Act extend beyond public finances. By creating a more efficient and competitive state sector, it has the capacity to spurs overall economic growth in many sectors. When SOEs are run like businesses, they are incentivized to improve service delivery, reduce costs, and innovate—benefits that are often stifled by bureaucracy and political interference. 

Privatisation, facilitated by the new legal framework, is not just about raising revenue but about democratizing share ownership and attracting much-needed local and foreign investment. The success of the KPC IPO suggests that this model can be replicated, unlocking capital for infrastructure and other national development priorities.

 By reducing the State’s presence in commercial sectors, the government allows the private sector to thrive, fostering competition and creating a more dynamic economy. In the final analysis, the Government Owned Enterprises Act, 2025, is a long overdue, bold, and necessary step towards reforming Kenya’s state sector.

It promises a move away from a reliance on subsidized inefficiency towards a future where public assets are managed with private-sector discipline, ultimately delivering greater value to the taxpayer and strengthening the national economy.

-The writer is an advocate of the High Court