Kenya’s push to prioritise local firms in government contracts could help grow domestic industries but may also make public projects more expensive and less competitive, according to a new report by the Organisation for Economic Co-operation and Development (OECD).

The report, Public Procurement, Trade and Industrial Policies: Supporting National Priorities, highlights growing global efforts by governments to use public procurement as a tool for industrialisation and economic resilience.

However, it warns that policies favouring domestic suppliers can come with significant trade-offs, including higher costs, reduced competition and weaker incentives for innovation.

The findings released on Friday, June 19, 2026, come as Kenya increasingly embraces local content requirements across key sectors such as infrastructure, energy, information and communications technology (ICT), manufacturing and affordable housing as part of its industrialisation agenda.

“Public procurement is no longer a purely administrative function. As a major component of public spending, it is a powerful tool to shape markets, drive innovation and support strategic sectors,” the OECD said in the report.

Government procurement accounts for a significant share of public expenditure in Kenya, with billions of shillings allocated annually to roads, hospitals, schools, affordable housing projects and energy infrastructure.

President William Ruto’s administration has repeatedly advocated for greater participation of local companies in public projects, arguing that government spending should create jobs, strengthen domestic industries and reduce reliance on imports.

But the OECD cautions that procurement measures designed to favour domestic firms should be carefully implemented to avoid creating unjustified trade barriers or discriminatory criteria.

The report notes that many countries use mechanisms such as domestic content requirements, price preferences, reserved contracts and restrictions on foreign bidders to support local industries. While such measures can boost domestic production, evidence of their overall economic benefits remains mixed.

“Public procurement measures aimed at fostering domestic industry should be designed in a way that does not generate unjustified trade barriers or discriminatory criteria,” the report states.

The OECD found that reducing competition in procurement processes can ultimately increase costs for governments and taxpayers.

“Discriminatory procurement practices could result in excessive costs for public buyers and value chain inefficiencies that outweigh any potential gains,” the report warns.

For Kenya, where taxpayers are already grappling with rising living costs and a growing public debt burden, any increase in the cost of delivering infrastructure projects could have far-reaching consequences.

A road project that costs more because fewer companies are allowed to compete ultimately translates into higher spending from the public purse.

Similar concerns apply to hospitals, electricity transmission projects, water infrastructure and housing developments.

The OECD also argues that shielding domestic firms from international competition may weaken incentives to improve efficiency and innovate.

“By sheltering domestic firms from international competition, such policies can reduce their incentives to innovate or improve efficiency, ultimately limiting product quality and choice for public buyers,” the report says.

The findings raise important questions for Kenya’s industrialisation strategy, particularly as the government seeks to expand local manufacturing under its Bottom-Up Economic Transformation Agenda.

Kenya has long sought to increase local participation in major infrastructure contracts, many of which have historically been awarded to foreign firms, particularly from China and Europe.

Advocates of local content policies argue that government contracts should help develop domestic contractors, create jobs and retain more economic value within the country.

The OECD does not dismiss those goals. Instead, it calls for a careful balance between supporting national industries and maintaining open, competitive procurement systems.

The report notes that international procurement can help governments secure better prices, improve quality and reduce the risk of collusion among bidders.

Access to global suppliers also becomes critical during periods of supply chain disruption or shortages of specialised goods and services.

The challenge for policymakers, the report suggests, is ensuring that efforts to “Buy Kenya, Build Kenya” strengthen local industries without leaving taxpayers to shoulder the cost of more expensive projects and reduced competition.