July 17th, 2025

Recent developments in funding and global market shifts, particularly from USA and the EU, are resulting in financial frictions across the Global South, Kenya included. Quarter 1 of 2025 was characterised by: the US scaling back and later closing USAID, imposing tariffs, and stalling the renewal of the Africa Growth Opportunity Act (AGOA). EU nations prioritising defence spending leading to significant cuts in official development assistance (ODA),  UK announcing a reduction of development assistance budget from 0.5% to 0.3% of Gross National Income from 2027.

Kenya, once again, finds itself at a moment of collective reckoning. The pressing question, one that demands introspection, is this: Are we sufficiently equipped to navigate another global disruption? And, more critically, is it time to innovate finance with emphasis on resilience of food systems – at individual, market, community and ecosystem levels?

The agricultural sector in Kenya is by far the most significant sector in contributing about 20% of the GDP and 70% of rural employment. With the shift in available funding and changes in the export market, which direction should Kenya be looking in her quest to develop resilient food systems?

This article aims to provoke questions, considering these rather complex and intertwined challenges.

A fragile global trade system

The current tariff crisis underscores a deeply troubling reality: the global trade system is, once again, fragile, with Africa precariously positioned at the sharp end of exposure. But…, this crisis seems different from others. For Kenya, it is against the backdrop of previously agreed and signed preferential trade market access agreements such as AGOA, which, basically influenced the design and perfection of supporting business models.

Consider Kenya’s textiles and apparel industry, for instance, a poster child industrial policy built on this kind of preferential market access to the US through Export Processing Zones (EPZ). The EPZ’s business models, cashflows, and corresponding contracts basically mirror these agreements. Question is, with the whimsical nature to which these agreements can be voided, how do we balance meeting local demand and that of export market, and what kind of goods and services do we produce and offer for the local market or export to global market?

Is it time we also thought of somewhat protectionist policies to how we design trade agreements on the backdrop of potential loss of thousands of jobs at firm level – the scale to which we are yet to consider yet? This is also with the understanding and observation of the increase of designated EPZ areas in Kenya as one of the strategies of revitalising the export market for both goods and services. What do the changes and potential instant end of trade agreements mean to the already established EPZs?

Evidently, with test on viability of preferential market access agreements under scrutiny presently, coupled with the lopsided nature of these agreements, most firms operating on tight cash cycles face imminent closure or are already diversifying to alternative markets. Only those with access to flexible blended finance instruments and patient capital, can at the most, begin to contemplate diversification or a pivot to new markets. Only options for stability or growth, if still within reach, are limited to adjusting, absorbing, transferring shocks to third parties or summarily exiting the market.

Important to note that while at a macro level, aggregated data on trade balances, exchange rates, and domestic reserves appear stable, still waters run deep – underlying vulnerabilities are probably obscured and effects within meso level agricultural layer and within firm level operations is likely to be profound later on in the year. This will likely, also trickle down to micros – livelihoods and communities dependent on these ecosystems.

Smallholders and finance

Recent studies have revealed the duality of access to credit in Kenya with a corresponding growing rural divide since 2016: negative effects when over-intensified with minimal checks on indebtedness and a profoundly positive impact when useful and thoughtfully designed solutions are deployed for upstream actors within agriculture and food systems. This brings into sharp focus the need for clarity around development of financial solutions that genuinely work for smallholders. In some cases, subsidy solutions prove more effective, particularly given their varied roles in generating and capturing local value – a direct counter to the “extractive” models that deplete local economies.

Finance for agriculture and food systems, therefore, must be designed to offer smallholders and meso level processors the flexibility to reflect their often variable and seasonal income flows and production cycles. For smallholders, this highlights opportunities for solutions that do not always require productive credit but rather subsidies – insurance, savings, government safety nets, or emergency funds.

On the other hand, for processors and off takers, it offers an opportunity to design more blended finance solutions that are patient enough. The extractive scenario, it must be stressed, applies not only to markets for outputs (aggregation and logistics) but also to inputs and mechanisation.

Towards economic localism?

Most smallholders in Kenya sell directly to local markets, neighbours, family, and friends. Rather than work through conventional economic models that have proven to be extractive and not fit for purpose, why don’t we simulate largely informal farmer centric models and approaches that have worked over years? And if that be, what role would finance play to support economic localism?

There’s an opportunity to work within local and national economies with finance supporting the largely informal food systems actors in Kenya, capture and deliver value locally, nationally, and regionally – in that order, in a way that builds resilient local economies. This will allow for access to affordable food within local communities and farming livelihoods, which interestingly have higher food vulnerabilities in Kenya. This likely to allow for attendant business models, that have been in practice since history within an evolving nature of a locality to deliver value.

Such a strategy could inadvertently, lessen our reliance on exporting “diminishing return” goods and instead develop well-coordinated, robust localised agri-food trade systems and export of processed goods for overseas markets. This will allow finance to play its rightful role in support of infrastructure that enables localisation of food systems.

Ultimately, to dismantle structural constraints affecting both private and public investments in food systems in Kenya, we must be bold to support rather informal localised systems that have worked well in support of inclusive and resilient economic development. This is our surest bet to attain scale – not the reverse. This is also, where appropriate, fit for purpose industrial policies come in.

This blog is adapted from Jared’s remarks delivered at the Financing Agrifood Systems Sustainably – FINAS Summit 2025.

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