On 2 September 2026, President William Ruto directed the Kenyan government to crack down on foreign nationals operating small-scale businesses. The directive followed complaints from Kenyan traders who argued that foreigners were taking over economic activities that should be available to citizens.

Within days, the issue became more than a question of business licensing. Hundreds of Burundians gathered outside their embassy in Nairobi seeking passports and travel documents. Some said they feared violence. Others said they no longer felt welcome in Kenya. The government subsequently announced a 90-day period for foreign business operators to regularise their immigration and business documentation, while insisting that the exercise was about compliance rather than xenophobia. The distinction matters.

A government is entitled to enforce its immigration, licensing and labour laws. It is also entitled to determine whether particular economic activities should be subject to special conditions. But when nationality becomes the basis for deciding who may participate in an economic activity, the policy becomes an instrument of economic allocation.

Kenya's recent debate is therefore part of a broader development problem. That is, how governments should respond when citizens face intense competition for economic activities with relatively low barriers to entry. hThe immediate response is to protect access. The developmental objective should, however, really be around creating more value.

The small business problem

Small businesses occupy an awkward position in African economic policy.

They are often where people enter the economy because the barriers to entry are low. A person with modest capital can operate a shop, sell clothes, repair phones, provide cleaning services or trade in agricultural products without the capital required to establish a factory. These activities are economically important because they absorb people who have few alternatives. Their accessibility, however, also makes them politically sensitive.

When citizens struggle to find formal employment or establish businesses of their own, competition in these sectors becomes highly visible. A foreign trader operating a small shop is easier to identify than the structural conditions that produced the competition.

Kenya is not the only country confronting this problem. In July 2025, Tanzania issued the Business Licensing (Prohibition of Business Activities for Non-Citizens) Order. The Order restricts non-citizens from obtaining or renewing licences for a range of activities, including wholesale and retail trade, mobile-money transfers, electronic-device repair, salons, cleaning services, tour guiding, real-estate brokerage, small-scale mining and micro and small industries. Existing licences may continue until expiry. The Tanzanian approach deliberately allocates parts of the domestic economy according to citizenship.

Kenya now appears to be moving towards a similar conversation, although its legal position is still developing. The government has announced a regularisation exercise, while the President has asked Parliament to consider legislation regulating foreign participation in small businesses and potentially identifying activities that could be reserved for citizens.

The political logic is understandable. Citizens with limited capital are competing for activities that are among the few accessible sources of livelihood. Governments face pressure to ensure that nationals are not displaced from these opportunities. But access to an existing activity and creation of new productive value are not the same thing.

Retention is not creation

Consider a foreign trader operating a small clothing shop.

The government removes the trader, and a Kenyan takes over the shop. Some value that was previously accruing to a foreign operator may now accrue to a Kenyan. This is a form of domestic value retention.

But no new productive value has necessarily been created.

The shop may still import the same clothes, sell them to the same customers, employ the same number of people and operate with the same technology. The distribution of the existing value has changed whereas the productive capacity of the economy may not have changed.

Retention is not creation.

The distinction is important because development cannot be reduced to the question of who captures an existing stream of income. Domestic retention matters. An economy that creates value but captures little of it domestically may struggle to accumulate capital and capabilities. But retaining existing value does not by itself expand what the economy can produce.

The more fundamental objective is value creation.

A more productive economy creates additional output, develops new capabilities, adopts better technologies, generates new firms and moves labour and capital into activities capable of producing greater value. Citizen ownership can contribute to this process, but it does not guarantee it.

Foreign ownership can also contribute to value creation where it brings capital, technology, skills, management capabilities and access to wider markets. It can equally fail to generate sufficient domestic capabilities where investment remains disconnected from the local productive structure. The relevant distinction is therefore between economic activity that creates productive capabilities and economic activity that largely reproduces the existing level of production.

The same principle applies to foreign investment

This distinction also changes how foreign participation should be assessed.

Consider Kenya's recent confrontation with Tata Chemicals. President Ruto criticised the company for operating the Magadi soda-ash business without generating sufficient local investment and manufacturing capacity, and said new investors should establish glass and chemical manufacturing facilities in Kajiado.

A foreign company can operate in Kenya while creating substantial domestic value. It can employ workers, develop suppliers, transfer technology, build infrastructure, process raw materials, develop local managerial capacity and connect Kenyan production to international markets. The concern arises where an economic activity remains largely an enclave, extracting or selling something without generating sufficient productive linkages around it.

That makes the Tata case different in scale from the small-trader debate. The policy instrument is also different. But both raise the same developmental issue, that is, whether economic participation is creating additional productive capacity.

For a small trader, the contribution may initially be limited to distribution and employment. But development policy should be concerned with whether firms can progress beyond low-productivity trading into activities involving greater investment, technology, processing, distribution and production.

For a large foreign investor, the same principle applies at a different scale. The objective should be to increase the amount of value created in the economy and the domestic capacity to participate in that creation.

Creating economic opportunity

This is where the debate over citizen protection can become confused.

If foreigners occupy some of the economic activities accessible to people with limited capital, excluding them may increase the share of those activities available to citizens. That can matter but it does not follow that the economy has become more productive.

A citizen replacing a foreign trader does not automatically create a new firm. A citizen-owned shop does not automatically generate more output. A locally owned business does not automatically use better technology, employ more workers or develop stronger supply chains. The policy may therefore redistribute an existing opportunity without expanding productive opportunity.

Economic opportunity is not a fixed quantity. It expands when firms accumulate capital, technologies improve, infrastructure develops, markets become larger and new forms of production become commercially viable. A small clothing shop can become a distributor. A distributor can become a manufacturer. A repair business can develop into a producer of components. A trader can build a logistics operation serving several markets.

These transitions do not happen automatically. They require finance, infrastructure, skills, technology, reliable institutions and access to larger markets. They are nevertheless the transitions that matter for development.

The policy objective should therefore not be limited to determining who gets access to existing economic activities. It should be to increase the number, scale and productivity of those activities.

Protection can contribute to creation

None of this makes restrictions on foreign participation inherently undesirable.

There are legitimate circumstances in which governments may need to protect domestic firms. A domestic firm competing against a much larger foreign enterprise may require temporary space to develop capabilities. A strategic industry may require local-content requirements to establish domestic suppliers. A new sector may require protection while firms acquire technology, capital and managerial capacity. The important distinction is between protection as an instrument and protection as an outcome.

Protection is useful when it helps create capabilities that would otherwise not emerge. It becomes much harder to justify when its principal effect is simply to preserve an existing economic activity for a particular group.

A developmental restriction should therefore have a defined purpose. It should identify the capability that domestic firms are expected to acquire. It should provide a pathway towards greater productivity. Where appropriate, it should be temporary and subject to review. It should also be accompanied by the institutions and investments necessary for firms to use the protection productively. Otherwise, citizen reservation risks producing a protected class of low-productivity enterprises.

Regional integration complicates the picture

For East Africa, these questions cannot be considered solely through national economic policy.

The EAC Common Market is built around the movement of goods, persons, workers, services and capital, as well as rights of establishment and residence. Its framework incorporates non-discrimination between nationals of Partner States.

The Common Market Protocol is more specific. It recognises the right of establishment and allows nationals of Partner States to pursue economic activities as self-employed persons in another Partner State. Partner States have also committed to removing restrictions on establishment based on nationality, subject to recognised limitations. This creates a legal and policy tension for citizen-only economic restrictions.

It would be too broad to conclude that every national reservation automatically violates the Common Market Protocol. Partner States retain regulatory powers, and the Protocol recognises exceptions. But regional commitments cannot simply disappear when domestic economic pressures increase.

Tanzania's 2025 restrictions and Kenya's emerging debate therefore matter beyond their immediate domestic effects. They raise questions about how national economic protection can coexist with a regional project designed to make East Africa a larger and more integrated economic space.

The issue is particularly important because regional integration itself can create productive opportunities. A larger market can allow firms to achieve economies of scale that are difficult within a single national market. It can support specialised production, regional supply chains and greater investment.

Protecting a domestic market may therefore preserve some existing opportunities while limiting access to the larger market through which new opportunities could be created.

Applying the test to Kenya

The 90-day regularisation exercise provides a useful starting point for applying this framework.

The first test should be legal compliance. A foreign trader without the required work permit or business licence is a different policy problem from a foreign trader who is legally established and operating within Kenyan law. The former should be addressed through immigration and licensing enforcement. The latter requires a separate assessment of whether foreign participation in the particular activity produces sufficient economic value.

The second test should be productive contribution. If the government ultimately reserves particular activities for citizens, it should identify the additional productive capacity that the restriction is expected to create. The policy should not stop at transferring licences from foreign operators to Kenyan citizens. It should create conditions for domestic firms to invest, formalise, adopt technology, employ more people and move into higher-value activities.

The third test should be measurable. Success should not be measured simply by the number of foreign businesses that leave or the number of licences issued to Kenyans. It should be measured through changes in domestic investment, employment, firm growth, productivity, local sourcing and movement into higher-value activities.

If five years later Kenya has more citizen-owned shops but no significant increase in domestic production, firm productivity or movement into higher-value activities, the policy will have redistributed economic activity without achieving much productive transformation.

If protected firms instead grow, invest, employ more people, develop suppliers and move into higher-value production, the restriction may have served a developmental purpose.

The objective should be value creation

Kenya's debate about foreign traders is therefore part of a larger question about the kind of economy the country is building. The issue is not simply who owns a shop, but whether economic activity can generate greater value, build productive capabilities and connect more people to increasingly productive work.

Citizen protection may increase domestic retention of existing economic value. That can matter, particularly where economic activity generates limited benefits for the domestic economy, but retention should not become the endpoint.

The stronger objective is to create more value domestically: more productive firms, more sophisticated production, greater technological capability, stronger supply chains and more productive employment.

The objective should not be to ensure that every economic activity is domestically owned. It should be to ensure that the economy is capable of creating progressively more value, and that Kenyan firms and workers acquire a growing capacity to participate in that creation. While citizen protection may redistribute existing opportunities, development requires creating new ones.