There is concern about probable energy efficiency and economic performance trade-off, particularly in developing countries which often require more energy consumption to spur their economies. This study assesses the relation between energy efficiency and total factor productivity in Kenya’s manufacturing sector by applying a sample of firms in the World Bank Enterprise Survey. Energy intensity is used as a proxy for energy efficiency while total factor productivity is estimated using the Levinsohn-Petrin Algorithm. A dynamic panel data model is applied in the analysis of the energy efficiency and total factor productivity relationship which is at the sub-sector and firm size levels. The sub-sectors of concern are: chemicals, pharmaceuticals and plastics, food, textile and garments and paper and other manufacturing sub-sectors. Firm sizes of interest are: small, medium and large. The findings show heterogeneity in energy intensity across sub-sectors. Total factor productivity is also found to be heterogeneous across sub-sectors and firms of different sizes. The estimates show that in general, energy efficiency significantly promotes total factor productivity. Other factors that promote total factor productivity include capital intensity, age, size, top manager’s years of experience, foreign ownership and exporting status. However, the effect of these variables varies across the sub-sectors and firm sizes. The study findings suggest that policies to improve energy efficiency should be accorded additional emphasis jointly with improvements in total factor productivity.

Since the start of the new millennium, economic growth in Africa has been modestly rapid and sustained over long period with average real GDP growth hovering around 5% though with significant variations across countries and subregions. It is also important to note that growth volatility has been inherent in the growth process in the last two decades undermining its quality for inclusiveness and enhancing its fragility. Figure 1 shows that the median long-term trend of GDP growth has been upwards between 1990 and 2018. On the other hand, volatility has been also significant with positive shocks dominating the first decade of 2000 partly due to the commodity price supercycle ¹. The sudden and long-drawn fall in commodity prices resulted in a significant negative shock particularly for the period 2013–2019 which was further compounded by the COVID-19 pandemic in 2020 and 2021. Hence, growth in the past 8 years has been slow and intermittent.