In a move that reshapes Kenya’s development landscape, President Donald Trump’s administration has halted nearly all USAID operations with immediate effect. While American grants have accounted for approximately 3% of Kenya’s public spending, they have been strategically deployed to support critical sectors such as healthcare, agriculture, and community initiatives. With this funding withdrawn, decision-makers across government, business, and civil society must now navigate two immediate priorities: mitigating service disruptions without compromising essential programmes and evaluating whether the transition away from foreign aid could, over time, drive a more resilient and self-sustaining economy.
At ground level, anxiety centres on availability and pricing of critical goods. Rural clinics, which relied on donor-backed imports of subsidised medicines, now face uncertain procurement channels that may lead to higher prices unless local suppliers or new partners emerge. USAID has been responsible for procuring a significant number of antimalarial treatments in Kenya, and with malaria contributing to more than 10% of outpatient visits, disruptions could have a significant impact. In agriculture, some smallholders once gained access to discounted seeds or fertilisers supported by American grants, with support reaching over 1 million smallholder farmers. Without that cushion, farming expenses could rise abruptly, particularly in semi-arid regions where margins are already thin. In a county where even modest increases in basic commodities can weigh heavily on household budgets, any surge in everyday expenses risks amplifying inequality.
Yet, the broader fiscal framework tells a more complex story. Donor grants have never accounted for the majority of public expenditures, which rely largely on domestic taxation and diverse foreign partnerships. What made USAID’s role significant was its focused interventions, targeting health commodities environmental projects, and farmer subsidies in key areas. With these resources abruptly withdrawn, attention turns to whether Kenyan entities can replace or improve upon the systems once maintained by external support. Under certain conditions, the absence of large-scale aid can prompt more disciplined governance, expand local production capacities, and ultimately help moderate inflation by strengthening homegrown supply chains.
In healthcare, domestic pharmaceutical manufacturers have often operated at a disadvantage when competing with donor-subsidised imports. Kenya’s pharmaceutical market is valued at approximately USD 765.60 million to USD 1 billion, with donor funding playing a crucial role for supplying medications for key public health challenges such as HIV/AIDS, malaria, and TB within the country. Now that such imports may dwindle, local producers see a window to expand market share – if they can secure funding and maintain strict quality standards. A more vibrant pharma sector could reduce Kenya’s reliance on currency-sensitive imports, mitigating exchange-rate pass-through effects that lead to consumer price fluctuations. The same logic applies to agricultural inputs: Kenyan seed developers and agri-tech innovators may be better positioned to fill the vacuum, provided they receive timely support from county authorities and private investors. Over time, localising supply chains often yields more stable pricing, as foreign currency risks and transport overheads diminish.
No guarantees exist, however. In the short run, bridging finance will be critical, particularly for clinics and cooperatives on the brink of losing donor provisions. A poorly managed transition could spark temporary shortages and drive-up retail costs – factors that could hit low-income communities the hardest. By contrast a concerted effort by policymakers and private-sector stakeholders could distribute the shock more evenly, preventing localised inflation spikes and helping reconfigure Kenya’s economy around a sturdier base of local manufacturing and service delivery.
Such outcomes hinge on cohesive policy actions. Rapid reallocation of national and county budgets may be needed to ensure consistent drug supplies or to help smallholders navigate a planting season without subsidised inputs. Equally important is the strategic oversight of new investments. Whether it involves channelling diaspora funds into emerging agri-tech ventures or expediting the regulatory approval process for Kenyan-made pharmaceuticals, any credible plan must ensure local businesses are positioned to handle a sudden surge in demand without sacrificing quality or affordability. Past instances in sub-Saharan Africa have shown that abrupt declines in foreign aid can trigger helpful reforms, such as enhanced public procurement processes and a growth in local industry, so long as key stakeholders maintain momentum and avoid bureaucratic delays.
Another factor shaping the country’s prospects is the evolving public appetite for self-reliance. For years, debate has simmered about whether donor support, while beneficial in emergencies, can hamper homegrown innovation by crowding out local market solutions. Now, with external funding reduced overnight, Kenya can test that hypothesis in real time. Some analysts believe domestic enterprises will adapt quickly if market signals, like higher demand for locally made drugs, translate into tangible profit opportunities. Others caution that without a concerted push to improve infrastructure, train specialised workers, and clamp down on corruption, the vacuum left by USAID could result in short-run inflation and patchy service coverage that undermines progress rather than fostering it.
Ultimately, the risk Kenya faces is clear: price hikes in essential commodities and regional imbalances in service provision, especially during the bumpy transition period. Yet the opportunity runs deeper. If local industries can mobilise capital and expertise effectively, the abrupt exit of a major donor may lead to a more stable, more self-determined economic framework, one less prone to external policy shifts and global market shocks. In such a scenario, cost-of-living pressures could ease over time, as domestic producers reach economies of scale and reduce their dependence on imported inputs.
The true impact of USAID’s exit will be determined not by the loss itself, but by Kenya’s response. Replacing donor-driven funding requires more than stopgap measures, it demands a deliberate shift toward policies that foster economic self-sufficiency and resilience. While the transition will test the country’s capacity to adapt, Kenya’s legacy of innovation and enterprise provides a strong foundation for transformation. If immediate interventions are aligned with deeper structural reforms, this moment could mark not just the end of reliance on foreign aid, but the beginning of a more autonomous, stable, and globally competitive economy.
Contributors & Contact Persons
Anushka Sokhi
Senior Associate, Public Policy & Economic Advisory
anushka.sokhi@ke.andersen.com