Kenya is the country stepping up to enter Ethiopia’s freshly opened markets.
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Ethiopia’s and Kenya’s relationship has generally been stable and peaceful since the establishment of diplomatic relations in the early 1960s. Both countries have since built some of the fastest-growing economies on the continent and have become major economic players in East Africa. However, the various economic policies they pursued have led to varying results. Kenya’s early liberalization of its economy has allowed for its private sector to flourish, while Ethiopia’s more state-dependent economy has resulted in a large public sector with limited private sector growth.
Things are changing, however, as Ethiopia is now opening up its formerly restricted markets to the world. And Kenya seems to be the first one to step up in answering Ethiopia’s invitation. In 2021, when Ethiopia liberalized its telecom sector, it was Kenya’s Safaricom that entered Ethiopia as the first private telecom operator. Similarly, Kenya’s KCB Group is poised to become the first foreign bank operating in Ethiopia. Although economic cooperation between the two countries has historically been low, these conditions point towards a new reality in which Kenya and Ethiopia have more intertwined economies.
Looking at the numbers, one can see that economic relations have been low. According to The Observatory of Economic Complexity (OEC), Kenya’s exports to Ethiopia amounted to $115 million in 2023, while Ethiopia’s exports to Kenya were $109 million that same year. That means the total two-way trade between the two countries was just above $220 million.
That being said, things are improving. In 2025, the two countries signed an MoU to facilitate cross-border trade, which allows a $1000 trade threshold for goods at the Moyale border. The completion of major infrastructure projects, including the Moyale One-Stop Border Post (OSBP), has further reduced logistical barriers and boosted cross-border movement. These initiatives fall under the broader Lamu Port–South Sudan–Ethiopia Transport (LAPSSET) Corridor, a flagship regional integration project that aims to enhance trade connectivity between Kenya, Ethiopia, and South Sudan.
Kenya’s early and assertive engagement in Ethiopia’s economic opening can be attributed to several factors. The first, and most obvious one, is proximity, which allows the two countries to share infrastructure and, in turn, make cross-border operations more feasible. Furthermore, Kenya’s private sector has decades of experience within liberalized environments. However, it does not yet rival the scale or capitalization of Africa’s larger economies, such as South Africa or Nigeria. For Kenyan firms, Ethiopia represents a vast and relatively uncharted market where they can leverage their regional experience to grow and expand without immediately facing the intense competition posed by established multinational giants.
Nevertheless, significant challenges persist. Ethiopia’s investment environment, though improving, remains tightly regulated, with foreign ownership caps and restrictions in sensitive sectors. The country’s foreign exchange shortages, inflationary pressures, and occasional political instability pose additional hurdles for investors. Moreover, competition from global players from China, the Gulf states, and other African countries is bound to arrive. This means Kenyan firms must remain strategic, innovative, and well-capitalized to sustain their first-mover advantage.
In the end, economic cooperation is beneficial to both countries. Where Ethiopia offers opportunity, Kenya offers capital and expertise. The growing footprint of Kenyan companies in Ethiopia is not only strengthening bilateral relations but also fostering closer people-to-people connections through trade, investment, and shared innovation. Over time, these expanding economic linkages could transform the Kenya–Ethiopia relationship from one of passive cooperation to a more active relationship that serves as an example of regional integration and mutual growth.
