Attitude toward Foreign Direct Investment
Kenya has a steadily improving environment for foreign direct investment (FDI). Foreign investors seeking to establish a presence in Kenya generally receive the same treatment as local investors, and multinational companies make up a large percentage of Kenya's industrial sector. There is little discrimination against foreigners in investment, ownership, or access to government-financed research, and the government's export promotion programs do not distinguish between local and foreign-owned goods.
Barriers to FDI in Kenya are shrinking as reforms are put in place, but they still exist. Difficulty in obtaining work permits make it harder to employ expatriates in Kenya (Please refer to section 15 on labor issues for further details). The minimum foreign investment to qualify for Government of Kenya (GOK) investment incentives and an investment certificate is $100,000, a potential deterrent to foreign small and medium enterprise investment, especially in the services sector, which is normally not as capital-intensive as other sectors. Investment Certificate benefits, including entry permits for expatriates, are outlined in the Investment Promotion Act 2004. Investors should be aware that foreigners cannot own land in Kenya, though they can lease it in 99-year increments. The cumbersome and opaque process required to acquire land raises concerns about security of title, particularly given past abuses relating to the distribution and redistribution of public land.
Other Investment Policy Reviews
One component of Kenya’s reform effort was a comprehensive policy review by UNCTAD that resulted in the 2005 and 2012 UNCTAD investment guides, published in cooperation with the International Chamber of Commerce (ICC). According to these guides, Kenya faces several key challenges, most notably the absence of a reliable and affordable power supply, dilapidated transportation infrastructure, and burdensome tax administration. UNCTAD observed that at the time of writing, over 50 percent of investor facilitation revolved around foreign work permits. A 2013 follow-up report tracking progress in implementing recommendations from these reviews noted that since 2005, Kenya’s performance in legislative and regulatory reform has been impressive and solid progress has been experienced on nearly all areas which touch on the investment framework.
The 2013 African Development Bank report titled The State of Kenya’s Private Sector, 2013 (http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/The_State_of_Kenya_s_Private_Sector_-_Recommendations_for_Government-Development_Partners_and_the_Private_Sector.pdf) notes that the business climate has improved over the last decade. Political uncertainty, corruption, infrastructural deficits, and an untapped informal sector are recurring challenges that prevent the private sector from reaching its full potential. The report mentioned that Kenya’s transport infrastructure and logistics systems (including customs, goods clearance and weighbridge processes) are persistently weak for a regional trade and transport hub. High energy costs and weak and interrupted supply of power is crippling to business, especially in manufacturing. The report characterizes Kenya’s business climate as “mediocre but improving.”
Laws/Regulations on Foreign Direct Investment
The major regulations governing FDI are found in the Investment Promotion Act (2004). Other important documents that provide the legal framework for FDI include the 2010 constitution of Kenya, the Companies Ordinance, the Private Public Partnership Act (2013), and the Foreign Investment Protection Act. GOK membership in the World Bank’s Multilateral Investment Guarantee Agency (MIGA) provides an opportunity to insure FDI against non-commercial risk. On the legal side, the Employment and Labor Relations Court (formerly the Industrial Court), and the Milimani Commercial Courts have jurisdiction over economic and commercial affairs. KenInvest is Kenya’s official investment promotion agency (www.investmentkenya.com). When President Kenyatta signed the new Companies Act (2015), it contained language requiring a foreign company to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth. However, the Attorney General immediately suspended this clause with support from the President’s office and the Cabinet Secretary of Industrialization, Investment, and Trade – who all expressed surprise that the clause had entered the bill in a late draft and was not recognized before signature. The clause is expected to remain suspended until the GOK can amend the Act. There is no executive or other interference in the court system that affects foreign investors, and foreign investors are free to obtain financing locally or internationally.
In September 2015, President signed into law The Business Registration Services (BRS) Act (2015) and the Companies Act (2015), intended to ensure Kenya becomes an enticing destination for investors. The act establishes a state corporation known as the Business Registration Service to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships and firms. The BRS also devolves to the counties business registration services such as registration of business names and promoting local business ideas/legal entities, thus reducing costs of registration. The Companies Act (2015) deals with specifics of registration and management as they pertain to public and private corporations.
KenInvest has developed an online database known as eRegulations (http://www.investmentkenya.com/) which is designed to provide investors and entrepreneurs with full transparency on investment-related procedures in Kenya. At each step, the system tells you where to go, who to see, what you must bring, what you have to pay, what you will get, what is the legal justification, and even who to complain to in case you have a problem. According to UNCTAD’s Global Enterprise Registration Network (http://www.GER.co), the KenInvest portal makes Kenya one of only 25 countries to earn a perfect rating on its information portal.
In 2014, the GOK also established a Business Environment Delivery Unit aimed at addressing challenges facing investors in the country. The unit has representatives from all ministries and focuses on lessening bureaucracy related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a web site (http://www.businesslicense.or.ke/) which provides information on how to access detailed information on relevant business licenses and permits, including requirements, costs, application forms and contact details for the relevant regulatory agency.
The government does not steer investment to specific geographic locations but encourages investments in sectors that create employment, generate foreign exchange, and create forward and backward linkages with rural areas. Kenya puts significant effort into assuring the health and growth of its tourism industry. Endeavoring to grow its manufacturing capacity, the government also offers incentives for the production of goods for export. More information on both is available in section 5.2.
An investment guide to Kenya, also referred to as iGuide Kenya, can be found at http://www.theiguides.org/public-docs/guides/kenya/about#. iGuides, designed by UNCTAD and the International Chamber of Commerce, provide investors with up-to-date information on business costs, licensing requirements, opportunities and conditions in developing countries.
KenInvest has also published A Practical Guide to Doing Business which gives a quick overview of Kenya’s investment climate, taxation, types of businesses organizations, and accounting practices. See link: http://www.investmentkenya.com/resources/19-publications
The Kenya Mining Investor Handbook is the first guidebook for investors interested in the mining sector of Kenya: http://www.mining.go.ke/resources.html.
Limits on Foreign Control and Right to Private Ownership and Establishment
According to the World Bank’s 2010 Investing Across Borders Report, Kenya restricts foreign ownership in more sectors than most other economies in sub-Saharan Africa. Foreign ownership of insurance and telecommunications companies is restricted to 66.7 percent and 80 percent, respectively, although the government allows telecommunications companies a three-year grace period to find local investors to achieve the local ownership requirements.
The Capital Markets Authority allows foreign investors to increase their investment with prior written approval if the shares reserved for local investors are not fully subscribed. Foreign equity in companies engaged in fishing activities is restricted to 49 percent of the voting shares under the Fisheries Act. In June 2007, the level of foreign ownership allowed for companies seeking a listing on the Nairobi Securities Exchange was decreased from 75 to 60 percent. This change was not applied retroactively.
Kenya is undertaking privatization efforts for parastatal organizations in a wide range of sectors. The affected sectors include agribusiness; agricultural, construction, and heavy equipment; education; energy and mining; finance; food processing and packaging; industrial equipment and supplies; and travel. However, Kenya has been slow to open public infrastructure such as telecommunications, power, and rail to competition because the government considers state-owned companies that control infrastructure as “strategic” enterprises.
The Private Public Partnership (PPP) Act 2013 provides the legal framework to enable the structured, methodical, and staged deployment of PPPs to support infrastructure development in Kenya. The World Bank estimates that Kenya has a funding gap of approximately $2 to $3 billion per year to address infrastructure requirements in the next 10 years. The GOK intends to bridge the current development funding gap through PPP deals. On December 31, 2013, the GOK published an approved list of 47 National Priority PPP projects. More information on Kenyan PPP projects can be found at the National Treasury PPP Unit’s website http://pppunit.go.ke. Investors are cautioned that the tendering process for contracts has been criticized as opaque and prone to corruption. The GOK has efforts in place to improve and automate that process, but the effectiveness of those efforts remains to be seen.
Screening of FDI
There is little screening of investment in Kenya, and it has not been discriminatory. KenInvest asks companies to undergo an optional investment registration process that includes health, safety, and environmental impact assessments. However, registration is mandatory for those seeking investment incentives.
Investors in Kenya are required to comply with environmental standards. The National Environment Management Authority (NEMA) oversees these matters and is the principal environmental regulatory agency. Developers of projects involving manufacturing, processing, or any project sited by a body of water or in a conservation area are required to carry out an environmental impact assessment (EIA) and obtain an EIA license prior to project implementation. Upon submission of the EIA, NEMA is required to respond within six months. If no reply is received within nine months, the investor may proceed with the project.
In August 2011, the Finance Minister put the Competition Act of 2010 into effect, thereby replacing the outdated Monopolies and Price Control Act and the Monopolies and Prices Commission. Specifically, the Act created the Competition Authority of Kenya (CAK). All mergers and acquisitions require the Authority’s authorization before they are finalized, and the CAK regulates abuse of dominant position and other competition and consumer-welfare related issues in Kenya.
In 2014, CAK imposed a filing fee for mergers and acquisitions set at one million shillings ($9,700) for mergers involving turnover of between one and 50 billion shillings ($9.7 million to $485 million), while two million shillings ($19,400) will be charged for larger mergers. All mergers and acquisitions require CAK’s authorization.