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Kenya

Executive Summary

Kenya has a positive investment climate that has made it attractive to international firms seeking a location for regional or pan-African operations.  The novel coronavirus pandemic has negatively affected the short-term economic outlook, but the country remains resilient in addressing the health and economic challenges.  In July 2020 the U.S. and Kenya launched negotiations for a Free Trade Agreement, the first in sub-Saharan Africa.  Despite this progress, U.S. businesses operating in Kenya still face aggressive tax collection attempts, burdensome bureaucratic processes, and significant delays in receiving necessary business licenses.  Corruption remains pervasive and Transparency International ranked Kenya 128 out of 180 countries in its 2021 Global Corruption Perception Index – reflecting modest progress over the last decade but still well below the global average.

Kenya has strong telecommunications infrastructure and a robust financial sector and is a developed logistics hub with extensive aviation connections throughout Africa, Europe, and Asia.  In 2018, Kenya Airways initiated direct flights to New York City in the United States.  Mombasa Port is the gateway for East Africa’s trade.  Kenya’s membership in the East African Community (EAC), the Africa Continental Free Trade Area (AfCFTA), and other regional trade blocs provides it with preferential trade access to growing regional markets.

In 2017 and 2018 Kenya instituted broad reforms to improve its business environment, including passing the Tax Laws Amendment (2018) and the Finance Act (2018), which established new procedures and provisions related to taxes, eased the payment of taxes through the iTax platform, simplified registration procedures for small businesses, reduced the cost of construction permits, and established a “one-stop” border post system to expedite the movement of goods across borders.  However, the Finance Act (2019) introduced taxes to non-resident ship owners, and the Finance Act (2020) enacted a Digital Service Tax (DST).  The DST, which went into effect in January 2021, imposes a 1.5 percent tax on any transaction that occurs in Kenya through a “digital marketplace.”  The oscillation between business reforms and conflicting taxation policies has raised uncertainty over the Government of Kenya’s (GOK) long-term plans for improving the investment climate.

Kenya’s macroeconomic fundamentals remain among the strongest in Africa, averaging five to six percent gross domestic product (GDP) growth since 2015 (excepting 2020due to the negative economic impact of the COVID-19 pandemic), five percent inflation since 2015, improving infrastructure, and strong consumer demand from a growing middle class.  There is relative political stability and President Uhuru Kenyatta has remained focused on his “Big Four” development agenda, seeking to provide universal healthcare coverage, establish national food and nutrition security, build 500,000 affordable new homes, and increase employment by growing the manufacturing sector.

Kenya is a regional leader in clean energy development with more than 90 percent of its on-grid electricity coming from renewable sources.  Through its 2020, second Nationally Determined Contribution to the Paris Agreement targets, Kenya has prioritized low-carbon resilient investments to reduce its already low greenhouse gas emissions a further 32 percent by 2030.  Kenya has established policies and a regulatory environment to spearhead green investments, enabling its first private-sector-issued green bond floated in 2019 to finance the construction of sustainable housing projects.

American companies continue to show strong interest to establish or expand their business presence and engagement in Kenya.  Sectors offering the most opportunities for investors include:  agro-processing, financial services, energy, extractives, transportation, infrastructure, retail, restaurants, technology, health care, and mobile banking.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 128 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 85 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $339 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $11,067.86 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

In 2013, the Presidential Task Force on Parastatal Reforms (PTFPR) published a list of all state-owned enterprises (SOEs) and recommended proposals to reduce the number of State Corporations from 262 to 187 to eliminate redundant functions between parastatals; close or dispose of non-performing organizations; consolidate functions wherever possible; and reduce the workforce — however, progress is slow (https://drive.google.com/file/d/0BytnSZLruS3GQmxHc1VtZkhVVW8/edit).  SOEs’ boards are independently appointed and published in Kenya Gazette notices by the Cabinet Secretary of the ministry responsible for the respective SOE.  The State Corporations Act (2015) mandated the State Corporations Advisory Committee to advise the GOK on matters related to SOEs.  Despite being public entities, only SOEs listed on the Nairobi Securities Exchange publish their financial positions, as required by Capital Markets Authority guidelines.  SOEs’ corporate governance is guided by the constitution’s chapter 6 on Leadership and Integrity, the Leadership and Integrity Act (2012) (L&I) and the Public Officer Ethics Act (2003), which establish integrity and ethics requirements governing the conduct of public officials.

In general, competitive equality is the standard applied to private enterprises in competition with public enterprises.  Certain parastatals, however, have enjoyed preferential access to markets. Examples include Kenya Reinsurance, which enjoys a guaranteed market share; Kenya Seed Company, which has fewer marketing barriers than its foreign competitors; and the National Oil Corporation of Kenya (NOCK), which benefits from retail market outlets developed with government funds.  Some state corporations have also benefited from easier access to government guarantees, subsidies, or credit at favorable interest rates.  In addition, “partial listings” on the Nairobi Securities Exchange offer parastatals the benefit of accessing equity financing and GOK loans (or guarantees) without being completely privatized.

In August 2020, the executive reorganized the management of SOEs in the cargo transportation sector and mandated the Industrial and Commercial Development Corporation (ICDC) to oversee rail, pipeline and port operations through a holding company called Kenya Transport and Logistics Network (KTLN).  ICDC assumes a coordinating role over the Kenya Ports Authority (KPA), Kenya Railways Corporation (KRC), and Kenya Pipeline Company (KPC).  KTLN focuses on lowering the cost of doing business in the country through the provision of cost effective and efficient transportation and logistics infrastructure.

SOE procurement from the private sector is guided by the Public Procurement and Asset Disposal Act (2015) and the published Public Procurement and Asset Disposal Regulations (2020) which introduced exemptions from the Act for procurement on bilateral or multilateral basis, commonly referred to as government-to-government procurement; introduced E-procurement procedures; and preferences and reservations, which gives preferences to the “Buy Kenya Build Kenya” strategy (http://kenyalaw.org/kl/fileadmin/pdfdownloads/LegalNotices/2020/LN69_2020.pdf).

Kenya is neither party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) nor an Observer Government.

8. Responsible Business Conduct

The Environmental Management and Coordination Act (1999) establishes a legal and institutional framework for responsible environment management, while the Factories Act (1951) safeguards labor rights in industries.  The Mining Act (2016) directs holders of mineral rights to develop comprehensive community development agreements that ensure socially responsible investment and resource extraction and establish preferential hiring standards for residents of nearby communities.  The legal system, however, has remained slow to prosecute violations of these policies.

The GOK is not a signatory to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, and it is not yet an Extractive Industry Transparency Initiative (EITI) implementing country or a Voluntary Principles Initiative signatory.  Nonetheless, good examples of corporate social responsibility (CSR) abound as major foreign enterprises drive CSR efforts by applying international standards relating to human rights, business ethics, environmental policies, community development, and corporate governance.

9. Corruption

Corruption is pervasive and entrenched in Kenya and international corruption rankings reflect its modest progress over the last decade.  The Transparency International (TI) 2021 Global Corruption Perception Index ranked Kenya 128 out of 180 countries, its second-best ranking, and a marked improvement from its 2011 rank of 145 out of 176.  Kenya’s score of 30, however, remained below the global average of 43 and below the sub-Saharan Africa average of 33.  TI cited lack of political will, limited progress in prosecuting corruption cases, and the slow pace of reform in key sectors as the primary drivers of Kenya’s relatively low ranking.  Corruption has been an impediment to FDI, with local media reporting allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts.  Numerous reports have alleged that corruption influenced the outcome of government tenders, and some U.S. firms assert that compliance with the Foreign Corrupt Practices Act significantly undermines their chances of winning public procurements.

In 2018, President Kenyatta began a public campaign against corruption.  While GOK agencies mandated to fight corruption have been inconsistent in coordinating activities, particularly regarding cases against senior officials, cabinet, and other senior-level arrests in 2019 and 2020 suggested a renewed commitment by the GOK to fight corruption.  In 2020, the judiciary convicted a member of parliament to 67 years in jail or a fine of KES 707 million (approximately USD 7 million) for defrauding the government of KES 297 million (approximately USD 2.9 million).  The Ethics and Anti-Corruption Commission (EACC), in 2019, secured 44 corruption-related convictions, the highest number of convictions in a single year in Kenya’s history.  The EACC also recovered assets totaling more than USD 28 million in 2019 – more than the previous five years combined.  Despite these efforts, much work remains to battle corruption in Kenya.

Relevant legislation and regulations include the Anti-Corruption and Economic Crimes Act (2003), the Public Officers Ethics Act (2003), the Code of Ethics Act for Public Servants (2004), the Public Procurement and Disposal Act (2010), the Leadership and Integrity Act (2012), and the Bribery Act (2016).  The Access to Information Act (2016) also provides mechanisms through which private citizens can obtain information on government activities; however, government agencies’ compliance with this act remains inconsistent.  The EACC monitors and enforces compliance with the above legislation.

The Leadership and Integrity Act (2012) requires public officers to register potential conflicts of interest with the relevant commissions.  The law identifies interests that public officials must register, including directorships in public or private companies, remunerated employment, securities holdings, and contracts for supply of goods or services, among others.  The law requires candidates seeking appointment to non-elective public offices to declare their wealth, political affiliations, and relationships with other senior public officers.  This requirement is in addition to background screening on education, tax compliance, leadership, and integrity.

The law requires that all public officials, and their spouses and dependent children under age 18, declare their income, assets, and liabilities every two years.  Information contained in these declarations is not publicly available, and requests to obtain and publish this information must be approved by the relevant commission.  Any person who publishes or makes public information contained in a public officer’s declarations without permission may be subject to fine or imprisonment.

The Access to Information Act (2016) requires government entities, and private entities doing business with the government, to proactively disclose certain information, such as government contracts, and comply with citizens’ requests for government information.  The act also provides a mechanism to request a review of the government’s failure to disclose requested information, along with penalties for failures to disclose.  The act exempts certain information from disclosure on grounds of national security.  However, the GOK has yet to issue the act’s implementing regulations and compliance remains inconsistent.

The private sector-supported Bribery Act (2016) stiffened penalties for corruption in public tendering and requires private firms participating in such tenders to sign a code of ethics and develop measures to prevent bribery.  Both the constitution and the Access to Information Act (2016) provide protections to NGOs, investigative journalism, and individuals involved in investigating corruption.  The Witness Protection Act (2006) establishes protections for witnesses in criminal cases and created an independent Witness Protection Agency.  A draft Whistleblowers Protection Bill has been stalled in Parliament since 2016.

President Kenyatta directed government ministries, departments, and agencies to publish all information related to government procurement to enhance transparency and combat corruption.  While compliance is improving, it is not yet universal.  The information is published online (https://tenders.go.ke/website/contracts/Index).

Kenya is a signatory to the UN Convention Against Corruption (UNCAC) and in 2016 published the results of a peer review process on UNCAC compliance:  (https://www.unodc.org/documents/treaties/UNCAC/CountryVisitFinalReports/2015_09_28_Kenya_Final_Country_Report.pdf).  Kenya is also a signatory to the UN Anticorruption Convention and the OECD Convention on Combatting Bribery, and a member of the Open Government Partnership.  Kenya is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  Kenya is also a signatory to the East African Community’s Protocol on Preventing and Combating Corruption.

10. Political and Security Environment

Kenya’s 2017 national election was marred by violence, which claimed the lives of nearly 100 Kenyans, a contentious political atmosphere, which pitted the ruling Jubilee Party against the opposition National Super Alliance (NASA), as well as political interference and attacks on key institutions by both sides.  In November 2017, the Kenyan Supreme Court unanimously upheld the October 2017 repeat presidential election results and President Uhuru Kenyatta’s win in an election boycotted by NASA leader Raila Odinga.  In March 2018, President Kenyatta and Odinga publicly shook hands and pledged to work together to heal the political, social, and economic divides highlighted by the election.  The GOK, civil society actors, private sector, and religious leaders are implementing a number of initiatives to promote peace in advance of the next national election in August 2022.

The United States’ Travel Advisory for Kenya advises U.S. citizens to exercise increased caution due to the threat of crime and terrorism, and not to travel to counties bordering Somalia and to certain coastal areas due to terrorism.  Due to the high risk of crime, it is common for private businesses and residences to have 24-hour guard services and well-fortified property perimeters.

Instability in Somalia has heightened concerns of terrorist attacks, leading businesses and public institutions nationwide to increase their security measures.  Tensions flare occasionally within and between ethnic communities in Kenya.  Regional conflict, most notably in Ethiopia, Somalia, and South Sudan, sometimes have spill-over effects in Kenya.  There could be an increase in refugees entering Kenya due to drought and instability in neighboring countries, adding to the already large refugee population in the country.

Kenya and its neighbors are working together to mitigate threats of terrorism and insecurity through African-led initiatives such as the African Union Mission in Somalia (AMISOM) and the Eastern African Standby Force (EASF).  Despite attacks against Kenyan forces in Kenya and Somalia, the Government of Kenya has maintained its commitment to promoting peace and stability in Somalia.

11. Labor Policies and Practices

In 2021, Kenya’s employed labor force was recorded at 17.4 million.  Kenya’s informal economy is estimated to employ about 80 percent of the work force and to contribute 34 percent to Kenya’s gross domestic product.  Informal enterprises are mainly run by women, have low levels of innovation, lack social security coverage, job security, and low levels of unionization.  Kenya’s constitution mandates that no gender hold more than two-thirds of any positions in all elective or appointive bodies.  Gender balance and regional inclusivity are key facets of public appointments.  The Government of Kenya has not, however, ensured regional inclusivity in its appointments and public service human capital reports show dominant regional communities in appointments.  The gender mandate is not mandatory for private sector companies.  The private sector, however, has been instrumental in advancing gender balance in its work force composition.  NSE-listed companies have 36 percent female board representations.

The Government of Kenya mandates local employment in the category of unskilled labor.  The Kenyan government regularly issues permit for key senior managers and personnel with special skills not available locally.  For other skilled labor, any enterprise, whether local or foreign, may recruit from outside if the required skills are not available in Kenya.  However, firms seeking to hire expatriates must demonstrate that they conducted an exhaustive search to find persons with the requisite skills in Kenya and were unable to find any such persons.  The Ministry of EAC and Regional Development, however, has noted plans to replace this requirement with an official inventory of skills that are not available in Kenya.  A work permit can cost up to KES 400,000 (approximately USD 4,000).

Kenya has one of the highest literacy rates in the region at 90 percent.  Investors have access to a large pool of highly qualified professionals in diverse sectors from a working population of over 47.5 percent out of a population of 47.6 million people.  Expatriates are permitted to work in Kenya provided they have a work (entry) permit issued under the Kenya Citizenship and Immigration Act (2011).  In December 2018, the Ministry of Interior and Coordination of National Government Cabinet Secretary issued a directive requiring foreign nationals to apply for their work permits prior to entering Kenya and to confirm that the skill they will provide is unavailable in Kenyan via the Ministry of Labor and Social Protection’s Kenya Labor Market Information System (KLMIS).  KLMIS provides information regarding demand, supply, and skills available in Kenya’s labor market (https://www.labourmarket.go.ke/labour/supply/).  Work permits are usually granted to foreign enterprises approved to operate in Kenya as long as the applicants are key personnel.  In 2015, the Directorate of Immigration Services (DIS) expanded the list of requirements to qualify for work permits and special passes.  Issuance of a work permit now requires an assured income of at least USD 24,000 annually or documented proof of capital of a minimum of USD 100,000 for investors.  Exemptions are available, however, for firms in agriculture, mining, manufacturing, or consulting sectors with a special permit.  International companies have complained that the visa and work permit approval process is slow, and some officials request bribes to speed the process.  Since 2018, the DIS has more stringently applied regulations regarding the issuance of work permits.  As a result, delayed or rejected work permit applications have become one of the most significant challenges for foreign companies in Kenya.

A company holding an investment certificate granted by registering with KenInvest and passing health, safety, and environmental inspections becomes automatically eligible for three class D work (entry) permits for management or technical staff and three class G, I, or J work permits for owners, shareholders, or partners.  More information on permit classes can be found at https://kenya.eregulations.org/menu/61?l=en.

According to the Kenya National Bureau of Statistics (KNBS), in 2019, the formal sector, excluding agriculture, employed 18.1 million people, with nominal average earnings of KES 778,248 (USD 7,780) per person per annum.  Kenya has the highest rate of youth joblessness in East Africa.  According to the 2019 census data, 5,341,182 or 38.9 percent of the 13,777,600 youths eligible to work are jobless.  Employment in Kenya’s formal sector was 2.9 million in 2019 up from 2.8 million in 2018.  The government is the largest employer in the formal sector, with an estimated 865,200 government workers in 2019.  In the private sector, agriculture, forestry, and fishing employed 296,700 workers while manufacturing employed 329,000 workers.  However, Kenya’s large informal sector – consisting of approximately 80 percent of the labor force – makes accurate labor reporting difficult.

The GOK has instituted different programs to link and create employment opportunities for the youth, published weekly in GOK’s “MyGov” newspaper insert.  Other measures include the establishment of the National Employment Authority which hosts the National Employment Authority Integrated Management System website that provides public employment service by listing vacancies ( https://neaims.go.ke/).  The Kenya Labour Market Information System (KLMIS) portal (https://www.labourmarket.go.ke/), run by the Ministry of Labour and Social Protection in collaboration with the labor stakeholders, is a one-stop shop for labor information in the country.  The site seeks to help address the challenge of inadequate supply of crucial employment statistics in Kenya by providing an interactive platform for prospective employers and job seekers.  Both local and foreign employers are required to register with National Industrial Training Authority (NITA) within 30 days of operating.  There are no known material compliance gaps in either law or practice with international labor standards that would be expected to pose a reputational risk to investors.  The International Labor Organization has not identified any material gaps in Kenya’s labor law or practice with international labor standards.  Kenya’s labor laws comply, for the most part, with internationally recognized standards and conventions, and the Ministry of Labor and Social Protection is currently reviewing and ensuring that Kenya’s labor laws are consistent with the constitution.  The Labor Relations Act (2007) provides that workers, including those in export processing zones, are free to form and join unions of their choice.

Collective bargaining is common in the formal sector but there is no data on the percentage of the economy covered by collective bargaining agreements (CBA).  However, in 2019 263 CBAs were registered in the labor relations court with the Wholesale and Retail trade sector recording the most, at 88.  The law permits workers in collective bargaining disputes to strike but requires the exhaustion of formal conciliation procedures and seven days’ notice to both the government and the employer.  Anti-union discrimination is prohibited, and the government does not have a history of retaliating against striking workers.  The law provides for equal pay for equal work.  Regulation of wages is part of the Labor Institutions Act (2014), and the government has established basic minimum wages by occupation and location.

The GOK has a growing trade relationship with the United States under the AGOA framework which requires compliance with labor standards.  The Ministry of Labor is reviewing its labor laws to align with international standards as labor is also a chapter in the Free Trade Agreement negotiations with the U.S.  In 2019, the government continued efforts with dozens of partner agencies to implement a range of programs for the elimination of child and forced labor.  However, low salaries, insufficient resources, and attrition from retirement of labor inspectors are significant challenges to effective enforcement.  Employers in all sectors routinely bribe labor inspectors to prevent them from reporting infractions, especially regarding child labor violations.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (USD) 2020 $96.01 billion 2019 $101.01 billion https://data.worldbank.org/indicator/NY.GDP.
MKTP.CD?locations=KE
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $353 M BEA data available at http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $-16 M BEA data available at http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm
Total inbound stock of FDI as % host GDP 2019 1.2% 2020 0.1% https://unctad.org/webflyer/world-investment-report-2021

*Host Country Statistical Source: Central Bank of Kenya, Foreign Investment Survey 2020  

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

U.S. Embassy Economic Section
U.N. Avenue, Nairobi, Kenya
+254 (0)20 363 6050

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