Kenya has a positive investment climate that has made it attractive to international firms seeking a location for regional or pan-African operations. In the World Bank’s 2018 Doing Business report, Kenya moved up 12 places, ranking 80 of 190 economies reviewed, and Kenya was among the report’s top 10 reformers in 2017. In the last three years, it has jumped 56 places on this index. Year-on-year, Kenya continues to improve its regulatory framework and its attractiveness as a destination for foreign direct investment. It has a strong telecommunications infrastructure, a robust financial sector, extensive aviation connections within Africa and to Europe and Asia, and plans for direct flights to the United States in 2018. Mombasa Port is the major trade gateway for much of East Africa. Kenya’s membership in the East African Community (EAC), as well as other regional trade blocs, provides growing access to larger regional markets.
In 2017, Kenya instituted further business reforms: simplifying registration procedures for small businesses; improving access to credit information; reducing the cost of construction permits by eliminating clearance fees from the National Environment Management Authority and the National Construction Authority; enhancing electricity reliability by investing in distribution infrastructure and establishing power restoration squads; easing the payment of taxes through the iTax platform; and establishing a single window system to speed movement of goods across borders and reduce import document processing time. Other steps Kenya took in 2017 to improve its business environment included: passage of the Movable Property Securities Bill (2017); passage of the Nairobi International Financial Centre Bill (2017); passage of the Kenya Trade Remedies Bill (2017); passage of the Companies Amendment Act (2017); progress on draft legislation on the Financial Services Authority Bill to promote financial sector reform; and progress on the draft Copyright (Amendment) Bill (2017).
Kenya’s macroeconomic fundamentals remain among the strongest in Africa, with five to six percent GDP growth, four to eight percent inflation, shrinking current account deficits, improving infrastructure, and strong consumer demand from a growing middle class. A prolonged and acrimonious national election period during the second half of 2017 raised business anxiety and created a drag on growth but, following the elections, business and investment began to quickly recover. During his inauguration in November 2017, President Kenyatta outlined his second term development agenda, seeking to provide universal healthcare coverage; establish national food security; build 500,000 affordable new homes; and increase employment by doubling the manufacturing sector’s share of the economy.
The World Bank’s annual Kenya Economic Update, released in April 2018, cited short term economic risks to Kenya’s continued growth, including that: the Government of Kenya (GOK) may not continue needed fiscal consolidation; the GOK may not remove the current interest rate cap, exacerbating an ongoing credit squeeze; and the possibility of further drought. These same factors weighed on growth in 2017. At the same time, Kenya’s medium-term economic outlook appears strong. There has been great interest on the part of American companies 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.
|TI Corruption Perceptions Index||2018||143 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2017||80 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2017||80 of 127||https://www.globalinnovation
|U.S. FDI in partner country (M USD, stock positions)||2016||USD 396||http://www.bea.gov/
|World Bank GNI per capita||2016||USD 1,380||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Kenya has enjoyed 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 access to government-financed research, and the government’s export promotion programs do not distinguish between goods produced by local and foreign-owned firms.
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), the Foreign Investment Protection Act (1990), and the Companies Act (2015). GOK membership in the World Bank’s Multilateral Investment Guarantee Agency (MIGA) provides an opportunity to insure FDI against non-commercial risk.
The government does not have a policy to 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. The Central Bank has successfully maintained macroeconomic stability, with relatively low inflation, manageable debt, and stable exchange rates. Kenya puts significant effort into assuring the health and growth of its tourism industry. To strengthen Kenya’s manufacturing capacity, the government offers incentives for the production of goods for export.
Investment Promotion Agency
KenInvest, the country’s official investment promotion agency, is viewed favorably by international investors (http://www.investmentkenya.com ). KenInvest’s mandate is to promote and facilitate investment by assisting investors in obtaining the licenses necessary to invest and by providing other assistance and incentives to facilitate smoother operations. To help investors navigate local regulations, KenInvest has developed an online database known as eRegulations, designed to provide investors and entrepreneurs with full transparency on Kenya’s investment-related regulations and procedures (http://kenya.eregulations.org/?l=en ). At each step, the system tells the investor where to go, who to see, what to bring, what to pay, what is the legal justification, and who to contact in case of a problem. According to United Nations Conference on Trade and Development’s (UNCTAD’s) Global Enterprise Registration Network (http://www.GER.co ), the KenInvest site makes Kenya one of only 25 countries to earn a perfect rating on its information portal.
The GOK prioritizes investment retention and maintains an ongoing dialogue with investors. All proposed legislation must pass through a period of public consultation in which investors have an opportunity to offer feedback. Private sector representatives can serve as board members on Kenya’s state-owned enterprises. Since 2013, when the current government assumed power, the Kenya Private Sector Alliance (KEPSA), the apex private sector business association, has had bi-annual round table meetings with President Kenyatta and his cabinet. During the budget making process, KEPSA presents a “wish list” memorandum to the government. A follow up of the investors’ concerns is considered by a Cabinet committee on the ease of doing business, chaired by President Kenyatta. Policy research and analysis at the Cabinet committee is assisted by the IBM Research and Strathmore Business School in collaboration with the Business Delivery Unit under the Ministry of Industrialization.
Limits on Foreign Control and Right to Private Ownership and Establishment
The government provides the right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. In an effort to encourage foreign investment, the GOK in 2015 repealed regulations that imposed a 75 percent foreign ownership limitation for firms listed on the Nairobi Securities Exchange, allowing such firms now to be 100 percent foreign-owned, as reported by the UNCTAD World Investment Report 2016. Also in 2015, the government established regulations requiring Kenyans own at least 15 percent of the share capital of derivatives exchanges, through which derivatives such as options and futures can be traded.
There appears to be a recent trend in Kenya toward imposing “local content” requirements on foreign investments. When President Kenyatta signed the new Companies Act (2015), it contained language requiring all foreign companies to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth. United States business associations raised concerns over the bill, pointing to its lack of clarity and the possibility that such measures could run afoul of Kenya’s commitments under the WTO. The U.S. government also raised the issue with the Kenyan government. That clause has now been repealed.
Telecommunications regulator Communications Authority requires 20 percent Kenyan shareholding within three years of receiving a license. The new Mining Act (2016) restricts foreign participation in the mining sector. Among other restrictions, it reserves the acquisition of mineral rights to Kenyan companies, and requires 60 percent Kenyan ownership of mineral dealerships and artisanal mining companies. The Private Security Regulations Act (2016) restricts foreign participation in the private security sector by requiring that at least 25 percent of shares in private security firms be held by Kenyans. The National Construction Authority Act (2011) imposes local content restrictions on “foreign contractors,” defined as companies incorporated outside Kenya or with more than 50 percent ownership by non-Kenyan citizens. The act requires foreign contractors to enter into subcontracts or joint ventures assuring that at least 30 percent of the contract work is done by local firms. Regulations implementing these requirements are in process. The Kenya Insurance Act (2010) restricts foreign capital investment to two thirds with no single person controlling more than 25 percent of an insurers’ capital.
Other Investment Policy Reviews
There have been no third-party investment policy reviews through multilateral organizations in the last three years.
In 2011, the GOK established a state agency called KenTrade to address trading partners’ concerns regarding the complexity of trading regulations and procedures. KenTrade is mandated to facilitate cross-border trade and to implement the National Electronic Single Window System. In 2017, KenTrade launched a new trade information site, InfoTrade Kenya, located at https://infotradekenya.go.ke/ , which provides a host of investment products and services to prospective investors in Kenya. The site documents the process of exporting and importing by product, by steps, by paperwork, and by individuals, including contact information for officials responsible relevant permits or approvals.
In May 2017, President Kenyatta signed into law the Movable Property Security Rights Bill (2017), which is intended to enhance the ability of individuals to secure financing through the use of movable assets. The new law will also help innovators secure funding using intellectual property rights as collateral. In July 2017, Kenyatta signed an additional three business facilitation bills into law, including: the Nairobi International Financial Centre Act (2017); the Kenya Trade Remedies Act (2017), and the Companies Amendment Act (2017). The Nairobi International Financial Centre Act (2017) seeks to provide a legal framework to facilitate and support the development of an efficient and competitive financial services sector in Kenya. The act created the Nairobi Financial Centre Authority to establish and maintain an efficient operating framework to attract and retain firms. The Kenya Trade Remedies Act (2017) provides the legal and institutional framework for Kenya’s application of trade remedies consistent with World Trade Organization (WTO) law, which requires a domestic institution to both receive complaints and undertake investigations in line with the WTO Agreements. The Kenya Trade Remedies Act provides for the establishment of the Kenya Trade Remedies Agency for the investigation and imposition of anti-dumping, countervailing duty, and trade safeguards measures, and enables the GOK to take necessary measures to protect domestic industries from unfair trade practices.
The Companies Amendment Act (2017) amends the prior Companies Act to clarify the ambiguities in the act and conform to global trends and best practices. The act amends provisions on the extent of directors’ liabilities, on the extent of directors’ disclosures, and on shareholder remedies to better protect investors, including minority investors. The amended act eliminates the requirement for small enterprises to have lawyers register their firms, the requirement for company secretaries for small businesses, and the need for small businesses to hold annual general meetings, saving them from regulatory compliance and operational costs.
In September 2015, President Kenyatta signed the Business Registration Services (BRS) Act (2015) and the Companies Act (2015), which aim to strengthen Kenya’s position as a destination for investors. The BRS seeks to establish 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.
In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country. The unit has representatives from all ministries and focuses on reducing the bureaucratic steps related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a website (http://www.businesslicense.or.ke/ ) offering online business registration and providing information on how to access detailed information on additional relevant business licenses and permits, including requirements, costs, application forms, and contact details for the relevant regulatory agency.
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. Kenya is a member of UNCTAD’s international network of transparent investment procedures.
In 2013, the GOK initiated the Access to Government Procurement Opportunities (AGPO) program to facilitate the participation of youth, women, and persons with disabilities (PWDs) in public procurement. The program requires all public procurement entities to set aside a minimum of 30 percent of their annual procurement spending to enterprises owned by youth, women, and PWDs. By end of 2017, the GOK had registered 82,158 enterprises into the AGPO program, of which 31,946 were women’s enterprises. Since AGPO’s inception in 2013, women entrepreneurs have received 30,205 tenders worth USD 330 million, constituting over half of the total value of tenders awarded to these special interest groups. Major industry organizations such as KEPSA support women business leaders through focus groups that empower up and coming females to succeed in the local environment.
The GOK does not promote or incentivize outward investment. Despite this, Kenya is evolving into an outward investor in tourism, manufacturing, retail, finance, education, and media. Currently, the majority of outward investment remains in the EAC, making the most of Kenyan preferential access between EAC member countries. The GOK also does not restrict domestic investors from investing abroad. Rather, the EAC advocates for free movement of capital across the six member states – Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.
2. Bilateral Investment Agreements and Taxation Treaties
BITs or FTAs
In 2017, Kenya did not sign any new BITs or FTAs with other countries. Kenya’s BIT with Japan was signed in 2016 and came into force in 2017. Kenya’s BIT with the Republic of Korea was signed in 2014 and entered into forced in 2017.
Bilateral Taxation Treaties
The United States does not have a free trade agreement, bilateral investment treaty, or bilateral taxation treaty with Kenya. Kenya, however, is a beneficiary of the African Growth and Opportunity Act (AGOA), a U.S. trade preference and export promotion policy, which Congress renewed in 2015 for an additional 10 years. Under AGOA, Kenyan exporters enjoy duty-free access to U.S. markets for products falling under more than 6,400 tariff lines. Kenya’s primary exports to the United States under AGOA are apparel and accessories, coffee, tea, and nuts. In 2013, Kenya overtook Lesotho as the largest textile exporter to the United States under AGOA. According to the Kenya National Bureau of Statistics’ Economic Survey 2017, apparel exported through Export Processing Zones (EPZs) under AGOA stagnated in 2016 at USD 352 million, the same level reported in 2015. The GOK is developing a revised AGOA strategy.
The GOK has trade facilitation agreements (TFA) through the WTO, EAC Customs Union Protocol, Common Market for Eastern and Southern Africa (COMESA) Protocol on FTA, and the EU-EAC economic partnership agreement. The nine COMESA FTA member countries are Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, and Zimbabwe. The other 10 COMESA countries that are not part of the FTA trade with Kenya on preferential terms, observing tariff reductions between 60 and 80 percent. The status of EU-EAC economic partnership agreement is unclear at this time because of the failure of Tanzania and Uganda to renew the agreement in 2016 and 2017.
According to World Bank and Price Waterhouse Coopers’ 2018 Paying Taxes Report, Kenya improved 33 places globally in the ease of paying taxes, rising to 92 in 2017, up from 125 in 2015 (out of 190 countries). The improvement was largely driven by electronic filing and payment systems and their widespread adoption by taxpayers. The report shows that a medium sized company in Kenya pays a total tax rate of 37.4 percent, 9.4 percent less than the sub Saharan Africa average of 46.8 percent and below the global average of 40.5 percent. The iTax system launched by the Kenya Revenue Authority in mid-2015 has reduced tax compiling time from 196 hours in 2015 to 186 in 2017, compared to the global average of 240 hours. Kenya, however, still performs poorly in the post-filing index, which measures value-added tax (VAT) refunds and corrections made to corporate income tax returns, scoring only 63 out of 100 in post-filing efficiency.
4. Industrial Policies
The minimum foreign investment to qualify for GOK investment incentives is USD 100,000, a potential deterrent to foreign small and medium enterprise investment, especially in the services sector. Investment Certificate benefits, including entry permits for expatriates, are outlined in the Investment Promotion Act (2004).
The government allows all locally financed materials and equipment for use in construction or refurbishment of tourist hotels to be zero-rated for purposes of VAT calculation – excluding motor vehicles and goods for regular repair and maintenance. The National Treasury principal secretary, however, must approve such purchases. An additional measure enacted to boost the ailing tourism industry makes one-week employee vacations paid by employers a tax-deductible expense. Aircraft and aircraft parts, tractors, inputs for solar manufacturing, and services relating to goods in transit are fully exempt from VAT. Investors in metal manufacturing and products and the hospitality services sectors are able to deduct from their taxes a large portion of the cost of buildings and capital machinery.
The government’s Manufacturing Under Bond (MUB) program, established in 1986, is meant to encourage manufacturing for export. The program provides a 100 percent tax deduction on plant machinery and equipment and raw materials imported for production of goods for export. The program is also open to Kenyan companies producing goods that can be imported duty-free or goods for supply to the armed forces or to an approved aid-funded project.
The Finance Act (2014) amended the Income Tax Act (1974) to reintroduce after 29 years the capital gains tax (CGT) on transfer of property located in Kenya. Under this provision, gains derived on sale or transfer of property by an individual or company are subject to tax at rates of at least five percent. Sales and transfer of property related to the oil and gas industry are taxed up to 37.5 percent. The effective date of these provisions was January 1, 2015.
The Finance Act (2014) also reintroduced the withholding VAT system by government ministries, departments and agencies. The system excludes the Railway Development Levy (RDL) imports for persons, goods, and projects; the implementation of an official aid-funded project; diplomatic missions and institutions or organizations ‘gazetted’ under the Privileges and Immunities Act (2014); and the United Nations or its agencies.
Foreign Trade Zones/Free Ports/Trade Facilitation
Kenya’s EPZs and Special Economic Zones (SEZ) offer special incentives for firms operating within their boundaries. By the end of 2016, Kenya had 65 designated EPZs, with 91 companies and 52,019 workers contributing KSH 63.1 billion (approximately USD 622 million) to the Kenyan economy. Companies operating within an EPZ benefit from the following tax benefits: a 10-year corporate-tax holiday and a 25 percent tax thereafter; a 10-year withholding tax holiday; stamp duty exemption; 100 percent tax deduction on initial investment applied over 20 years; and VAT exemption on industrial inputs.
About 54 percent of EPZ products are exported to the United States under AGOA. The majority of the exports are textiles – Kenya’s third largest export behind tea and horticulture – and more recently handicrafts. Eighty percent of Kenya’s textiles and apparel originate from EPZ-based firms. Approximately 50 percent of all firms in the zones are fully owned by foreigners – mainly from India – while the rest are locally owned or joint ventures with foreigners. The proposed Textile City, to be set up at the Athi River EPZ, is expected to attract more than 100 textile investments, but progress on the project has been slow.
While EPZs are focused on encouraging production for export, the not yet fully established SEZs are designed to boost local economies by offering benefits for goods that are consumed both internally and externally. The SEZs will allow for a wider range of commercial ventures, including primary activities such as farming, fishing, and forestry. The 2016 Special Economic Zones Regulations that came into effect in August 2016 state that the Special Economic Zone Authority (SEZA) must maintain an open investment environment to facilitate and encourage business by the establishment of simple, flexible, and transparent procedures for investor registration. The new rules also empower county governments to set aside public land for establishment of industrial zones.
Companies operating in the SEZs will receive the following benefits: all SEZ supplies of goods and services to companies and developers will be exempted from VAT; the corporate tax rate for enterprises, developers, and operators will be reduced from 30 percent to 10 percent for the first 10 years and 15 percent for the next 10 years; exemption from taxes and duties payable under the Customs and Excise Act (2014), the Income Tax Act (1974), the EAC Customs Management Act (2004), and stamp duty; and exemption from advertisement and license fees levied by county governments.
The Second Medium Term Plan of Kenya’s Vision 2030 economic development agenda calls for establishing SEZs in Mombasa (2,000 sq. km), Lamu (700 sq. km), Kisumu (700 sq. km), and eventually to additional towns throughout the country. An SEZ near Naivasha is also under consideration at a location near the Olkaria geothermal power plant where manufacturers would benefit from cheaper and reliable power.
Performance and Data Localization Requirements
The GOK mandates local employment in the category of unskilled labor. The Kenyan government regularly issues permits 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 skills are not available in Kenya. Firms seeking to hire expatriates must demonstrate that the requisite skills are not available locally through an exhaustive search. The Ministry of EAC and Northern Corridor, 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 KSH 200,000 (approximately USD 2,000).
In January 2016, the new Public Procurement and Asset Disposal Act (2015) came into force offering preferences to firms owned by Kenyan citizens and to products manufactured or mined in Kenya. For tenders funded entirely by the government with a value of less than KSH 50 million (approximately USD 500,000), the preference for Kenyan firms and goods is exclusive. Where the procuring entity seeks to contract with non-Kenyan firms or procure foreign goods, the act requires a report detailing evidence of an inability to procure locally. The act also calls for at least 30 percent of government procurement contracts to go to firms owned by women, youth, and persons with disabilities. The act further reserves 20 percent of procurement contracts tendered at the county level to residents of that county. With the support of the World Bank and in collaboration with the Kenya Information and Communications Technology (ICT) Board, the Public Procurement Oversight Authority (PPOA) is developing a web-based Market Price Index to increase transparency in public procurement and implementation of the new act.
The Finance Act (2017) amends the Public Procurement and Asset Disposal Act (2015) to introduce Specially Permitted Procurement as an alternative method of acquiring public goods and services. The new method gives powers to state agencies to bypass existing public procurement laws under certain circumstances. Procuring entities will be allowed to use this method where market conditions or behavior do not allow effective application of the 10 methods outlined in the Public Procurement and Disposal Act. The act gives the National Treasury Cabinet Secretary the authority to prescribe the procedure for carrying out specially permitted procurement.
The GOK does not currently have any laws requiring data localization, though a draft of a 2016 ICT Policy contains text stating the government will “facilitate the development and enactment of legislation [creating] incentives for localization to support growth in IT service consumption – as an engine to spur data centre growth.” This remains a hotly contested issue in Kenya and it remains unclear if or when the government would choose to implement this policy and if actions would take the form of incentives or requirements. While the GOK recently published the Access to Information Act (2016), the Data Protection Bill which would likely clarify certain points on data localization has remained mostly stalled since 2012.
5. Protection of Property Rights
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. The Land (Extension and Renewal of Leases) Rules (2017) has stopped the automatic renewal of leases and now ties renewals to the economic output of the land that must be beneficial to the economy. If property legally purchased remains unoccupied, the property ownership can revert to other occupiers, including squatters.
Privately-owned land comprised six percent of the total land area in 1990; government land was about 20 percent of the total and included national parks, forest land and alienated and un-alienated land. Trust land is the most extensive type of tenure, comprising 64 percent of the total land area in 1990.
Mortgages and liens exist in Kenya, but the recording system is not reliable, and there are often complaints of property rights and interests not being enforced. The legal infrastructure around land ownership and registration has changed in recent years, and land issues delayed several major infrastructure projects in 2016. Kenya’s 2010 Constitution required all land leases to convert from 999 years to 99 years, giving the state the power to review leasehold land at the expiry of the 99 years, deny lease renewal, and confiscate the land if it determines the land has not been used productively. The constitution also converted foreign-owned freehold interests into 99-year leases at a “peppercorn rate” (a nominally low rate used to satisfy the requirements for the creation of a legal contract). The GOK has not yet effectively implemented this provision. Work continues on the National Land Information Management System, but fully digitized, border-to-border cadastral data is still many years in the future.
The 2010 Constitution and subsequent land legislation created the National Land Commission, an independent government body mandated to review historical land injustices and provide oversight of the government’s land policy and management. This has had the unintended side effect of introducing coordination and jurisdictional confusion between the commission and the Ministry of Lands.
In February 2015, President Kenyatta officially commissioned the newly established National Titling Center with a promise to increase the 5.6 million title deeds issued since independence to nearly 9 million. Land grabbing resulting from double registration of titles, however, remains prevalent. Property legally purchased and unoccupied can revert ownership to other parties.
Intellectual Property Rights
The major intellectual property enforcement issues in Kenya related to counterfeit products are corruption, lack of penalty enforcement, failure to impound imports of counterfeit goods at the ports of entry (especially in Mombasa), and reluctance of brand owners to file a complaint with the Anti-Counterfeit Agency (ACA). The prevalence of “gray market” products – genuine products that enter the country illegally without paying import duties – also presents a challenge, especially in the mobile phone and computer sectors.
In an attempt to combat the import of counterfeits, the Ministry of Industrialization and the Kenya Bureau of Standards (KEBS) decreed in 2009 that all locally-manufactured goods must have a KEBS standardization mark. Several categories of imported goods, specifically food products, electronics, and medicines, must have an import standardization mark (ISM). Under this new program, U.S. consumer-ready products may enter the Kenyan market without altering the U.S. label but must also carry an ISM. Once the product qualifies for a Confirmation of Conformity, KEBS will issue the ISM free of charge.
For additional information regarding the IPR environment in Kenya, also see USTR’s Special 301 Report. For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .
6. Financial Sector
Capital Markets and Portfolio Investment
Though small by Western standards, Kenya’s capital markets are the deepest and most sophisticated in East Africa. The Kenyan capital market has grown rapidly in recent years and has also exhibited strong capital raising capacity. The bond market, however, is still underdeveloped and dominated by trading in government debt securities. Long-term corporate bond issuances are uncommon, leading to a lack of long-term investment capital.
Foreign investors can obtain credit on the local market; however, the number of available credit instruments is relatively small and the government’s interest rate cap since 2016 has constrained the availability of credit. Legal, regulatory, and accounting systems are generally transparent and consistent with international norms. The Kenyan National Treasury has launched its mobile money platform government bond to retail investors locally. The name of the product is M-Akiba, through which local Kenyans are able to purchase bonds as small as USD 30 on their mobile phones. The reception of this product so far has not been as enthusiastic as expected by the government.
The Central Bank of Kenya (CBK) is working with regulators in EAC member states through the Capital Market Development Committee (CMDC) and East African Securities Regulatory Authorities (EASRA) on a regional integration initiative and has successfully introduced cross-listing of equity shares. The combined use of both the Central Depository System (CDS) and an automated trading system has moved the Kenyan securities market to globally accepted standards. Kenya is a full (ordinary) member of the International Organization of Securities Commissions Money and Banking System.
Money and Banking System
The Kenyan banking sector in June 2017 included 43 commercial banks, one mortgage finance company, 13 microfinance banks, seven representative offices of foreign banks, 74 foreign exchange bureaus, 18 money remittance providers, and three credit reference bureaus. Kenya also has 12 deposit-taking microfinance institutions. Of the 43 banking institutions, 28 are locally owned – three with public shareholding and 25 privately-owned – and 13 are foreign owned. The foreign owned financial institutions are comprised of eight locally incorporated foreign banks and four branches of foreign incorporated banks. Major international banks operating in Kenya include Citibank, Barclays, Bank of India, and Standard Chartered. Three locally-owned institutions are not in operation; one was under statutory management with a CBK-appointed manager and two were in receivership July 2016.
In March, 2017, CBK lifted its moratorium on licensing new banks, which was issued in November 2015 following the collapse of Imperial Bank and Dubai Bank. The CBK’s decision to restart licensing signals a return of stability in the Kenyan banking sector. CBK announced it is finalizing approval of two new lenders – DIB Bank Kenya owned by UAE’s largest Islamic bank Dubai Islamic Bank (DIB) and Mayfair Bank Limited. JPMorgan Chase has expressed interest in setting up a representative office in Nairobi and Qatari National Bank (QNB) is interested in arranging a Sukuk (sovereign bond) for Kenya.
In August 2016, President Kenyatta signed into law the Banking Act (2016), which caps the maximum interest rate banks can charge on loans at four percent above the CBK’s benchmark lending rate. It further provides a floor for the deposit rate held in interest earning accounts to at least 70 percent of the CBK benchmark rate. The cap has hurt the GOK’s ability to raise funds in the local debt market, and the CBK has cancelled three auctions of treasury bills and bonds in 2017. The cap also has slowed the consumer and small and medium business credit market. The International Monetary Fund and other observers have warned that the restrictions will result in a continuing contraction in the availability of credit.
In the ongoing land registry digitization process, the Kenyan Government is working on a database, known as the single source of truth (SSOT), to eliminate fake title deeds in the Ministry of Lands. The SSOT database will use blockchain technology – distributed ledger technology – as the primary reference for all land transactions. The distributed ledger enables the land transaction process to be efficient, open, and transparent, as the database is consensually shared and synchronized across a network spread across multiple sites, institutions or geographies. The financial services sector is also exploring deploying innovations that use bitcoin technology to provide the services for users of big data.
The percentage of Kenya’s total population with access to financial services through conventional or mobile banking platforms is approximately 80 percent. According to the World Bank, M-Pesa, Kenya’s largest mobile banking platform, processes more transactions within Kenya each year than Western Union does globally. As of September 2016, 31.1 million Kenyans were using mobile phone platforms to transfer money, according to Communication Authority of Kenya figures. There were over 162,465 agents facilitating transactions in excess of KSH 3.1 trillion (approximately USD 3 billion) in the 2015/2016 fiscal year, a sum equivalent to half of Kenya’s GDP in the same period. The National ICT Masterplan 2017 envisages the sector contributing at least 10 percent of GDP growth by 2017, up from 4.7 percent recorded in 2015. As of February 2016, Kenyan mobile money platform SimbaPay has received approval to operate in five European countries catering to the Kenyan diaspora, allowing them to bank in Kenya from abroad.
Foreign Exchange and Remittances
Foreign Exchange Policies
Kenya has no restrictions on converting or transferring funds associated with investment. Kenyan law requires the declaration to customs of amounts greater than KSH 500,000 (approximately USD 5,000) or the equivalent in foreign currencies for non-residents as a formal check against money laundering.
Kenya is an open economy with a liberalized capital account and a floating exchange rate. The CBK engages in volatility controls aimed exclusively at smoothing temporary market fluctuations. Between June 2015 and June 2016, the Kenyan shilling declined 3.5 percent after a sharp decline of 15 percent during the same period in 2014/2015. In 2017, foreign exchange reserves continue to grow and now provide more than five months of import cover. The average inflation rate was 8.0 percent in 2017 and the rate on 91-day treasury bills had fallen to 8.01 percent in December 2017. According to CBK figures, the average exchange rate was KSH 102.1 to USD 1.00 in 2017.
Kenya’s Foreign Investment Protection Act (FIPA) guarantees capital repatriation and remittance of dividends and interest to foreign investors, who are free to convert and repatriate profits including un-capitalized retained profits (proceeds of an investment after payment of the relevant taxes and the principal and interest associated with any loan).
Foreign currency is readily available from commercial banks and foreign exchange bureaus and can be freely bought and sold by local and foreign investors. The Central Bank of Kenya Act (2014), however, states that all foreign exchange dealers are required to obtain and retain appropriate documents for all transactions above the equivalent of KSH 1,000,000 (approximately USD 10,000). As of March 2017, the CBK has licensed 17 money remittance providers following the operationalization of the Money Remittance Regulations in April 2013.
Kenya is listed as a country of primary concern for money laundering and financial crime by the State Department’s Bureau of International Narcotics and Law Enforcement. Kenya’s ongoing progress in creating the legal and institutional framework to combat money laundering and the financing of terrorism resulted in the inter-governmental Financial Action Task Force (FATF) removing Kenya the FATF Watchlist in June 2014.
Sovereign Wealth Funds
Kenya is in the process of establishing a sovereign wealth fund through the Kenya National Sovereign Wealth Fund Bill (2014). The fund will receive income from any future privatization proceeds, dividends from state corporations, oil and gas, and minerals revenues due to the national government, revenue from other natural resources, and funds from any other source. The bill is undergoing internal review and stakeholder consultations. The fund will have the triple goal of shielding the economy from cyclical changes in commodity prices, saving for future generations, and supporting infrastructure investment. According to the working draft of the bill, “Investments shall be directed to both local and foreign markets except to the extent restricted under this Act or under the investment Guidelines.”
The Kenya Information and Communications Act (2009) provides for the establishment of a Universal Service Fund (USF). The purpose of the USF is to fund national projects that have significant impact on the availability and accessibility of ICT services in rural, remote, and poor urban areas. The USF has amassed sizeable assets, but to date, the fund and its managing committee have not been able to mobilize it for use on any project.
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. The taskforce’s report can be found at Report of The Presidential Taskforce on Parastatal Reforms . 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 financing through equity and GOK loans (or guarantees) without being completely privatized.
On procurement from the private sector, SOEs are guided by the Public Procurement (Preference and Reservations) (Amendment) Regulations (2013). The amendment reserves 30 percent government supply contracts for youth, women, and small and medium enterprises. Kenya is neither party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) nor an Observer Government.
Kenya is not currently pursuing privatization.
8. Responsible Business Conduct
The Environmental Management and Coordination Act (1999) establishes a legal and institutional framework for the management of the environment while the Factories Act (1951) safeguards labor rights in industries. The legal system, however, has remained slow to prosecute corporate malfeasance in both areas.
The GOK does not have laws or regulations encouraging Corporate Social Responsibility (CSR) for the risk of discouraging investment. It is not an adherent 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 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.
Kenyan law provides for criminal penalties for official corruption but no high-level officials were successfully prosecuted for corruption in 2017. 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). In September 2016, a new Access to Information Act (2016) went into force, providing additional mechanisms through which private citizens can obtain information on government activities; implementation of this act is ongoing. The Ethics and Anti-Corruption Commission (EACC) monitors and enforces compliance with the above legislation. The government made modest progress in 2017 implementing elements of President Kenyatta’s November 2015 anticorruption strategy.
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 officers declare their income, assets, and liabilities every two years. Public officers must also include income, assets, and liabilities of their spouses and dependent children under the age of 18. Officers must declare this information to their responsible commission (e.g., the Parliamentary Service Commission in the case of members of parliament). Information contained in these declarations is not readily available to the public, and requests to obtain and publish this information must be approved by the relevant commission. Any person who publishes or otherwise makes public information contained in public officer declarations without permission may be subject to fine or imprisonment.
On August 31, 2016, the president signed into law the Access to Information Act (2016). The law allows citizens to request government information and requires government entities and private entities doing business with the government proactively to disclose certain information, such as government contracts. 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.
Corruption in Kenya is pervasive and entrenched. Transparency International’s (TI) 2017 Global Corruption Perception Index ranks Kenya 143 out of 180 countries, two places lower than Kenya’s 2016 ranking and Kenya’s score of 28 remains below the sub-Saharan Africa average of 32. Lack of political will, little progress in prosecuting past corruption cases, and the slow pace of reform in key sectors were reasons cited for Kenya’s chronic low ranking. Corruption is an impediment to FDI with local media reporting on allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts. There are many reports that corruption often influences the outcomes of government tenders in Kenya, and U.S. firms have had limited success bidding on public procurements.
In December 2016, the new private sector-supported Bribery Act (2016) went into effect stiffening penalties for corruption in public tendering and requiring private firms participating in such tenders to sign a code of ethics and develop measures to prevent bribery. A multi-agency team launched in January 2016 by the Attorney General resulted in better coordination between law enforcement agencies on corruption cases.
The Bill of Rights of the 2010 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) calls for the protection of witnesses in criminal cases and created an independent Witness Protection Agency. A draft Whistleblowers Protection Bill (2016) is currently stalled in Parliament.
Kenya is a signatory to the UN Convention Against Corruption (UNCAC) and in March 2016 published the results of a peer review process on UNCAC compliance (Country Review Report of Kenya ). 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.
Resources to Report Corruption
Contact at government agency or agencies are responsible for combating corruption:
Rev. Eliud Wabukala (Ret.)
Chairperson and Commissioner
Ethics and Anti-Corruption Commission
P.O. Box 61130 00200 Nairobi, Kenya
Phones: +254 (0)20-271-7318, (0)20-310-722, (0)729-888-881/2/3
Report corruption online: http://www.eacc.go.ke/report-corruption/
Contact at “watchdog” organization:
Transparency International Kenya
Phone: +254 (0)722-296-589
Report corruption online: https://www.tikenya.org/
10. Political and Security Environment
Kenya’s 2017 general electoral process was marred by incidents of unrest and violence throughout the extended electoral period and by harsh attacks by top political leaders on electoral and judicial authorities, which undermined the independence of the country’s democratic institutions and the rule of law. On November 20, 2017, the Supreme Court upheld Kenyatta’s re-election as president, rejecting a petition from NGOs challenging his October 26, 2017 re-election victory. The October 26 election followed a court order invalidating the first general election, held August 8, 2017, and ordering a new election within 60 days. The 2017 elections occurred in a charged campaign environment, coupled with the violent protests and excessive use of force by security, leaving the country polarized and divided. Over the course of the extended electoral period, business activities were affected by uncertainties and closures related to demonstrations and post-election violence. Economic growth fell from 5.8 percent in 2016 to 4.8 percent in 2017 due to election related uncertainty, credit shrinkage from the interest rate cap, and a prolonged drought, but the economy recovered by the end of the year.
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. Instability in Somalia has heightened security concerns and led to increased security measures aimed at businesses and public institutions around the country. Tensions flare occasionally within and between ethnic communities. A severe drought afflicting Kenya caused increased conflict between landowners and herders searching for water and grazing lands in several areas of the country during 2017. Regional conflict, most notably in Ethiopia, Somalia, and South Sudan, sometimes have spill-over effects in Kenya. There could be an increase in refugees escaping drought and instability in neighboring countries, adding to the large refugee population already in Kenya from several countries. Security expenditures represent a substantial operating expense for businesses in Kenya.
Kenya and its neighbors are working together to mitigate the threats of terrorism and insecurity through African-led initiatives such as the African Union Mission in Somalia (AMISOM) and the nascent Eastern African Standby Force (EASF). Despite attacks against Kenyan forces in Somalia, the GOK has maintained its commitment to promoting peace and stability in Somalia.
11. Labor Policies and Practices
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 45 million people. Expatriates are allowed to work in Kenya provided they have a work (entry) permit issued under the Kenya Citizenship and Immigration Act. An applicant for a work permit needs to describe the work in which he or she intends to engage and will be only allowed to engage in that specific activity. Work permits are usually granted to foreign enterprises approved to operate in Kenya as long as the applicants are key personnel. Any enterprise, whether local or foreign, may recruit expatriates for any category of skilled labor if Kenyans are not available. Work permits are required for all foreign nationals intending to work in Kenya. International companies have complained that the visa and work permit approval process is slow and sometimes bribes are solicited to speed up the process. In 2015, the Directorate of Immigration Services made administrative additions to the list of requirements for work permits and special pass applications. Recent policy changes also mandate assured income of at least USD 24,000 annually for the issuance of a work permit. Exemptions are available, however, for firms in agriculture, mining, manufacturing, or consulting sectors with a special permit.
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 .
Kenya has not officially published complete labor statistics since 2009. Unofficial reporting cites a 40 percent unemployment rate from the 2009 KNBS census, with unemployment and underemployment for youth approaching much higher levels. Employment in Kenya’s formal sector was 2.7 million in 2016, an increase of 3.3 percent from 2015. Average wages for the formal sector are KSH 642,731 (approximately USD 6,240) annually. The government is the largest employer in the formal sector, with an estimated 737,100 government workers in 2016. Agriculture, forestry, and fishing employ 337,000 workers, and manufacturing employs 301,000 workers. Kenya’s large informal sector, however, makes accurate labor reporting difficult.
In 2017, the GOK launched a website linking job seekers to employment and internship opportunities within their counties and across the country (http://www.mygov.go.ke/category/jobs/ ). 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 seeking 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. KLMIS will be operated in partnership with the private sector and is designed to provide timely, relevant, and reliable information to the public that would be useful in strengthening linkages between industry and training institutions, development, and centralization of the national human resource database.
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 2010 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. 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.
In late 2017, 40,000 tea plantation workers working for multinational tea companies went on strike. The workers sought the full 30 percent wage increase previously promised by the tea companies in a 2014 collective bargaining agreement. The tea growers argued that rising labor costs would price Kenya out of the international tea market. With about USD 1.2 billion in exports in 2016, tea is Kenya’s second highest foreign exchange earner. The worker strike posed an investment risk to the sector and the Kenya’s Employment and Labor Relations Court (ELRC) ruled in favor of the Kenya Tea Growers Association. A judge ordered the growers to pay half of the agreed wage increase, with further discussions with workers still ongoing.
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.
The GOK has a growing trade relationship with the United States under the AGOA framework which requires labor standards to be upheld. In 2017, the government continued to implement a range of programs for the elimination of child labor with dozens of partner agencies, and has actively pursued the elimination of forced labor. However, low salaries and the lack of vehicles, fuel, and other resources make it very difficult for labor inspectors to do their work. Employers in all sectors routinely bribe labor inspectors to prevent them from reporting infractions, especially in the area of child labor. The Labor Commissioner’s Report for 2014 notes that “under-staffing and in particular of technical officers (inspectorate staff) has affected efficient delivery of services.”
12. OPIC and Other Investment Insurance Programs
In 2016, the U.S. Overseas Private Insurance Corporation (OPIC) established a regional office in Nairobi. The agency is engaged in funding programs in Kenya with an active in-country portfolio of approximately USD 700 million, including projects in power generation, internet infrastructure, light manufacturing, and education infrastructure. Notable projects include the USD 310 million financing for the expansion of Nevada-based Ormat’s geothermal plant, the USD 72 million financing of Wanachi’s expansion of fiber optic internet service, and USD 4.1 million to expand Mawingu Network’s last mile internet access program, among others. Going forward, OPIC currently has an active pipeline of approximately USD 600 million in new projects including transactions in the energy, education, and financial service sectors.
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:
|Host Country Gross Domestic Product (GDP) (M USD)||
|Foreign Direct Investment||
Host Country Statistical Source
USG or International Statistical Source
USG or international Source of Data:
|U.S. FDI in partner country (M USD, stock positions)||
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)||
|Total inbound stock of FDI as % host GDP||
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||3,885||100%||Total Outward||803||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Source: IMF Coordinated Direct Investment Survey (CDIS). Figures are from 2012 (latest available). IMF no longer publishes Kenya data as part of its CDIS.
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||3,885||100%||All Countries||2,817||100%||All Countries||833||100%|
Source: IMF Coordinated Portfolio Investment Survey (CPIS). Figures are from 2012 (latest available). IMF no longer publishes Kenya data as part of its CPIS.
14. Contact for More Information
U.N. Avenue, Nairobi, Kenya
+254 (0)20 363 6613