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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 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. In the World Bank’s 2020 Doing Business report Kenya improved 7 places, ranking 56 of 190 economies reviewed. In the last three years, it has moved up 54 places on this index. Year-on-year, Kenya continues to improve its regulatory framework and its attractiveness as a destination for foreign direct investment. Despite this progress in the ease of doing business rankings, U.S. businesses operating in Kenya still face aggressive tax collection attempts and significant bureaucratic processes and delays in issuing necessary business licenses. Corruption remains endemic and Transparency International’s (TI) 2019 Global Corruption Perception Index ranked Kenya 137 out of 198 countries, worsening by seven spots compared to 2018.

Kenya has strong telecommunications infrastructure, a robust financial sector, a developed logistics hub, and 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 most of the East African trade. Kenya’s membership in the East African Community (EAC), the Africa Continental Free Trade Area (AfCFTA), and other regional trade blocs provides growing access to larger regional markets.

In 2017 and 2018 Kenya instituted broad reforms to improve its business environment, including passage of the Tax Laws (amended) Bill (2018) and the Finance Act (2018), establishing new procedures and provisions relating to taxes, simplifying registration procedures for small businesses, reducing the cost of construction permits, easing the payment of taxes through the iTax platform, and establishing a single window system to speed movement of goods across borders. But the Finance Act 2019 introduced taxes to non-resident ship owners, and the Finance Act 2020 enacted a 1.5 percent Digital Service Tax (DST), which will be implemented in January 2021. 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, with five to six percent GDP growth over the past five years, six to eight percent inflation, improving infrastructure, and strong consumer demand from a growing middle class. However, GDP growth is projected to slow to 1.5-2.0 percent in 2020 due to COVID-19. The GOK has responded by loosening fiscal policies like corporate income tax and other measures to cushion companies and individuals. There is relative political stability due to the Building Bridges Initiative (BBI) and President Kenyatta has remained focused on his second term “Big Four” 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 2020, cites some short term economic risks to Kenya’s continued growth such as the locust invasion, COVID-19 pandemic, and flooding, but also noted positive developments including measures taken by the GOK and the Central Bank of Kenya to reduce the impacts of these risks. American companies continue to show strong interest to establish or expand their business presence and engagement in Kenya, especially following President Kenyatta’s August 2018 and February 2020 meetings with President Trump in Washington, D.C. 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 2019 137 of 198 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 56 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 77 of 126 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $353 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $1,750 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

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. The government’s export promotion programs do not distinguish between goods produced by local or 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. In November 2019, KenInvest launched the Kenya Investment Policy (KIP) and the County Investment Handbook (CIH) (http://www.invest.go.ke/publications/) which aim to increase foreign direct investment in the country. The investment policy intends to guide laws being drafted to promote and facilitate investments in Kenya.

The Central Bank has successfully maintained macroeconomic stability with relatively low inflation and stable exchange rates. The National Treasury is increasingly focused on efforts to ensure prudent debt management. Kenya puts significant effort into assuring the health and growth of its tourism industry. To strengthen Kenya’s manufacturing capacity, the government offers incentives to produce goods for export.

Investment Promotion Agency

Kenya Investment Authority (KenInvest), the country’s official investment promotion agency, is viewed favorably by international investors (http://www.invest.go.ke/). 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 (https://eregulations.invest.go.ke/?l=en ).

KenInvest is part of the National Business and Economic Response of the GOK and has been instrumental in assessing and relaying information about the private sector effects of Covid-19 to inform policy measures during the pandemic. The agency is also tracking post-Covid-19 investment sectors.

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, 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. Investors’ concerns are considered by a Cabinet committee on the ease of doing business, chaired by President Kenyatta. The American Chamber of Commerce has also taken an increasingly active role in engaging the GOK on Kenya’s business environment, often providing a forum for dialogue.

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 to be 100 percent foreign-owned. 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.

Kenya considered imposing “local content” requirements on foreign investments under the Companies Act (2015), which initially contained language requiring all foreign companies to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth. United States business associations, however, raised concerns over the bill, pointing to its lack of clarity and the possibility such measures could run afoul of Kenya’s commitments under the WTO. After the U.S. government also raised the issue with the Kenyan government, the clause was repealed.

Kenya’s National Information and Communications Technology (ICT) policy guidelines, published in August 2020, increase the requirement for Kenyan ownership in foreign companies providing ICT services from 20% to 30%, and broadens its applicability within the telecommunications, postal, courier, and broadcasting industries. The foreign entities will have 3 years to comply with the increased local equity participation rule. The Mining Act (2016) restricts foreign participation in the mining sector and reserves the acquisition of mineral rights to Kenyan companies, requiring 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 remain 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

In 2019, the World Trade Organization conducted a trade policy review for the East Africa Community (EAC), of which Kenya is a member (https://www.wto.org/english/tratop_e/tpr_e/tp484_e.htm).

Business Facilitation

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 InfoTrade Kenya, located at infotrade.gov.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 February 2019, Kenya implemented a new Integrated Customs Management System (iCMS) which includes automated valuation benchmarking, automated release of green-channel cargo, importer validation and declaration, and linkage with iTax. The iCMS features enable Customs to efficiently manage revenue and security related risks for imports, exports and goods on transit and transshipment.

The Movable Property Security Rights Bill (2017) enhanced the ability of individuals to secure financing through movable assets, including using intellectual property rights as collateral. 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. To date, however, Kenya has implemented only 7.5 percent of its commitments under the WTO Trade Facilitation Agreement, which it ratified in 2015. In 2020, Kenya launched the Kenya Trade Remedies Agency for the investigation and imposition of anti-dumping, countervailing duty, and trade safeguards, to protect domestic industries from unfair trade practices.

The Companies Amendment Act (2017) amended the prior Companies Act clarifying ambiguities in the act and conforms 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 regulatory compliance and operational costs.

The Business Registration Services (BRS) Act (2015) established 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) covers the registration and management of both public and private corporations.

In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country. The unit 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. In 2013, the GOK initiated the Access to Government Procurement Opportunities program, requiring all public procurement entities to set aside a minimum of 30 percent of their annual procurement spending facilitate the participation of youth, women, and persons with disabilities (https://agpo.go.ke/ ).

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.

Outward Investment

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. Outward investment has been focused in the East Africa Community and select central African countries, taking advantage of the EAC preferential access between the EAC member countries. The EAC advocates for free movement of capital across the six member states – Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.

3. Legal Regime

Transparency of the Regulatory System

Kenya’s regulatory system is relatively transparent and continues to improve. Proposed laws and regulations pertaining to business and investment are published in draft form for public input and stakeholder deliberation before their passage into law (http://www.kenyalaw.org/  and http://www.parliament.go.ke/the-national-assembly/house-business/bills-tracker ). Kenya’s business registration and licensing systems are fully digitized and transparent while computerization of other government processes to increase transparency and close avenues for corrupt behavior is ongoing.

The 2010 Kenyan Constitution requires government to incorporate public participation before officials and agencies make certain decisions. The draft Public Participation Bill (2016) would provide the general framework for such public participation. The Ministry of Devolution has produced a guide for counties on how to carry out public participation; many counties have enacted their own laws on public participation. The Environmental Management and Coordination Act (1999) incorporates the principles of sustainable development, including public participation in environmental management. The Public Finance Management Act mandates public participation in the budget cycle. The Land Act, Water Act, and Fair Administrative Action Act (2015) also include provisions providing for public participation in agency actions.

Kenya has regulations to promote inclusion and fair competition when applying for tenders. Executive Order No. 2 of 2018 emphasizes publication of all procurement information including tender notices, contracts awarded, name of suppliers and their directors. The information is published on the Public Procurement Information Portal enhances transparency and accountability (https://www.tenders.go.ke/website). However, the directive is yet to be fully implemented.

Many GOK laws grant significant discretionary and approval powers to government agency administrators, which can create uncertainty among investors. While some government agencies have amended laws or published clear guidelines for decision-making criteria, others have lagged in making their transactions transparent. Work permit processing remains a problem, with overlapping and sometimes contradictory regulations. American companies have complained about delays and non-issuance of permits that appear compliant with known regulations.

International Regulatory Considerations

Kenya is a member state of the East African Community (EAC), and generally applies EAC policies to trade and investment. Kenya operates under the EAC Custom Union Act (2004) and decisions on the tariffs to levy on imports from countries outside the EAC zone are made at the EAC Secretariat level. The U.S. government engages with Kenya on trade and investment issues bilaterally and through the U.S.-EAC Trade and Investment Partnership. Kenya also is a member of COMESA and the Inter-Governmental Authority on Development (IGAD).

According to the Africa Regional Integration Index Report 2019, Kenya is the second best integrated country in Africa and a leader in regional integration policies within the EAC and COMESA regional blocs, with strong performance on regional infrastructure, productive integration, free movement of people, and financial and macro-economic integration. The GOK maintains a Department of East African Community Integration within the Ministry of East Africa and Regional Development. Kenya generally adheres to international regulatory standards. The country is a member of the WTO and provides notification of draft technical regulations to the Committee on Technical Barriers to Trade (TBT). Kenya maintains a TBT National Enquiry Point at http://notifyke.kebs.org . Additional information on Kenya’s WTO participation can be found at https://www.wto.org/english/thewto_e/countries_e/kenya_e.htm .

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. Publicly listed companies adhere to International Financial Reporting Standards (IFRS) that have been developed and issued in the public interest by the International Accounting Standards Board. The board is an independent, private sector, not-for-profit organization that is the standard-setting body of the IFRS Foundation. Kenya is a member of UNCTAD’s international network of transparent investment procedures.

Legal System and Judicial Independence

The legal system is based on English Common Law, and the 2010 constitution establishes an independent judiciary with a Supreme Court, Court of Appeal, Constitutional Court, and High Court. Subordinate courts include: Magistrates, Khadis (Muslim succession and inheritance), Courts Martial, the Employment and Labor Relations Court (formerly the Industrial Court), and the Milimani Commercial Courts – the latter two of which both have jurisdiction over economic and commercial matters. In 2016, Kenya’s judiciary instituted specialized courts focused on corruption and economic crimes. There is no systematic executive or other interference in the court system that affects foreign investors, however, the courts face allegations of corruption, as well as political manipulation in the form of unjustified budget cuts which significantly impact the ability of the judiciary to deliver on its mandate and delayed confirmation of nominated Judges by the President resulting in an understaffed judiciary and long delays in rendering judgments.

Laws and Regulations on Foreign Direct Investment

The Foreign Judgments (Reciprocal Enforcement) Act (2012) provides for the enforcement of judgments given in other countries that accord reciprocal treatment to judgments given in Kenya. Kenya has entered into reciprocal enforcement agreements with Australia, the United Kingdom, Malawi, Tanzania, Uganda, Zambia, and Seychelles. Outside of such an agreement, a foreign judgment is not enforceable in the Kenyan courts except by filing a suit on the judgment. Foreign advocates may practice as an advocate in Kenya for the purposes of a specified suit or matter if appointed to do so by the Attorney General. However, foreign advocates are not entitled to practice in Kenya unless they have paid to the Registrar of the High Court of Kenya the prescribed admission fee. Additionally, they are not entitled to practice unless a Kenyan advocate instructs and accompanies them to court. The regulations or enforcement actions are appealable and are adjudicated in the national court system.

Competition and Anti-Trust Laws

Kenya does not have a competition or Anti-Trust policy, however the Competition Act (2010) created the Competition Authority of Kenya (CAK) which covers restrictive trade practices, mergers and takeovers, unwarranted concentrations, and price control. All mergers and acquisitions require the CAK’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 Kenyan shillings (KSH) (approximately USD 10,000) for mergers involving turnover of between one and KSH 50 billion (up to approximately USD 500 million). KSH two million (approximately USD 20,000) will be charged for larger mergers. Company takeovers are possible if the share buy-out is more than 90 percent, although such takeovers are rarely seen in practice.

Expropriation and Compensation

The 2010 constitution guarantees protection from expropriation, except in cases of eminent domain or security concerns, and all cases are subject to the payment of prompt and fair compensation. The Land Acquisition Act (2010) governs due process and compensation in land acquisition, although land rights remain contentious and can cause significant project delays. However, there are cases where government measures could be deemed indirect expropriation that may impact foreign investment. Companies report an emerging trend in land lease renewal where foreign investors face uncertainty in lease renewals by county governments in instances where the county wants to confiscate some or all of the foreign investor’s project property.

Dispute Settlement

ICSID Convention and New York Convention

Kenya is a member of the International Centre for Settlement of Investment Disputes, also known as the ICSID Convention or the Washington Convention, and the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards. International companies may opt to seek international well-established dispute resolution at the ICSID. Regarding the arbitration of property issues, the Foreign Investments Protection Act (2014) cites Article 75 of the Kenyan Constitution, which provides that “[e]very person having an interest or right in or over property which is compulsorily taken possession of or whose interest in or right over any property is compulsorily acquired shall have a right of direct access to the High Court.” Kenya in 2020 prevailed in an ICSID international arbitration case against WalAm Energy Inc, a U.S./Canadian geothermal company in a geothermal exploration license revocation dispute.

Investor-State Dispute Settlement

There have been very few investment disputes involving U.S. and international companies. Commercial disputes, including those involving government tenders, are more common. There are different bodies established to settle investment disputes. The National Land Commission (NLC) settles land related disputes; the Public Procurement Administrative Review Board settles procurement and tender related disputes, and the Tax Appeals Tribunal settles tax disputes. However, the private sector cites weak institutional capacity, inadequate transparency, and inordinate delays in dispute resolution in lower courts. The resources and time involved in settling a dispute through the Kenyan courts often render them ineffective as a form of dispute resolution.

International Commercial Arbitration and Foreign Courts

The government does accept binding international arbitration of investment disputes with foreign investors. The Kenyan Arbitration Act (1995) as amended in 2010 is anchored entirely on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Legislation introduced in 2013 established the Nairobi Centre for International Arbitration (NCIA), which seeks to serve as an independent, not-for-profit international organization for commercial arbitration, and may offer a quicker alternative to the court system. In 2014, the Kenya Revenue Authority launched an Alternative Dispute Resolution (ADR) mechanism aiming to provide taxpayers with an alternative, fast-track avenue for resolving tax disputes.

Transcription of Court Proceedings in the Commercial and Tax Division

The Kenyan Judiciary reported in its 2018-2019 State of the Judiciary and Administration Report that it had commenced its court recording and transcription project with the installation of recording equipment in six courtrooms in the Commercial and Tax Division in Nairobi. The project will significantly speed up the hearing of cases as judges will no longer be required to record proceedings by hand.

Court Annexed Mediation and Small Claims Courts

The National Council on the Administration of Justice spearheaded legislative reforms to accommodate mediation in the formal court process as well as introduce small claims courts to expedite resolution of commercial cases. The Judiciary reported in its State of the Judiciary Address (2018-2019), that the Mediation Accreditation Committee accredited 645 mediators that were handling a total of 411 commercial matters during the reporting period. Additionally, the Judiciary reported that disputes with a total value of over three billion Kenyan shillings (KSH) (approximately USD 30,000,000) had been resolved through Court Annexed Mediation during the reporting period. Court Annexed Mediation serves as an effective case resolution mechanism that will significantly reduce pressure on the justice system and eventually result in expeditious determination of commercial cases.

Bankruptcy Regulations

The Insolvency Act (2015) modernized the legal framework for bankruptcies. Its provisions generally correspond to those of the United Nations’ Model Law on Cross Border Insolvency. The act promotes fair and efficient administration of cross-border insolvencies to protect the interests of all creditors and other interested persons, including the debtor. The act repeals the Bankruptcy Act (2012) and updates the legal structure relating to insolvency of natural persons and incorporated and unincorporated bodies. Section 720 of the Insolvency Act (2015) grants the force of law to the UNCITRAL Model Law.

Creditors’ rights are comparable to those in other common law countries, and monetary judgments typically are made in Kenyan shillings. The Insolvency Act (2015) increased the rights of borrowers and prioritizes the revival of distressed firms. The law states that a debtor will automatically be discharged from debt after three years. Bankruptcy is not criminalized in Kenya. Kenya moved up 6 ranks in the World Bank Group’s Doing Business 2020 report, moving to 50 of 190 countries in the “resolving insolvency” category.

4. Industrial Policies

Investment Incentives

Kenya provides both fiscal and non-fiscal incentives to foreign investors (http://www.invest.go.ke/starting-a-business-in-kenya/investment-incentives/ ). 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. In a measure to boost the tourism industry, one-week employee vacations paid by employers are a tax-deductible expense. The 2015 amendments to Kenya’s VAT rules clarified some items that are VAT exempt. In 2018, the Kenya Revenue Authority (KRA) exempted from VAT certain facilities and machinery used in the manufacturing of goods under Section 84 of the East African Community Common External Tariff Handbook. VAT refund claims must be submitted within 12 months of purchase.

The government’s Manufacturing Under Bond (MUB) program encourages 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. 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 Finance Act (2014) amended the Income Tax Act (1974) to reintroduce capital gains tax on transfer of property located in Kenya. Under this provision, gains derived on the 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 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 Export Processing Zones (EPZ) and Special Economic Zones (SEZ) offer special incentives for firms operating within their boundaries. By the end of 2019, Kenya had 74 designated EPZs, with 137 companies and 60,383 workers contributing KSH 77.1 billion (about USD 713 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.

While EPZs are focused on encouraging production for export, SEZs are designed to boost local economies by offering benefits for goods that are consumed both internally and externally. 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 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. In 2019 Kenya developed the revised draft SEZ regulations with simplified and improved incentives structure. The 2019 draft regulations include customs duty exemptions to goods and services in the SEZ and no trade related restrictions including quantitative ones in import of goods and services into the SEZ. The 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 county-level advertisement and license fees. There are currently SEZs in Mombasa (2,000 sq. km), Lamu (700 sq. km), and Kisumu (700 sq. km), Naivasha, Machakos (100 acres) and private developments designated as SEZ include Tatu City in Kiambu. The Third Medium Term Plan of Kenya’s Vision 2030 economic development agenda calls for a study for an SEZ at Dongo Kundu, and an SEZ was also under consideration at a location near the Olkaria geothermal power plant.

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 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 KSH 400,000 (approximately USD 4,000).

The Public Procurement and Asset Disposal Act (2015) offers preferences to firms owned by Kenyan citizens and to products manufactured or mined in Kenya in a GOK strategy called “Buy Kenya Build Kenya” which mandates 40 percent of GOK procurement be locally produced goods and services. Tenders funded entirely by the government with a value of less than KSH 50 million (approximately USD 500,000), are reserved for Kenyan firms and goods. If 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 county procurement tenders to residents of that county.

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 permits 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.

Kenya passed the Data Protection Act (2019) which imposes restrictions on the transfer of data in and out of Kenya without consent of the Data Protection Commissioner and the subject, functionally requiring data localization. The Act is similar to the European General Data Protection Regulation requirements on data processing.

5. Protection of Property Rights

Real Property

The 2010 Constitution prohibits foreigners or foreign owned firms from owning freehold interest in land in Kenya. However, unless classified as agricultural, there are no restrictions on foreign-owned companies leasing land or real estate. The cumbersome and opaque process 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) stopped the automatic renewal of leases and tied 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.

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 government land policy and management. This had the unintended side effect of introducing coordination and jurisdictional confusion between the commission and the Ministry of Lands mainly fueled by land interests by the political class. In 2015, President Kenyatta commissioned the new National Titling Center with a promise to increase the 5.6 million title deeds issued since independence to 9 million. From 2013 to 2018, an additional 4.5 million title deeds have been issued, however 70 percent of land in Kenya remained untitled. Land grabbing resulting from double registration of titles remains prevalent. Property legally purchased but unoccupied can revert ownership to other parties.

Mortgages and liens exist in Kenya, but the recording system is not reliable – Kenya has only some 24,000 recorded mortgages in a country of 47.6 million people – 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 have delayed several major infrastructure projects. 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 nominal “peppercorn rate” sufficient to satisfy the requirements for the creation of a legal contract. The GOK has not yet effectively implemented this provision. In July 2020, the Ministry of Lands and Physical planning released draft electronic land registration regulations (2020) to guide the e-transaction of land. The Ministry together with the National Land Commission agreed to commence the e-transaction on land matters pending resolution of outstanding issues.

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, 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. Copyright piracy and the use of unlicensed software are also emerging challenges.

The Presidential Task Force on Parastatal Reforms (2013) proposed that the three intellectual property agencies, namely: the Kenya Industrial Property Institute (KIPI), the Kenya Copyright Board (KECOBO) and the Anti-Counterfeit Authority (ACA) be merged into one Government Owned Entity (GOE). A task force on the merger comprising staff from KIPI, ACA, KECOBO, the Ministry of Industrialization, Trade and Enterprise Development is drafting the instruments of the merger which has led to a draft GOE named Intellectual Property Office of Kenya (IPOK) and has also drafted Intellectual Property Office Bill, 2020 for establishing IPOK. 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 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. From time to time KEBS and the Anti-Counterfeit Agency conduct random seizures of counterfeit imports but there is no clear database of seizures kept.

Kenya is not included on the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.

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

Kenya developed the draft Financial Markets Conduct bill (2018) to consolidate and harmonize the financial sector in the country. Among the proposals in the draft bill is the establishment of the financial markets conduct authority to be the sole body to regulate providers of financial products and services to retail financial customers and to curb irresponsible financial market practices, a move that will create a conflict with the current financial markets regulators. Though relatively small by Western standards, Kenya’s capital markets are the deepest and most sophisticated in East Africa. The Nairobi Securities Exchange (NSE) is the best ranked exchange in sub-Saharan Africa in terms of performance in the last decade. NSE operates under the jurisdiction of the Capital Markets Authority of Kenya. It is a full member of the World Federation of Exchange, a founder member of the African Securities Exchanges Association (ASEA) and the East African Securities Exchanges Association (EASEA). The NSE is a member of the Association of Futures Market and is a partner exchange in the United Nations-led SSE initiative. Foreign investor participation has always been high and a key determinant of the market performance in the NSE. The NSE in July 2019 launched the derivatives market that will facilitate trading in future contracts on the Kenyan market and will be regulated by the Capital Market Authority of Kenya. The bond market is underdeveloped and dominated by trading in government debt securities. The government domestic debt market, however, is deep and liquid. Long-term corporate bond issuances are uncommon, leading to a lack of long-term investment capital.

In November 2019, Kenya repealed the interest rate capping law passed in 2016 which had had the unintended consequence of slowing private sector credit growth. There are no restrictions for foreign investors to seek credit in the domestic financial market although it still struggles to fund big ticket projects. Legal, regulatory, and accounting systems are generally aligned with international norms. The Kenyan National Treasury has launched its mobile money platform government bond to retail investors locally dubbed M-Akiba purchased at USD 30 on their mobile phones. M-Akiba has generated over 500,000 accounts for the Central Depository and Settlement Corporation and The National Treasury has made initial pay-outs to bond holders. The GOK expects to issue USD 10 million over this platform in 2019 in an effort to deepen financial inclusion and financial literacy.

According to the African Private Equity and Venture Capital Association (AVCA) 2014-2019 report on venture capital performance in Africa, Kenya is assessed as having a well-developed venture capitalist ecosystem ranking second in sub-Saharan Africa and accounted for 18 percent of the deals between 2014-2019 in Africa. The report further states that over 20 percent of the deals in the period were for companies that were headquartered outside Africa which sought expansion into the region’s markets.

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 and Settlement Corporation (CDSC) 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 2020 included 40 operating commercial banks, one mortgage finance company, 13 microfinance banks, nine representative offices of foreign banks, 70 foreign exchange bureaus, 15 money remittance providers, and three credit reference bureaus which are licensed and regulated by the Central Bank of Kenya. Kenya also has 12 deposit-taking microfinance institutions. There has been increased foreign interest in Kenya’s banking sector with foreign owned banks making up 15 of the 40 operating banks. Major international banks operating in Kenya include Citibank, Absa bank (formerly Barclays bank Africa), Bank of India, Standard Bank (South Africa), and Standard Chartered. Kenya’s banking sector has been affected by the COVID-19 pandemic. According to the CBK, 32 out of 39 commercial banks restructured their loans to accommodate those affected. Non-performing loans (NPLs) rose to 13.1 percent in April 2020 fueled by the pandemic, however previous NPLs have averaged above 10 percent. The Banking sector has 12 listed banks in the Nairobi Securities Exchange which owned 89 percent of the banking assets in 2019.

In March 2017, CBK lifted its moratorium on licensing new banks, issued in November 2015 following the collapse of Imperial Bank and Dubai Bank. The CBK’s decision to restart licensing signaled a return of stability in the Kenyan banking sector. In 2018, Societé Generale (France) also set up a representative office in Nairobi. Foreign banks can apply for license to set up operations in Kenya and are guided by the CBK’s prudential guidelines 2013.

In November 2019, the Government of Kenya (GOK) enacted the Banking Amendment Act 2019, which effectively repealed the section within the Banking (Amendment) Act (2016) that capped the maximum interest rate banks can charge on commercial loans at four percent above Central Bank of Kenya’s (CBK) benchmark lending rate. This repeal effectively provides financial institutions flexibility with regards to pricing the risk of lending.

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 development plan is premised on blockchain technology – distributed ledger technology – as the primary reference for all land transactions. The SSOT database would help the land transaction process to be efficient, open, and transparent. The blockchain taskforce presented its 2019 report to the Ministry of Information, Communication Technology, Innovations and Youth Affairs on the viability and opportunities of the blockchain technology which is yet to be implemented.

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. Data from the Communication Authority of Kenya shows that in the 3 months to December 2019, 30 million Kenyans had active mobile money subscriptions. The 2017 National ICT Masterplan envisages the sector contributing at least 10 percent of GDP, up from 4.7 percent in 2015. Several mobile money platforms have achieved international interoperability, allowing the Kenyan diaspora to conduct financial transactions 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 1,000,000 (approximately USD 10,000) 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 2018, foreign exchange reserves remained relatively steady. The average inflation rate was 5.2 percent in 2019 and the average rate on 91-day treasury bills had fallen to 7.2 percent in 2019. According to CBK figures, the average exchange rate was KSH 101.99to USD 1.00 in 2019.

Remittance Policies

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). Kenya has 15 money remittance providers as at 2020 following the operationalization of 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 was removed from the inter-governmental Financial Action Task Force (FATF) Watchlist in 2014 following progress in creating the legal and institutional framework to combat money laundering and terrorism financing.

Sovereign Wealth Funds

In 2019, the National Treasury published the Kenya Sovereign Wealth Fund policy (2019) and the Kenya Sovereign Wealth Fund Bill (2019) for stakeholders’ comments as a constitutional procedure. The fund would 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 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. During the COVID-19 pandemic, the USF committee has partnered with the Kenya Institute of Curriculum Development to digitize the education curriculum for online learning.

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 (https://drive.google.com/file/d/0BytnSZLruS3GQmxHc1VtZkhVVW8/edit ) SOEs’ boards are independently appointed and published in the Kenya Gazette notices by respective Cabinet Secretary. The State Corporations Advisory Committee is mandated by the State Corporations Act 2015 to advise on matters of SOEs. Financial operations of most SOEs are not readily available due to their opaque operating procedures despite being public entities, only those that are listed in the Nairobi Securities Exchange publish their financial positions as guided by the Capital Markets Authority guidelines. Corporate governance in SOEs is guided by the 2010 Constitution chapter 6 on integrity, Leadership and Integrity Act 2012 and the Public Officer Ethics Act 2003 which provide integrity and ethical requirements governing the conduct of State and public officers.

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.

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 is aimed at lowering the cost of doing business in the country, which will be achieved through the provision of port, rail, and pipeline infrastructure in a cost effective and efficient manner.

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/multilateral basis commonly referred to 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 ). 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.

Privatization Program

The Privatization Act 2003 establishes the Privatization Commission (PC) which is mandated to formulate, manage, and implement Kenya’s Privatization Program. GOK has been committed to implementing a comprehensive public enterprises reform program to increase private sector participation in the economy. The privatization commission ( https://www.pc.go.ke/  ) is fully constituted with a board which is responsible for the privatization program. The PC has 26 approved privatization programs (https://www.pc.go.ke/sites/default/files/2019-06/APPROVED%20PRIVATIZATION%20PROGRAMME.pdf  ). In 2020, GOK is implementing a sugar taskforce report that proposed privatization of some state-owned sugar firms to increase their efficiency and productivity. The process of privatization involves open bids by interested investors including foreign investors.

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 Mining Act 2016 provides for holders of mineral rights to develop a comprehensive community development agreement that secures socially responsible investment and provides for employment preference for those living in communities around mining operations. The legal system, however, has remained slow to prosecute corporate malfeasance in both areas.

The GOK 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.

9. Corruption

Many businesses deem corruption to be pervasive and entrenched in Kenya. Transparency International’s (TI) 2019 Global Corruption Perception Index ranks Kenya 137 out of 198 countries, six places lower than in 2018 and Kenya’s score of 28 remains below the sub-Saharan Africa average of 32. Historical lack of political will, limited 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 has been reported to be an impediment to FDI, with local media reporting 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, and U.S. firms have had limited success bidding on public procurements. In 2018, President Kenyatta began a public campaign against corruption. The Anti-Corruption agencies mandated to fight corruption have been inconsistent in coordinating activities, especially in bringing cases against senior officials. However, there were cabinet level arrests in 2019 that signaled a commitment by the GOK to fight corruption. Despite these efforts, much still remains to be done in convicting high profile suspects.

In 2020, a high-level conviction was secured for a Member of Parliament setting a precedent for top officials’ convictions. 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; implementation of this act is ongoing. The Ethics and Anti-Corruption Commission (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 officers declare their income, assets, and liabilities every two years. Public officers must also include the income, assets, and liabilities of their spouses and dependent children under the age of 18. 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 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) although the government has not yet issued regulations required to fully operationalize the act. 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.

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 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 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.

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: https://eacc.go.ke/default/report-corruption/ 

Contact at “watchdog” organization:

Sheila Masinde
Executive Director
Transparency International Kenya
Phone: +254 (0)722-296-589
Report corruption online: https://www.tikenya.org/ 

10. Political and Security Environment

Political tensions over the protracted and contentious 2017 election cycle spilled well into 2018. In March 2018, however, President Kenyatta and opposition National Super Alliance (NASA) leader Raila Odinga publicly shook hands and pledged to work together to heal the political, social, and economic divides revealed by the election. The 2017 electoral period had been marred by violence that claimed the lives of nearly 100 Kenyans, a contentious political atmosphere pitting the ruling Jubilee Party against NASA, and political interference and attacks by both sides on key institutions. 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. The court’s ruling brought a close to Kenya’s protracted 2017 election cycle, a period that included the Supreme Court’s historic September 2017 annulment of the August 2017 presidential election and the unprecedented repeat election. In November 2019, the Building Bridges Initiative Advisory Taskforce, established by President Kenyatta in May 2018 as part of his pledge to work with Odinga, issued a report recommending reforms to address nine areas: lack of a national ethos, responsibilities and rights of citizenship; ethnic antagonism and competition; divisive elections; inclusivity; shared prosperity; corruption; devolution; and safety and security.

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. 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 47.6 million people. Expatriates are allowed to work in Kenya provided they have a work (entry) permit issued under the Kenya Citizenship and Immigration Act 2011. In December 2018, the Cabinet Secretary for Interior and Coordination of National Government issued a directive that requires foreign nationals to apply for their work permits while in their country of origin and will have to prove that the skills they have are not available in the Kenya labor market. 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 made additions to the list of requirements for work permits and special pass applications. Issuance of a work permit now requires an assured income of at least USD 24,000 annually. 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 bribes are sometimes solicited to speed the process. A tightening of work permit issuances and enforcement begun in 2018 is now one of the largest complaints of multinational companies doing business 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 non-agricultural employment in the formal sector was at 18.1 million, with nominal average earnings of Ksh778,248 (USD 7,200) 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 2.8million 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, which include a website (http://www.mygov.go.ke/category/jobs/ ). 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 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 (CBA). However, in 2019 263 CBAs were registered in the labor relations court with Wholesale and Retail trade sector recording the highest 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 labor standards to be upheld. The Ministry of Labor and Social Protection 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 in the area of child labor.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

In 2016, the U.S. International Development Finance Corporation (formerly OPIC) established a regional office in Nairobi, but the office is not currently staffed. 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. 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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) ($B USD) 2019 $90.19bn 2019 $95.5bn 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 2017 $353Mn 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 2017 $6Mn BEA data available at
http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_data.htm
 
Total inbound stock of FDI as % host GDP 2019 $1.07bn 2019 1.3bn https://unctad.org/ sections/dite_dir/
docs/wir2018/wir18_fs_ke_en.pdf
 
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%
U.K. $1,086 28% Uganda $395 49%
Mauritius $675 17% Mauritius $293 37%
Netherlands $652 17% South Africa $52 6%
France $315 8% Mozambique $37 5%
South Africa $309 8% Italy $12 2%
“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%
U.K. $1,086 27% U.K. $974 35% Netherlands $353 42%
Mauritius $675 17% Mauritius $618 22% France $174 21%
Netherlands $652 17% Netherlands $299 11% U.K. $112 13%
France $315 8% South Africa $290 10% Mauritius $57 7%
South Africa $309 8% Germany $181 6% Switzerland $55 7%

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

14. Contact for More Information

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

Uganda

Executive Summary

Uganda’s investment climate continues to present both important opportunities and major challenges for U.S. investors. With a market economy, ideal climate, ample arable land, young and largely English-speaking population, and at least 1.4 billion barrels of recoverable oil, Uganda offers numerous opportunities for investors. Uganda’s gross domestic product (GDP) grew by 6.5 percent in fiscal year (FY) 2018/2019. The International Monetary Fund (IMF) had projected 5.5 – 6 percent growth in FY 2019/2020, though the combined impact of the COVID-19 pandemic and related restrictions, the current locust infestation, and the negative economic effects associated with Uganda’s impending elections are likely to reduce this figure. Uganda maintains a liberal trade and foreign exchange regime. Foreign direct investment (FDI) surged by a whopping 80 percent to USD 1.75 billion in FY 2018/2019, driven by the construction and manufacturing sub-sectors. Uganda’s power, agricultural, construction, infrastructure, technology, and healthcare sectors present important opportunities for U.S. business and investment.

President Yoweri Museveni and government officials vocally welcome foreign investment in Uganda. However, the government’s actions sometimes do not support its rhetoric. Closing political space, poor economic management, endemic corruption, growing sovereign debt, weak rule of law, and the government’s failure to invest adequately in the health and education sectors all create risks for investors. U.S. firms may also find themselves competing with third country firms that cut costs and win contracts by disregarding environmental regulations and labor rights, dodging taxes, and bribing officials. Shortages of skilled labor and a complicated land tenure system also impede investment.

An uncertain mid-to-long-range political environment also increases risk to foreign businesses and investors. Domestic political tensions have increased in the run-up to the 2021 elections as 34-year incumbent President Museveni faces new challengers and a disenfranchised youth demographic that comprises 77 percent of the population.

On the legislative front, in a move aimed ostensibly at reducing the repatriation of hard currency profits, in October 2019, the government approved the Communications Licensing Framework which imposed a 20 percent mandatory stock listing requirement on mobile telecommunication service providers. The same framework also requires telecommunication infrastructure companies to sell 20 percent of their equity to Ugandan citizens.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2019 137 of 180 https://www.transparency.org/cpi2019
World Bank’s Doing Business Report 2020 116 of 190 https://www.doingbusiness.org/en/data/
exploreeconomies/uganda
Global Innovation Index 2019 102 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 USD 42 million https://apps.bea.gov/international/
factsheet/factsheet.cfm?Area=446
World Bank GNI per capita 2018 USD 620 https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD?locations=UG

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Ugandan government and authorities vocally welcome FDI, and the country’s free market economy, liberal financial system, and more than 40 million-person consumer market attract investors. However, rampant corruption, weak rule of law, and an increasingly aggressive Uganda Revenue Authority create a challenging business environment.

The 2019 Investment Code Act (ICA) established both benefits and challenges to FDI. It abolished restrictions on technology transfer and repatriation of funds by foreign investors, and established new incentives (e.g., tax waivers) for investment. However, the ICA also set a minimum value of USD 250,000 for FDI and a yet-to-be-specified minimum value for portfolio investment. Additionally, the ICA authorized the Government of Uganda (GOU) to alter these thresholds at any time, thereby creating potential uncertainty for investors. Under the ICA, investment licenses carry specific performance conditions varying by sector, such as requiring investors to permit the Uganda Investment Authority (UIA) to monitor operations, or to employ or train Ugandan citizens, or use Ugandan goods and services to the greatest extent possible. Further, the ICA empowers the GOU to revoke investment licenses of entities that “tarnish the good repute of Uganda as an attractive base for investment.” The government has yet to revoke any investor license on this ground.

In October 2019, the GOU passed the Communications Licensing Framework (CLF) which requires telecommunication (telecom) companies to list 20 percent of their equity on the Uganda Securities Exchange (USE), with the aim of increasing local ownership and reducing the repatriation of profits. Additionally, the CLF requires communication infrastructure companies to sell 20 percent of their equity to citizens of Uganda. However, no company has yet implemented these requirements, and in the first “test case,” the GOU exempted a telecom infrastructure company from the required equity sale.

The Uganda Investment Authority (UIA) facilitates investment by granting licenses to foreign investors, as well as promoting, facilitating, and supervising investments. It provides a “one-stop” shop online where investors can apply for a license, pay fees, register businesses, apply for land titles, and apply for tax identification numbers. In practice, investors may also need to liaise with other authorities to complete legal requirements. The UIA also triages complaints from foreign investors. The UIA’s website (www.ugandainvest.go.ug ) and the Business in Development Network Guide to Uganda (www.bidnetwork.org ) provide information on the laws and reporting requirements for foreign investors. In practice, investors often ultimately end up bypassing the UIA after experiencing bureaucratic delays and corruption. For larger investments, companies have reported that political support from a high-ranking Ugandan official is a prerequisite.

President Museveni hosts an annual investors’ roundtable to consult a select group of foreign and local investors on increasing investment, occasionally including U.S. investors. Every Ugandan embassy has a trade and investment desk charged with advertising investment opportunities in the country.

Limits on Foreign Control and Right to Private Ownership and Establishment

Except for land, foreigners have the right to own property, establish businesses, and make investments. Ugandan law permits foreign investors to acquire domestic enterprises and to establish green field investments. The Companies Act of 2010 permits the registration of companies incorporated outside of Uganda.

Foreigners seeking to invest in the oil and gas sector must register with the Petroleum Authority of Uganda (PAU) to be added to its National Supplier Database. More information on this process is available on the Embassy’s website (select – Registering a U.S. Firm on the National Supplier Database): https://ug.usembassy.gov/business/commercial-opportunities/

The Petroleum Exploration and Development Act and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act require companies in the oil sector to prioritize using local goods and labor when possible, and give the Minister of Energy and Mineral Development (MEMD) the authority to determine the extent of local content requirements in the sector.

All investors must obtain an investment license from the UIA. The UIA evaluates investment proposals based on a number of criteria, including potential for generation of new earnings; savings of foreign exchange; the utilization of local materials, supplies, and services; the creation of employment opportunities in Uganda; the introduction of advanced technology or upgrading of indigenous technology; and the contribution to locally or regionally balanced socioeconomic development.

Other Investment Policy Reviews

The United Nations Commission on Trade and Development (UNCTAD) issued its World Investment Report, 2019, available at: https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/World_Investment_Report.aspx 

The International Monetary Fund issued an Article IV Consultation and Review in 2020, and its concluding statement is available at: https://www.imf.org/en/News/Articles/2020/02/03/pr2031-uganda-imf-staff-concludes-visit 

The World Trade Organization (WTO) issued it Trade Policy Review in 2019; the report is available at: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=254764,251521,117054,95202,80262,80232,82036,106989&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True 

Business Facilitation

The UIA one-stop shop website assists in registering businesses and investments. In practice, investors and businesses may need to liaise with multiple authorities to set up shop, and the UIA lacks the capacity to play a robust business facilitation role. According to the 2020 World Bank Doing Business report, business registration takes an average of 25 days.

Prospective investors can also register online and apply for an investment license at https://www.ebiz.go.ug/ . The UIA also assists with the establishment of local subsidiaries of foreign firms by assisting in registration with the Uganda Registration Services Bureau (URSB) (http://ursb.go.ug/ ). New businesses are required to obtain a Tax Identification Number from the Uganda Revenue Authority (URA), which they can do online (https://www.ura.go.ug/myTin.do ) or through the UIA. Businesses must also secure a trade license from the municipality or local government in the area in which they intend to operate. Investors in specialized sectors such as finance, telecoms, and petroleum often need an additional permit from the relevant ministry in coordination with the UIA.

Under the Uganda Free Zones Act of 2014, the government continues to establish free trade zones for foreign investors seeking to produce goods for export and domestic use. Such investors receive a range of benefits including tax rebates on imported inputs and exported products. An investor seeking a free zone license may lodge an application with the Uganda Free Zones Authority (https://freezones.go.ug/ ).

Outward Investment

The GOU does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

On paper, Uganda’s legal and regulatory systems are generally transparent and non-discriminatory, and comply with international norms. In practice, bureaucratic hurdles and corruption significantly impact all investors, but with disproportionate effect on foreigners learning to navigate a parallel informal system. While Ugandan law requires open and transparent competition on government project tenders, U.S. investors have alleged that endemic corruption means that competitors not subject to the Foreign Corrupt Practices Act, or similar legislation, often pay bribes to win awards.

Ugandan law allows the banking, insurance, and media sectors to establish self-regulatory processes through private associations. The government continues to regulate these sectors, however, and the self-regulatory practices generally do not discriminate against foreign investors.

Potential investors must be aware of local, national, and supra-national regulatory requirements in Uganda. For example, EAC rules on free movement of goods and services would affect an investor planning to export to the regional market. Similarly, regulations issued by local governments regarding operational hours or the location of factories would only affect an investor’s decision at the local level. Foreign investors should liaise with relevant ministries to understand regulations in the proposed sector for investment.

Uganda’s accounting procedures are broadly transparent and consistent with international norms, though full implementation remains a challenge. Publicly listed companies must comply with accounting procedures consistent with the International Auditing and Assurance Standards Board.

Governmental agencies making regulations typically engage in only limited public consultation. Draft bills similarly are subject to limited public consultation and review. Local media typically cover public comment only on more controversial bills. Although the government publishes laws and regulations in full in the Uganda Gazette, the gazette is not available online and can only be accessed through purchase of hard copies at the Uganda Printing and Publishing Corporation offices. The Uganda Legal Information Institute also publishes all enacted laws on its website (https://ulii.org/ ).

Uganda’s court system and Inspector General of Government are responsible for ensuring the government adheres to its administrative processes, however, anecdotal reports suggest that corruption significantly undermines the judiciary’s oversight role.

In June 2019, Members of Parliament passed the Landlord and Tenants Bill that seeks to regulate the relationship between landlords and tenants. For foreign investors, the bill imposes a restriction against charging tenants rental fees in foreign currency, caps increment on rental charges to no more than 10 percent annually, and provides tenants with significantly more rights. President Museveni has yet to sign the bill into law. If signed into law, this bill could undermine investment in the real estate sector by giving disproportionate rights to tenants (commercial and residential) over property owners. The GOU has struggled to fully implement regulatory reforms announced in prior years.

Generally, there is legal redress to review regulatory mechanisms through the courts, and the process is made public.

Uganda’s legislative process includes public consultations, and, as needed, subject matter expert presentations before parliament; however, not all comments received by regulators are made publicly available and parliament’s decisions tend to be primarily politically driven. Formal scientific analyses of the potential impact of a pending regulation are seldom conducted.

Public finances are generally transparent and budget documents are available online. The government annually publishes the Annual Debt Statistical Bulletin, which contains the country’s debt obligations including status of public debt, cost of debt servicing, and liabilities. However, the government’s significant use of supplementary and classified budget accounts undermines parliamentary and public oversight of public finances.

International Regulatory Considerations

Per treaty, Uganda’s regulatory systems must conform to the below supranational regulatory systems. In practice, domestication of supranational legislation remains imperfect: -African, Caribbean, and Pacific Group of States (ACP)

  • African, Caribbean, and Pacific Group of States (ACP)
  • African Union (AU)
  • Common Market for Eastern and Southern Africa (COMESA)
  • Commonwealth of Nations
  • East African Community (EAC)

Uganda, through the Uganda National Bureau of Standards (UNBS) is a member of ISO, Codex Alimentarius and International Organization of Legal Metrology (OIML), and Afrinet. Uganda applies European Union directives and standards, but with modifications.

Uganda is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations through the Ugandan Ministry of Trade’s National TBT Coordination Committee.

Legal System and Judicial Independence

Uganda’s legal system is based on English Common Law. The courts are responsible for enforcing contracts. Litigants must first submit commercial disputes for mediation either within the court system or to the government-run Center of Arbitration for Dispute Resolution (CADER). Uganda does not have a singular commercial law; multiple statutes touch on commercial and contractual law. A specialized commercial court decides commercial disputes. Approximately 80 percent of commercial disputes are resolved through mediation. Litigants may appeal commercial court decisions and regulatory and enforcement actions through the regular national court system.

While in theory independent, in practice there are credible reports that the executive may attempt to influence the courts in high-profile cases. More importantly for most investors, endemic corruption and significant backlogs hamper the judiciary’s impartiality and efficacy.

Laws and Regulations on Foreign Direct Investment

The Constitution and ICA regulate FDI. The UIA provides an online “one-stop shop” for investors (www.ugandainvest.go.ug ).

Competition and Anti-Trust Laws

Uganda does not have any specialized laws or institutions dedicated to competition-related concerns, although commercial courts occasionally handle disputes with competition elements. There was no significant competition related dispute handled by the courts in 2019.

Expropriation and Compensation

The constitution guarantees the right to property for all persons, domestic and foreign. It also prohibits the expropriation of property, except when in the “national interest” as eminent domain and preceded by compensation to the owner at fair market value. The GOU’s new policy requiring telecommunication companies to list or sell 20 percent of their equity is what some are calling a form of indirect expropriation. Particularly considering that the few Ugandans who could afford to purchase this equity are likely to be closely associated with the government.

In 1972, then President Idi Amin expropriated assets owned by ethnic Asians (Indians). The expropriation was extrajudicial and was ordered by presidential decree. The government did not allow judicial challenge to the expropriations, nor offer any compensation to the owners. The GOU has since returned the vast majority of the properties to the original owners or their representatives. There have not been any expropriations since, and government projects are often significantly delayed by judicial disputes over compensation for property the GOU seeks to expropriate under eminent domain.

Dispute Settlement

ICSID Convention and New York Convention

Uganda is a party to both the ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The 2000 Domestic Arbitration and Conciliation Act incorporates the 1958 New York Convention.

Investor-State Dispute Settlement

Pursuant to the Arbitration and Conciliation Act, the courts and government in theory accept binding arbitration with foreign investors and between private parties. In practice, the overall challenges of the judiciary are likely to impede full enforcement. Uganda has not been involved in any official investment disputes with a U.S person in the last ten years; however, U.S. firms do complain about serious corruption in the award of government tenders.

Ugandan courts recognize and enforce foreign arbitral awards, including those issued against the government. The country is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Additionally, the Arbitration and Conciliation Act creates a framework for the recognition and enforcement of foreign arbitral awards, including those against the government.

Uganda has not had any experience of extrajudicial action against foreign investors. However, in 1972, the government of then President Idi Amin extra judicially expropriated property owned by ethnic Asians.

International Commercial Arbitration and Foreign Courts

Ugandan law provides for arbitration and mediation of civil disputes. The legal framework on arbitration includes the Arbitration and Conciliation Act and Commercial Court Division Mediation Rules. Litigants must first submit all civil disputes to mediation before a court-appointed mediator. CADER is a statutory institution that facilitates the mediation and operates based on the UNCITRAL Arbitration rules. However, unrecorded private arbitration is the most effective investment dispute resolution mechanism in Uganda.

The Foreign Judgments Reciprocal Enforcement Act enables the recognition and enforcement of judgments and awards made by foreign courts.

There is no evidence that Ugandan courts favor state owned enterprises when arbitrating or settling disputes. However, court decisions are often influenced by corruption or high-level government officials.

Bankruptcy Regulations

The Bankruptcy Act of 1931, the Insolvency Act of 2011, as well as the Insolvency Regulations of 2013 generally align Uganda’s legal framework on insolvency with international standards. The 2020 World Bank Doing Business Report ranked Uganda 99 out of 190 countries for resolving insolvency. On average, Uganda recovers USD 0.39 per dollar, well above the sub-Saharan average of USD 0.20. Bankruptcy is not criminalized.

4. Industrial Policies

Investment Incentives

The Public Private Partnership Act of 2015 creates a legal framework for the government to partner with private investors, both local and foreign, to finance investments in key sectors. The government has undertaken joint ventures with foreign investors in the oil and gas sector and for infrastructure projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Uganda Free Zones Authority (UFZA) (https://freezones.go.ug/ ) regulates free trade zones, which offer a range of tax advantages. The government’s process in awarding free trade zone status is generally transparent. However, there have been reports that corrupt individuals in government are allocating free trade zones in return for bribes. By the end of 2019, UFZA issued three new Free Zone Licenses, increasing the number of Free Zones in the country to 16. UFZA states that the actual investment of the three new free zones was USD 21.74 million.

Performance and Data Localization Requirements

The ICA does not impose any direct requirements regarding local employment or specify mandatory numbers for local employment in management positions. The broadness of its provisions, however, arguably leaves the door open for enforcement of local employment requirements. The Petroleum Exploration, Development, and Production Act and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act require investors in the oil sector to contribute to the creation of a local skilled Ugandan workforce. The National Local Content Bill, which is currently undergoing parliamentary review, would require companies to petition the GOU for permission to hire a non-Ugandan, in conjunction with the claim that no qualified Ugandan is available. Additionally, the bill requires companies to have a Ugandan deputy for every non-Ugandan senior manager and submit a clear plan to localize these positions to the governing authority.

While the UIA has significantly improved its processing of work permits and investment licenses for foreigners, bureaucratic hurdles, inconsistent enforcement, and corruption can still make obtaining visas and work permits onerous and expensive. All foreign investors must acquire an investment license from the UIA.

In as much as there is no specific localization law in Uganda, some sector specific laws impose localization requirements. The petroleum laws require foreign oil companies to prioritize the use of local goods and labor when available, and the MEMD has the authority to determine the extent of local content requirements in the sector. The Public Procurement and Disposal of Public Assets Act, which regulates government procurements, also imposes thresholds on the contracts for which a foreign company can apply. In the petroleum laws, MEMD has the responsibility to monitor companies in the oil sector to ensure they are meeting the local content requirements. Additionally, the Office of the Auditor General carries out audits to ensure adherence to local content requirements. These performance reviews can form grounds for granting incentives or enforcement of the restrictions. Since the 2013 oil laws were passed, no company has been punished for breaching local content rules. Investment incentives in Uganda are quite controversial because they apply on a case by case basis, even though the ICA lists seven grounds for granting investment incentives.

While there are no general requirements for foreign information technology (IT) providers to give the government any source code or information related to encryption, the National Information Technology Authority Act allows the Minister for Information, Communication, and Technology to order an IT provider to submit any information to the National Information Technology Authority (NITA). Similarly, the Computer Misuse Act allows the government to “compel a service provider…to co-operate and assist the competent authorities in the collection or recording of traffic data in real time, associated with specified communication transmitted by means of a computer system.” These regulatory requirements apply to all IT providers, both foreign and local. There are no measures to prevent or unduly impede companies from freely transmitting customer or other business-related data outside of Uganda. In 2017, however, the Bank of Uganda interpreted Uganda’s cyber security legislation as providing it with the mandate to require financial institutions to relocate their data centers to Uganda to provide the government with access to customers’ digital financial information. Citing customer privacy concerns, financial firms remain in negotiations with the Bank of Uganda over this policy.

5. Protection of Property Rights

Real Property

Land rights are complicated in Uganda and present a significant barrier to investment. Uganda enforces property rights through the courts; however, corruption often influences final judgments. The Mortgage Act and associated regulations make provisions for mortgages, sub-mortgages, trusts, and other forms of lien. However, due to widespread corruption and an inefficient bureaucracy, investors frequently struggle with the integrity of land transactions and recording systems.

Foreigners cannot own land directly and may only acquire leases. Such leases cannot exceed 99 years. However, foreign investors can create a Ugandan-based firm to purchase and own real estate.

The Land Act provides for four forms of land tenure: freehold, customary, “Mailo” (a form of freehold), and leasehold. Freehold, leasehold, and Mailo tenure owners hold registered titles, while customary or indigenous communal landowners – who account for up to 80 percent of all landowners – do not. Ugandan law provides for the acquisition of prescriptive rights by individuals who settle onto land (squatters) and whose settlement on such land is unchallenged by the owner for at least twelve years.

Intellectual Property Rights

Ugandan law provides for the protection of intellectual property rights (IPR), but enforcement mechanisms are weak. The country lacks the capacity to prevent piracy and counterfeit distribution. As a result, theft and infringement of IPR is common and widespread. Uganda did not enact any IP related laws and regulations in the past year.

Uganda does not track seizures of counterfeit goods or prosecutions of IPR violations. Agriculture experts estimate some 20 percent of agriculture products under copyright in Uganda are counterfeit. Uganda is not included in the United States Trade Representative (USTR)Special 301 Report or the Notorious Markets List.. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles (http://www.wipo.int/directory/en/ ).

Uganda is not included in the United States Trade Representative (USTR)Special 301 Report or the Notorious Markets List.. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles (http://www.wipo.int/directory/en/ ).

6. Financial Sector

Capital Markets and Portfolio Investment

The government generally welcomes foreign portfolio investment and has put in place a legal and institutional framework to manage such investments. The Capital Markets Authority (CMA) licenses brokers and dealers and oversees the Uganda Securities Exchange (USE), which is now trading the stock of 18 companies. Liquidity remains constrained to enter and exit sizeable positions on the USE. Capital markets are open to foreign investors and there are no restrictions for foreign investors to open a bank account in Uganda. However, the government imposes a 15 percent withholding tax on interest and dividends. Foreign-owned companies may trade on the stock exchange, subject to some share issuance requirements. The government respects IMF Article VIII and refrains from restricting payments and transfers for current international transactions.

Credit is available from commercial banks on market terms and foreign investors can access credit. However, the high yields on GOU-issued (risk-free) securities pushes up interest rates on commercial loans, undermining the private sector’s access to affordable credit.

Money and Banking System

Formal banking participation remains low, with only 20 percent of Ugandans having access to bank accounts, many via their membership in formal savings groups. However, only about five million Ugandans have bank accounts, while more than 24 million use mobile money to conduct basic financial transactions. Uganda’s banking and financial sector is generally healthy, though non-performing loans remain a problem. According to the Bank of Uganda’s 2019 Financial Stability Report, Uganda’s non-performing loan rate stood at 3.8 percent at the end of June 2019. Uganda has 26 commercial banks with the top six controlling at least 60 percent of the banking sector’s total assets, valued at USD 8.6 billion. The Bank of Uganda regulates the banking sector, and foreign banks may establish branches in the country. In February, the Financial Action Taskforce added Uganda to its “Grey List” due to the country’s insufficient implementation of its anti-money laundering and countering financing of terrorism policies. As a result, Uganda’s correspondent banking relationships will face increased oversight, increasing transaction costs, and potentially jeopardizing some correspondent banking relationships. Uganda does not restrict foreigners’ ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Uganda keeps open capital accounts, and there are no restrictions on capital transfers in and out of Uganda. If, however, an investor benefited from tax incentives on the original investment, he or she will need to seek a “certificate of approval to “externalize” the funds. Investors may convert funds associated with any form of investment into any world currency. The Ugandan shilling (UGX) trades on a market-based floating exchange rate.

Remittance Policies

There are no restrictions for foreign investors on remittances to and from Uganda.

Sovereign Wealth Funds

In 2015, the government established the Uganda Petroleum Fund (PF) to receive and manage all government revenues from the oil and gas sector. By law, the government must spend a portion of proceeds from the fund on oil-related infrastructure, with parliament appropriating the remainder of revenues through the normal budget procedure. At the end of 2019, the PF had a balance of USD 20 million. The 2019 Auditor General’s report concluded that the absence of a policy regarding the management of the PF has led to inefficient and ineffective spending and investment decisions. In 2019, the GOU established the Petroleum Investment Advisory Committee (Committee) to oversee the investment of PF funds, however, the Committee did not pass the proposed Petroleum Investment Reserve Policy (Policy), which aimed to establish the investment guidelines. In the absence of the Policy, PF funds continue to be allocated to the national budget.

7. State-Owned Enterprises

Uganda has thirty State Owned Enterprises (SOEs). However, the GOU does not publish a list of its SOEs, and the public is unable to access detailed information on SOE ownership, total assets, total net income, or number of people employed. While there is insufficient information to assess the SOEs’ adherence to the OECD Guidelines of Corporate Governance, the GOU’s 2019 Office of Auditor General report noted corporate governance issues in some SOEs. SOEs do not get special financing terms and are subject to hard budget constraints. According to the Ugandan Revenue Authority Act, they have the same tax burden as the private sector. According to the Land Act, private enterprises have the same access to land as SOEs. One notable exception is the Uganda National Oil company (UNOC), which receives proprietary exploration data on new oil discoveries in Uganda. UNOC can then sell this information to the highest bidder in the private sector to generate income for its operations.

Privatization Program

The government privatized many SOEs in the 1990s. Uganda does not currently have a privatization program.

8. Responsible Business Conduct

Awareness of responsible business conduct varies greatly among corporate actors in Uganda. No organizations formally monitor compliance with Corporate Social Responsibility (CSR) standards. CSR is not a requirement for an investor to obtain an investment license and CSR programs are voluntary. While government officials make statements encouraging CSR, there is no formal government program to monitor, require, or encourage CSR. In practice, endemic corruption often enables companies to engage in harmful or illegal practices with impunity. Regulations on human and labor rights, and consumer and environmental protection, are seldom and inconsistently enforced. Several non-governmental organizations attempt to hold companies accountable for poor behavior through “name-and-shame” campaigns, usually with limited success.

Uganda’s capacity and political will to regulate the mineral trade across its borders remain weak. Credible organizations allege that Uganda’s gold refining sector, led by the African Gold Refinery (AGR), relies on conflict minerals illicitly imported from neighboring countries, especially from the eastern Democratic Republic of the Congo. While Uganda has no significant gold reserves, in FY 2018/2019, gold became the country’s largest export, totaling USD 1.06 billion.

Due to Uganda’s rampant corruption and culture of unaccountability, the GOU does not adequately enforce domestic laws related to human rights, labor rights, consumer protection, environmental protections, or other laws intended to protect individuals from adverse business impacts. According to UN Panel of Experts reports, AGR, Uganda’s largest refinery, does not adhere to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and there is no indication the GOU is urging it to do so. Uganda announced in January 2019 that it would join the Extractive Industry Transparency Initiative, however, is still in the process of fulfilling the requirements to become a member. Uganda has also not formally adopted the Voluntary Principles on Security and Human Rights.

9. Corruption

Uganda has generally adequate laws to combat corruption, and an interlocking web of anti-corruption institutions. The Public Procurement and Disposal of Public Assets Authority Act’s Code of Ethical Standards (Code) requires bidders and contractors to disclose any possible conflict of interest when applying for government contracts. However, endemic corruption remains a serious problem and a major obstacle to investment. Transparency International ranked Uganda 137 out of 180 countries in its 2019 Corruption Perception Index. While anti-corruption laws extend to family members of officials and political parties, in practice many well-connected individuals enjoy de facto impunity for corrupt acts and are rarely prosecuted in court.

The government does not require companies to adopt specific internal procedures to detect and prevent bribery of government officials. Larger private companies implement internal control policies; however, with 80 percent of the workforce in the informal sector, much of the private sector operates without such systems. While Uganda has signed and ratified the UN Anticorruption Convention, it is not yet party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and does not protect non–governmental organizations investigating corruption. Some corruption watchdog organizations allege government harassment.

U.S. firms consistently identify corruption as a major hurdle to business and investment. Corruption in government procurement processes remains particularly problematic for foreign companies seeking to bid on GOU contracts.

Resources to Report Corruption

Contacts at government agency or agencies are responsible for combating corruption:
Justice Irene Mulyagonja
Inspector General of Government
Inspectorate of Government
Jubilee Insurance Centre, Plot 14, Parliament Avenue, Kampala
Telephone: +256-414-344-219
Website: www.igg.go.ug 

Public Procurement and Disposal of Public Assets Authority (PPDA)
UEDCL Towers Plot 39 Nakasero Road
P.O. Box 3925, Kampala Uganda
Telephone: +256-414-311100.
Email: info@ppda.go.ug
Website: https://www.ppda.go.ug/ 

Contact at “watchdog” organization:
Anti-Corruption Coalition Uganda
Cissy Kagaba
Telephone: +256-414-535-659
Email: kagabac@accu.or.ug
Website: http://accu.or.ug 

10. Political and Security Environment

Uganda has experienced periodic political violence associated with elections and other political activities. Security services routinely use excessive force to stop peaceful protests and demonstrations. There are no prominent examples in the past ten years of such violence leading to significant damage of projects or installations. There has been an uptick in crime over the past several years, and political tensions are likely to increase in the run up to 2021 general elections.

11. Labor Policies and Practices

Over 70 percent of Ugandans are engaged in the agriculture sector, and only 20 percent work in the formal sector. Statistics on the number of foreign/migrant workers are not publicly available; however, given the abundance of cheap domestic labor, there is minimal import of unskilled labor. Conversely, there is an acute shortage of skilled and specialized laborers.

While there are no explicit provisions requiring the hiring of nationals, there are broad standards requiring investors to contribute to the creation of local employment. The Petroleum Exploration, Development, and Production Act of 2013 and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act of 2013 require investors to contribute to workforce development by providing skills training for workers.

Ugandan labor laws specify procedures for termination of employment and for termination payments. Depending on the employee’s duration of employment, employers are required to notify an employee two weeks to three months prior to the termination date. Employees terminated without notice are entitled to severance wages. Ugandan law only differentiates between termination with notice (or payment in lieu of notice) and summary dismissal (termination without notice). Summary dismissal applies when the employee fundamentally violates his/her terms of employment. Uganda does not provide unemployment insurance or any other social safety net programs for terminated workers. Current law requires employers to contribute 10 percent of an employee’s gross salary to the National Social Security Fund (NSSF). The Uganda Retirement Benefits Regulatory Authority Act of 2011 provides a framework for the establishment and management of retirement benefits schemes for the public and private sectors and created an enabling environment for liberalization of the pension sector.

The Employment Act of 2006 does not allow waivers of labor laws for foreign investors.

Ugandan law allows workers, except members of the armed forces, to form and join independent unions, bargain collectively, and conduct legal strikes. The National Organization of Trade Unions (NOTU) has 20 member unions. Its rival, the Central Organization of Free Trade Unions (COFTU), also has 20 union members. Union officials estimate that nearly half of employees in the formal sector belong to unions. In 2014, the Government of Uganda created the Industrial Court (IC) to arbitrate labor disputes. Public sector strikes are not uncommon in Uganda; however, there were no strikes during the past year.

Uganda ratified all eight International Labor Organization fundamental conventions enshrining labor and other economic rights, and partially incorporated these conventions into the 1995 Constitution, which stipulates and protects a wide range of economic rights. Despite these legal protections, many Ugandans work in unsafe environments due to poor enforcement and the limited scope of the labor laws. Labor laws do not protect domestic, agricultural, and informal sector workers.

In August 2019, President Museveni rejected the Minimum Wage Bill, which would have increased the monthly minimum wage from USD 1.60 to USD 36, and returned it to parliament for review. Museveni continues to argue that increasing Uganda’s minimum wage would undermine FDI and international competitiveness.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

The DFC is currently funding several projects in Uganda and maintains a bilateral agreement with the government of Uganda. Active projects in Uganda can be found here: https://www3.opic.gov/ActiveProjectsMap/Default.aspx# 

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) ($M USD) 2019 $35,000 2018 N/A https://www.imf.org/external/datamapper/
NGDPD@WEO/UGA
 
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 2018 $41,000 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 47.4% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: Uganda Bureau of Statistics Statistical Abstract 2019

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 $9,294 100% No Data Available
The Netherlands $3,668 40%
Australia $1,519 16.3%
United Kingdom $840 9%
Kenya $778 8%
Mauritius $654 7%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Seth Miller
Economic and Commercial Officer
U.S. Embassy Kampala, Ggaba Road, Kampala
+256 (0) 414-306-240 (office)
MillerSA@state.gov

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