2017 Investment Climate Statements: Kenya

Policies Towards Foreign Direct Investment

Kenya has enjoyed a steadily improving environment for foreign direct investment (FDI). Foreign investors seeking to establish a presence in Kenya generally receive the same treatment as local investors, and multinational companies make up a large percentage of Kenya’s industrial sector. There is little discrimination against foreigners in access to government-financed research, and the government’s export promotion programs do not distinguish between goods produced by local and foreign-owned firms.

The Government of Kenya (GOK) prioritizes investment retention and maintains an ongoing dialogue with investors. All bills must pass through a period of public consultation in which investors have an opportunity to offer feedback. Private sector representatives can serve as board members on Kenya’s state-owned enterprises. Since 2013, when the current government assumed power, the Kenya Private Sector Alliance (KEPSA), the apex private sector association, has had bi-annual round table meetings with President Kenyatta and his cabinet. During the budget making process, KEPSA presents a memorandum to the government on its wish list.

The government does not have a policy to steer investment to specific geographic locations but encourages investments in sectors that create employment, generate foreign exchange, and create forward and backward linkages with rural areas. Kenya puts significant effort into assuring the health and growth of its tourism industry. To strengthen Kenya’s manufacturing capacity, the government offers incentives for the production of goods for export.

KenInvest, the country’s official investment promotion agency, is viewed favorably by international investors (http://www.investmentkenya.com ). KenInvest’s mandate is to promote and facilitate investment by assisting investors in obtaining the licenses necessary to invest and by providing other assistance and incentives as necessary for smoother operations. In order to help investors navigate local regulations, KenInvest has developed an online database known as eRegulations, which is designed to provide investors and entrepreneurs with full transparency on investment-related regulations and procedures in Kenya (http://kenya.eregulations.org/?l=en ). At each step, the system tells the investor where to go, who to see, what to bring, what to pay, what is the legal justification, and who to complain to in case there is a problem. According to United Nations Conference on Trade and Development (UNCTAD)’s Global Enterprise Registration Network (http://www.GER.co ), the KenInvest site makes Kenya one of only 25 countries to earn a perfect rating on its information portal.

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 repealed regulations in 2015 that imposed a 75 percent foreign ownership limitation for firms listed on the Nairobi Securities Exchange, allowing such firms now to be 100 percent foreign-owned, as reported by the UNCTAD World Investment Report 2016. In 2015, the government established regulations requiring that Kenyans own at least 15 percent of the share capital of derivatives exchanges, through which derivatives such as options and futures can be traded.

There appears to be a recent trend in Kenya toward imposing “local content” requirements on foreign investments. When President Kenyatta signed the new Companies Act (2015), it contained language requiring all foreign company to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth. United States business associations raised concerns over the bill, pointing to its lack of clarity and the possibility that such measures could run afoul of Kenya’s commitments under the WTO. The U.S. government also raised the issue with the Kenyan government. The clause has now been repealed.

Telecommunications regulator Communications Authority requires 20 percent Kenyan shareholding within three years of receiving a license. The new Mining Act (2016) restricts foreign participation in the mining sector. Among other restrictions, it reserves the acquisition of mineral rights to Kenyan companies, and requires 60 percent Kenyan ownership of mineral dealerships and artisanal mining companies. The Private Security Regulations Act (2016) restricts foreign participation in the private security sector by requiring that at least 25 percent of shares in private security firms be held by Kenyans. The National Construction Authority Act (2011) imposes local content restrictions on “foreign contractors,” defined as companies incorporated outside Kenya or with more than 50 percent ownership by non-Kenyan citizens. The act requires foreign contractors to enter into subcontracts or joint ventures assuring that at least 30 percent of the contract work is done by local firms. Regulations implementing these requirements are in process. The Kenya Insurance Act (2010) restricts foreign capital investment to two thirds with no single person controlling more than 25 percent of an insurers’ capital.

Other Investment Policy Reviews

There have been no third-party investment policy reviews through multilateral organizations in the last three years.

Business Facilitation

In September 2015, President Kenyatta signed into law The Business Registration Services (BRS) Act (2015) and the Companies Act (2015), which aim to strengthen Kenya’s position as a destination for investors. The BRS seeks to establish a state corporation known as the Business Registration Service to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships and firms. The BRS also devolves to the counties business registration services such as registration of business names and promoting local business ideas/legal entities, thus reducing costs of registration. The Companies Act (2015) deals with specifics of registration and management as they pertain to public and private corporations.

In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country. The unit has representatives from all ministries and focuses on reducing the bureaucratic steps related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a web site (http://www.businesslicense.or.ke/ ) offering online business registration and providing information on how to access detailed information on additional relevant business licenses and permits, including requirements, costs, application forms, and contact details for the relevant regulatory agency.

An investment guide to Kenya, also referred to as iGuide Kenya, can be found at http://www.theiguides.org/public-docs/guides/kenya/about# . iGuides, designed by UNCTAD and the International Chamber of Commerce, provide investors with up-to-date information on business costs, licensing requirements, opportunities and conditions in developing countries. Kenya is a member of UNCTAD’s international network of transparent investment procedures.

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. Currently, the majority of outward investment remains in the EAC, making the most of Kenyan preferential access between EAC member countries. The GOK also does not restrict domestic investors from investing abroad. Rather, the EAC advocates for free movement of capital across the six member states – Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.

The United States does not have a free trade agreement, bilateral investment treaty, or bilateral taxation treaty with Kenya. Kenya, however, is a beneficiary of the African Growth and Opportunity Act (AGOA), a U.S. trade preference and export promotion policy, which Congress renewed in 2015 for an additional 10 years. Under AGOA, Kenyan exporters enjoy duty-free access to U.S. markets for products falling under more than 6,400 tariff lines. Kenya’s primary exports to the United States under AGOA are apparel and accessories, coffee, tea, and nuts. In 2013, Kenya overtook Lesotho as the largest textile exporter to the United States under AGOA. According to the Kenya National Bureau of Statistics’ Economic Survey 2016, apparel exported through EPZs under AGOA increased from $300 million in 2014 to $352 million in 2015. The GOK is currently developing a revised AGOA strategy.

The GOK has trade facilitation agreements (TFA) through the WTO, EAC Customs Union Protocol, Common Market for Eastern and Southern Africa (COMESA) Protocol on FTA, and the EU-EAC economic partnership agreement. The nine COMESA FTA member countries are Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, and Zimbabwe. The other 10 COMESA countries that are not part of the FTA trade with Kenya on preferential terms observing tariff reductions between 60 and 80 percent. The status of EU-EAC economic partnership agreement is unclear at this time because of the failure of Tanzania and Uganda to renew the agreement in 2016.

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.

Many GOK laws have granted significant discretionary and approval powers to government agency administrators, which can create uncertainty among investors. While some government agencies either have amended laws or published clear guidelines for decision-making criteria, others have lagged in making their transactions transparent. For instance, foreign work permit processing continues to be in disarray with overlapping and sometimes contradictory regulations. American companies have complained about delays of up to seven months and non-issuance of permits that appear to be compliant with known regulations.

International Regulatory Considerations

Kenya is a member state of the EAC, and generally applies EAC policies on trade and investment. The U.S. government engages with Kenya on trade and investment issues both bilaterally and through the U.S.-EAC Trade and Investment Partnership. Kenya is also a member of COMESA and the Inter-Governmental Authority on Development (IGAD). According to the Africa Regional Integration Index Report 2016, Kenya is a leader in regional integration policies within these 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 EAC, Labor, and Social Protection.

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 participation in the WTO 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, a Court of Appeal, a Constitutional Court, and a High Court. The following subordinate courts also remain in place: Magistrates, Khadis (Muslim succession and inheritance), Courts Martial, and the Employment and Labor Relations Court (formerly the Industrial Court) as well as the Milimani Commercial Courts which both have jurisdiction over economic and commercial matters. In 2016, Kenya’s judiciary instituted specialized courts focused on corruption and economic crimes, which are now operational. The Chief Justice of Kenya is required under the constitution to issue an annual “State of the Judiciary and Administration of Justice Report.” There is no systematic executive or other interference in the court system that affects foreign investors. The courts are nevertheless plagued by frequent allegations of corruption and long delays in rendering judgments.

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 are not entitled to practice in Kenya unless a Kenyan advocate instructs and accompanies them, although a foreign advocate may practice as an advocate for the purposes of a specified suit or matter if appointed to do so by the Attorney General.

Laws and Regulations on Foreign Direct Investment

The major regulations governing Foreign Direct Investment (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.

Competition and Anti-Trust Laws

In August 2011, the Competition Act (2010) replaced the outdated Monopolies and Price Control Act and the Monopolies and Prices Commission. Specifically, the act created the Competition Authority of Kenya (CAK). All mergers and acquisitions require the 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 shillings (approximately $10,000) for mergers involving turnover of between one and 50 billion shillings (up to approximately $500 million). Two million shillings (approximately $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 safety from expropriation except in cases of eminent domain or security concerns. All cases are subject to the payment of prompt and fair compensation. The Land Acquisition Act (2010) governs compensation and due process in acquiring land, although land rights issues in Kenya remain contentious and can cause significant delays in projects. For more issue on land issues, see the section on real property.

Dispute Settlement

ICSID Convention and New York Convention

Kenya is a member of both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, also known as the ICSID Convention or the Washington Convention, and the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards. Kenya signed the ICSID Convention on May 24, 1966, and became a Contracting State on February 2, 1967. Kenya became a Contracting State in the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards on February 10, 1989. As it relates to arbitration over property issues, the Foreign Investments Protection Act (2014) specifically 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.”

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. 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 June 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. The ADR mechanism offers a cheaper mechanism for foreign investors and an alternative to the lengthy court processes in Kenya.

Bankruptcy Regulations

The Insolvency Act (2015) modernized the legal framework for bankruptcies. Its provisions generally correspond to those of the Model Law on Cross Border Insolvency adopted by the United Nations Commission on International Trade Law on May 30, 1997. 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. Similarly, the new Insolvency Act (2015) increased the rights of borrowers and prioritizes the revival of distressed firms. The new law states that a debtor will automatically be discharged from debt after three years. Bankruptcy is not criminalized in Kenya. The World Bank Group’s Doing Business 2017 report puts Kenya at 92 of 190 countries in the “resolving insolvency” category. This is up 42 rankings since 2015.

Investment Incentives

The minimum foreign investment to qualify for GOK investment incentives is $100,000, a potential deterrent to foreign small and medium enterprise investment, especially in the services sector. Investment Certificate benefits, including entry permits for expatriates, are outlined in the Investment Promotion Act (2004).

The government allows all locally financed materials and equipment for use in construction or refurbishment of tourist hotels to be zero-rated for purposes of VAT calculation – excluding motor vehicles and goods for regular repair and maintenance. The National Treasury principal secretary, however, must approve such purchases. An additional measure enacted to boost the ailing tourism industry makes one-week employee vacations paid by employers a tax-deductible expense. Aircraft and aircraft parts, tractors, inputs for solar manufacturing, and services relating to goods in transit are fully exempt from VAT. Investors in metal manufacturing and products and the hospitality services sectors are able to deduct from their taxes a large portion of the cost of buildings and capital machinery.

The government’s Manufacturing Under Bond (MUB) program, established in 1986, is meant to encourage manufacturing for export. The program provides a 100 percent tax deduction on plant machinery and equipment and raw materials imported for production of goods for export. The program is also open to Kenyan companies producing goods that can be imported duty-free or goods for supply to the armed forces or to an approved aid-funded project.

The Finance Act (2014) amended the Income Tax Act (1974) to reintroduce after 29 years the capital gains tax (CGT) on transfer of property located in Kenya. Under this provision, gains derived on sale or transfer of property by an individual or company are subject to tax at rates of at least five percent. The effective date of this provision was January 1, 2015, and 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 2015, Kenya had 57 designated Export Processing Zones (EPZs) with 89 companies and 50,850 workers contributing KSh 35 billion (approximately $350 million) to the Kenyan economy. Companies operating within an EPZ benefit from the following tax benefits: a 10-year corporate-tax holiday and a 25 percent tax thereafter; a 10-year withholding tax holiday; stamp duty exemption; 100 percent tax deduction on initial investment applied over 20 years; and VAT exemption on industrial inputs.

About 54 percent of EPZ products are exported to the United States under AGOA. The majority of the exports are textiles – Kenya’s third largest export behind tea and horticulture – and more recently handicrafts. Eighty percent of Kenya’s textiles and apparel originate from EPZ-based firms. Approximately 50 percent of all firms in the zones are fully owned by foreigners – mainly from India – while the rest are locally owned or joint ventures with foreigners. The proposed Textile City, to be set up at the Athi River EPZ, is expected to attract more than 100 textile investments, but progress on the project has been slow.

While EPZs are focused on encouraging production for export, the not yet fully established special economic zones (SEZs) are designed to boost local economies by offering benefits for goods that are consumed both internally and externally. The SEZs will allow for a wider range of commercial ventures, including primary activities such as farming, fishing, and forestry. The 2016 Special Economic Zones Regulations that came into effect in August 2016 state that the Special Economic Zone Authority (SEZA) must maintain an open investment environment to facilitate and encourage business by the establishment of simple, flexible, and transparent procedures for investor registration. The new rules also empower county governments to set aside public land for establishment of industrial zones.

Companies operating in the SEZ’s will receive the following benefits: all SEZ supplies of goods and services to companies and developers will be exempted from value-added tax (VAT); the corporate tax rate for enterprises, developers, and operators will be reduced from 30 percent to 10 percent for the first 10 years and 15 percent for the next 10 years; exemption from taxes and duties payable under the Customs and Excise Act (2014), the Income Tax Act (1974), the EAC Customs Management Act (2004), and stamp duty; and exemption from advertisement and license fees levied by county governments.

The Second Medium Term Plan of Kenya’s Vision 2030 economic development agenda calls for establishing SEZs in Mombasa (2000 sq. km), Lamu (700 sq. km), Kisumu (700 sq. km), and eventually to additional towns throughout the country. An SEZ near Naivasha is also under consideration. It would be located near the Olkaria geothermal power plant where manufacturers would benefit from cheaper and reliable power. In the FY 2015/16 budget statement, the GOK allocated KSh 3 billion (approximately $33 million) for industrial development, including SEZs.

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, Labor, and Social Protection, however, has noted plans to replace this requirement with an official inventory of skills that are not available in Kenya. A work permit can cost up to KSh 200,000 (approximately $2,000).

In January 2016, the new Public Procurement and Asset Disposal Act (2015) came into force offering preferences to firms owned by Kenyan citizens and to products manufactured or mined in Kenya. For tenders funded entirely by the government with a value of less than KSh 50 million (approximately $500,000), the preference for Kenyan firms and goods is exclusive. Where the procuring entity seeks to contract with non-Kenyan firms or procure foreign goods, the act requires a report detailing evidence of an inability to procure locally. The act also calls for at least 30 percent of government procurement contracts to go to firms owned by women, youth, and persons with disabilities. The act further reserves 20 percent of procurement contracts tendered at the county level to residents of that county. With the support of the World Bank and in collaboration with the Kenya ICT Board, the Public Procurement Oversight Authority (PPOA) is developing a web-based Market Price Index to increase transparency in public procurement and implementation of the new act.

There is currently no legislation that requires data localization. A draft data protection bill has been under discussion for a long time.

Real Property

Foreigners cannot own land in Kenya, though they can lease it in 99-year increments. The cumbersome and opaque process required to acquire land raises concerns about security of title, particularly given past abuses relating to the distribution and redistribution of public land.

Mortgages and liens exist in Kenya, but the recording system is not reliable, and there are often complaints of property rights and interests not being enforced. The legal infrastructure around land ownership and registration has changed in recent years, and land issues delayed several major infrastructure projects in 2016. Kenya’s 2010 Constitution required all land leases to convert from 999 years to 99 years, giving the state the power to review leasehold land at the expiry of the 99 years, deny lease renewal, and confiscate the land if it determines the land has not been used productively. The Constitution also converted foreign-owned freehold interests into 99-year leases at a “peppercorn rate” (a nominally low rate used to satisfy the requirements for the creation of a legal contract). The GOK has not yet effectively implemented this provision. Work continues on the National Land Information Management System, but fully digitized, border-to-border cadastral data is still many years in the future.

The 2010 Constitution and subsequent land legislation created the National Land Commission, an independent government body mandated to review historical land injustices and provide oversight of the government’s land policy and management. This has had the unintended side effect of introducing coordination and jurisdictional confusion between the commission and the Ministry of Land, Housing, and Urban Development.

On February 11, 2015, President Uhuru Kenyatta officially commissioned the newly established National Titling Center with a promise to increase the 5.6 million title deeds issued since independence to nearly 9 million. Land grabbing resulting from double registration of titles, however, remains prevalent. Property legally purchased and unoccupied can revert ownership to other parties.

Intellectual Property Rights

The major intellectual property enforcement issues in Kenya related to counterfeit products are corruption, lack of penalty enforcement, failure to impound imports of counterfeit goods at the ports of entry (especially in Mombasa), and the reluctance of brand owners to file a complaint with the Anti-Counterfeit Agency (ACA). The prevalence of “gray market” products – genuine products that enter the country illegally without paying import duties – also presents a challenge, especially in the mobile phone and computer sectors.

In an attempt to combat the import of counterfeits, the Ministry of Industrialization and the Kenya Bureau of Standards (KEBS) decreed in 2009 that all locally-manufactured goods must have a KEBS standardization mark. Several categories of imported goods, specifically food products, electronics, and medicines, must have an import standardization mark (ISM). Under this new program, U.S. consumer-ready products may enter the Kenyan market without altering the U.S. label but must also carry an ISM. Once the product qualifies for a Confirmation of Conformity, KEBS will issue the ISM free of charge.

For additional information regarding the IPR environment in Kenya, also see USTR’s Special 301 Report. For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Though small by Western standards, Kenya’s capital markets are the deepest and most sophisticated in East Africa. Sixty-seven companies were listed on the Nairobi Stock Exchange for a total market capitalization of KSh 1.9 trillion (approximately $19 billion) as of March 2016. The Kenyan capital market has grown rapidly in recent years and has also exhibited strong capital raising capacity. The bond market, however, is still underdeveloped and dominated by trading in government debt securities. Long-dated corporate bond issuances are uncommon, leading to a lack of long-term investment capital. As of February 2016, the domestic government bond market denominated in local currency represents a total of $14 billion dollars, of which only five percent is comprised of international institutional investors. In March 2017, the Kenyan National Treasury launched its mobile money platform government bond to retail investors locally. The name of the product is M-Akiba, through which local Kenyans will be able to purchase bonds as small as $30 on their mobile phones.

The Central Bank of Kenya (CBK) is working with regulators in EAC member states through the Capital Market Development Committee (CMDC) and East African Securities Regulatory Authorities (EASRA) on a regional integration initiative and has successfully introduced cross listing of equity shares. The combined use of both the Central Depository System (CDS) and an automated trading system has moved the Kenyan securities market to globally accepted standards. Kenya is a full (ordinary) member of the International Organization of Securities Commissions.

Money and Banking System

In August 2016, President Kenyatta signed into law the Banking Act (2016), which caps the maximum interest rate banks can charge on loans at four percent above the CBK’s benchmark lending rate. It further provides a floor for the deposit rate held in interest earning accounts to at least 70 percent of the CBK benchmark rate. The cap has already hurt the GOK’s ability to raise funds in the local debt market, and the CBK has cancelled three auctions of treasury bills and bonds this year. The cap has also slowed the consumer and small and medium business credit market. The International Monetary Fund and other observers have warned that the restrictions will result in a continuing contraction in the availability of credit.

The total population with access to financial services, either through conventional or mobile banking platforms is now approximately 80 percent. According to the World Bank, M-Pesa, Kenya’s largest mobile banking platform, processes more transactions within Kenya each year than Western Union does globally. As of September 2016, 31.1 million Kenyans were using mobile phone platforms to transfer money, according to Communication Authority of Kenya figures. There were over 162,465 agents facilitating transactions in excess of KSh 3.1 trillion (approximately $3 billion) in the 2015/2016 fiscal year, a sum equivalent to half of Kenya’s GDP in the same period. The National ICT Masterplan 2017 envisages the sector contributing at least 10 percent of GDP growth by 2017, up from 4.7 percent recorded in 2015. As of February 2016, Kenyan mobile money platform SimbaPay has received approval to operate in five European countries catering to the Kenyan diaspora, allowing them to bank in Kenya from abroad.

The CBK is the primary regulator of financial institutions. As of December 2016, Kenya had 43 banking institutions – 42 commercial banks and one mortgage finance company with three locally-owned institutions not in operation as one was under statutory management and two were in receivership as of July 31, 2016. Kenya has seven representative offices of foreign banks, twelve deposit-taking microfinance institutions (DTMs), 76 foreign exchange bureaus, 17 money remittance providers, and three credit reference bureaus (CRBs). Out of the 43 banking institutions, 28 are locally owned – three with public shareholding and 25 privately-owned – and 13 are foreign owned. The foreign owned financial institutions are comprised of eight locally incorporated foreign banks and four branches of foreign incorporated banks. Some major international banks operating in Kenya include Citibank, Barclays, Bank of India, and Standard Chartered. These are listed as commercial banks on the CBK website.

Foreign Exchange and Remittances

Foreign Exchange

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 shilling declined 3.5 percent after a sharp decline of 15 percent during the same period in 2014/2015. In 2016, foreign exchange reserves continue to grow and now provide more than five months of import cover. The average inflation rate was 6.3 percent in 2016 and the rate on 91-day treasury bills had fallen to 8.44 percent in December 2016. According to CBK figures, the average exchange rate was KSh 101.5 to $1.00 in 2016.

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). Kenya has no restrictions on converting or transferring funds associated with investment. Kenyan law requires the declaration to customs of amounts greater than KSh 500,000 (approximately $5,000) or the equivalent in foreign currencies for non-residents as a formal check against money laundering. 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 $10,000). As of March 2017, the CBK has licensed 17 money remittance providers following the operationalization of the Money Remittance Regulations in April 2013.

Kenya is listed as a country of primary concern for money laundering and financial crime by the State Department’s Bureau of International Narcotics and Law Enforcement. Kenya’s ongoing progress in creating the legal and institutional framework to combat money laundering and the financing of terrorism resulted in the inter-governmental Financial Action Task Force (FATF) removing Kenya the FATF Watchlist in June 2014.

Sovereign Wealth Funds

Kenya is in the process of establishing a sovereign wealth fund through the Kenya National Sovereign Wealth Fund Bill (2014). The fund will receive income from any future privatization proceeds, dividends from state corporations, oil and gas, and minerals revenues due to the national government, revenue from other natural resources, and funds from any other source. The bill is still undergoing internal review and stakeholder consultations. The fund will have the triple goal of shielding the economy from cyclical changes in commodity prices, saving for future generations, and supporting infrastructure investment. According to the working draft of the bill, “Investments shall be directed to both local and foreign markets except to the extent restricted under this Act or under the investment Guidelines.”

The Kenya Information and Communications Act (2009) provides for the establishment of a Universal Service Fund (USF). The purpose of the USF is to fund national projects that have significant impact on the availability and accessibility of ICT services in rural, remote, and poor urban areas. The USF has amassed sizeable assets, but to date, the fund and its managing committee have not been able to mobilize it for use on any project.

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

On procurement from the private sector, SOEs are guided by the Public Procurement (Preference and Reservations) (Amendment) Regulations (2013). The amendment reserves 30 percent government supply contracts for youth, women, and SMEs.

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

Kenya is not currently pursuing privatization.

The Environmental Management and Coordination Act (1999) establishes a legal and institutional framework for the management of the environment while The Factories Act (1951) safeguards labor rights in industries. The legal system, however, has remained slow to prosecute corporate malfeasance in both areas.

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

Corruption in Kenya is pervasive and entrenched. Transparency International’s (TI) 2016 Global Corruption Perception Index ranks Kenya 145 out of 176 countries, six places lower than 2015. Lack of political will, little progress in prosecuting past corruption cases, and the slow pace of reform in key sectors were reasons cited for Kenya’s chronic low ranking. Corruption is an impediment to FDI with local media reporting on allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts. There are many reports that corruption often influences the outcomes of government tenders in Kenya, and U.S. firms have had limited success bidding on public procurements.

According to the PricewaterhouseCoopers (PwC) Global Economic Crimes Survey 2016, 72 percent of the firms in Kenya reported incidences of asset misappropriation compared to the global average of 64 percent. Bribery was the second most prevalent form of economic crime in Kenya with 47 percent of the firms reporting incidents, representing the third highest rate of incidence globally. Finally, procurement fraud was the third most prevalent economic crime reported in Kenya, with 37 percent of the respondents having experienced procurement fraud in the last two years, against a global average of 23 percent.

Kenyan law provides for criminal penalties for official corruption but no top officials were prosecuted successfully for corruption in 2016. Relevant legislation and regulations include the Anti-Corruption and Economic Crimes Act (2003), the Public Officers Ethics Act (2003), the Code of Ethics Act for Public Servants (2004), the Public Procurement and Disposal Act (2010), the Leadership and Integrity Act (2012), and the Bribery Act (2016). In September 2016, a new Access to Information Act (2016) went into force, providing additional mechanisms through which private citizens can obtain information on government activities; implementation of this act is ongoing. The Ethics and Anti-Corruption Commission (EACC) monitors and enforces compliance with the above legislation.

The government made modest progress in 2016 implementing elements of President Kenyatta’s November 2015 anticorruption strategy. In December 2016, the new private sector-supported Bribery Act (2016) went into effect stiffening penalties for corruption in public tendering and requiring private firms participating in such tenders to sign a code of ethics and develop measures to prevent bribery. A multi-agency team launched in January 2016 by the Attorney General resulted in better coordination between law enforcement agencies on corruption cases.

Kenya is a signatory to the UN Convention Against Corruption (UNCAC), and in March 2016 published the results of a peer review process on UNCAC compliance

(https://www.unodc.org/documents/treaties/UNCAC/CountryVisitFinalReport Country Review Report of Kenya ). Kenya is also a signatory to the UN Anticorruption Convention and the OECD Convention on Combatting Bribery, and a member of the Open Government Partnership. Kenya is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Kenya is also a signatory to the East African Community’s Protocol on Preventing and Combating Corruption.

Resources to Report Corruption

Rev. Eliud Wabukala (Ret.)
Chairperson and Commissioner, Ethics and Anti-Corruption Commission
+254 (0)20-271-7318
http://www.eacc.go.ke/default.asp?pageid=62 

Samuel Kimeu
Executive Director, Transparency International Kenya
Phone: +254 (0)722-296-589
Email: skimeu@tikenya.org
https://www.tikenya.org/ 

Anxiety and speculation about political violence around the national elections in August 2017 has grown over the last year. Protests in Nairobi during May and June 2016 over the composition and authorities of Kenya’s national elections commission were characterized by violence on the part of both protesters and police, resulting in at least five deaths. Various stakeholders continue to work to mitigate tensions and issues that have in Kenya’s past led to electoral violence. Ethnically-charged political violence accompanied the 2007 election, resulting in approximately 1,200 deaths and the displacement of more than 300,000 people. Property damage was in the millions of dollars, and GDP growth dropped to 0.2 percent in 2008 before increasing to 3.3 percent in 2009 and 8.4 in 2010. Kenya’s current constitution was approved in 2010 in a violence-free referendum, and elections in 2013 were relatively peaceful.

The United States maintains a travel warning for Kenya due to the threat of terrorism and crime. Instability in Somalia has heightened security concerns and led to increased security measures aimed at businesses and public institutions around the country. Tensions flare occasionally within and between ethnic communities. A severe drought afflicting Kenya has caused increased conflict between landowners and herders searching for water and grazing lands in several areas of the country. Regional conflict, most notably in 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 Government of Kenya has maintained its commitment to promoting peace and stability in Somalia.

Kenya has not officially published complete labor statistics since 2009. Official and non-official reporting cites a 40 percent unemployment rate from the 2009 KNBS census, with unemployment and underemployment for youth approaching much higher levels. Employment in Kenya’s formal sector was 2.6 million in 2015, an increase of 4.5 percent from 2014. Average wages for the formal sector are KSh 604,255 (approximately $6,000) annually. The government is the largest employer in the formal sector, with an estimated 718,400 government workers in 2015. Agriculture, forestry, and fishing employ 337,000 workers, and manufacturing employs 295,400 workers. Kenya’s large informal sector, however, makes accurate labor reporting difficult.

Kenya’s labor laws comply, for the most part, with internationally recognized standards and conventions, and the Ministry of EAC, 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 (EPZs), are free to form and join unions of their choice. 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 government also continued to implement a range of programs for the elimination of child labor with dozens of partner agencies, and has actively pursued the elimination of forced labor. However, extremely low salaries and the lack of vehicles, fuel, and other resources make it very difficult for labor inspectors to do their work. Employers in all sectors routinely bribe labor inspectors to prevent them from reporting infractions, especially in the area of child labor. The Labor Commissioner’s Report for 2014 notes that “under-staffing and in particular of technical officers (inspectorate staff) has affected efficient delivery of services.”

Work permits are required for all foreign nationals intending to work in Kenya. International companies have complained that the visa and work permit approval process is slow and sometimes bribes are solicited to speed up the process. In 2015, the Directorate of Immigration Services made administrative additions to the list of requirements for work permits and special passes applications. Recent policy changes also mandate assured income of at least $24,000 annually for the issuance of a work permit. However, firms in agriculture, mining, manufacturing, or consulting sectors can avoid this with a special permit.

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

In 2016, the U.S. Overseas Private Insurance Corporation (OPIC) established a regional office in Nairobi. The agency is engaged in funding programs in Kenya with an active in-country portfolio of approximately $700 million, including projects in power generation, internet infrastructure, light manufacturing, and education infrastructure. Notable projects include the $310 million financing for the expansion of Nevada-based Ormat’s geothermal plant, the $72 million financing of Wanachi’s expansion of fiber optic internet service, and $4.1 million to expand Mawingu Network’s last mile internet access program, among others. Going forward, OPIC currently has an active pipeline of approximately $600 million in new projects including transactions in the energy, education, and financial service sectors.

Table 3: Sources and Destination of FDI

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

Source: IMF Coordinated Portfolio Investment Survey (CPIS). Figures are from 2012 (latest available). IMF no longer publishes Kenya data as part of its CPIS

David Pemberton
Economic Officer
U.S. Embassy
U.N. Avenue, Nairobi, Kenya
+254 (0)20 363 6048
PembertonDD@state.gov