Policies Towards Foreign Direct Investment
Kenya has enjoyed a steadily improving environment for foreign direct investment (FDI). Foreign investors seeking to establish a presence in Kenya generally receive the same treatment as local investors, and multinational companies make up a large percentage of Kenya’s industrial sector. There is little discrimination against foreigners in access to government-financed research, and the government’s export promotion programs do not distinguish between goods produced by local and foreign-owned firms.
The major regulations governing FDI are found in the Investment Promotion Act (2004). Other important documents that provide the legal framework for FDI include the 2010 Constitution of Kenya, the Companies Ordinance, the Private Public Partnership Act (2013), the Foreign Investment Protection Act (1990), and the Companies Act (2015). GOK membership in the World Bank’s Multilateral Investment Guarantee Agency (MIGA) provides an opportunity to insure FDI against non-commercial risk.
The government does not have a policy to steer investment to specific geographic locations, but encourages investments in sectors that create employment, generate foreign exchange, and create forward and backward linkages with rural areas. The Central Bank has successfully maintained macroeconomic stability, with relatively low inflation, manageable debt, and stable exchange rates. Kenya puts significant effort into assuring the health and growth of its tourism industry. To strengthen Kenya’s manufacturing capacity, the government offers incentives for the production of goods for export.
Investment Promotion Agency
KenInvest, the country’s official investment promotion agency, is viewed favorably by international investors (http://www.investmentkenya.com ). KenInvest’s mandate is to promote and facilitate investment by assisting investors in obtaining the licenses necessary to invest and by providing other assistance and incentives to facilitate smoother operations. To help investors navigate local regulations, KenInvest has developed an online database known as eRegulations, designed to provide investors and entrepreneurs with full transparency on Kenya’s investment-related regulations and procedures (http://kenya.eregulations.org/?l=en ). At each step, the system tells the investor where to go, who to see, what to bring, what to pay, what is the legal justification, and who to contact in case of a problem. According to United Nations Conference on Trade and Development’s (UNCTAD’s) Global Enterprise Registration Network (http://www.GER.co ), the KenInvest site makes Kenya one of only 25 countries to earn a perfect rating on its information portal.
The GOK prioritizes investment retention and maintains an ongoing dialogue with investors. All proposed legislation must pass through a period of public consultation in which investors have an opportunity to offer feedback. Private sector representatives can serve as board members on Kenya’s state-owned enterprises. Since 2013, when the current government assumed power, the Kenya Private Sector Alliance (KEPSA), the apex private sector business association, has had bi-annual round table meetings with President Kenyatta and his cabinet. During the budget making process, KEPSA presents a “wish list” memorandum to the government. A follow up of the investors’ concerns is considered by a Cabinet committee on the ease of doing business, chaired by President Kenyatta. Policy research and analysis at the Cabinet committee is assisted by the IBM Research and Strathmore Business School in collaboration with the Business Delivery Unit under the Ministry of Industrialization.
Limits on Foreign Control and Right to Private Ownership and Establishment
The government provides the right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. In an effort to encourage foreign investment, the GOK in 2015 repealed regulations that imposed a 75 percent foreign ownership limitation for firms listed on the Nairobi Securities Exchange, allowing such firms now to be 100 percent foreign-owned, as reported by the UNCTAD World Investment Report 2016. Also in 2015, the government established regulations requiring Kenyans own at least 15 percent of the share capital of derivatives exchanges, through which derivatives such as options and futures can be traded.
There appears to be a recent trend in Kenya toward imposing “local content” requirements on foreign investments. When President Kenyatta signed the new Companies Act (2015), it contained language requiring all foreign companies to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth. United States business associations raised concerns over the bill, pointing to its lack of clarity and the possibility that such measures could run afoul of Kenya’s commitments under the WTO. The U.S. government also raised the issue with the Kenyan government. That clause has now been repealed.
Telecommunications regulator Communications Authority requires 20 percent Kenyan shareholding within three years of receiving a license. The new Mining Act (2016) restricts foreign participation in the mining sector. Among other restrictions, it reserves the acquisition of mineral rights to Kenyan companies, and requires 60 percent Kenyan ownership of mineral dealerships and artisanal mining companies. The Private Security Regulations Act (2016) restricts foreign participation in the private security sector by requiring that at least 25 percent of shares in private security firms be held by Kenyans. The National Construction Authority Act (2011) imposes local content restrictions on “foreign contractors,” defined as companies incorporated outside Kenya or with more than 50 percent ownership by non-Kenyan citizens. The act requires foreign contractors to enter into subcontracts or joint ventures assuring that at least 30 percent of the contract work is done by local firms. Regulations implementing these requirements are in process. The Kenya Insurance Act (2010) restricts foreign capital investment to two thirds with no single person controlling more than 25 percent of an insurers’ capital.
Other Investment Policy Reviews
There have been no third-party investment policy reviews through multilateral organizations in the last three years.
In 2011, the GOK established a state agency called KenTrade to address trading partners’ concerns regarding the complexity of trading regulations and procedures. KenTrade is mandated to facilitate cross-border trade and to implement the National Electronic Single Window System. In 2017, KenTrade launched a new trade information site, InfoTrade Kenya, located at https://infotradekenya.go.ke/ , which provides a host of investment products and services to prospective investors in Kenya. The site documents the process of exporting and importing by product, by steps, by paperwork, and by individuals, including contact information for officials responsible relevant permits or approvals.
In May 2017, President Kenyatta signed into law the Movable Property Security Rights Bill (2017), which is intended to enhance the ability of individuals to secure financing through the use of movable assets. The new law will also help innovators secure funding using intellectual property rights as collateral. In July 2017, Kenyatta signed an additional three business facilitation bills into law, including: the Nairobi International Financial Centre Act (2017); the Kenya Trade Remedies Act (2017), and the Companies Amendment Act (2017). The Nairobi International Financial Centre Act (2017) seeks to provide a legal framework to facilitate and support the development of an efficient and competitive financial services sector in Kenya. The act created the Nairobi Financial Centre Authority to establish and maintain an efficient operating framework to attract and retain firms. The Kenya Trade Remedies Act (2017) provides the legal and institutional framework for Kenya’s application of trade remedies consistent with World Trade Organization (WTO) law, which requires a domestic institution to both receive complaints and undertake investigations in line with the WTO Agreements. The Kenya Trade Remedies Act provides for the establishment of the Kenya Trade Remedies Agency for the investigation and imposition of anti-dumping, countervailing duty, and trade safeguards measures, and enables the GOK to take necessary measures to protect domestic industries from unfair trade practices.
The Companies Amendment Act (2017) amends the prior Companies Act to clarify the ambiguities in the act and conform to global trends and best practices. The act amends provisions on the extent of directors’ liabilities, on the extent of directors’ disclosures, and on shareholder remedies to better protect investors, including minority investors. The amended act eliminates the requirement for small enterprises to have lawyers register their firms, the requirement for company secretaries for small businesses, and the need for small businesses to hold annual general meetings, saving them from regulatory compliance and operational costs.
In September 2015, President Kenyatta signed the Business Registration Services (BRS) Act (2015) and the Companies Act (2015), which aim to strengthen Kenya’s position as a destination for investors. The BRS seeks to establish a state corporation known as the Business Registration Service to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships, and firms. The BRS also devolves to the counties business registration services such as registration of business names and promoting local business ideas/legal entities, thus reducing costs of registration. The Companies Act (2015) deals with specifics of registration and management as they pertain to public and private corporations.
In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country. The unit has representatives from all ministries and focuses on reducing the bureaucratic steps related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a website (http://www.businesslicense.or.ke/ ) offering online business registration and providing information on how to access detailed information on additional relevant business licenses and permits, including requirements, costs, application forms, and contact details for the relevant regulatory agency.
An investment guide to Kenya, also referred to as iGuide Kenya, can be found at http://www.theiguides.org/public-docs/guides/kenya/about# . iGuides, designed by UNCTAD and the International Chamber of Commerce, provide investors with up-to-date information on business costs, licensing requirements, opportunities, and conditions in developing countries. Kenya is a member of UNCTAD’s international network of transparent investment procedures.
In 2013, the GOK initiated the Access to Government Procurement Opportunities (AGPO) program to facilitate the participation of youth, women, and persons with disabilities (PWDs) in public procurement. The program requires all public procurement entities to set aside a minimum of 30 percent of their annual procurement spending to enterprises owned by youth, women, and PWDs. By end of 2017, the GOK had registered 82,158 enterprises into the AGPO program, of which 31,946 were women’s enterprises. Since AGPO’s inception in 2013, women entrepreneurs have received 30,205 tenders worth USD 330 million, constituting over half of the total value of tenders awarded to these special interest groups. Major industry organizations such as KEPSA support women business leaders through focus groups that empower up and coming females to succeed in the local environment.
The GOK does not promote or incentivize outward investment. Despite this, Kenya is evolving into an outward investor in tourism, manufacturing, retail, finance, education, and media. Currently, the majority of outward investment remains in the EAC, making the most of Kenyan preferential access between EAC member countries. The GOK also does not restrict domestic investors from investing abroad. Rather, the EAC advocates for free movement of capital across the six member states – Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.