Business Environment

KENYA BUSINESS ENVIRONMENT

The Kenya government is taking various steps to creating an enabling business environment;

  • The government has dedicated a big chunk of its resources to the Infrastructure sector;
  • Kenya is moving towards green energy, plans to construct multi-purpose dams are on-going;
  • The Government is dealing vigorously with the security issue;
  • One stop shop has been set up for investors, therefore reducing bureaucracy.
  • Public Private Partnership Committee chaired by the Prime Minister, has also been set up to reduce on bureaucracy.
  • Issues on corruption in the country are being worked on.
  • The judiciary is being reformed so as to be able to add up to the needs of the people.
  • Democracy is being nurtured by upholding the rule of law, promoting a sense of inclusiveness in government policy and decisions and enhanced national security.

KEY ECONOMIC SECTORS

Economic activity in Kenya embraces production of both goods and services, with some sectors exhibiting peculiar characteristics especially in terms of contribution to national income, employment and poverty reduction, impact on vulnerable groups like rural communities especially the womenfolk, support services and vision of the country especially with regard to industrialization initiatives. Some of these sectors are :

  • Agriculture,
  • Manufacturing,
  • Tourism,
  • Arts and Crafts,
  • Financial and
  • Investments sectors.

 

 

Economic Indicators

Currency: Kenya Shillings (Kshs)

Current exchange rate: Consult up to date and past exchange rates

Gross Domestic Product (GDP): (current prices) US$M 9,664

GDP per capita (PPP): U.S$ 1,600

Inflation Rate: 9.3% (20009

Population Growth Rate: 2.691% (2010)

Life expectancy: Male 57.49 years, female 58.24 years (2010)

Death rate: 9.72 deaths per 1000 persons (2010)

Population under age 15: 42.3% (2010)

Population over age 65: 2.6%(2010)

Literacy rate: 85.1% (2010)

Natural Resources: Minerals, cement, soda ash, diatomite, vermiculite, baryte, flourspar. Various gemstones have also been discovered.

 

International Trade

Kenya has followed a mixed economy development strategy since independence. While the respective roles of the public and private sectors have evolved over time, the country has experienced remarkable continuity in its underlying economic development strategy. However, there is a shift recently in emphasis from public to private investment. In this context, market-based reforms have been introduced and incentives for both local and foreign private investments provided.

TRADE AGREEMENTS

Exports from Kenya enjoy preferential access to world markets under a number of special access and duty reduction programmes. Kenya is signatory to various agreements aimed at enhancing trade amongst member states.

Multilateral Trade System (MTS)
The World Trade Organization (WTO) is the only international organisation dealing with the global rules of trade between nations. The overriding objective of the WTO is to ensure that trade flows as smoothly, freely and predictably as possible. Kenya has been a member of the WTO since its inception in January 1995. www.wto.org

Regional Markets
Kenya is a member of the East African Community (EAC) with an estimated population of about 124 million. It is also a member of the Common Market for Eastern and Southern Africa (COMESA) with an estimated population of about 400 million. Exports and imports within member countries enjoy preferential tariff rates. EAC Member States have signed a Protocol to establish a Customs Union.

  • COMESA

The aims and objectives of COMESA have been designed so as to remove the structural and institutional weaknesses in the member States by pooling their resources together in order to sustain their development efforts either individually or collectively. The COMESA agenda is to deepen and broaden the integration process among member States through the adoption of more comprehensive trade liberation measures such as the complete elimination of tariff and non-tariff barriers to trade and elimination of customs duties. Some Member States have already signed a Free Trade Area protocol, and the rest are working towards this goal. Efforts are at advanced stage to establish a Common External Tariff (CET). COMESA headquarters are located in the city of Lusaka, Zambia. www.comesa.int

  • EAC

The East African Community is the regional intergovernmental organization of the Republics of Kenya, Uganda and Tanzania, with headquarters located in Arusha, Tanzania. The Community was formerly established on November 30, 1999 through signatures of Heads of State and Governments of the three countries. The EA countries cover an estimated area of 1.8 million square kilometres and have a population of slightly above 80 million people, sharing common history, language, culture and infrastructure. These advantages provide the Partner States with a unique framework for regional co-operation and integration.

 

International Trade

ACP/Cotonou Partnership Agreement

Exports from Kenya entering the European Union are entitled to duty reductions and freedom from all quota restrictions. Trade preferences include duty-free entry of all industrial products as well as a wide range of agricultural products including beef, fish, dairy products, cereals, fresh and processed fruits and vegetables.

African Growth and Opportunity Act (AGOA)

Kenya qualifies for duty free access to the United States of America (USA) market under the African Growth and Opportunity Act enacted by USA. Kenya’s major products that qualify for export under AGOA include textiles, apparels, handicrafts,

Generalised System of Preferences (GSP)

Under the Generalised System of Preferences, a wide range of Kenya’s manufactured products are entitled to preferential duty treatment in the United States of America, Japan, Canada, New Zealand, Australia, Switzerland, Norway, Sweden, Finland, Austria, and other European countries. In addition, no quantitative restrictions are applicable to Kenyan exports on any of the 3,000-plus items currently eligible for GSP treatment.

Bilateral Trade Agreements

Kenya has signed bilateral trade agreements with several countries around the world. Some of the countries are already members of existing schemes offering market access/duty reduction preferences as above.

GUARANTEES TO INVESTORS

Kenya provides the following guarantees to local and foreign investors:

  1. Repatriation of Capital and Profits: Capital repatriation and remittance of dividends and interests are guaranteed to foreign investors under the Foreign Investment Protection Act (FIPA) (Cap.518). To be eligible for FIPA guarantees, investors should obtain a Certificate of Approved Enterprise from the Ministry of Finance.
  2. Guarantee Against Expropriation: The Kenyan Constitution provides for a guarantee against expropriation of private property. Expropriation may only occur either for security reasons or public interest, upon which fair and prompt compensation is guaranteed.
  3. Other Guarantees: Kenya is a member of the World Bank affiliated Multilateral Investment Guarantee Agency (MIGA), which issues guarantees against non commercial risks to enterprises that invest in signatory countries. Kenya is also a member of the International Centre for Settlement of Investment Disputes (UCID).

 

MAJOR INVESTMENT INCENTIVES

The Government policy is to create an enabling environment for private sector investment. The following is a summary of investment incentives:

  • Investment Allowance

Investors in manufacturing and hotel sectors outside Nairobi and Mombasa are eligible for an investment allowance of 85 percent on plant, machinery, buildings, and equipment. Investments located in Nairobi and Mombasa are eligible for the investment allowance at 35 percent. For manufacturers under bond, the applicable rate is 100 per cent for all locations.

  • Depreciation

Liberal rates are allowed for depreciation of assets based on book value as follows:

  1. Hotels…………………….4% per year,
  2. Industrial buildings…..25% per year,
  3. Plant and machinery..125% per year,
  4. Vehicles, trucks, and tractors ……………………….25-37% per year.
  • Loss Carried Forward

Business enterprises that suffer tax losses can carry forward such losses indefinitely to be offset against future taxable profits.

  • Remission From Customs Duties

Duties on machinery and equipment may be reduced to 10% where the investment is expected to have net foreign exchange earnings or savings for Kenya. Imported plant and equipment intended for industries located outside major towns are also charged custom duties at 10%. A 50 per cent remission of duties and tax is granted to industries established within designated boundaries of Nairobi, Mombasa and other urban centres.

  • Duty Remission Facility

Materials imported for use in manufacture for export or for the production of duty free items for sale domestically are eligible for duty remission, irrespective of the source of financing. This programme is open to all types of investment whether they are for expansion, replacement or rehabilitation or new manufacturing plants.

  • Manufacturing Under Bond

To encourage manufacturing in Kenya for world markets, the Government has established an in-bond programme open to both local and foreign investors. Enterprises operating under the programme are offered the following incentives:

  1. Exemption from duty and VAT on imported plant, machinery and equipment, raw materials and other imported inputs.
  2. 100 per cent investment allowance on plant, machinery, equipment and buildings. Bonded manufacturing enterprises can be licensed to operate in Nairobi, Mombasa, Kisumu, Eldoret, Nakuru, Nyeri and Thika or within the immediate environs of these towns.

 

Investments

Available Investment Opportunities

Key business and investment opportunities in Kenya exist in the following sectors:

  • Agriculture
  • Tourism
  • Transport & Infrastructure
  • Manufacturing
  • Information Technology & Communications
  • Energy
  • Building & Construction
  • Environment and Natural Resources
  • Banking & Finance

 

AGRICULTURE

Agriculture is the mainstay of the economy, providing livelihood to approximately 75 per cent of the population.  There is considerable scope for diversification and expansion of the agricultural sector through accelerated food crop production and increase of non-traditional exports.  There are also opportunities for improvement in technology infrastructure such as packaging, storage, and transportation. Intensified irrigation and additional value added processing are marketable areas for investments.

Investment opportunities in Agriculture

Agricultural Support
Investment opportunities exist in seed production, manufacture of sprayers and pesticides, veterinary services, construction of dams and bore holes, installation of irrigation systems and services. Opportunities also exist in support services, such as cold storage facilities and refrigerated transport for horticultural and other perishable products.

Horticulture
The horticultural sector is one of the fastest growing sectors in the economy and is the second largest foreign exchange earner after tea. Opportunities exist in production and export of products such as cut-flowers, French beans, pineapples, mushrooms, asparagus, mangoes, macadamia nuts, avocados, passion fruits, melons, and carrots.

Agro-Processing
Numerous investment opportunities exist in this sector. Edible and other oils produced locally include butter, ghee and margarine as well as sunflower, rapeseed, cottonseed, sesame, coconut and corn oils, while a large quantity of palm oil is imported. Investments to develop substitutes for palm oil imports are welcome.
Kenya produces excellent beer, utilising locally grown barley. The country has recently developed papaya and grape wines that can be exported to regional and international markets. Opportunities exist in coffee roasting and grinding, with a further potential such as in the production of decaffeinated coffee for export.
Sugar production, at 402,000 tonnes per annum is below the domestic demand estimated at 600,000 tonnes per annum. Molasses, a by-product of sugar production, is processed into power alcohol, potable alcohol, and baker’s yeast. There is also considerable potential for the expansion of chocolate and confectionery products for export. Opportunities for investment exist in the production and processing of sugar, tea, meat and dairy products.

 

Poultry Products
Hatcheries for the production of chicken for both domestic and regional consumption are under-exploited.

Fisheries
Kenya’s water resources of the Indian Ocean and Lake Victoria provide vast fishing potential. At present, deep sea fishing, prawn and trout farming are in their infancy but growing rapidly. Opportunities also exist in fish processing (filleting and fishmeal production), as well as fisheries-support infrastructure (refrigerated transport, cold storage, etc.).

Leather and Leather Goods
Most hides and skins are processed up to the wet blue stage for export while investment opportunities exist in production of finished leather, offering potential for the manufacture of shoes and other leather products.

Livestock
Investment opportunities exist in the rearing of livestock for meat and dairy products. The dairy industry has been liberalised, providing new investment opportunities in milk processing for local and regional markets. Non conventional livestock farming, for example, of ostrich and crocodile farming, represent an exciting new area of investment. Bee keeping and honey processing are untapped potential in Kenya.

TOURISM

The tourist sector is one of the most important sectors of the Kenyan economy. The sector provides employment to thousands of people directly and many more indirectly. It is the highest foreign exchange earner overtaking agriculture.

Tourism is Kenya’s third largest foreign exchange earner. The tourism industry is growing as a result of the liberalisation measures, diversification of tourist generating markets and continued Government commitment to providing an enabling environment, coupled with successful tourism promotion and political stability.

Looking forward, tourism is expected to remain buoyant in the medium term following the stepped up marketing campaigns.  Europe remains the largest and most important source of tourists for Kenya.

Enormous opportunities exist for investment in film production; recreation and entertainment facilities in the following areas:

Investment opportunities in Tourism

  • Conference Tourism
  • Cultural tourism
  • Cruise ship Tourism
  • Aviation/tour and travel Tourism
  • Eco-tourism