Investing in Kenya

Market Access

Exports from Kenya enjoy preferential access to world markets under a number of special access and duty reduction programmes.  These are

  • Regional Markets – The East Afriacan Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA), with a combined population of approximately 385 million people.
  • ACP-EU Economic Partnership Agreements/Cotonou Agreement – Exports from Kenya into the European union under this arrangement are entitled to

a)    Duty and quota free entry for industrial products
b)    Highly favourable treatment including reduced or duty exemption of  a wide range of agricultural produce

  • Generalized System of Prefefences (GSP) – A wide range of Kenya manufactured goods are entitled to preferential duty treatment in the USA, Japan, Canada, Switzerland, Norway, Sweden, Finland, New Zealand, and several European countries

Establishing a business in Kenya

Business registration is done by the Registrar of Companies at the State law Office.  A business may be registered as:
i.    A branch office of an overseas company
ii.    A locally incorporated company (private limited or Public Liability)
iii.    Partnership
iv.    Sole Proprietorship
v.    Co-oprative (Under Societies Act)

The approval and licensing procedures for new investments

  • The Kenya Investment Authority (KIA) will process and grant approvals of new investments, once proposals are submitted on a prescribed application form.  Proof of company registration must be attached to the application
  • Where the investment may have an adverse impact on security, health or the environment, clearance from the competent authorities (such as the National Environment Management Authority, Public Health authorities etc) will be required before approval is granted
  • Also, clearance is required from parent ministries for investments in restricted areas before KIA approval is granted.  These investments comprise:-

i)    Investment to produce excisable goods (clearance from Customs and Excise is a precondition)
ii)    Investments in forest products and mining (clearance from Ministry of Environment form Ministry of Environment and Natural Resources)
iii)    Investment in energy and petroleum products (clearance from Ministry of Energy)
iv)    Investments in the manufacture Under Bond Programme (authority to manufacture under bond must be obtained from Minister for Finance).
v)    Investments in the tourism industry (clearance from the Ministry of Tourism)

The Local Tax System

  • Corporate tax is as follows:

i)    Standard rate of 30%
ii)    37.5% for overseas branches of foreign companies
iii)    New listings in the Nairobi Stock Exchange’s Initial Public Offers corporate tax is at 25% for five year is 40% of the shares are floated

  • Withholding Tax is 5%
  • The rate of VAT
  • Excise duties are levied on beer, tobacco, matches, wines, spirits, mineral water, confectioneries, etc at prescribed rates currently ranging between 10 to 130%
  • Import duties range

i)    From 0% to 35% for finished products
ii)    0% for capital goods, intermediate inputs and basic raw materials.

Shareholding Requirements

Equity restrictions are only in the telecommunications sector (a minimum of 30% must be local).

  • Investments in the Insurance industry must have local participation
  • Ownership of agricultural land by foreigners is restricted
  • Engagement on petty business by foreigners is also restricted

Local employment Legislation (Minimum wage, Employment Conditions, Arbitration Etc.)

Some important provisions in the Labour laws of Kenya which guide employment include:

  • Minimum wages – these are set by the government and depend in the employee skills.  They are specific for different urban areas. (For example in Nairobi, Mombasa and Kisumu, general laborers should be paid a minimum of Skronor.500.00, while artisans Grade One are supposed to be paid a minimum of SKronor.1,000.00 per month.
  • Workers are allowed to join trade union related to their sectors of work
  • Wages are negotiated through tripartite agreements (between trade unions, the government and employers).
  • Disputes are settled through the Industrial Court

Investment opportunities

There are abundant opportunities for investment in Agriculture, livestock, fisheries, energy manufacturing, tourism, building and construction communications, mining, transport (railways, roads, ports and other marine services), banking and insurance etc… as summarized below:

1) Agriculture:

The agricultural sector generates the highest foreign exchange earnings for the country from products such as tea, horticulture, coffee, pyrethrum, etc. The sector employs about 75% of the population and contributes 24% of the GDP. Investment opportunities for foreign participation are numerous. These are in the areas of plantations, processing and marketing of agricultural products including tea, coffee, flowers, fruits and vegetables. Others are cotton, pyrethrum, sugar and oil crops. The main oil crops are coconut, cashew nuts, Soya beans, groundnuts, macadamia, sunflower and cotton seeds. Bixa for the processing of food colouration and additives is also a viable investment product in Kenya. Investment is also possible in the sisal and flax sub-sectors. Gum-Arabic and herbal teas such as camomile and hibiscus are profitable agricultural resources in Kenya which potential investors can fully exploit.

2) Livestock:

Livestock which contributes about 10% GDP in Kenya is kept mainly for food and income generation. Major stakeholders in the sub-sector are pastoralists and farmers. Pastoralists also keep livestock as a symbol of self-esteem and wealth in the community. Livestock population in Kenya by the year 2004 estimates is over 60 million. These comprise 29 million chicken, 10 million beef cattle, 3 million dairy, 9 million goats, 7 million sheep, 800,000 camels, 520,000 donkeys and 300,000 pigs. Kenya keeps indigenous, exotic and cross breeds.
Investment opportunities in the sub-sector includes: camel farming, production and marketing of canned and fermented meats, provision of superior breeding stock, leather tanning, rearing of wild animal and game meat production, e.g. ostrich and crocodile farming, production of chicken stock birds, milk and butter production, honey refining and production of allied inputs e.g. feeds for livestock and poultry, equipment and machinery etc.

3) Fisheries:

Fishing and fishery activities are very important economic engagement in Kenya. They contribute about 5% of GDP although it is a strategic growth area. The sub-sector is a major source of food, employment and foreign exchange to the people living along the numerous lakes, rivers and the Indian Ocean. However, a lot of fishing activities are concentrated in Lake Victoria which accounts for 93% of total national catch followed by the coastal area along the Indian Ocean.
Investment opportunities in this sub-sector is great. The potential from marine fisheries is estimated at150,000 tons yet current production is only between 4000 and 7000 tons per year compared to inland waters which landed up to 208454 tons in 1999. The dominant export fish from Lake Victoria is the Nile perch. Fish production in Kenya as an investment opportunity can be increased by promoting sustainable capture fisheries in lakes, rivers and the ocean. Secondly opportunities are also available in culture fisheries on farmlands. Conditions for fish farming are readily available in Kenya.
There are three types of fish farming practices in Kenya which an investor could exploit for local and export market. These are warm water fish farming (suitable for tilapia, bass, and common carp; cold mountain fish farming (suitable for trout), and saline water (coastal fishing farming (shrimps). Kenya welcomes investors in the fish processing plants, deep sea fishing, and fish farming among other areas.

4) Tourism:

The first logical step by a potential trader or investor into a country is through tourism be it virtual or physical. Kenya’s early tourist visitors may be claimed as far back as 28th February 1498 when the Portuguese explorer, Vasco Da Gama landed at Malindi, the Indian Ocean coastal town on the explorers trip to India around the southern African coast. To date Kenya is known as a “safari” land with a total of 59 national parks, reserves and sanctuaries offering the visitors the opportunity to view the “big five” – lion, elephant, rhino, leopard and buffalo. For details visit www.kws.org The safaris are Wildlife, sports , scenic, culture, beach, adventure, specialist and business including conference tourism. All these safari components are spectacularly available in Kenya
For further details please visit www.magicalkenya.com.
On investment opportunities, Kenya has a wide range of potential tourist attractions which can be exploited by foreign investors. Currently tourism investment is mainly concentrated along the coastal region of the country and the savannah lands with the national parks and game reserves. Regional diversification to help exploit the vast potential of tourist products is being undertaken. The potential for the domestic market has also not been exploited. A need to identify diverse tourist attractions other than the existing game parks also offer investment opportunity.
Specific investment opportunities are available in establishment of cruise ship in the coast and Lake Victoria, amusement parks in major cities, airport hotels in major airports, health spa projects, and lodges in several game parks, among others.

5) Trade and Industry:

The sector which encompasses manufacturing and trade in goods especially exports accounts for 20% of the national GDP. Employment level accounts for about 300 000 people in the formal and 3.7 million people in the informal sub-sectors. In the year 2002, the sector generated 43% of Kenya’s total export earnings. Manufactured goods however accounted for 33% of merchandise export earnings. This sector is therefore strategic and offers substantial investment opportunities.

Manufacturing sub-sector in Kenya has undergone several policy changes. It was initially developed under the “Import Substitution Policy” but has since moved to “export-oriented manufacturing” as the national industrial policy in a fully liberalised economy. Investment is invited in the areas of agro-processing, sugar refining, paper products, metal and engineering, vehicle parts and assembly, electrical and electronic equipment. Other opportunities are in plastics, chemicals and pharmaceutical sub-sectors.
6) Infrastructure:

Physical infrastructure is an important prerequisite in creating and supporting a business environment that facilitates private sector investment, job creation, economic development and growth. The provision of adequate infrastructure and services is therefore, necessary to achieve the country’s industrialisation as targeted for by the year 2020. The sub-sectors in the infrastructure segment of the economy include roads, rail, air, maritime and inland water transportation systems, telecommunications as well as energy. Investors are invited to take part in all these sub-sectors.

a) Roads:
Kenya’s road network is estimated at 150,600 km consisting of 63,653.4 km of classified roads and the rest unclassified. The network size, traffic composition and growth rates justify the demand for road infrastructure investment in Kenya. The required investment volume can however, not be met by the public sector. The government has therefore identified the sub-sector as a lucrative investment opportunity for foreign investors.
Investment in the road sub-sector has been designed along concessioning model. The Government therefore, invites private investors to finance, design, build, operate, maintain and manage the network contracted for and then transfer the facility free of charge to the government after the expiry of a concessioned period.

b) Rail:
Railway network in Kenya has stagnated since the initial construction during the colonial days. There are 2597 km total rail network in Kenya of which 1738 km are public lines and 859 km of private line and sidings.
Investment requirements in the sub-sector involve infrastructure development and maintenance. Investment in rail services will help in reducing road haulage or cargo traffic which has been the main cause of the poor state of Kenyan roads, especially the main northern corridor: the Mombasa-Nairobi-Kampala (onwards) road. Road carnage and traffic pollution will be greatly reduced.

c) Air:
Kenya occupies a strategic position as an aviation centre in the eastern African region serving as the hub for the East, Central and Indian Ocean areas and offering transit and refueling facilities for the North/South and East/West air traffic. Major users of air transport are tourists, high value exports and imports and perishable goods transporters.
Investment opportunities are available in the expansion of the airports and their allied services especially the passenger terminal facilities.

d) Maritime and Inland Waterways:
Maritime transport is a low cost means of moving heavy and bulky freight. Kenya, due to her ocean frontage and Lake Victoria, serves the eastern and central African hinterlands e.g. Uganda, Rwanda, Burundi, Democratic Republic of Congo, Ethiopia, Southern Sudan and Northern-eastern Tanzania.
Maritime transport sub-sector therefore, offers lucrative investment opportunities. These include port services, development of cruise ship facilities in both Port of Mombasa and Kisumu (Lake Victoria), ship repairs and servicing.

e) Communications:
The sector includes telecommunications, postal services, internet services, telex, paging and facsimile services. The sector has been liberalised and private investors are welcome. The sector is however regulated by three organs: Communications Commission of Kenya, Postal Corporation of Kenya and Telkom Kenya Ltd.
The telecommunications sub-sector offers private operators opportunity to invest in the Telkom Kenya Ltd; second fixed line operation; third mobile telephone operation, and four other internet gateway service provision.

f) Energy:
Kenya’s main sources of energy supply are electricity (hydro-, geothermal), wood fuel, petroleum, and renewable energy. Due to its critical role in development of the country, the current energy policy objectives emphasize the need for its availability and accessibility at cost effective prices and in support of sustainable socio-economic development while protecting and conserving the environment.
Investors are invited in the energy sector in the following areas:
– oil exploration
– pipeline rehabilitation
– generation of geothermal, hydropower, oil based thermal and any other
economically competitive energy source.
– wind and solar renewable energy sources are other areas of investment
possibilities.

For more information on all the sub-sectors reviewed above visit www.ipckenya.org

7) Housing:
One of the major priorities of the government is to provide decent affordable housing for the population. The current National Housing Policy commitment is to facilitate the construction of at least 150,000 housing units annually in urban areas and 300,000 units in the rural areas. The investment value within the programme period 2003 to 2007 is approximately EUR.5.6 billion. This indicates the magnitude of investment opportunity in the sector.

Specific investment opportunities in the sector are:
– Slum upgrading and urban renewal
– Construction of middle and low cost housing
– Low cost technologies and materials production
– Housing finance
– Housing surveys and data management.

 

Export Products

 

Tea

This is Kenya’s leading export crop. Kenyan tea is famous the world over for its consistent high quality throughout the year.

 

Support institutions in the tea industry

1.    Tea Board of Kenya (TBK)

This is a government parastatal charged with the overall function of regulating the tea industry. The responsibilities of the board include:-
a) Licensing of tea growing, manufacture & export;
b) Carrying out research through the Tea Research Foundation (TRF);
c) Promoting the Kenyan tea trade worldwide.

2.    Kenya Tea Development Agency (KTDA)

This is the main tea development agency responsible for all small-scale tea growers in Kenya. It accounts for almost 60% of Kenyan and 6% of global tea production. Currently, it has 51 tea manufacturing factories under its management. Each factory has a capacity of processing about 3 million kg of tea per year, with a total output capacity of about 156 million kg per annum.

3.    Kenya Tea Growers Association

This is an organization of large-scale tea producers in Kenya. The principal functions of the association are:-
a) To promote issues of common interest in cultivation, manufacture and marketing of tea;
b) To promote good industrial relations by ensuring sound wage policies and good labour relations.

Horticulture

This comprises the production of fruits, vegetables and flowers. The average annual growth rate of 20% in the sub-sector underscores the demand of Kenya’s high quality produce in the world markets. The sub-sector is mainly large-scale and private sector-dominated, with a small percentage of small-scale farmers. It employs about 2 million people, and accounts for up to 21% of all agricultural exports.

Supporting institutions & organizations in the horticulture industry

1.    Horticultural Crops Development Authority (HCDA)

This is a parastatal vested with the responsibility of developing, promoting, coordinating and regulating the horticultural industry in Kenya.It has cold rooms and pack houses, transport trucks and pre-cooling facilities for use by stakeholders, particularly small-scale growers.

2.    Kenya Flower Council (KFC)

Fresh Produce Exporters Association (FPEAK)
Their main roles are to promote activities of their respective members in development of quality assurance through implementation of codes of practise that ensure:-
a) welfare and safety of employees;
b) pesticide use;
c) environmental concerns;
d) standards (quality & quantity).

Other institutions & organizations

Kenya Plant Health Inspectorate (KEPHIS)

This body is responsible for ensuring that producers comply with the required sanitary and phytosanitary standards.

Coffee:

Coffee is important in the Kenyan economy due to its contribution to foreign exchange earnings, farm income and employment. It is also a source of livelihood, particularly for small-scale producers, most of whom live in the heavily populated agro-ecological zones. Kenya produces arabica coffee, which is a high-quality yet mild coffee. It is grown on rich volcanic soils, found mainly in the highlands between 1500 and 2100 metre.
In terms of foreign exchange earnings, it ranks fourth after tea, horticulture and tourism, contributing about 20% of total export earnings. Kenyan coffee is known for its high quality.

Key institutions & organizations in the coffee industry

1.    Coffee Board of Kenya (CBK)

This is a parastatal that regulates the coffee industry. Specifically, its functions are to:
a) Promote coffee production, processing and marketing;
b) Register and regulate growers, pulping stations, millers, commission agents, marketing agents, buyers, brokers, roasters, packers, warehousemen, nursery owners and auctioneers;
c) Licence the players in b) above;
d) Provide advisory services;
e) Maintain database on coffee;
f) Carry out research through the Coffee Research Foundation (C.R.F.);
g) Represent the government internationally, e.g. in ICO and IACO;
h) Make rules and formulate policies in consultation with government and stakeholders;
i) Arbitrate on disputes.

Other Institutions & Organizations in the coffee industry

1.    KPCU, Mild Coffee Trade Association of East Africa (MCTA), EAFCA and EACO

Investment Opportunities in Kenya’s Agricultural Sector

Investment opportunities abound in the agricultural sector. Investors have the option of investing in agricultural support services, production and processing.

a) In agriculture support, they can invest in:

  • seed production;
  • manufacture of sprayers and pesticides;
  • installation of irrigation systems;
  • services that enhance production of industrial crops such as oil seeds, barley, sugarcane, groundnuts.

b) In production for both local consumption and export, opportunities exist in:

  • cut flowers
  • various types of beans;
  • fruits (pineapples, mangoes, avocado, passion, melon) etc.;
  • Asian vegetables.

c) In agro-processing, opportunities are available in:

  • any palm oil substitute technologies (to take advantage of oil crops grown in the country, such as groundnuts, sunflowers, cottonseed, sesame, coconut, corn/maize etc.);
  • wine production;
  • coffee: packaging, roasting, blending, decaffeination, gourmet;
  • tea packaging for direct sales to consuming markets;
  • leather & leather products;
  • milk and meat processing.

Livestock Farming in Kenya

Livestock includes domestic animals which are kept for domestic use or profit, e.g. cattle, sheep, goats, pigs and poultry. Besides these, rabbits, camels, fish, donkeys and bees are also found. Livestock farming is a very important area because the products from livestock are key export commodities.
The major types of commercial livestock farming include dairy and beef farming.

Beef Farming

Beef farming is very important in Kenya today. Ninety per cent of beef cattle in Kenya are in the hands of subsistence farmers and pastorolists. Today the cattle population exceeds 10 million heads, and the large-scale livestock farmers keep animals both for commercial (meat, milk) and subsistence purposes. The distribution of beef cattle in Kenya is influenced by rainfall patterns. Small-scale beef farming is carried out in almost all parts of Kenya.
Before meat is sold, it is be inspected and declared either fit or unfit for human consumption. The canning and freezing plants for beef are found in Nairobi, Thika and Nakuru, and the canned meat is mainly exported.

Dairy Farming in Kenya

This is a type of farming whereby cattle are kept for milk production. Dairy farming is mainly practiced in several parts of the Rift Valley and the Central, Eastern, Coast and Western Provinces. It is mostly practised by small-scale holders, who account for 80% of the milk produced in Kenya, while large-scale farming accounts for the remaining 20%.

Dairy animals mainly kept include:
•    Channel island cows, these include Jersey, Guernsey and Alderney;
•    Freshian cows;
•    Ayshire cows;
•    Sahiwal cows – most suitable in the tropical land.

Sheep Farming

Kenya’s sheep population stands at 4 million, and the Maasai are thought to have 1 million. The greater percentage is indigenous, doing well in the dry areas. The exotic breeds are found in cooler, wetter highlands in Molo, Timau and Nyandarua. Most of Kenya’s sheep are kept for production of meat (mutton). Wool is produced mainly in the highlands.

Pig Farming

Pig farming is another form of livestock farming. It can be practiced as a specialty or as a part of mixed farming operations. As with dairy cattle, food can be grown on the farm, especially to feed the livestock, and they can also feed on a variety of crop remains. The Farmers Choice Company in Kenya deals in pigs and pig product,s e.g. sausages, ham, bacon, salami, etc.

Goat Farming

Most of the goats in Kenya are used for meat and milk production. It is estimated that the country has approximately 5 million goats. Most of the goats are kept by the Maasai, Boran, Turkana and Pokot. Goats are kept in areas where the environmental conditions make it more or less impossible to keep other domestic animals. They can withstand drought and high temperatures, and can eat almost all plant growth.

Poultry Farming

In Kenya, chicken is the most important class of poultry, although duck, turkey and goose are also available. The poultry industry has grown tremendously due to the demand of meat and eggs, particularly in the urban areas. It is vital to note that hardly can one find pure poultry breeds. The most important poultry trade is centred around hybrids developed by crossing a few pure lines.