Contents 1 Background 2

Kenya –
Country Profile
Contents
1
Background 2
2Population
2
2.1
Population figures
2
2.2
Population growth rate
2
2.3
Age structure (2011 estimates)
2
2.4
Gender ratios (2012 estimates)
2
2.5
Life expectancy (2011 estimates)
2.6
Ethnic groups
5.13 Corruption 19
5.14 Bilateral investment agreements 20
5.15 OPIC and other investment insurance programmes 20
5.16 Labour 20
5.17 Foreign-trade zones/free ports 21
5.18 Foreign Direct Investment (FDI) statistics 21
2
5.19 Starting a business in Kenya
22
2
6
Country Risk Rating
22
6.1
Sovereign risk
22
2.7Religion
3
2.8Language
3
6.2
Currency risk
22
2.9Education
3
6.3
Banking sector risk
22
2.10Health
3
3Economy
4
3.1
Latest Economic indicators
4
3.2
Five-year forecasts
5
3.3
Annual trends
8
4
Government and Politics
8
4.1
Political structure
8
5
Investing in Kenya 9
5.1
Openness to foreign investment 9
5.2
Conversion and transfer policies 12
5.3
Expropriation and compensation 12
5.4
Dispute settlement 13
5.5
Performance requirements and incentives 13
5.6
Right to private ownership and establishment 14
5.7
Protection of property rights
14
5.8
Transparency of regulatory system 15
5.9
Efficient capital markets and portfolio investment 16
5.10 Competition from state-owned enterprises 18
5.11 Corporate Social Responsibility (CSR)
18
5.12 Political Violence 19
6.4
Political risk
22
6.5
Economic structure risk
22
7
Country Outlook: 2012 – 2016 23
7.1
Political stability
23
7.2
Election watch
23
7.3
International relations
23
7.4
Policy trends
23
7.5
Economic growth
24
7.6Inflation
24
7.7
Exchange rates 24
7.8
External sector
24
A
Appendix one - Sources of information
24
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
1
1Background
2Population
Kenya lies across the
equator in east-central
Africa, on the coast of
the Indian Ocean. Kenya
borders Somalia to the
east, Ethiopia to the
north, Tanzania to the
south, Uganda to the
west, and Sudan to the
northwest. In the north,
the land is arid. The
southwest corner is in
the fertile Lake Victoria
Basin, and a length of
the eastern depression
of the Great Rift Valley
separates western highlands from those that rise from the lowland
coastal strip.
2.1 Population figures
Kenya has a population of 43,013,341 (July 2012 est.).
Paleontologists believe people may first have inhabited Kenya
about two million years ago. In the 700s, Arab seafarers established
settlements along the coast, and the Portuguese took control of the
area in the early 1500s. More than 40 ethnic groups reside in Kenya.
Its largest group, the Kikuyu, migrated to the region at the beginning
of the 18th century.
The land became a British protectorate in 1890 and a Crown colony
in 1920, called British East Africa. Nationalist stirrings began in the
1940s, and in 1952 the Mau Mau movement, made up of Kikuyu
militants, rebelled against the government. The fighting lasted
until 1956.
Founding president and liberation struggle icon Jomo Kenyatta Kenya
from independence in 1963 until his death in 1978, when President
Daniel Toroitich arap Moi took power in a constitutional succession.
The country was a de facto one-party state from 1969 until 1982
when the ruling Kenya African National Union (KANU) made itself the
sole legal party in Kenya.
Moi acceded to internal and external pressure for political
liberalisation in late 1991. The ethnically fractured opposition failed
to dislodge KANU from power in elections in 1992 and 1997, which
were marred by violence and fraud, but were viewed as having
generally reflected the will of the Kenyan people. President
Moi stepped down in December 2002 following fair and peaceful
elections. Mwai Kibaki running as the candidate of the multiethnic,
united opposition group, the National Rainbow Coalition (NARC),
defeated KANU candidate Uhuru Kenyatta and assumed the
presidency following a campaign centered on an anticorruption
platform.
Kibaki’s NARC coalition splintered in 2005 over a constitutional
review process. Government defectors joined with KANU to form a
new opposition coalition, the Orange Democratic Movement (ODM),
which defeated the government’s draft constitution in a popular
referendum in November 2005. Kibaki’s reelection in December
2007 brought charges of vote rigging from ODM candidate Raila
Odinga and unleashed two months of violence in which as many as
1,500 people died.
UN-sponsored talks in late February 2008 produced a power-sharing
accord bringing Odinga into the government in the restored position
of Prime Minister.
In August 2010 Kenya adopted a new constitution that eliminates the
role of Prime Minister after the next presidential election.
Estimates for Kenya explicitly take into account the effects of excess
mortality due to AIDS; this can result in lower life expectancy, higher
infant mortality, higher death rates, lower population growth rates,
and changes in the distribution of population by age and sex than
would otherwise be expected.
Kenya has a very diverse population that includes most major ethnic
and linguistic groups of Africa. Traditional pastoralists, rural farmers,
Muslims, Christians, and urban residents of Nairobi and other cities
contribute to the cosmopolitan culture. The standard of living in
major cities, once relatively high compared to much of Sub-Saharan
Africa, has been declining in recent years. Most city workers retain
links with their rural, extended families and leave the city periodically
to help work on the family farm. About 75 % of the work force is
engaged in agriculture, mainly as subsistence farmers. The national
motto of Kenya is Harambee, meaning “pull together.” In that spirit,
volunteers in hundreds of communities build schools, clinics, and
other facilities each year and collect funds to send students abroad.
2.2 Population growth rate
2.444% (2011 est.)
2.3 Age structure (2011 estimates)
Total percentage
Male
Female
0 – 14 years
42.2%
8,730,845
8,603,270
15 – 64 years
55.1%
11,373,997
11,260,402
65 years and
over
2.7%
497,389
605,031
Source: CIA World Factbook
2.4 Gender ratios (2012 estimates)
Total Population
1.02 male/female
Under 15 years
1.01 male/female
15 – 64 years
65 years and over
1 male/female
0.79 male / female
Source: CIA World Factbook
2.5 Life expectancy (2011 estimates)
Total Population
63.07 years
Male
61.62 years
Female
64.55 years
Source: CIA World Factbook
2.6 Ethnic groups
There are over 70 distinct ethnic groups in Kenya, ranging in size
from about seven million Kikuyu to about 500 El Molo who live on
the shore of Lake Turkana. Kenya’s ethnic groups can be divided into
three broad linguistic groups: Bantu, Nilotic and Cushite.
While no ethnic group constitutes a majority of Kenya’s citizens, the
largest ethnic group, the Kikuyu, makes up only 20% of the nation’s
total population. The five largest – Kikuyu, Luo, Luhya, Kamba and
Kalenjin – account for 70%. 97.58% of Kenya’s citizens are affiliated
with its 32 major indigenous groups. Of these, the Kikuyu, who
were most actively involved in the independence and Mau Mau
movements, are disproportionately represented in public life,
government, business and the professions.
The Luo people are mainly traders and artisans. The Kamba are well
represented in defense and law enforcement. The Kalenjin are mainly
farmers. While a recognized asset, Kenya’s ethnic diversity has also
led to disputes. Interethnic rivalries and resentment over Kikuyu
dominance in politics and commerce have hindered
national integration.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
2
The principal non-indigenous ethnic minorities are the Arabs and
Asians. Almost all the Kenyan Arabs live in Coast Province, more
than half of them in Mombasa. Over 99% of the Arab residents have
Kenyan citizenship, speak Swahili rather than Arabic, and generally
see themselves as Africans. Non-Kenyan Arabs, mainly petty traders
from Yemen, are called Shihiri.
When Uganda expelled 80,000 Asians in 1972, public pressure
intensified in Kenya to force non-Kenyan Asians to depart. Under the
Trade Licensing Act, non-citizens were denied permits to own or
manage commercial establishments. In reaction, British immigration
laws were modified to allow about 3,000 Asians from East Africa into
the United Kingdom each year Kenya has one of the largest European
communities in present-day Africa and hosts many Americans as
well. Many Americans work as missionaries or with the official familyplanning programmes, the Peace Crops or one of many U.S firms
operating in the country. With its consistent pro-Western alignment,
Kenya has actively fostered cultural, social and economic contacts
with the West.
2.7Religion
The vast majority of Kenyans are Christian with 45% regarding
themselves as Protestant and 33% as Roman Catholic. Sizeable
minorities of other faiths do exist.
There is a fairly large Hindu population in Kenya (around 500,000),
who have integrated well with the community and play a key role in
Kenya’s economy. Sixty percent of the Muslim population lives in
Coast Province, comprising 50 percent of the total population there.
Western areas of Coast Province are mostly Christian. The upper
part of Eastern Province is home to ten percent of the country’s
Muslims, where they are the majority religious group and apart from
a small ethnic Somali population in Nairobi, the rest of the country is
largely Christian.
2.8Language
Kenya is a multilingual country. Its official languages are Swahili and
English. There are a total of 62 languages spoken in Kenya (according
to Ethnologue), most being African languages with a minority of
Middle-Eastern and Asian languages spoken by descendants of
settlers. The African languages of Kenya come from three different
language families – Bantu languages are spoken in the center and
southeast, Nilotic languages in the west, and Cushitic languages in
the northeast.
2.9Education
Educational quality has recently received a lot of attention in
Kenya. The government’s main document in this effort – the Kenya
Education Sector Support Programme for 2005-2010 – established
the National Assessment Centre (NAC) to monitor learning
achievement. In 2010, the NAC released the results of its first
assessment.
In 2009, in collaboration with the NAC, Uwezo Kenya conducted an
assessment of the basic literacy and numeracy skills of children ages
6-16. The Annual Learning Assessment (ALA) reached villages in 70
out of 158 districts in Kenya, and assessed nearly 70,000 children in
their homes. The ALA was set at a Standard 2 level, which is the level
where students are supposed to have achieved basic competency in
reading English and Kiswahili and completing simple arithmetic
3 Most children can solve real world, “ethno-mathematics”
problems, while fewer can solve similar math problems in an
abstract, pencil and paper format.
4 5% of children are not enrolled in school, but the problem is far
worse in particular regions.
5 About half of children are enrolled in pre-school.
6 Many children are older than expected for their class level,
including 40% of children in class 2, and 60% of children in class 7.
7North Eastern Province and arid districts in Rift Valley and Eastern
Provinces have particularly low performance; and many older
children, especially girls, are not attending school.
8 Many families pay for extra tuition, which focuses heavily on
drilling and exam preparation.
9 Schools struggle to plan their budgets because they receive funds
at unpredictable times.
10Children whose mothers are educated, particularly beyond
primary school, tend to have much higher rates of literacy and
numeracy.
11About 15% of students are absent on a given day, with much
higher absenteeism in certain districts.
12There is a severe shortage of teachers, estimated at 4 teachers
per school.
2.10Health
A malaria risk exists all year round in Kenya, but more around
Mombasa and the lower coastal areas than in Nairobi and on the high
central plateau. Immunisation against yellow fever, polio and typhoid
are usually recommended. A yellow fever certificate is required by
anyone arriving from an infected area. Other risks include diarrhoeal
diseases. Protection against bites from sandflies, mosquitoes and
tsetse flies is the best prevention against malaria and dengue fever,
as well as other insect-borne diseases, including Rift Valley fever,
sleeping sickness, leishmaniasis and Chikungunya fever.
AIDS is a serious problem in Kenya. Water is of variable quality and
visitors are advised to drink bottled water. Cholera outbreaks occur
frequently.
The under-financing of the health sector has reduced its ability to
ensure an adequate level of healthcare for the population. Thus,
the provision of health and medical care services in Kenya is
partly dependent on donors. In 2002, more than 16% of the total
expenditure on healthcare originated from donors. There are also
other factors inhibiting Kenya’s ability to provide adequate healthcare
for its citizens. These include: inefficient utilisation of resources, the
increasing burden of diseases and the rapid population growth.
Access to health and medical care is unequally distributed across the
country, as is the fertility rate and the level of education. Generally
speaking, the Central Province and Nairobi are deemed to have the
best facilities, whereas the North-Eastern Province is found to be the
most underdeveloped.
Key Facts about education in Kenya, based on the results of the
Uwezo 2009 assessment:
Poor people in rural areas who are ill and choose to seek care, usually
only have the option of treatment at primary care facilities. These
facilities are often under-staffed, under-equipped and have limited
medicines.
1 Literacy levels are low, and are substantially lower in certain
regions. Girls tend to perform better in reading English and
Kiswahili, while boys tend to perform better in math.
Among those Kenyans who are ill and do not choose to seek care,
44% were hindered by cost. Another 18% were hindered by the long
distance to the nearest health facility.
2 Literacy levels are lower in public schools than private schools.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
3
3Economy
Although the regional hub for trade and finance in East Africa, Kenya has been hampered by corruption and by reliance upon several primary
goods whose prices have remained low. Low infrastructure investment threatens Kenya’s long-term position as the largest East African
economy.
The IMF halted lending in 2001 when the government failed to institute several anti-corruption measures. In the key December 2002
elections, Daniel Arap Moi’s 24-year-old reign ended, and a new opposition government took on the formidable economic problems facing the
nation. After some early progress in rooting out corruption and encouraging donor support, the Kibaki government was rocked by high-level
graft scandals in 2005 and 2006. In 2006, the World Bank and IMF delayed loans pending action by the government on corruption.
The international financial institutions and donors have since resumed lending, despite little action on the government’s part to deal with
corruption. Post-election violence in early 2008, coupled with the effects of the global financial crisis on remittance and exports, reduced GDP
growth to 1.7 in 2008, but the economy rebounded in 2009-10. GDP growth in 2011 was only 4.3% due to inflationary pressures and sharp
currency depreciation – as a result of high food and fuel import prices, a severe drought, and reduced tourism.
In accordance with IMF prescriptions, Kenya raised interest rates and increased the cash reserve in November 2011.
3.1 Latest Economic indicators
2 Qtr
Central government finance (KSh bn)
Revenue & grants
Expenditure & net lending
Balance
Prices
Consumer prices (2000=100)
Consumer prices (% change, year on year)
Financial indicators
Exchange rate KSh:US$ (av)
Exchange rate KSh:US$ (end-period)
Deposit rate (av; %)
Lending rate (av; %)
Treasury-bill rate (av; %)
M1 (end-period; KSh bn)
M1 (% change, year on year)
M2 (end-period; KSh bn)
M2 (% change, year on year)
Stockmarket NSE 20 (1996=100)
Stockmarket index (% change, year on year)
Foreign trade (KSh bn)
Exports fob
Imports cif
Trade balance
Foreign reserves (US$ m)
Reserves excl gold (end-period)
2010
3 Qtr
2011
4 Qtr
1 Qtr
2 Qtr
3 Qtr
4 Qtr
2012
1 Qtr
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
179.1
3.7
180.2
3.3
183.2
3.8
190.5
7
202.6
13.2
209.9
16.5
218.3
19.2
221.9
16.5
78.94
81.92
5.07
14.48
4.12
511.6
27.7
1,195.4
26.2
4,339
31.7
80.93
80.78
3.9
14.15
1.83
536.9
23.9
1,234.9
25.3
4,630
54
80.58
80.75
3.71
13.89
2.2
577.2
30.5
1,277.5
22.4
4,433
36.5
82.24
82.99
3.74
13.96
2.58
603.4
29.7
1,329.8
20.3
3,887
-4.6
86.12
89.86
4.12
13.9
5.85
n/a
n/a
1,386.0
15.9
3,968
-8.6
93.01
99.83
5.74
14.42
10.05
n/a
n/a
1,492.6
20.9
3,284
-29.1
93.87
85.07
8.92
17.91
16.41
n/a
n/a
1,522.2
19.2
3,185
-28.2
84.14
83.06
11.99
n/a
19.35
n/a
n/a
1,531.0
15.1
3,367
-13.4
97.6
231.6
-134.1
100.2
242.2
-142
111.8
278.8
-167.1
118.1
285.8
-167.7
124
308.1
-184.1
137.2
362.7
-225.5
131.7
359
-227.3
130.8
328.3
-197.5
3,791
4,392
4,320
4,172
4,173
4,007
4,264
4,697
Source: Economist Intelligence Unit
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
4
3.2 Five-year forecasts
3.2.1 Gross Domestic Product at current market prices
2007 (a) 2008 (a) 2009 (a) 2010 (a)
Expenditure on GDP (KSh bn at current market prices)
GDP
1,833.5
2,111.2 2,365.5
2,551.2
Private consumption
1,383.6 1,583.7 1,850.7 1,985.1
Government consumption
327.9
348.1
372.8
424.7
Gross fixed investment
355.1
409.6
452.5
508.5
Exports of goods & services
491
581.8
571.3
702.1
Imports of goods & services
691.2
879.8
866
966
Domestic demand
2,060.4
2,337.2 2,682.4 2,902.1
Expenditure on GDP (US$ m at current market prices)
GDP
27,237
30,519
30,580
32,198
Private consumption
20,553
22,893
23,926
25,054
Government consumption
4,871
5,032
4,819
5,360
Gross fixed investment
5,275
5,921
5,851
6,417
Exports of goods & services
7,294
8,411
7,386
8,861
Imports of goods & services
10,268
12,719
11,196
12,192
Domestic demand
30,607
33,787
34,678
36,627
Economic structure (% of GDP at current market prices)
Private consumption
75.5
75
78.2
77.8
Government consumption
17.9
16.5
15.8
16.6
Gross fixed investment
19.4
19.4
19.1
19.9
Exports of goods & services
26.8
27.6
24.2
27.5
Imports of goods & services
37.7
41.7
36.6
37.9
Memorandum item
National savings ratio (%)
15.2
12.7
13.9
11.5
2011 (a)
2012 (b) 2013 (b)
2014 (b)
2015 (b)
2016 (b)
4,826.4
3,575.0
880.2
1,103.2
1,410.0
2,117.6
5,534.0
5,349.9
3,939.6
972.7
1,229.1
1,584.9
2,350.6
6,115.6
3,076.1
2,318.1
529
652.2
847.1
1,251.5
3,480.6
3,534.6
2,644.9
622.7
775.6
987.7
1,475.5
4,022.5
3,904.6
2,912.0
706.1
876.3
1,108.2
1,676.2
4,472.7
4,341.6
3,232.4
790.9
985.6
1,250.0
1,894.1
4,985.7
34,637
26,101
5,957
7,344
9,538
14,092
39,191
41,186
30,819
7,256
9,037
11,509
17,193
46,871
41,574
31,005
7,518
9,331
11,799
17,847
47,622
42,151
31,382
7,678
9,569
12,136
18,389
48,404
45,106
33,411
8,227
10,310
13,178
19,791
51,719
48,635
35,815
8,842
11,173
14,408
21,369
55,596
75.4
17.2
21.2
27.5
40.7
74.8
17.6
21.9
27.9
41.7
74.6
18.1
22.4
28.4
42.9
74.5
18.2
22.7
28.8
43.6
74.1
18.2
22.9
29.2
43.9
73.6
18.2
23
29.6
43.9
10.4
11.8
13.5
14.8
16.6
18
a) Actual; b) Economist Intelligence Unit forecasts
Source: Economist Intelligence Unit
3.2.2 Gross Domestic Product by sector of origin
2007 (a)
2008 (a)
2009 (a)
2010 (a)
2011 (a)
2012 (b) 2013 (b)
2014 (b)
2015 (b)
2016 (b)
1,394.4
1,474.8
1,539.3
1,610.9 1,688.1
1,773.7
1,868.6
1,975.5
Origin of GDP (KSh bn at constant 1987 prices)
GDP at factor cost
Agriculture
1,336.9
1,357.3
326.6
312.7
305
324.3
329.4
340.9 354.5
367.6
381.6
398.8
Industry
201
210.5
216.8
228.2
234.3
243.6 255.8
271.2
287.4
307.6
Services
809.3
834.1
872.6
922.3
975.7
1,026.4 1,077.7
1,199.5
1,269.1
Agriculture
2.3
-4.3
-2.5
6.3
1.6
3.8
4.5
Industry
6.8
4.7
3
5.2
2.7
4 5
Services
9.1
3.1
4.6
5.7
5.8
5.2 5
1,134.9
Origin of GDP (real % change)
3.5 4
3.7
6
5.3
6
7
5.7
5.8
Origin of GDP (% of factor cost GDP)
Agriculture
22
22.8
23.9
22
24.5
24.2
24.1
23.7
23.4
23.1
Industry
16
17.2
16.3
16.1
14.9
14.8
14.9
15
15.1
15.3
Services
60.1
62.7
63.8
65
66.1
66.5
66.6
66.7
67
67
6.8
4.7
3
5.2
2.7
4
5
6
6
7
Memorandum item
Industrial production (%
change)
a) Actual; b) Economist Intelligence Unit forecasts
Source: Economist Intelligence Unit
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
5
3.2.3 Growth and productivity
2007 (a)
2008 (a)
2009 (a)
2010 (a)
2011 (a)
2012 (b) 2013 (b)
Labour productivity growth
1.6
-2
-0.8
2.1
0.7
1 1.1
Total factor productivity
growth
2.2
-2.4
-1.1
1.8
0.1
Growth of capital stock
4
4.6
4.4
4.7
5.4
0.9
2.2
7
1.5
2.7
4.3
-1
0.1
2014 (b)
2015 (b)
2016 (b)
1.5
1.6
1.9
0.3 0.3
0.6
0.9
1.2
5.6
5.9 6.1
6.1
6.1
6.1
5.2
3.8
4.1 4.2
4.6
4.8
5.1
5.8
4.4
4.7 4.8
5.1
5.4
5.7
3
1.6
1.9 2
2.4
2.6
2.9
Growth and productivity (%)
Growth of potential GDP
Growth of real GDP
Growth of real GDP per head
a) Economist Intelligence Unit estimates; b) Economist Intelligence Unit forecasts
Source: Economist Intelligence Unit
3.2.4 Economic structure, income and market size
2007 (a) 2008 (a) 2009 (a) 2010 (a) 2011 (b) 2012 (c) 2013 (c) 2014 (c)
2015 (c) 2016 (c)
Population, income and market size
Population (m)
37.5
38.5
39.5
40.5
41.6
42.7
43.9
45.1
46.3
47.6
27,237
30,519
30,580
32,198
34,637
41,186
41,574
42,151
45,106
48,635
730
790
770
790
830
960
950
930
970
1,020
20,553
22,893
23,926
25,054
26,101
30,819
31,005
31,382
33,411
35,815
550
600
610
620
630
720
710
700
720
750
57,953
60,143
62,440
66,799
71,211
75,796
81,168
87,194
1,550
1,560
1,580
1,650
1,710
1,770
1,850
1,930
2,020
2,120
0.57
0.58
0.59
0.59
0.6
0.61
0.62
0.63
0.64
0.65
rates)
0.05
0.05
0.05
0.05
0.05
0.06
0.06
0.05
0.05
0.05
Share of world GDP at PPP (%)
0.09
0.08
0.09
0.09
0.09
0.09
0.09
0.09
0.09
0.09
Share of world exports of goods (%)
0.03
0.03
0.04
0.03
0.03
0.03
0.03
0.03
0.03
0.03
GDP (US$ m at market exchange
rates)
GDP per head (US$; market
exchange rates)
Private consumption (US$ m)
Private consumption per head (US$)
GDP (US$ m at PPP)
GDP per head (US$ at PPP)
93,750 100,974
Memorandum items
Share of world population (%)
Share of world GDP (%; market
exchange
a) Actual; b) Economist Intelligence Unit estimates; c) Economist Intelligence Unit forecasts
Source: Economist Intelligence Unit
3.2.5 Fiscal indicators
2007 (a)
2008 (a)
2009 (a)
2010 (b)
2011 (b)
2012 (c)
2013 (c)
General government
expenditure
25.9
28.3
28.7
29.3
30.6
31.4 31.9
General government
revenue
22.8
23.8
22.8
24.7
24.1
General government
budget balance
-3.1
-4.4
-5.8
-4.6
General government debt
45.4
43.7
45.1
49.6
2014 (c)
2015 (c)
2016 (c)
32.4
32.6
32.8
24.9 25.8
26.8
27.3
28
-6.5
-6.5 -6.1
-5.6
-5.3
-4.8
50.7
50 50.7
48.7
46.2
42.5
Fiscal indicators (% of GDP)
a) Actual; b) Economist Intelligence Unit estimates; c) Economist Intelligence Unit forecasts
Source: Economist Intelligence Unit
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
6
3.2.6 Current account and terms of trade
2007 (a)
2008 (a)
2009 (a)
2010 (a)
2011 (b)
2012 (c)
2013 (c)
-1,032
-1,983
-1,689
-2,512
-3,536
-3.8
-6.5
-5.5
-7.8
-10.2
-9.6 -8.4
Goods: exports fob
4,132
5,040
4,502
5,225
5,787
5,942 6,582
Goods: imports fob
-8,388
-10,689
-9,490
-11,528
-13,833
-14,387 -14,818
Trade balance
-4,256
-5,649
-4,988
-6,303
-8,046
-8,444 -8,236
Services: credit
2,931
3,251
2,883
3,676
3,973
Services: debit
-1,671
-1,870
-1,812
-2,016
Services balance
1,260
1,381
1,071
1,660
2014 (c)
2015 (c)
2016 (c)
-2,577
-2,161
-5.7
-4.4
7,696
8,348
-15,263
-15,721
-16,271
-8,155
-8,025
-7,923
4,039 4,275
4,529
4,788
5,043
-2,477
-2,654 -2,762
-2,917
-3,018
-3,194
1,496
1,385 1,513
1,611
1,770
1,849
Current account (US$ m)
Current-account balance
Current-account balance (%
of GDP)
-3,948 -3,476
-3,085
-7.3
7,107
Income: credit
161
176
182
136
190
194 206
210
216
235
Income: debit
-305
-221
-212
-292
-326
-336 -344
-352
-360
-377
Income balance
-144
-45
-31
-155
-137
-143 -138
-142
-144
-142
Current transfers: credit
2,149
2,419
2,341
2,368
3,232
3,339 3,473
3,681
3,902
4,136
Current transfers: debit
-40
-88
-83
-82
-82
-80
-80
2,108
2,331
2,259
2,286
3,150
3,254 3,385
3,601
3,822
4,056
127.1
150.5
188.1
187.8
201.6
180.1 187.1
194.7
202.8
211.2
Current transfers balance
-85 -88
-80
Terms of trade
Export price index (US$-based;
2005=100)
Export prices (% change)
Import price index (US$-based;
2005=100)
17.2
18.4
25
-0.1
7.3
126.2
158.3
137.6
166.4
182.4
Import prices (% change)
Terms of trade (2005=100)
16.8
25.4
-13
20.9
9.7
100.7
95.1
136.7
112.9
110.5
10.3
8.3
-6.1
9.9
7.4
-10.7 3.9
4.1
179.3 186.8
194.4
-1.7 4.2
4.1
100.4 100.2
4.2
4.1
202.3
209.8
4
3.7
100.3
100.7
8.9
9.2
2014 (a)
2015 (a)
2016 (a)
100.1
Memorandum item
Export market growth (%)
4.2 6.8
7.5
a) Actual; b) Economist Intelligence Unit estimates; c) Economist Intelligence Unit forecasts
Source: Economist Intelligence Unit
3.2.7 Foreign direct investment
2007 (a)
2008 (a)
2009 (a)
2010 (a)
2011 (a)
2012 (a) 2013 (a)
Foreign direct investment (US$ m)
Inward direct investment
729
95.6
116.3
185.8
335.5
392.4
425.1
491
566
642
Inward direct investment (%
of GDP)
2.7
0.3
0.4
0.6
1
1
1
1.2
1.3
1.3
Inward direct investment (%
of gross fixed investment)
13.8
1.6
2
2.9
4.6
4.3
4.6
5.1
5.5
5.7
Outward direct investment
-36
-43.8
-46
-1.6
-10
-20
-30
-25
-27
-30
Net foreign direct investment
693
51.8
70.3
184.2
325.5
372.4
395.1
466
539
612
1,893
1,988
2,105
2,290
2,626
3,018
3,443
3,934
4,500
5,142
50.5
51.7
53.3
56.5
63.1
70.6
78.4
87.2
97.1
108.1
6.9
6.5
6.9
7.1
7.6
7.3
8.3
9.3
10
10.6
Share of world inward direct
investment flows (%)
0.04
0.01
0.01
0.02
0.03
0.03
0.03
0.03
0.03
0.04
Share of world inward direct
investment stock (%)
0.01
0.01
0.01
0.01
0.01
0.02
0.02
0.02
0.02
0.02
Stock of foreign direct
investment
Stock of foreign direct
investment per head
(US$)
Stock of foreign direct
investment (% of GDP)
Memorandum items
a) Actual; b) Economist Intelligence Unit estimates; c) Economist Intelligence Unit forecasts
Source: Economist Intelligence Unit
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
7
3.3 Annual trends
3.3.1 Real GDP growth (% change)
4Government and Politics
4.1 Political structure
Official name
Republic of Kenya
Form of state
Unitary Republic
Legal system
The Kenyan legal system is based on English common law and
the 1963 constitution. A new draft constitution was approved in a
referendum in August 2010, but most aspects of it will not come into
force until after the 2012 elections.
3.3.2 Consumer price inflation (av %)
National legislature
Unicameral National Assembly of 210 elected members plus 12
nominated members, the Attorney-General and the Speaker. A
multiparty system was introduced in December 1991.
National elections
The last elections were held in December 2007. The next presidential
and legislative elections are to be held in December 2012.
Head of State
The Head of State is the President, directly elected by simple
majority and at least 25% of the vote in five of Kenya’s eight
provinces.
3.3.3
Public debt (% GDP)
National government
The President and his cabinet, comprising a grand coalition between
the Party of National Unity (PNU) and the Orange Democratic
Movement (ODM), and allied parties.
Political parties in parliament
• Orange Democratic Movement (ODM)
• Party of National Unity (PNU)
• ODM-Kenya (ODM-K)
• Kenya African National Union (KANU)
• Safina, National Rainbow Coalition-Kenya (NARC-Kenya)
• National Rainbow Coalition (NARC)
• Democratic Party
3.3.4 Current account balance (% GDP)
• Forum for the Restoration of Democracy-Kenya (Ford-Kenya)
• New Ford-Kenya
• Ford-People
• Ford-Asili, Sisi Kwa Sisi, Mazingira
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
8
Key ministers
• President and Commander-in-chief: Emilio Mwai Kibaki (PNU)
• UNCTAD
• UNESCO
• UNHCR
• UNIDO
• UNMIL
• UNMIS
• Vice-President and Home Affairs: Kalonzo Musyoka (ODM-K)
• UNOMIG
• UNRWA
• UNWTO
• Prime Minister: Raila Odinga (ODM)
• UPU
• WCO
• WFTU
• Deputy Prime Minister: Uhuru Kenyatta (PNU)
• WHO
• WIPO
• WMO
• Deputy Prime Minister: Musalia Mudavadi (UDF)
• WTO
• Agriculture: Sally Kosgei (ODM)
• Co-operative Development: Joseph Nyaga (ODM)
• Defence and Acting Internal Security: Yusuf Mohamed Haji (PNU)
5Investing in Kenya
• Education: Mutula Kilonzo (PNU)
• Energy: Kiraitu Murungi (PNU)
• Environment and Mineral Resources: Chirau Ali Mwakwere (PNU)
• Finance: Njeru Githae (PNU)
• Foreign Affairs: Sam Ongeri (PNU)
• Higher Education, Science and Technology: Margaret Kamar
(ODM)
• Information and Communication: Samuel Lesuron Poghisio (PNU)
• Internal Security: Vacant
• Justice and Constitutional Affairs: Eugene Wamalwa (PNU)
5.1 Openness to foreign investment
Kenya has enjoyed a long history of economic leadership in East
Africa as the largest and most advanced economy in the region.
However, ethnically-charged post-election violence in JanuaryFebruary 2008, which left 1,200 dead and 300,000 displaced,
caused many to reassess Kenya’s investment climate. Since then,
the economy has rebounded but serious concerns about corruption
and governance remain. Tourism is nearing pre-election levels with
1.1 million arrivals in 2010 and 1.04 million in the first three quarters
of 2011, up 16 percent compared to the same period in 2010. This is
despite security concerns following high-profile kidnappings in the
coastal city of Lamu, one of the triggers for Kenya’s military incursion
into Somalia in pursuit of al-Shabaab militants.
Kenya adopted a new constitution in a peaceful 2010 referendum,
generating hope that the country will avoid a repeat of the 2008
violence when it heads to the polls again in late 2012 or early 2013.
• Labour: John Munyes (PNU)
• Land: James Orengo (ODM)
• Medical Services: Anyang Nyong’o (ODM)
• Planning, National Development and Vision 2030: Wycliffe
Ambetsa Oparanya (ODM)
• Roads: Franklin Bett (ODM)
• Tourism: Danson Mwazo (ODM)
• Trade: Moses Wetangula (PNU)
• Transport: Amos Kimunya (PNU)
• Water and Irrigation: Charity Ngilu (ODM)
• Central Bank Governor: Njuguna Ndung’u
International organization participation
• ABEDA
• ACCT
• AfDB
• AFESD
• AMF
• AU
• BSEC (observer)
• CAEU
• COMESA
• EBRD
• FAO
• G-15
• G-24
• G-77
• IAEA
• IBRD
• ICAO
• ICC
• ICCt (signatory)
• ICRM
• IDA
• IDB
• IFAD
• IFC
• IFRCS
• IHO
• ILO
• IMF
• IMO
• IMSO
• Interpol
• IOC
• IOM
• IPU
• ISO
• ITSO
• ITU
• LAS
• MIGA
• MINURCAT
• MINURSO
• MONUC
• NAM
• OAPEC
• OAS (observer)
• OIC
• OIF
• OSCE (partner)
• PCA
• UN
• UNAMID
Since independence, Kenya has pursued at various times import
substitution and export oriented industrialization strategies. It is
currently implementing an industrialization strategy outlined in
Sessional Paper No. 2, adopted by Parliament in 1996, which aims
to transform Kenya into a fully industrial state by 2020. The strategy
emphasizes support for export industries, driven by a desire to
increase their employment potential. Vision 2030, unveiled in 2007
as the Kenyan government’s long-term plan for attaining middle
income status as a nation by 2030, buttresses the Sessional Paper
by also recognizing industrial promotion as an avenue for growth
and development.
Kenya has experienced difficulty seizing opportunities generated
by trade liberalization in developed markets to export manufactured
commodities. The bulk of its exports to the European Union are
agricultural with minimal value addition: tea, coffee, cut flowers,
vegetables, fruits, and nuts. In contrast, manufactured goods (mostly
apparel) comprise the majority of exports to the United States under
the African Growth and Opportunity Act (AGOA). The textile and
garments industry largely depends on imported fabrics and raw
materials like cotton, viscose, polyester, denim, nylon, and
acrylics, since a competitive integrated domestic cotton industry
does not exist.
Information and communication technology (ICT), especially mobile
technology, is an important area of growth and innovation in the
Kenyan economy. As of December 2011, there are four mobile
telecommunications providers in Kenya: the partially governmentowned Safaricom, French-owned Orange (the mobile portion of
Telkom Kenya), Indian-owned Bharti Airtel, (formerly Zain), and Indianowned Yu (formerly Essar Telecom). Foreign telecom companies can
establish themselves in Kenya, but must have at least 20 percent
local ownership.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
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9
The respective roles of the public and private sectors have evolved
since independence in 1963, with a shift in emphasis from public
investment to private sector-led investment. The Kenyan government
has introduced market-based reforms and provided more incentives
for both local and foreign private investment. 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. Furthermore, there is
no discrimination against foreign investors in access to governmentfinanced research, and the government’s export promotion
programmes do not distinguish between local and foreign-owned
goods. Although there is no specific legislation preventing foreigners
from owning land, the ability of foreigners to own or lease land
classified as agricultural is restricted by the Land Control Act. Hence,
the Land Control Act serves as a barrier to any agro-processing
investment that may require land. Exemption from this act can be
acquired via a presidential waiver, but the opaque process has led
to complaints about excessive bureaucracy and patronage. The new
constitution states that non-citizens may not own land, but may lease
land for a maximum period of 99 years.
replaced the government’s Investment Promotion Centre with the
Kenya Investment Authority (KIA); however, the law also created
some new barriers. It set the minimum foreign investment threshold
at US$500,000 and conditioned some benefits on obtaining an
investment certificate from the KIA. The government later revised
the minimum foreign investment threshold to US$100,000 as an
amendment to the act. The minimum investment requirement is
likely to deter foreign investment, especially in the services sector,
which is normally not as capital-intensive as the agriculture and
manufacturing sectors. Another amendment made the foreign
investment certificate requirement optional.
While Kenya was a prime choice for foreign investors seeking
to establish a presence in East Africa in the 1960s and 1970s, a
combination of politically driven economic policies, government
malfeasance, rampant corruption, substandard public services,
and poor infrastructure has discouraged foreign direct investment
(FDI) since the 1980s. Over the past 25 years, Kenya has been a
comparative under-performer in attracting FDI. Although Kenya’s
performance in attracting FDI has been marginally better since the
middle of the last decade, it still lags behind neighbouring Tanzania
and Uganda in dollar terms, despite their smaller economies.
The Kenyan government focuses its investment promotion on
opportunities that earn foreign exchange, provide employment,
promote backward and forward linkages, and transfer technology.
The only significant sectors in which investment (both foreign and
domestic) are constrained are those where state corporations still
enjoy a statutory monopoly. These monopolies are restricted almost
entirely to infrastructure (e.g., power, posts, telecommunications,
and ports), although there has been partial liberalisation of these
sectors. For example, in recent years, five Independent Power
Producers (IPPs) have begun operations in Kenya.
The United Nations Conference on Trade and Development’s
(UNCTAD) 2008 World Investment Report describes Kenya as the
East Africa region’s least effective suitor in attracting FDI. After
enjoying a banner year in 2007, attracting US$729 million in FDI (2.7%
of GDP), Kenya only received US$96 million (0.3%) in 2008, US$141
million (0.4%) in 2009, and US$186 million (0.6%) in 2010, according
to the World Bank’s World Development Indicators. Domestic
investment exceeds FDI and is making a significant impact on
development in Kenya.
A law passed in June 2007 reduced the maximum share of foreign
ownership for companies listed on the Nairobi Stock Exchange (NSE)
from 75 percent to 60 percent, creating a disincentive for foreignowned firms interested in an NSE listing. Although the regulation
is not applicable retroactively, it does compel companies with a
foreign presence of more than 60 percent to downgrade foreign
shareholding before they can apply to the NSE, effectively barring
these firms from selling excess shares to non-Kenyans.
The Companies Ordinance, the Partnership Act, the Foreign
Investment Protection Act, and the Investment Promotion Act of
2004 provide the legal framework for FDI. To attract investment, the
Kenyan government enacted several reforms, including:
Abolishing export and import licensing except for a few items listed in
the Imports, Exports and Essential Supplies Act
• Rationalising and reducing import tariffs
• Revoking all export duties and current account restrictions
• Freeing the Kenya shilling’s exchange rate
• Allowing residents and non-residents to open foreign currency
accounts with domestic bank
• Removing restrictions on borrowing by foreign as well as
domestic companies.
In 2005, the Kenyan government reviewed its investment policy and
launched a private sector development strategy. One component
of this effort was a comprehensive policy review by UNCTAD
that was the basis for the 2005 UNCTAD Investment Guide to
Kenya, published in conjunction with the International Chamber of
Commerce (ICC).
Kenya’s investment code, articulated in the Investment Promotion
Act of 2004, which came into force in 2005, streamlined the
administrative and legal procedures to create a more attractive
investment climate. The act’s objective is to attract and facilitate
investment by assisting investors in obtaining the licenses necessary
to invest and by providing other assistance and incentives. The act
Further regulatory reforms include the Licensing Act of 2007, which
eliminated or simplified 694 licenses, and a 2008 reduction in the
number of licenses required to set up a business from 300 to 16.
The Business Regulation Act of 2007 established a Business
Regulatory Reform Unit within the Ministry of Finance to continue
the deregulation process.
In 2009, Kenya launched a national e-Registry to ease business
license processing and help improve transparency.
Work permits are required for all foreign nationals wishing to work in
the country, and the Kenyan government requires foreign employees
to be key senior managers or have special skills not available locally.
Still, any enterprise, whether local or foreign, may recruit expatriates
for any category of skilled labour if Kenyans are not available.
Currently, foreign investors seeking to hire expatriates must
demonstrate that the specific skills needed are not available locally
through an exhaustive search, although the Ministry of Labour plans
to replace this requirement with an official inventory of skills that are
not available in Kenya, as discussed below. Firms must also sign an
agreement with the government describing training arrangements
for phasing out expatriates.
A number of infrastructural, regulatory, and security-related
constraints prevent the Kenyan economy from realising its
potential. The 2005 UNCTAD Investment Guide to Kenya provides
comprehensive analyses of investment trends, opportunities, and
the regulatory framework in the country, and continues to guide
new investors as well as the Kenyan government’s reform efforts.
According to the UNCTAD report (and most observers), significant
disincentives for investment in Kenya include governmental
overregulation and inefficiency, expensive and irregular electricity
and water supplies, an underdeveloped telecommunications sector,
a poor transport infrastructure, and high costs associated with crime
and general insecurity. The telecommunications sector, however, has
made rapid progress since the report was issued with the landing
of multiple fibre-optic connections and world-leading innovations
in mobile technology, such as Safaricom’s M-Pesa mobile payment
system.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
10
An April 2008 survey conducted by the Kenya Association of
Manufacturers (KAM, Kenya’s foremost business association),
identified constraints similar to those in the UNCTAD report and
concluded that Kenya’s business climate is hostile. KAM reported
that because of the costly investment climate, a number of
companies have opted to shift from manufacturing to trading, while
others have abandoned the country altogether. After examining
explanations as to why firms either closed or relocated over the
past decade, KAM deemed that legitimate commerce in Kenya is
inhibited by:
• Unfair foreign competition, which dumps counterfeit and
pirated products (cosmetics, toiletries, batteries, tires, car parts,
medicines, books, electronic media, and software) and secondhand clothes and shoes into the market; passes off new footwear
and other apparel as second-hand to avoid tariffs; and underinvoices exports;
• The high cost of manufacturing due to exorbitant electricity tariffs,
poor infrastructure (notably roads and rails), and hefty transport
costs;
• Periodic unavailability of raw materials such as crude oil;
• Labour laws that compel private companies, rather than
government, to provide their employees with a social safety net of
benefits, including paternity and maternity leave and health care,
all non-tax exempt;
• Low productivity, lack of worker discipline, and strong labour
unions focused on higher wages and benefits;
• Local government licenses and harassment over petty demands
(which could be interpreted as demands for bribes); and
• The failure of the Kenya Revenue Authority (KRA) to process
corporate tax and value added tax (VAT) refunds expeditiously.
A 2008 analysis of Kenya’s tax system carried out by the World
Bank, International Finance Corporation (IFC), and audit firm
PricewaterhouseCoopers (PwC) judged Kenya’s tax regime as the
least friendly in East Africa. The report, Paying Taxes 2009, criticizes
Kenya for not having a single government body responsible for
all tax collections. Rather, Kenya’s tax regime consists of several
government agencies, each with the authority to collect taxes
at various times of the year. According to the study, Kenya has
five different tax payment dates each month for VAT, corporate
profits, withholding, social security, and health. Kenyan firms have
to contend with 41 different tax payments cutting across 16 tax
regimes, which take 417 person-hours to file, compared to the global
average of 31 tax payments and 286 hours.
In addition to the complexity of the tax system, many Kenyans
complain taxes are too high. Kenyan firms carry the heaviest taxation
burden in East Africa. Despite the East African Community’s (EAC)
uniform 30 percent corporate income tax across the five member
states, Kenyan firms have to contend with other levies that raise
the overall tax burden. Tax experts at PwC say the total corporate
tax burden in Kenya is 49.7 per cent compared to Tanzania’s 45
percent, Uganda’s 32 percent, and Rwanda’s 31 percent. This
additional burden has raised the cost of doing business in the region’s
biggest economy and reduced the competitiveness of its firms.
Consequently, tax evasion is increasing. Kenya is now witnessing
growing numbers of unregistered or informal businesses known in
local parlance as “jua kali.”
According to the government’s 2011 Economic Survey, the informal
sector engages approximately 80 percent of the workforce. Because
of these issues, the World Bank-IFC-PwC report placed Kenya 158
out of 181 countries surveyed. The report did praise the KRA for its
effective tax collection and welcomed the government’s plans to
launch an integrated tax management system. The system is now in
place, although improvements are ongoing, and customers can file
their tax returns online.
Branches of non-resident companies pay tax at the rate of 37.5
percent and the government generally defines taxable income to be
income sourced in or from Kenya. VAT is levied on goods imported
into or manufactured in Kenya, and on taxable services provided.
The standard VAT rate is 16 percent, although the rate charged on a
given transaction varies depending on a range of factors. Discussion
by the government on the VAT in early 2011 focused on reducing or
eliminating exemptions to create a broader revenue base rather than
raising rates.
Crime is another constraint. In a separate 2007 KAM survey, 33
percent of Kenyan firms reported crime as a serious problem,
accounting for losses of nearly four percent on annual sales. KAM
discovered that on average, businesses allocate three percent of
their operating budgets to private security services and security
upgrades. According to a World Bank study conducted in 2004,
almost 70 percent of investors reported major or very severe
concerns about crime, theft, and disorder in Kenya, as opposed to
25 percent in Tanzania and 27 percent in Uganda. Businesses and
other institutions further intensified their security measures in late
2011 as a result of the increased threat posed by al-Shabaab and its
sympathizers following Kenya’s military incursion in Somalia. Senior
government officials are well aware of these problems.
The Kenyan government has taken a number of steps to make the
country more appealing for foreign and domestic private investment.
On August 5, 2008, Prime Minister Raila Odinga began holding
quarterly meetings as part of a public-private dialogue called the
“National Business Agenda” with the chairpersons of KAM, the
Kenya Private Sector Alliance (KEPSA), the East Africa Business
Council (EABC), and other business leaders to discuss what must
be done to improve the country’s business climate. As a result of the
first meeting, Odinga and President Mwai Kibaki ordered that the
Port of Mombasa be open 24/7, the number of roadblocks and weigh
stations on the Mombasa-Nairobi-Busia Northern Corridor Highway
be dramatically reduced, and that the Kenya Ports Authority (KPA),
the Kenya Bureau of Standards (KEBS), and KRA harmonise their
regulations and adopt a common accreditation and computerized
clearance system to expedite cargo inspection and clearance. The
government dealt with the port and roadblock issues, while the
harmonisation issues continue to be addressed. Subsequently,
President Mwai Kibaki and then-Acting Finance Minister John
Michuki ordered that VAT be reduced or eliminated on energy
inputs. The Treasury announced in late November 2008 that it would
suspend a 120 percent excise duty on the manufacture of plastics.
In keeping with its privatisation strategy, the government announced
in mid-December 2008 that it would sell its shares in 16 parastatals,
including the National Bank of Kenya, the Kenya Electricity
Generating Company (KenGen), the Kenya Pipeline Company, the
Kenya Ports Authority, and various sugar, cement, dairy, wine, and
meat processing firms. The government also put hotels owned by the
Kenya Tourism Development Authority up for sale in 2009. To date,
the government has not completed any of the sales. In December
2008, the Cabinet approved the proposed legal and institutional
framework for public-private partnerships, thereby authorizing private
firms to sign management contracts, leases, concessions, and/or
build-own-operate-transfer (BOOT) agreements with the government
on various infrastructure projects such as water, energy, ports, and
roads.
Also in 2008, President Kibaki signed into law the Anti-Counterfeit
Act, which established a dedicated Anti-Counterfeit Agency and
created a strong legal framework to combat the widespread trade
in counterfeit goods, generally imported to Kenya from Asia. In June
2010, the Ministry of Industrialization operationalised the AntiCounterfeit Agency. The nascent agency is still struggling to build
capacity as a result of insufficient funding and a lack of clarity of its
role vis-à-vis the other Kenyan agencies with a stake in intellectual
property protection, such as KRA, the Kenya Bureau of Standards,
the Kenya Copyright Board, and the Pharmacy and Poisons Board.
Interagency cooperation has proved difficult. Furthermore, the
government has yet to adopt regulations to guide implementation of
the act.
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11
In a separate attempt to combat the importation of counterfeits,
the Ministry of Industrialisation and the Kenya Bureau of Standards
(KEBS) decreed in 2009 that all locally manufactured goods must
have a standardisation mark issued by KEBS, and several categories
of imported goods, specifically food products, electronics, and
medicines, must have an import standardisation mark (ISM). The
legislative body of the East African Community (EAC) is currently
considering a regional anti-counterfeiting bill, which would harmonise
these laws across the five member-states as well as increase
the authority of port countries like Kenya to inspect and seize
suspicious transit good shipments destined for neighbouring
land-locked countries.
The EAC, which includes Kenya, Tanzania, Uganda, Rwanda, and
Burundi, aims at widening and deepening cooperation among the
member-states in political, economic, social, and other fields for
mutual benefit. Together, these countries represent a significant
economic bloc with a combined population of more than 125
million and a combined gross domestic product of US$61 billion.
While integration has progressed slowly, the regional group has
the potential to become a significantly economic and geopolitical
player. The EAC Customs Union and Common Market officially
came into effect in January and July 2010, respectively, but actual
implementation will take a substantial amount of time. Ongoing
planning for the EAC includes a monetary union in 2012 and eventual
political federation.
EAC member states, including Kenya, have not passed many of
the laws associated with the common market, and enforcement
of the customs union at border crossings is far from coherent or
uniform. Among the issues to be resolved are centralised collection
of revenue at the first point of entry into the EAC and management
of transit cargo in a borderless region. Non-tariff barriers (NTBs)
also remain a problem in the EAC. A March 2005 report on NTBs
and the “Development of a Business Climate Index in the Eastern
African Region” by the East African Business Council identified
administration of duties and other taxes as the main NTB, followed
closely by corruption. The report indicates that Kenya‘s level of
investment and business optimism is dampened by low expectations
relating to improvements in infrastructure, access to land, and
profitability in business.
The EAC states have made slow progress toward adopting the
monetary union, set for 2012, and it is likely that the deadline
might be extended. The countries have had difficulty agreeing on
coordinated approaches to budgets, inflation, foreign exchange
reserves, government debts, and exchange rates, which are key
elements of a monetary union. Some of the institutions still to be
established include a Customs Union Authority, Common Market
Authority, Monetary Union Authority, Central Bank for the Monetary
Union, and a Unified Federal Treasury.
Kenya held constant at position 154 on Transparency International’s
(TI) 2011 Corruption Perceptions Index, despite a marginal increase
in its score from 2.1 to 2.2. The 2011 Heritage Foundation Index of
Economic Freedom places Kenya 106 of 179 countries, a drop of 5
places when compared to 2010 ratings, despite its score remaining
virtually unchanged at 57.4 compared to 57.5 in 2010. Kenya has
dropped 16 places compared to 2009, and is ranked 14 out of 46
countries in sub-Saharan Africa.
The 2012 World Bank Doing Business Survey placed Kenya at 109, a
drop of three places compared to 2011. Kenya’s Millennium Challenge
Corporation (MCC) scorecard for fiscal year 2012 shows modest
gains in government effectiveness, rule of law, control of corruption,
land rights and access, and regulatory quality compared to 2011. The
country lost points on fiscal policy and trade policy while maintaining
its business start-up score.
Measure
Year
Index/rating
TI Corruption Index
2011
154 out of 183
Heritage Economic Freedom
2011
106 out of 179
World Bank Doing Business
2012
109 out of 183
MCC Government
Effectiveness
2012
0.33 (81%)
MCC Rule of Law
2012
-0.08 (44%)
MCC Control of Corruption
2012
-0.13 (44%)
MCC Fiscal Policy
2012
-5.4 (12%)
MCC Trade Policy
2012
66.7 (46%)
MCC Regulatory Quality
2012
0.60 (95%)
MCC Business Start Up
2012
0.943 (54%)
MCC Land Rights Access
2012
0.743 (87%)
MCC Natural Resources
Mgmt
2012
60.85 (51%)
5.2 Conversion and transfer 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-capitalised 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 of amounts above Ksh 500,000 (about US$5,600) as
a formal check against money laundering. Foreign exchange is readily
available from commercial banks and foreign exchange bureaus and
can be freely bought and sold by local and foreign investors.
The Kenyan shilling has a floating exchange rate tied to a basket of
foreign currencies. The shilling was relatively stable in recent years
until late 2007, when it increased significantly in value against the
dollar, even trading briefly below Ksh 60 to the dollar. In the aftermath
of the 2008 post-election violence, both the economy and the shilling
suffered a serious decline. The shilling stabilised in 2009 and 2010,
trading between Ksh 75 and Ksh 82 to the dollar, but high inflation
and other factors contributed to high exchange rate volatility in
late 2011.
The shilling depreciated to Ksh 107 to the dollar in October 2011 and
then appreciated to nearly Ksh 80 to the dollar in late December as
a result of aggressive central bank intervention and lower global
prices on imported commodities. As of January 2011, the shilling
was trading between Ksh 85 and 90 to the dollar, with most experts
expecting the rate to stabilize around Ksh 89.
5.3 Expropriation and compensation
Kenyan investment law is modelled on British investment law. The
Companies Act, the Investment Promotion Act, and the Foreign
Investment Act are the main pieces of legislation governing
investment in Kenya. Kenyan law provides protection against the
expropriation of private property, except where due process is
followed and adequate and prompt compensation is provided.
Various bilateral agreements also guarantee further protection with
other countries.
Expropriation may only occur for either security reasons or public
interest. The Kenyan government may revoke a foreign investment
license if (1) an untrue statement is made while applying for the
license; the provisions of the Investment Promotion Act or of any
other law under which the license is granted are breached; or, if (2)
there is a breach of the terms and conditions of the general authority.
The Investment Promotion Act of 2004 provides for revocation of
the license in instances of fraudulent representation to the Kenya
Investment Authority (KIA) by giving a written notice to the investor
granting 30 days from the date of notice to justify maintaining the
license. In practice, the KIA rarely revokes licenses.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
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12
5.4 Dispute settlement
Kenya’s judicial system is modelled after the British, with
magistrates’ courts, high courts in major towns, and a Court of
Appeal at the apex of the judicial system. Immediately below the
high courts are subordinate courts consisting of the Khadis Courts,
the Resident Magistrate‘s Courts, the District Magistrate’s Courts,
and the Court Martial (for members of the Armed Forces). In addition,
a separate industrial court hears disputes over wages and
labour terms. Petitioners cannot appeal its decisions, except on
procedural grounds. Kenya also has commercial courts to deal with
commercial disputes.
The Companies Act of 1948 provides the foundation for company
and investment law. Property and contractual rights are enforceable,
but long delays in resolving commercial cases are common. The
legal system in Kenya is adversarial, and most disputes are resolved
through litigation in court, although arbitration and alternative dispute
resolution are becoming increasingly popular. The Arbitration Act
governs arbitration. The new constitution, when fully enacted, will
change the court system dramatically. Kenya will have a Supreme
Court, a Court of Appeal, a Constitutional Court, and a High Court.
In addition, the subordinate courts, Magistrates, Khadis, and Courts
Martial, will remain, as will the Commercial Court. The former
Industrial Court has been replaced with an Employment Relations
Court that has expanded authority to hear individual employmentrelated complaints.
The Foreign Judgments (Reciprocal Enforcement) Act provides for
the enforcement in Kenya of judgments given in other countries
that accord reciprocal treatment to judgments given in Kenya. The
countries with which Kenya has entered into reciprocal enforcement
agreements are Australia, the United Kingdom, Malawi, Tanzania,
Uganda, Zambia, and Seychelles.
Without such an agreement, a foreign judgment is not enforceable
in the Kenyan courts except by filing suit on the judgment. Kenyan
courts generally recognise a governing-law clause in an agreement
that provides for foreign law. A Kenyan court would not give effect to
a foreign law if the parties intended to apply it in order to evade the
mandatory provisions of a Kenyan law with which the agreement has
its most substantial connection, and which the court would normally
have applied.
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.
All advocates in private practice are members of the Law Society of
Kenya (LSK), while those in public service need not be.
Kenya does not have a bankruptcy law. Creditors’ rights are
comparable to those in other common law countries. Monetary
judgments typically are made in Kenyan shillings. The government
does accept binding international arbitration of investment disputes
with foreign investors. Apart from being a member of the ICSID,
Kenya is a party to the New York Convention on the Enforcement of
Foreign Arbitral Awards (1958).
Kenya is a member of the World Bank-affiliated Multilateral
Investment Guarantee Agency (MIGA), which issues guarantees
against non-commercial risk to enterprises that invest in member
countries. It is also a signatory to the Convention on the Settlement
of Investment Disputes between States and Nationals of Other
States. The Convention established the International Centre for
Settlement of Investment Disputes (ICSID) under the auspices
of the World Bank. Kenya is also a member of the Africa Trade
Insurance Agency (ATIA) as well as many other global and regional
organisations and treaties:
• The Common Market for Eastern and Southern Africa (COMESA)
• The Cotonou Agreement between the European Union and the
African, Caribbean and Pacific States (ACP)
• The Paris Convention on Intellectual Property, the Universal
Copyright Convention, and the Berne Copyright Convention
• The World Intellectual Property Organization (WIPO)
• World Trade Organization (WTO)
Kenya has also signed double taxation treaties with a number
of countries, including Canada, China, Germany, France, Japan,
Netherlands, and India. On November 27, 2007, Kenya joined with
its EAC sister states in signing the first-ever interim economic
partnership agreement (EPA) with the European Community (EC).
In mid-July 2008, Kenya and its fellow EAC members signed a Trade
and Investment Framework Agreement (TIFA) with the United States
at the conclusion of the 2008 African Growth and Opportunity Act
(AGOA) Forum in Washington, D.C.
5.5 Performance requirements and incentives
The law permits investors in the manufacturing and hotel sectors
to deduct from their taxes a large portion of the cost of buildings
and capital machinery. The government allows all locally financed
materials and equipment (excluding motor vehicles and goods
for regular repair and maintenance) for use in construction or
refurbishment of tourist hotels to be zero-rated for purposes of
VAT calculation. The Ministry of Finance permanent secretary must
approve such purchases. The government permits some
VAT remission on capital goods, including plants, machinery,
and equipment for new investment, expansion of investment,
and replacement.
The investment allowance under the Income Tax Act is set at 100
percent. Materials imported for use in manufacturing for export or
for production of duty-free items for domestic sale qualify for the
investment allowance. Approved suppliers, who manufacture goods
for an exporter, are also entitled to the same import duty relief. 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.
Firms operating in Export Processing Zones (EPZ) are provided:
• A 10-year corporate tax holiday and a flat 25 percent tax for the
next 10 years (the statutory corporate tax rate is 30 percent, but as
noted above, the overall tax rate is 49.6 percent);
• A 10-year withholding tax holiday on dividend remittance
• Duty and VAT exemption on all inputs except motor vehicles
• 100 percent investment deduction on capital expenditures for
20 years
• Stamp duty exemption; exemption from various other laws
• Exception from pre-shipment inspection
• Availability of on-site customs inspection
• Work permits for senior expatriate staff\
The Export Promotion Programmes Office, set up in 1992 under
the Ministry of Finance, administers the duty remission facility.
Foreign investors are attracted to the EPZs by their single licensing
regime, tax incentives, and support services provided, such as power
and water.
The number of enterprises operating in Kenya’s EPZs increased
from 66 in 2003 to 74 in 2004. They declined to 68 in 2005 following
the end of the Multi-fibre Textile Agreement in January 2005 before
increasing to 71 in 2006. In 2007, 72 firms were in operation, which
increased to 74 in 2008. In 2009, 83 firms were operating in the EPZs,
although the number of Kenyans employed actually declined slightly.
The number of firms dropped to 77 in 2010, while employment
increased marginally to 30,681 and the value of EPZ exports rose
22.5 percent to US$28.6 million. The number of remained at 77
through 2011, but ten new firms are expected to begin operations
over the course of 2012.
• The East African Community (EAC)
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13
The preferential access and duty free status accorded to Kenyan
apparel exports under the African Growth and Opportunity Act
(AGOA) fuelled an increase in the number of textile factories in
Kenya, which along with handicrafts, constitute the bulk of Kenya’s
exports under AGOA and 35 percent of EPZ output as of 2010. In
2005, 25 apparel firms in the EPZ’s were manufacturing apparel for
export under AGOA. That number declined to 18 in 2008 following
the January-February 2008 post-election violence. 2009 saw the
addition of one new apparel firm, although the number of Kenyans
employed by these firms continued to drop.
In order to better take advantage of AGOA, in 2011 Kenya’s Ministry
of Trade launched an AGOA Unit charged with:
• Developing and implementing a national AGOA strategy
• Conducting research and market analysis to inform AGOA policies
and activities
• Identifying products for potential export under AGOA
• Advising the Minister of Trade on all AGOA-related matters
• Performing regional and county-level outreach to educate the
Kenyan public about AGOA
• Liaising with AGOA stakeholders across the Kenyan government
and within the private sector and civil society
Joseph Kosure, head of the AGOA Unit, said in late 2011 that
establishment of the Unit is an indication that the government is
taking AGOA very seriously. The majority of Kenya’s manufactured
products are also entitled to preferential duty treatment in
Canada and the European Union. Kenya’s statute does not permit
manufacturing companies, whether domestic or foreign-owned, to
distribute their own products.
The government also operates a manufacturing under bond
(MUB) programme that is open to both local and foreign investors.
The programme aims to encourage manufacturing for export by
exempting participating enterprises from import duties and VAT on
imported plant, machinery, equipment, raw materials, and other
imported inputs. The programme also provides a 100 percent
investment allowance on plant, machinery, equipment, and buildings.
Participating firms are expected to export their products: if goods
produced under the MUB system are not exported, they are subject
to a surcharge of 2.5 percent and imported inputs used in their
production are subject to all other tariffs and import charges. The
Kenya Revenue Authority (KRA) administers the programme.
Under the Firearms Act and the Explosives Act, manufacturing and
dealing in firearms (including ammunition) and explosives requires
special licenses from Chief Firearms Licensing Officer and the
Commissioner of Mines and Geology, respectively. Technology
licenses are subject to scrutiny by the Kenya Industrial Property
Institute (KIPI) to ensure that they are in line with the Industrial
Property Act. Licenses are valid for five years and are renewable.
Manufacturing and dealing in narcotic drugs and psychotropic
substances is prohibited under the Narcotics Drugs and Psychotropic
Substances Act.
The government does not 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 law applies local content
rules but only for purposes of determining whether goods qualify for
preferential duty rates within the Common Market for Eastern and
Southern Africa (COMESA) and the EAC.
Although Kenya does not generally set minimums for Kenyan
ownership of private firms or require companies to reduce the
percentage of foreign ownership over time, a number of sectors
do face restrictions. According to the World Bank’s 2010 Investing
Across Borders Report, Kenya restricts foreign ownership in more
sectors than most other economies in sub-Saharan Africa. Foreign
brokerage companies and fund management firms must be locally
registered and have Kenyan ownership of at least 30 percent and
51 percent, respectively. Foreign ownership of equity in insurance
and telecommunications companies is restricted to 66.7 percent
and 80 percent, respectively, although the government allows
telecommunications companies a three-year grace period to
find local investors to achieve the local ownership requirements.
There is discussion of scrapping the local ownership policy in
telecommunications entirely. Foreign equity in companies engaged
in fishing activities is restricted to 49 percent of the voting shares
under the Fisheries Act. At least one area has seen increased
restrictions on foreign ownership: as noted above, a law passed
in June 2007 decreased the level of foreign ownership allowed for
companies seeking a listing on the NSE from 75 to 60 percent. This
change was not applied retroactively. Foreign investors are free
to obtain financing locally or offshore. As noted above, there is no
discrimination against foreign investors in access to governmentfinanced research, and the government’s export promotion programs
do not distinguish between local and foreign-owned goods.
5.6 Right to private ownership and establishment
Private enterprises can freely establish, acquire, and dispose of
interest in business enterprises. The Kenyan legal system is quite
flexible on exit options, which normally are determined by the
agreement that the investor has with other investors.
The Companies Act specifies how a foreign investor may exit from
an incorporated company. In practice, a company faces no obstacles
when divesting its assets in Kenya, if the legal requirements
and licenses have been satisfied. The Companies Act gives
the procedures for both voluntary and compulsory winding-up
processes. In late 2006, the U.S. multinational personal grooming
and hygiene company, Colgate Palmolive, closed its factory in Kenya.
ExxonMobil divested and sold its assets to the Libyan oil company,
Tamoil, in 2007. In 2008, Chevron divested and sold its assets to
Total. Reckitt Benckiser East Africa Limited, a multinational firm that
makes household cleaning, health, and personal care products, also
closed its Kenyan facility. Many U.S. companies remain in the market
and continue to do well. The typical reason given for a firm closing its
factories in Kenya is restructuring to cut costs and improve efficiency
in its African markets. The high cost of production as a result of
poor infrastructure, inadequate protection of intellectual property
rights, and unreliable and expensive electrical power continues to
frustrate Kenya’s manufacturing sector, even as economic growth
forges ahead.
As noted above, the Land Control Act restricts the ability of
foreigners to own or lease land classified as agricultural, and requires
a presidential waiver. Furthermore, under the new constitution
only Kenyan citizens or incorporated companies whose majority
shareholders are Kenyan citizens may own land; foreigners are
restricted to 99 year leases. Since January 2003, the government
has been nullifying illegally acquired land allocations and the question
of title to land acquired irregularly under the Moi government is the
subject of continued controversy. The issue is particularly important
because land secures 80 percent of bank loans in Kenya.
5.7 Protection of property rights
Secured interests in property are recognised and enforced. In theory,
the legal system protects and facilitates acquisition and disposition
of all property rights, including land, buildings, and mortgages.
In practice, obtaining a title to land is a cumbersome and often
non-transparent process, which is a serious impediment to new
investment, frequently complicated by improper allocation of access
and easements to third parties. There is also a general unwillingness
of the courts to permit mortgage lenders to sell land to collect debts.
Kenya has a comprehensive legal framework to ensure intellectual
property rights (IPR) protection, which includes the Anti-Counterfeit
Act, the Industrial Property Act, the Trade Marks Act, the Copyright
Act, the Seeds and Plant Varieties Act, and the Universal Copyright
Convention. However, enforcement of IPR continues to lag far
behind legislation, and the widespread sale of counterfeit goods
continues to do significant damage to foreign businesses operating
in Kenya. Furthermore, Kenyan authorities are limited in their ability
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
14
to inspect and seize transit shipments of counterfeit products, which
the authorities believe often find their way back into Kenya.
The 2008 Anti-Counterfeit Act created the Anti-Counterfeit Agency
(ACA), which officially opened its doors in 2010, as the lead agency
for IPR enforcement. Insufficient funding and the conspicuous
absence of implementing regulations to accompany the act continue
to significantly constrain the Agency’s effectiveness. Independent
investigations have proven nearly impossible for the ACA given its
current budget and the prohibitively high cost of environmentally
sound destruction of seized products, meaning counterfeit goods
remain in warehouses where they can be stolen and returned to the
market. The Agency is ostensibly responsible for coordinating the
efforts of Kenya’s other IPR enforcement bodies, including the Kenya
Bureau of Standards (KEBS), the Kenya Copyright Board (KCB),
responsible for copyrights), the Kenya Industrial Property Institute
(KIPI, responsible for patents, trademarks, and trade secrets), the
Pharmacy and Poisons Board (PPB, responsible for medicines),
but this has proved difficult to achieve. Despite the challenges, the
Agency has made a number of high-profile seizures of counterfeit
goods shipments including BiC pens, HP toner cartridges, Eveready
batteries, Nokia cellular phones, Adidas shoes, and a range of other
products. Furthermore, penalties under the Anti-Counterfeiting
Act are much more punitive than under previous IPR laws.
However, Kenya’s law enforcement agencies have failed to
implement the improved laws and regulations and convictions
are virtually non-existent.
In another effort to combat the manufacture and sale of counterfeits,
the Ministry of Industrialization and KEBS implemented a system of
standardisation marks required for locally manufactured products as
well as certain imported goods, discussed below. KEBS also opened
the National Quality Institute in 2008 to train business leaders and
consumers. Initially KEBS planned that the Institute would offer
IPR courses to magistrates who, along with prosecutors, are often
unfamiliar with intellectual property law, but the programme has not
been established to date.
Kenya’s Copyright Act protects literary, musical, artistic, and audiovisual works; sound recordings and broadcasts; and computer
programmes. The act is enforced by KCB, a parastatal housed under
the Attorney General’s Office. Criminal penalties associated with
piracy in Kenya include a fine of up to Ksh 800,000 (about US$9,400),
a jail term of up to 10 years, and confiscation of pirated material.
Nonetheless, enforcement is spotty and the understanding of the
importance of intellectual property remains low. The sale of pirated
audio and videocassettes is rampant, although there is little domestic
production. According to the Business Software Association (BSA),
an estimated USD 3.5 million is lost every year because of the use of
illegal software, mainly by businesses.
In collaboration with Microsoft and HP, KCB has in the past several
years carried out a number of major busts. In November 2007, cyber
café operators within Nairobi grappled between legalizing their
Microsoft software operating system, shifting to Open Source Code,
or closing shop all together following a joint KCB-police crackdown on
illegal software. Most cyber cafes in Kenya use Microsoft software,
although without valid licenses. The KCB raided the Jet Cyber and
Dagit Cyber Cafe companies in Nairobi on the suspicion of copyright
infringement. The raids on the cyber cafes came after an October
30, 2007 deadline set by the KCB had expired. During the raid, 50
computers containing unlicensed versions of Microsoft Office 2003
were confiscated. Also impounded were counterfeit Windows 2000
and Microsoft Office 2003 installer CDs. The computers themselves
were valued at Ksh 1.5 million (about US$16,900), while the cost
of Microsoft software was estimated at Ksh1.4 million (about
US$15,700). On 18 September 18 Nairobi police and agents from
Kenya’s Bureau of Weights and Measures raided two warehouses
suspected of holding counterfeit Hewlett-Packard products and
arrested the warehouse owner. Local authorities working with
Hewlett Packard (HP) have seized more than 9000 counterfeits in
Kenya since November 2008.
Kenya is a member of the World Intellectual Property Organisation
(WIPO) and of the Paris Union (International Convention for the
Protection of Industrial Property. The African Intellectual Property
Organisation (AIPO) embodies a future prospect for patent,
trademark, and copyright protection, although its enforcement and
cooperation procedures are still untested. Kenya is also a member
of the African Regional Intellectual Property Organisation (ARIPO).
Kenya is a signatory to the Madrid Agreement Concerning the
International Registration of Marks; however, the other original EAC
members (Uganda and Tanzania) are not.
The Kenya Industrial Property Institute (KIPI), housed within the
Ministry of Trade and Industry, is responsible for registering and
enforcing patents, trademarks, and trade secrets. Investors are
entitled to national treatment and priority right recognition for their
patent and trademark filing dates. In addition to creating KIPI, the
Industrial Property Act of 2002 brought Kenya into compliance with
WTO obligations, although implementation of the act remains
weak. The Trade Marks Act provides protection for registered
trade and service marks; protection under the act is valid for
10 years and is renewable.
In July 2006, the Ministry of Trade and Industry conceded that over
Ksh 36 billion (about US$405 million) is lost annually due to the
sale of counterfeit goods and a further Ksh 6 billion (about US$67
million) is lost in tax revenues to the government. A subsequent
KAM study, released in late October 2008, concluded that piracy
and counterfeiting of business software, music, pharmaceuticals,
and consumer goods costs Kenyan firms about US$715 million
annually in lost sales. Consequently, KAM estimated that the Kenyan
government was losing over US$270 million in potential tax revenues
every year. The most current estimates as of late 2011, summarised
in a report by the International Peace Institute called “Termites at
Work: Transnational Organized Crime and State Erosion in Kenya,”
put Kenya’s counterfeit goods trade at US$913.8 million, resulting
in lost tax revenue between US$84 million and US$490 million. The
technology firm HP estimates losses of US$7.1 million per year due
to counterfeits and sixty percent of HP-branded printer cartridge
refills sold in East Africa are thought to be fakes imported from China.
Battery manufacturer Eveready significantly reduced its Kenyan
production due to pressure from counterfeiters.
5.8 Transparency of regulatory system
The promulgation of Kenya’s new constitution in August 2010 put in
place a framework to establish regulatory institutions that support
investment growth and productivity. In order to operationalise the
new laws, however, various pieces of legislation have to be put in
place within the next five years, and the content of this legislation will
determine whether the new constitution’s potential is realised.
Investors in Kenya are required to comply with environmental
standards. The National Environment Management Authority
(NEMA) oversees these matters and is the principal environmental
regulatory agency. Developers of certain types of projects are
required to carry out Environmental Impact Assessments (EIA) prior
to project implementation. Companies are required to submit up-todate assessment reports to NEMA for verification by the agency‘s
environmental auditors before they can receive an EIA license.
The government screens each private sector project to determine
its viability and implications for the development aspirations of the
country; for example, a rural agro-based enterprise, with many
forward and backward linkages, is likely to receive licensing quickly.
In theory, all investors receive equal treatment in license screening
processes. However, new foreign investment in Kenya historically
has been constrained by a time-consuming, highly discretionary, and
sometimes corrupt approval and licensing system.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
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15
In response to appeals from the business community in 2007,
the government launched a substantial effort to streamline the
registration process by reducing the number of required business
licenses and simplifying others. The Licensing Act of 2007 initially
eliminated or simplified 694 licenses and in 2008, the government
reduced the number of licenses to set up a business from 300
to 16. The review of licensing requirements is ongoing, but no
further licenses have been eliminated to date. In 2009, the Kenyan
government launched an e-Registry, which sped up the registration
of new companies, cut regulation costs, and enhanced transparency
by allowing easy access to information on registered companies.
Nonetheless, the 2012 World Bank’s Doing Business Report placed
Kenya at just 108 of 183.
Regulatory issues hurting Kenya’s ranking include:
• Difficulties in starting a business (ranked 132),
• Registering property (133)
• Paying taxes (166)
• Trading across borders (141)
• Enforcing contracts (127)
Kenya scores very well in getting credit (ranked 8) and dealing
with construction permits (33). The World Bank and IFC contend
that the government must significantly reduce the cost of doing
business, deal with delays at the Port of Mombasa, and eliminate the
requirement of even more licenses to maintain Kenya’s current level
of economic growth.
The Restrictive Trade Practices, Monopolies, and Price Control Act of
1989 (with subsequent amendments) governs Kenya’s competition
framework. The Act is relatively modern and has worked well in
avoiding anti-competitive practices since the abolition of price
controls in 1994. The Monopolies and Prices Commission, however,
is housed under the Ministry of Finance instead of an independent
regulatory body. Although the Commission is independent in its
investigation of competition-related issues, it must rely on ministerial
powers to enforce orders on companies found to have breached
competition rules. The Commission lacks the capacity to implement
the legislation fully. Practices that seek to block entry into production
and that discriminate against buyers (for production, resale, or final
consumption) are illegal. Mergers and acquisitions must receive
the green light from the Commission and the Minister of Finance
in all cases, regardless of the sector, size, or market share of the
companies involved. This puts an unnecessary burden on investors
and the Commission. However, the Commission has no jurisdiction
over the electricity, telecommunication, or insurance sectors. Under
the law, manufacturers may not distribute their own products, and
they are required to supply information to the government about their
distributors.
In September 2011, in response to rapidly rising food and fuel prices,
President Kibaki signed into law a new Price Control (Essential
Goods) Act, which granted the Finance Minister the authority
to set price ceilings for any goods designated as essential. The
Finance Minister has not exercised this authority, however, and
many observers believe the act was simply an attempt to appear
responsive to public concerns, rather than a meaningful shift in policy.
Incoming foreign investment through acquisitions, mergers,
or takeovers is also governed by Kenya’s new Competition Act,
which prohibits restrictive and predatory practices that prevent
the establishment of competitive markets and seeks to reduce
the concentration of economic power by controlling monopolies,
mergers, and takeovers of enterprises. In addition, depending on
the industry concerned, mergers and takeovers are subject to the
Companies Act, the Insurance Act (in case of insurance firms), or the
Banking Act (in case of financial institutions).
Kenya has been ranked among the most accessible and connected
markets in Africa. The country stands among the continent’s top
five behind South Africa, Tunisia, Guinea, Sudan, and Mauritania
with regard to reliability of the supply chain, according to a 2007
World Bank survey on trade logistics. Kenya ranked 76 out of the
150 countries tested for efficiency in key supply chain areas such as
customs procedures, cost of logistics, and infrastructure quality.
Through the Port of Mombasa, Kenya is a major hub for international
and regional trade for neighbouring land- locked countries such as
Uganda and the Great Lakes region. The survey, however, found that
the cost of importing or exporting containers in Kenya and other large
economies in Africa remains high compared to the global average.
According to the World Bank’s Doing Business 2011 report, it takes
an average of 24 days and costs US$2,190 to complete import
procedures for a standardised container of cargo. It takes 26 days
and costs US$2,055 to complete export procedures for a similar
container. In addition to insufficient capacity, corruption is thought to
be a major contributor to delays at the Port of Mombasa: in order to
free up space inside the port, goods are moved to privately-owned
container freight stations (CFS) for customs clearing and onward
haulage. These CFSs are suspected of serving as a primary conduit
for corruption and facilitating illicit trade. Moreover, they have little
incentive to clear cargo efficiently, given that storage fees represent a
large share of their revenue.
5.9 Efficient capital markets and portfolio investment
Kenya has a small capital market overseen by the governmentcontrolled Capital Market Authority (CMA). The market consists of
the Nairobi Stock Exchange (NSE), 21 investment advisory firms, 20
investment banks, 6 stockbrokers, 18 fund managers, 15 authorised
depositories, 13 collective investment schemes, 7 employee share
ownership plans, one credit rating agency, one venture capital fund,
and one central depository. The CMA regulates and supervises all
these institutions and oversees the development of Kenya’s capital
market.
The CMA is working with other East African Community (EAC)
member states through the Capital Market Development Committee
(CMDC) and East African Securities Regulatory Authorities (EASRA)
on a two-year roadmap to integration of their respective capital
markets and has achieved cross-listing between Kenya and some
of its EAC partners. Beginning in 2005, the NSE started settling
all equity trades through an electronic Central Depository System
(CDS). The combined use of both CDS and an automated trading
system has moved the Kenyan capital market to globally acceptable
standards. Kenya has recently joined the International Organization
of Securities Commissions, whose members represent 90 percent
of the world’s capital markets, as a full (ordinary) member, which
solidifies its status as the primary capital marketplace in East Africa.
The NSE enjoyed a bull market from January 4, 2005 when its
blue chip share index was 2980.48 to January 10, 2007, when it
reached an all-time high of 6085.50. Blue chips remained well
above 5000 throughout 2007 and eventually the NSE attained a
market capitalisation of US$16.3 billion. However, trading and prices
nosedived in the wake of the January-February 2008 post-election
crisis, and continued to do so as the world economy entered a
recession in late summer 2008. By the end of 2008, the NSE had
a market capitalisation of approximately US$11.4 billion (roughly
on par with the end of 2007) but its blue chips had dived to 3521
(a 35 percent drop from 2007). At the end of 2009, NSE market
capitalisation stood at US$11.1 billion and the NSE blue chips had
dropped almost 8 percent from 2008 to stand at 3247. Wrapping up
2010, NSE market capitalisation boomed to sit at US$14.6 billion and
the NSE blue chips had increased to 4433. However, 2011 saw these
gains reversed as a weak and volatile shilling, high commodity prices,
and the ongoing global credit crisis took their toll, leading the market
to close the year nearly one-third below its 2010 level: the NSE’s All
Share Index (NSEASI) plunged 30.45 per cent to 68.08 points in 2011,
down from the 97.82 at the end of 2010.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
16
The NSE consists of three segments: the Main Investments
Market (MIMS), the Alternative Investments Market (AIMS), and
the Fixed Income Securities Market (FISMS). The MIMS targets
mature companies with strong dividend streams. The AIMS is
more favourable to small and medium-sized companies, and allows
firms to access lower-interest rate, longer-term sources of capital
through the capital markets. The FISMS allows businesses, financial
institutions, and governmental and supranational authorities to raise
capital through the issuance of debt securities. Fees charged by
the CMA on NSE participants are a significant entry barrier for new
companies. Small business entry into the stock market continues to
lag, though the CMA plans to launch a new securities exchange for
SMEs in 2012, which will have less onerous regulatory requirements.
Though still a nascent industry, foreign and domestic private equity
funds are increasingly active in Kenya, providing growth capital to
entrepreneurs and helping turn around struggling businesses.
While the equity market has participated in active trading for
some time, the corporate bonds market has been active only
since 1997. The equity market is far larger and more mature than
the bond market. In general, the treasury bonds issued by the
government are more active than corporate bonds, although
that is beginning to change due to large corporate bond issues.
Trading in commercial paper and corporate bonds issued by private
companies has diversified activity at the NSE. The government
regulates such trading through a set of guidelines developed in
collaboration with private sector. They allow private companies to
raise funds from the public without NSE quotation. Establishing
the CDS encouraged the development of a secondary market for
the government’s one-year Treasury security. The CDS opened a
shop window for small investors offering products in multiples of
Ksh 50,000 (about US$560) up to Ksh 1 million (about US$11,200).
Expenses related to credit rating services by listed companies and
other issuers of corporate debt securities are tax deductible. Foreign
investments through mergers and acquisitions are not restricted via
cross-shareholding and stable shareholder arrangements. Hostile
takeover attempts are uncommon. Private firms are free to adopt
articles of incorporation, which limit or prohibit foreign investment,
participation, or control.
Foreign investors are able to obtain credit on the local market;
however, the number of credit instruments is relatively small. Legal,
regulatory, and accounting systems are generally transparent and
consistent with international norms. The corporate tax for newly
listed companies is 25 percent for a period of five years from the date
of listing. The withholding tax on dividends is 7.5 percent for foreign
investors and 5 percent for local investors. Foreign investors can
acquire shares in a listed company subject to a minimum reserve
ratio of 40 percent of the share capital of the listed company for
domestic investors, with the remaining 60 percent considered as a
free float available to local, foreign, and regional investors without
restrictions on the level of holding. To encourage the transfer of
technology and skills, the government allows foreign investors to
acquire up to 49 percent of local stockbrokerage firms and up to 70
percent of local fund management companies. Dividends distributed
to residents and non-residents are subject to a final withholding tax
at the rate of 5 percent. Dividends received by financial institutions
as trading income are not subject to tax. In 2007, the Kenyan
government granted two fiscal incentives to encourage growth of
capital markets: exemption from income tax on interest income
accruing from cash flows of securitized assets; and exemption
from income tax on interest income accruing from all listed bonds
with at least a maturity period of three years. The fiscal incentive
targets providers of infrastructure services such as roads, water,
power, telecommunication, schools, and hospitals. Company capital
expenditures on legal costs and other incidental expenses associated
with listing by introduction at the NSE are tax deductible.
As of the end of 2010, Kenya’s banking sector consisted of
43 commercial banks, one mortgage finance company, two
microfinance institution, one credit reference bureau, and 126 forex
bureaus, primarily located in Nairobi and Mombasa. At the end of
October 2010, total banking assets increased to almost US$21 billion.
Loans and advances accounted for 51 percent of total assets with 26
percent in government securities and 7 percent in placements with
the Central Bank of Kenya (CBK). The ratios of total and core capital
to total risk-weighted assets improved from 19.9 percent and 17.5
percent to 20.7 percent and 18.5 percent, respectively, mainly due to
a more than proportionate increase in core and total capital. The asset
quality of Kenyan banks improved from 3 percent of assets classified
as non-performing in June 2010 to 2.4 percent in October 2010. A
cumbersome court system complicates the realisation of collateral,
which makes it difficult for creditors to accept collateral.
The financial sector, in particular the commercial banks, remains
relatively robust, aided by a stable macroeconomic environment
and stringent supervisory oversight. Despite the global economic
downturn, the banking sector expanded by 11 percent in 20092010, at least partially due to a continued housing boom in Nairobi.
Islamic banking, which started modestly, has continued to take
off as the primary Islamic-based banks expand their reach across
Kenya into areas with relatively smaller Muslim minorities. Islamic
banking solutions, introduced in December 2005, first took the form
of deposit products tailored in line with Shariah principles but have
grown to include insurance products.
Parliament amended the Banking Act of 2004 to delegate the power
to register and deregister commercial banks and financial institutions
from the Finance Minister to the Central Bank of Kenya (CBK).
The separate Central Bank of Kenya Act enhanced the security of
tenure for the Governor, increased the Bank’s operational autonomy,
strengthened the CBK’s bank supervision functions, and codified
statutory restrictions on government borrowing from the Bank.
The CBK sets requirements for all banking institutions and building
societies to disclose their un-audited financial results on a quarterly
basis by publishing them in the print media.
Parliament also amended the Central Bank of Kenya Act in December
2004 to establish an independent Monetary Policy Advisory
Committee (MPAC) whose mandate is to advise the Bank with
respect to monetary policy. The amended act provides for the CBK to
publish the lowest interest rate it charges on loans to banks, referred
to as the central bank rate. Another amendment introduced an “In
Duplum Rule,” which limits fees and fines on non-performing loans
to the amount of the outstanding principal. However, the rule is yet
to be implemented and other means of limiting interest charges
are under discussion. A proposal by the Finance Minister in June
2007 to shore up commercial banks by increasing the minimum
capital requirement from Ksh 250 million (about US$2.8 million) to
Ksh 1 billion (about US$11.2 million) over a period of three years was
rejected by Parliament, and the requirement remains unchanged.
The last five years have seen improvements in the financial sector’s
legal and regulatory framework, beginning with the enactment
of the Cooperative Societies (Amendment) Act of 2004, which
governs the formation and management of cooperatives in Kenya.
To regulate Kenya’s burgeoning insurance industry, Parliament
passed the Insurance Amendment Act 2006, which resulted in the
establishment of the Insurance Regulatory Authority. To strengthen
the Sacco industry, Parliament passed the 2007 Sacco Act. As a
result, access to financial services has improved, especially for
those previously unable to bank. Mobile money has grown in size
and popularity and now provides savings and insurance services to
the large majority of Kenyans who do not have access to traditional
banking services.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
17
Only 19 percent of Kenyans have formal access to financial services
through commercial banks and the Post Bank. With the advent of
mobile money and its recent association with the formal banking
system, however, the number of Kenyans with access to electronic
financial services has grown rapidly. Kenya has now become a leader
in financial inclusion and its example is being replicated in countries
around the world. Since most Kenyan adults own a cell phone, they
can utilise mobile money services to receive their salary, do their
shopping, pay their school fees, and, now, access savings, insurance,
and other financial services.
Kenya has four mobile money services:
• M-Pesa, the dominant service through Safaricom
• Zap, run by Bharti Airtel
• Orange Money, run by Orange
• YuCash, run by Yu Mobile
The Central Bank of Kenya reported that as of June 2011 the value
of mobile money transactions was up 54 percent year on year, and
Safaricom’s M-Pesa alone was processing nearly Ksh 2 billion (about
US$22.5 million) per day just in individual-to-individual transactions.
According to the IMF’s October 2011 Regional Economic Outlook for
Sub-Saharan Africa, M-Pesa serves over 70 percent of Kenya’s adult
population and processes more transactions within Kenya each year
than Western Union does globally.
Microfinance institutions (MFIs) also provide financial services to
many Kenyans who remain unbanked. The Microfinance Act of
2006 became operational in 2008. The act provides for the licensing,
regulation, and supervision of the microfinance sector, necessitated
by a series of mismanagement and embezzling scandals at microfinance institutions. The act also gives the CBK powers to oversee
microfinance institutions.
In 2003, the inter-ministerial National Taskforce on Anti-Money
Laundering and Combating the Financing of Terrorism was formed
to develop a comprehensive AML/CTF legal framework. Parliament
passed the Kenyan Proceeds of Crime and Anti-Money Laundering
Bill in 2009, and it came into force in June 2010. While the law
provides a solid legal framework for enforcement, regulations to
guide the act’s implementation have yet to be passed. Key structures
have not been established, and to date there have been no charges
filed or convictions under the act, despite the fact that the laundering
of funds derived from corruption, smuggling, and other financial
crimes is a substantial problem. In August 2012, Kenya appointed
the Anti-Money Laundering Advisory Board, the oversight body
that will guide the creation of the Financial Reporting Centre (FRC),
Kenya’s Financial Intelligence Unit equivalent. Kenya is part of the
Eastern and Southern Africa Anti-Money Laundering Group and is
collaborating with the intergovernmental Financial Action Task Force
(FATF). In its October 28 public statement, the FATF noted Kenya’s
weaknesses and identified the country as one of the ten jurisdictions
with “strategic AML/CFT deficiencies that have not made sufficient
progress in addressing the deficiencies.” There is no law to
criminalize terrorist financing and the draft legislation has made little
progress in parliament.
Kenya’s financial sector has a wide range of products, institutions,
and markets, but there are gaps in development finance. Commercial
banks, which traditionally refrained from offering long-term
capital, are beginning to provide long-term capital, at least to large
companies. Kenya’s corporate bond market is still in an early stage
of development. While having attracted a handful of firms, it is faced
with the problem of low liquidity; thus, to boost long-term investment
growth, deliberate efforts must be made to adequately develop
vehicles for mobilizing long-term capital in Kenya. Development
Finance Institutions (DFIs) are viable options given the prevailing
market condition. However, in Kenya, DFIs have faced several
constraints that have made them unable to fill in the developmentfinancing gap.
5.10Competition from state-owned enterprises
Kenya has a long history of government ownership in industry, dating
back to independence. Public ownership of enterprise expanded
from independence in 1963 through the 1980’s. However, two
commissions, one in 1979 and one in 1982, established the need for
Kenya to begin divesting itself of its publicly owned enterprises.
The commissions identified 240 publicly owned firms, listing 207
as non-strategic and the remaining 33 as strategic. During the first
round of privatisation, from 1992 to 2002, Kenya fully or partially
privatised most of the non-strategic publicly owned firms. From
2003 to 2007, the government of Kenya engaged in a second
round, which fully or partially privatised a number of large strategic
firms, including KenGen (the primary electricity generator), Kenya
Railways, Mumias Sugar, Kenya Reinsurance, Telkom Kenya, and
Safaricom. These transactions netted over a US$1 billion towards
supporting additional development and infrastructure. The third
round of privatisation is scheduled to last through 2013 and includes
the Development, Consolidated and National Banks of Kenya, five
sugar companies, the Kenya Wine Agencies, nine hotels, portions
of the Kenya Ports Authority, the Agrochemical Food Company, the
remainder of KenGen, East African Portland Cement, the Kenyan
Meat Commission, the New Kenya Cooperative Creameries, the
Numerical Machining Complex, and several power stations.
In general, competitive equality is the standard applied to private
enterprises in competition with public enterprises. However, certain
parastatals have enjoyed preferential access to markets. Examples
include Kenya Reinsurance (Kenya-Re), with a guaranteed market
share; Kenya Seed Company, with fewer marketing barriers than
its foreign competitors; and the Kenya National Oil Corporation
(KNOC), which benefits from retail market outlets developed with
government funds. Some state corporations have also benefited
from easier access to government credit at favourable interest rates.
The Kenyan government seems determined to remove itself from
competition with private enterprise, except in certain strategic areas.
The government substantially divested the telecom sector from 2002
to 2007, which now benefits from competition. The sugar industry
has been partially privatised and will be fully privatised with the next
round of divestitures.
The energy industry remains the most publicly owned sector
in Kenya. The Kenyan government wholly owns the National Oil
Corporation, the Kenya Pipeline Corporation, and the oil refinery
in Mombasa. Therefore, competition is either restricted or limited.
KenGen, Kenya Power and Lighting, and the newly formed
Geothermal Development Corporation dominate the electricity
generation portion of the energy sector, which is another restricted
portion of the Kenyan economy. The primary port in Mombasa is
mostly government owned but privatisation efforts are underway.
Beyond these sectors, competition is expected and encouraged
among private enterprise in Kenya.
5.11Corporate Social Responsibility (CSR)
Kenya has only recently begun to apply the concept of corporate
social responsibility (CSR). The United Nations has instigated
discussions under the auspices of the UN Global Compact in Kenya
for the introduction of the UN Global Compact/UNDP “Growing
Sustainable Business for Poverty Reduction Initiative.” In Kenya,
surveys suggest that the highest proportion of corporate donations
go to health and medical services. In addition, corporations direct
funds towards education and training, HIV/AIDS, agriculture and
food security, and underprivileged children. The rationale for these
philanthropic activities is closely tied to a sense that companies
should give something back to the nation and to the communities
in which they operate. In Kenya, many companies in the exportprocessing sector are seeking to mainstream HIV/AIDS programmes
into their activities as well as other workplace issues.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
18
Local campaigns have focused attention on labour rights and
abuses in Kenyan export sectors such as textiles, cut flowers, and
horticulture. Some companies are taking a positive lead on labour
standards, for example Cirio Del Monte is now accredited to the
SA8000 standard. The bulk of the business community is challenged
to create quality jobs by paying living wages and observing
fundamental labour rights. Given that employment creation is one
of the most pressing concerns in Kenya, workplace issues,
particularly trade-offs between the creation of jobs and reasonable
pay and working conditions, are likely to remain at the heart of the
CSR agenda.
In Kenya, there are relatively few incentives for businesses to
adopt responsible or pro-development practices. Few consumers
are sufficiently informed or able to pay a premium for responsibly
produced goods. While some companies producing for export
markets are subject to labour or environmental requirements
imposed by overseas buyers, those producers selling into the
domestic market are unlikely to be subject to such pressures. Even
pressures within export markets are patchy, depending on the
sector, product, and buyer. A similar gap is apparent between large
companies operating in the formal sector, and smaller companies
or micro-enterprises, which operate below the radar. Given an
economic context in which financial margins are generally very thin,
companies are unlikely to adopt higher standards voluntarily unless
there is a clear business incentive to do so.
5.12Political Violence
The disputed 27 December 2007 presidential election unleashed
Kenya’s worst episode of ethnically-charged political violence. Before
the antagonists reached a power-sharing agreement in late February
2008, the violence took the lives of 1,200 Kenyans and displaced
300 thousand, including thousands of farmers. Property damage
was in the millions of dollars. Agriculture alone suffered $300 million
in damages. Tourism took a major hit: arrivals and earnings fell 90
percent in the first quarter of 2008, and were down 30 percent
throughout the year. At least 20,000 Kenyans employed in the
tourism sector lost their jobs.
The violence dissuaded both tourists and potential investors from
coming to Kenya. Buyers stopped considering Kenya, resulting in
several factories closing. An official government investigation, the
Waki Commission, named several prominent Kenyan politicians
as having instigated much of the violence. On 15 December 2010
the International Criminal Court (ICC) released the names of six
individuals, five high-ranking government officials and one journalist,
identified as suspects in the incidents of political violence. A
movement to withdraw from the ICC and establish a local tribunal
failed, and the ICC is expected to announce whether the six suspects
will proceed to trial in early 2012.
It is widely hoped that the implementation of Kenya’s new
constitution, approved by a two-thirds majority in a violence-free
referendum in 2010, will prevent a re-emergence of violence during
elections scheduled for late 2012. However, the constitution calls for
a restructuring of many key national institutions and it will
take years before it is fully realised. Among other issues,
implementation of police, land tenure, and judicial reforms agreed
to in the power sharing agreement that ended the post-election
violence has been slow.
Terrorism also remains a serious problem. Still, Kenya remains
relatively stable despite its location in a neighbourhood where
there are ongoing conflicts and insurgencies. Kenya’s military
incursion targeting al-Shabaab militants in neighbouring Somalia
has heightened security concerns and led to increased security
measures at businesses and public institutions around the country.
In addition to the kidnappings, several other incidents occurred in
2010 and 2011, including a suicide bombing of a bus in Nairobi in
late December 2011, two grenade attacks on a Nairobi night club
and bus stop in October 2011, and a series of explosions and other
attacks in refugee camps and towns near the Somalia border. To
date, these attacks have not appeared to target commercial projects
or installations. As noted above, security expenditures represent a
substantial operating expense for businesses in Kenya.
Kenya has good relationships with all of its immediate neighbours.
It remains a leader and active participant in the EAC, which
includes both commercial and political initiatives, as well as the
Intergovernmental Authority on Development (IGAD), an eightcountry intergovernmental organisation that coordinates efforts to
mitigate drought and other regional challenges in East Africa. Kenya
is also an active member of the Common Market for Eastern and
Southern Africa (COMESA). The government has strong ties with the
administrations in neighbouring countries, including with Somalia’s
Transitional Federal Government, despite the ongoing security
issues caused by unstable, porous, and conflicted borders and the
presence of violent extremist groups like al-Shabaab. Kenya and its
neighbours 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 Brigade (EASBRIG).
5.13Corruption
The current coalition government inherited economic and political
corruption on a grand scale.
In 2003, the Kibaki government enacted the Anti-Corruption and
Economic Crimes Act and the Public Officers Ethics Act, setting rules
for transparency and accountability, and defining graft and abuse of
office. The Public Officers Ethics Act requires certain public officials
to declare their wealth and that of their spouses within 90 days from
August 2, 2003. Subsequently, the government fired 23 judges for
corruption. Nevertheless, opposition leaders castigated the
Kibaki government for its lackluster pursuit of individuals
suspected of corruption.
In 2004, the government established the Kenya Anti-Corruption
Commission (KACC), moved forward with the implementation of
the Anti-Corruption and Economic Crimes Act, and launched full
implementation of the Code of Ethics Act for Public Servants in
2004. The Public Procurement and Disposal Act, which established
a commission to oversee all procurement matters, became law in
2005 but has proven ineffective in limiting abuse by public officials:
despite the law, large public procurement programs and military
procurement have been at the center of a number of corruption
scandals in recent years. Enacted in 2007, the Supplies Practitioners
Management Act is meant to complement the Public Procurement
and Disposal Act by regulating the training, certification, and conduct
of procurement officers and imposing penalties for violations.
The KACC launched several investigations in 2006-2007 against
senior government officials, including two government ministers;
however, none of the cases have been prosecuted successfully, in
large part due to bottlenecks in the Attorney General’s Office and
loopholes in the judicial system. Former Finance Minister Amos
Kimunya stepped aside in early July 2008 in connection with the nonpublicly tendered sale of a government-owned property, the Grand
Regency Hotel, to a Libyan group. An investigatory commission,
the Cockar Commission, reportedly exonerated Kimunya of any
wrongdoing. He was appointed as Minister of Trade in January 2009,
providing an example of the culture of impunity in Kenya. At the end
of 2010, he became Minister of Transportation.
In 2009, President Kibaki irregularly reappointed the director of
KACC, during whose tenure no minister-level official had ever been
prosecuted, despite a number of high profile corruption scandals
including Goldenberg, Anglo Leasing, Triton, and the maize scandal.
After a storm of protest from Parliament, the director of KACC lost
his re-appointment vote. This historic vote was the first time that
the Parliament overruled the President. In 2010, the KACC Board
selected PLO Lumumba as director of KACC. Lumumba took a
strong stance against corruption and re-opened some of the older
cases, including Anglo-Leasing. In December 2010, in Lumumba’s
first major corruption case, the KACC arrested and charged
Minister of Trade Henry Kosgey with abuse of office over the illegal
importation of automobiles. The case was dismissed on a technicality
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
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19
and the government has said it plans to appeal. As called for in the
constitution, the KACC was replaced in 2011 by the Ethics and AntiCorruption Commission (EACC), which is very similar to the KACC.
Hopes that the new body would be a more effective check on corrupt
behaviour than its predecessor have not been realized as yet; like
the KACC, the EACC has investigative power but lacks prosecutorial
authority. Furthermore, it is widely believed that Parliament was
uncomfortable with the pressure brought to bear by Lumumba and
sought to dismiss him by disbanding the KACC.
The 2011 Ibrahim Index of African Governance ranked Kenya 23 out
of 53 countries on quality of governance, a rise of three places from
2010. After dropping eight places on Transparency International’s
(TI) Corruption Index between 2009 and 2010, in 2011 Kenya held
constant at position 154 and saw its score increase marginally from
2.1 to 2.2. Kenya still ranks second from the bottom among the five
EAC countries, better only than Burundi.
5.14Bilateral investment agreements
According to UNCTAD, Kenya has signed bilateral investment
agreements with Burundi, China, Finland, France, Germany, Iran,
Italy, Libya, Netherlands, Switzerland, and the United Kingdom,
although only those with Germany, Italy, Netherlands, and
Switzerland have entered into force as of June 2011. Kenya and its
EAC partners signed a Trade and Investment Framework Agreement
with the United States in July 2008 as a bloc.
5.15OPIC and other investment insurance programmes
Kenya is eligible for Overseas Private Investment Corporation
(OPIC) programmes and is a member of the Multilateral Investment
Guarantee Agency (MIGA). In September 2011, OPIC approved up
to US$310 million in financing for the expansion of Nevada-based
Ormat’s geothermal energy facility in Kenya, which also receives
support from MIGA. This represents a substantial increase in scale
compared to previous OPIC activities in Kenya: in 2008 and 2009
OPIC supported five projects in Kenya totalling US$19.18 million,
including two large microfinance projects targeting women.
5.16Labour
Kenya’s population is estimated to be roughly 41 million. Of the
approximately 21 million working Kenyans aged 15-64, the Kenya
National Bureau of Statistics reports that 10 million are engaged in
pastoral and small-scale rural agriculture. Another 8.8 million are
engaged in the informal sector, leaving only 2.2 million Kenyans in the
formal sector.
A 2006 household survey found that 46 percent of the Kenyan
population was living on less than US$1/day; newer data is not
available, but the Kenyan government believes that the number
has decreased considerably due to rising per capita income and a
growing middle class, which at 10 percent of the population is now
among the largest in Africa. Per capita income, per the Atlas method,
is US$790. The country’s population growth rate of 2.6 percent per
annum coupled with high unemployment and informal employment
produces on-going demand for new jobs.
Kenya has an abundant supply of well-educated and skilled labour
in most sectors at internationally competitive rates. Though there
is an apparent modest decline in new infections, high HIV/AIDS
prevalence continues to pose a serious threat to human resource
development and an economic drain on families and the health care
sector. The Kenya AIDS Indicator Survey 2007 (released in July 2008)
indicates that 7.4 percent of Kenyans ages 15-64 are infected with
HIV, with considerable disparities in prevalence among provinces.
In October 2007, President Kibaki signed five labour reform laws
that were drafted with ILO assistance under the U.S. Department
of Labour‘s Strengthening Labour Relations in East Africa (SLAREA)
project to make Kenya‘s labour laws more consistent with ILO core
labour standards, AGOA compliant, and harmonious with Uganda’s
and Tanzania’s. The new laws are:
• The Employment Act, which defines the fundamental rights of
employees and regulates employment of children
• The Labour Relations Act on worker rights, the establishment of
unions, and employers associations
• The Labour Institutions Act concerning labour courts and the
Ministry of Labour and Human Resource Development
• The Occupational Safety and Health Act
• The Work Injury Benefits Act on compensation for work-related
injuries and diseases
The Kenyan government formally published the amended texts of the
new laws in 2008. Also in 2008, the Kenyan government created the
National Labour Board to steer stakeholders to meet and propose
necessary amendments to Parliament for smooth implementation
of the Acts. The Board will set structures and rules as required by the
Act.
Under the Labour Relations Act, a minimum of seven workers may
initially apply to register a union, but the nascent union must have a
minimum of 50 members to be registered. A union must also show
a signed membership request from 50 percent of the workers in a
workplace to force an employer to recognise the union. There are 42
registered unions representing over 500,000 workers, approximately
one quarter of the country’s formal sector work force. All but six,
including the 240,000 member Kenya National Union of Teachers
(KNUT), the University’s Academic Staff Union (UASU), and the
Union of Kenyan Civil Servants (UKCS), are affiliated with the Central
Organisation of Trade Unions (COTU), which has about 260,000
members. Union membership is voluntary and organized by craft
rather than industry.
Kenya’s constitution enshrines the right to fair remuneration,
reasonable working conditions, trade union activities, and the right to
strike in the Bill of Rights as a fundamental freedom. Consequently,
workers, especially in the public sector, now enjoy greater latitude
to express their grievances. While the law permits strikes, unions
must notify the government 21-28 days before calling a strike.
During this period, the Minister of Labour and Human Resource
Development may mediate the dispute, nominate an arbitrator, or
refer the matter to the new Employment Relations Court, which
replaced the Industrial Court. A strike is illegal while mediation, factfinding, arbitration, or other legal proceedings are in progress. The
Labour Institutions Act of 2007 expanded the former Industrial Court
and gave it the same powers as a High Court to enforce its rulings
with fines or prison sentences; the new Employment Relations
Court is largely the same as the Industrial Court but may also hear
individual employment complaints, which previously were handled
by the Ministry of Labour. The court has penalised employers for
discriminating against employees because of their union activities,
usually by requiring the payment of lost wages. Court-ordered
reinstatement is not a common remedy because of the difficulty
in implementation.
Kenya’s laws generally provide safeguards for worker rights and
mechanisms to address complaints of their violation, but the Ministry
of Labour and Human Resource Development lacks the resources to
enforce them effectively.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
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20
Kenya has relatively harmonious labour relations. The number of
strikes dropped significantly from 24 in 2007 to 8 in 2008, reflecting
a 66 percent decrease. In 2008, 4,718 workers were involved in
strikes, representing 135,185 person-hours, compared to 36,095
workers involved in strikes in 2007. The number rose to 14 strikes
in 2010, involving 8,310 employees and 273,944 person-hours. The
Industrial Court adjudicated 226 cases in 2008, out of which it gave
192 rulings, compared to 295 cases and 147 rulings in 2007. However,
the number of cases subsequently rose to 851 in 2009 and 1,484 in
2010. Late 2011 saw a notable uptick in labour unrest and at least ten
unions issued strike notices in the last six months of the year alone.
A number of different unions, from postal workers to physicians,
exercised their right to strike. However, in December, a call by the
Central Organisation of Trade Unions (COTU) for a general strike was
roundly ignored. COTU called for all workers, including public service
vehicle (matatu) operators, to stop working for 10 days to protest a
lack of government response to the country’s rising cost of living. By
the end of the first day it was clear that the matatus had determined
not to strike, unwilling to take a financial hit by stopping work over the
peak holiday season.
Labour law mandates the total hours worked in any two-week
period should not exceed 120 hours (144 hours for night workers).
Negotiations between unions and management establish wages
and conditions of employment. There are twelve separate minimum
wage scales, varying by location, age, and skill level. Regulation of
wages is part of the Labour Institutions Act, and the government
establishes basic minimum wages by occupation and location,
setting a minimum for monthly, daily, and hourly work in each
category.
In 2011, the Kenyan government revised the minimum wage
upwards by 12.5 percent. In many industries, workers are paid the
legal minimum wage and thus benefited from this increase; however,
the wage increase was outpaced by increases in the cost of living.
As of January 2012, the lowest legal urban minimum wage was
7,586 shillings (about US$89) per month, and the lowest agricultural
minimum wage for unskilled employees was 3,765 shillings (about
US$44) per month, excluding housing allowance.
The Productivity Centre of Kenya, a tripartite institution including
the Ministry of Labour, the Federation of Kenyan Employers, and
COTU, is tasked to set wage guidelines for various sectors based
on productivity, inflation, and cost of living indices, but the centre
lacks strong industry support and employers often do not follow its
recommendations.
Most minimum wage workers must rely on second jobs, subsistence
farming, other informal work, or the extended family for additional
support. Furthermore, a large portion of employees in Kenya rely
primarily on the informal sector for work and thus are not protected
by minimum wage laws. Workers covered by a collective bargaining
agreement generally receive a better wage and benefit package than
those not covered: Ksh 14621 per month on average (about US$160),
plus a housing and transport allowance, which may account for 20 to
40 percent of a Kenyan worker‘s compensation package.
Kenyan law establishes detailed environmental, health and safety
standards, but these tend not to be strictly enforced. The Directorate
of Occupational Health and Safety Services (DOHSS), a department
under the Ministry of Labour and Human Resource Development,
has the mandate to enforce the Occupational Safety and Health Act
and its subsidiary rules. DOHSS has the authority to inspect factories
and work sites, except in the EPZs, but operates with less than half
of the 168 inspectors needed to adequately cover the entire country.
DOHSS developed a programme to help factories establish Health
and Safety Committees and train them to conduct safety audits and
submit compliance reports to DOHSS. The Directorate also maintains
a register of approved and certified safety and health advisers whom
employers may enlist to conduct safety audits in the factories and
other places of work. The Directorate should carry out these audits
at least once a year and forward a copy of the audit report to the
DOHSS within 30 days. However, according to the government,
fewer than half of the largest factories had instituted Health and
Safety Committees.
Work permits are required for all foreign nationals who wish to work
in Kenya. An applicant for an entry permit must describe the type
work they will perform and will be limited to that specific activity.
Although there is no official time limit, a visitor’s pass or a visa is
usually valid for three months and the Immigration Department must
grant applicable extensions upon proper application. Applicants may
apply for work permits in any major city in Kenya, but all applications
go to Nairobi for processing.
Before hiring expatriate workers, businesses are required to
demonstrate by an exhaustive local recruitment campaign that
suitably qualified Kenyan citizens are unavailable. Foreign firms
must also sign an agreement with the government defining training
arrangements intended to phase out expatriates. The is currently
working to develop a skills inventory, which should lower the burden
on firms hiring expatriates by replacing the labour-market testing
procedure, at least for high-skill positions, with a pre-determined list
of skills with shortages in the Kenya. As of January 2012, however,
the Ministry had conducted a pilot study but had not commissioned a
full employment survey. Once implemented, this inventory will allow
approved employers to freely hire foreign workers with the listed
skills, subject only to verification of the credentials and character
of the individuals proposed for employment by the Immigration
Department. Despite this measure, high unemployment levels have
led the government to make it increasingly difficult for expatriates to
renew or obtain work permits, and Immigration has increased the
price of a work permit to up to Ksh200, 000 (about US$2,250).
5.17Foreign-trade zones/free ports
As of January 2012, Kenya’s 42 Export Processing Zones (EPZ)
were home to 77 companies, down from 83 in 2010, with ten more
expected to begin operations in 2012. About 70 percent of these
companies are engaged in manufacturing, 16 percent in services,
and 14 percent in other commercial activities. A government
parastatal, the Kenya Export Processing Zone Authority (EPZA),
regulates the zones. Of the 42 zones, the public sector develops and
manages two: one in Athi River, and one in Mombasa. The private
sector, in the form of licensed EPZ developers/operators, owns and
manages the rest. Of the 77 enterprises operating in EPZs, foreign
investors own 57 percent and Kenyans own 19 percent, with the
remainder being joint ventures. The largest privately-owned EPZ is
the Sameer Industrial Park located in Nairobi’s Industrial area, which
has been operational since 1990. The 339 hectare Athi River EPZ,
near Nairobi, is the largest publicly owned EPZ. A second publicly
owned EPZ is being developed in Mombasa, Kenya’s main seaport.
5.18Foreign Direct Investment (FDI) statistics
Through the 80’s and 90’s, the deterioration in economic
performance, together with rising problems of poor infrastructure,
corruption, high cost of borrowing, crime and insecurity, and lack
of investor confidence in reforms generated a long period of low
FDI inflow. However, net inflows increased more than fourteenfold between 2006 and 2007, from US$51 million (0.2% of GDP) in
2006 to a record US$729 million (2.7%) in 2007, according to the
World Bank’s World Development Indicators. FDI inflows dropped
off sharply in 2008, coming in at only US$96 million (0.3%), and
then increased to US$116 million (0.4%) in 2009 and US$186 million
(0.6%) in 2010. These figures compare poorly to neighbouring
Tanzania and Uganda, which have both posted higher net FDI inflows
in dollar terms than Kenya each year since 2005, with the exception
of 2007, despite their smaller economies.
In 2010, Tanzania reported US$433 million in net FDI inflows and
Uganda reported US$817 million. Of course, much of this can be
attributed to investment in the two countries’ natural resources.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
21
UNCTAD estimates Kenya’s 2010 FDI stock at approximately US$2.3
billion.
Poor data collection in Kenya leads to underestimating actual inflows
of FDI. There is no clear mandate by any agency to collect data
on FDI. The Central Bank of Kenya (CBK), the Kenya Investment
Authority (KIA), and the Kenya National Bureau of Statistics (KNBS) all
collect only partial information on either balance of payments inflows
or investment projects. The government does not publish data on
the value of foreign direct investment (position/stock or annual
investment capital flows) by country of origin or by industry sector
destination.
Neither is data available on Kenya‘s investment abroad. Although
2011 FDI estimates are not yet available, experts report that domestic
investment pulled ahead of FDI last year and has become a key
determinant of Kenya’s economic performance and prospects. If
implementation of the new constitution and other reforms moves
forward smoothly, this growing domestic investment might be
bolstered by a significant increase in FDI inflows.
5.19Starting a business in Kenya
Registration requirements
No Procedure
1.
2.
Time to
Complete
State registration of legal
entity, statistical, and tax
registration with the Centre
for Public Registration
3 days
Stamp the memorandum and
articles and a statement of
the nominal capital
5 days
Associated
Costs
KES 100
per name
reservation
1% of nominal
capital +
KES 2,020,
stamp duty on
Memorandum
and Articles of
Association
3.
Pay stamp duty at bank
1 day
KES 100 bank
commission
4.
Declaration of compliance
(Form 208) is signed before
a Commissioner of Oaths /
notary public
1 day
KES 200
5.
File deed and details with the 7 – 14 days
Registrar of Companies at the
Attorney General's Chambers
in Nairobi
KES 6,436
6.
Register with the Tax
1 – 2 days
Department for a PIN and VAT
online
No charge
7.
Apply for a business permit
5 days
KES 5,000
8.
Register with the National
Social Security Fund (NSSF)
1 day
No charge
9.
Register with the National
Hospital Insurance Fund
(NHIF)
1 day
No charge
10.
Register for PAYE
1 day
11.
Make a company seal after
a certificate of incorporation
has been issued
2 days
13.
Make a company seal
2 days
14.
Have company’s accounting
books stamped at the court
1 day
6Country Risk Rating
Sovereign Currency Banking Political Economic Country
risk
risk
sector
risk
structure risk
risk
risk
Jul
2012
CCC
CCC
CCC
CC
CC
CCC
(AAA = least risky, D = most risky)
6.1 Sovereign risk
Stable. The CCC rating reflects a high fiscal deficit and heavy
borrowing, which will push up public debt and servicing costs. Global
economic weakness will also constrain export and tourism receipts.
6.2 Currency risk
Stable. Although interest rates are expected to edge down, the CCC
rating takes into account the currency’s continuing vulnerability to
global economic woes and domestic political uncertainty.
6.3 Banking sector risk
Stable. The sustained improvement in the financial sector and
forecast upturn in GDP growth in 2012-13 will support the CCC rating.
The non-performing loan ratio is improving and the risk of a systemic
banking crisis is low.
6.4 Political risk
Kenyan politics will be dominated by the challenges of implementing
the new constitution and holding elections in early 2013 while
avoiding a repeat of the civil unrest that marred the 2007 poll. The civil
war in neighbouring Somalia will continue to be the main source of
security- and terrorism-related risk.
6.5 Economic structure risk
The rating is constrained by Kenya’s reliance on rain-fed agriculture
and its commodity-dependent export base, as well as by the
country’s poor investment environment, high public debt burden and
inefficient state-run utilities.
No charge
between KES
2,500 and KES
3,500
DZD 800
DZD 6,000
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
22
7Country Outlook: 2012 –
2016
7.1 Political stability
Kenya’s political environment will be dominated by the challenge of
implementing the new constitution and elections in early 2013. The
new constitution, approved in a 2010 referendum by a two-to-one
margin, in a free and fair ballot untainted by violence, offers the hope
of more consensual and accountable politics in the future.
The next election may therefore prove to be less divisive than the
bitterly disputed 2007 ballot and could usher in a period of relative
stability, although downside risks persist. The two main parties – the
Party of National Unity (PNU) of the president, Mwai Kibaki, and
the Orange Democratic Movement (ODM) of the Prime Minister,
Raila Odinga – will continue to co-operate to implement the new
constitution, although inter-party relations will remain tense and
partisan in-fighting will increase in the run-up to the ballot.
Kenya will retain a presidential system under the new constitution,
but with new “checks and balances” and a clearer separation of
powers. Significant changes include the devolution of some powers
to county level; the establishment of an upper house of parliament
(the Senate); the introduction of a bill of rights and a Supreme Court;
and the abolition of the post of prime minister. The constitution
also calls for a new anti-corruption agency and an independent land
commission to tackle the thorny issue of land reform.
7.2 Election watch
The focus will switch increasingly to the next elections as politicians
jostle for position, although the precise timing is uncertain. The High
Court has ruled that the ballot must take place no later than 15 March
2013 (while the election commission has provisionally named 4
March), but an earlier poll, in December 2012, remains possible if the
coalition agrees an early dissolution. The constitution had pointed to
August elections, but this will not apply to the next poll.
Mr Kibaki must stand down after serving two five-year terms,
sparking bitter rivalry between those seeking to be the next PNU
leader. Following the recent death of George Saitoti, the remaining
front-runners are the Vice-President, Kalonzo Musyoka, and the two
deputy Prime Ministers, Musalia Mudavadi and Uhuru Kenyatta.
However, Mr Kenyatta faces an ICC trial and may choose to focus
on the court case rather than electioneering, before attempting a
later comeback. The PNU, created as a vehicle for Mr Kibaki, will be
remoulded into a new alliance.
7.3 International relations
Foreign policy will be driven by economic interests, especially the
maintenance of close relations with key donors and advancing
regional integration within the East African Community (EAC). Kenya
will retain close ties with the US (including military co-operation)
and key developing countries such as China, India and South Africa.
The civil war in neighbouring, lawless Somalia will continue to be the
main source of security- and terrorism-related risk. Attention
will focus on Kenya’s armed incursion into southern Somalia in
pursuit of Islamist rebels fighting under the al-Shabab banner,
who stand accused by the Kenyan government of kidnapping and
murdering tourists.
The invasion is a major gamble for Kenya, whose military forces
have limited experience of cross-border conflict. Despite being well
equipped, they may struggle to pin down the Islamist guerrillas, and
the cost, in human and financial terms, could be high. The launch of
terrorist attacks on Kenyan soil is another major risk, exacerbated by
the large number of Somalis resident in Kenya. Nevertheless, most
neighbouring states and regional bodies, as well as the US
and European powers, support Kenya’s intervention. The weakening
of al-Shabab and its removal from the port of Kismayu would be
a major prize that would enhance Kenya’s standing and promote
regional integration.
7.4 Policy trends
The main policy challenges in the medium term will remain related
to tackling structural constraints. An ongoing fiscal stimulus and
structural reforms such as deregulation and privatisation will
promote economic activity, but tighter monetary policy and a global
slowdown will act as constraints. Moreover, policymaking will remain
vulnerable to exogenous shocks, including drought and volatile
commodity prices, and to political in-fighting in the run-up to the
2012/13 elections.
Kenya’s IMF-backed programme, supported by a US$760m extended
credit facility, remains on track and will focus on fiscal reform,
investment in infrastructure and the implementation of the new
constitution. Although continued IMF backing will encourage support
from other donors, corruption and weak governance will continue to
strain relations with external backers and deter investment.
The government aims to accelerate the pace of structural reform in
2012-16, including deregulation and trade liberalisation (especially
within the EAC). Plans calling for the disposal of full or partial stakes
in up to 25 state enterprises, either by selling shares to strategic
partners or via flotations on the Nairobi Securities Exchange, will be
delayed by the focus on the new constitution and the next election.
In spite of divisions within the ODM, including breakaways by William
Ruto (who also faces ICC charges) and, more recently, Mr Mudavadi,
Mr Odinga has a fair chance of victory, helped by his strong support
for the new constitution. He could also benefit from the possible
enforced absence of the ICC defendants. However, if no contender
crosses the 50% threshold in the first round of voting the contest will
go to a second round.
The formation of a new election commission, together with other
reforms, will reduce the danger of election-related instability, but the
closer the contest, the higher the risk. The new president will face a
much-altered landscape because of the structural reforms envisaged
by the new constitution.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
23
7.5 Economic growth
Favourable rains in April-June and the prospect of lower interest
rates in the second half will facilitate consumer spending and credit
allocation to households and firms. The economy will benefit from
growth in tourism, a rapid take-up of banking services (including
telebanking), the ongoing boom in telecommunications, the
expansion of the middle class, investment in infrastructure, increased
regional trade and structural reforms.
Based on the weak first-quarter outturn and continued global
uncertainty, the Economist Intelligence unit has trimmed its growth
forecast for 2012 to 4.7% (from 5.1%). However, the threat of a
double-dip recession in Europe, alongside the possibility of electionrelated instability and disruption in Kenya, poses downside risks
to this forecast. For the remainder of the forecast period, faster
growth will exacerbate domestic structural deficiencies, especially
in transport and power, despite new investment. Moreover, key
reforms could fall victim to election-related in-fighting, while
corruption, high taxes, over-regulation and weak governance will
continue to inhibit private investment. As a consequence, growth will
fail to surpass the 5.4% mark in 2013 15 before accelerating a little to
5.7% in 2016, as reforms and investment start to pay dividends.
There is little prospect of Kenya eliminating infrastructural constraints
or dependence on rain-fed agriculture during the forecast period,
although the rate of expansion will remain relatively brisk, barring
global and local shocks.
7.6Inflation
Inflation dipped to 10% in June 2012 (a 15-month low) and will
continue to subside gradually during the second half, helped by a
rebound in the exchange rate in response to tighter monetary policy.
A satisfactory main rainy season in the second quarter, despite a late
start, will help to curtail food prices, while a dip in world oil prices
will curb fuel costs (provided the trend is sustained). It is therefore
predicted that inflation will subside to 10.1% in 2012, failing to return
to single-digit levels by a narrow margin. Thereafter, in 2013-16,
average annual inflation will be confined within a 5-6% range, despite
temporary breaches.
7.8 External sector
Kenya’s current-account deficit – after widening to an estimated
10.2% of GDP in 2011 because of costlier oil – will shrink gradually
during the outlook period to a forecast 9.6% of GDP in 2012, 8.4%
of GDP in 2013 and 4.4% of GDP by 2016. Earnings from key
exports, including tea and horticulture (and, later in the forecast
period, minerals), will grow steadily, despite slight slippage in world
tea prices, helped by closer regional integration and stronger Asian
demand. However, import demand for oil and both capital and
consumer goods will be similarly robust, and the merchandise trade
deficit will remain broadly stable in absolute terms in 2012-16.
The decline in the current-account deficit will be underpinned by
growth in invisible earnings, especially from tourism, remittances and
servicing regional trade (although receipts from all three sources will
be vulnerable to negative global developments). Official donor grants
will offer additional support. However, the income-account deficit
will widen in 2014-15, owing to the repatriation of earnings by foreign
investors and a rise in debt-service outlays. The current-account
deficit, despite declining during the forecast period, will leave Kenya
dependent on external inflows to fill the gap.
AAppendix one - Sources of
information
1 Economist Intelligence Unit
2Doingbusiness.org
3 CIA World Factbook
4Wikipedia
5 World Bank
6US Department of State
Rising aggregate demand and electricity prices will underpin higher
prices, although prudent monetary policies, more stable global
commodity prices and efficiency gains arising from investment
in infrastructure and regulatory reform will help to keep inflation
within tolerable bounds. The weather – and, therefore, farm and
hydroelectric production – will remain a key variable.
7.7 Exchange rates
After hitting an all-time low of KSh106:US$1 in October 2011, owing
to rapid inflation and the recalibration of global risk away from
emerging markets, the shilling staged a significant recovery in
response to stringent monetary tightening. Ongoing IMF support
and a new commercial bank loan will help to support the currency,
keeping the shilling close to the KSh84-85:US$1 mark in the short
term, although the euro-zone debt crisis could spark a new emergingmarket sell-off. The shilling will weaken in the second half (as the
election approaches) but less rapidly than earlier expected. It is
forecast that the shilling will average KSh85.8:US$1 in 2012 before
depreciating to KSh93.9:US$1 in 2013 and KSh110:US$1 by 2016.
Depreciation will be underpinned by current-account deficits and
relatively high inflation, and will be more rapid if political or economic
confidence slips.
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