FEDERAL REPUBLIC OF KENYA

Location: The Republic of Kenya is located in

East Africa. It shares borders with Ethiopia in

the north, Somalia in the northeast, Tanzania

in the south, Uganda in the west, and Sudan

in the northwest. The capital city of Kenya is

Nairobi. This is the second-largest city in Africa,

after Cairo, and the largest city in Kenya itself.

It is an economic centre with thriving financial,

technological and service sectors.

The country’s population has grown rapidly in

recent decades to an estimated 45.5 million.

Kenya has numerous wildlife reserves with

thousands of animal species.

Chambers/Associations:

• Kenya National Chamber of Commerce and

Industry (KNCCI). Kenya is a member of the

East African Community (EAC) and of the

Common Market for Eastern and Southern

African (COMESA) trading blocs.

INTRODUCING COUNTRY PROFILE –

FACTS AND FINDINGS

• Government policy encourages investment that will bring

foreign exchange, provide employment, promote backward

and forward linkages, and transfer technology.

• Foreign companies are securing deals with government to

work on infrastructure projects and are investing to improve

Kenya’s transportation network.

• China is the biggest foreign investor in Kenya’s economy

with regard to infrastructure and technological

development projects.

• Kenya has a positive investment climate. This makes it

attractive to international firms looking for a place to run

their regional or African operations from.

• The Kenya Investment Authority (KenInvest) asks

companies to undergo an optional investment registration

process. This includes a health, safety and environmental

impact assessment. Although usually optional, registration

is mandatory if an investor wants to qualify for investment

incentives. Companies that undergo the KenInvest process

and hold investment certificates automatically qualify for

different class work permits.

• The Kenyan government encourages foreign participation in

the economy. It has actively promoted the development of

export processing zones (EPZs) around the country.

• Kenya’s performance is boosted by its strong trade

platform, which has the sixth-largest total trade volume

in the region.

• Kenya has managed to get rid of much of the red tape within

the tax administration. For instance, it has shortened the

time taken to pay taxes from over 300 hours to 201.5 hours.

POLITICS AND LEGALThe president, Uhuru Kenyatta was elected in 2013.

Kenya obtained a new constitution in 2010 in the form of a

decentralised system with two levels of government:

county and national governments. Each has distinct powers,

although they have to co-operate with one another.

• The 47 new county governments manage and develop

their own affairs while promoting social, economic and

political development.

• The decentralised political system has made the governing

process more effective and has improved international

Top five export locations Top five import locations

1. Uganda (11.9%) 1. India (18.3%)

2. United Kingdom (7.9%) 2. China (12.9%)

3. Tanzania (7.7%) 3. United Arab Emirates (8.3%)

4. Netherlands (6.8%) 4. Japan (5.9%)

5. United States of America (6.3%) 5. South Africa (5.0%)

Top five exported goods Top five imported goods

1. Coffee, tea, mate and spices (18.8%) 1. Mineral fuels, oils, distillation products (21.0%)

2. Live trees, plants, bulbs, roots, cut flowers etc. (12.6%) 2. Machinery, nuclear reactors, boilers etc. (8.6%)

3. Mineral fuels, oils, distillation products (12.6%) 3. Vehicles other than railway, tramway (7.8%)

4. Edible vegetables and certain roots and tubers (4.9%) 4. Electrical, electronic equipment (6.9%)

5. Articles of apparel, accessories, knit or crochet (3.5%) 5. Aircraft, spacecraft, and parts thereof (6.7%)

INTERNATIONAL TRADE

KENYA’S OPENNESS TO FOREIGN DIRECT INVESTMENT (FDI)

perceptions of Kenya. This has had a positive impact on

investment and doing business in the country.

Kenya’s security outlook remains poor. The main threat to

the country is posed by al-Shabaab, a Somalia-based

Islamist group.

• There remains a threat of terrorist attacks. Al-Shabaab

claims it is attacking Kenyan civilians mainly because Kenya

has a military presence in Somalia and mistreats Somalis and

Kenyan Muslims in north-eastern Kenya.

• If Kenya does not tackle its security problems, this will

continue to weigh on the country’s economy and investor

confidence, and it could erode support for the

current administration.

Corruption remains a serious problem in the country,

despite market reforms.

• Business-government corruption is still widespread.

Companies often get demands for bribes and informal

payments to get things done in the country.

• Foreign companies find that corruption is especially a

challenge when trying to enter markets and start up

a business.

• On the positive side, the president is an advocate of tackling

corruption within the Kenyan government.

ECONOMICSKenya is seen as a well-diversified, relatively developed

economy with sound economic policies and strong growth

prospects. The country has a strong financial sector and

well-developed domestic markets. The country’s economy

is poised to be among the fastest growing in the region

and predicts positive growth of up to 7% by 2017. A stable

macroeconomic environment, a booming consumer market

and its positive impact on consumer spending,

continued investment in infrastructure, an

improved business environment, the current lower

oil prices, exports and regional integration should help

sustain the growth momentum.

Various factors such as security concerns, drought

and waning tourism have been weighing on the

Kenyan economy.

• The worsening in the tea crop outlook (the country’s most

valuable export commodity) and the slump in tourism have

had a negative impact on the shilling exchange rate.

• Many tourist facilities in Kenya’s coastal areas have closed

down. This has had a negative impact on employment as

well as on other industries such as agriculture, transport and

manufacturing that supply goods and services for tourist

consumption. (In Q1 2015, the country’s accommodation

and food services sub-sector shrank for the fifth quarter

in a row.)

• The Kenyan Shilling will keep depreciating for now.

The weakening in the shilling is mainly driven by external

forces such as the strength of the US dollar, an expected

US monetary tightening, slower growth in China and

uncertainties in the eurozone.

• Kenya is a major net importer of oil and should therefore

benefit from lower oil prices. At the same time, once the

country starts producing oil, probably around 2017, the

lower oil prices could reduce export earnings. Export

diversification, mostly into automobile manufacturing, can

also limit the trade deficit and boost the trade account.

• Kenya has a dominant position in the East African

Community (EAC), Africa’s most progressive trade bloc.

This will allow the country to take advantage of the region’s

positive growth prospects and build its economy.

• More regional integration and better infrastructure will

ensure that local companies can expand more easily into

other regions. It is expected that Kenya will consolidate its

position as East Africa’s largest economy and take advantage

of the region’s overall positive growth prospects. The EAC

trade bloc has a combined population of over 150 million and

a nominal GDP of over US$100 billion, so it holds

huge potential.

• There are investment opportunities across the board. Many

sectors in the country attract investment and FDI from

various sources such as the US, Europe, key Asian countries,

and South Africa. The energy sector, banking, real estate,

retail, consumer goods manufacturing, vehicle assembly,

and tourism are attracting some investment, but foreign

investment will mainly be driven by ongoing oil exploration

and the development of the oil sector. The objective is

to continue with regional integration into the East African

Community (EAC) and the construction of

infrastructure projects.

• Investments in the transport and energy networks, together

with reforms such as deregulation and privatisation, should in

time break down the structural constraints and help establish

a regional transportation hub.

• There are also investment opportunities in renewable energy,

particularly solar, wind, and geothermal power. Kenya is

planning to add at least nine solar power plants over the

next few years through public-private partnerships (PPPs).

The objective is to triple the country’s generating capacity

to 5 000 MW by 2030 so as to make the country less reliant

on hydropower.

• Kenya offers what could be lucrative opportunities for

investment in the services sector. This is especially true for

tourism, banking, telecommunications, transport, wholesale

and retail trade, and business process outsourcing.

• The Kenya-based investment company Centum was due to

open the largest shopping mall in East Africa in October 2015.

This development was expected to get much interest from

foreign investors. Centum has said that 43% of the lettable

space will be taken up by international retailers, which is a

key differentiating factor of the project.

• National Development Plan (Kenya Vision 2030) and

structural reforms: The objective of Kenya’s economic

development programme is to help transform the country

into a newly industrialised, middle-income country providing

a high quality of life to all its citizens by 2030 in a clean and

secure environment.

• The Vision is based on three key pillars – an economic,

social and political pillar.

• The economic vision is to improve the prosperity of all

regions of the country and all Kenyans by achieving a 10%

gross domestic product growth rate per annum from 2012.

The medium-term plan 2013-2017 targets six priority sectors:

tourism; agriculture, livestock and fisheries; wholesale and

retail trade; manufacturing; IT-enabled services; financial

services; and oil and gas.

• The social pillar’s objective is investing in the people of Kenya

in order to improve the quality of life for all Kenyans. This will

be done through a cross-section of human and social welfare

projects and programmes.

• The goal of the political pillar is to move to the future as one nation.

KENYA’S ECONOMIC ACTIVITY IN PERSPECTIVE

• A statistical rebasing of Kenya’s GDP was released by the

Kenya National Bureau of Statistics on 30 September 2014.

This rebasing shows that the Kenyan economy is 25% larger

and growing faster, than thought before.

• The rebasing now classifies Kenya as a lower-middle-income

country under the World Bank’s classification. Kenya’s gross

national income now stands at US$1 280.

ECONOMIC GROWTH: CURRENT VS OUTLOOK

• According to figures from the Kenya National Bureau of

Statistics, all the sectors of the economy showed positive

growth rates in Q1 2015, except for the accommodation/

hotel and restaurant services sector. In Q1 2015, the Kenyan

economy grew by an estimated 4.9% overall, compared to

4.7% in the same quarter in 2014. The accommodation/hotel

Economic growth (%)

2014 2015(f) 2016(f) 2017(f) 2018(f) 2019(f)

Economic Intelligence Unit (EIU)(1)

5.3 5.4 5.5 6.0 6.3 6.2

- Agriculture 3.5 4.1 5.0 4.7 4.8 5.0

- Industry 6.5 6.1 6.5 7.2 8.0 8.2

- Services 5.8 5.8 5.3 6.1 6.3 5.9

BMI Research 5.3 6.4 6.3 6.3 6.9 6.6

The World Bank 5.3 6.0 6.6 7.0

Inflation (%)

EIU (year on year) 6.9 6.4 5.2 4.8 4.5 5.1

BMI Research (Year on year, average)

6.9 6.1 6.4 6.8 7.0 7.0

Central Bank policy rate

BMI Research (End

of period)8.50 10.00 9.50 9.50 9.50 9.50

(f): forecasted Sources: (1) EIU: Country Report, 16 September 2015; (2)BMI Research: Kenya Country Risk Report Q4 2015, 1 October 2015; World Bank

and restaurant services sector has been under pressure due to security concerns and perceived health risks such as

Ebola. This is due to the country’s geopolitical location and

connectivity with West Africa. Tourism is expected to remain

under pressure.

• In 2015, economic activity will be held back by dry weather,

security concerns and higher interest rates. Agricultural

output will be down again due to dry weather and not enough

rainfall during the main wet season, while tourism will

continue to suffer from security concerns and negative travel

advisories in some important European markets.

• Going forward, economic growth prospects are bullish.

The expected growth is still nowhere near the 10% envisaged

in Vision 2030.

• Key drivers for economic growth are expected to be an

improved business environment, more public and private

investment, increased construction activities, more private

consumption, an improvement in the manufacturing sector’s

performance, and exports and regional integration.

THE STRUCTURE OF THE ECONOMY:

• The agriculture sector provides livelihoods through

subsistence farming to a large proportion of the population.

It is the largest employer and an important foreign currency

earner (tea, coffee and horticulture together make up a

significant part of Kenya’s total exports). Agriculture also

plays an important role in increasing food security.

• The mining and quarrying sector contributes little to the

Kenyan economy – less than one per cent of GDP. Still, new

discoveries could lead to sustained investment, growth

and development. Kenya has deposits of gold, limestone,

mineral sands, soda ash, salt, rubies, and fluorspar. Yet the

lack of infrastructure and limited energy supply in areas with

usable mineral resources make things difficult for mining

companies. The mining sector thus remains underdeveloped,

and only small amounts of minerals and metals are exported.

• The discovery of rare-earth deposits off the coast of Kenya,

worth about US$62.4 billion, could place the country in the

top five countries worldwide with such deposits.

• Investors in mining should know of the 2014 Mining Bill that

is before parliament. The Bill has a number of practices,

policies and conditions that strongly discourage foreign

investment in the sector

• The industrial sector is driven by strong public investment

in infrastructure that has boosted the construction and

energy sectors.

• Manufacturing, food and consumer goods processing have

become important sub-sectors. The capacity of Kenyan

garment factories has grown markedly in recent years due

to FDI from Asia and the Middle East, as well as support from

the export development zones. There is no local upstream

industry, though, so manufacturers have to import fabrics,

meaning there are longer lead times. Other challenges

include the high labour costs and the unreliable energy

supply that forces factories to use very expensive generators.

• The construction sector has made a strong contribution

in recent years with growth estimated at 13.1% in 2014

compared to 5.8% in the preceding year. This is due to the

government’s infrastructure investment programme and

the massive investment in megaprojects involving road, rail

Industry, 19.8%

Services, 51.2%

Agriculture, 29%

Sources: KPMG Kenya Economics Snapshot, Quarter 2 2015

and ports infrastructure, energy-related infrastructure and

supportive infrastructure.

• There has also been huge investment in the development of

residential and commercial properties, primarily office space.

The growth in Kenya’s population was a key driver of the

increased demand for housing, especially in urban areas. The

construction boom has been beneficial to the commercial

banking sector, with loans and advances to construction and

real estate sectors growing by 13.6% and 32.4% respectively

in 2014.

• Any contractor who wants to work in the construction

industry in Kenya must register with the National

Construction Authority (NCA).

OPPORTUNITIES FOR THE CONSTRUCTION INDUSTRY

• In March 2012, the Lamu Port–South Sudan–Ethiopia

Transport and Economic Development (LAPSSET)

infrastructure development project was announced. The

project includes the construction of infrastructure across

many areas, including transport, energy/power, water

supply and treatment, the oil industry, healthcare, education,

telecommunications, retail, and hotels and tourism.

• The Power Africa project, which was launched by Barack

Obama in 2013, aims to help provide electricity to two

thirds of the 800 million people in sub-Saharan Africa

without electricity. It will also add ten gigawatts of electricity

generation capacity through co-operation between US

government agencies and the private sector.

• In the information and communication technology (ICT)

domain, the biggest construction opportunity is the IT

business hub Konza City. Also known as Africa’s Silicon

Savannah, Konza City is valued at US$14.5 billion.

• Economic activity in Kenya is dominated by the services

sector, including banking, a well-developed retail sector, a

relatively sophisticated and growing telecommunications

sector, and a developed tourism sector.

• The wholesale and retail sector has been sustained by

the increasing urbanisation in the country; a growing

middle class; and the changing lifestyle of Kenyans with

their demand for shopping. All of this has resulted in the

construction of more malls in Kenya and outside the

country’s boundaries

• The ICT sector is one of the fastest-growing sectors in Kenya.

There has been continued growth in mobile voice, mobile

data/internet and mobile money transfer services. At the end

of 2014, penetration of mobile (82.6% vs 76.9% at the end

of 2013), internet (64.3% vs 52.3% at the end of 2013) and

fixed and wireless broadband (9.9% in 2014 compared to

5.9% in 2013) showed there was still opportunity for growth

and for companies to enter the market.

• Government has been investing more in the

telecommunications industry to help make Kenya a hub

of telecommunications innovation. There is also more

focus on generating policy and legislation to support the

growth of the ICT sector.

• The development of the country’s oil sector has the potential

to take the economy onto a higher growth trajectory. Factors

that could limit the effects of lower oil prices on domestic

oil investment include:

• The onshore nature of the country’s oil resources – it is

much less expensive to both explore and drill onshore than

offshore; and

• Less exploration activity globally. This will increase

competition among oilfield services and infrastructure

companies as they try to get business from the few regions

that are still involved in oil-related activities.

• The most positive signs of investment sentiment come from

knowledge economy globally. The idea is to spur the

development of 500 tier-one technology companies,

the formation of 20 global innovations and the

creation of 50 000 new jobs by 2017.

• To become Africa’s ICT hub, Kenya will have to

develop Konza Technology City at a cost of

some US$14.5 billion to ensure the country

provides the facilities investors need as

they come into the country; strengthen

education in ICT so that the required

the companies that are driving the oil sector in Kenya at the

moment – Tullow Oil and Africa Oil. They still plan to drill

six basin openers in Kenya in 2015, and more than a dozen

other wells, including exploration wildcats and appraisals,

are expected to be drilled this year. But despite the many

positives, there are still significant risks to the development

of Kenya’s oil sector.

SOCIAL• Kenya has a very diverse, young population that includes

most of the major ethnic, racial and linguistic groups found

in Africa.

• A growing population, estimated at 45.5 million in 2014 (and

estimated to reach 58.1 million in 2024), will be a key driver of

economic growth in the country.

• Market analysts believe that the working-age population will

grow even faster, making it difficult for the country to provide

jobs for the booming workforce. This can pose a significant

threat to political stability.

• Kenya boasts a larger, more highly skilled, specialised and

educated workforce that ranks amongst the best in Africa.

• Development challenges include poverty and inequality.

The country’s economy is also vulnerable to internal and

external shocks. This will have a detrimental effect on the

already big unemployment problem.

• The challenge will be to ensure that most Kenyans benefit

from the anticipated higher growth as poverty rates and

inequality have remained high.

TECHNOLOGY• Kenya plans to become Africa’s ICT hub by 2017. In 2013,

the Kenyan government’s ICT Authority launched a national

ICT master plan – ‘Connected Kenya 2017’. This plan aims

to ensure that Kenya becomes Africa’s most respected

talent is always available in the country; and market and

strengthen brand awareness.

• Kenya is indeed seen as being well placed to become Africa’s

leading technology hub, as the country has guaranteed

government support, a young, tech-savvy population, and

further innovation on the horizon.

• Kenya has pioneered a mobile technology economy that

points to future trends in the rest of the world. As a leader

in mobile technology, Kenya has 36.1 million mobile

subscribers. This gives the country a 83.9% penetration rate,

according to the Fourth Quarter Sector Statistics Report for

the Financial Year 2014/2015 (April–June 2015) issued by

the country’s communications authority.

• In Kenya, the Internet is increasingly used for basic services

such as banking, healthcare and education. In 2013, the

sector contributed 12.1% to the country’s GDP of US$44

billion. The country’s mobile money transfer service is

showing steady growth, and new services and apps continue

to be added to provide ways for mobile payments. According

to a study by the Kenya Bankers Association 71% of rural

Kenyans and 51% of urban residents use their mobile phones

for banking and financial services.

• It is anticipated that increased Internet penetration and

smartphone uptake will continue to be main drivers of

increased data and mobile money transfer use.

ENVIRONMENT• Environmental issues in Kenya are deforestation, soil erosion,

desertification, water supply and sanitation in the country

(water shortages and degraded water quality), flooding,

poaching, and domestic and industrial pollution. The country

is vulnerable to droughts due to its dependence on rain-fed

agriculture. Weather-related shocks hold major risks for food

supply and security and could cause a surge in demand for

food imports, which would damage Kenya’s external position.

OPERATIONAL RISKS/BARRIERS TO DOING BUSINESS

The growth and development across Africa have attracted

foreign investment and many multi-national companies to the

continent. Yet it has to be said that doing business or operating

in African countries holds many risks.

The following are some of the potential risks facing

investors operating in Kenya:

• The country has an unstable domestic security situation,

including high levels of crime, the threat of terrorism and an

entrenched culture of corruption.

• Businesses in the country are hindered by inefficient

bureaucracy and high levels of taxes.

• The country’s transport infrastructure and logistics systems

are weak for it to become a regional trade and transport hub.

This includes customs, goods clearance and weighbridge

processes.

• Kenya’s large pool of highly qualified and specialised

workers poses less risk to businesses in terms of labour

supply issues. The high costs of employment in the country,

powerful unions, and even serious health issues hold risks to

businesses, though.

• The inconsistent administration of work permit applications

makes it difficult to employ expatriates in the country.

• The Kenyan government requires that foreign employees

must be either key senior managers and/or personnel

with special skills that are not available locally. Businesses

have to prove that they cannot source the necessary skills

in the country.

• Law enforcement in the country is severely hampered

by corruption and a lack of capacity in government

institutions such as the police, the judiciary, and the

customs office.

• The country does not adequately protect

intellectual property (IP), including copyrights,

patents and trademarks. Businesses

must know that although laws covering

IP protection are well established,

enforcement is patchy and difficult

because of a lack of capacity in anti-

counterfeit forces.

• Many of the country’s oil fields

are remote and will require

significant infrastructure

outlays, including the

construction of an oil

pipeline towards the

coast. This could

deter oil companies

from developing

the Kenyan oil

industry. A 5%

• Foreign investors also have to sign an agreement with

the government that they will train locals and phase out

expatriates.

• The minimum foreign investment for Government of Kenya

investment incentives and an investment certificate is

US$100 000. This will deter foreign small and medium

enterprise investment, especially in the services sector,

which is normally not as capital-intensive as other sectors.

• Kenya’s legal and judiciary environment burdens businesses

with costly and off-putting bureaucracy and red tape around

all basic business procedures, which may incur costs

and discourage investors. Kenya has some of the highest

waiting times for opening (30 days) and closing (4.5 years)

a business and for registering a property (72 days). It also

requires businesses to follow many time-consuming and

sometimes costly processes. These are major obstacles to

investment in the country. For example, the time it takes

to close a business poses a risk to businesses that want

to relocate or close down. In Kenya, the most expensive

procedure is when applying for a business permit –

KES15 000. The time it takes to register a property can also

greatly increase costs in terms of working time lost in simply

setting up a business.

• Potential investors in the construction industry should

know that it takes an average of 125 days to get a

construction permitt.

• Foreign investors may also face risks around land ownership.

In Kenya, getting title to land is a cumbersome and often

corrupt process. Foreigners may not buy or lease agricultural

land unless they get presidential approval. Only Kenyan

citizens or companies with majority Kenyan ownership

may buy other types of land. Foreign investors are limited

to 99-year leases, which increases costs and the risk of

expropriation.

capital gains tax effective from 1 January 2015 could also

dampen investor interest somewhat. This is especially true

for the emerging oil and gas industry, as it will be significantly

higher for transactions in this sector.

SOURCES

• BMI Research

• BMI Research, Operational Risk Report (Trade and

Investment Section)

• CIA World Fact Book

• Communications Authority of Kenya (www.ca.gov.ke)

• Economic Intelligence Unit (EIU)

• Gov.UK – Overseas Business Risk: Kenya

• Kenya National Bureau of Statistics

• KPMG

• Transparency International, Corruption Perceptions

Index 2014

• US Department of State

• Who Owns Whom

• Wikipedia

• World Bank (www.worldbank.org)

• www.aabf.org/kenya (Kenya Investment Guide)

• www.vision2030.gov.ke

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