Economic Background

In 2003 the Kenyan Government developed and launched the Economic Recovery Strategy (ERS) for Wealth and Employment Creation, as the blue print for setting the country back on the growth path after year of economic stagnation.  The strategy was a shift from previous planning documents that sought to reduce poverty, instead of creating wealth and employment. 

The implementation of this strategy was viewed as very successful.  During this period the economy maintained a rapid growth between 2005-2007 of 5.9% and 7% compared to negative growth in 2002. However, the growth recorded a major decline in 2008 of 1.6% and in response, the government put up measures to stimulate growth including: Restoring investor confidence, Expansionary fiscal policy (e.g. economic stimulus package), Monetary policy focusing on achieving and maintaining price stability within a single digit inflation rate of 5.0%.

The economy responded accordingly with an improved growth rate of 2.6 % in 2009 which was mainly attributed to: Resurgence of activities in the tourism sector, Resilience in the building and construction industry and Transport and Communication sector coupled by an enabling environment and the economic stimulus package. However, economic performance was constrained by: Unfavourable weather condition, The global economic recession, Sluggish internal and external demand.

It is noteworthy to note that the ERS was a 5 year plan set out to expire in the financial year 2007/2008. Hence in early 2007 the Government started developing a new strategic long-term plan to take over from the ERS. In June 2008, the Government launched the Kenya Vision 2030 as the new long-term development blueprint for the country. The vision of this strategy is transform the country into  “the globally competitive and prosperous country with a high quality of life by 2030”. 

 The vision is based on three "pillars" namely; the economic pillar, the social pillar and the political pillar.

The economic pillar aims at providing prosperity of all Kenyans through an economic development programme aimed at achieving an average GDP growth rate of 10% per annum over the next 25 years.

The social pillar seeks to build “a just and cohesive society with social equity in a clean and secure environment.”

The political pillar aims at realizing a democratic political system founded on issue-based politics that respects the rule of law, and protects the rights and freedoms of every individual in the Kenyan society.

RECENT ECONOMIC DEVELOPMENTS

The Kenyan economy is now poised for a major recovery following two years of weak performance that saw growth decline from 7.1 percent in 2007 to  1.7 percent in 2008 with a subdued rebound of 2.6 percent in 2009.

The depressed performance during the 2008-09 was due to a number of adverse shocks including the post election violence in early 2008, a severe drought that affected most parts of the country, high international commodity prices and spillover effects of the global financial crisis.

The economy is for a strong recovery from the year 2010 and beyond to about 5 percent and growth is expected to accelerate further in the medium term. The objective is to steer the economy towards the growth trajectory outlined in the Medium-Term Plan under Vision 2030.

The real GDP growth picked to 4.4 percent in the first quarter of 2010, rising to 5.4 percent in the second quarter, and it is expected to be sustained at that level during the rest of the year. The medium-term look bright, especially after the promulgation of the new Constitution, which is expected to usher in renewed investor confidence.

The Inflation has fallen from a high of 19.5 percent in November 2008 to 3.2 percent by August and September of 2010 and is expected to remain within the 5 percent monetary policy target over the medium term.

The Interest rates have remained low and stable owing to ample liquidity in the market with the 91-day Treasury bill rate ranging between 2-5 percent since April 2010. However, lending rates have not declined in tandem.

The exchange rate has also been stable though with a tendency to depreciate mainly due to the movement of the US dollar in the international markets. Recently, the shilling has remained in the range of KSh 80-82 to the US dollar.

The external sector has improved with the overall balance of payments recording a surplus compared to a deficit in 2008 and part of 2009, following improvement in the current account occasioned by increased surplus in the services account and a stronger rebound in exports earnings.

As a result, international reserves held at the Central Bank of Kenya increased to reach US $ 3.8 billion (equivalent to 3.8 months of imports) by end of June 2010 from US $ 3.2 billion (equivalent to 3.3 months of imports) a year ago.

 Activity at the NSE has remained buoyant with increased investor confidence and improved corporate governance following the ongoing reforms by the Government.

The Government acknowledges the still need to do more to attract more capital and investment to the Country and  therefore strategies are in place to continue pursuing sound economic management and deepening of the reform agenda in order to make the economy stable and predictable, and to reduce the cost of doing business.

The government is closely collaborating with various development partners including to benchmark the country’s business environment practices in line with international best practice.

 

PRINCIPAL EXPORTS

COMMODITY	2007 (Ksh Millions)
Horticulture	56,724
Tea	46,754
Articles of Apparel and clothing accessories	16,165
Coffee, unroasted	10,425
Tobacco and tobacco manufactures	8,532
Iron and steel	8,224
Petroleum products	7,720
Soda ash	5,419
Cement	4,612
Medicinal and pharmaceutical products	4,436
Essential oils	4,420
Fish and fish preparations	4,117

MAJOR IMPORTS

COMMODITY	2007 Ksh (Millions)
Industrial Machinery	78,014
Petroleum Products	73,088
Crude Petroleum	49,241
Road Motor Vehicles	42,678
Iron and Steel	26,335
Plastics in primary & non-primary forms	23,535
Animal/Vegetable fats and oils	23,311
Medicinal & Pharmaceutical Products	15,948
Organic & inorganic chemicals	11,166
Non-ferrous metals	10,702
Wheat	9,706

TOP 10 EXPORT DESTINATIONS (2009)

 

TOP 10 IMPORT SOURCES (2009)

South Africa	70.6
USA	50.1
United Kingdom	36.9
Germany	22.7
Netherlands	17.4
France	15.9
Italy	13.9
Egypt	9.6
Tanzania	7.8
Belguim	7.0

 

SUMMARY OF TRADE

TOTAL	IMPORTS	EXPORTS
2007	605.1	274.6
2008	770.7	344.9
2009	788.1	344.9

 

Note: Figures in Billions (Ksh)
          1 USD = 80 Ksh

GOOD REASONS TO INVEST IN KENYA

i.      A Range of Tax Treaties and Investment Promotion and Protection Agreements.

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

ii.      Multilateral Trade System (MTS)

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

iii.      ACP/Cotonou Partnership Agreement

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

iv.      African Growth and Opportunity Act (AGOA)

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

v.       Generalised System of Preferences (GSP)

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

vi.      Investment Protection Guarantee

The constitution of Kenya guarantees protection of life and private property. The Foreign Investment Protection Act guarantees against expropriation of private property by government. Kenya is a signatory to and Member of the Multilateral Investment Guarantee Agency (MIGA) an affiliate of the World Bank which guarantee investors against loss of Investment to political problems in host countries.
Kenya is also signatory to International centre for Settlement of Investment Disputes which is a channel for settling disputes between foreign investors and host governments

 vii.    Infrastructure

 The construction of superhighway in city of Nairobi is a leading link for investors for transportation renovation of Kenya Railways, Kenya Airways (Pride of Africa) and Lamu Port has made Kenya a hub of International Transportation Centre

viii.    Bilateral Trade Agreements

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

1. Argentina	15. Nigeria	Agreements Under Negotiations
2. Bangladesh	16. Pakistan	1. Belarus
3. Bulgaria	17. Poland	2. Czech Republic
4. China	18. Romania	3. Ethiopia
5. Comoros	19. Russia	4. Eritrea
6. Congo (DRC)	20. Rwanda	5. Iran
7. Djibouti	21. Somalia	6. Kazakhstan
8. Egypt	22. South Korea	7. Mauritius
9. Hungary	23. Swaziland	8. Mozambique
10. India	24. Tanzania	9. South Africa
11. Iraq	25. Thailand
12. Lesotho	26. Zambia
13. Liberia	27. Zimbabwe
14. Netherlands

INVESTMENT INCENTIVES

Tax incentives are mainly in place to promote investment or exports. Major tax incentives available include:

Investment Deduction Allowances (IDA): introduced in 1991 to encourage new investment,

Industrial Building Allowance: granted on cost of construction of buildings used for manufacturing purposes and also hotel premises,

Capital Expenditure on agricultural land: targeted at farmers who incur capital expenditure in the course of their operations

Mining deduction allowance: granted to businessmen involved in mining,

Import duty set off: allows import duty paid on import of capital equipment to be set off against income tax payable

Corporate tax stands at:

-  Standard rate of 30%
- 25% for new listing at Nairobi Stock Exchange for 5 years

Rate of VAT:

- Standard 16%
- Restaurants 14%
- Input for health care, education and exports of goods and services 0%

Export Processing Zones: allow for duty and VAT free importation of inputs for production of export products within specified zones. Incentives include 10 year tax holiday, exemptions from stamp duty,  non liability on income tax for non resident employees, etc,

Manufacture under bond: also allow for duty and VAT free importation but require that corporation tax be paid,

Tax Remissions Export Office: TREO primarily involves VAT refunds since duty on most of their inputs is already at 0%

Manufacture under bond: also allow for duty and VAT free importation but require that corporation tax be paid,

Tax Remissions Export Office: TREO primarily involves VAT refunds since duty on most of their inputs is already at 0%

One Stop Shop – Kenya Investment Authority

Registration of the business

Submit applications for approval by the Kenya Investment Authority.

Private/Public Partnership (PPP) in place

Kenya is a member of MIGA (Multilateral Guarantee Agency) an affiliate of World Bank and guarantees against non-commercial risks.

BUSINESS REGISTRATION

Step by step guide

i.      Steps

Fill the Investment Application Form.

Engage legal advice in Kenya.

Register Your business

Submit Application Form + Certificate of Incorporation + Articles and memorandum of association to KenInvest

Issue of The Investment License

ii.       Procedures for establishing a company in Kenya

The principal types of business enterprises in Kenya are:

Registered Companies (Private and Public)

Branch offices of companies registered outside Kenya

Partnerships Sole Proprietorships

Co-operatives

Companies are registered as limited liability companies as in 1 and 2 above, and regulated by the Companies Act (Cap 486). Kenya's legal system is based on English law and practice. A wide range of legal services are locally available.
 
iii.      Company Registration
The initial step in forming a company is to register the proposed company name with the Registrar of Companies at the Attorney General's Chambers in Nairobi. The Memorandum and Articles of Association should be filed with the Registrar of Companies who, upon satisfaction, issues the Certificate of Incorporation.

Opening a branch office of an overseas company
An overseas company wishing to open a branch office in Kenya should deliver the following to the Registrar of Companies:

A certified copy of the Charter, Statutes or Memorandum and Articles of Association of the Company, or other instruments defining the constitution of the company;

A list of the directors and secretary of the company, giving full names, nationality and other directorships of companies in Kenya;

A statement of all existing charges entered into by the company affecting properties in Kenya;

Names and postal addresses of one or more persons resident in Kenya authorised to accept, on behalf of the company, service of notices required to be served on the company;

Full address of the registered or principal office of the company in its home country; and,

Full address of place of business in Kenya.

Both private and public companies may allot shares for considerations other than cash. Companies should inform the Registrar of Companies of such allotments and submit a written contract constituting the title of the allottee.

iv. Patents and Trade Marks
Patents are regulated by the Industrial Property Act and administered by the Kenya Industrial Property Institute (KIPI), while trademarks are regulated by the Trade and Service Marks Act (Cap 506) and administered by the Registrar of Trademarks at KIPI. The duration of trademarks is seven years from the date of filing and renewable every 14 years.

v.    Work permits

The Government allows investors to have key expatriate staff in senior management positions or where locals with specific skills are not available. Work permits for such expatriates are issued by the Immigration Department and are valid for one to two years, renewable on application.

vi.      Import and export procedures
There is no import licensing except for a few items restricted for security, health or environmental reasons detailed in the Imports, Exports and Essential Supplies Act (Cap 502).
During the Budget for Fiscal Year 2001/02 the Minister agreed to waive the 2.75% Import Declaration Form (IDF) fees applicable on imported goods used for manufacturing goods for exports under the Tax Remission for Export Office (TREO) scheme. Manufactures under the TREO will however have to pay Kshs. 5000 which is processing fees.