KENYA: Country Analysis and Trade information

Gaurav Kumar , Roll No 12

Kenya: Country Profile

Economic growth is expected to remain below potential until 2012. Political in-fighting limits
the policy makers' effectiveness. Unemployment is in double digits and predicted to fall
slowly. The economy is still creating around 400,000 jobs per year but most of these are in
the informal sector. The country fails to attract much in the way of foreign investment.
Kenya is one of five countries working to form a common market.
ECONOMIC PERFORMANCE AND POLITICAL FRAMEWORK
Area
582,645 square kilometres
Currency
Kenya shilling (KES = 100 cents)
Location
Kenya lies on the Indian Ocean coast of central East Africa, where it is bounded in the north
by Eritrea, Ethiopia, Sudan and Somalia, in the west by Uganda and in the south by Tanzania.
Although subject to occasional drought, the country has an equable climate and numerous
major watercourses. The capital is Nairobi.
Head of State
President Emilio Mwai Kibaki (2002)
Head of Government
Raila Odinga (2008)
Ruling Party
A grand coalition, negotiated following the post-election violence, leads the country.
Political Structure
Kenya has an executive president who is elected for a five-year term by the people. The
National Assembly has 224 members; 210 members are elected for five-year terms in single-
seat constituencies, 12 members are appointed and two are ex-officio members. The post of
prime minister was created as part of the post-election negotiations following the poll in
December 2007.
Last Elections
Kibaki was re-elected as president in December 2007, defeating Raila Odinga of the Orange
Democratic Movement. The poll was widely criticised by both western observers and
opposition leaders. It also led to the worst violence since independence. International
negotiations eventually resulted in a change in the composition of the government in March
2008. Part of the agreement was that Odinga would become prime minister. The two
opposing groups have roughly equal representation in the new parliament. In August 2010,
67% of Kenyan voters supported a referendum for a new constitution. Included in the new

2
constitution is the introduction of a bill of rights, land reform and new curbs on the
president's power.
International Issues
The government of Sudan accuses Kenya of supporting the rebels fighting in the south of
that country. Fears that Somalia's problem will spill over into Kenya has risen since Ethiopian
troops moved into Somalia. The government failed to set up a tribunal to deal with the
suspected leaders of the political crisis in 2008. In response, the International Criminal Court
in The Hague has agreed to proceed with cases against unnamed leading Kenyan politicians.
Riots following the latest presidential election have led to the cut off of shipments of fuel
and goods to neighbouring states from Kenya's port in Mombasa. In the longer run, many
multinationals and other businesses may relocate their regional headquarters if the political
divisions in Kenya are not resolved.
Economic Structure and Major Industries
The agricultural sector is the cornerstone of the economy but has not performed well owing
to drought and the government's failure to devise a set of policies to deal with water
shortages. Farming still employs about 80% of the workforce. Costs of production are high
and smallholders are barely breaking even. The number of smallholders producing food
crops has been halved over the past two decades. Kenya is the world's largest exporter of
black tea and in overseas sales are booming, driven by increased demand in China and India.
The manufacturing sector consists largely of agro-based industries, along with producers of
wood, cork and basic chemical products. Kenya also has a significant engineering industry
along with producers of glass and construction materials and a large textile and clothing
industry. The real value of manufacturing output fell by 3.1% in 2009. The government
hopes the next growth industry will be business-process outsourcing. Officials plan to create
up to 120,000 jobs in the industry by 2020. A drawback will be the country's erratic power
supplies.
In the service sector, tourism is the dominant industry, accounting for nearly 50% of GDP.
The industry employs approximately 11% of the Kenyan work force. During 2008, thousands
of tourists cancelled their Kenyan travel plans their governments advised against visiting the
country owing to political unrest. The real value of tourist receipts fell by a surprising 37.5%
in 2008 but modest gains were reported in 2009. In 2010, receipts are expected to rise by
7.7%. Even in the best of times, Kenya receives less than one-tenth of the number of tourists
who visit South Africa, its biggest rival.
Business Environment
The sale of state-owned firms in key industries such as banking, electricity,
telecommunications and ports has progressed very slowly The public sector is too large and
inefficient, absorbing an increasing portion of government revenues. The government has
reduced the degree of political interference but business confidence has been severely

3
 dented by mounting charges of corruption. The dysfunctional government is proceeding too
slowly (if at all) on reform initiatives.
Poor infrastructure pushes up the prices of locally produced goods. To remedy the situation,
the government plans an ambitious upgrade of the road network.
Table 1 Indicators of Business Environment: 2009

Indicator 2009
Business start-up
Cost (% of GNI per capita) 36.5
Duration (days) 34

Dealing with construction permits

Time (days) 120
Cost (% of GNI per capita) 161.7

Employing workers
Rigidity of employment (index) 17
Ratio of minimum wage to average value added per worker 0.55
Redundancy costs (weeks of salary) 47

Tax rate
Total tax rate (% profit) 49.7
Corporate tax rate (statutory rate, %) 30
Labour tax and contributions (% of commercial profits) 6.8

Exporting
Documents for export (no.) 9
Time to export (days) 27
Cost to export (US$ per container) 2,055

Importing
Documents for import (no.) 8
Time for import (days) 25
Cost to import (US$ per container) 2,190

4
Table 1 Indicators of Business Environment: 2009

Indicator 2009
Protecting investors
Investor protection index 5

Closing a Business
Time (years) 4.5
Cost (% of estate) 22
Source: Euromonitor International based on the World Bank

Note: Figures for dealing with construction permits refer to the time and cost of building a
warehouse, including licenses and permits. Rigidity of employment takes into account the
difficulty of hiring, the rigidity of hours worked (scheduling of non-standard work hours and
annual paid leave) and the difficulty of firing. The index ranges from 0 to 100 with higher
values indicating a greater measure of rigidity. The redundancy cost indicator measures the
cost of advance notice requirements, severance payments and penalties due when
terminating a redundant worker, expressed in weeks of salary. If the redundancy cost adds
up to 8 or fewer weeks of salary and the worker can benefit from unemployment
protection, a score of 0 is assigned for the purposes of calculating the aggregate ease of
doing business ranking. The cost of exporting and importing is recorded as the fees levied on
a 20-foot container in United States dollars. All the fees associated with completing the
procedures to export or import the goods are included. The total tax rate measures the
amount of taxes payable by the business in the second year of operation, expressed as a
share of commercial profits. The taxes included are profit or corporate income tax, social
security contributions and other labour taxes paid by the employer, property taxes,
turnover taxes and other small taxes (such as municipal fees and vehicle and fuel taxes).
Data referring to labour taxes and contributions assumes the employee earns a salary plus
benefits that are equal to the economy's average wage. The investor protection index takes
into account the extent of disclosure, extent of director liability and the ability of
shareholders to sue directors for misconduct. The index ranges from 0 to 10 with higher
values indicating greater investor protection. The cost of the proceedings for closing up a
business is recorded as a percentage of the estate's value. The cost is calculated on the basis
of survey responses by insolvency practitioners and includes court fees as well as fees of
insolvency practitioners, independent assessors, lawyers and accountants.
Energy Markets
Kenya has no oil of its own, and must import all of its daily consumption of 67,000 barrels.
The government has sought to bring in partners to assist with oil exploration in the country.
Recent oil surveys have indicated that more than half of the country has oil potential.

5
Limited oil exploration has been going on for the last 40 years, but only 30 wells have been
drilled so far with little success.
Overview of the Economy
Real GDP growth averaged 6% per year in 2004-2007 but this envious record was broken in
2008, owing to the post-election turbulence and violence. The slowdown continued in 2009
when real GDP rose by just 2.1%. Severe drought and the problems associated with the
global recession were complications.
The government has set very ambitious targets for its “Kenyan Vision Strategy”. They
include annual rates of growth of 10% and the annual creation of 500,000 jobs. Neither of
these goals is likely to be met given the troublesome domestic and international
environment. The economy is still creating around 400,000 jobs per year but most of these
are in the informal sector.
The share of exports in GDP fell to 14.4% in 2009 after rising for the previous several years.
Agriculture is Kenya's most important export sector. In 2009, agricultural exports
represented 52.6% of the total. As such, the economy is dependant on global commodity
markets, as well as on rainfall.
To strengthen Kenya's external competitiveness, the government is trying to reform the
wage-setting system and liberalise trade. Roughly two-thirds of the taxes collected are spent
on servicing debts and paying the inefficient public sector.
ECONOMIC OUTLOOK
Key Points
Real GDP is expected to rise by 4.1% in 2010. This would be a poorer performance than
neighbouring countries and far below Kenya's historical trend. Inflation should ease but
will remain in double digits.
Kenya fails to attract much in the way of foreign investment. Tanzania, with a much
smaller economy, pulls in many times the level of FDI each year. Remittances are also
down
Each year, an estimated 500,000 enter the labour market but the economy has only
created a net 150,000 secured salaried jobs since 2003. Most new jobs are in the informal
sector. Unemployment will be 12.9% in 2010.
Kenya is one of five members of a newly formed common market. However, Kenya has
the strongest manufacturing sector of the five and is expected to benefit most.
Economic Prospects
Real GDP is expected to rise by 4.1% in 2010. This would be a poorer performance than
neighbouring countries and far below Kenya's historical trend. However, growth in the first
half of the year was much stronger than expected. Agriculture, construction and financial
services are driving the gains. Price increases for some of Kenya's key exports should also
provide a boost to the economy.

6
 Kenya is one of five members of a newly formed common market. Known as the East African
Community (EAC), the group also includes Burundi, Rwanda, Tanzania and Uganda. Kenya,
however, has the region's strongest manufacturing sector and is expected to benefit most.
Sharp increases in public spending had been planned but the problems in global financial
markets forced their postponement. The government had planned to issue US$500 million
in sovereign debt during 2009 to fund improvements in infrastructure but the sale had to be
cancelled. Ultimately, the fiscal deficit for 2009 was 3.6% of GDP – lower than expected
owing to the slow implementation of development projects. Kenya's public debt as a share
of GDP has been slowly falling. In 2009 it was 36.8% of GDP, down from 58.3% in 2004.
Public debt totalled KES881,535 million in 2009.
Poverty is substantial but has fallen in recent years. In Nairobi, 30% of people live below the
poverty line while in the northwest the figure is 95%. Kenya's income distribution is one of
the most unequal in Africa.
Kenya fails to attract much in the way of foreign investment. Tanzania, with a much smaller
economy, pulls in many times the level of FDI each year. Remittances are also down owing
to tighter financial circumstances among Kenyan immigrants in the west.
Kenya's population has doubled since 1978, dropping the median age to around 18 years.
Each year, an estimated 500,000 enter the labour market but the economy has only created
a net 150,000 secured salaried jobs since 2003. Unemployment will be about 12.9% in 2010.
Political Stability and Risks
An estimated 47% of all Kenyans are living in poverty and 20% live in extreme poverty. The
country also has a serious HIV/AIDS pandemic, though infection rates have fallen. Currently,
the government estimates that 9.2% of the population is infected.
Crime is widespread and the infrastructure is in serious disrepair. Food insecurity worsened
during 2009. President Kibaki has had a series of strokes and many now believe he is too
enfeebled to continue with his efforts to root out corruption.
Evaluation of Market Potential
Real rates of GDP growth are expected to exceed 6% per year by 2012. However, the
government still faces a host of problems which include food shortages, power cuts, water
scarcity, worsening crime, growing inequality and the threat of ethno-political violence. Yet
the country's politicians appear unwilling or unable to act.
Officials have made it a priority to invest in infrastructure, address the problems of land
distribution and income inequality and tackle corruption. Progress, however, is very slow
owing to political in-fighting. Supply bottlenecks must be addressed if much-needed gains in
competitiveness are to be realised.
Statistical Summary

2004 2005 2006 2007 2008 2009

Inflation (% change) 11.6 10.3 14.5 9.8 16.2 9.3

7
Exchange rate (per 79.17 75.55 72.10 67.32 69.18 77.35
US$)
Lending rate 12.5 12.9 13.6 13.3 14.0 14.8
GDP (% real growth) 4.6 6.0 6.3 6.9 1.3 2.4
GDP (national 1,286,460.0 1,445,480.0 1,642,400.0 1,825,960.0 2,099,800.0 2,298,162.8
currency millions)
GDP (US$ millions) 16,248.5 19,131.7 22,779.2 27,124.6 30,354.8 29,710.5
Population, mid-year 35,353.6 36,294.2 37,263.2 38,260.0 39,283.7 40,332.5
('000)
Birth rate (per '000) 39.1 39.2 39.2 39.0 38.8 38.4
Death rate (per '000) 12.7 12.5 12.3 12.0 11.6 11.3
No. of households 7,767.9 8,014.4 8,267.5 8,527.1 8,792.7 9,063.7
('000)
Total exports (US$ 2,684.0 3,292.9 3,436.9 4,079.9 4,972.2 4,463.4
millions)
Total imports (US$ 4,552.7 6,148.9 7,311.4 8,989.4 11,074.4 10,206.8
millions)
Tourism receipts 486.0 579.0 687.0 917.0 752.0 800.1
(US$ millions)
Tourism spending 108.0 124.0 178.0 265.0 266.0 292.3
(US$ millions)
Urban population 7,155.3 7,429.5 7,719.8 8,028.2 8,354.3 8,699.1
('000)
Population aged 0-14 43.0 42.8 42.7 42.7 42.8 42.8
(%)
Urban population (%) 20.5 20.7 21.0 21.3 21.6 21.9
Population aged 15- 54.3 54.5 54.6 54.6 54.6 54.6
64 (%)
Population aged 65+ 2.8 2.7 2.7 2.7 2.7 2.6
(%)
Male population (%) 49.9 49.9 49.9 50.0 50.0 50.0
Female population 50.1 50.1 50.1 50.0 50.0 50.0
(%)
Life expectancy male 51.5 52.0 52.5 53.2 53.8 54.5
(years)
Life expectancy 52.6 52.9 53.4 54.0 54.7 55.3
female (years)
Infant mortality 78.0 79.0 79.0 77.5 75.9 74.3

8
(deaths per '000 live
births)
Adult literacy (%) 76.8 77.6 78.4 79.2 80.0 80.7
Imports and Exports

Major export destinations 2008 Share (%) Major import sources 2008 Share (%)
Africa and the Middle East 40.7 Africa and the Middle East 35.4
Europe 31.5 Asia Pacific 34.3
Asia-Pacific 12.7 Europe 20.9
North America 6.6 North America 4.5
Other countries 6.2 Other countries 2.7
Australasia 2.1 Latin America 1.5

9
Investment and Trade in kenya

Key Facts:

Land area: 582,646 km2

Population (July 2002): 31.1 million

Capital city: Nairobi

Major Towns: Mombassa, Kisumu, Nakuru, Eldoret and Thika

Currency: Kenya shilling (Ksh)

Average exchange rate: 78.597ksh/US $ (2001)

GDP real (2001 est): 31 billion

GDP per capita (2001):$ 1, 000

GDP growth (2001):1%

Composition of GDP: services (63%), agriculture (24%), industry (13%)

Budget (2001 surplus): $ 60 million

Inflation( 2001):3.3%

Productivity growth (industrial): -0.7%

Rate of unemployment (2001): 40%

Official language: English

Language of the media: English, Kiswahili

Exports: $ 1.8 billion, f.o.b

Main exports: Coffee, Tea, Horticultural products, Soda ash, Cement, Pyrethrum.

Imports: $3.1 billion, f.o.b

Main imports: Petroleum, Machinery and transportation equipment, motor vehicles, textiles, Iron
and Steel, Pharmaceutical, resin and plastics

10
 MAJOR INVESTMENT INCENTIVES

 Investment Allowance

Investment allowance is provided at the rate of 100% as an incentive for investment in the
manufacturing and hotel sectors. For manufacturers under bond, the applicable rate is 100%. In
addition, eligible capital expenditure has been expanded to include infrastructure and environment
protection equipment expenditure related to the manufacturing activity.

 Loss Carried Forward

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

 Remission from Customs Duties

Duties on capital goods, plant and machinery are applicable at the rate of 5%. Large scale private
investment projects (i.e. with expenditure on productive physical assets>US$ 5 million within a two-
year period) which will generate net economic benefits for the country can recover the value of
import duties on capital goods against income liability.

 Duty Remission Facility

Material imported:

(i) for use in manufacturing activities for export

(ii) for the production of raw materials for use in export manufacture or
(iii) for the production of duty free items for sale domestically

is eligible for duty remission.

 Manufacture Under Bond

11
To encourage manufacturing activities directed at world markets, the government has established
an in-bond programme which offers investors the following incentives:

(i) Exemption from duty and VAT on imported raw materials, plant, machinery and equipment
and other imported inputs and
(ii) 100% investment allowance on plant, machinery, equipment and buildings. IPC, together
with the Ministry of Finance, administers this programme.

 Export Processing Zones Programme

Enterprises operating in export processing zones in Kenya enjoy the following advantages:

(i) Ten years tax holiday and a flat tax rate of 25% for the next ten years;
(ii) Exemption from all withholding taxes on dividends and other payments to non-residents
during the first ten years;
(iii) Exemption from import duties on raw materials, machinery and intermediate inputs;
(iv) No restrictions on managerial or technical arrangements;
(v) Exemption from stamp duty;
(vi) Exemption from VAT; and
(vii) Operate on one license only.

INVESTMENT OPPORTUNITIES

ARICULTURE

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

Agricultural Support

Investment opportunities exist in seed production, manufacture of sprayers and pesticides,

veterinary services, construction of dams and bore holes, installation of irrigation systems and
services. Opportunities also exist in support services, such as cold storage facilities and refrigerated
transport for horticultural and other perishable products.

12
Horticulture

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

Agro-Processing

Numerous investment opportunities exist in this sector. Edible and other oils produced locally
include butter, ghee and margarine as well as sunflower, rapeseed, cottonseed, sesame, coconut
and corn oils, while a large quantity of palm oil is imported. Investments to develop substitutes for
palm oil imports are welcome.

Kenya produces excellent beer, utilising locally grown barley. The country has recently developed
papaya and grape wines that can be exported to regional and international markets. Opportunities
exist in coffee roasting and grinding, with a further potential such as in the production of
decaffeinated coffee for export.

Sugar production, at 402,000 tonnes per annum is below the domestic demand estimated at
600,000 tonnes per annum. Molasses, a by-product of sugar production, is processed into power
alcohol, potable alcohol, and baker's yeast. There is also considerable potential for the expansion of
chocolate and confectionery products for export. Opportunities for investment exist in the
production and processing of sugar, tea, meat and dairy products.

Poultry Products

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

Fisheries

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

Leather and Leather Goods

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

13
Livestock

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

MANUFACTURING

Manufacturing sector is an area where investment opportunities exist. Initially developed under the
import substitution policy, there has now been a shift to export oriented manufacturing as the thrust
of Kenya's industrial policy. The sector plays an important role in adding value to agricultural output
and providing forward and backward linkages, hence accelerating overall growth.

The manufacturing sector now comprises of more than 700 established enterprises

and employs directly over, 218,000 persons as at the year 2000. A wide range of opportunities for
direct and joint-venture investments exist in the manufacturing sector, including agro-processing,
manufacture of garments, assembly of automotive components and electronics, plastics, paper,
chemicals, pharmaceuticals, metal and engineering products for both domestic and export markets.

Paper Products

Kenya has an integrated pulp paper mill plant producing paper and paper board from renewable
forest products. However, the country imports coated white lined chipboard and other boards for
packaging, newsprint, printed paper and other types of paper. Investment opportunities exist in the
production of paper from other raw materials such as bagasse, sisal waste, straw and waste paper.

Textiles and Apparels

Textile, Garment and Apparel manufacturing has a very high potential in Kenya. The basic raw
material inputs such as dyes and chemicals are imported, as are all textile equipment and most spare
parts. Investment opportunities exist under the Manufacturing Under Bond scheme and in the
Export Processing zones for the production of items such as yarn and garments.

Metal and Engineering Works

Kenya has a basic metal sector making a variety of downstream products from local and imported
steel scrap, steel billets and hot rolled coils. Kenya imports steel billets, coils, wire rod and wires,

14
steel plates, sheets, steel scrap and pig iron. The country possesses a broad-based metal products
sector with various independent engineering, foundry and metalwork workshops. Opportunities
exist in the development of a nucleus foundry making precision castings that are then processed into
precision components.

Vehicle Parts and Assembly

The motor vehicle component industry is rapidly developing to supply the needs of a few motor
vehicle assemblers to meet certain local content requirements. Opportunities exist for manufacture
of components for use by local assemblers for domestic market and for export to regional markets.

Electrical Equipment

Investment potential exists for the production of motors, circuit breakers, transformers, switch
gears, irrigation pumps, capacitors, resistors, insulation tapes, electrical fittings and integrated
circuit boards for both the domestic and export markets.

Electronics

Although Kenya's electronic industry is still at its infancy, a number of firms in the assembly, testing,
repair and maintenance of electronic goods are in operation and are rapidly increasing their scope of
activities to meet the growing demands of the industry.

Key opportunities for direct investments, joint-ventures and subcontracting exist in assembly of a
wide range of electronic goods in Kenya, especially within the Manufacturing Under Bond scheme
and Export Processing Zone Programmes.

These include the production of:

 .Consumer electronics, such as colour televisions, Video Cassette Recorders (VCRs), printers,
floppy disk drives and Compact Disk Roms (CD-Rs);
 Telecommunication equipment, such as printed circuit boards, and transmission equipment; and
 Support items such as cables, cords, die casting and metal plating.

With a labour force which is well-equipped to meet the labour skill requirements for the industry
and the relatively large domestic and export market potential of electronics in the region, Kenya
offers an enormous potential for the manufacturing and assembly of electronic items.

15
Plastics, Chemicals and Pharmaceuticals

The plastics industry in Kenya is well-developed and produces goods made of polyvinyl chloride
(PVC), polythylene, polystyrene, and polypropylene. All materials are imported in the form of
granules.

A large number of pharmaceutical formulations are produced locally in the form of tablets, syrups,
capsules, and injectables, but the bulk of pharmaceuticals is imported. There is room for additional
investment in the pharmaceutical industry.

Many attractive investment opportunities in chemicals, pharmaceuticals and fertilizers remain

unexploited. These include the production of PVC granules from ethyl alcohol; fomaldehyde from
methanol; melanine and urea; mixing and granulating of fertilizers; cuprous oxychloride for coffee
bean disease; caustic soda and chlorine based products; carbon black; activated carbon; precipitated
calcium carbonate; textile dyestuff; ink for ball-point pens; and gelatine capsules.

Mining and Mineral Products

Opportunities exist in the production of glass as the country is not self-sufficient. A few
manufacturing units produce ceramic pottery and tiles, however, substantial quantities of ceramic
pottery, tiles, sanitary-ware, and insulators are imported. Investment potential exists in prospecting
and mining of other minerals such as gold, precious stones and petroleum.

Wood and Wood Products

Making use of renewable resources, investment opportunities exist for production of high quality
and hand carved furniture for export, high density board from saw dust for the domestic market,
high quality veneers, wooden toys, sporting goods such as cricket bats and rackets for export, and
other speciality items. Recognising the importance of environmental preservation, the Government
pursues an active re-afforestation programme.

BUILDING AND CONSTRUCTION

With increase in population, opportunities exist in the construction of residential, commercial and
industrial buildings, including prefabricated low-cost housing.

16
TOURISM

Tourism is Kenya's third largest foreign exchange earner. The tourism industry is growing as a result
of the liberalisation measures, diversification of tourist generating markets and continued
Government commitment to providing an enabling environment, coupled with successful tourism
promotion and political stability. Enormous opportunities exist for investment in film production;
recreation and entertainment facilities in the following areas:

 Conference Tourism

 Cultural tourism

 Cruise ship Tourism

 Aviation/tour and travel Tourism

 Eco-tourism
Potential investors can take full advantage of these opportunities through direct investments or
joint-ventures with Kenyan entrepreneurs. Opportunities also exist in this sector in the construction
of tourist hotels and game lodges all over the country.

Telecommunications and transport projects

Telecommunications

The ongoing liberalisation and privatisation offer important investment opportunities to private
investors, particularly in the information technology and telecommunications sectors. Investors
possessing the necessary skill in those sectors can form joint ventures, particularly for the provision
of cellular phones and internet services.

Road sub-sector

To ensure that the future road network effectively supports the socio-economic development of the
country, it is proposed to improve the network by undertaking several projects. In fact, there is a
proposal to venture into the construction of an underground transport system as is found in
European cities. The Industrial and Commercial Development Corporation (ICDC) is willing to go into
partnership with investors to team up with investors from the Czech Republic who have expressed
interest in the development of infrastructure for urban transport.

17
Tyres

The country currently has only one tyre manufacturing facility namely Firestone (E.A.)Limited. ICDC
is convinced that another tyre manufacturing facility would be a feasible proposition and is therefore
looking for joint venture partners to promote one.

Port facilities

Berths

Investment opportunities exist in the rehabilitation of berths to give them a new lease of life for
efficient and economic operations.

Conversion of port berths into container berths - Mombasa

Investment opportunities are available in the conversion of berths at Mombasa port into container
berths to cater for increased container traffic.

Container terminal management systems

Opportunities exist in the study and installation of modern information technology systems at
Mombasa Container Terminal to enhance the fluidity of container traffic movements.

Construction of bypass to substitute the Likoni Ferry

The Likoni Ferry in Mombasa presents a major transportation bottleneck. ICDC intends to approach
investors with the necessary technical know-how and finance to construct a road bypass to replace
the Likoni Ferry.

18
Civil Aviation

Airports

Potential opportunities exist in the form of developing airports to cater for the ever-increasing
passenger volumes and the growth of air traffic.

The energy sector

Presently, the Kenyan oil market, whose total sales volume reaches around 2.3 million cubic metres
per annum, is served by eight private companies. The Government of Kenya expects that, upon
deregulation of the oil industry, the Kenyan market will open up to new companies.

Moreover, potential demand for Liquefied Petroleum Gas (LPG) is expected to increase to twice its
present amount in the near future. However, supply and distribution of LPG have been constrained
by a number of factors including limitation of production from the Kenyan Petroleum Refineries Ltd.
(KPRL). LPG supply and distribution thus represents an area where opportunities are available for
investment.

The Government also plans to invest in the petroleum sub-sector, embarking on projects like oil
exploration and oil pipeline rehabilitation.

Electricity sector

The demand for electricity is estimated to have increased at the rate of 5.4% per annum between
1994 and 2000. To meet this demand, the Government, in collaboration with the World Bank, has
prepared an investment programme for the electricity sub-sector. The National Power Development
Plan recommends that during the next 15 years geothermal generation should increase to 280MW,
partly due to the predicted abundance of geothermal energy resources in the country.

19
Pharmaceutical industry

Some of the potential projects identified by the Department of Industries are as follows:

 construction of a multipurpose chemical plant for bulk production of intermediate inputs such as
paracetamol, aspirin etc;
 construction of a chemical plant to manufacture the anti-tuberculosis, anti-leprosy and antibiotic
rifampicin from the penultimate state;
 manufacture of Quinine; and
 extraction of Hecogenin and syntheses of Betamethasone from Hecogenin.

Salt works

ICDC has received a proposal for a joint venture in a 400 ton per day salt processing plant on the
Kenyan coast. The local partners are looking for other interested investors to facilitate the
realisation of the project.

Agribusiness

UTIITIES

Electricity

20
Electricity is supplied at 240 volts, 50 cycles single-phase and at 415 volts, 50 cycles three-phase. The
government is encouraging private sector participation in the production of electricity. Under the
Parastatal Reform Programme, the functions of generation and transmission, and distribution were
separated, creating the Kenya Electricity Generating Company (KENGEN) and the Kenya Power and
Lighting Company (KPLC) , respectively.

The Electric Power Act also established the Electricity Regulatory Board (ERB) whose functions, inter-
alia, are setting tariff rates and licensing of private sector applicants.

Water and Sanitation

For industrial and domestic purposes, water is supplied by local authorities and other licensed
suppliers. Major towns in Kenya provide sewerage and drainage systems for residential and business
use. In view of increasing demand, the various local authorities are undertaking major investments
for the supply of water. The overall goal of the government is to ensure that Kenyans have access to
safe drinking water. Currently, water policy focuses on providing an enabling environment and
regulatory framework for all stakeholders in the sector.

21
 SEA AND AIR CONNECTIONS

Airports

Kenya has well-developed international and domestic air transport facilities. There are international
airports in Nairobi, Mombassa and Eldoret and more than 150 airstrips throughout the country.
Nairobi's lomo Kenyatta International Airport serves more than 30 airlines,providing direct
scheduled services to major capitals in Africa, Europe, Middle East and Asia. Wilson Airport, which is
also in Nairobi, handles light aircraft and is one of the busiest in Africa.

Passenger traffic through Nairobi, Mombassa and Eldoret Airports rose significantly by 12.2 per cent
from 3,558,000 travellers in 1999 to 3,990,000 travellers in the year 2000. This was due to a
rejuvenated tourism sector. The volume of cargo exported increased from 130,600 tonnes in 1999 to
400,145 in the year 2000 because of increased exports of fresh produce and cut flowers to foreign
markets.

Seaports

Mombassa is the principal seaport of Kenya and one of the most modern ports in Africa, providing
connection to landlocked neighbouring countries. This deepwater port with 21 berths, 2 bulk oil
jetties and dry bulk wharves, handles all sizes of ships and all types of cargo. In addition, the port has
specialised facilities including cold storage and warehousing and its container terminal is one of the
best equipped in the region.

The port of Mombassa is linked to the world's major ports with over 200 sailings per week to
Europe, North and South America, Asia, the Middle East, Australia and the rest of Africa. Freight
haulage through Mombassa increased by 6.7 per cent to 8,837,000 tonnes in the year 2000 from
8,284,000 in 1999, Kenya Ports Authority which manages port operations is one of the strategic
parastatals. Currently, it is undergoing comprehensive restructuring aimed at enhancing efficiency
and delivery of service.

22
FORMALITIES FOR SETTING UP ENTERPRISES IN KENYA

The Investment Promotion Centre Act provides that all new investments should comply with
established environmental, health and security requirements. IPC processes, amongst others,
applications for export oriented projects under the Manufacturing Under Bond (MUB) programme.

 Procedure

Potential investors are required to submit their project applications to the IPC on the prescribed
application form (obtainable at the centre) together with copies of the following documents:

(i) Certificate of Incorporation or Registration; and

(ii) Joint Venture, Royalty and Management Agreements (where applicable).

Through the information provided by the investor on the application form, the IPC is able to identify
the types of approvals and licenses required and facilitate their acquisition from ministries as
appropriate. IPC endeavours to complete this process within a period of four weeks upon receipt of
all the required information.

PROCEDURES FOR ESTABLISHING A COMPANY IN KENYA

The principal types of business enterprises in/Kenya are:

1. Registered Companies (Private and Public)

2. Branch offices of companies registered outside Kenya
3. Partnerships
2. Sole Proprietorships
3. 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.

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

23
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 that may affect 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 consideration)n other than cash. Companies
should inform the Registrar of Companies of such allotments and submit a written contract
constituting the title of the allottee.

PATENTS AND TRADE MARKS

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

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 two years, renewable on application.

24
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 Export Promotion Programme Office (EPPO) scheme. Manufacturers under the EPPO will,
however have to pay Kshs. 5000 which is processing fees.

Business Hours

Government offices operate on a five-day week while most private businesses are run on a six-day
week. The official working hours are 8 a.m. to 5 p.m. on weekdays, with a one-hour lunch break.
Sunday is not a working day.

Tourist and Transit Visas

A visitor should be in possession of a valid travel document and a return ticket. Visas will be issued
as appropriate.

Customs

Personal effects may be imported duty free. The importation of firearms and game trophies is
restricted, and pornographic literature is prohibited. Domestic animals and pets may be imported
provided they have valid veterinary certificates.

25