Overseas business risk: Kenya
Updated 9 March 2022
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General Overview
Kenya is the powerhouse of East Africa, and the now third largest economy in Sub Saharan Africa, after South Africa and Nigeria, and therefore one of the continents brightest prospects. Kenya’s strengths include its strategic location as a hub for East Africa with a deep-water port, macro-economic stability, skilled labour relative to its peers and the most developed banking sector in the region. The greater Nairobi area accounts for roughly 21% of Kenyan GDP[footnote 1] and increasing numbers of international firms are choosing to locate their Africa headquarters in Nairobi.
Kenya has made significant political, structural and economic reforms that have largely driven sustained economic growth, social development and political gains over the past decade.
However, its key development challenges still include poverty, inequality, vulnerability to climate change, corruption, weakening private sector investment and the vulnerability of the economy to internal and external shocks.
In 2019, Kenya’s economic growth averaged an impressive 5.7%, placing Kenya as one of the fastest growing economies in Sub-Saharan Africa. This economic expansion was been boosted by a stable macroeconomic environment, positive investor confidence and a resilient services sector[footnote 2].
The Kenyan economy has shown resilience to the COVID-19 shock, with output in 2021 rising above pre-pandemic levels. After contracting by 0.3% in 2020, real gross domestic product (GDP) increased by 5.3% year-on-year in the first half of 2021, supported by rebounds in industry and, especially, services. Agricultural output, however, has fallen by 0.5% n H1 2021 following a particularly strong performance in 2020, due partly to below-average rains.
On the demand side, the recovery has been supported by a revival in private consumption, against a backdrop of improving employment conditions and household incomes. Real GDP is expected to have grown by 5.0% in 2021 as a whole.
UK-Kenya Trade and Investment
Historical links to the UK and British businesses remain strong. with Kenya looking to the UK as a source of investment and expertise as it pursues it’s ‘2030 Vision’[footnote 3].
The United Kingdom is one of Kenya’s largest and most important foreign investors, and British companies are amongst the country’s largest taxpayers. An estimated 150 British enterprises are currently in Kenya, and bilateral trade between Kenya and the United Kingdom is estimated to be worth GBP 1.4 billion (KES 210 billion). Over 250,000 Kenyans are directly employed by British organisations. Kenya and the United Kingdom have a long history of friendship and collaboration in crucial areas such as education, trade and investment.
British businesses in Kenya are spread across multiple sectors and directly or indirectly contribute to the wider value chain of the economy. We believe there is still huge potential for UK firms from multiple sectors such as Agriculture, Infrastructure and Financial Services to bring value-add activities to the Kenyan market, to enable more exports to the UK and other markets, and be a significant job creator for Kenya.
The UK-Kenya Economic Partnership Agreement (EPA) ratified in 2021, ensures companies operating in Kenya continue to benefit from the pre-Brexit duty-free access to the UK market and support jobs and economic development in Kenya.
Total trade in goods and services (i.e. exports plus imports) between the UK and Kenya was £1.1bn in the 4 quarters to the end of Q4 2021. Total UK exports to Kenya amounted to £518m and total UK imports from Kenya were £557m.
The top 5 goods exported from the UK to Kenya were:
- cars
- mechanical power generators
- medicinal and pharmaceutical products
- beverages
- paper and paperboard
The top 5 goods imported to the UK from Kenya were:
- coffee, tea and cocoa
- vegetables and fruit
- other crude animal and vegetable materials
- mechanical power generators
- other miscellaneous manufactures.
Forty percent of UK tea imports come from Kenya.
In the high commission we see significant opportunities across a range of sectors, in particular Energy and Renewables (off-grid solutions; battery storage), Infrastructure (ports, roads airports, water), Education, Health and life sciences, and Financial Services and Fintech.
Politics
Elections will take place in Kenya for all levels of government in August 2022. Kenyatta, serving his second term in office, cannot run again. The 2 primary contenders are Deputy President Dr. William Ruto and former Prime Minister the Rt. Hon. Raila Odinga.
Since 1992 Kenya has held regular democratic elections. Kenya has experienced several bouts of election related tensions, sometimes spilling over into violence. Elections in 2007 were heavily contentious and marred by ethnic violence. Since then, with international support, many of the institutions needed to deliver free and fair elections have been strengthened.
The last elections, in August 2017, showed the incumbent President Uhuru Kenyatta and Deputy President William Ruto, from the Jubilee Party, had been re-elected with 54% of the vote. The opposition candidate, Raila Odinga, from the Orange Democratic Movement, refused to accept the results and contested them in the Supreme Court. The results were eventually annulled and fresh presidential elections were ordered to be held within 60 days. Raila Odinga later withdrew from the second election, resulting in President Uhuru Kenyatta being elected for a second term.
The country has a market-based economy with a liberalised foreign trade policy. Government policy has been to encourage expansion of the economy both through welcoming foreign domestic investment and encouraging exports. There are no indications this direction is likely to change.
A new Constitution was adopted in 2010 devolving significant power and resources to 47 new county government structures. This was intended to break from an over-centralised system that failed to hold previous governments to account. Under the new constitution, there is greater opportunity for public accountability as separate branches of national government have gained more independence from the executive branch.
After the 2017 elections, President Uhuru Kenyatta and Raila Odinga entered into a ‘handshake’ agreement, and agreed to enact a new programme of constitutional reform that would stop ethnic antagonism, particularly around elections. This became known as the ‘Building Bridges Initiative’ (BBI). A High Court ruling in May 2021 judged the BBI initiative to be unconstitutional. In August, the Court of Appeal upheld the High Court’s ruling, and the appeal has since been heard by the Supreme Court who are expected to deliver a verdict by the spring. The country has a market-based economy with a liberalised foreign trade policy. Government policy has been to encourage expansion of the economy both through welcoming foreign domestic investment and encouraging exports. There is a relatively free press. There are no indications this direction is likely to change.
More information on potential risks, including political demonstrations, is available in the FCDO Travel Advice.
Economics
According to the World Bank’s Kenya Economic update in 2021, Kenya’s economy has shown resilience to COVID-19 with output rising above pre-pandemic levels. Real gross domestic product (GDP) increased by 5.3% year-on-year (y/y) in the first half (H1) of 2021, supported by rebounds in industry and, especially, services has shown resilience.
A skilled labour force, a port that serves as an entry point for goods destined for its landlocked neighbours, a liberalised economy encouraging free flow of trade and foreign private investments backed by government policies to implement business reforms have all contributed to Kenya’s growth. Kenya has moved to abolish restrictions on foreign shareholding in listed companies as competition for capital heats up among Africa’s top capital markets.
The launch of Nairobi International Finance Centre (“NIFC”) in 2021, will make it easier and more attractive to invest and conduct financial services and related activities in Kenya. The NIFC Act provides a number of incentives to NIFC firms, in line with other successful financial centres, such as the freedom to repatriate profits, employ certain categories of staff, not be subject to nationalisation and can be owned up to 100% by non-Kenyans. The NIFC will also offer a more predictable business environment and regulatory framework designed to attract long term investments in key strategic sectors, as well as an improved dispute resolution framework. It also enacted a law on special economic zones (SEZs), providing investment incentives such as tax benefits and granting additional work permits for skilled foreign employees. 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.
However, Kenya’s economy is being hit hard through supply and demand shocks on external and domestic fronts, interrupting its recent broad-based growth path.
Apart from the COVID-19 (coronavirus) pandemic, the locust attack which started early 2020, has affected many parts of Kenya especially the North East. It has had a negative impact on the food security and growth of the agriculture sector in the country.
Real GDP growth of 4.9% per year on average is projected over 2022 to 23, similar to the pre-pandemic pace (5.0% average annual growth, 2010 to19). The Central Bank of Kenya (CBK) has maintained an accommodative monetary policy stance to support the economic recovery. Growth is expected to be broad-based, predicated on the continued adaptation of economic activities to the pandemic, vaccine rollout, and sufficient rains.
The downside risks include a protracted global recession undermining Kenya’s export, tourism and remittance inflows, further tightening of COVID-19 health response measures that disrupt the domestic economic activity, fiscal slippages and weather-related shocks.
Kenya’s public external debt position had increased to over KSH8 trillion by the end of 2021, according to data from the Central Bank of Kenya. This represents 66% of GDP, up from 44% at the end of 2015. Growth in debt has outpaced economic growth and been exacerbated by Covid-19. Increased debt has led to higher debt service charges, and more taxes, compounded by Kenyans grappling with higher food prices. Much of the extra borrowing was to fund large infrastructure projects from roads to railways, the benefits of which have not yet been fully realised for the wider population in increased productivity or economic growth.
In addition to aligning the country’s long-term development agenda to Vision 2030, the President outlined the “Big Four” development priority areas for his final term as President prioritizing manufacturing, universal healthcare, affordable housing and food security.
Kenya’s agricultural development remains a very significant contributor to GDP with the horticultural industry of mainly high quality cut flowers, coffee and tea being among the leading export products. Agriculture growth, however, has subsided following a particularly strong performance in 2020, as below-average rains in 2021 resulted in significant reduction in cereals and tea production. In 2019, the share of agriculture in Kenya’s gross domestic product was 34.15%, industry contributed approximately 16.15% and the services sector contributed about 43.22%. Other major GDP contributors are financial services sector, transport, manufacturing, construction, real estate and education.
In 2020 to 21, the Government of Kenya through the Department of Business Reforms and Transformation started the implementation of far reaching reforms across 9 key indicators:
- company registration
- obtaining building plan approvals
- access to electricity
- property registration
- paying taxes
- import and export processes
- access to justice for businesses
- business restructuring and insolvency
- public procurement reforms and legal reforms
Automation of various services is being implemented at pace. Close collaboration and focused discussions between businesses and the department has fostered better communication, development, prioritisation and validation of key business reforms.
Kenya was ranked at number 95 of 141 countries in the 2019 Global Competitiveness Index. The Global Competitiveness Index 4.0 measures national competitiveness - defined as the set of institutions, policies and factors that determine the level of productivity.
In 2020 Kenya was ranked at number 86 of 131 countries in the Global Innovation Index (GII), putting it as the 2nd most innovative economy in Sub-Saharan Africa. The GII measures an economy’s innovation performance, providing a ranking of world economies’ innovation capabilities and results.
Kenya officially became a lower middle income country in 2014 following a GDP recalculation exercise, and according to the World Bank, Kenya’s Gross National Income (GNI) now stands at US$ 1,750. This is an almost 300% improvement on 15 years previously.
Kenya imports mostly machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics. Kenya envisages, in its Vision 2030 development print, a massive upgrading and extension of the country’s infrastructure and renewable energy. In this regard, the country has highlighted a number of infrastructure projects that present significant opportunities for UK businesses in the coming years.
Foreign Direct Investment into Kenya
Kenya’s foreign direct investment (FDI) inflows fell $294 million (Sh31.3 billion) in 2019 annual estimates by the United Nations Conference on Trade and Development (UNCTAD) show, partly reflecting depressed growth in new jobs that has been worsened by the global coronavirus pandemic.
The inflows were estimated at $1.33 billion (Sh141.84 billion), a drop of 18.08% over nearly $1.63 billion (Sh173.15 billion) that foreign investors pumped into the Kenyan economy in 2018.
The World Investment Report 2020 published by UNCTAD suggests that Kenya’s FDI was largely driven by new projects in information technology (IT) and healthcare sectors.
This is unlike in 2018 when new FDI deals - comprising mergers and acquisitions (M&As) by foreign firms as well as loans and investment in start-up companies in Kenya - were diversified across sectors such as manufacturing, chemicals, hospitality as well as oil and gas. The report shows that the amount of investment shipped out from Kenya increased 24.39%, or $40 million (Sh4.26 billion), last year to stand at $164 million (Sh17.46 billion), eroding the 2018 gains when the outflows contracted 36.19% or $93 million (Sh9.90 billion). China was the largest investor in 2019, accounting for 60% of newly approved FDI projects, with significant realised investments in manufacturing and services,” UNCTAD said.
About 54% of Kenya’s FDI was reinvested earnings, the UNCTAD says, the highest share among leading investment destinations in Africa.
FDI into Kenya, just like elsewhere in the world, is expected to suffer sharp declines this year as multinationals postpone fresh investments due to uncertainty brought about by the Covid-19 crisis.
Free Trade Agreements
As one of the largest economies in East Africa, Kenya is an important trading partner for the UK.
Kenya is a member of the Common Market for Eastern and Southern African States (COMESA) trading bloc, and a member East African Community (EAC), which is set to expand to include the Democratic Republic of the Congo later this year. An Economic Partnership between the EAC and the EU was agreed in 2014, but remains unratified by the EAC.
A UK - Kenya Economic Partnership Agreement (EPA) was struck in December 2020. This trade agreement will ensure that all companies operating in Kenya, including British businesses, can continue to benefit from duty-free access to the UK market. It supports jobs and economic development in Kenya, as well as avoid possible disruption to UK businesses such as florists who will be able to maintain tariff-free supply routes for Kenya’s high-quality flowers.
Under the agreement, both parties will also meet regularly to ensure the commitments are implemented effectively and to discuss opportunities to deepen our trade and investment relationship. The inaugural meeting will take place later this year.
Top goods imports to the UK from Kenya last year were in vegetables and fruit (£123.9 million), and coffee, tea, cocoa (£110million). Kenya supplies just over 8% of British sold flowers, with cut flowers accounting for 25% of all Kenyan imports into the UK. In addition to maintaining tariff-free market access to the UK, this agreement will benefit many of the UK businesses exporting goods to Kenya each year, including many UK suppliers of machinery, electronics and technical equipment, where continued tariff-free access will be guaranteed.
This deal also recognises the importance of the wider region, and the agreement is open for other members of the East African Community to join.
Business and Human Rights
The Employment Laws set the minimum age for employment at 16 and the minimum age for hazardous work at 18. Children between the ages of 13 and 15 may perform light work. In addition, the laws allow minors under age 15 to apprentice in an industrial undertaking without setting a minimum age.
The Constitution guarantees Kenyans the right to join and form Trade Unions and to engage in collective bargaining. About 5 % of the Kenyan workforce belongs to a union. The constitution also gives every worker the right to fair remuneration and reasonable working conditions. Various unions have had Collective Bargaining Agreements (CBAs) with the government and private sector, which have resulted in inflation-busting pay rises for workers. There are claims that this is undermining the competitiveness of the affected industries.
During the recent Labour Day celebrations on 1 May 2017, the President announced an 18% increase in the minimum wages, which were last increased in May 2015. The legal notice with the details of the increase has not been published yet. The May 2015 minimum wages for skilled and semi–skilled workers was US$ 63-$ 80 per month, with unskilled labourers — the lowest paid — getting US $ 54. Minimum wages in urban areas are between US$ 107 and US$ 247 depending on the profession. However, this minimum is regularly flouted.
Although there have been notable changes in labour laws, women still remain in a disadvantaged position when trying to enter the labour force and face a considerable gender imbalance in access to formal employment. The requirement to pay the mandatory three-month maternity leave and fill the incumbent’s vacation position has caused a bias against hiring female workers. Half of the labour force in the agricultural sector consists of women. The state is obligated under ILO convention 183 to put in place measures that ensure that women do not get disadvantaged as a result of the increase in the maternity leave period hence new investors should be keen to ensure their suppliers and partners are not perpetuating this.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere. For more, read the information provided on our Bribery and corruption page. Bribery is illegal in Kenya, which enacted its own Bribery Act in 2016.
In the 2021 Transparency International Corruption Perceptions Index Kenya scored 30 out of 100 (with 0 being highly corrupt and 100 being very clean) with little change since 2012. Kenya was ranked 128 out of 180 countries and territories in 2021 (having moved down 4 places from 124 in 2020).
Despite market reforms, several business surveys reveal that business-government corruption is still widespread and that companies frequently encounter demands for bribes and informal payments in order to ‘get things done’ in Kenya. Foreign companies often find corruption a challenge at the market entry and business start-up stages.
The public procurement sector in Kenya suffers too from corruption amongst officials. There have been a number of high profile corruption scandals involving Kenyan Government ministries and agencies – widely reported in local media. The UK works closely with Kenya to prosecute cases of corruption that are connected to UK entities. The most recent US International Narcotics Control Strategy Report finds that Kenya remains vulnerable to money laundering, financial fraud, and terrorism financing.
The President has been an advocate of tackling Kenya’s culture of corruption within government. Kenya has the necessary legal framework in place to address the problem, but implementation is a slow-moving affair. Visit the Anti-Corruption portal and the Kenya Country Profile page for more advice and guidance about corruption in Kenya and some basic effective procedures you can establish to protect your company from them.
Terrorism and Security
See the FCDO Travel Advice for Kenya for the latest information on terrorism threats.
Cyber Security
At the end of 2021, total data/internet subscriptions was reported as 43.5 Million with 98.5% being mobile data subscriptions. (Kenya Population 47.6 Million – 2019 Census Report).
The National KE-CIRT/CC detected 35.2 million cyber threat events between Jul-Sep 2020, which was a 152.9% increase from the 13.9 million threat events detected in the previous quarter. This increase in cyber threat attacks detected was attributed to the move to working remotely and increased uptake of e-commerce in response to the COVID-19 pandemic. This increased vulnerability of organizations and businesses to cyber criminals who targeted remote working systems and tools, and e-commerce sites for fraudulent gains. During this period, there was also an increase in online abuse and online fraud cases reported to the National KE-CIRT/CC. During the same period, 21,785 cyber threat advisories were issued by KE-CIRT/CC[footnote 4].
The period witnessed a decrease in impersonation cases, which is attributed to increased awareness campaigns to the public across the print media, television and social media platforms, geared towards protecting digital footprints, as well as the operationalization of the Computer Misuse and Cybercrimes Act, which is a deterrent measure. Child abuse cases remained at a constant as majority of children were still home due to the pandemic with a possibility of unsupervised access to the Internet for education and socialization purposes. Cyber bullying and Internet trolling cases were also on the rise, with these being used for malicious intent across Kenyan domains and social media platforms. National KE-CIRT/CC received 354 requests from investigative agencies. This was a 36.15% increase in requests received as compared to 260 in the previous period April - June 2020. During this period, there was an increase in child online abuse, online abuse and online fraud. Of these requests, 1.7% related to child online abuse, 36.2% being attributed to online abuse and 27.4% being linked to online fraud.
The Country’s National Cyber Security Strategy was published in 2014 and so far has not been updated. The Computer Misuse and Cybercrimes Act was operationalised in early 2020. The Act aims to protect the confidentiality, integrity and availability of computer systems, programs and data as well as facilitate the prevention, detection, investigation, prosecution and punishment of cybercrimes. The Data Protection Act 2019 was implemented in November 2019. The Act brings into play comprehensive laws that protect the personal information of individuals. It establishes the Office of the Data Protection Commissioner, makes provision for the regulation of the processing of personal data, provides for the rights of data subjects and obligations of data controllers and processors.
According to a report in CISOMAG in 2019, The cyber intelligence team at CA reports that cyber-attacks cost Kenya’s economy about Sh29.5 billion. (£195m). This cost is set to increase given the increase in remote working and e-commerce activities in response to the COVID-19 pandemic. As with many countries, Kenya faces significant challenges in the recruitment and retention of dedicated, qualified staff with cybersecurity expertise given the significant shortage of these skills both regionally and globally.
Commercial Disputes
Legal recourse is slow and expensive in Kenya, with some cynicism about the objectivity of certain executive and judicial branch decisions. Recent major reforms in the judicial system in Kenya have been targeted at addressing these challenges. There are dedicated commercial courts of the status of High courts.
Problems exist particularly in land purchases and large government contracts. With regards to lands, according to the new constitution that was promulgated in 2010, all 999 year leases were converted to 99 year leases. The position of the national government is that the conversion begins in 2010 whilst some county governments deem the 99 years to have begun when the leases were signed, mostly in 1914 and as such most of the leases should have now expired, creating some uncertainty for investors . The Ministry of Lands maintains the position that the law is clear on this and is working on regulations for the Land Amendment law and the Community Act that would help provide clarity on land leases, the Ministry of Lands is reviewing each lease renewal on a case by case basis and will not publicly make a statement to confirm the commencement of the new lease period. The National Lands Commission is also resolving cases where multiple title deeds were issued for the same parcels of land.
The delays and legal costs involved have seen the emergence of alternative dispute-resolution methods such as arbitration and mediation. Kenya is a signatory to the 1958 New York Convention and has adopted the UNCITRAL model of arbitration. There is also an active local chapter of the Chartered Institute of Arbitrators. Parties can agree on the criteria that an arbitration tribunal must have so that complex issues are only heard by suitably qualified arbitrators. The Law Society of Kenya also plans to set up an international arbitration centre in Nairobi.
Intellectual Property
Kenya is a member of the Convention establishing the World Intellectual Property Organisation, the Paris Convention for the Protection of Industrial Property and the Patent Co-operation Treaty. Kenya’s national IP legislative framework is divided into copyright law, trade mark law, industrial property law and anti-counterfeiting law. Despite there being a robust legal framework and dedicated agencies to protect IPs and counter infringements, Kenya has been a target destination for counterfeit goods entering largely from China. The lack of resources, porous borders and other challenges make enforcement particularly difficult in this region.
Commonly counterfeited products include:
- medicines
- automotive parts
- electronics
- alcoholic beverages
- cigarettes
- music
- videos
- fast moving consumer goods
Over the past couple of years, there has been marked change in combating of illicit trade in Kenya. The Anti-Counterfeit Agency has received additional funding to enhance its technical capacity. There are efforts to enhance collaborative efforts among government organs, andan Illicit Trade Manual was recently launched to guide all actors in the enforcement chain, however co-ordination between agencies still remains a significant issue to combating the increasing prevalence of counterfeit goods
Contact
Contact the Department for Business and Trade (DBT) team in Kenya for further information.