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Kenya in Global

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Kenya Overview

Contributed by Anjarwalla & Khanna

KENYA: A BUSINESS OVERVIEW 

Kenya is a major regional player with one of the most sophisticated and largest economies in East Africa. The country has established itself as a regional service and transport hub. Kenya’s membership of the East Africa Community and the Common Market for Eastern and Southern Africa (COMESA) continues to attract foreign investors and organisations looking into investing in the lucrative markets in the region. It offers a wealth of investment opportunities across various priority sectors including infrastructure, horticulture, manufacturing, tourism, power generation, natural resource extraction, and information communication and technology. The 2010 Constitution provided for the devolution of resources, thus creating 47 local governments, all of which are competing to position themselves as investment hubs in Kenya.

Kenya faced major challenges in 2017 that somewhat reduced economic growth from the projected 5.9% to 5.5%, according to the World Bank’s Kenya Economic Update. These challenges included severe drought in the first half of the year, rising public debt, weak credit growth and a rise in global oil prices. In addition, Kenya experienced a prolonged period of political uncertainty following a re-run of a disputed presidential election in August, which led to a political standoff. The re-run was as a result of a Supreme Court ruling which annulled President Uhuru Kenyatta’s re-election, making Kenya the first African country and the fourth country in the world to invalidate the presidential results of an election. The prolonged election period undoubtedly had an impact on foreign investment.

Despite these hurdles, Kenya’s economy has shown great resilience, with the World Bank projecting GDP growth of 5.8% and 6.1% in 2018 and 2019, respectively. Business Monitor International (BMI) Research has also projected a relatively stable outlook for the Kenyan Shilling and a controlled inflation rate averaging 6.7% and 6.6% in 2018 and 2019 respectively, compared to 8.0% in 2017. Further, the unanimous decision by the Supreme Court to uphold President Uhuru’s re-election after the initial nullification has boosted confidence in the judiciary and assisted in reviving the economy.

The legal environment in the country has seen a lot of activity with 55 tabled bills at the national, senate and county level in 2017. This is in a bid to streamline laws in order to create a legal system that is more robust, as well as make doing business in Kenya easier. A focus on anti-bribery and money laundering has continued, with further amendments to money-laundering legislation through the Anti-Money Laundering (Amendment) Act, 2017 which imposes stiff monetary penalties on individuals and companies for contraventions. The Kenya Trade Remedies Act, 2017 and the Nairobi International Financial Centre Act, 2017 were also passed into law. The Kenya Trade Remedies Act, 2017 seeks to protect domestic industries from foreign competition and unfair trade practices arising from dumping, subsidising and import surges. The Nairobi International Financial Centre Act, 2017 seeks to provide a legal framework to facilitate and support the development of an efficient and globally competitive financial services sector in Kenya. The Movable Property Security Rights Act, 2017 was also passed into law in May 2017. This Act now facilitates borrowing when secured by movable assets, and as a result, is expected to drive credit expansion and support economic growth. It is projected that in 2018, a new Income Tax Act will be introduced, overhauling the 1974 version and improving the tax system. In March 2017, the High Court of Kenya struck down the requirement under the Income Tax Act for payment of capital gains tax (CGT) prior to making an application for registration of a transfer of property. However, this decision was appealed and the payment of stamp duty and CGT remains twinned for land transfers (meaning a seller must pay CGT first before the buyer may pay stamp duty or register the transfer), pending the outcome of the appeal. A new set of amendments to Kenya’s electoral act also became law a few days after the re-election of President Uhuru.

In the banking and finance sector, the Central Bank’s desire to consolidate the country's banking industry continues to lead to increased M&A activity. The acquisition of Habib Bank by Diamond Trust Bank, which was completed in July 2017, marked the latest bank buyout. It followed the sale of Giro Commercial Bank to I&M Holdings and Fidelity Bank to SBM Holdings in Mauritius.

In addition to the existing anti-bribery legislation, Kenya has enacted the Bribery Act, 2016, a sign of its continued commitment to the fight against corruption. This Act commenced operation on 13 January 2017, its main purpose being to aid in the prevention, investigation and punishment of bribery in Kenya, with a particular focus on the private sector. Bribery offences under the Act are wide ranging and the Ethics and Anti-Corruption Commission has been granted a more robust mandate to combat bribery in the public and private sectors.

Infrastructure development has been identified by the Government of Kenya as a key driver behind increasing the country’s competitiveness. The top projects comprised both public and private investments such as the Standard Gauge Railway, the Lamu port berths and the Lake Turkana Wind Power Project. Kenya’s port infrastructure allows it to service the numerous landlocked economies in the Great Lakes region including Uganda, Rwanda, Burundi and the Democratic Republic of Congo. The government is committed to fulfilling its Vision 2030 economic blueprint, including by promoting projects that will hopefully make Kenya a large source of clean energy, such as the production of 5,530 MW of geothermal power.

In the recent past, Kenya has witnessed a thriving building and construction sector which is set to grow steadily for the next decade. According to BMI Research, the industry is expected to grow by 8.7% in 2017 and remain steady up to 2026, with an annual growth of 6.2% which will see Kenya potentially outperforming all other sub-Saharan economies. Agriculture remains a cornerstone of the Kenyan economy, fulfilling a significant role as an employer and provider of livelihoods through subsistence farming. Kenya continues to be a cradle of technological innovation and has retained its status as the Silicon Savannah. The country is seeing a multitude of start-ups especially in the information technology sector. The country’s blooming tech environment is mainly supported by the penetration of mobile telephony and receptivity to innovations in the technological space which has resulted in an increase in investments in fintech businesses. The M-Pesa platform that began in Kenya has been replicated in many other countries around the world. The availability of capable human capital also gives the country an advantage over its sub-Saharan peers.

According to the National Intelligence Service, terrorism continues to be a major risk to Kenya’s national security and development. Businesses have had to incur additional costs in putting in place security measures to avert terrorism. Temporary travel advisories issued by Europe and the US in 2017 led to a decline in tourism numbers. However, the Government of Kenya has significantly increased spending in the security docket. Additionally, Kenyan security forces remain in Somalia to deter future terrorist threats, and a more robust anti-money laundering law has interrupted terrorism funding.

Kenya's economic outlook in 2018 looks very positive despite the hurdles faced in 2017. The Global Ease of Doing Business Index has ranked Kenya among the top three African countries that are easy to conduct business in, and the country is expected to continue moving in a positive direction and is on track to achieve the projections that have been made.