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Kenya in Global

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Kenya Overview

Contributed by Anjarwalla & Khanna

KENYA: A BUSINESS OVERVIEW 

Considered to be the most lucrative investment market in East Africa, Kenya continues to attract the attention of international businesses looking to penetrate emerging markets in the region. To encourage investment, Kenya has revised many of its laws with the objective of modernising and streamlining its legal framework in order to provide both local and foreign investors with favourable conditions for doing business. The Kenyan economy emerged from its rebasing in 2014 larger than it was previously considered, becoming the fifth largest economy in Sub-Saharan Africa, and leading to reclassification of the country as a lower middle-income country. Kenya’s economic outlook remains positive, and the country is set for fast growth. According to the World Bank, the economy is projected to grow by 5.9% in 2016 and 6.1% in 2017, and inflation is expected to average out at 6.2% in 2016 and 2017. Economic growth is largely attributed to infrastructure development such as the standard-gauge railway and completion of key roads, as well as improvement of policies governing the business environment, including from the enactment of the Companies Act, Insolvency Act, Business Registration Service Act, Special Economic Zones Act, and the Public Procurement and Asset Disposal Act that were assented into law in 2015.

The legal environment in 2016 has been vibrant with 30 tabled bills at the national level, nine at the senate level and 19 at the county level. A number of bills have also been passed into law. More recently, in August 2016, the Banking (Amendment) Act, 2016 introduced a cap on the rate of interest that banks can charge and a minimum rate that banks must offer on deposits. Despite the banks’ initial protestations and the existence of errors in the new law, all banks have taken steps to comply with this law. The banks are currently limited to charging a maximum rate of interest of 14%, as the law caps interest rates at no more than 4% above the base rate set by the Central Bank of Kenya (CBK), which is currently at 10%. The goal of this law was arguably to provide cheaper credit to borrowers and in return spur growth in the small to medium sized sector. This law also introduced a minimum interest rate payable on deposits of at least 70% of the base rate set and published by the CBK.

The new Mining Act of 2016 has also introduced significant changes and brought more certainty to the regulatory framework for the mining industry. The Anti-doping Bill was also assented into law. Without this law, Kenya would have been declared non-compliant with WADA’s global code, which provides prison sentences in some cases for using or providing performance-enhancing drugs. The Small Claims Court Act is another important new piece of legislation that is aimed at enhancing justice in the country, by reaching Kenyans who historically were unable to access due process as a result of the disproportionate cost of filing a small claim.

Kenya is still working towards fulfilling its development blueprint known as Vision 2030, with major infrastructure projects currently ongoing, including the Lamu Port–South Sudan–Ethiopia Transport (LAPSSET) corridor, which will lead to the development of a port in Lamu, a pipeline to transport crude oil from Turkana, major roads and cities envisaged to open up Northern Kenya to investment; and the standard gauge railway (SGR) which is considered one of the most ambitious projects since independence. The SGR, once completed, will link Kenya’s two main cities, Nairobi and Mombasa, and ultimately provide efficient railway access to landlocked Uganda, Rwanda, Burundi and Eastern DRC. Large-scale real estate developments continue to attract investment from local and foreign investors. There is an increasing appetite for the development of shopping malls with developments such as Garden City, Two Rivers and The Hub Karen - among others - recently open or nearing completion. According to the Oxford Business Group, Kenya has the second largest formalised retail economy in Africa.

Kenya is unarguably a 'world leader' in the innovative mobile money market, as noted by Facebook CEO Mark Zuckerberg, who visited the country in September 2016, on his maiden trip to Sub-Saharan Africa. M-PESA is one of Kenya’s greatest innovation stories and the country is considered a vibrant hub for innovation in Africa. Kenya has embraced cloud computing as well as cashless payments.

Kenya is seeing increased adoption of industry convergence, with banks embarking on new products such as mobile loans on electronic platforms established with mobile telecommunications operators and insurance products through arrangements with insurance companies. Further, Kenya has experienced disruptions in its taxi transport system as a result of the launch of Uber. The common Kenyan citizen has benefited greatly from the global drop in fuel prices, which has reduced the cost of certain goods.

In the last few years, Kenya has hosted various world leaders including President Obama, as well as notable figures from Ethiopia, India, China, Japan, Nigeria, South Korea, Turkey, South Africa and Israel, in a bid to seek ways to boost trade relations, and other sector initiatives such as security, energy, education, tourism, agriculture and health. For example, Kenya hosted the Tokyo International Conference on Africa Development (TICAD VI) attended by representatives of 53 African countries. This was the first time TICAD was held in Africa and constituted a major milestone that boosted Kenya’s strategic partnership with Japan. Kenya also hosted the United Nations Conference on Trade and Development (UNCTAD XIV) that brought together 7000 delegates from over 50 countries.

The Kenyan government has initiated several measures to fight terrorism and to avert, stop and counter any potential attacks. This resulted in the decision, now put on hold, to close a number of refugee camps which are considered as potential hiding and breeding grounds for Al-Shabaab terrorists. The government plans to proceed with this measure once Somalia has been declared stable for the refugees to return. In September 2016, President Uhuru Kenyatta launched the National Strategy to Counter Violent Extremism - a new strategy to assist in the fight against extremism and terrorism in Kenya. Additionally, the Kenyan Army continues to pursue Al-Shabaab in Somalia. Besides security threats and unemployment, Kenya continues to struggle with the fight against corruption, a significant threat to development, which the government hopes to curb with the passing of the Anti-Bribery Bill.

In the political arena, Kenya is preparing for elections in 2017. In September 2016, electoral reforms were approved permitting the disbandment of the existing electoral body – the Independent Electoral and Boundaries Commission. Kenyans now await the appointment of new commissioners to manage the 2017 elections. Political parties are also organising themselves in readiness for the 2017 elections, with the ruling Jubilee Coalition coming together with a number of other parties to form one party. While business does not seem to be slowing down in anticipation of the elections, it is expected that some investors may reduce activities in the country until the elections are over.