Kenya is strategically located within easy reach of export markets in the African Region, the Middle East, Europe and Asia. The country lies across the Equator, on the eastern seaboard of Africa, bordering the Indian Ocean, between Somalia and Tanzania. In addition, it also shares its borders with Ethiopia, Sudan and Uganda. Its climate varies from tropical along coast to arid in interior. Endowed with a rich heritage of flora, fauna and other natural resources Kenya enjoys a wide range of economic activities.

---

Kenya achieved its independence from the United Kingdom in 1963 and became a Republic on 12th December 1964. Its legal system is based on Kenyan statutory law, Kenyan and English common law, tribal law and islamic law. President Mwai Kibaki is the current Head of Government since 30 December 2002.

Since independence, Kenya has followed a mixed economic development strategy. The roles of the public and private sectors have evolved over time, and there has been a shift in emphasis from public to private investment. Since 1993, the Government has initiated various economic reforms to make the economy more responsive to private-sector growth. The current Government’s strategy is to promote economic growth through a public-private partnership, where the Government plays mainly a facilitating role in the economy.

For more information regarding Kenya’s general context, see  Alive Fiche (in Dutch).

Trade competitiveness
Trade reform in Kenya started in the early 1990s. Quantitative restrictions were replaced with tariffs. The trade policy reforms were complemented by liberalization of the exchange rate and new export incentives, aimed at increasing external competitiveness. Kenya’s principal exports are tea, horticultural products, coffee and pyrethrum. Horticulture is the largest export earner, contributing 26.7% of the total, and tea is the second largest with a contribution of 24%. Kenya is the fourth largest producer and second largest exporter of tea in the world, accounting for about 10% of the total global. In the past, coffee was also an important export earner, but its share has been declining for a number of years. The dominant imports into Kenya are crude petroleum and petroleum products, industrial machinery and road motor vehicles, which together constitute over 50% of total imports.

The African region continues to be the dominant overall export market for Kenya, followed by the European Union. The share of exports to the African region is nearly 47% of the total. Exports to COMESA constitute 71.4% of total exports to the African region, with exports to Tanzania and Uganda constituting 54.9%.

For more information regarding Kenya’s trade competitiveness, see  www.evd.nl

Investment climate
The Government of Kenya welcomes, promotes and protects private enterprises and offers many attractive incentives to investors. In recent years the Government has continued to introduce liberal market-oriented policies and reforms to enhance investment opportunities. In order to sustain economic growth, exchange controls have been removed, processes de-controlled and import licensing abolished. Major privatisation and parastatal reform programmes are also being implemented.
Kenya has many advantages as a destination for foreign investment such as: a relatively large pool of skilled and enterprising workers, a central location in the region with a coastline and a port, a well-established local and foreign private sector and political stability.
Weaknesses of Kenya as a destination for foreign investment are: the weak physical infrastructure, weak IT-facilities, persistent corruption and high costs of doing business.
Exports from Kenya enjoy preferential access to world markets under a number of special access and duty reduction programmes related to the following: East African Community (EAC); Common Market for Eastern and Southern Africa (COMESA); ACP/Cotonou Agreement; Africa Growth and Opportunity Act (AGOA); and Generalized System of Preferences (GSP).

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:

• for use in manufacturing activities for export
• for the production of raw materials for use in export manufacture or
• for the production of duty free items for sale domestically

is eligible for duty remission.

• Manufacture Under Bond

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

• Exemption from duty and VAT on imported raw materials, plant, machinery and equipment and other imported inputs and
• 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:

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