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ALGERIA
BOTSWANA
ETHIOPIA
GUINEA
KENYA
MADAGASCAR
MALAWI
MAURITIUS
MOROCCO
MOZAMBIQUE
NIGERIA
RWANDA
SUDAN
TANZANIA
UGANDA
ZAMBIA
INVESTMENT GUIDE2016/2017
ABOUT ALN
ALN IN KENYA
ALN is an alliance of independent top tier African law firms. It is the largest and only grouping of its kind in Africa, with close working relationships across its members and an established network of Best Friends across the continent. ALN’s
firms are committed to working together to provide extensive coverage and on-the-ground experience. The network has consistently been ranked Band 1 in the Leading Regional Law Firm Networks category, by Chambers Global.
ALN Member Firm: Anjarwalla & Khanna
“[A&K] is arguably the strongest firm currently operating in the market… [and holds] the title of the largest firm in Kenya.”– IFLR1000 2016
Anjarwalla & Khanna (A&K) is the largest
corporate law firm in Eastern Africa,
with over 90 lawyers, and is generally
considered the leading full-service
corporate law firm in Kenya. A&K has
a track record for advising leading
companies on their most intricate and
high value matters. Its client base is
made up of local and international
companies, including listed companies,
banking and financial institutions,
insurance companies, private equity
funds, venture capital and institutional
equity investors, telecommunication
companies, project developers and
financiers, multilateral lenders, industrial
and commercial companies, real
estate developers, professional firms,
government and public organizations.
A&K is ranked as a leading firm in Kenya
by various international legal directories,
including Chambers Global, IFLR, and
Legal 500 and A&K partners are ranked
as leaders in several practice areas
including Banking and Finance, Corporate
Mergers & Acquisitions, Dispute
Resolution, Projects & Infrastructure and
Real Estate.
In 2015, A&K won the Africa Law Firm of
the Year Award for the second time in
three years. A&K is the founding member
of ALN.
CONTENTSOVERVIEW
POLITICAL OVERVIEW 5
ECONOMIC OVERVIEW 6
BILATERAL & MULTILATERAL TREATIES 8
REGULATORY ENVIRONMENT 9
INVESTMENT PROMOTION
INSTITUTES GOVERNING INVESTMENT PROMOTION 13
INVESTMENT INCENTIVES 13
EXPORT PROCESSING ZONES (EPZs) 14
SPECIAL ECONOMIC ZONES 15
TAX
INCOME TAX 17
CAPITAL GAINS TAX 18
WITHHOLDING TAX 19
VALUE ADDED TAX 20
IMPORT DUTY 21
EXCISE DUTY 22
STAMP & TRANSFER DUTY 23
TRANSFER PRICING & THIN CAPITALISATION 23
DOING BUSINESS
ACCOUNTING PRINCIPLES 25
INDUSTRIAL RELATIONS 25
COMPETITION 28
CONSUMER PROTECTION 29
REAL PROPERTY 29
LEGAL FORMS OF INCORPORATION 30
INTELLECTUAL PROPERTY 32
DISPUTE SETTLEMENT 33
INDUSTRY SECTORS
AGRICULTURE 37
BANKING & FINANCIAL SERVICES 38
MANUFACTURING 39
MINING, OIL & GAS 39
REAL ESTATE AND CONSTRUCTION 41
TELECOMMUNICATIONS 42
TOURISM 44
KEY DEVELOPMENTS
ENERGY & INFRASTRUCTURE 46
FINANCIAL SERVICES 46
NATURAL RESOURCES 47
OTHER DEVELOPMENTS 47
4
OVERVIEW
5
POLITICAL OVERVIEW
Kenya is a Constitutional Democracy with a multi-party political system. In 2010, Kenya enacted a new Constitution (the Constitution) that specifically addresses longstanding historical, geographic, demographic and human rights violations that have hindered progressive development. Under the 2010 dispensation, certain functions of government were devolved from the National Government to 47 County Governments. In 2013, Kenya conducted fairly peaceful elections under the Constitution to elect and usher in the restructured National Government and the 47 County Governments.
There are three arms of government. These are:
1. The Executive arm headed by the President. The President is the Head of State and Government, and the Commander in Chief of the Kenya Defence Forces. The President is elected by more than half of the votes cast in an election and must obtain at least 25 percent of the vote in each of at least 24 counties. The law requires the President to appoint between 14 to 22 Cabinet Secretaries reflecting ethnic and regional diversity. The current cabinet is made up of 20 Cabinet Secretaries.
2. The Legislature is comprised of two houses: the National Assembly and the Senate.; The National Assembly consists of two hundred and ninety (290) members, each elected by the registered voters of single member constituencies; forty seven (47) women representatives, each elected
by the registered voters of the counties, each County constituting a single member constituency; and twelve (12) members nominated by parliamentary political parties according to their proportion of members of the National Assembly to represent special interests including the youth, persons with disabilities and workers; and the Speaker, who is an ex officio member. The Senate comprises 47 members, each elected by the registered voters of the counties, each County constituting a single member Constituency; 16 women members nominated by political parties according to their proportion of members of the Senate; 2 members, being 1 man and 1 woman, representing the youth; 2 members, being one man and one woman, representing persons with disabilities; and the Speaker, who is an ex officio member.
3. The Judiciary is headed by the Chief Justice. The Judiciary consists of the judges of the superior courts, magistrates, other judicial officers and staff. The superior courts are the Supreme Court which is the highest court in the country, the Court of Appeal, the High Court, the Employment and Labour Relations Court and the Environment and Land Court. The lower courts consisting of the Magistrate’s Courts. There are also various tribunals established under various statutes to deal with specific matters.
Since the implementation of the devolved Government, various laws
6
ECONOMIC OVERVIEW
The Kenyan economy, East Africa’s largest, has experienced considerable growth in the past few years. According to the World Bank estimations, Kenya’s economic growth is projected to rise to 5.9 percent in 2016 and 6.1 percent in 2017. The positive outlook is predicated on booming infrastructure investments. The country enjoys some particular advantages including a reasonably well-educated labour force, a vital port that serves as an entry point for goods destined for countries in the East African and Central African interior, abundant wildlife, miles of attractive coastline, increasing discoveries of natural resources and a government that is committed to implementing business reforms. The World Bank Group’s Doing Business Report, 2016 ranked Kenya 108 out of 189 economies in ease of doing business, 115th in protecting minority investors and 28 in getting credit.
Kenya is part of the East African Community (EAC). Other members include Tanzania, Uganda, Rwanda, Burundi, and South Sudan which officially joined the EAC in April 2016. The members of the EAC entered into a Common Market Protocol (the Protocol),
with effect from July 2010 and steps are being undertaken to realise the full implementation of the Protocol in 2016. In particular, the four freedoms of the Protocol demand free movement of people, goods, services and capital within the common market. In this regard, member states are required to review domestic legislation to ensure their compliance with the Protocol’s objectives.
The free movement of people allows citizens of member states to work freely within the EAC with the intention of providing each of the member states with a larger pool of skilled labour. However, there has been non-uniform (and in some cases non-existent) progress in the implementation of the Protocol’s objectives, particularly in relation to the free movement of people and labour. Rwanda and Kenya have entered into a bilateral agreement which permits the citizens of both countries to work freely in either country without paying work permit fees. A similar agreement is currently being negotiated between Kenya and Uganda. In addition, Kenya, Uganda and Rwanda entered into a tripartite agreement in January 2014,
have been passed by the some of the 47 the County Governments. It is therefore important for businesses and investors to ensure compliance with both National Legislation and County Government Legislation in the counties in which they seek to operate. The functions and powers of the County Government as provided by Part 2 of the Fourth Schedule of the Constitution include agriculture, County health services, control of air
pollution, noise pollution, other public nuisances, cultural activities and public entertainment, County transport, animal control and welfare, trade development and regulation, County planning and development, County public works and services, pre-primary education and village polytechnics and implementation of specific National Government policies on natural resources and environmental conservation.
7
whereby citizens can move freely within the three East African countries using only their identity cards as travel documents.
The EAC is working towards further integration which is likely to have far-reaching, positive consequences for Kenya’s economy. Notable developments include the implementation of a single tourist visa for Kenya, Uganda and Rwanda which was launched on 20 February 2014 and the execution of an EAC Monetary Union Protocol, geared to establishing a single currency area in the EAC, by the EAC Heads of State in November, 2013. Equally, in 2016, the EAC Summit launched the E-passport which is set to be in circulation as from January 2017. The partner states have up to December 2018, to phase out the issuance of the current passports. This will facilitate free movement of people across the region. Kenya is also a member of the 19 member Common Market for East and Southern Africa (COMESA), opening up the way for trade across Eastern and Southern Africa for nearly 400 million people which is about half of Africa’s total population. Kenya has a vibrant capital market. As at December, 2015, the Nairobi Securities Exchange (NSE) had 66 listed companies. The Capital Market Authority (CMA), the regulator of the Kenya capital markets, has developed and is implementing the Capital Markets Master plan (2013-2023) which aims at turning Kenya into the heart of capital markets. Other key developments in the capital markets include the implementation of corporate governance reforms including the development of a Code of Corporate Governance Practices for Issuers of Securities to the Public, 2016.
Other milestones achieved in the capital markets include; the successful demutualization and self-listing of the
Nairobi Securities Exchange, an initial public offer of Kenya’s first Real Estate Investment Trust (REIT), the development of Policy Guidance Notes (PGN) aimed at establishing Exchange Traded Products, development of the futures exchange expected to be launched in the year 2016, and the development of EAC Council Directives which have been adopted by the East African Community Council of Ministers which are aimed at establishing convergence standards for regional securities laws in areas such as licensing, public offer disclosures, takeovers and mergers and product issuance and approval within EAC.
The Central Depository and Settlement Corporation provide central depository services for securities in Kenya. In November 2014, the country completed the process of dematerialisation of securities. Before then the dematerialisation process had been implemented in phases targeting particular forms of securities.
Currently, physical certificates are no longer recognised as prima facie evidence of ownership and listed companies no longer issue paper share certificates. Investors have been called upon to replace their share certificates, with an electronic record held by the Central Depository System for the purposes of trading or transferring their shares. The move to dematerialise shares ensured Kenya was at par with global trends and with international best practice.
The Government is currently pursuing Kenya’s Vision 2030, which is the country’s development blueprint covering the years 2008 to 2030. The Vision aims at turning Kenya into “middle income economy in providing high quality life for all its citizens by the year 2030”. The Vision is based on three “pillars” namely; the economic pillar, the social pillar
8
and the political pillar. The economic pillar aims at providing prosperity of all Kenyans through an economic development programme aimed at achieving an average Gross Domestic Product (GDP) growth rate of 10 percent per annum the next 25 years. The social pillar seeks to build “a just and cohesive society with social equity in a clean and secure environment”. The political pillar aims at realizing a democratic political system founded on issue-based politics that respects the rule of law, and protects the rights and freedoms of every individual in the Kenyan society.
The six key sectors in the Vision which have been given priority as key growth drivers include tourism, agriculture, manufacturing, ICT and business process out-sourcing, wholesale and retail trade and finance.
The National Government has various policies that create various investment opportunities and encourage the participation of private sector players through Public Private Partnerships (PPP). These policies include the provision of free maternity services in
public hospitals, free laptops for primary school children, reserving 30 percent of government contracts for the youth and women, developing a standard gauge railway network, among others.
On 16 June, 2014, Kenya successfully tapped the international capital markets by issuing two tranches of a maiden Eurobond (USD 500 million, 5.875 percent due 2019 and USD 1.5 billion, 6.875 percent due 2024). Investor participation was strong, reflecting robust confidence in the country’s economic prospects despite heightened security risks. The bond listed on the Irish Stock Exchange. The proceeds of the fund will be used for infrastructure projects and to pay off a USD 600 million loan that matured in August 2014. Some major infrastructure projects include railway expansion (a new standard gauge railway will be built in 3 phases for a total of USD 13 billion), LAPSSET (with a new port at Lamu, railway, road, oil terminal & pipeline and resort cities at Lamu, Isiolo and Lake Turkana), 4 dams at a cost of USD 16.8 billion and the replacement of the Mombasa-Nairobi oil pipeline
BILATERAL & MULTILATERAL TREATIES
Kenya is a member of the EAC, COMESA, African, Caribbean and Pacific States and the World Trade Organisation (WTO). Currently, Kenya has signed double taxation agreements with Canada, Denmark, France, Germany, India, Norway, Sweden, the United Kingdom South Africa and Zambia. The double taxation agreement with South Africa entered into force with effect from 1st January 2016.
Kenya has recently signed double taxation agreements with Qatar Iran,
Seychelles, Nigeria, United Arab Emirates, EAC partner states, Netherlands, Mauritius and Italy. The treaties will come into force once the requisite notifications are made to the respective foreign governments, but in any case not earlier than 1 January 2017.
It is noteworthy, that with effect from 1 January 2015, the Income Tax Act (the ITA) limits the relief from double taxation to a person resident in a country that has a double taxation agreement with Kenya, or a company that is resident in a country
9
that has a double taxation agreement with Kenya, and where 50 percent or more of its underlying ownership is held by an individual(s) resident in that country. An exception to this rule is where the non-resident company is listed in the stock exchange of the counterpart state, in which case the 50 percent ownership rule will not apply in accessing treaty benefits.
In March 2016, Kenya signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (commonly known as the Common
Reporting Standards) which provides for all forms of administrative assistance in tax matters, such as the exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examination and assistance in tax collection. While its provisions are not in force yet, we understand that the Government of Kenya intends to operationalise its provisions in 2018, in an effort to bring to tax offshore income accrued by Kenyans and not previously disclosed to the Kenya Revenue Authority (KRA).
The legal system in Kenya consists of a mixture of statutory (written) law as well as elements of customary and Islamic law. The sources of law are the Constitution of Kenya, 2010 (the Constitution); written laws; English statutes of general application in force as at 18th August, 1897; the common law and doctrines of equity and customary law. In addition, the Constitution provides that the general rules of international law and treaties or conventions ratified by Kenya form part of the laws of Kenya. Much of Kenya’s investment law is modelled on English law. One of the most significant changes to take place in Kenya in the last few years is the enactment of the Constitution. The period following the promulgation of the new Constitution has seen the enactment of an unprecedented number of new laws in Kenya. Since 2011, over 140 new statutes have been enacted, with 2015 seeing 32 new statutes being enacted. The key corporate and investment laws include the new Companies Act, 2015, (the Companies Act) the Insolvency Act, 2015, (the Insolvency Act) the Business Registration Service Act, 2015 (the
Business Registration Service Act) and the Investment Promotion Act, 2004. The Constitution envisions numerous pieces of legislation to be enacted by Parliament covering a wide range of subjects, including land ownership, consumer protection and the exploitation of natural resources. The Mining Act 2016 (the Mining Act) commenced on 27th May 2016 and reflects a dramatic overhaul of the regulatory framework for mining activity in Kenya. The Mining Act creates separate licensing regimes for small scale and large scale mining operations with streamlined application processes and approval time frames.
Kenya has taken steps to overhaul several key commercial laws, originally based on legislation adopted during or soon after the colonial period, to make them more compatible with current global trends and enhance the investment environment. Examples include the repeal of the Companies Act, (Cap. 486) and the Bankruptcy Act (Cap. 53) by the Companies Act and the Insolvency Act respectively. The Companies Act is substantively based on the English
REGULATORY ENVIRONMENT
10
Companies Act, 2006. It seeks to constitute and reform the law relating to incorporation, registration, management and regulation of companies; additionally fines and penalties have been revised to reflect prevailing economic conditions. The Insolvency Act amalgamates both bankruptcy and liquidation into one act. It sets out the various procedures and administration in relation to insolvency. The Competition Act, 2012 which seeks to ensure a more competitive market, has seen a number of guidelines and rules in relation to the assessment of mergers and restrictive trade practices published in 2015. June 2013 saw the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations (REITS Regulations) and the Capital Markets (Futures Exchanges) (Licensing Requirements) Regulations come into force. These key commercial laws now enable the Kenyan legislative framework to reflect and compliment the growing Kenyan economy.
Over the past few years there have been major efforts to privatise commercial sectors that were previously government owned or managed in order to encourage foreign investment in these sectors. The stated aim of the Government is to have minimal interference in business, and it is increasingly adopting the role of a regulator, rather than an active market participant.
To promote investment, the Government overhauled Kenya’s licensing regime in 2006, reducing the number of licences required to do business, while making licensing regimes simpler and more transparent. In 2008, the Government reduced the number of licences required to set up a business from 300 to 11. Newly enacted statutes such at the Business Registration Service Act (yet to be in force) establishes a Service which is tasked with the responsibility of implementing policies, laws and other
matters in relation to the registration of business entities. It is envisaged that the enactment of the Business Registration Service Act will ease the process of registration of a business entity. In general, foreign and local investors receive equal treatment. Foreign and local investors can operate in all sectors except where state corporations still enjoy a statutory monopoly such as in infrastructure, or where there are quotas on minimum local ownership, such as the insurance, aviation and maritime, banking, construction, mining and telecommunications sectors. In 2015, the restrictions on foreign shareholding in Kenyan listed companies were removed, in a bid to attract capital inflows. A number of state corporations have been privatised and essential sectors such as energy have been opened to private investors. Residents and non-residents are permitted to hold foreign currency accounts.
The Public Private Partnerships (PPPs) Act, 2013, (the PPP Act) aims to expand the participation of the private sector in infrastructure and development projects through concessions or contractual profit sharing arrangements. The Public Private Partnership Regulations, 2014 were gazetted on 17th October, 2014 and set out the mechanisms for giving effect to various provisions of the PPP Act.
Pursuant to these Regulations, the PPP Unit is working on a pipeline of projects. With the evolution of a devolved system of government, County Governments are targeting private investors to collaborate with them through PPPs in order to enable them to carry out their functions pursuant to Schedule 4 of the Constitution. Potential projects include administration of county transport and infrastructure (including construction, street lighting, traffic, ports and parking), providing county health services, fire-fighting services, pre-primary
11
education, disaster management and the implementation of other specific National Government policies.
Additionally, procurement by Government entities is now governed by the Public Procurement and Asset Disposal Act, 2015, (the PPAD Act). The PPAD Act gives effect to Article
227 of the Constitution which seeks to set out procedures for efficient public procurement and asset disposal by public entities and for connected purposes. The PPAD Act provides a framework under which the private sector can partake in public procurement in an efficient manner.
INVESTMENT PROMOTION
13
Kenya Investment Authority
In a bid to encourage investment in Kenya, the National Assembly enacted the Investment Promotion Act, 2004 (the IPA). The IPA aims to reduce bureaucratic delays in relation to licensing, immigration and negotiating tax incentives and exemptions from the relevant authorities. The IPA established a corporate body known as the Kenya Investments Authority (KenInvest) to implement the goals of the legislation. For a foreign investor to qualify for an
investment certificate, the minimum value of his proposed investment should be USD 100,000 or the equivalent in another currency. In deciding whether to issue an investment certificate, KenInvest considers the extent to which the investment will contribute to the Kenyan economy by increasing the number and quality of jobs in Kenya, training Kenyans in new skills or technology, encouraging economic development, allowing the transfer of technology, adding to tax revenue or affecting foreign exchange.
INSTITUTES GOVERNING INVESTMENT PROMOTION
INVESTMENT INCENTIVES
An investment certificate granted under
the IPA offers investors important
benefits, the principal one being that
KenInvest facilitates the issuance of all
necessary licences and permits required
for the investor’s operations. Such
assistance is particularly helpful when
making applications for work permits and
tax personal identification number (PIN)
registration.
According to KenInvest, Kenya has
entered into Investment Promotion
and Protection Agreements (bilateral
investment agreements) with France,
Finland, Germany, Italy, Netherlands,
Switzerland, China, Libya, Iran, Burundi
and the United Kingdom and is currently
negotiating agreements with other
countries.
Both local currency and foreign currency
debt is available in Kenya. In addition,
there are no restrictions on repatriation of
dividends or on foreign currency. Kenya
does not restrict remittances to a foreign
recipient. However, the Central Bank
of Kenya has promulgated regulations,
under the Central Bank of Kenya Act
(Chapter 491), which require that where a
transaction undertaken in Kenya involves
the payment of “hard” currency to a
foreign recipient, such remittance must
be effected through a bank licensed by
the Central Bank of Kenya to conduct
banking business in Kenya. Therefore, all
payments in and out of Kenya have to be
remitted through an authorised bank in
Kenya.
Payments out of Kenya below USD
10,000 can be made freely. Payments
14
between USD 10,000 and USD 499,999
require evidence of the purpose of the
payment being made to be provided
to the authorised bank (payments of
interest and principal under a loan
agreement would be permitted).
Notification of any payment above
USD 500,000 has to be given by the
authorised bank to the Central Bank of
Kenya.
EXPORT PROCESSING ZONES (EPZs)
Kenya has established EPZs under the
Export Processing Zones Act (Chapter
517) to promote and facilitate export
oriented investment. The activities
eligible to be carried out within EPZs
include manufacturing, commercial
and service activities geared towards
exportation. Persons may set up an EPZ
by obtaining a licence to develop or
operate a zone on land gazetted as an
EPZ.
EPZ licensed businesses are granted
certain tax exemptions including:
1. exemption from VAT and customs
duties on raw materials, machinery
and equipment, spare-parts,
tools, raw materials, intermediate
goods, construction materials and
equipment, office equipment and
supplies as well as transportation
equipment;
2. exemption from income tax for the
first 10 years from the date of the first
sale as an EPZ enterprise, and income
tax shall be limited to 25 percent for
the next 10 years following the expiry
of the exemption;
3. exemption from withholding tax on
dividends and other payments made
to non-residents, during the period
that the EPZ enterprise is exempted
from payment of income tax; and
4. exemption from stamp duty on the
execution of any instruments relating
to the business activities of an EPZ
enterprise.
15
SPECIAL ECONOMIC ZONES
Kenya has also recently enacted the
Special Economic Zones Act, 2015 (the
SEZ Act) which came into force on 15th
December, 2015.
The SEZ Act allows the Cabinet
Secretary for Industry, Investment
and Trade to create Special Economic
Zones (SEZs) which will be designated
geographical areas where business-
enabling policies will be implemented
and sector-appropriate on-site and
off-site infrastructure and utilities will be
provided for by the Kenyan Government.
It is intended that all goods manufactured
in and specified services provided from
an SEZ will enjoy incentives and be
exempt from most of Kenyan taxes and
duties including:
1. exemption from excise duty, customs
duty, VAT and stamp duty;
2. SEZs will also enjoy a corporate
income tax rate of 10 percent for the
first 10 years of operation, increasing
to 15 percent for the next 10 year
period;
3. exemption from acquiring certain
licences specific to their businesses;
4. up to 20 percent of their full time
employees can be foreigners; and
5. dividends received by SEZs will be
exempt from tax.
The SEZ Act establishes the Special
Economic Zones Authority (the SEZ
Authority) which will be responsible
for designing, approving, establishing,
developing, operating, promoting and
regulating SEZs. The SEZ Authority is
expected to make regulations on how
affairs in SEZs will be conducted.
In light of the new SEZ regime, we
understand that the Government intends
to stop issuing new EPZ licences, as it
transitions to the SEZ model.
TAX
17
INCOME TAX
Resident and non-resident corporate entities with a permanent establishment in Kenya are subject to tax on all income accrued in or derived from Kenya. A company is tax resident if it is incorporated under Kenyan law, if the management and control of its affairs are exercised in Kenya, or if the Cabinet Secretary in charge of the National Treasury declares the entity to be tax resident for a particular year of income in a notice published in the Kenya Gazette. An individual is resident if he or she has a permanent home in Kenya and is present for any time during the year; if he or she is present in Kenya for at least 183 days in the tax year; or if he or she has been in Kenya for an average of 122 days in the tax year and the previous 2 years.
The corporate income tax for a locally incorporated company is 30 percent. The corporate income tax rate for a non-resident company having a permanent establishment in Kenya (a foreign branch) is 37.5 percent. Newly listed companies on the NSE receive a reduced tax rate for the first 3 to 5 years following the year of listing. The reduced tax rate varies between 20 percent and 27 percent and applies for a period of 3 to 5 years, depending on the percentage of capital listed by the entity on the NSE.
Individual income tax rates are based
on a graduated scale based on income
brackets with the lowest tax rate being
10 percent and the highest tax rate
being 30 percent. The Finance Act, 2015
introduced residential rental income tax
at a rate of 10 percent on gross residential
rental income accrued by a resident
individual earning not more than USD
99,000 in rent per annum. The Finance
Bill 2016 also introduced a separate 10
percent withholding tax regime on rental
income where tenants and estate agents
are appointed as withholding tax agents
by the Commissioner. Lastly, the Finance
Act, 2015 amended the withholding tax
applicable to winnings from betting from
20 percent to 7.5 percent, being a final
tax.
It is worth noting that senior officers of corporate bodies may be held personally liable for tax offences committed by their corporate employer. The Finance Act, 2013 provides that the High Court of Kenya may order a person to pay the Commissioner of Income Tax the entire amount or such part as remains unpaid, of the tax assessed by the Commissioner either in addition to, or in substitution of any other penalty.
The Tax Procedures Act, 2015 (the TPA) came into force on 19th January 2016, introducing a raft of amendments targeted at harmonizing the procedural aspects of tax administration in Kenya. The TPA makes senior officials of companies, partnerships, trusts etc. tax representatives of these entities. A tax representative is responsible for performing any duty or obligation imposed by a tax law, including the submission of returns and the payment of tax. However, any tax payable by a tax representative would only be recoverable to the extent that the tax payer’s income or assets are in the tax representative’s control.
The TPA also introduced the concept of transfer of tax liabilities when business assets are transferred between related persons, allowing the KRA to recover such tax liabilities from either the
18
CAPITAL GAINS TAX
Capital Gains Tax (CGT) had been suspended in Kenya since 1985. The Finance Act, 2014 re-introduced CGT at the rate of 5 percent on gains arising from transfer of property situated in Kenya. The term ‘property’ is very wide and includes shares in private companies, land and buildings and other assets. With effect from 1 January 2016, CGT is no longer applicable on listed shares. Various exemptions from CGT are available, including on the transfer of a private residence where certain thresholds have been met, the gain arising on the transfer of land valued at less than USD 30,000; and on the transfer of agricultural property of less than 100 acres.
A transfer of property is deemed to occur when property is sold, exchanged or disposed of in any manner. Gifts, destruction or loss of property are also deemed to be transfers and CGT will be applicable. There are, however, various instances where a transfer would not be deemed to have occurred and hence CGT would not be applicable. These instances include the transfer of property to secure a loan, a debt or the issuance of shares by a company and the transfer of property upon the beneficiary of a trust becoming entitled to the property.
The KRA issued guidelines (the Guidelines) on the application of CGT, as well as the declaration form for payment of CGT (Form CGT-1). The Guidelines have also confirmed that CGT will be payable by a non-resident transferor provided that the property is situated in Kenya. Unfortunately, the proposed CGT system makes no allowance for inflation and therefore taxpayers will be assessed on paper gains. Furthermore, some exemption thresholds are based on the law as it stood in 1985 and are not comparable to present day valuations. Through the Finance Act, 2015, it was clarified that the due date for payment of CGT on a land transaction is on or before the date of lodging a transfer for registration at the relevant lands office. For a transfer of shares, CGT would be due simultaneously with the payment of stamp duty i.e. at stamping of transfer deed.
The Finance Bill, 2016 proposes to amend paragraph 6(h) of the Eighth Schedule to exclude from the definition of a ‘’transfer’’ the transfer of assets between spouses, to immediate family, or to a company where spouses or a spouses and immediate family hold 100 percent shareholding Capital Gains Tax.
transferor or transferee. It also makes it an offence to engage in (or for a tax agent assisting with) a transaction or scheme designed to avoid the liability of
tax under any tax law. A tax avoidance penalty of double the amount of tax avoided is imposed on the tax payer.
19
WITHHOLDING TAX
For dividends paid to Kenyan residents
or on listed shares for citizens of the
EAC, the rate of WHT is 5 percent. A 10
percent rate applies for the dividend
payments to other non-residents. No
WHT is imposed if the recipient is a
resident company which controls 12.5
percent or more of the capital in the
paying company. Loan interest paid to
residents and non-residents is subject to
a 15 percent WHT. No WHT is imposed
if the recipient is a qualifying Kenyan
financial institution. Royalties paid by
a resident person to another resident
person are subject to a 5 percent WHT.
Royalties paid by a resident person to a
non-resident person are subject to a 20
percent WHT.
WHT is chargeable on management
and professional fees on the gross fees
paid. Payments of management and
professional fees made by a resident
person to another resident person are
subject to a 5 percent WHT. Payments of
management and professional fees made
by a resident person to a non-resident
person are subject to 20 percent WHT.
In June 2014, the Government of Kenya
introduced various changes relating
to taxation of entities engaged in
the extractive sector. These changes
abolished the WHT regime that was
applicable on farm-out and share sale
transactions and have attempted to align
the provisions of the Income Tax Act
to the tax provisions in the production
sharing contracts. With effect from 1
January 2015, farm-out transactions are
taxed by including the net gain as part
of the taxable income of the transferor.
Farm-out transactions may be taxed
at the corporation tax rate in certain
circumstances.
With effect from 22nd May 2015, interest
paid on a loan from foreign sources
for investing in the energy sector,
water sector, roads, ports, railways and
aerodromes is exempt from withholding
tax. With respect to the energy sector,
payments made to a non-resident person
for services rendered under a Power
Purchase Agreement are exempt from
withholding tax with effect from 19th
August 2015.
Other key changes introduced by
this regime include the ring fencing
of petroleum blocks, indefinite carry
forward of tax losses, tax treatment
of the assignment of future work
obligations, reporting requirements
for changes of more than 10 percent in
underlying ownership and specific thin
capitalisation thresholds. The rate of
WHT may be reduced where the recipient
of the income subject to withholding
tax is resident in a country which has
a double tax treaty with Kenya. For
example, the WHT rate for management
and professional fees under the Kenya-
United Kingdom double tax treaty is 12.5
percent.
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VALUE ADDED TAX
Value Added Tax (VAT) is chargeable
on the supply of goods and services
in Kenya and on the importation of
goods and services into Kenya. The
VAT Act, 2013 (VATA) came into force
in September 2013 and brought with it
sweeping changes to the VAT regime
in Kenya including making various
previously exempt households goods
subject to VAT. The VATA provides for
2 rates of VAT, 0 percent in the case of
zero-rated supply specified in the First
Schedule to the Act and 16 percent in all
other cases. The VATA repeals the lower
rate of 12 percent previously applicable to
electricity and fuel.
The supply or importations of goods or
services that are designated as exempt
are not subject to VAT. Previously exempt
goods, designated in Section B of the
First Schedule of the VATA, including
fuels and fuel oil, will be exempt for a
period of 3 years and thereafter VAT will
be chargeable at the standard rate. Zero-
rated VAT is applicable to goods and
services exported from Kenya, goods and
services supplied to EPZs and the supply
of coffee and tea for export to coffee
and tea auction centres. Exemption also
applies to the supply or importation of
goods specified in Part A of the First
Schedule of the VATA. These include
goods used in agriculture, health and
education.
The supply of services which were
previously exempt will now attract VAT
at the standard rate. The VATA has also
clarified the rules with respect to the
place and time of the supply of goods
and services. Under the VATA, a supply
of services is made if the supplier’s place
of business from which the services
are provided, is in Kenya. Where the
supplier’s place of business is not in
Kenya, the place of supply shall be
deemed to be Kenya if the recipient of
the supply is not a registered person and:
1. the services are physically performed
in Kenya by a person who is in Kenya
at the time of supply;
2. the services are directly related to
immovable property in Kenya;
3. the services are radio or television
broadcasting services received at an
address in Kenya; and
4. the services are electronic services
delivered to a person in Kenya at
the time of supply or the supply is a
transfer or assignment of, or grant
of a right to use, copyright, patent,
trademark or similar right in Kenya.
With respect to goods, a supply of goods
occurs in Kenya if:
1. the goods are delivered or made
available in Kenya by the supplier;
2. the supply of the goods involves their
installation or assembly at a place in
Kenya; and
3. the goods are delivered outside
Kenya and were in Kenya when their
transportation commenced.
Applicants will be required to apply for
tax refunds of tax paid in error within 3
months from the date the tax was due
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and payable. Previously, the applicable
time frame was 12 months. The VATA has
made commendable effort to promote
the use of information technology with
respect to registering applications, filing
returns or statements, making payments
and refunds and issuing notices and
other documents provided by the
Commissioner.
One of the key changes introduced by
the VATA which has received negative
reception from the public is making VAT
applicable to the sale of commercial
buildings. Pursuant to the Third Schedule
of the repealed VAT Act (Chapter 476),
the sale of buildings was specifically
exempt from the tax. Part II of the
First Schedule to the VATA specifically
exempts “supply by way of sale,
renting, leasing, hiring, letting of land or
residential premises” provided that the
exemption shall not apply where such
services are with respect to a car park,
conference or exhibition except where
such services are provided to educational
institutions as part of learning.
The implication of this amendment is
that the VAT exemption for the sale of
real property now only applies to the
sale of land and residential premises.
Consequently, the sale, renting, leasing,
hiring or letting of commercial buildings
will be deemed to be a taxable supply
and subject to VAT at the current rate
of 16 percent. Furthermore, the renting
of car park spaces which form part of
residential premises or the renting of
residential premises used as commercial
premises will also be subject to VAT.
The withholding VAT system which
had been abolished in 2011 was re-
introduced in 2014. Government
ministries, departments and agencies will
be required to withhold 6 percent of the
tax payable at the time of paying for the
supplies and remit the same directly to
the KRA. Through the deletion of section
25A of the TPA, the Commissioner’s
authority to appoint withholding
VAT agents was withdrawn but later
reinstated by dint of section 42A of the
TPA, through the Finance Bill, 2016. This
new provision was backdated to 19th
January 2016 with appointments made
between this date and 9th June 2016
being susceptible to legal challenge.
IMPORT DUTY
Kenya is a member of the EAC’s
Customs Union. Accordingly, import
duty is charged under the East African
Community Customs Management
Act, 2004 (the EACCMA). Import duty
under the EACCMA is charged on the
importation of goods depending on their
nature and value. The value for purposes
of the import duty assessment is based
on the cost, insurance and freight value
of the goods imported. The import duty
rate is dependent on the nature and
description of the goods in the East
African Custom External Tariff Code.
The EAC’s Customs Union member states
have agreed on a three band Common
External Tariff at the following rates: 0
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percent for raw materials, capital goods,
agricultural inputs, certain medicines and
medical equipment; 10 percent for half
finished goods which are to be used for
further production; and 25 percent for
finished products. A list of the relevant
rates for specific goods set out in Annex
I to the Protocol on the Establishment of
the EAC’s Customs Union (referred to as
the Common External Tariff code). Import
Declaration Fee (IDF) is charged at a rate
of 2.25 percent of the value of the goods
imported, subject to a minimum of USD
50 (KES 5,000).
Import duty is payable by the importer.
Although the EACCMA sets out
exempted goods under the Fifth
Schedule to the Act, exemptions only
apply to specific goods in relation
to certain donor or aid funded
organisations.
In order to fund the construction of a
standard gauge railway network between
Kenya and Uganda, all goods imported
into the country and intended for home
use are subject to a levy of 1.5 percent
of the customs value of the goods. The
Railway Development Levy (RDL) is
payable by the importer at the port of
entry. In March 2014, the KRA suspended
RDL on imports to Kenya from the EAC.
Pursuant to Articles 209(3) and (4) of
the Constitution, which grants County
Governments the power to impose
property rates, entertainment taxes
and any other tax as authorized by an
Act of Parliament, a number of County
Governments have implemented County
Finance Acts which increase the rates
and charges for public services.
EXCISE DUTY
The Excise Duty Act, 2015 (the EDA)
came into force on 1st December 2015
repealing the Customs and Excise
Act, 2010. The EDA provides for the
imposition of excise duty on various
goods and services consumed in Kenya
or imported into Kenya, at different
rates. Excise duty on importation is
payable by the importer at the time of
importation. The excisable value of goods
manufactured in Kenya is the ex-factory
selling price but excluding VAT, cost of
excise stamps and cost of returnable
containers. The excisable value of goods
imported into Kenya is the sum of the
customs value of the goods (CIF value
as provided for under EACCMA) and the
amount of customs duty payable on such
imports, calculated in accordance with
the EACMMA.
The Finance Bill 2016 seeks to introduce
an ad valorem rate of 20 percent on
the value of the vehicle; in contrast with
the previous specific rate of excise duty
pegged on the age of the motor vehicle.
In addition, duty has been reintroduced
on cosmetics and beauty products at
the rate of 10 percent. These include
perfumes and toilet waters, beauty
and make-up preparations, shampoos
and hair lacquers, pre-shave, shaving
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TRANSFER PRICING & THIN CAPITALISATION
STAMP & TRANSFER DUTY
Stamp duty is charged at nominal or ad valorem (according to value) rates on certain financial instruments and transactions. Stamp duty of 1 percent is payable upon the transfer of shares. A stamp duty of 4 percent of the value of land is payable on the transfer of land in municipal areas. In rural areas, the stamp duty is 2 percent of the value of land. There is no stamp duty on the transfer of shares in a listed company. Other agreements and documents attract
stamp duty at varying rates specified in the Stamp Duty Act.
In addition, instruments executed in respect of transactions relating to loans from foreign sources received by investors in infrastructure (energy sector, roads, port, water sector, railways and aerodromes) development sector are exempt from stamp duty with effect from 11th June 2015.
Transfer pricing regulations require pricing arrangements in cross border transactions concerning the sale of goods, provision of services, and transfer of intangible assets and lending or borrowing of money between related entities to be considered at arm’s length. It is noteworthy to point out that transactions between a branch and its head office are also subject to the transfer pricing regulations.
Thin capitalisation rules also apply in Kenya, these rules limit the deductibility of loan interest payments to the extent that the highest amount of all loans held by the company at any time during the year of income exceeds the greater of three times the sum of the revenue reserves and the issued and paid up capital of all classes of shares of the
company. The thin capitalisation rules only apply where the company is in control of a non-resident entity alone or together with four or fewer other persons and where the company is not a bank or a financial institution licensed under the Banking Act.
Kenya has recently enacted “deemed interest” provisions which apply with respect to interest-free loans from non-resident shareholders. Where a non-resident shareholder has extended a loan to a resident company on an interest-free basis, the resident company is required to compute a deemed-interest charge based on the prevailing Treasury Bill rates and remit it to the KRA along with a withholding tax on the notional (deemed) interest.
and after-shave, deodorants and bath
preparations. Lastly, the Finance Bill,
2016 also proposes to introduce excise
duty on illuminating kerosene at USD 71
(KES 7,205) per 1000 litres at 20 degrees
centigrade.
DOING BUSINESS
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ACCOUNTING PRINCIPLES
INDUSTRIAL RELATIONS
We have set out below, a summary of the laws governing employment and labour matters in Kenya. Kenya is party to various International Labour Organisation (ILO) conventions which form part of its labour legislation through the operation of Articles 2(5) and (6) of the Constitution. Article 2(5) of the Constitution provides that the general rules of International Law shall form part of the law of Kenya. Article 2 (6) provides that any treaty or convention ratified by Kenya shall form part of the laws of Kenya under the Constitution. In this regard the primary statutes that govern employment and labour matters in Kenya are:
1. The Constitution – provides for a number of employment rights, including the right to fair labour practices, the right to fair remuneration, the right to reasonable working conditions and the right to join a union, amongst others;
2. The Employment Act (Act No. 11 of 2007) (the Employment Act) - declares and defines the minimum rights of employees, provides for basic conditions of employment of children and matters connected thereto;
3. The Labour Institutions Act (Act No. 12 of 2007) (the Labour Institutions Act) - establishes labour institutions,
Kenya has adopted and applies International Financial Reporting Standards.
provides for their functions, powers and duties and for other matters connected thereto;
4. The Industrial Court Act (Act No. 20 of 2011) now amended to the Employment and Labour Relations Act (the Employment and Labour Relations Act) - establishes the Industrial Court, now the Employment and Labour Relations Court (the ELRC) as a superior court of record and confers jurisdiction with respect to employment and labour relations;
5. The Labour Relations Act (Act No. 14 of 2007) (the Labour Relations Act) - consolidates the law relating to trade unions and trade disputes, promotes sound labour relations through the protection of freedom of association, the encouragement of effective collective bargaining and the fostering of orderly and expeditious dispute settlement, conducive to social justice and economic development;
6. The Occupational Safety and Health Act, 2007 (Act No. 15 of 2007) (the OSHA) - provides for the safety, health and welfare of workers and all persons lawfully present at workplaces and for the establishment of the National Council for Occupational Safety and Health; and
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7. The Work Injury Benefits Act (Act No. 12 of 2007) (the WIBA) - provides for compensation to employees for work related injuries and diseases contracted in the course of their employment or due to connected purposes.
The legislative framework covers wages, leave, housing, termination of employment, health and welfare, local and foreign contracts of service, employment of women and youth, industrial relations and occupational safety and health. The Employment Act requires an employer to provide an employee with a written contract of employment where employment is for an aggregate period equivalent to 3 months or more. The employer is responsible for preparing the employment contract and ensuring that the employee consents to the employment contract. An employer is required to keep records relating to the contract of service for a minimum period of 3 years. Furthermore, the Employment Act sets out various particulars which must be set out in a contract of employment.
The Employment Act requires wages to be paid in local currency (Kenya Shillings). Wage councils are responsible for formulating wage orders. The wage orders constitute the minimum rates of remuneration and terms of conditions of employment which may not be varied by agreement. The quantum of the minimum wage depends on the industry in which the employee is engaged.
Normal working hours depend on the industry and in general consist of not more than 52 hours of work per week. No person under the age of 16 may be required to work for more than 6 hours a day. Employees are also entitled to annual leave with full pay of not less than 21 working days after every year of continuous service and not less than
1.75 days per month when employment is terminated after 2 or more months of continuous service. The annual leave is in addition to all public holidays, weekly rest days and sick leave as fixed by law or by written agreement.
Every employee in Kenya is required under ITA to pay income tax under a system known as Pay As You Earn (PAYE). It is the employer’s obligation to deduct and remit the employee’s PAYE to the Kenya Revenue Authority by the 9th of the next month after the income earning month. Pursuant to the Industrial Training Act (Chapter 237), employers with more than 20 employees are required to register with the National Industrial Training Authority (the Authority) and pay KES 50 (approximately USD 0.5) per employee per month to the Authority as Industrial Training Levy. Only employers in the hotel and restaurant industry are exempt since they pay Hotel & Catering Levy. Failure to pay the training levy attracts a penalty of 5 percent on the amount of levy due to the Authority by the employer.
Under Kenyan law employees are entitled to certain benefits including medical benefits and pension. In January 2014, the National Social Security Fund Act, 2013 (NSSFA) came into force repealing the previous National Social Security Fund Act (Chapter 258, Laws of Kenya) (Cap 258). Every employer is required to register with the National Social Security Fund and to register its employees as members of the fund. Under the NSSFA the social security contributions payable by both employer and employee were set to increase to up to KES 2160 per employee (approximately USD 22), 50 percent payable by the employer and 50 percent by the employee. Contributions payable by both employee and employer were set to progressively increase over the course of the next 5 years. The implementation of the new rates is on
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hold pending the determination of a case filed in the High Court disputing the rates.
With respect to medical benefits, the National Hospital Insurance Fund Act (Chapter 9, Laws of Kenya) (the NHIF Act) establishes the state hospital insurance fund known as the National Hospital Insurance Fund (NHIF) and provides for rules relating to payments to the NHIF and benefits to contributors. The funds are used to assist the employee settle in-patient medical bills. The NHIF Act provides for standard contributions to the NHIF for persons whose income exceeds the prescribed minimum. At present the graduated scale effective as of 1 April 2015 starts from a gross income of KES 5,999 (Approximately USD 59.99). It is the responsibility of the employer to remit the contributions to the NHIF Fund. Employees earning a monthly gross salary of KES 5,999 will pay a monthly contribution of KES 150 (USD 1.5) while those earning KES 100,000 (USD 1,000) and above will pay a monthly contribution of KES 1,700 (USD 17). Self-employed persons are required to pay a monthly contribution of KES 500 (USD 5).
The Employment (General Rules), 2014 (the General Rules) as per section 91 (1) of the Employment Act provide for the following:
1. Rights of employees – provisions under the General Rules provide for the complete prohibition against forced labour; policy statements in relation to sexual harassment and employee rights to be displayed openly at the work place; and entitlement to an itemised pay statement.
2. Employment of children – the employment of children under the age of 16 years is strictly prohibited without the prior written permission
of an authorised officer unless the child is an apprentice or indentured learner; any contravention of the provisions would result in an offence.
3. Sanitation – this portion of the rules relates to the adequate provision of latrines, dustbins, drainage and general sanitation at the place of work.
4. Medical treatment – an employer shall take all reasonable steps to ensure that he is notified of the illness of an employee as soon as reasonably practicable after the first occurrence of the illness and shall ensure the provision sufficient and of proper medicine for his employees during illness and if possible, medical attendance during serious illness. Any non-compliance with these provisions shall result in an offence. In order to satisfy this requirement many employers provide medical insurance cover as a benefit to employees.
5. Foreign Contracts – all contracts of service shall be set out in prescribed form and shall be subject to the provision of a medical certificate to the Labour Officer.
Employment of Foreign NationalsIn principle, employment of foreigners is pegged on unavailability of skills in the local market. Thus, if there is limited supply of human resources in a particular area, a foreigner may be employed subject to obtaining a work permit from the Kenya Immigration Department.
Disputes and EnforcementIn situations where:
1. an employer or employee neglects or refuses to fulfil a contract of service; or
2. any question, difference or dispute
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arises as to the rights or liabilities of either party; or
3. any misconduct, neglect, ill treatment or an injury to the person or property of either party under a contract of service occurs;
the aggrieved party can complain to the labour officer or lodge a complaint or suit in the ELRC, which has the status of the High Court and exclusive original
jurisdiction over labour disputes.
The primary mechanisms for enforcement of the various provisions of the employment laws in Kenya are fines and penalties imposed by the ELRC. Where an employee has been dismissed, the ELRC can recommend that the employer reinstate the employee or provide compensation to an employee who has been dismissed unfairly or whose labour rights have otherwise been breached.
COMPETITION
The Competition Act, 2010 was enacted into law and became effective in August, 2011 and was operationalised in 2012. The Competition Act regulates mergers, provides strong guidance for consumer welfare, prevents restrictive trade practices and unwarranted concentrations of economic power and also strengthens the mechanisms for the hearing of appeals. In 2014, the Competition Authority launched a leniency programme which encourages voluntary disclosure of the existence of an agreement or practice that is prohibited under the Competition Act. Merger notification filings with the Competition Authority attract graduated filing fees of between KES 500,000 (approximately USD 5,000) and KES 2,000,000 (approximately USD 20,000). The Competition Authority may grant exemptions in certain economic sectors or transactions below certain turnover thresholds. The Competition Authority issued Merger Guidelines in 2015 which seek to clarify what a “change of control” constitutes for purposes of the definition of a notifiable merger. The Guidelines suggest a much wider interpretation of a change of control than in its ordinary sense revolving around an acquirer’s ability to materially influence the target
undertaking. For example, an acquisition of 5 percent of the share capital of a company which enables the acquirer to “materially influence” the affairs of the company whether by way of board seats or voting rights may be deemed to be a change of control and thus a notifiable merger.
In January 2013, the COMESA Competition Commission (CCC) announced that the COMESA competition regime had come into force. The CCC regulates competition and mergers touching on 2 or more COMESA countries provided that:
1. he combined value of assets or annual turnover of the undertakings equals or exceeds USD 50 million;
2. t least two of the undertaking’s annual turnover exceeds USD 10 million;
3. the target operates in a member state; and
4. each of the merging parties does not achieve more than two thirds of its profits within one and the same member state.
Stakeholders have, however, raised questions on the manner in which the
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COMESA competition regime was operationalised. At the moment, a merger notification filing with the CCC attracts
graduated filing fees of up to USD 200,000.
CONSUMER PROTECTION
Consumer rights are primarily protected under Article 46 of the Constitution together with the Consumer Protection Act (Act No 46 of 2012) which broadens the protection offered by the Constitution. The protections offered to consumers applies to goods and services offered by private and public
entities. The Consumer Protection Act governs consumer relations in individual economic sectors and generally across all sectors. Notable rights include the right to pre-contractual disclosure of the terms of a consumer agreement and the ability to cancel consumer agreements.
REAL PROPERTY
Land in Kenya remains a very emotive and sensitive issue. Due to complex historical, political, economic and social reasons that have led to an inequitable distribution of land, conflicts over land issues continue and debates about the redistribution of land draw strong opinions.
In 2010, the then newly promulgated constitution paved the way for an overhaul of the land law systems in Kenya. In 2012, the Kenyan Legislature enacted new land laws, being the Land Act, 2012, the Land Registration Act, 2012 and the National Land Commission Act, 2012. The new statutes repealed some of the old land laws such as The Indian Transfer of Property Act of 1882, the Registered Land Act, 1963, the Government Land Act, and The Registration of Titles Act, 1920.
The consolidation of the plethora of statutes dealing with land was really a welcome move. However, there were ambiguities in the new land laws
including the powers of the Ministry of Lands, Housing and Urban Development (Ministry of Lands) and the newly established National Land Commission (NLC) which led to turf wars between the two entities. In 2015, the Supreme Court issued an advisory opinion in respect of the functions and responsibilities of the NLC vis-à-vis the functions and responsibilities of the Ministry of Lands bringing an end to the turf wars between the two bodies. A clear separation of roles and mandate of the two bodies will ensure clarity on their functions and improvement of service delivery in the various land institutions.
Under the current laws, land in Kenya may be held under freehold title or leasehold title. Article 65 of the Constitution regulates land holding by non-citizens. Non-citizens cannot own land under a freehold title but can have leasehold interests of up to 99 years. The Constitution protects the sanctity of private property and the state cannot compulsorily acquire one’s property
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LEGAL FORMS OF INCORPORATION
In Kenya, there are a number of types of corporate entities including sole proprietorships, partnerships, cooperative societies and companies. The main vehicles utilised by investors are limited liability companies which can be incorporated either as private companies or as public companies. The law also allows for branches of foreign companies to be set up in Kenya maintaining the same legal personality as the foreign company.
Kenya recently overhauled its company law legislation through the enactment of the Companies Act. The Companies Act is based substantively on the United Kingdom’s Companies Act, 1985 and the United Kingdom’s Companies Act, 2006 and it seeks to update and reform the law relating to incorporation, registration, management and regulation of companies. The signing into law of this legislation was a significant step in the Country’s corporate history as it has moved companies’ law legislation with one giant leap from 1948 to 2015.
The Companies Act is also by far the most extensive piece of legislation among the statutes of Kenya with 1,026
sections in comparison to the previous Companies Act which had 406 sections. Owing to the comprehensiveness of the Companies Act, some of the sections have not come into effect but will be operationalised in stages by the Cabinet Secretary. The entire Companies Act is expected to be operational within nine (9) months of the publication date of the Companies Act (i.e. by 18th September 2016). The sections relating to incorporation of companies are already in force.
Notably, the Companies Act now allows for flexible arrangements in relation to capital structures such as share buy backs. It also provides for enhanced redeemability of shares and the permissibility of financial assistance in certain instances, shareholder rights and simpler incorporation procedures, for instance, the Companies Act now permits for the incorporation of private companies with 1 shareholder and 1 director as opposed to the position previously where at least 2 shareholders were required.
Company registration is undertaken through the Companies Registry (which
without prompt payment in full, of just compensation to the person.
In 2013, the CMA introduced the Capital Markets REIT Regulations. The REIT Regulations provide for the legal framework for REITS and establishes 2 classes of REITS, being the development and construction real estate investment trust schemes (which provides for investment in development and construction projects) and income real estate investment trust schemes (which
provide for investment in existing income generating real estate projects).
The REIT Regulations regulate the offers and listing of REITS, management of REITs, specific requirements of each type of REITS and also provide for the establishment of Islamic REITS. The REIT Regulations entrench the growing interest in REITS as a flexible and tax-beneficial method of financing urban and commercial real estate projects in Kenya.
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will eventually be referred to as the Business Registration Service as provided under the Companies Act) and the process takes an average of one (1) week, from the date of lodging the required documents, to issue of the certificate of incorporation. Efforts are underway to reduce this period further. On average,
completing the registrations required for starting a business in Kenya takes approximately one (1) to two (2) months. The table below provides a summary of the procedures and the estimated completion time and estimated costs for setting up a private limited liability company:
No. Procedure Estimated time to complete (in business days)
Official costs (excludingprofessional fees, ancillaryexpenses and VAT)
1 Company name search and
reservation.
3 days KES 100 per name
reservation
(approximately USD 1)
2 Prepare and execute the
incorporation documents
including the application to
register a company and (where
necessary) the articles of
association.
3 days
3 File the unified company
registration application form
which combines applications
for:
a. company incorporation;
b. a Kenya Revenue Authority
PIN (KRA PIN);
c. registration under the
National Social Security
Fund (NSSF);
d. registration under the
National Hospital Insurance
Fund (NHIF);
and obtain a certificate of
incorporation, a KRA PIN,
NSSF and NHIF registration
certificates.
10 days Standard fee of KES
10,000
4 Register for VAT online 1 day No charge
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No. Procedure Estimated time to complete (in business days)
Official costs (excludingprofessional fees, ancillaryexpenses and VAT)
5 Apply for a business permit
online
1 day Permit fees depend on
certain factors e.g. type
of
business, size of
premises,
number of employees
etc.
6 Register for PAYE 1 day No charge.
7 Make a company seal after a
certificate of
incorporation has been issued
(optional).
2 days Between KES 2500
and KES 3,500
(approximately
USD 25 and USD 35
(respectively).
INTELLECTUAL PROPERTY
Article 40(5) of the Constitution requires the state to support, promote and protect the intellectual property rights of the people of Kenya. Kenya’s legislation protecting intellectual property includes the Trade Marks Act (Chapter 506), the Copyright Act (Chapter 130) and the Industrial Property Act, 2001, which relates to patents, industrial designs and utility models.
Regionally, Kenya is a member of the African Regional Intellectual Property Organisation. At the international level, Kenya is a member of the World Intellectual Property Organisation, and is a contracting party to various treaties recognising intellectual property rights including:
1. the WTO Marrakech Marrakesh Agreement, 1994 establishing the
World Trade Organisation, 1994 and the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs);
2. the Madrid Agreement concerning the System on the International Registration of Trade Marks and the Protocol Relating thereto; and
3. the Patent Cooperation Treaty which facilitates the filing of patent applications ain multiple jurisdictions on the international registration of patents.
Steps have been taken towards controlling the importation and trade of counterfeit goods. In 2008, Parliament passed the Anti-Counterfeit Act, 2008, which established an agency and legal framework to police counterfeit goods. All locally manufactured goods must have a standardisation mark issued by
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DISPUTE SETTLEMENT
Kenya follows a common law system by virtue of being a former British colony. English decisions of superior courts are binding up to 12th August 1897 and are persuasive after that date. There is a hierarchy of laws:
1. The Constitution of Kenya, 2010;2. Acts of parliament;3. Common law;4. Doctrines of equity;5. Statutes of general application
in force in England on the 12th August,1897; and
6. Case law.
Below is a list of the principal laws governing and regulating the court system in Kenya:
1. The Constitution;
2. The Judicature Act, Chapter 8 – sets out provisions concerning the jurisdiction of the High Court, the Court of Appeal, subordinate courts or regarding judges and officers of courts;
3. The Appellate Jurisdiction Act, Chapter 9, (the Appellate Jurisdiction Act) – confers on the Court of Appeal jurisdiction to hear appeals from the
High Court and for any incidental purposes;
4. The Magistrates’ Court Act, Chapter 10 – establishes magistrates’ courts, states the jurisdiction and provides for the procedure of such courts. In addition, it also provides for appeals in certain cases and for any incidental and connected purposes;
5. The Kadhis’ Court Act, Chapter 11 - establishes the Kadhis’ court, having and exercising jurisdiction over the determination of questions of Muslim law relating to personal status, marriage, divorce or inheritance in proceedings in which all the parties profess the Muslim religion. Nevertheless, nothing in this legislation limits the jurisdiction of the High Court or any subordinate court in any proceeding which comes before it.;
6. The Environmental and Land Court Act, Chapter 12A - gives effect to Article 162(2)(b) of the Constitution establishing a superior court to hear and determine disputes relating to the environment, the use and occupation of and title to land and also makes provision for its
the Kenya Bureau of Standards and several categories of imported wares must have an import standardisation mark known as an ISM.
Further, proposals for reform of Kenya’s trade mark laws are presently being addressed by the national intellectual property office, the Kenya Industrial Property Institute (KIPI), which has circulated a proposed Trade Marks
Bill and proposed Trade Marks Rules for comments from stakeholders. The proposed Bill and Rules, which are still in draft form, contain provisions for the introduction of a system by which registered trademarks could be used by their proprietors as security for obtaining credit/financing. The possible enactment of such provisions could herald the dawning of a new phase for intellectual property rights and valuation in Kenya.
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jurisdiction, functions and powers; and
7. The Employment and Labour Relations Court Act, Chapter 234B, amended to the Employment and Labour Relations Act, (the Employment and Labour Relations Act) – establishes the Employment and Labour Relations Court as a superior court of record, confers jurisdiction on the Court to hear and determine disputes relating to employment and labour relations and for connected purposes.
Under the Limitation of Action Act, Chapter 22, Laws of Kenya, (the Limitation of Action Act), time limits for bringing claims for court action or arbitration are set out as follows:
1. actions concerning land must be brought within twelve years from the date of the cause of action;
2. actions concerning contracts must be brought within six years from the date of the cause of action; and
3. actions concerning any tort must be brought within three years from the date of the cause of action.
Kenyan law recognises alternative dispute resolution mechanisms. In particular, Article 159 of the Constitution provides that alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms shall be promoted. Indeed, the Government’s enthusiasm for arbitration is demonstrated inter alia by the passing of the Nairobi Centre for Arbitration Act, 2012 which came into force in January 2013 and establishes the Nairobi Centre for International Arbitration (NCIA). Together with Rwanda’s Kigali International Arbitration Centre, there
are now two international arbitration centres in East Africa. It is hoped that the NCIA will provide a cheaper alternative for foreign investors who opt to resolve their disputes in the London or Mauritius arbitration centres and also provide an alternative to the lengthy court processes in Kenya. Notwithstanding these aims, the NCIA has a long way to go before becoming fully operational. It is to be noted that the Board of Trustees charged with the administration of NCIA was inaugurated in November, 2013.
Arbitration is widely embraced in commercial dispute resolution settlement. Kenya is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and New York Convention awards would be recognised in Kenya under the Arbitration Act. Kenya is also a signatory to the International Convention for the Settlement of Investment Disputes. There is a well-established policy of the courts upholding arbitration clauses.
Foreign judgments from superior courts in certain reciprocating countries can be enforced in Kenya under the Foreign Judgments (Reciprocal Enforcement) Act (Chapter 43) (FJEA). The countries specified to be reciprocating countries under the FJEA are Australia, Malawi, Seychelles, Tanzania, Uganda, Zambia, the United Kingdom and the Republic of Rwanda.
Following promulgation of the new Constitution in August 2010, Kenya began to implement significant structural changes to its judicial system. The Supreme Court was established as the highest court in the land. In addition, many new judges have been appointed to ease the workload of the courts. Further, the new constitutional requirement for the vetting of judges and magistrates has already resulted in some judges and magistrates having been found unfit to
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continue serving. The process is expected to restore integrity to a judiciary that has been generally perceived to be slow in delivering justice, corrupt and insufficiently independent.
It is also worth noting that the TATA was signed into law on 27th November, 2013 and commenced on 1st Aril 2015. The
TATA establishes a single tax appeals body which has the power to hear appeals against any decision made by the Commissioner on any tax matter. It is expected that the Tribunal will streamline the tax dispute resolution process and make it more efficient.
INDUSTRY SECTORS
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AGRICULTURE
Agriculture is currently ranked by various indicators, including by the Kenya Investment Authority and the Kenya Agriculture Research Institute as the driver of the Kenyan economy, contributing between 25 percent and 30 percent of Kenya’s GDP and responsible for approximately 60 percent of national employment. Crop production, livestock, fisheries and horticulture have been the greatest contributors in recent years. There are many existing investment opportunities as well as considerable diversification and expansion possibilities in the agricultural sector including accelerated food crop production and increasing non-traditional agricultural exports. There are also opportunities for improvement in technology infrastructure such as packaging, storage and transportation. Intensified irrigation and additional value added processing are also marketable areas for investments.
The Government has been making a number of efforts to optimise on the benefits of this sector. One of the strategies for this is including through the allocation of a significant amount of money to the sector from the government budget. The Government is also in the process of earmarking a number of processing factories, including in the cotton and sugar sectors, for privatisation presenting potential investment opportunities for investors.
Further, the Government is taking active steps through new legislation to
revamp the sector at both the national and county level. In particular, key areas have been carved out of hitherto wide umbrella laws and regulatory bodies and are now specifically regulated. For instance the Fertilizers and Animal Foodstuffs (Amendment) Act, 2015 creates a new regulatory body, the Fertilizer and Animal Foodstuffs Board of Kenya) with a core mandate of licencing manufacturers, distributors and retailers of fertilizers and animal foodstuffs. This role has been carved off the broader role of the National Cereals and Produce Board. Similarly the Pest Control Products (Registration) (Amendment) Regulations, 2015 revamped the Pest Control Products (Registration) Regulations of 1984. The manufacture, importation, exportation, registration, distribution, prescription and dispensing of veterinary medicines and the practice of veterinary pharmacy in Kenya is also now specifically regulated under the Veterinary Surgeons and Veterinary Para-Professionals Act (The Veterinary Medicines Directorate) Regulations, 2015. In addition the prohibition on the importation from European countries of live bovine, semen, embryos, carcasses, meat, bone meal, and their products has been revoked. At the county level the amendment of the National Cereals and Produce Board Act to provide for the establishment of the County Cereals and Produce Committees and its functions has assisted in devolving the Cereal and Produce Board’s powers to the counties.
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BANKING & FINANCIAL SERVICES
Kenya’s banking sector is fairly well developed and sophisticated in comparison to its neighbouring countries. There are over forty commercial banks in Kenya and several financial institutions including mortgage finance companies that is particularly keen to support the government vision 2030 economic development blueprint which includes housing for Kenyans as one of its key objectives However, the banking industry is dominated by five major banks: Kenya Commercial Bank Limited, Equity Bank Limited, Co-operative Bank Limited, Standard Chartered Bank Kenya Limited and Barclays Bank of Kenya Limited. Credit is now more easily accessible at competitive rates from various lending institutions. Credit reference information is shared in the financial sector though credit reference bureaus.
The majority of Kenyans also engage in “mobile banking” which is basically the use of a mobile device to perform online banking tasks such as depositing funds, checking account balances, paying bills and monitoring accounts. This is done through the use of mobile payment systems operated by mobile communication companies such as M-Pesa (Safaricom) and Airtel Money (Bharti Airtel). Mobile phone payment services are popular due to their simplicity, convenience and accessibility. The joint partnership between Safaricom and Commercial Bank of Africa Limited, has developed an innovative mobile platform (M-Shwari) for Safaricom’s M-Pesa customers which enables individuals to access banking services from their phone. Subscribers can save and borrow money as well as earn interest on the money saved using their mobile phones.
In addition, Kenya has a vibrant micro-finance sector which is expected to play a major role in developing the financial markets thus making it easy for the mainstream population to access financial products and services simply. Micro-finance motivates individuals who cannot access financial resources from banks and other traditional lending institutions because of a lack of collateral and enables them to access funds that will expand their businesses at low risks. The country is also enjoying a vibrant Islamic banking market which is growing steadily.
The banking industry is governed by the Banking Act (Cap 488) and the Central Bank of Kenya Act (Cap 491) and regulated, licenced and supervised by the Central Bank of Kenya which conducts on-site investigations through the Central Bank of Kenya officers who conduct routine inspections on the institutions’ business records to ensure compliance with the Central Bank of Kenya rules and off-site investigations by reviewing reports that are required to be submitted by the institutions to the Central Bank of Kenya. The Central Bank has taken steps to regulate previously unregulated areas of the banking sectors, including micro-finance and mobile payment services. Kenya has a small but growing number of investment banks and venture capital funds. These businesses are licensed and regulated by the CMA.
The Central Bank of Kenya is keen on reducing the number of banks and aiming to ensure a consolidation of the market by announcing a freeze on issuance of new banking licences.
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MANUFACTURING
Although Kenya is the most industrially developed country in East Africa, the World Bank estimates that manufacturing only accounts for approximately 19 percent of its GDP. Nevertheless, manufacturing is Kenya’s third largest sector following wholesale and retail trade and transport and communication. Opportunities in Kenya’s manufacturing industries are expansive, ranging from vehicle assembly and spare-parts manufacturing in the automotive sector, to pharmaceuticals, paper products and edible oils.
According to the Kenya National Bureau of Statistics, factors that have influenced the growth of the manufacturing sector include cheaper and a more stable electricity supply (although this can equally be said to be a hindrance to even greater growth), restrained inflation and resilient domestic demand.
Kenya is a net importer of oil and as such the drastic decline in oil prices has, in certain manufacturing industries, led to a drop in input prices resulting in an overall reduction in the total average costs of production and increased profit margins. Animal feeds, tobacco products, pharmaceutical products, other non-metallic mineral products, fabricated metal products and manufacture of furniture are all sub-sectors that recorded
10 percent or more growth compared to previous years.
As described earlier (under the Investment Promotion section) SEZs are expected to help investors cut down on key cost drivers such as transport, as goods will be produced closer to raw material sources. Additionally, the focus of the new policy on SEZs is to provide preferential terms to investors on matters such as licensing, as well as certain fiscal incentives relating to taxation (for example: VAT exemption on all supplies of goods and services to enterprises, reduction in corporate tax to 10 percent from 30 percent for a period of 10 years of operation and 15 percent for the next 10 years). Notwithstanding the above, challenges remain. Imports from countries that are able to manufacture products at a comparatively lower average cost (such as China) pose a challenge to the domestic manufacturing sector since they are able to supply the market with cheaper priced products thereby effectively reducing the market share available to domestic manufacturers. An additional challenge is the forex volatility of the Kenya Shilling which would primarily affect the manufacturers that import most of their raw material as well as equipment etc. and make payment in foreign currency.
MINING, OIL & GAS
Kenya’s mining and extractive industry is undergoing a shift from a minor to a major area of investment and growth. Kenya’s mining map is comprised of
four belts. The under-exploited, gold-rich Greenstone belt in Western Kenya is linked to the lucrative mining belts currently under heavy exploitation in
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Tanzania. The Mozambique belt, which passes through Central Kenya, is a source of gemstones. The Rift belt is the best known and its resources include soda ash, fluorspar, diatomite and Kenya’s considerable geothermal resources. The Coastal belt encompasses existing titanium investments, extensive deposits of rare earth minerals and nobium, as well as on-going offshore oil exploration efforts. The country also boasts one of Africa’s richest coal deposits and plans to commercially exploit coal are currently underway.
The significant enthusiasm for the economic potential in Kenya’s mining sector is demonstrated by its inclusion in Kenya’s Vision 2030 programme as a strategic sector and the creation of a new Ministry of Mining (formerly under the Ministry of Environment and Natural Resources) dedicated to the formulation of mining legislation and policies to expand the mining industry. As indicated earlier under the Regulatory Environment section, there is a new Mining Act now in place. It is unclear how this new regime will dovetail with the requirements under the Community Land Bill, 2015 which contains additional local content and participation requirements. The cancellation of 31 mining licences by the Cabinet Secretary for Mining in August 2013, has led to expectations that a transparent and competitive licensing process will be entrenched in the new legislation. Notably, arbitration proceedings on the cancellation of the 31 mining licences are on-going at the International Tribunal for Settlement of Investment Disputes.
Despite the recent down turn in fortunes of the global oil and gas industry, Kenya is benefitting from recent discoveries of oil reserves (the commercial viability of which was confirmed by Tullow Plc in Northern Kenya in July 2013). The discovery of oil has also resulted in
significant interest in many on-shore and off-shore blocks offered to exploration companies by the Ministry of Energy. The Cabinet Secretary created 17 new oil exploration blocks in May 2016 and it is expected that the new blocks will be offered to exploration companies through a competitive bidding process. There has also been an increase in secondary sales of interests in exploration blocks between investors.
The long-term plan by the Government is to build a pipeline from the oil-rich Turkana region to the port of Lamu but in the interim, there are plans to transport crude oil to the coast for export through existing rail and road infrastructure.
With the changing fortunes in the oil sector, the laws governing this sector have come under scrutiny. The petroleum exploration activities in Kenya are primarily governed by a 1968 statute, which is seen as outdated and in need of review. To this end, the National Assembly recently passed The Petroleum (Exploration, Development and Production) Bill, 2015 (the Petroleum Bill). At the date of publication of this guide, the Petroleum Bill was before the Senate for consideration before receiving Presidential assent. The Petroleum Bill, if enacted, will repeal the Petroleum (Exploration and Production) Act (Cap 308) as the new substantive law relating to the oil and gas sector.
The Petroleum Bill was also published with draft local content regulations and a new model form of production sharing contract (2015 PSC). Among the changes proposed in the 2015 PSC include a new profit sharing model based on profitability as opposed to the daily rate of production in the current model form of production sharing contract. Contractors will also face more obligations as compared to the obligations under the current model
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form of production sharing contract including broader and more stringent local content requirements, additional
licenses, decommissioning costs and obligations relating to the protection of the environment.
REAL ESTATE AND CONSTRUCTION
In the past decade the real estate sector
has seen an increase in the number
of large scale multi use developments
comprising of retail malls, residential
units, hotels, commercial and office
space. Examples of such developments
include the Two Rivers development
which is being undertaken on 102
acres with an estimated cost of USD
256 million and Garden City which is
being undertaken on 36 acres at an
approximated cost of USD 227 million.
There is an emerging trend in such
large scale multi use developments
where the developers are also providing
infrastructure such as power generation
and water and sewage treatment plants
to sustain the entire development. In
addition to the infrastructure, value
added services such as direct supply
of ICT and LPG as well as automated
security systems are being offered ,with
a view to enhance the lifestyle of the
occupants of such developments.
Developers are now also undertaking
construction of large scale gated
residential developments targeted
towards the low to middle level
income earners. Good examples of
these developments are Karibu Homes
comprising of 1,000 apartments currently
being constructed on approximately 19.23
acres and Edenville being constructed on
approximately 150 acres comprising of
approximately 700 residential units and
a commercial area. Most of these large
scale residential developments are being
undertaken in the outskirts of the city
of Nairobi, for example, Karibu Homes
is situate in Machakos and Edenville is
situate in Kiambu.
There has also been an increase in the
establishment of retail malls outside
of Nairobi in various cities across the
country such as the Buffalo Mall Naivasha
in Naivasha, the upcoming Buffalo Mall
Eldoret in Eldoret, Cedar Mall in Nanyuki
and City Mall in Mombasa.
Due to the size and complexity of some
of the developments being undertaken
in Kenya, many developers are now
engaging foreign contractors and
consultants to construct and manage
their development projects respectively.
Most of the foreign contractors
originate from China and examples of
such contractors include Katic, who
are the contractors in the Two Rivers
development and Sinohydro Corporation
Limited, who are the contractors in the
Garden City development. We have also
seen the entrance of international project
management companies into the region
to take advantage of the growing real
estate market.
There has been recent influx of large
foreign investors seeking to invest in
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TELECOMMUNICATIONS
Kenya’s telecommunications sector continues to grow rapidly and remains one of the key contributors to the country’s GDP. One example of the rapid development of the sector is the rise of the world’s most successful and widely discussed mobile payment: the M-PESA money transfer service, launched in 2007 by Safaricom Limited which has grown continuously and opened up to other mobile operators, now serving a large number of Kenyans. In addition, innovations by technology media and telecoms (TMT) firms continue to be a driving factor of the sectors growth. These include start-up innovations such as Ma3Route – an app and mobile service aimed at making travelling easier by providing traffic updates and M-Kopa which aims at providing solar energy to the country’s poor by
using mobile technology to support the system. While all operators have invested in mobile technologies and infrastructure upgrades to support mobile data services, competition has nevertheless presented challenges to the profitability of network operators, with uneven revenue growth reported in recent years. In 2015, Essar, one of the mobile operators, concluded the sale of its Kenya-based yuMobile to Airtel Kenya and Safaricom Limited. In addition, the Orange Group is in the process of exiting the market by way of the sale of its entire 70 percent shareholding in Telkom Kenya Limited. Competitive pressure has also encouraged some of the players to streamline operations, reduce workforces and sell off their tower portfolios, however, the mobile telephony sub-sector experienced a marginal drop
large scale developments in Kenya such
as the Actis Fund, International Finance
Corporation and CDC all of whom have
funded the Garden City development
through equity. Avic International
has invested in several real estate and
commercial development projects across
Nairobi including investing K.Shs.6.4
billion in the Two Rivers development for
a 38.9 percent stake. This however has
been matched by local funding through
entities such as development and
financial institutions like Industrial and
Commercial Development Corporation,
large real estate investment companies
like Centum Investment Limited and
investment, savings, insurance and
banking services like Old Mutual Kenya
that have partly financed the Two Rivers
development.
We have also seen the participation of
international banks willing to extend debt
for the development of large scale real
estate developments. A good example
is Standard Bank of South Africa that
has lent USD 46 million towards the
development of the Garden City retail
mall. Local banks are also participating in
debt financing of large scale real estate
developments such as Kenya Commercial
Bank’s lending to finance the Garden
City residential development and Co-
operative Bank lending to finance the
Two Rivers development.
In 2015, Kenya saw the listing of its
first REIT, which was promoted by
Stanlib Investments Limited. The REIT
is currently trading on the Nairobi
Securities Exchange.
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in the number of mobile subscriptions to 37.7 million subscriptions down from 37.8 million recorded in the quarter ended September 2015. The decline was attributed to SIMbox raids which were carried out by the Communications Authority of Kenya during the period between September to December 2015.
The fixed network service in the country has continued to dwindle especially after the decommissioning of fixed wireless network by Telkom Kenya Limited.
The Internet/data market in the country has grown significantly over the years following the roll out of the National Optic Fibre Broadband Infrastructure (NOFBI) Phase 1, the on-going roll out of Phase 2 and the increased last mile connection by private operators. The expansive roll out of Third Generation (3G) mobile communication network is also a major contributor to the increased accessibility, availability and use of internet/data services. Further, some mobile operators are currently in the test-phase of 4G LTE services with the aim of finally launching it by the end of 2016 in order to better compete in the high speed mobile data market. Mobile data had 23.7 million subscriptions representing an increase of 10.2 percent from 21.5 million subscriptions recorded in the quarter ended September 2015. The growth in mobile data/internet can be attributed to the increased affordability of internet bundles offered by the various internet/data providers as result of increased fair competition in the data/internet market. Growth of e-commerce services and social networking sites is also a factor leading to increased internet/data usage. The ICT sector in Kenya is set to receive a significant boost from ICT business parks currently under development as part of Vision 2030. The Kenya Government’s plans to develop a USD 10 billion ICT business park which will house IT centres,
business process outsourcing centres and hotels remains underway. Kenya currently has an existing 5,000 seat business process outsourcing centre in the Sameer Industrial Park.
In comparison to other East African Countries, Kenya’s migration from analogue to digital broadcasting was protracted and subject to various judicial processes. However, the country’s migration process was completed successfully in 2016. As at 31st December 2015, the cumulative number of free to air TV channels that were on air on the digital terrestrial platform grew from 55 to 62.
The telecommunications sector in Kenya is primarily governed by the Kenya Information and Communications Act, 1998 (KICA) and the various regulations promulgated thereunder. Specific provisions in KICA were amended with the passing of the Kenya Information and Communication (Amendment) Act, 2013 (KICA Amendment Act) which came into effect on 2nd January, 2014. The CAK regulates the telecommunications sector and is an independent institution free from any governmental, commercial or political interests. The Kenya Information and Communications (Registration of Sim-Cards) Regulations, 2015 (the Sim-Cards Regulations) came into force in August 2015. The Sim-Cards Regulations address issues surrounding deactivation of unregistered SIM cards and require telecommunications providers to notify their subscribers to register their SIM card. The Sim-Cards Regulations aim to facilitate safe e-commerce and enhance security in the use of mobile financial services. The regulator has also published a draft of sector-wide draft regulations aimed at overhauling the subsidiary regulatory framework governing the sector.
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TOURISM
The tourism sector saw a decline in the year 2014 due to insecurity concerns, which resulted in low numbers of tourists visiting Kenya. However, these challenges spurred operators to explore new revenue streams, including business and domestic tourism.
There has since been an upscale of investor confidence in the business tourism sector since 2015, evidenced by the growth in international conferences being held in Nairobi, Kenya, such as the Global Entrepreneurship Summit attended by US President Barack Obama in 2015, and the 10th World Trade Organisation’s Ministerial Conference held between 15th and 19th November 2015, also in Nairobi, Kenya.
Steps to stimulate the tourism sector have also been seen through the extensive marketing campaigns conducted by the Tourism Recovery Taskforce which was launched in 2014. These marketing campaigns led to Kenya’s involvement for the first time in the world Travel Market Africa which was held in 2015 in Cape Town, South Africa, as well as the launch of a new branding and tourism campaign called “Make It Kenya” at the Milan Expo 2015 in Italy, by the Ministry of East African Affairs.
Several investment opportunities now also exist in the tourism flagship projects that are under the Vision 2030. These include construction of resort cities, hotels, eco-lodges, conference facilities, and marinas among others. The tourism
sector in Kenya therefore still remains a lucrative field for consideration by any person wishing to invest in Kenya.
Kenya has substantial natural assets attracting tourism, ranging from well-known areas such as the Maasai Mara and the Kenyan Coast, to relatively unexploited areas like Lake Victoria. Kenya’s tourism infrastructure is also well developed in comparison to other tourist areas in the region and is expanding, especially in the aviation arena, where there has been an increasing number of budget airlines, direct flights from many tourist source countries and frequent internal connections.
With the extensive marketing campaigns overseas by the Tourism Recovery Taskforce, the diversification of the tourism sector, the increased access to the region through the increased number of direct flights to Kenya and the recent growth in investor confidence in Kenya, the tourism sector can now be seen to be emerging much stronger with expectations of growing even bigger.
The tourism industry in Kenya operates within an established regulatory framework. It is primarily regulated by the Tourist Act (Chapter 383, Laws of Kenya). The Kenya Tourism Regulatory Authority, a corporate body established under the Tourism Act, is tasked with developing the tourism sectors though policy development and measures which promote sustainable tourism throughout the country.
KEY DEVELOPMENTS
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ENERGY & INFRASTRUCTURE
In October 2015, the American Multinational technology company - Google – announced its plans to buy a 12 percent stake in the Lake Turkana Wind Power Project in Kenya, which is the largest wind investment in Africa. Wind power generates a little over one percent of Kenya’s energy, but it is expected that after the project is complete, the capacity will rise to 310MW, supplying over 15 percent of the country’s energy.
This investment by Google is in line with its existing energy investments in other markets including South Africa, where it has already invested in the Jasper 96MW solar project, also one of the largest projects in Africa. Google has been investing in Africa for the last eight and a half years and is scouting for projects that meet its agenda, in terms of return and impact.
Google buys 12.5 percent stake in Lake Turkana Wind Power
Project
FINANCIAL SERVICES
The banking sector in Kenya is facing a much tighter supervisory regime since the appointment of the new Central Bank of Kenya (CBK) Governor, Patrick Njoroge, in June 2015. Three banks have to date been put under receivership by the CBK, with Chase Bank being the latest addition in April 2016. The other two banks are Dubai Bank and Imperial Bank. Another Bank, National Bank of Kenya, had its Chief Executive Officer fired and senior managers suspended following a steep rise in the lender’s bad loans. A number of lenders more than doubled their provisions for non-
performing loans for the financial year 2015 as CBK tightened reporting regulations, leading to the opinion that some banks had been deliberately under-reporting bad loans to keep provisions down in order to maintain profit growth. The fall of these banks, however, led to jitters in the market, leading CBK to introduce a special borrowing window for small lenders who experience liquidity problems due to external circumstances. The crisis has also raised the possibility of consolidation in the sector through takeovers of smaller lenders by their larger counterparts.
Tighter regulations for Kenya’s banking sector
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NATURAL RESOURCES
Kenya’s oil discoveries
Oil and gas exploration company CAMAC
Energy, early in 2015 announced the
successful completion of its onshore
2D seismic acquisition in Kenya. The
program conducted by geophysical
services company, BGP Kenya, and
covering around 700 line kilometres, aims
to identify potential exploration targets
in the Paleozoic, Jurassic, Cretaceous,
and Middle to Lower Tertiary sections,
which are known to be oil-bearing in the
East Africa region. These seismic surveys
are fundamental to understanding the
resource potential on these blocks and
will help to determine locations to begin
exploration drilling. Meanwhile Canadian
oil and gas exploration company - Africa
Oil Corp - has discovered more oil in the
North Western part of Kenya and British
oil and gas explorer - Tullow Oil plc - has
discovered oil and natural gas deposits in
Northern Kenya.
In line with the One Network Area initiative - a plan for East African telecom integration, Safaricom reduced its roaming charges in the EAC in 2015. Safaricom customers visiting Rwanda can make calls to Rwandan networks at USD 0.1, a 60 percent drop from the initial rate of USD 0.25 per minute. The company has secured agreements with Africa’s largest operator, MTN, and the region’s second largest operator, Airtel Uganda. The deals enable subscribers to receive calls for free while in Uganda and a flat rate of USD 0.11 for calls to other East African countries including Tanzania and Burundi. Previously, the rates were as high as USD 2.40 per minute. The company has also been able to secure roaming agreements through its affiliates in countries like Germany, New Zealand, Portugal, United Kingdom, Democratic Republic of Congo and Ghana, consequently lowering roaming rates in these countries as well. For as little as USD 2.22, subscribers will be able to
access up to 10 minutes of voice services, 10 SMS, and 10MBs of data in 21 countries in North and Central Africa, Europe and New Zealand.
In June 2015, Scangroup Limited announced that it had changed its name to WPP Scangroup Limited. According to the Company’s Chief Executive, this signifies that WPP Scangroup and WPP Plc are now fully merged. WPP Scangroup is the largest marketing and communication group operating a multi-agency model across multiple disciplines in Sub Saharan Africa and is the only marketing service that is listed on the Nairobi Securities Exchange (NSE) in Kenya. The group, which employs more than 1,200 people, comprises the advertising agencies Ogilvy & Mather, SCANAD, JWT and BluePrint Marketing; media firms GroupM, MediaCom Africa, Mindshare and MEC; public relations agencies Ogilvy PR and H+K Strategies; market research agency Millward Brown
OTHER DEVELOPMENTS
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and digital companies OgilvyOne, Squad Digital and SCANAD Digital. WPP Scangroup is a subsidiary of WPP, the world’s largest communications services group with 3,000 offices operating across 111 countries and providing a comprehensive range of advertising and marketing services including advertising & media investment management; data investment management; public relations & public affairs; branding & identity; healthcare communications; direct, digital, promotion & relationship marketing and specialist communications.
The sixth Global Entrepreneurship Summit was held in July 2015 in Kenya’s capital city, Nairobi. It was co-hosted by Kenya’s President Uhuru Kenyatta and visiting United States of America President Barack Obama - who has played a major organizing role in the annual summit. For the first time, the annual Global Entrepreneurship Summit was held in sub-Saharan Africa, where business owners, policymakers, educators and investors were all brought together in a developing region that has seen immense economic growth in recent years. The forum focused on youth and women entrepreneurs and had participants share their success stories, take part in skills training, pitch ideas and hear from various leaders in the entrepreneurship space.
A report in February 2016, by investment monitoring platform, FDI Markets has ranked Kenya’s Capital, Nairobi, as Africa’s top foreign direct investment destination as it saw inflows surging by 37 percent in 2015, overtaking South Africa’s Johannesburg. Apart from the obvious tax benefits offered by Nairobi, there are also Public Private Partnerships (PPPs) that were attracting companies into the country. Currently, Kenya allows investors to enjoy a 10 year tax holiday upon establishing their businesses and to repatriate all profits. The Kenyan Government is also actively tackling infrastructural challenges that the country is facing. In the last couple of years, infrastructure, ICT and energy have taken top priority in the country and it has committed approximately USD 37 billion for projects in its 2015/16 budget. Kenya has also attracted notable private equity and grants that are being used to fund public infrastructure projects such as the Standard Gauge Railway, Lamu Berth-cum railway line to Ethiopia and private projects in real estate, hospitality as well as industrial development. The report shows that foreigners invested in at least 78 projects in Kenya in 2015, due to growing confidence in the country’s investment climate.
SOURCESwww.cnbcafrica.comwww.businessdailyafrica.comwww.allafrica.comwww.pcworld.com
www.wpp.comwww.ibtimes.comwww.wto.org
The information contained in this report is of a general nature and is not intended to address the circumstances
of any particular individual or entity. While the information is accurate as at date hereof, there can be no
guarantee that the information is accurate as of the date it is received or that it will continue to be accurate in
the future. No one should act upon such information without appropriate professional advice after a thorough
examination of the particular situation.
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