|
About Kenya
::: BUSINESS & ECONOMY
Introduction
Kenya has since independence adopted various economic policies with a view to achieving sustainable economic growth and development. Upon attainment of independence in 1963, the country’s economic policy was articulated in Sessional paper No.10 of 1965, titled “African socialism and its application to planning in Kenya”. The paper defined the strategy to promote rapid economic growth through public sector programs, encouragement of both smallholder and large-scale farming, and the pursuit of accelerated growth of private sector investment.
The economic policies adopted thereafter have not only been influenced by domestic challenges but also external factors, particularly the realities of liberalisation and globalisation. These realities led to the drawing up of Sessional paper No.1 of 1986, on “Economic management for renewed growth”, which proposed several fiscal and monetary reforms aimed at realising economic recovery and growth through liberalisation.
Since 1993, Kenya has made significant progress in eliminating exchange controls, including restrictions on inward portfolio investments, and has removed trade restrictions, except for certain sensitive products in health, security and environment. The government’s current economic focus is contained in the “Economic Recovery Strategy for Employment and Wealth Creation”, which seeks above other things to realise higher economic growth rates through improved economic management and governance, as contained in the National Rainbow Coalition (NARC) manifesto.
Main Economic Indicators
Population 32.16m [2003]
GDP (2006 est.): $22.79 billion.
Real GDP [%] 2.6% [2004]
GDP forecast 3.5% [2005]
Gross domestic savings 9.78% [2004]
Gross national income per capita (2006): $455.
Gross domestic investments 13.40% [2004]
Annual growth rate (2006): 6.1%.
Human Development Index 0.489 [UNDP 2003]
Natural resources: Wildlife, land.
Agriculture: Products--tea, coffee, sugarcane, horticultural products, corn, wheat, rice, sisal, pineapples, pyrethrum, dairy products, meat and meat products, hides, skins. Arable land--5%.
Industry: Types--petroleum products, grain and sugar milling, cement, beer, soft drinks, textiles, vehicle assembly, paper and light manufacturing.
Trade (2006): Exports--$3.1 billion: tea, coffee, horticultural products, petroleum products, cement, pyrethrum, soda ash, sisal, hides and skins, fluorspar. Major markets--Uganda, Tanzania, United Kingdom, Germany, Netherlands, Ethiopia, Rwanda, Egypt, South Africa, United States. Imports--$7.2 billion: machinery, vehicles, crude petroleum, iron and steel, resins and plastic materials, refined petroleum products, pharmaceuticals, paper and paper products, fertilizers, wheat. Major suppliers--U.K., Japan, South Africa, Germany, United Arab Emirates, Italy, India, France, United States, Saudi Arabia.
Business & Investment Policy
The government encourages both domestic and foreign investments, and provides a conducive environment and attractive incentives to investors. There are no restrictions on foreign investment, foreign ownership and repatriation of profits or capital. Investment in the Export Processing Zones (EPZs) and Manufacturing Under-Bond (MUB) enjoys a 10-year tax holiday, followed by a 25% tax rate for the next 10 years, and is exempt from import duties, VAT and sales tax. The Export Processing facility operates in 39 Zones (37 private, 2 public). Foreign ownership in listed Kenyan companies is generally restricted to 40% in the aggregate and 5% for each individual investor.
The major investment incentives include:
* Investment allowance: new investment or expansions are granted allowance on plant machinery, building and equipment;
* Depreciation: liberal rates are allowed for depreciation of assets, based on book value;
* Loss carried forward: to be offset against future taxable profits.
In addition, the government provides guarantees to investors through the following:
* Repatriation of capital and profits after payment of the relevant taxes;
* Kenya's membership of the Multilateral Investment Guarantee Agency [MIGA], a World Bank affiliate.
* Kenya’s membership of the International Centre for the Settlement of Investment Disputes.
The membership to the above international investment bodies and the Kenya constitution guarantee against expropriation of private property, except for purposes of public use or security, and also prompt and fair compensation in the event of such expropriation.
Investment opportunities
Investment opportunities exist in nearly all sectors, and especially in agro-based industries, machinery and building materials, furniture and paper products, garments and textiles, jewellery and watch manufacture, food processing, cosmetics, pharmaceuticals, electronic goods, solar technology products, IT/data processing, tourism, banking and financial services, housing, roads, ports, railways and the energy sector.
Taxation
Corporate tax presently stands at 30%. Withholding tax on dividends is 5%. However, inter-corporate dividend payments between closely held companies are exempt from withholding tax. Dividends received by financial institutions as trading income are not subject to tax.
Value Added Tax (VAT) is levied on the supply of goods imported into or manufactured in Kenya, and taxable services imported or provided in Kenya. The standard VAT rate is 16%. Unprocessed agricultural products are exempt from VAT. Inputs into health care, education and agricultural sectors are zero-rated. All exports of goods and services are zero-rated.
Excise duties are levied on beer, tobacco products, matches, spirits, wines, mineral water and biscuits (confectioneries).
Personal tax is charged on the income earned in Kenya by any person resident in Kenya. Individual income tax is taxable at rates graduated to 30%. Tax allowances are provided for all individual taxpayers. Taxable income includes all business income, employment income, dividends, interest and property income.
Privatisation
Through privatisation and restructuring of parastatals and other state-owned companies, the government seeks to divest in public-owned companies. The government has reduced its share holdings in the Kenya Commercial Bank, the National Bank of Kenya, Serena Hotels and Kenya Airways.
Restructuring and reforming of key public enterprises such as the Kenya Ports Authority (KPA), Kenya Railways (KR), the Kenya Power and Lighting Company (KPLC) and the Kenya Posts and Telecommunications Corporation (KPTC) have already taken place. As a result, the energy sector now has the Kenya Electricity Generating Company (KenGen) and the Kenya Power and Lighting Company (KPLC) respectively, while in the telecommunications sector, there is the Postal Corporation of Kenya, Telkom Kenya Ltd. and the Communication Commission of Kenya (CCK).
Markets Access
Over and above the domestic demand, Kenya's membership of several regional bodies provides an expanded market. Membership to the East Africa Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) guarantees a market of approximately 300 million people, and provides for free movement of goods and services.
Exports from Kenya enjoy preferential access to the European Union under the ACP-EU framework. In addition, Kenya is one of the initial beneficiaries of the African Growth and Opportunity Act [AGOA], which provides for preferential market access in textiles to the USA.
ECONOMY
After independence, Kenya promoted rapid economic growth through public investment, encouragement of smallholder agricultural production, and incentives for private (often foreign) industrial investment. Gross domestic product (GDP) grew at an annual average of 6.6% from 1963 to 1973. Agricultural production grew by 4.7% annually during the same period, stimulated by redistributing estates, diffusing new crop strains, and opening new areas to cultivation. After experiencing moderately high growth rates during the 1960s and 1970s, Kenya's economic performance during the last two decades has been far below its potential. The economy grew by an annual average of only 1.5% between 1997 and 2002, which was below the population growth estimated at 2.5% per annum, leading to a decline in per capita incomes. The decline in economic performance in the last two decades was largely due to inappropriate agricultural policies, inadequate credit, and poor international terms of trade contributing to the decline in agriculture. Kenya's inward-looking policy of import substitution and rising oil prices made Kenya's manufacturing sector uncompetitive. The government began a massive intrusion in the private sector. Lack of export incentives, tight import controls, and foreign exchange controls made the domestic environment for investment even less attractive.
From 1991 to 1993, Kenya had its worst economic performance since independence. Growth in GDP stagnated, and agricultural production shrank at an annual rate of 3.9%. Inflation reached a record 100% in August 1993, and the government's budget deficit was over 10% of GDP. As a result of these combined problems, bilateral and multilateral donors suspended program aid to Kenya in 1991. In the 1990s, the government implemented economic reform measures to stabilize the economy and restore sustainable growth. In 1994, nearly all administrative controls on producer and retail prices, imports, foreign exchange and grain marketing were removed. The Government of Kenya privatized a range of publicly owned companies, reduced the number of civil servants, and introduced conservative fiscal and monetary policies. By the mid-1990s, the government lifted price controls on petroleum products. In 1995, foreigners were allowed to invest in the Nairobi Stock Exchange (NSE). In July 1997, the Government of Kenya refused to meet commitments made earlier to the International Monetary Fund (IMF) on governance reforms. As a result, the IMF suspended lending for 3 years, and the World Bank also put a $90-million structural adjustment credit on hold.
The Government of Kenya took some positive steps on reform, including the establishment of the Kenyan Anti-Corruption Authority in 1999, and the adoption of measures to improve the transparency of government procurements and reduce the government payroll. In July 2000, the IMF signed a $150 million Poverty Reduction and Growth Facility (PRGF), and the World Bank followed suit shortly after with a $157 million Economic and Public Sector Reform credit. The Anti-Corruption Authority was declared unconstitutional in December 2000, and other parts of the reform effort faltered in 2001. The IMF and World Bank again suspended their programs.
Net foreign direct investment (FDI) was negative from 2000-2003, but started trickling back in 2004, as demonstrated by an increase in the number of enterprises operating in Export Processing Zones (EPZs) from 66 to 74 between 2003 and 2004. The value of total investments increased from Ksh18.7 billion (U.S. $247.3 million) in 2005 to Ksh20.1 billion (over U.S. $278.3 million) in 2006. Following the end of the Multifiber Arrangement (MFA) textile agreement in January 2005, several textile and apparel factories closed, leaving 68 EPZ enterprises. In 2006, this number increased to 70 EPZ enterprises.
The economy began to recover after 2002, registering 2.8% growth in 2003, 4.3% in 2004, 5.8% in 2005, and 6.1 % in 2006. Under the leadership of President Kibaki, who took over on December 30, 2002, the Government of Kenya began an ambitious economic reform program and resumed its cooperation with the World Bank and the IMF. The National Rainbow Coalition (NARC) government enacted the Anti-Corruption and Economic Crimes Act and Public Officers Ethics Act in May 2003 aimed at fighting graft in public offices. There was some movement to reduce corruption in 2003, but the government did not sustain that momentum. Other reforms especially in the judiciary, public procurement etc, led to the unlocking of donor aid and a renewed hope of economic revival.
In November 2003, following the signing into law of key anti-corruption legislation and other reforms by the new government, donors reengaged as the IMF approved a three-year $250 million Poverty Reduction and Growth Facility and donors committed $4.2 billion in support over 4 years. In December 2004, the IMF approved Kenya's Poverty Reduction and Growth Facility (PRGF) arrangement equivalent to U.S. $252.8 million to support the government's economic and governance reforms. However, the government's ability to stimulate economic demand through fiscal and monetary policy remains fairly limited while the pace at which the government is pursuing reforms in other key areas remains slow. Although the Privatization Law was enacted in 2005, modest steps have been made on privatizing of parastatals apart from Kenya Electricity Generating Company (KenGen) and the concessioning of Kenya Railways, while civil service reform is limited despite the government's assertion that reforms would be undertaken. Accelerating growth to achieve Kenya's potential and reduce the poverty that afflicts more than 56% of its population will require continued de-regulation of business, improved delivery of government services, addressing structural reforms, massive investment in new infrastructure (especially roads), reduction of chronic insecurity caused by crime, and improved economic governance generally.
The current expansion is fairly broad-based and is built on a stable macro-environment fostered by government, and the resilience, resourcefulness, and improved confidence of the private sector. Nairobi continues to be the primary communication and financial hub of East Africa. It enjoys the region's best transportation linkages, communications infrastructure, and trained personnel, although these advantages are less prominent than in past years. On January 31, 2007, the government signed a $2.7 million contract with Tyco Telecommunications to perform an undersea survey for the construction of a fiber-optic cable to Fujairah in the United Arab Emirates (U.A.E.) called the East African Marine Systems (TEAMS). Two other fiber-optic cables projects are being pursued to link Kenya to the rest of East Africa and India. Once TEAMS and the domestic fiber-optic cables planned by the government are completed, the economy is expected to benefit significantly from reduced internet access prices and improved capacity. A wide range of foreign firms maintain regional branches or representative offices in the city. In March 1996, the Presidents of Kenya, Tanzania, and Uganda re-established the East African Community (EAC). The EAC's objectives include harmonizing tariffs and customs regimes, free movement of people, and improving regional infrastructures. In March 2004, the three East African countries signed a Customs Union Agreement paving the way for a common market. The Customs Union and a Common External Tariff were established on January 1, 2005, but the EAC countries are still working out exceptions to the tariff. Rwanda and Burundi have since joined the community. In May 2007, during a Common Market for Eastern and Southern Africa (COMESA) Summit, 13 heads of state endorsed a move to adopt a COMESA customs union and set December 8, 2008 as the target date for its adoption.
Tourism is now Kenya's largest foreign exchange earning sector, followed by flowers, tea and coffee. In 2006 tourism generated $803 million, up from $699 million the previous year. Africa is Kenya's largest export market, followed by the European Union (EU). Kenya benefits significantly from the African Growth and Opportunity Act (AGOA). Although Congress renewed the AGOA third-country fabric provision in December 2006 to provide more time to develop local cotton and fabric production that meets the buyers' rigorous standards, its apparel industry is struggling to hold its ground against Asian competition. Kenya's main exports to the U.S. are AGOA-program garments, but it continues to run a trade deficit with the U.S.
Kenya faces profound environmental challenges brought on by high population growth, deforestation, shifting climate patterns, and the overgrazing of cattle in marginal areas in the north and west of the country. Significant portions of the population will continue to require emergency food assistance in the coming years.
|
|
![KIBAKI TENA LOBBY IN DIASPORA
[Business & Economy]](../assets/images/autogen/KIBAKI_TENA_LOBBY_IN_DIASPORA_NBanner_23.gif)
