Kenya Economy

26 January 2010
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MACROECONOMIC PANEL

Kenya, which since its independence, adopted a liberal economic system of type, despite the problems caused by instability of the last year, remains the center for business and the East African Community.

GDP, whereas in the period between 1997 and 2002 grew on average by only 1, 5% annually after 2002, even after the election to Kibaki who has created a positive climate of trust has grown 2.8%, reaching in 2005 to 6.1% and 7% in 2007.

After a sharp drop in 2008 when it reached the level of 3.2%, forecasts speak of a recovery with growth around 6.5%.

Currently, the economy is based mainly on exports of agricultural products (bananas, tea, coffee, etc.) and tourism.

Agriculture is the backbone of the economy of the country and employs over 80% of the population. According to the census of 2003, agriculture had employed 75% of the total workforce of Kenya.

Kenyan agriculture is well developed along the coastal strip, where thanks to climate or to heavy rain throughout the year, you have the growth of a diverse and luxuriant flora.

Particularly in the agricultural field corn  is developped and occupies 62% of agricultural territories as cassava and sorghum grow in less fertile lands and are used mainly by the locals.

Moreover, in the country there is the presence of foreign multinational companies that have different plantations for the production of coffee, tea, bananas, coconuts and sisal products, which are then exported.

 

The breeding of cattle and sheep is practiced mainly by semi-nomadic peoples like the Masai.

 

 

OPPORTUNITIES FOR ITALIAN COMPANIES

 

With its strategic location, the presence of a better infrastructure than neighboring countries and the use of English by most of the population, Kenya is among the most attractive in the eyes of foreign investors and is currently the leading country 's East Africa from the perspective of economic and commercial.

 

The Kenya offers many opportunities on several fronts: from the livestock sector to agriculture, from telecommunications to transport, the tourism industry in general.

 

Located in a turbulent region of Africa plagued by internal conflicts in time and international,it has managed to preserve a certain stability, even through the mediation carried out with respect to regional crises.

 

It has a strategic location, it  has air and sea links  in the continental and regional context and over time has developped an extensive and efficient network of services mainly for businesses, from financial reporting, customs than those of support by institutions and parastatals.

Much remains to be done. Yet who would now enter this market could do with the pioneering spirit much less than before, with high probability of finding a basis for a successful investment.

Business risk is still significant, but the experience of many traders who are already present here is positive.

The government offers a number of direct incentives to foreign investors, including the deduction on investments made in plant, machinery, equipment and buildings. You can also import directly to facilities, equipment and raw materials without payment of customs duties.

 

Depreciation rates of interest are planned: from 2.5% to 4% for industrial buildings and hotels, 12.5% on plant and machinery from 25% to 37.5% on motor vehicles and tractors and 30% on computers and office equipment.

In case of operating losses of the tax system would restore Kenya's entirely to subsequent years.

 

 

INDUSTRY

 

The major industries are concentrated in the capital Nairobi. The main industries are agro-food manufacturing, textiles, soap, cigarettes, petroleum refining, cement, processing of hides, etc...

Industrial production and its export of goods is directed mainly to the markets of COMESA (see below). Crucial for the development of the country for the next 25 years is the establishment and improvement of infrastructure such as roads, ports and airports, which on the one hand they are a means to develop the economy and other important investment opportunities for Italian companies.

 

Tourism is the second industry of Kenya with the highest revenue of foreign currency and loans to thousands of people.

 

About tourism, Kenya is a favorite destination internationally. For the country's economy this item is one that has the greatest weight in terms of volume of foreign trade and its contribution to GDP is 12%. Also in this area the government offers to investors,  respecting the environmental heritage, many opportunities.

 

MINING RESOURCES

 

In Kenya the mining industry is dominated by the production of non-metallic minerals including sodium carbonate, kaolin, etc.. Iron ore is extracted from small deposits located and is used in domestic production of cement.

 

Sectors in expansion

 

The Government of Nairobi has undertaken a series of discussions with international partners with the aim of increasing the contribution of foreign investors in the growth of the agricultural sector that still represents the mainstay of the national economy and provides livelihood to 75% of the population.

 

The organizational sector is expanding: in particular the number of cooperatives (the most common form of company in the field) showed an annual increase of 2.8% and the number of students in agricultural disciplines increases of around 1, 5 % per year.

 

In this context the main objectives proposed by the government are increasing harvests and yields,'s focus on products suitable for export, the development of appropriate systems for processing, packaging, storage and transportation (including cold chain) the promotion of technological innovations, development of irrigation infrastructure and drilling activity, the introduction of quality control services.

On the commodity opportunities relate particularly to the production of tea, which turns out to be the first item of exports from Kenya.

Within the agro-processing, the Kenya imports significant quantities of palm oil. The country is also the producer of beer. Have recently been introduced to the wines papaya that could pose new types of exports, consistent with European tastes. Possibilities also exist in the production of decaffeinated coffee.

 

Lesser importance as it already has a presence, are the sugar, molasses, cocoa and dairy products. The poultry sector is characterized by excess production capacity compared to domestic consumption and regional levels.

 

We note, however, the lack of facilities and services for quality control.

In the fisheries sector the country has significant resources and the Indian Ocean, both of Lake Victoria. In addition to shrimp farms and trout, are emerging opportunities in fish processing and creation of infrastructure to support fish processing (refrigeration, transport, etc.).

In the area of skin existing investments are concentrated in the finished products, particularly in the manufacturing sector of the shoes. This is a market developing in which Italy has helped (and helps) through a program in collaboration with UNIDO.

 

The proposed objectives are to improve the production of small and medium enterprises (so-called informal sector) and in general a high quality of the entire field that, at current levels, moves to an acceptable level only for the internal market and for that region. Goal is to get to the creation of exportable manufactured goods in a wider context.

 

The breeding aimed at production of meat and dairy products is the sector which today offers the greatest investment opportunities. In particular, since the dairy industry was liberalized, the dairy offers good prospects for both the local market for the regional level.

 

Even the oyster beds and crocodiles are emerging as attractive investment areas.

 

Finally, those areas are unexploited beekeeping and honey processing.

 

 

TRADE AGREEMENTS

 

Kenya is a signatory to a number of multilateral and bilateral trade agreements and is a member of the World Trade Organization (WTO).

 

 

 

African Growth and Opportunity Act (AGOA)

 

It is a preferential trade program, which began in 2000 with the Government of the United States, lasting 8 years (recently extended until 2015). The agreement allows Kenya to export to the U.S. a variety of products, from clothes to flowers, from electronic goods to those inorganic, without the payment of taxes and quotas.

 

ACP-EU Trade Agreement

In June 2000, the countries of the African, Caribbean and Pacific (ACP) signed an agreement with the European Union to replace the Lome Convention, which had guaranteed a form of commercial partnership since 1975.

The Lomé Convention had provided a system of trade preferences, non-reciprocal, thus allowing duty free access to a range of products from ACP countries, including Kenya, to Europe.

 

For the future are planned:

 

 

• the creation of free trade areas between the European Union and the ACP sub-regions that will ensure growth in institutional, social and economic integration of ACP countries;

• implementation of Economic Partnership Agreements (EPA), which involves 78 African countries.

 

The EPA's goal is the elimination of all trade barriers on 90% of trade between Europe and ACP countries.

 

 

 

Common Market of Eastern and Southern Africa (COMESA)

The COMESA is a union of 19 countries of Eastern and Southern Africa. Eleven countries, including Kenya, have formed a Tax Free Zone eliminating tariffs on goods imported from member countries. Moreover, in addition to member countries have agreed on creating a sort of free trade area have implemented a plan of gradual reduction of tariffs on imports made between them.

 

Generalized System of Preferences (GSP)

Under the agreement a large number of industrial products exported to Japan, New Zealand, Australia, Switzerland, Norway, Sweden, Finland, Austria and other European countries are eligible for preferential tariff treatment.

 

Investment Protection Guarantee

The Foreign Investment Protection Act is a guarantor against the risk of expropriation of private property by the government. Moreover, Kenya is a member of the Multilateral Investment Guarantee Agency (MIGA) which protects foreign investors from the risk of losing their investments due to political crises in the host country.

 

 

MAKING AN INVESTMENT

 

An investment in Kenya offers immediate access to the markets of East Africa Community (EAC), a partnership created in 2000 comprising Kenya, Tanzania and Uganda, with over 93 million consumers. Also it is member of the Common Market for Eastern and Southern Africa (COMESA), the Kenya offers its investors a total catchment of over 385 million potential customers.

 

The country offers many opportunities on several fronts: from the livestock sector, agriculture, from telecommunications to transport, the tourism industry.

 

The Kenya Investment Authority (KIA) is the organization responsible for assessing the potential of each investment in the country. On the basis of the Investment Promotion Act to any foreign investor is required to undertake an activity that can offer a benefit to the country.

 

This means the creation of jobs, new skills, the use where possible of local raw materials, creating added value through the use of agricultural resources and natural, increased trade with foreign countries favoring ' export or import of products not in the market, use, promotion, development and implementation of new technologies, while increasing the revenue. In evaluating each proposal, the KIA should also ensure compliance with safety standards in health and environmental.

 

The process forward is relatively fast (through the following five phases to be completed in an average time of a month), without charge:

 

• Fill out the form of KIA ( "One Stop"), and the compilation of the Memorandum and Articles of Association containing the name of the company, the composition of capital, the number of shares held by each subscriber and a statement confirming that he has limited liability, the documents relating to internal operations, salaries and contacts of personnel, provided with addresses;

• Appointment of a representative on the ground;

• Record the name of your company at the Office of the company;

• Enter at KIA modules: "One Stop", "Certificate of incorporation", "Articles and Memorandum of Association";

• Receipt of "Certificate of Investment".

 

However, it is predicted a cost around $ 500 for payment of the bill of a local lawyer, who follow the operations.

After the approval of KIA, and then receiving the "Certificate of Investment", the company must obtain additional authorization, "Single Business Permit '(SBS), through which the company is able to avoid requiring licensing separated for the conduct of each activity. Some investors pointed out that in some cases is more expensive request a single SBS, that a number of licenses.

 

In the case of opening a branch overseas you must send the Office of Companies the following documents:

 

• certified copy of the Statute of the company, the Memorandum or Articles of Association or any other document showing the existence of the company;

• List of directors and secretaries of the company including name, address, nationality and bodies in Kenya and any of their directors, additional assignments at other companies Kenyan;

• A declaration that all purchases of property made in Kenya;

• Name and address of one or more persons resident in Kenya authorized the company to receive information for the same;

• Full address of the premises of the company in the country of origin and in Kenya.

 

Once you provide the requested information, the Office of the Company will issue the Certificate of Compliance, then the Ministry will be required for local business licenses or body for the Single Business Permit (SBS).

 

Income generated by branches of foreign companies are subject to higher taxation (37.5%) compared to local companies or those founded by foreigners (30%).

 

 

INVESTMENT INCENTIVES

 

Under the Investment Promotion Act, foreign investors who decide to operate in Kenya must make a minimum capital of $ 500,000 and are subject to a process of selection by the Kenya Investment Authority (KIA).

 

The incentives are aimed at increasing the general amount of currency reserves, create jobs and foster the transfer of technologies. From the fiscal point of view are planned:

 

 

• a customs fee fixed at 10% for equipment and machinery, if it is expected that the best investment income of hard currency for the country or offer a savings on imports;

• a customs fee fixed at 10% for imports of plant and equipment intended for the improvement of rural activities;

• a reduction in fees of 50% calculated on profit from operations underground.

 

Investors in the hospitality industry and have a tax exemption and the costs incurred, amounting to 100% of the investment.

 

The annual rates of depreciation are calculated respectively:

 

 

• 4% for hotels;

• 2.5% for buildings;

• 12.5% for plant and machinery;

• 25 - 37.5% for motor vehicles;

• 30% for computers and on office materials.

 

Moreover, the major fuel, for industrial production, entitled to a refund of duty.

 

It is interesting to note that the duties paid on imported industrial goods from a company whose turnover exceeds $ 5 million, constitute a tax credit on the amount of 'personal tax due Kenyan foreign entrepreneur Exchequer.

 

 

EXPORT PROCESSING ZONES PROGRAM

 

In order to promote exports, the Kenyan government has created more than 40 special areas located throughout the country, identified as Export Processing Zones (EPZ). The main areas are: Athi River, which is the largest, located just 30 km from Nairobi, some areas of Nairobi, as well as the cities of You, Kerio Valley, Mombasa and Kilifi.

Companies operating nell'EPZ must export at least 80% of their production. If so desired, they may sell the remainder on the local market, following the approval of the Ministry of Trade and Economy.

 

In this case the 20% of goods sold does not qualify for any exemption.

After an initial request interested investors can submit export Processing Zone Authority (EPZA) a draft of 2-3 pages describing the product or service they intend to develop the productive process, the target markets, the cost of the project, mode of funding, job opportunities and technology transfers made.

 

The expense must be incurred in submitting the draft to the attention of EPZA is $ 250.

The selection criteria for dall'EPZA are based on the prospects of job creation, the prospects for development of new products and new markets and integration with the economy of Kenya.

 

Within 30 days of submission of the application, the investor is informed of the decision taken by the committee in charge through publication in the Official Gazette of Kenya. Following that is licensed EPZ enterprise and is registered in the company. From this moment the company is required to pay an annual fee renewable U.S. $ 1000.

Once they are registered, you can start your own business, then opening the current account, the 'import of machinery, the occupation of the established and staff recruitment. All companies that choose to participate in the program must start their business in one of the above-mentioned areas EPZ.

 

 

Investors operating on the areas belonging to the EPZ program are recipients of the following tax incentives:

 

• 10 year tax exemption for the corporation and then a fixed rate of • 25% (not applicable to commercial approvals EPZ);

• tax exemption from stamp duty;

• deduction of 100% on investment in the original course of 20 years;

• perpetual exemption of duties and VAT on raw materials and imported machinery.

 

More business opportunities and investment include and affect other areas.

In addition, the Export Processing Zone Authority (EPZA) has the approval of projects presented in a very short time, usually not exceeding 30 days, requires a minimum amount for investment and operations are covered by a single licensed by EPZA.

In fact, thanks to the agreement AGOA (American Growth and Opportunity Act), there are real opportunities to invest in the production and processing of cotton.

 

 

The breeding of exotic animals such as camels, in addition to the more traditional beef, sheep and goats, it guarantees to work together in the fields of dairy production, meat and leather.

Kenya has a force of 14.8 million in ivory, well educated, speaks English and is very adaptable. Professionally qualified staff can be hired at reasonable prices for all professions and all levels of expertise.

 

 

PURCHASE OF EXISTING COMPANIES

 

For mergers and acquisitions it is required the approval of the Minister of Finance and Planning which has reserved the right to require the foreign company information on the date of its foundation, the names of the members herself, its turnover and other information deemed useful.

 

An Officer of the Commission on Monopolies and Prices is authorized to investigate the company on behalf of the Ministry, which will thus have the information necessary to make its decision. Very often these investigative actions are viewed with suspicion, as foreign investors show what the benefits that their investment will bring to the country.

With the entry into force of the 'Investment Promotion Act, "the selection was made even more rigid, although · is easy to see how all foreign investment could potentially create new jobs, introduce new knowledge, skills and contribute to revenue in foreign currency valuable in the country. If permission is denied, you can appeal to the Court for restrictive business practices.

 

 

BUYING PROPERTY

 

All agricultural areas are supervised by the Land Control Boards, which can refuse any type of transaction (sale, transfer, lease, loan, distribution) involving citizens, private companies or cooperatives, non-residents.

 

However, it is given complete discretion to the President who can authorize a transaction without any justification and reasons for its decision. This prerogative is thus the greatest means by which foreigners can acquire agricultural land or the coast.

 

 

BUILDING ACTIVITIES AND ENVIRONMENTAL CONSTRAINTS

 

Kenya has recently updated its regulations on buildings with the presentation of the Physical Planning Act Under current legislation the activities of construction is subject to a dual management both locally and nationally.

 

Potential investors interested in the construction of industrial areas must obtain approval from the local authority designated, and also presented an environmental impact assessment of the project.

The local authority is also responsible to monitor the project is implemented correctly. In the absence of an organ of local supervision, control activity is entrusted to a Director of Physical Planning.

 

Only in recent years, Kenya has faced serious environmental issues, even if the distance between the bills are approved and their implementation is still substantial.

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