| UNIVERSITY OF PENNSYLVANIA - AFRICAN STUDIES CENTER |
SUMMARY
This article is derived from a report dated January 1993, prepared at the U.S. Department of Commerce - Washington, DC. The article consists of 27 pages and discusses the economic and commercial climate in Kenya, with emphasis on information useful for potential U.S. sellers and investors. It includes the following sections:
Kenya's economic performance has been among the strongest in Sub-Sahara Africa, but because of rapid population growth and depreciation of the Kenyan shilling against the dollar, economic performance has not been impressive in either per capita or dollar terms. In 1991, the economy's gross domestic product (GDP) grew 2.2 percent in real terms. GDP per capita was $360. The modest growth in 1991 was largely due to lower agricultural production and partially because of drought.
Manufacturing output grew 3.8 percent in 1991. Coffee, tea, and horticultural exports were all up, but tourism was down. Kenya received substantial foreign aid in 1991, but most of it ($865 million) was in the form of project aid. Program (quick disbursing) aid was suspended by most donors in the fall of 1991, pending political, economic, and governance reforms. The amount suspended was about $360 million. Because this is cash and directly affects foreign exchange availability, the suspension has had a negative effect on imports, economic growth, and new investment. Prospects for 1992-93 are not bright because of the aid suspension and political uncertainty. The aid suspension will be reappraised in the fall of 1992; elections are expected to be held then or shortly thereafter. Economic growth is not expected to resume until these issues are settled, and many observers predict negative growth in 1992. If the elections go well and economic reforms are energetically pursued, the Kenyan economy could boom in the nineties. If not, stagnation is likely.
Opportunities for U.S. Business
Major project opportunities for American firms exist in the following areas: geothermal energy development, the telecommunications sector, the lease and/or purchase of commercial aircraft, and a new Kenyan export processing zone with an emphasis on textile equipment. Current plans call for the development of an additional 280 megawatts (MW) of generating capacity for geothermal energy generation before the year 2005. In the telecommunications sector, Kenya Posts and Telecommunications Corporation may procure several new systems in the coming years. The Kenya Wildlife Service will also be purchasing a number of aircraft and helicopters for its game parks. Several local and international companies have indicated interest in establishing wearing apparel manufacturing operations once the export processing zones are established.
Best export prospects to Kenya are telecommunications equipment, aircraft and parts, agricultural chemicals, electrical power systems, industrial chemicals, agricultural machinery and equipment, plastic materials and resins, food processing and packaging machinery, computers and peripherals, and medical equipment.
Government of Kenya's Development Plan
The Government of Kenya's current 5-year development plan (1989-93) targets an annual 5.4 percent real growth in GDP. This growth rate was not reached in 1989-91. Resumed growth depends on a strengthened private sector, stability of coffee and tea prices, adherence to macroeconomic and sectoral policy reforms, and higher earnings from tourism and nontraditional exports. Most of these factors will not occur until political stability has been reestablished and sufficient reforms accomplished to satisfy the donors.
In the meantime, the government has continued with economic reform measures to encourage private sector industrial growth. These include expenditure rationalization, price decontrol, export promotion, interest rate liberalization, and capital market development. Import licensing has been liberalized in theory, but lack of foreign exchange has prevented much practical result from this measure. During his annual budget speech in June 1992, Vice President and Finance Minister George Saitoti played safe with the electorate and introduced almost no changes that would arouse opposition. Income taxes were reduced. Budget and policy proposals were generally consistent with the guidelines of the International Monetary Fund. In addition, donors were promised economic reforms in due course. Measures that many observers believe are needed to help the declining economy were not in the budget. These include deregulation of the agricultural sector, promotion of export-led growth, parastatal reform and divestiture, civil service reform, and better monetary management.
Agricultural production, the backbone of Kenya's economy, contributes approximately 30 percent of total GDP, employs over 75 percent of the work force, and generates about two-thirds of foreign exchange earnings. Small-scale farmers account for more than three-quarters of total agricultural production and over half of its marketed production.
Agricultural exports continue to dominate Kenya's foreign trade picture, and given the structure of the Kenyan economy, they will continue to do so for the foreseeable future. Coffee, tea, sisal, pyrethrum, and horticultural products predominate, with coffee and tea accounting for 40 to 50 percent of overall export earnings. The suspension of the economic provisions of the International Coffee Agreement in July 1989 temporarily disrupted markets and drove prices to historical lows. To compensate, Kenya increased its export volume and substantially drew down its stock carryovers to about 1 million 60 kilogram bags by the end of 1990. Prices somewhat improved for Kenya's quality arabica coffee in 1991. Nevertheless, coffee earnings declined from $274 million in 1988 to $200 million in 1990.
Coffee is unlikely to play the dominant role in Kenya's export mix as it has in the past, and despite its high quality, tea will not make up the difference. The newest hope on the horizon is horticulture. Horticulture exports increased from 134,178 metric tons valued at $108 million in 1989, to 188,825 metric tons valued at $139 million in 1990. Fruit and vegetable exports in high volumes were recorded, and flower exports registered impressive earnings.
Tourism
In 1990, tourism maintained its lead as the number one foreign exchange earner. In U.S. dollar terms, tourism earnings increased by 11 percent. Bookings of coastal hotels showed a marked improvement in 1990, but this trailed off during the Gulf War-induced decline in early 1991. Hotel bookings rose dramatically during the 1991 Christmas season; earlier losses in foreign exchange may now be recovered.
The Kenyan Government is working hard to improve performance in the tourist sector. The depreciation of the Kenyan shilling should help to offset the adverse impact of the 1991 Gulf Crisis and higher fuel costs.
Energy
Kenya depends largely on wood, petroleum products, and hydroelectricity for energy. The government regulates the importation and pricing of crude oil and petroleum products. In an effort to conserve foreign exchange and increase energy independence, Kenya is rapidly expanding hydroelectric generation and supply to rural areas. Ongoing oil exploration efforts have not found commercially exploitable deposits. Two foreign oil exploration companies are continuing to drill wells in northern and eastern Kenya, but prospects of a commercially viable strike appear remote after 36 years of exploration.
Power
General: Electric current in Kenya is most commonly 240 volt, 50 cycle, single; 415 and higher voltages, 50 cycle, 3 phase exists in certain areas. Kenya's consumption of all types of electricity increased by 23 percent between 1986 and 1990. The share of imported electricity fell from 9 percent of the total to less than 6 percent between 1986 and 1989. In 1991, total generating capacity in Kenya amounted to 732 MW, of which 78 percent was hydroelectric. Geothermal energy in the Rift Valley contributes 45 MW to Kenya's installed capacity.
Water: Adequate supplies of water for both personal and industrial purposes are available. The Ministry of Water Development is the principal government agency responsible for managing, developing, operating, and maintaining water supplies, sewage disposal, and pollution control. The Ministry of Agriculture's National Irrigation Board is responsible for developing and maintaining large-scale irrigation schemes for agricultural production.
The International Development Association is funding a $43.2 million water project, titled "Second Mombasa and Coastal Water Supply Engineering and Rehabilitation." The project conducts preinvestment studies and engineering designs for the extension of the Mombasa and Coastal Water Supply System and the related wastewater disposal systems. The project also reduces the water supply deficit through rehabilitation/augmentation of existing facilities.
Manufacturing
Although its industrial sector accounted for only 11.4 percent of 1990 GDP, Kenya is still the most industrialized country in East Africa. Manufacturing activities include food processing, beverages, and production of tobacco, footwear, textiles, cement, metal products, paper, and chemicals. In 1990, manufacturing output grew by 5 percent, reflecting perhaps the initial impact of a $110 million World Bank Industrial Sector Adjustment Program started in 1988.
Industrial expansion since independence has been geared towards import substitution and the East African market. Industry has been heavily protected. In order for Kenyan manufacturers to become more competitive in world markets, the government has articulated plans to create a more favorable climate for foreign and domestic investment, which has been stagnating for the past 10 years. Elements of the plan include liberalization of imports, rationalization of tariffs, and promotion of export policies aimed at making industry more efficient and competitive.
Mining
The Kenyan Government controls the rights to all minerals within the boundaries of its jurisdiction. Prospecting is lawful only under a license granted to qualified persons for a nominal fee. Exploitation of any discovered mineral or petroleum deposits requires payment of royalties to the government.
Kenya's laws governing the issuance of prospecting licenses are quite liberal. The license must delineate the area covered and specify an obligation to drill and to expend a minimum sum of money. Kenyan Government negotiators have wide leeway to set the specific terms of licenses, although their duration is limited to 10 years. Succession or inheritance of land by noncitizens is protected by the Constitution of Kenya and therefore is not affected by these controls.
Land Ownership: Foreign investors are permitted to own or lease land on industrial sites in Kenya, subject to the country's land-tenure laws and regulations. Land in Kenya is held on either a freehold or leasehold basis and is available to industry for periods of 99 years. Rentals for industrial sites are established by reference to prevailing market prices in Kenya. One-fifth of the assessed value of the undeveloped land must be paid by the lessee as a lump sum, followed by a yearly payment of 5 percent of the remaining four-fifths. This rental remains constant during the 99-year tenure. Also, the purchaser is required to pay the development costs for the installation of railway sidings, roads, sewers, etc. Approved industrial enterprises may be able to negotiate favorable terms for the acquisition of land. There are no onerous covenants contained in the leases other than that which requires the construction of the building of suitable design or stipulated minimum value within 2 or 3 years of the date of the grant.
Investors obtaining industrial plots in Kenya are advised to contact the Ministry of Industry, P.O. Box 30430, Nairobi, Kenya.
Transport and Communications
Transportation
Roads: Kenya has 51,368 kilometers (km) of established roads, of which 5,336 km are bitumen surfaced. Buses and coaches operate everywhere, but services are not yet well developed outside the towns. Taxis are difficult to obtain except around the larger tourist hotels, and fares are expensive and should be negotiated in advance. Avis, Hertz, and other car rental agencies operate in Nairobi and offer daily and monthly rates considerably higher than those in the United States. Driving is on the lefthand side of the road.
Rail: The Kenya Railways Corporation (KRC) operates some 2,651 km of railway. The main line extends from Mombasa at the Indian Ocean coast to Malaba on the border with Uganda. KRC carries 30 to 40 percent of total freight traffic in Kenya. In 1988, KRC hauled 3.1 million metric tons of freight on 3 foot- gauge track. The predominate locomotive supplier is General Electric. Modern trains, with sleepers and dining cars, run between Mombasa, Nairobi, and Kisumu. Fares are moderate.
Water: Mombasa is Kenya's only modern harbor where international ships can dock. The Mombasa Port serves Uganda, Tanzania, Rwanda, Burundi, and Zambia, as well as Kenya. One of the finest natural harbors in the world, it has 15 deepwater quays, numerous transit sheds and back-of- port sheds for dry cargo, the Kipevu Oil Terminal capable of accepting tankers up to 65,000 tons, and a lighterage wharf.
Kenya does not have freighters, tankers, and bulk carriers. The government established its own national shipping line in 1990. The national shipping line does not own ships, but charters space on foreign vessels. Two U.S. shipping lines service Kenya. They are Lykes Lines and American Presidential Lines.
Air: Air travel and air freight are well developed. Kenya's major airports are Moi International (Mombasa) and Jomo Kenyatta International Airport (Nairobi). In addition, many towns such as Kisumu and Malindi have airports, and there are a number of "bush" airstrips throughout the country. Kenya Airways, the country's national carrier, operates on international as well as domestic routes. Lufthansa, British Airways, Air France, and other international carriers also service Kenya. No American airlines fly into Kenya.
Communications
Telephone and Telex Facilities: Kenya has over 46,000 direct exchange lines and more than 70,000 telephones in use. Local telephone service is available in most cities and larger provincial towns, although delays of one to several hours are often experienced on long distance calls within the region. Telex services are available at some hotels and public telex offices. The large hotels have public telephone booths. Local telephone calls cost one shilling. International direct dial is available between the United States and Kenya. AT&T Calling Card Service to the United States is available. Kenya's country code is 254. Nairobi's and Mombasa's city codes are 2 and 11 respectively.
Radio and Television: The Voice of Kenya (VOK), transmitting in English, Swahili, and Hindustani, provides effective coverage of Kenya as well as adjacent sections of Tanzania and Uganda from three medium- wave stations. Parts of Kenya are served by a short-wave relay station at Langata. Almost 1.4 million radios reach about 85 percent of the total adult population in Kenya.
Kenya television, also provided by the VOK, serves the Nairobi and Mombasa areas, including the main cities in the Rift Valley and Kisumu. Approximately 40 hours of English, Swahili, and Hindustani are broadcast weekly. The privately owned Kenya Television Network (KTN) broadcasts in English around the clock. Coverage includes local news programs, CNN, and rerun serials from the United States and the United Kingdom.
Import Licensing
Kenya has imposed import licensing procedures to conserve foreign exchange. Import licenses are issued by the Ministry of Commerce. The ministry must receive an import license application by the Kenyan importer before orders are placed abroad. Applications for the allocation of foreign exchange for imports are forwarded by the ministry to the Central Bank, which grants foreign exchange.
Since early 1992, Kenya has experienced critical shortages of foreign exchange. At times, foreign exchange reserves have covered only 2 weeks' worth of imports. The shortage of foreign exchange has resulted in several months delay in the issuance of import licenses. In view of the foreign exchange situation, American exporters should ensure that any business transactions with Kenya are covered by irrevocable letters of credit confirmed by prime American or international banks.
Licensing System: The Kenyan licensing system classifies import items into three broad categories. Category 1 comprises high priority capital goods, raw materials, and intermediate inputs which can be identified easily. In principle, license requests for Category 1 goods are approved automatically. Category 2 contains goods subject to special import authorization such as fertilizers, cattle, live poultry, live fish, powdered milk, cheese, wheat, rice, maize, cereal, flours, nuts, refined sugar, spices, petroleum products, selected motor vehicles, and tractors. Category 3 has three schedules: A, B, and C. Schedule A lists technical items of exceptionally high priority such as engineering components, spare parts, precision instruments, chemicals, special plastic, glass, and metal products. Approval is usually delayed because the items are handled on a case-by-case basis. Schedule B lists semiessential goods, mainly consumer goods. Licensing depends on the foreign exchange reserve position. Schedule C lists items which the government considers undesirable. Approval for such items is difficult to obtain.
Import Duties
Kenya is a signatory to the General Agreements on Tariffs and Trade. Kenya uses a single-column tariff based on the Harmonized System. All charges and duties are payable in Kenyan shillings. Duties are assessed on the c.i.f. value comprising the original cost of the goods plus freight and insurance. If this information is not available, duties are assessed at the port of entry on the price that the goods would command in the local market. Kenya has a value-added tax on virtually all goods and services which averages between 18 and 35 percent.
Import duties cover a wide range of rates. The amount of duty depends largely on whether or not the item is considered essential, luxury, or if it is readily available locally. Specific duties, where applicable, are based on the weight, length, area, volume, or number of the imported goods. Where duty is assessed according to weight, the net weight is used. However, if the package does not indicate the net weight of its contents, then the duty is assessed on the gross weight of the package and its contents.
Excise duties are assessed ad valorem on beer, sugar, tobacco, matches, spirits, soap and soap products, woven fabrics, paints, varnishes, lacquers, enamels, and distempers.
Duty Exemptions: Exemptions from import duties are allowed for emergency medical equipment, items for personal use, diplomatic and consular goods, and items for the use of the Kenyan Government. Duty refunds can be granted for imported materials to be used for local production. The Ministry of Commerce may also grant refunds of duty where it would be in the public interest to do so, or where payment of duty would operate harshly or inequitably. Suspended duties are found on a number of items for which local production is nonexistent or insufficient, but for which expanded production is planned.
For information on the import tariffs applying to specific products, contact the International Trade Administration's Office of Africa, U.S. Department of Commerce, Washington, DC 20230, or call (202) 377-4564.
Preferential Trade Area
Kenya is a signatory to the Preferential Trade Agreement (PTA). The PTA, established in 1981, is a regional organization of Eastern and Southern African states. Members include Burundi, Comoros, Djibouti, Rwanda, Somalia, Swaziland, Ethiopia, Lesotho, Malawi, Mauritius, Tanzania, Uganda, Zambia, and Zimbabwe. Angola, Botswana, Madagascar, and Mozambique have signed the PTA treaty but not ratified it. The PTA is regarded as the first step toward the establishment of a common market and eventually an economic community. The PTA aims to boost trade amongst its members by giving their products a tariff advantage over imports from outside countries. PTA member states currently reduce tariffs on imports coming from other PTA members states by 30 percent. The PTA member states agreed that intra-PTA tariffs will be reduced 100 percent to zero by the year 2000.
Preshipment Inspection
Most commodities imported into Kenya are subject to preshipment inspection for quality, quantity, and price comparison. Contecna Inspection S.A. conducts the inspection in the country of origin. Suppliers should give Contecna at least 10 days notice before indicating the place where the goods can be inspected and the expected time of shipment. Upon satisfactory completion of the inspection and receipt of all required documents, Contecna Inspection will issue a "Clean Report of Findings." Banks may not make payment against a letter of credit or a bank draft unless a Clean Report of Findings has been issued. The cost of the inspection services is paid by the Kenyan buyer.
Contecna Inspection S.A. has an office in the United States located at: 11305 Sunset Hill Road, Suite B5, Reston, Virginia 22090 (tel: (703) 689-0805).
Shipping Documents
No prescribed form of invoice or consular document is needed for shipments to Kenya, and there are no consular fees. Documents required are the commercial invoice, the bill of lading, and certain sanitary and other certificates. Required documents for goods sent by air are the same as those for goods sent by ship or other forms of transportation.
Shipping documents should be forwarded (separately from the goods) as soon as possible by airmail to ensure their receipt by the consignee prior to the arrival of the goods at the port of entry.
Any alterations made on any document, prior to its acceptance by the various customs authorities, must be made in such a manner as to show the error and the alteration in legible form. Each alteration must be initialed and dated by the person making the correction.
The ordinary customs declaration, submitted in duplicate, can be used for import declarations. The following information should be shown on the invoice: country of origin; quantity of goods; true market value in the country of origin; all costs of packing, insurance, and freight up to the port of entry; the exact nature of any discounts and/or commissions given by the seller to the buyer; and the import license number.
Invoices, shipping marks, and bills of lading should correspond exactly to ensure prompt clearance by customs. In addition, weight measure on which freight is charged may also be added.
Although not required by law, a packing list facilitates clearance through customs. A packing list is especially recommended for consignment of miscellaneous goods. There are no special requirements for the preparation of bills of lading. No invoice is required for bona fide private parcel post shipments. "Trade goods" (packages other than those addressed to a private individual for his own use) shipped by parcel post which exceed $28 in c.i.f. value, must be accompanied by the proper customs invoice.
Sanitary and Other Special Certificates
Importation of animals, plants, and seeds is subject to quarantine regulations. Importation is allowed only at designated ports of entry.
Every imported animal must be accompanied by a certificate from a qualified veterinarian stating that the animal was free from disease at the time of exportation. Examination by a veterinarian at the port of entry is also required.
Kenya requires a special import permit for the import of fresh fruits, plants, and seeds, issued by the Kenyan Director of Agriculture. In addition, a certificate signed by an appropriate government official in the exporting country is required. Plants not covered by this special permit will be destroyed. Seeds not covered by permit will not be destroyed unless they come from the following plants: coffee (except roasted beans), cotton, tobacco, tea, cacao, coconuts, groundnuts, lucerne and clover, rubber, maize, wheat, cloves, peach, barberry, buckthorn, and potatoes.
The Kenyan Government bans the import of used clothing intended for sale, but a considerable amount of U.S. used clothing still enters the market.
Labeling, Marking, and Packaging Requirements
There are no specific requirements pertaining to the labeling or marking of imported goods, except for condensed milk, paints and varnishes, and vegetable and butter ghee. Imports of prepackaged paints and allied products must be sold by net metric weight or metric fluid measure. Paints packed in tubes or boxes, commonly sold as artists' or children's paints, are excepted from these requirements. Imports of pharmaceutical products from the United States may be labeled according to U.S. pharmacopoeia standards. However, all goods bearing any wording in the English language should indicate the country of origin.
Senate Concurrent Resolution 40, adopted July 30, 1953, invites U.S. exporters to inscribe, insofar as practicable, on the external shipping containers in indelible print of a suitable size: "United States of America." Although such marking is not compulsory under U.S. laws, American shippers are urged to cooperate in publicizing American-made goods.
All goods should be securely packed to withstand excessive tropical heat, moisture, rough handling, and pilferage. East African importers recommend that American shippers avoid use of thin cardboard and plywood containers because such containers are easily broken into and readily damaged if exposed to the weather. To ensure safe arrival at the port of destination, all packages should be of sturdy construction, properly supported, preferably on the inside, and banded on the outside with steel strapping.
Entry must be made within the prescribed time after arrival of the ship in port. Goods inadmissable at port of entry are moved to a government warehouse after 21 days from the date of commencement of unloading and are sold if not admitted after 3 months.
Goods admitted in transit are allowed to pass through Kenya under security bond. They are under customs control until reexported. Goods for transshipment can be transshipped directly from the importing vessel or within 21 days if the appropriate customs officer permits. Goods admitted in transit, or for transshipment under bond, on which import duties were not paid can be reexported from a bonded warehouse.
Where goods are reexported and duties were paid at the time of importation, a refund of the amount originally paid can be obtained. A claim for such a refund (or drawback) can be made under the following circumstances: the owner produces such goods for examination and subscribes to a declaration that such goods have actually been exported and will not be reimported into Kenya; and the owner was, and is, the person entitled to the drawback, and presents his claim for drawback within 12 months of exportation of the goods.
Drawback is prohibited under the following conditions: if the value of such goods for home consumption is less than the amount of the drawback that may be allowed; if the import duty thereon was less than 40 shillings; if the exported goods have been destroyed by accident on board aircraft or vessel; or if the goods have been materially damaged at any port or place in the country. Furthermore, drawback is prohibited unless the goods are exported in the original packages in which they were imported, or unless the contents were unpacked and repacked by authority, and under supervision of a customs official.
Any duty paid in error will be refunded. No duty refund will be allowed for reexported goods unless the claim is submitted within 12 months of time of exportation.
Warehousing
Goods may be stored in a bonded warehouse for a period of 2 years, after which, if not cleared by the owner, they may be sold by the Customs Collector.
Goods admitted for domestic consumption that remain in any warehouse more than 14 days may be forfeited to the government or destroyed as the Commissioner of Customs and Excise may direct. Dutiable goods on first importation may be stored in a bonded warehouse without payment of duty.
Goods deposited in a government warehouse are subject to rent and other charges as may be prescribed. If these charges are not met, the goods may be sold and the proceeds applied to the charges. Goods that have been abandoned to Customs will be destroyed or disposed of at the owner's expense. Duty on such goods may be refunded on application to the customs officer.
Samples and Advertising Matter
Kenya is a member of the International Convention to Facilitate the Importation of Commercial Samples and Advertising. Samples that the Commissioner of Customs and Excise decide on and are of no commercial value may be admitted duty free. The duty on samples not so exempted must be paid on entry, and the deposit later refunded, provided the samples are reexported within 6 months of the date of importation. The period of 6 months may not be extended. Imports of samples and advertising matter into Kenya are subject to normal licensing and documentary requirements.
Price lists and catalogs are permitted duty-free entry. Showcards and similar printed matter advertising goods grown or produced, or services to be supplied from outside Kenya and imported for advertising purposes only (but not including calendars, diaries, date indicators, desk pads, and other advertising stationery) are also admitted free of duty.
Advance Rulings on Classification
Requests for advance rulings on customs classification of merchandise not specifically mentioned in the customs tariff, or on a doubtful classification may be submitted in writing (together with sample, if practicable, or advertising notes) to the Commissioner of Customs and Excise at any customs house in Mombasa or Nairobi. However, such advance rulings are not binding on the authorities.
Appeals and Claims
The Commissioner of Customs and Excise, with the consent of the importer, may settle a dispute between the importer and a customs officer. Otherwise, the dispute will be settled in court. There is no appeal against decisions of the Commissioner of Customs and Excise where the accused offender has consented to accept the Commissioner's decision. In cases heard by the courts, penalties and forfeitures inflicted by the courts may be appealed in accordance with the rules of the court.
When any vehicle or goods have been seized by customs authorities as forfeited, the Commissioner may--by written notification--require the claimant to institute suit against him for recovery, or may himself cause suit to be instituted in any competent court for the forfeiture of the vehicle or goods. In the former instance, if the claimant does not enter his suit against the Commissioner within 2 months, the goods are automatically forfeited. If the Commissioner fails to notify the claimant within 2 months or fails to institute proceedings himself, ownership of the goods reverts to the claimant.
The Kenyan banking sector consists of the Central Bank of Kenya, 24 commercial banks, and 6 development finance institutions. In addition, there are 47 insurance companies, a number of building societies, and over 900 savings and credit institutions.
Central Bank of Kenya: The Central Bank of Kenya, established in 1966, is the principal financial institution in Kenya. It regulates the Kenyan monetary and banking system, issues bank notes, administers exchange control, and provides banking and other services to the government. In addition, the Central Bank regulates commercial bank liquidity and interest rates as a mechanism of government monetary policy.
Commercial Banks: The commercial banks have over 400 service centers throughout the country. They offer a wide range of services, including short-term financing and letters of credit. Occasionally, commercial banks will offer medium-term financing. Additionally, commercial banks offer a number of donor-aided term finance windows and offshore lines of credit to support projects. The commercial banking sector is dominated by four large banks. These banks with their American correspondents are the National Bank of Kenya (Manufacturers Hanover Trust Company and Morgan Guarantee Trust Company), Kenya Commercial Bank (Bankers' Trust, Manufacturer's Hanover Trust Company, Chase Manhattan, and Citibank), Barclay's Bank (Barclay's Bank of New York), and Standard Chartered Bank (Standard Chartered Bank of New York). The National Bank of Kenya and the Kenya Commercial Bank are government owned.
Foreign Commercial Banks: Citibank is the only American bank that operates in Kenya. The Commercial Bank of Africa, previously owned by Bank of America, is now locally owned. Manufacturers Hanover Trust maintains a representative office in Kenya. Other foreign commercial banks operating in Kenya include the Bank of India, Ltd.; the Bank of Baroda, Ltd.; Habib Bank (Overseas) Ltd.; and the Banque Indosuez.
Foreign Exchange Certificates: In November 1991, the Government of Kenya issued foreign exchange certificates as a means of encouraging repatriation of foreign exchange held abroad by Kenyan residents. The certificates are issued by the Central Bank and sold through commercial banks. The certificates are denominated in dollars, and the purchaser pays in dollars or other hard currencies. The purchaser receives the value of the currency in Kenyan shillings along with the exchange certificate. The certificate gives the bearer the right to repurchase the same amount of foreign exchange initially sold, plus interest from the date of issuance to the date of redemption.
Currency
Kenya's unit of currency is the shilling. The value of the Kenya shilling is based on five major currencies: the U.S. dollar, British pound, Japanese yen, the Deutschmark, and the French franc. The Central Bank of Kenya circulates notes in 5, 10, 50, 100, 200, and 500 shilling denominations; and 5, 10, 50, and 100 cents denominations in coins. The Kenya shilling (KSh) was exchanged at the rate of 32KSh equaled $1.00 as of June 1992.
Credit
There is very little foreign-source commercial credit offered to Kenya except on an intercompany basis or for consumer goods and small machinery. Exporters from the United States and other countries customarily sell on the basis of irrevocable confirmed letters of credit. Financial institutions such as the U.S. Export-Import Bank offer government-supported export credit at commercial rates. (Occasionally, these institutions will offer credit at better than commercial rates.) This type of credit usually requires a guarantee either from a local bank or from the Government of Kenya. Local commercial bank credit is available on a limited basis to importers in Kenya, although at higher rates. Interest rates on loans were deregulated in 1991, and as of June 1992 were 20 percent.
Kenya's main points of population concentration are Nairobi, the capital (1,350,000); Mombasa (465,000); Kisumu (185,000); Nakuru (162,000); Machakos (116,000); Meru (78,000); Eldoret (50,000); and Thika (57,000).
Nairobi: Nairobi, the commercial hub of East Africa, is centrally located with regard to both Kenya and East Africa as a whole. It is located at the edge of the prosperous agricultural settlements of the Kenyan Highlands and serves as a regional wholesale distribution center. Many firms operating throughout the region have their headquarters in Nairobi. The city also serves as a retail center for a large part of the surrounding area. Nairobi derives a certain commercial advantage from its role as an administrative center. Consequently, most marketing services are available there. U.S. exporters should take advantage of these services in developing sales promotion programs geared to the regional market.
Mombasa: Mombasa is the leading port and major distribution center of Kenya. It serves as a trade artery for Uganda, Rwanda, Burundi, and eastern Zaire. Although Mombasa's function in retail and local wholesale trade is small, some of the larger import/export firms, and many smaller ones, are based there. In addition to these firms, the Uganda Coffee and Lint Marketing Boards maintain large warehouses in Mombasa.
Nakuru/Eldoret: Nakuru and Eldoret developed principally as trading centers for the affluent European settlers of Kenya's former White Highlands area. They are distinguished by large-scale commercial units, including the Kenya Grain Growers Cooperative Union, which distributes agricultural machinery, fertilizers, and supplies.
Kisumu: Kisumu, serving a large area of dense African settlement, is becoming increasingly important as the commercial center of western Kenya. Provincial administrative centers also play a significant role in distribution; their respective importance is generally related to the size, population, and prosperity of the area they serve. Most merchants in these areas are retailers, although several may also sell goods to smaller traders in the more remote areas.
Distribution Channels
Although Kenya offers the U.S. exporter a wide variety of methods for distributing and selling his product, the specific means chosen must be tailored to fit the individual requirements of the product and its potential market. The principal methods of selling are as follows: employing the services of an agent or distributor, selling through established wholesalers or dealers, selling directly to cooperatives and other indigenous organizations, or establishing a branch or subsidiary.
Agents and Distributors: Agents are often used for the distribution of a wide range of consumer goods and raw materials. The choice of an agent is particularly important. It can be a deciding factor in the eventual success or failure of the marketing effort. When seeking an agent or distributor in Kenya, U.S. exporters should visit the country since firsthand knowledge of the market is highly desirable before any long-term commitment is made. Also, such a visit provides an opportunity for a personal appraisal of the relative merits of prospective agents or distributors. The large and well-established import houses tend to be overburdened with agencies and frequently find it difficult to allocate sufficient time and personnel resources to the promotional effort required for newer product lines. Alternatively, smaller agents are ordinarily prepared to devote considerable time and attention to individual product lines. However, they may lack the capital, personal contacts, and physical facilities necessary for a successful sales effort. As agents often represent several different product lines, the U.S. exporter should avoid appointing an agent who currently is handling a directly competitive brand.
For those products requiring servicing, the exporter should ensure that qualified personnel and the necessary parts are readily available for the after-sales service. European competitors capitalize on their geographic proximity to the Kenyan market by making spare parts and service personnel available to local customers on short notice. More than one U.S. firm has lost a valuable order through failure to provide prompt and efficient service for its product.
The U.S. Department of Commerce can help exporters locate agents and distributors through the Agent Distributor Service (ADS) program. The ADS is a Commerce program which will locate interested and qualified agents or distributors for U.S. businesses. This information is available through the local district offices of the Department of Commerce's U.S. and Foreign Commercial Service (US&FCS--part of the International Trade Administration). The cost of one report is $125.
In appointing an exclusive representative in Kenya, the U.S. exporter is legally entitled to certain exemptions from U.S. antitrust laws. The Webb-Pomerene Act allows limited exemptions from antitrust laws by allowing exporters to agree on prices, sales terms, and territorial divisions.
Wholesalers and Retailers: Almost all goods pass through wholesale channels. Wholesalers play an important role in the distribution system. Local produce trading and wholesale distribution may be very closely linked, particularly in the more rural districts. Although major cash crops are marketed through cooperatives and various marketing boards, most of the minor cash crops are still handled by traders who are also wholesale distributors.
Nearly one-half of all wholesale establishments are located in the Nairobi area. Other concentrations occur in the Coast, Rift Valley, and Central Provinces. The smallest number are located in the sparsely populated Northeastern Province. Most of Kenya's wholesalers are private registered companies or partnerships.
The distribution of retail establishments closely parallels wholesale trade. Approximately one-third of the establishments are located in the Nairobi area. Most of the establishments operate on a small scale. Half of them are individual proprietors and the other half are partnerships. Most of the retail outlets in Kenya lack specialization. Practically all shops are general stores stocking a wide range of goods. Only in the larger towns are there any specialty shops. There are no extensive chain stores except for the state-owned Uchumi Supermarkets.
Trade License: A company engaged in wholesale or retail trade must obtain a license after it has acquired a place of business. Noncitizens are precluded from operating in many towns; it is therefore essential to determine in advance whether the location is in what is termed a "general trading area."
Manufacturing firms are not allowed to distribute their locally produced merchandise, but must sell through African distributors.
Pricing and Credit
In quoting prices to Kenyan importers, costs should be computed on a c.i.f. basis. In general, clarity of price quotations is vital to successful selling. An effort should be made to quote in terms which the Kenyan importer is familiar.
Local sources of commercial credit are generally inadequate to finance the growing volume of import transactions. In most instances, liberal credit terms offered by a foreign supplier can outweigh a considerable differential in price. Therefore, the ability of the U.S. exporter to extend liberal credit terms is an extremely important factor in determining the overall success of the Kenyan marketing effort. Foreign competitors in many instances grant credits for a period of 180 days for consumer goods and 24 months for small machinery and equipment.
Long-term credits for the purchase of more expensive capital equipment have been extended by foreign firms for as long as 7 years. The offer of long-term credits includes a 5 percent payment at time of order and a 10 percent payment on delivery up to a year later. The German, Italian, and Dutch Governments discount paper for their exporters at similarly liberal terms and at low interest rates.
To assist U.S. exporters in formulating sound credit policies applicable to local markets, credit information on individual Kenyan firms is available through the World Traders Data Reports (WTDRs) service. WTDRs, prepared by US&FCS, are available for $75. Similar information is also available from private agencies.
Government Procurement
Procurement in Kenyan Government tenders of goods worth over $4,000 is done through open tenders published by tender boards. The established tender boards are the Central Tender Board, Ministerial Tender Boards, the Department of Defense Tender Board, and the District Tender Boards.
Most goods and services which do not exceed $80 are procured without written quotations or agreements. Procurement of goods worth up to $4,000 requires at least three competitive quotations, but is not referred to a tender board. Adjudication of the quotations must be made by three or more responsible officers.
Barriers: The Government of Kenya provides preference to domestic suppliers for small procurements and contracts. Foreign suppliers are not eligible to bid for contracts valued at less than $50,000. Barriers against foreign goods and services exist in construction, engineering, architecture, insurance, and shipping.
For instance, foreign construction companies are not allowed to make bids except on projects with foreign financing, or where there are substantial amounts of imported material being utilized. Any Kenyan- financed project using only Kenyan material must be constructed by a Kenyan firm. Engineering and architectural contracts are awarded to Kenyan firms unless there are technical reasons for using a foreign firm or foreign financing. Kenyan insurance companies must give 25 percent of their written business to the Kenya Reinsurance Company, a government parastatal. Additionally, Kenya Reinsurance Company gets 25 percent of all reinsurance business placed abroad. There is also a 2 percent tax on reinsurance business placed outside Kenya. As for shipping, Kenyan registered ships receive preference on bids. There is a parastatal Kenyan national shipping company which also receives preference. The shipping company has no ships, but charters space on foreign registered vessels.
Foreigners have good opportunities to sell to the Government of Kenya, but these opportunities are largely dependent on foreign exchange availability. Foreign suppliers have experienced difficulty obtaining foreign exchange remittances. Most big projects and capital purchases are normally donor financed. The aid agreements often require that contractors and supplies come from Kenya and the donor country.
Bids by U.S. companies represent an estimated 20 percent of the total number of bids received by Kenyan tender boards. U.S. companies win about 30 percent of the bids they make. U.S. companies have attempted to win government contracts in the supply of aircraft and spare parts, telecommunications, food processing, and computers. Failure of U.S. companies in some bids has been either due to noncompetitiveness or corruption. In many cases, U.S. financing for major contracts is not competitive with mixed credits offered by other donors and suppliers.
Export-Import Bank of the United States: The Export-Import Bank of the United States (Eximbank) is the U.S. Government agency that provides financial assistance to U.S. exporters when bidding on foreign government procurement projects. Under Eximbank's Direct Loan Program, foreign buyers can obtain medium- and long-term loans at minimum fixed interest rate for the purchase of U.S. capital equipment and services that face officially subsidized foreign competition. The maximum loan is 85 percent of contract price. More information on Eximbank's programs can be obtained from the Export-Import Bank of the United States, 811 Vermont Avenue, NW., Washington, DC 20570 (tel: (202)566- 4490).
Marketing Aids
Several advertising agencies with headquarters in Nairobi offer a full range of sales promotion services throughout East Africa.
Most local distributors of imported merchandise expect their suppliers to provide substantial advertising and promotional support, particularly when introducing a new product or brand name. Good sales ability is the most important element in selling the product. Clear and simple operating instructions, displays of the product in use, sample handouts, and frequent personal visits are all vital tools for the successful sales representative in Kenya.
Advertising: A variety of newspapers and magazines, in both English and Swahili, are read by East African consumers. Among the English-language newspapers, Nairobi's Daily Nation, Sunday Nation, and The Standard report the largest circulation. Black and white newspaper advertising costs vary from 250 KShs. to 350 KShs. per column centimeter. Full color ads range from 12,000 KSh. to 15,000 KSh. per column centimeter. In addition, specialized trade and industry journals are published by various local industry groups, commodity marketing boards, and government institutions.
The Voice of Kenya, the government-owned broadcasting company, offers advertising facilities on both its radio and television services. Privately owned Kenyan Television Network also provides television advertising. Radio spot announcement rates vary from 1500 KShs. for 15 seconds to 5,000 KShs. for 1 minute. Sponsored-program costs range from 10,000 KShs. for 15 minutes to 25,000 KShs. for a 1-hour show (6 minutes commercial content). Television spot announcement rates range from 1500 KShs. for 15 seconds to 4,000 KShs. for 60 seconds. A 15-minute sponsored program costs 8,000 KShs.; 1-hour show, with 6 minutes of commercial content, 30,000 KShs. Voice of Kenya advertising inquiries should be addressed to the Commercial Manager, Voice of Kenya, P.O. Box 30456, Nairobi, Kenya. Kenya Television Network's advertising inquiries should be addressed to Commercial Manager, Kenya Television Network, P.O. Box 30958, Nairobi, Kenya.
Short films are another popular form of advertising for consumer articles. A number of these films are shown in local movie houses. To show a 30-second film costs 2,500/3500 KShs. per week (16 showings) at major theaters. For advertising in more remote areas, East African Touring Circuits, managed by Factual Films, Ltd. of Nairobi, operates 17 mobile theaters, each of which gives 29 shows per month at 464 towns and villages in selected agricultural areas throughout Kenya. Audiences average 2,000 per show, and monthly exhibition charges per circuit range from 1200 KShs. for a 10-second filmlet to 4,000 KShs. for a 60-second presentation. Longer films are prorated to the 60-second rate. Also, Factual Films will accept advertising records and arrange for the distribution of leaflets in exhibition areas.
Posters and point-of-sale reminders are an important part of the advertising package in Kenya. Brochures and special advertising materials can be prepared by local printers at standard rates. Billboard advertising is used in some localities but is prohibited in urban areas. Neon signs are rigidly controlled by local authorities. Both billboard advertising and neon signs are permitted in railway stations and are used extensively by local advertisers. Interior and exterior bus advertising is also popular.
Packaging is an extremely important sales factor. Eye appeal has proven to be the most effective means of attracting consumer attention, and the supplier who takes into account consumer tastes in color and design, and appeals to habits and attitudes peculiar to the locality, enhances his product's saleability. Popular among low-income African consumers is a reusable container--a bottle, jar, or box that can be re-used.
Participation in Kenya's trade fairs can also offer the U.S. exporter an opportunity to develop local interest in his product. Among the best known events is Kenya's Nairobi Show, usually held during the last week of September, which offers broad agricultural-through-industrial coverage.
Periodically, the U.S. Foreign Commercial Service sponsors all American trade shows in Nairobi. Information on these shows can be obtained from US&FCS (tel: 254-2-334141; fax: 242-2-340838) in Nairobi, or from the Kenya Desk Officer in the United States at the Department of Commerce in Washington, DC (tel: (202)377-4564; fax: (202)377-5198).
Market Research and Trade Organizations: Major Kenyan advertising agencies will undertake special market research activities for their clients. Kenyan banks will also provide assistance on market research. These services are frequently available in the United States through correspondent arrangements.
Local support for market research projects may also be obtained through the Kenya National Chamber of Commerce and Industry, P.O. Box 47024, Nairobi. The chamber has branches in all major towns and has the largest membership of any local business association.
The Kenya Association of Manufacturers, P.O. Box 30225, Nairobi, Kenya, is a representative organization of industrialists who seek to advance the interest of the private sector and to make their experience available to potential investors and traders. The association also publishes a list of members and their products, which is a useful guide to local industry.
Among the other informative publications dealing with East African commerce in its various aspects, the following are particularly noteworthy: The East African Trade and Industry, a privately published monthly journal on developments in the engineering, construction, electrical, textile, furniture, hardware, automobile, and shipping trades in East Africa; and the Kenya Export News, published by the Kenya External Trade Authority, which deals primarily with external trade.
The Government of Kenya encourages foreign investment. In approving new investments, the government gives preference to investors whose firms are expected to earn or save foreign exchange, increase the country's technical knowledge, increase employment, utilize local resources, and are based outside the congested centers of Nairobi and Mombasa.
Private foreign investment in Kenya is governed by Kenya's Foreign Investment Protection Act (FIPA). The government requires foreign investors to apply for a Certificate of Approved Enterprise from the Treasury, which allows them to repatriate capital and profits.
Franchising and Licensing: Kenya law does not contain specific provisions for franchising or licensing. The primary consideration in either arrangement is the formalization of a remittance procedure for any fees, royalties, etc. to the franchisor or licensor. Such arrangements require prior approval of the Central Bank.
International Agreements: Kenya is a signatory of the Settlement of Investment Disputes Between States and Nationals of Other States, to which the United States is a party. An investment guarantee agreement is in force between the United States and Kenya.
Foreign Ownership of Business Entities: There are no restrictions on the right of foreign nationals to acquire and own business entities in Kenya. Most foreign companies are urged to have Kenyan participation in the new business. Local financial participation increases Kenyan support and provides the benefits of local knowledge and experience.
Credit Access: Foreign investors have limited access to domestic credit markets and are encouraged to seek credit from outside sources. All foreign firms are permitted to borrow locally up to the amounts required to pay customs duty on imported capital equipment. Foreign investors are also permitted limited credit from local financial institutions based on the amount of equity capital.
Types of Business Organization
American firms that desire to set up operations in Kenya may establish a subsidiary company or a representative office. Only a subsidiary company may conduct trade. An authorized representative can trade on the company's behalf only as an agent, but may collect orders for the company's products. Firms doing business in Kenya must have a resident bank account.
Kenyan officials have strongly endorsed the joint enterprise type of investment arrangement. In order to regulate establishment of business operations, Kenya has published a Companies Act patterned after the United Kingdom's Companies Act of 1948. Companies that may be organized under the terms of this legislation include limited-liability companies, partnerships, and companies limited by guarantees.
Limited-Liability Companies: Limited liability companies are limited by the number of shares they may distribute. The liability of each individual shareholder is restricted to the amount unpaid on the held shares. The limited liability company is the usual type of corporate business organization in Kenya. This type of corporate business organization may be public or private.
A public limited-liability company is comparable to the typical U.S. corporation. This type of company must have at least seven shareholders. Private limited-liability companies are usually formed to obtain the advantages of limited liability for family businesses, small companies, and for subsidiaries to other companies. Most overseas firms establishing a branch in Kenya set up private limited-liability companies. Such companies must restrict the transfer of shares. They must also prohibit subscription invitations from the public for shares or debentures. The number of shareholders must not be fewer than 2 or more than 50.
Partnership: Partnerships are used for professional enterprises, small trading concerns, and frequently for the business of manufacturers' representatives that handle or distribute imported commodities. Partnerships may constitute between 2 but not more than 20 persons, either orally or in writing. Each partner must contribute capital or labor for the joint benefit of partnership with the objective of making a profit. Should these essentials be lacking, no partnership is deemed to exist. The liability of the partners cannot be limited by private agreement, and each partner is jointly and severally liable for all debts contracted by the partnership.
Limited-Liability Companies Established Outside East Africa: Each company incorporated outside East Africa that establishes a place of business in Kenya must, within 30 days of such establishment, file with the Registrar of the country the following materials: a certified copy of the charter, statutes, or memorandum and articles of the company or other instrument constituting or defining the constitution of the company; a list of the directors and secretaries of the company; a statement of all subsisting changes created by the company; the names and addresses of one or more resident persons authorized to accept on behalf of the company service of process and notice required to be served on the company; and the full address of the principal office of the company.
Investment Regimes
The Government of Kenya offers a number of specific regimes to investors. These various regimes are described below.
Manufacturing Under Bond: The Government of Kenya operates a Manufacturing Under Bond (MUB) scheme as part of its export expansion strategy. The MUB program is coordinated by Kenya's Investment Promotion Center (IPC). IPC offers free information on investment rules and procedures, opportunities, and possible financing sources. Goods produced under MUB are exempted from all customs duties and sales taxes on plant, machinery and equipment, raw materials, components, and any other imported inputs. Also, goods produced under MUB are exempt from all export taxes and levies. Additionally, they receive top priority in allocation of import licenses. To qualify for the MUB scheme, an investor must demonstrate financial ability, technical know-how, and market availability. An investor must prove that the total value of exports will exceed $440,000, or demonstrate that the enterprise can create employment for at least 50 Kenyans.
Export Compensation: Kenya's export compensation scheme was established by the Export Compensation Act of 1974. This system of payment compensates exporters for high production costs due to tariffs on imports. The scheme is offered to firms which sell all or part of their manufactured products abroad. Export compensation is paid as a percentage of export value for eligible manufactured products. Manufacturers of most goods are eligible for a refund equivalent to 20 percent of the f.o.b. value of their exports, provided that the goods sold abroad have a local value-added component of at least 30 percent. Another provision is that duties paid on major imported raw materials or components must account for at least 20 percent of the c.i.f. value of the imports. Firms manufacturing under bond are not eligible to participate in the export compensation scheme.
Tax Incentives: The government grants a one time 35 percent tax deduction for the cost of industrial buildings, fixed plant, and machinery for investments in Nairobi and Mombasa. If the plant is located outside Nairobi and Mombasa, an 85 percent tax deduction in granted. In addition, depending upon the investment location, a 2- to 5-year tax holiday is granted.
Kenya's tax treaties follow the Organization for Economic Cooperation and Development model for the prevention of double taxation of income. There is no tax treaty with the United States.
Export Processing Zones: Kenya has five export processing zones. Two export processing zones are owned by the government (Mombasa and Athi) and the remaining three are owned by private industry (Nairobi, Della Rue, and Nakuru). These zones are designed to generate jobs, introduce technology, and generate foreign exchange. They offer the following advantages:
The 1964 Foreign Investments Protection Act authorizes Kenya's Finance Minister to issue Certificates of Approved Status. These certificates guarantee foreign investors the right to repatriate profits after deduction of taxes and dividends. 1976 amendments to the act stipulate the investor, rather than the Government of Kenya, must assume the foreign exchange risks of investment. The Kenyan Government will not guarantee in advance the repatriation of capital gains realized upon liquidation of an investor's assets.
In theory, the Kenyan Government allows profits to be repatriated annually. In practice, because of chronic foreign exchange shortages, repatriation of dividends is usually delayed. For instance, as of June 1992, American companies have been waiting over two and one-half years for authorization to repatriate profits. Meanwhile, these companies continue to suffer erosion of profit value because of foreign exchange losses. These delays are a major negative factor for potential new investors. To remedy this situation, the Government of Kenya has said that it plans to spread out authorizations over the course of the year, rather than group them after the end of the calendar year. If implemented, this procedure would be an improvement.
U.S. Investment
The United States is the second main source of foreign investment in Kenya after the United Kingdom. There are approximately 80 U.S. firms with established offices in Kenya.
Private direct investment by U.S. firms is reported by U.S. Department of Commerce/Bureau of Economic Analysis to have a year-end 1991 book value of $83 million. U.S. firms manufacture batteries, soap products, and canned goods for home consumption and export. They provide banking and insurance services, and international transportation. Included among American firms with major manufacturing facilities in Kenya are Colgate- Palmolive, Crown Cork, Ralston Purina, General Motors, CPC International, and Coca-Cola.
Overall, American investment in Kenya has declined in the past decade. With few exceptions, U.S. investments in Kenya have proven successful, but economic difficulties and certain Kenyan Government policies have adversely affected the financial returns of many U.S. firms.
Corporate Taxes
The corporate tax rate for industrial enterprise is 35 percent of the profits, excluding dividends received from resident companies. The tax on the income of branches of foreign firms is 42.5 percent. The tax rate for life insurance profits and mining activities is 35 percent. Residents and nonresidents must pay a 15 percent withholding tax on dividends and a 10 percent withholding tax on interest.
Personal Income Tax
Residents and nonresidents alike must pay tax on income accrued in Kenya. Taxes on chargeable income are usually withheld from employees on a pay-as-you-earn system. The income tax rates range from 10 to 40 percent.
Tax Deductions
In addition to expenses wholly and exclusively incurred in the production of income, Kenya tax law specifies various other permissible deductions.
Annual deduction for certain classes of capital expenditure incurred for business purposes are allowed as follows:
(a) Industrial buildings, such as factories: 4 percent; "approved" hotels: 6 percent annually on the expenditure incurred.
(b) Plant and machinery: heavy self-propelling vehicles such as tractors--37.5 percent on the written down value; other self-propelling vehicles such as cars--25 percent; all other machinery, including ships- -12.5 percent.
(c) Mining: 40 percent of expenditure in the first year and 10 percent in each of the following years; and
(d) Farm works: 20 percent of expenditure in the first year and each of the 4 following years.
An additional deduction is available at the following rates on the cost of selected constructions:
Kenya is a member of the Paris Union, the international convention for the protection of industrial property. Kenya is also a member of the African Regional Industrial Property Organization. Thus, investors are entitled to national treatment and "priority right" recognition for their patent and trademark filing dates.
The Kenyan Government implemented the 1990 Industrial Property Act and established an Industrial Property Office. The Industrial Property Act establishes an independent national patent law to replace the use of pre-independence British procedures. The Industrial Property Office is responsible for granting industrial property rights, screening technology transfer agreements and licenses, and providing patent information to the public. The office also provides patents, utility model, and industrial design certificates, and acts as a receiving office for international applications.
The office responsible for receiving trademark applications is the Department of the Registrar General, P.O. Box 30031, Nairobi, Kenya. There are no provisions for automatic protection or recognition of a mark previously registered in the United Kingdom. In Kenya, registrations are valid for 7 years from application date and renewable for 14-year periods. The first person to apply for a mark as its user or intended user is entitled to its registration. Applications are published for opposition for 60 days.
Copyrights
Kenya's Copyright Act protects intellectual property, audio-visual works, photographs, sound recordings, broadcasts, and programs carrying signals from infringement. The copyright is valid for 50 years. Kenya has adhered to the Universal Copyright Convention to which the United States and about 50 other countries also adhere. Therefore, U.S. nationals who have a U.S. copyright on their marks receive automatic copyright protection in Kenya by inserting on their works, their name, date of first publication, and the letter "c" in a circle (symbol of copyright registration).
A valid U.S. passport and Kenyan visa are required for entry into Kenya. Visas are issued by the Kenyan Embassy, 2249 R Street, NW., Washington, DC 20008, and by the Principal Immigration Officer at Nairobi. Visas may be for either single or multiple entries; a letter of recommendation from the company the traveler represents must accompany the visa application.
Temporary entry is usually granted for a maximum period of 6 months, with two extensions of 6 months each. Visitors deciding to remain longer, but are not interested in applying for permanent residence, must leave the country and seek readmission.
Visitors while in Kenya are not permitted to accept remunerative employment unless they hold a valid Temporary Employment Pass issued by the Immigration Authorities. Such permits are ordinarily granted only if personnel with comparable skill are not locally available, and in most cases, immigration officials will require a Security Bond covering each alien so employed. Entry requirements for persons wishing to take up residence or to seek long-term employment are more stringent.
All persons traveling to Kenya must have been vaccinated against smallpox and inoculated against yellow fever and carry with them the International Yellow Fever and Smallpox Certificates. Typhoid, tetanus, thyphus, plague, cholera, and diphtheria inoculations are recommended. The regular use of a malaria suppressant is advisable. There are no limitations on the importation of dollars, travelers checks, or other instruments of payment. The importation and exportation of Kenyan currency is prohibited.
Free entry is permitted of necessary wearing apparel and personal effects that are proved to have been in personal or household use by the traveler and are not for sale, and of instruments and tools for professional use.
With the exception of stipulated personal allowances of alcoholic beverages and tobacco products, all other goods, whether imported for personal use or sale, including goods intended for residents of Kenya, are subject to duty.
Travelers deciding to import any vehicle (including trailers or cycles) or other goods intended for their use, convenience, or comfort, but not for consumption, must deposit at the time and place of importation a sum equal to the duty that would be imposed. Simultaneously, a claim for temporary exemption should be presented in duplicate. The vehicle or goods must then be exported within 6 months or such further period as the Commissioner of Customs and Excise may allow. These conditions also apply to articles imported for exhibition or demonstration and subsequent reexport. If the prescribed conditions are not met, the visitor will be liable for the full duty of the vehicle or goods imported. A guarantee may be made by an authorized organization, however, in which case no deposit is required. The organization thereby assumes the liability for the duty if the vehicle or goods is not reexported within the prescribed period.
Business Etiquette
In general, business customs are similar to but less formal than those in the United Kingdom. Both English and Swahili are official languages in Kenya. English is the most widely used in business and commerce. Business correspondence, catalogs, and advertising material prepared in English are readily understood by most potential buyers. Business cards are widely used. They are usually imprinted in black and white, although there is no objection to the colored American styles. Academic titles and degrees are most frequently cited by members of the European and Asian expatriate communities. U.S. businesspeople will ordinarily use their firm's name and their title within the organization.
Correspondence and personal calls each play a significant role in the conduct of business in Kenya. Expeditious handling of correspondence is expected and greatly appreciated.
Standards of appropriate business attire in the larger towns are comparable to those in most U.S. cities. In the coastal areas, tropical-weight clothing is appropriate throughout the year; in the highlands, wool suits may be more comfortable. A raincoat is essential, particularly during the April to June and October to November rainy seasons; a topcoat is rarely worn.
Personal visits are warmly welcomed and generally regarded as the most efficient method of establishing new trade contracts. Punctuality is important to Kenyan businesspeople, and the business visitor should make every effort to be on time for appointments. As a general rule, appointments should be made in advance of a business call.
Living Conditions and Costs
Most business travelers and residents find the Kenyan climate healthy and agreeable. Although the incidence of malaria is negligible in the cities and at altitudes over 5,000 feet, it is advisable to take antimalarial precautions when traveling at the lower elevations. Medical facilities in the major cities are generally adequate. British and Dutch equivalents of standard household medicines, including vitamins and pain relievers, can be purchased at a local "chemist." Any special medicines should be carried with the traveler.
Kenya has several large hotels in Nairobi (Ambassador, Nairobi Hilton, Hotel Inter-Continental/Nairobi, Nairobi Safari Club, Norfolk, and New Stanley) and in Mombasa (Castle, Oceanic, Hotel Inter- Continental/Mombasa, Nyali Beach Hotel, and the Mombasa Beach Hotel). Impromptu hotel accommodations in Kenya are often difficult to obtain; therefore, reservations should be made well in advance. Hotels in the principal cities are generally comparable to first rate American standard, but accommodations in smaller towns may be less satisfactory.
Suitable long-term housing accommodations are often difficult to obtain, and business travelers planning a lengthy visit should allow 4 to 8 weeks in a hotel until more permanent housing can be located. Boarding houses, which are considerably less expensive, are available, but generally do not provide accommodations of the standard considered satisfactory by Americans.
Eating habits are generally comparable to those prevailing in Western Europe or the United States, and American travelers ordinarily experience no difficulty in adjusting to the local cuisine.
Buses and taxis serve the residential areas of the cities, but the schedules are such that they may not be considered a reliable means of transportation for business purposes. Private cars are available for hire in the main commercial centers, with or without chauffeur. Railway service is available only between large cities.
Business Hours and Holidays
Business establishments and government offices in Kenya are open Monday through Friday from 8:00 a.m. to 1:00 p.m. and from 2 p.m. to 5:00 p.m. Some offices also are open on Saturdays from 8:15 a.m. to noon.
The official Kenyan holidays are as follows:
Visitors to Kenya should show respect for the President and all he symbolizes. They should stop before a presidential motorcade, stand for the national anthem, and under no circumstances destroy or deface a portrait of the President. The normal spending money of Western visitors amounts to a small fortune for many Kenyans, and foreigners are therefore asked not to spend money ostentatiously.
The import and unauthorized use of addictive drugs is a particularly serious offense.
Embassy Assistance
U.S. business visitors are encouraged to use the U.S. Embassy in Nairobi and the Kenya Embassy and Consulate-General in the United States. The U.S. Embassy in Kenya is located at the corner of Moi and Haile Selassie Avenues, P.O. Box 30137, Nairobi (tel: 254-2-334141; fax: 254-2- 340838). U.S. Department of Commerce's Foreign Commercial Service is located at the same address and telephone numbers. There is a U.S. Consulate in Mombasa located in Palli House, Nyerere Avenue, P.O. Box 88079, Mombasa, (tel: 254-11-315101). Kenya is represented in the United States by an embassy at 2249 R Street, NW., Washington, DC 20008, (tel: (202) 387-6101); by its Mission to the United Nations, 15 East 51st Street, New York, NY 10022, (tel: (212) 421-4740); and its Consulate at 9100 Wilshire Boulevard, Beverly Hills, California 90212, (tel: (213) 274-6635).
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