This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 11 NAIROBI 000274 
 
SIPDIS 
 
DEPT FOR AF/E, AF/EPS, AND EB/IFD/OIA:JNHATCHER) 
TREASURY FOR DO:BRESNICK 
USDOC FOR ITA:SMATHEWS 
USTR FOR EDUNLOP 
OPIC FOR CCOUGHLIN 
 
E.O. 12958:  N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV KE
SUBJECT:  INVESTMENT CLIMATE STATEMENT 2006 
 
Ref:  05 STATE 202943 
 
¶1.  Following is the 2005 Investment Climate Statement for 
Kenya.  This information will also be transmitted to 
EB/IFD/OIA via e-mail and included in Chapter 6 of the 2006 
Country Commercial Guide for Kenya, to be delivered through 
FCS channels. 
 
----------------------------------- 
A.1. Openness to Foreign Investment 
----------------------------------- 
 
Kenya has had a long history of economic leadership in east 
Africa as one of the largest and most advanced economies in 
the region.  Inconsistent efforts at structural reforms and 
poor policies over the past decades generated a prolonged 
period of decline in development indicators, and 
significantly eroded the leadership position.  While Kenya 
was a prime choice for foreign investors seeking to 
establish a presence in eastern and southern Africa in the 
1960s and 1970s, poor economic policies, rising problems of 
corruption and governance, and deterioration of public 
services have discouraged Foreign Direct Investment (FDI) 
since the 1980s.  However, the Government of Kenya (GOK 
actively encourages FDI. 
 
The respective roles of the public and private sectors have 
evolved since independence in 1963, with a shift in emphasis 
from public investment to private sector-led investment. 
The GOK has introduced market-based reforms and provided 
more incentives for both local and foreign private 
investment.  Foreign investors seeking to establish a 
presence in Kenya generally receive the same treatment as 
local investors, but there are some exceptions. 
Multinational companies make up a large percentage of 
Kenya's industrial sector. 
 
A new investment code, the Investment Promotion Act 2004, is 
expected to streamline the administrative and legal 
procedures to achieve a more effective investment climate. 
The legislation replaces the government's Investment 
Promotion Center with the new Kenya Investment Authority 
(KIA).  The new law creates some new barriers, namely, it 
sets the minimum foreign investment threshold at US $500,000 
(likely to be reduced to $100,000 in 2006), and conditions 
some benefits on obtaining an investment certificate from 
the KIA. Foreign employees are expected to be key senior 
managers or have special skills not available locally. 
Foreign investors are required to sign an agreement with the 
government stating training arrangements for phasing out 
expatriates.  Any enterprise, whether local or foreign, may 
recruit expatriates for any category of skilled labor if 
Kenyans are not available. 
 
The Kenyan government focuses its investment promotion on 
opportunities that earn foreign exchange, provide 
employment, promote backward and forward linkages, and 
transfer technology.  The only significant sectors in which 
investment (both foreign and domestic) are constrained are 
those where state corporations still enjoy a statutory 
monopoly.  These are restricted almost entirely to 
infrastructure (e.g., power, posts, telecommunications and 
ports) and the media, although there has been partial 
liberalization of these sectors.  For example, in recent 
years, five Independent Power Producers (IPPs) have begun 
operation in Kenya. 
 
All resident companies are subject to tax on their incomes 
at the rate of 30%.  Branches of non-resident companies pay 
tax at the rate of 37.5%. Taxable income is generally 
defined to be income sourced in or from Kenya.  Value Added 
Tax (VAT) is levied on goods imported into or manufactured 
in Kenya, and taxable services provided.  The standard VAT 
rate is 16%.  Work permits are required for all foreign 
nationals wishing to work in the country.  It is becoming 
increasingly difficult for expatriates to obtain work 
permits because the government says qualified middle level 
managers and technical staffs are available locally but this 
may be driven more by the high unemployment level in the 
country.  There is no discrimination against foreign 
investors in access to government-financed research.  The 
government's export promotion programs do not distinguish 
between local and foreign-owned goods. 
 
The United Nations Conference on Trade and Development 
(UNCTAD), in conjunction with the International Chamber of 
Commerce (ICC), published an Investment Guide to Kenya in 
May 2005.  The guide provides comprehensive analyses of 
investment trends, opportunities, and regulatory framework 
in the country.  According to the UNCTAD report, and most 
observers, significant disincentives for investment in Kenya 
includes government overregulation and inefficiency, 
expensive and irregular electricity and water, an 
underdeveloped telecommunications sector, a poor 
transportation infrastructure, and high costs associated 
with crime and general insecurity. 
 
Efforts have been made to harmonize the investment regimes 
and investment incentives among the East African Community 
(EAC) countries (Tanzania, Kenya and Uganda).  Tariff 
barriers between the three East African countries were 
removed in 1999.  In 2004, Kenya, Tanzania and Uganda signed 
a Customs Union Protocol, putting in place a three tier 
taxation systems and paving the way for further steps 
towards a common market.  Under the protocol, EAC member 
states are to allow free entry of raw materials from 
members, levy a 10% on semi-processed goods and a 25% levy 
on finished goods.  Non-Tariff Barriers (NTBs) remain a 
problem in the EAC.  A March 2005 report on NTBs and 
Development of a Business Climate Index in the Eastern 
African Region by the East African Business Council 
identified administration of duties and other taxes as the 
main NTB, followed closely by corruption.  The report also 
indicates that Kenya's level of investment and business 
optimism is dampened by low expectations relating to 
improvements in infrastructure, access to land, and 
profitability in business. 
 
The GOK has sought-out foreign investment through investment 
conferences and foreign trips occasionally lead by the Head 
of State.  In August 2005, Kenyan President Kibaki made a 
five-day visit to China to market the country as an 
investment destination to Chinese investors. 
 
------------------------------------- 
A.2. Conversion and Transfer Policies 
------------------------------------- 
 
There are no restrictions on converting or transferring 
funds associated with investment. Under Kenyan law, amounts 
above KSh 500,000 (about US $6,400) have to be declared as a 
formal check against money laundering although this is 
rarely enforced due to lack of appropriate legislation. 
 
Under the Foreign Investment Protection Act (FIPA) (Cap 
518), foreign investors are free to convert and repatriate 
profits including retained profits, which have not been 
capitalized -- proceeds of the investment after payment of 
the relevant taxes and the principal and interest associated 
with any loan.  Foreign exchange is readily available from 
commercial banks and foreign exchange bureaus.  Local and 
foreign investors are allowed to freely buy and sell foreign 
exchange.  Kenya has a floating exchange rate.  The Kenya 
shilling is tied to a basket of foreign currencies and has 
remained relatively stable in recent years. 
 
----------------------------------- 
A.3. Expropriation and Compensation 
----------------------------------- 
 
Kenyan law provides protection against the expropriation of 
private property except where due process is followed and 
adequate and prompt compensation is provided. 
Expropriation may only occur for either security reasons or 
public interest. The GOK may revoke a foreign investment 
license if:  an untrue statement is made while applying for 
the license; the provisions of the Investment Promotion Act 
or of any other law under which the license is granted are 
breached; or, if there is a breach of the terms and 
conditions of the general authority.  In practice, licenses 
are rarely revoked. 
 
----------------------- 
A.4. Dispute Settlement 
----------------------- 
 
Kenya is a member of the World Bank-affiliated Multilateral 
Investment Guarantee Agency (MIGA), which issues guarantees 
against non-commercial risk to enterprises that invest in 
member countries.  It is also a signatory to the Convention 
on the Settlement of Investment Disputes Between States and 
Nationals of Other States. The Convention established the 
International Center for Settlement of Investment Disputes 
(ICSID) under the auspices of the World Bank and is also a 
member of the Africa Trade Insurance Agency (ATIA). 
 
Kenya's judicial system is modeled after the British, with 
magistrates' courts, high courts in major towns and a Court 
of Appeal at the apex of the judicial system.  In addition, 
there is a separate industrial court that hears disputes 
over wages and labor terms.  Its decisions cannot be 
appealed.  Kenya has commercial courts to deal with 
commercial disputes.  Company and investment law is centered 
on the Companies Act of 1948.  Property and contractual 
rights are enforceable, but long delays in resolving 
commercial cases are common. 
 
The Foreign Judgments (Reciprocal Enforcement) Act provides 
for the enforcement in Kenya of judgments given in other 
countries that accord reciprocal treatment to judgments 
given in Kenya.  The countries with which Kenya has entered 
into reciprocal enforcement agreements are Australia, the 
United Kingdom, Malawi, Tanzania, Uganda, Zambia and 
Seychelles.  Without such an agreement, a foreign judgment 
is not enforceable in the Kenyan courts except by filing 
suit on the judgment.  Kenyan courts as a general rule 
recognizes a governing-law clause in an agreement that 
provides for foreign law.  A Kenyan court would not give 
effect to a foreign law if the parties intended to apply it 
in order to evade the mandatory provisions of a Kenyan law 
with which the agreement has its most substantial 
connection, and which the court would normally have applied. 
 
Foreign advocates are not entitled to practice in Kenya 
unless they are instructed and accompanied by a Kenyan 
advocate, although a foreign advocate may practice as an 
advocate for the purposes of a specified suit or matter if 
appointed to do so by the Attorney General. 
 
Kenya does not have a bankruptcy law.  Creditors' rights are 
comparable to those in other common law countries.  Monetary 
judgments are usually made in Kenyan shillings. The 
government does accept binding international arbitration of 
investment disputes with foreign investors.  Apart from 
being a member of the ICSID, Kenya is a party to the New 
York Convention on the Enforcement of Foreign Arbitral 
Awards (1958). 
 
-------------------------------------------- 
A.5. Performance Requirements and Incentives 
-------------------------------------------- 
 
Investors in the manufacturing and hotels sectors are 
permitted to deduct from their taxes a large portion of the 
cost of buildings and capital machinery.  All locally 
financed materials and equipment (excluding motor vehicles 
and goods for regular repair and maintenance) for use in 
construction or refurbishment of tourist hotels are zero- 
rated for purposes of Value Added Tax (VAT).  The Permanent 
Secretary to the Ministry of Finance must approve such 
 
SIPDIS 
purchases.  The Government permits some VAT remission on 
capital goods, including plants, machinery and equipment for 
new investment, expansion of investment and replacement. 
The investment allowance under the Income Tax Act is set at 
100%.  Materials imported for use in manufacturing for 
export or for production of duty-free items for domestic 
sale qualify.  Approved suppliers, who manufacture goods to 
be supplied to the exporter, are also entitled to the same 
import duty relief.  The program is also open to Kenyan 
companies producing goods that can be imported duty-free or 
goods for supply to the armed forces or to an approved aid- 
funded project.  Fiscal incentives offered by the government 
to Export Processing Zone (EPZ) investments and registered 
and approved venture-capital-fund investments include 10 
years' tax holiday and a flat 25% tax for the next 10 years; 
exemption from withholding taxes during the first 10 years; 
exemption from import duties on machinery, raw materials, 
and inputs; no restrictions on management or technical 
arrangements; and exemption from stamp duty and from the VAT 
on raw materials, machinery and other inputs.  The Export 
Promotion Programs Office, set up in 1992 under the Ministry 
of Finance, administers the duty remission facility. 
 
The government established a Manufacturing Under Bond (MUB) 
program in 1986 that is open to both local and foreign 
investors.  Enterprises operating under the program are 
exempted from duty and VAT on imported plants, machinery, 
equipment, raw materials and other imported inputs.  The 
Kenya Revenue Authority (KRA) administers the program. 
 
Foreign investors are attracted to the EPZs by the single 
licensing regime, tax incentives and support services 
provided such as power and water.  The number of enterprises 
operating in EPZs has increased from 66 in 2003 to 74 in 
¶2004.  The increase is largely due to preferential access 
and duty free status accorded to Kenyan apparel exports into 
the U.S. under the African Growth and Opportunity Act 
(AGOA).  Kenya's major exports under AGOA include apparel 
and handicrafts.  The majority of Kenya's manufactured 
products are entitled to preferential duty treatment in 
Canada and the European Union.  By statute, manufacturing 
companies are not permitted to distribute their own 
products. 
 
With the exception of the insurance and telecommunications 
sectors and other infrastructure and media companies 
discussed earlier, Kenya does not require that its nationals 
own a percentage of a company.  The percentage of foreign 
equity need not be reduced over time.  Technology licenses 
are, however, subject to scrutiny by the Kenya Industrial 
Property Office (KIPO) to assure that they are in line with 
the Industrial Property Act.  Licenses are valid for five 
years and are renewable.  Foreign investors are free to 
obtain financing locally or offshore. 
 
The government does not steer investment to specific 
geographic locations.  Local content rules are applied but 
only for purposes of determining whether goods qualify for 
preferential duty rates within the Common Market for East 
and Southern Africa (COMESA). 
 
--------------------------------------------- ---- 
A.6. Right to Private Ownership and Establishment 
--------------------------------------------- ---- 
 
Private enterprises can freely establish, acquire and 
dispose of interest in business enterprises.  In general, 
"competitive equality" is the standard applied to private 
enterprises in competition with public enterprises. 
However, certain parastatals have enjoyed preferential 
access to markets.  Examples include Kenya Reinsurance with 
a guaranteed market share, Kenya Seed Company with fewer 
marketing barriers than its foreign competitors, and the 
Kenya National Oil Corporation with retail market outlets 
developed with government funds.  Some state corporations 
have also benefited from easier access to cheap government 
credit. 
 
---------------------------------- 
A.7. Protection of Property Rights 
---------------------------------- 
 
Secured interests in property are recognized and enforced. 
In theory, the legal system protects and facilitates 
acquisition and disposition of all property rights - land, 
buildings and mortgages.  In practice, obtaining title to 
land is a cumbersome and often non-transparent process, 
which is a serious impediment to new investment.  It is 
frequently complicated by improper allocation of access and 
easements to third parties. There is also a general 
unwillingness of the courts to permit mortgage lenders to 
sell land to collect debts.  Foreigners may require 
Presidential approval to acquire large tracts of 
agricultural land or any seashore property.  Since January 
2003, the government has been nullifying some land 
allocations that were illegally acquired.  The question of 
title to land acquired irregularly under the previous 
government is the subject of continued controversy.  The 
issue is particularly important because 80% of bank loans 
are secured with land. 
 
Kenya has a comprehensive legal framework to ensure 
intellectual property rights protection, which includes the 
Industrial Property Act 2001, the Trade Marks Act, the 
Copyright Act 2001, the Seeds and Plant Varieties Act, and 
the Universal Copyright Convention.  The Copyright Act 
protects literary, musical, artistic, audio-visual works, 
sound recordings and broadcasts, and computer programs. 
Criminal penalties associated with piracy in Kenya include a 
fine of up to KSh 800,000 (about US $10,700), a jail term of 
up to 10 years and confiscation of pirated material, but 
enforcement and the understanding of the importance of 
intellectual property, are poor.  The Kenya Industrial 
Property Institute (KIPI) is responsible for patents, 
trademarks and trade secrets, under the Ministry of Trade 
and Industry.  Copyright protection is the responsibility of 
the Attorney General's office. 
 
Kenya is a member of the World Intellectual Property 
Organization (WIPO) and of the Paris Union (International 
Convention for the Protection of Industrial Property) along 
with the U.S. and 80 other countries.   A future prospect 
for patent, trademark, and copyright protection is embodied 
in the African Intellectual Property Organization, although 
its enforcement and cooperation procedures are yet untested. 
Kenya also is a member of the African Regional Intellectual 
Property Organization (ARIPO).  Kenya is a signatory to the 
Madrid Agreement Concerning the International Registration 
of Marks, however, the other EAC members (Uganda and 
Tanzania) are not. 
 
Investors are entitled to national treatment and priority 
right recognition for their patent and trademark filing 
dates.  The Trade Marks Act provides protection for 
registered trade and service marks that is valid for 10 
years and is renewable.  However, actual protection for 
intellectual property -- copyrights, patents and trademarks 
-- is inadequate.  The sale of pirated audio and 
videocassettes is rampant, although there is little domestic 
production.  According to the Business Software Association, 
an estimated US $3.5 million is lost every year as a result 
of the use of illegal software, mainly by businesses.  Kenya 
enacted Industrial Property Act (KIPA) in 2002 to comply 
with WTO obligations, but its implementation of the law 
remains weak.  In 2003, the Kenya Bureau of Standards 
indicated that over KSh 37 billion (about US $493.3 million) 
is lost annually in customs and value added taxes due to the 
sale of counterfeit goods.  The government has not yet 
published its draft anti-counterfeit Bill nor submitted it 
to Parliament.  However, Kenyan authorities have recently 
increased their IPR enforcement efforts on behalf of textile 
producers to limit the transshipment of foreign-made 
garments through the Port of Mombasa (mostly from Asia) that 
are fraudulently being exported to the U.S. under AGOA 
preferences.  Kenya has also begun a campaign to crackdown 
on the entry into the local market of counterfeit or 
"substandard" goods. 
 
------------------------------------------ 
A.8. Transparency of the Regulatory System 
------------------------------------------ 
 
Investors in Kenya are required to comply with environmental 
standards.  The National Environment Management Authority 
(NEMA) oversees these matters and is the principal 
regulatory agency for them. Developers of particular 
projects are therefore required to carry out Environmental 
Impact Assessments (EIA) prior to project implementation. 
Companies are required to submit their up-to-date assessment 
reports to NEMA for verification by the environment auditors 
before they can receive an Environmental Impact Assessment 
license. 
 
In theory, all investors receive equal treatment in the 
initial screening process. The government screens each 
private sector project to determine its viability and 
implications for the development aspirations of the country. 
For example, a rural agro-based enterprise, with many 
forward and backward linkages, is likely to receive 
licensing fairly quickly.  However, new foreign investment 
in Kenya has historically been constrained by a time- 
consuming and highly discretionary approval and licensing 
system that have been vulnerable to corrupt practices. 
 
Kenya's competition framework is governed by the Restrictive 
Trade Practices, Monopolies and Price Control Act 1989 (with 
subsequent amendments).  The Act is relatively modern and 
has worked well in avoiding anti-competitive practices since 
the abolition of price controls in 1994.  However, the 
Monopolies and Prices Commission is not an independent 
regulatory body but rather is under the Ministry of Finance. 
Although the Commission is independent in its investigation 
of competition-related issues, it must rely on ministerial 
powers to enforce orders on companies found to have breached 
competition rules.  The Commission lacks the capacity to 
fully implement the legislation.  Practices that seek to 
block entry into production and discrimination vis--vis 
buyers (for production, resale or final consumption) are 
illegal.   Mergers and acquisitions must receive the green 
light from the Commission and the Minister of Finance in all 
cases, regardless of the sector, size or market share of the 
companies involved.  This puts an unnecessary burden on 
investors and the Commission.  However, the Commission has 
no jurisdiction over the electricity, telecommunication or 
insurance sectors.  Under the law, manufacturers may not 
distribute their own products, and they are required to 
supply information to the government about their 
distributors. 
 
Incoming foreign investment through acquisitions, mergers or 
takeovers is governed by antitrust legislation that 
prohibits restrictive and predatory practices that prevent 
the establishment of competitive markets.  The legislation 
also aims at reducing the concentration of economic power by 
controlling monopolies, mergers and takeovers of 
enterprises.  Mergers and takeovers are subject to the 
Companies Act, the Insurance Act (in case of insurance 
firms) or the Banking Act (in case of financial 
institutions). 
 
--------------------------------------------- ---------- 
A.9. Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ---------- 
 
Kenya has a small capital market consisting of the 
government controlled Capital Market Authority (CMA), 
Nairobi Stock Exchange (NSE), 19 securities and equities 
brokerage firms, 18 investment advisory firms, 6 investment 
banks, 13 stock brokers, 8 fund managers, 1 credit rating 
agency, 1 capital venture fund, 2 collective investment 
schemes, 3 authorized securities dealers, and 4 authorized 
depositories.  The CMA regulates and supervises all these 
institutions and oversees the development of Kenya's capital 
market.  The NSE trades had a market capitalization of KSh 
455.5 billion (about US $6.0 billion) at the end of November 
2005, up from KSh 321.1 billion (about US $4.2 billion) in 
January 2005. 
 
By November 2005, Kenya's banking sector consisted of 47 
financial institutions, including 41commercial banks, 2 
mortgage finance companies, and 2 building societies. At the 
end of July 2005, the total banking assets were KSh 
612.5billion (about US $7.9 billion).  Loans and advances 
accounted for 52% of the total assets equivalent to KSh 
320.5 billion (about US $4.1 billion).  Seven banks dominate 
the banking sector accounting for two thirds of the total 
deposits in the banking institutions.  Asset quality of 
Kenyan banks though improving remains poor with about 19.5% 
equivalent to KSh 70.8 billion (about US $0.92 billion) of 
assets classified as non-performing.  Realization of the 
collateral is difficult because of a slump in the property 
market as well as a cumbersome court system. 
 
The NSE into three segments:  the Main Investment Market 
(MIM), the Alternative Investment Market (AIM) and the Fixed 
Income Securities Market (FISM). The MIM targets mature 
companies with strong dividend streams.  The AIM is more 
favorable to small and medium sized companies, and allows 
firms to access cheaper, longer-term sources of capital 
through the capital markets.   And, the FISM allows 
businesses, financial institutions, government and 
supranational authorities to raise capital through the 
issuance of debt securities.  As of October 2005, the CMA 
categorized the listings into 38 companies for the MIM 
segment, and 9 companies in the Alternative AIM. The CMA is 
involved in the preparation of a proposed integrated East 
African Capital Market.  As from February 28, 2005 the NSE 
started settling all equity trades through an electronic 
Central Depository System (CDS). 
 
Trading in commercial paper and corporate bonds issued by 
private companies has diversified activity at the NSE, and 
is regulated through a set of guidelines developed in 
collaboration with private sector.  They allow private 
companies to raise funds from the public without being 
quoted in the NSE.   Establishing the CDS encouraged the 
development of a secondary market for the government's one- 
year floating rate bond. The CDS opened a shop window for 
small investors offering products in multiples of KSh 50,000 
(about US $667) up to KSh 1 million (about US $13,333). 
Expenses related to credit rating services by listed 
companies and other issuers of corporate debt securities are 
tax deductible.   "Cross-shareholding" and "stable 
shareholder" arrangements are not used to restrict foreign 
investment through mergers and acquisitions.  Hostile 
takeover defenses are uncommon.  Private firms are free to 
adopt articles of incorporation, which limit or prohibit 
foreign investment, participation or control. 
 
Foreign investors can acquire shares freely in the stock 
market subject to a reserved ratio of 25% for domestic 
investors in each listed company.  To encourage the transfer 
of technology and skills, foreign investors are allowed to 
acquire up to 49% of local stockbrokerage firms and up to 
70% of local fund management companies. 
 
Credit is allocated on market terms and foreign investors 
are able to obtain credit on the local market.  However, the 
number of credit instruments is relatively small.  Legal, 
regulatory, and accounting systems are generally transparent 
and consistent with international norms.  The corporate tax 
for newly listed companies is 25% for a period of five years 
from the date of listing.  The withholding tax on dividends 
is 7.5% for foreign investors and 5% for local investors. 
Foreign investors can acquire shares in the stock market 
subject to a minimum reserved ratio of 25% of the share 
capital of the listed company for domestic investors.  The 
75% portion is considered as a free float available to 
local, foreign and regional investors without restrictions 
on the level of holding.  Dividends distributed to residents 
and non-residents are subject to a final withholding tax at 
the rate of 5%.  Dividends received by financial 
institutions as trading income are not subject to tax. 
 
The Parliament amended the Banking Act 2004 to delegate the 
power to register and deregister commercial banks and 
financial institutions from the finance minister to the 
Central Bank of Kenya (CBK).   Under the Central Bank of 
Kenya Act, the security of tenure for the Governor is 
enhanced, the Bank's operational autonomy is increased, the 
CBK's bank supervision functions are strengthened, and 
statutory restrictions on government borrowing from the Bank 
are codified.  The CBK sets requirements for all banking 
institutions and building societies to disclose their un- 
audited financial results on a quarterly basis by publishing 
them in the print media. 
 
Parliament amended the Central Bank of Kenya Act in December 
2004 to establish an independent Monetary Policy Advisory 
Committee whose mandate is to advise the Bank with respect 
to monetary policy.  The amended Act provides for the CBK to 
publish the lowest interest rate it charges on loans to 
banks referred to as the "central bank rate".  Other 
amendments transferred powers to revoke and issue licenses 
to financial institutions from the Ministry of Finance to 
the CBK and introduced an "in Duplum Rule," which limits 
fees and fines on non-performing loans to the amount of the 
outstanding principal. However, the rule is yet to be 
implemented. 
 
------------------------ 
A.10. Political Violence 
------------------------ 
 
There have been clashes in the past between police and 
demonstrators over political reform and other issues. 
During the campaign period related to the November 21, 2005 
Constitutional referendum, there were reported incidents of 
violent demonstrations across the country especially in the 
cities of Kisumu and Nairobi.  Although some shops in major 
cities have been damaged or looted during such disturbances, 
the damage has been limited and has not been directed at 
foreign companies.  Similar instances of public disorder are 
possible in the run up to likely Presidential and 
Parliamentary elections in 2007. 
 
Terrorism and urban crime create insecurity in the country 
and the region.  On August 7, 1998, bombs exploded at the US 
embassies in Nairobi and Dar es Salaam killing over 200 and 
wounding more than 5,000 people.  A suicide bomber killed 15 
people in an Israeli-owned Mombasa Hotel in November 2002. 
 
Kenya has a good relationship with all its immediate 
neighbors.  However, unstable, porous or conflicted borders 
are also a source of insecurity in the region.  The 2002 
terrorist attacks in Mombasa are thought to have been 
planned in Somalia and much of the small arms used in crime 
in Kenya likely originates from Somalia.  The level of urban 
crime in Kenya is one of the highest in Africa.  According 
to the World Bank, almost 70% of investors reported "major" 
or "very severe" concerns about crime, theft and disorder in 
Kenya, as opposed to 25% in Tanzania and 27% in Uganda. 
 
----------------- 
A.11.a Corruption 
----------------- 
 
Pervasive corruption has been a major reason for 
disinvestment in Kenya.  In 2003, The government enacted the 
Anti-Corruption and Economic Crimes Act and the Public 
Officers Ethics Act, setting rules for transparency and 
accountability, and defining graft and abuse of office. The 
Public Officers Ethics Act requires certain public officials 
to declare their wealth and that of their spouses within 90 
days from August 2, 2003.  In 2004, the government 
established the Anti-Corruption Commission, moved forward 
with the implementation of the Anti-Corruption and Economic 
Crimes Act, and launched full implementation of the code of 
Ethics Act for Public Servants in 2004.  A Public 
Procurement and Disposal Bill become law in 2005.  It 
establishes a procurement commission to take over all 
procurement matters.   Large public procurement programs and 
military procurement have been at the center of a number of 
corruption scandals in recent years. 
 
On the downside, Kenya's Permanent Secretary in charge of 
governance and ethics resigned in February 2005, citing a 
lack of cooperation from high-level government officials. 
The office was unofficially disbanded in December 2005.  The 
Transparency International Corruption Perceptions Index 
2005, released in October 2005, ranks Kenya among the 
world's most corrupt nations.  According to the report, 
Kenya made an improvement in 2004 compared to 2003 but has 
remained at the same position since 2004. The report ranked 
Kenya 144 out of the 159 nations surveyed. 
 
--------------------------------------- 
11.A.b. Bilateral Investment Agreements 
--------------------------------------- 
 
Kenya does not have a bilateral trade investment agreement 
with the United States.  Kenya signed a bilateral trade and 
investment agreement with Germany in 1996, and agreements 
are pending with the United Kingdom, Italy, and Russia. 
 
--------------------------------------------- ------- 
11.A.c. OPIC and Other Investment Insurance Programs 
--------------------------------------------- ------- 
 
In 2004, the U.S. Overseas Private Investment Corporation 
(OPIC) supported four projects in Kenya totaling US $8.75 
million.  These included a company specializing in land 
information services, a well-drilling company, a company 
providing humanitarian activities and services, and a 
housing company.  The housing project, in which a U.S. small 
business will use an OPIC loan to build 400 affordable 
housing units in Nairobi, represents significant progress 
towards fulfilling a 2003 Memorandum of Understanding 
between OPIC and the Kenyan government designed to leverage 
OPIC programs to increase U.S. private sector investment in 
Kenya.  Historically, OPIC has committed US $55.8 million to 
37 projects in Kenya. 
 
------------- 
A.11.d. Labor 
------------- 
 
Kenya has a population estimated at over 33 million, about 
52% of whom constitute the working population, 75% working 
in agriculture sector.  Several million Kenyans work in the 
informal sector.  High population growth of 2.95% per annum 
means there is an on-going demand for new jobs.  Kenya has 
an abundant supply of well-educated and skilled labor in 
most sectors at internationally competitive rates.  High 
HIV/AIDS prevalence (estimated at 6.7%) poses a serious 
threat to human resource development. 
 
Kenya's laws generally provide safeguards for worker rights 
and mechanisms to address complaints of their violation. 
The labor laws of Kenya are embodied in its Employment Act 
(revised 1984) and the Regulation of Wages and Conditions of 
Employment Act (revised 1980).  The Employment Act covers 
wages, leaves, housing, health and welfare, local and 
foreign contracts of service, the employment of women and 
youth, and other administrative matters.  Employers in 
ailing industries are allowed to retrench workers, 
irrespective of the provisions of their collective 
bargaining agreements.  All labor laws, with the exception 
of the Factories Act (permitting occupational safety and 
health inspections), apply in Kenya's  Export Processing 
Zones (EPZ), which employed about 31,000 workers in 2005. 
Following a number of strikes in the EPZs in January - March 
2003, EPZ workers are now allowed to unionize.  In 2004, 
seven garment factories in the Athi River EPZ signed a 
collective bargaining agreement with a local union.  Strikes 
in the EPZs declined in 2004, and were virtually non- 
existence in 2005. 
 
As few as seven employees may form a union.  There are 41 
trade unions registered under the Trade Union Act.  All but 
six, including the 240,000-member Kenya National Union of 
Teachers, the Universities Academic Staff Union, and the 
Kenya Union of Civil Servants, are affiliated with the 
Central Organization of Trade Unions (COTU), which has about 
300,000 members.  The unions are organized by industry 
rather than craft, and union membership is voluntary.  In 
April 2004 the U.S. government and the International Labor 
Organization (ILO)-funded tripartite Labor Law Reform Task 
Force completed a new set of labor laws which were presented 
to the Attorney General.  The proposed new laws incorporate 
the ILO core labor standards and are AGOA consistent. 
However, these proposed changes to labor law are yet to be 
tabled in Parliament for debate and possible enactment. 
 
The law permits strikes, but unions must notify the 
government 21-28 days before a strike is called.  During 
this period, the Minister of Labor and Human Resource 
Development may mediate the dispute, nominate an arbitrator, 
or refer the matter to the Industrial Court.  Once a dispute 
is referred to mediation, fact-finding, or arbitration, any 
subsequent strike is illegal.  Kenya's Industrial Court 
provides generally effective and timely rulings.  The court 
has penalized employers for discriminating against employees 
because of their union activities; usually requiring the 
payment of lost wages.  Reinstatement is not a common 
remedy. 
 
Overall, Kenya has relatively harmonious labor relations. 
The number of trade disputes reported to the Ministry of 
Labor and Human Resource Development under the Trade 
Disputes Act was 1,152 in 2004 compared to 2,323 in 2003. 
Of the 2004 trade disputes, 131 reached the Industrial Court 
for adjudication.  The number of strikes dropped from 161 in 
the year 2003 to 41 in 2004.  The number of workers involved 
in 2004 was 31,699 compared to 62,312 in 2003.  The main 
sectors affected by the strikes in the year 2004 were 
manufacturing (14), agriculture (11), and commerce (5). 
 
The normal workweek is 45 hours, after which overtime must 
be paid.  The Regulation of Wages and Conditions of 
Employment Act provides that the total hours worked in any 2- 
week period should not exceed 120 hours (144 hours for night 
workers).  Wages and conditions of employment are 
established in negotiations between unions and management. 
There are twelve separate minimum wage scales, varying by 
location, age and skill level.  The lowest minimum wage is 
currently US $56 (KSh 4,335) per month in urban areas and US 
$30 (KSh 2,312) in rural areas.  Workers covered by a 
collective bargaining agreement generally receive a better 
wage and benefit package than those not covered (on average 
US $97 (KSh 7,303) per month), plus a housing and transport 
allowance, which may account for 25 to 50 percent of a 
Kenyan worker's compensation package. 
 
Kenyan law establishes detailed environmental, health and 
safety standards, but these tend to not be strictly 
enforced. .  Although fines specified in the Factories Act 
(regarding occupational safety and health) are the highest 
in the labor laws, they have not been increased since 1990 
and are generally too low to serve as a deterrent to unsafe 
practices.  Rules falling under the Directorate of 
Occupational Health and Safety Services (OHSS), which 
operates under the Ministry of Labor and Human Resource 
Development, apply to to employers with 20 or more 
employees.  The OHSS Directorate maintains a register of 
approved and certified Safety and Health advisers who the 
employers may use in carrying out safety audits in the 
factories and other places of work.  These audits are 
supposed to be carried at least once a year and a copy of 
the audit report forwarded to the OHSS Directorate within 30 
days after the audit. 
 
Work permits are required for all foreign nationals who wish 
to work in Kenya.  Although there is no official time limit, 
a visitor's pass or a visa is usually valid for three months 
and the Immigration department must grant applicable 
extensions upon proper application.  Work permits may be 
applied for in any major city in Kenya, but all applications 
go to Nairobi for processing.  Foreign investors are 
required to sign an agreement with the government describing 
training arrangements for phasing out expatriates.  High 
unemployment levels have made it increasingly difficult for 
expatriates to renew or obtain work permits.  The 
Immigration Department has occasionally cancelled work 
permits before the expiry date without giving reasons. 
According to the law, the immigration officer issuing entry 
permits may require a bond of not less than KSh 100,000 (US 
$1,293) for each permit to be deposited with immigration. 
 
-------------------------------------- 
A.11.e. Foreign-Trade Zones/Free Ports 
-------------------------------------- 
 
By December 2005, 41 Export Processing Zones (EPZs) had been 
established around the country and 77 export-oriented firms 
were in operation.  A government agency, Kenya Export 
Processing Zone Authority (EPZA) regulates the zones.  Of 
the 41 zones, only 2 are developed and managed by the public 
sector.  The rest are privately owned and managed by 
licensed EPZ developers/operators.  Of the 77 enterprises 
operating in EPZs, 14% are Kenyan owned, 58% are foreign 
investments, and 28% are joint ventures.  In 2004, 74% of 
EPZ exports went to the U.S., with the European Union 
accounting for 8.5% and EAC/COMESA 4%.  The largest 
privately owned EPZ is the Sameer Industrial Park located in 
Nairobi's Industrial area.  It has been operational since 
¶1990.  The Athi River EPZ, near Nairobi, is the largest 
publicly owned EPZ, with 230 acres currently developed.  The 
GOK is also developing another large export processing zone 
in Mombasa, Kenya's main seaport. 
 
-------------------------------------------- 
A.11.f. Foreign Direct Investment Statistics 
-------------------------------------------- 
 
The deterioration in economic performance, together with 
rising problems of corruption, governance, inconsistency in 
economic policies and structural reforms and the 
deterioration of public services and infrastructure 
generated a long period of low FDI inflow that started in 
the early 1980s and continues to date.  FDI inflows in 1996- 
2003 averaged US$39 million a year.  According to Investment 
Policy Review of Kenya February 2005 report, the FDI stock 
in 2005 was US$1,045.9 million which compared poorly with 
Tanzania and Uganda at US$2,582.5 million and US$2,042.2 
million respectively.  However, poor data collection leads 
to underestimating actual inflows of FDI.  There is no clear 
mandate by any agency to collect data on FDI.  The Central 
Bank of Kenya (CBK), the Kenya Investment Authority (KIA), 
and the Central Bureau of Statistics (CBS) all collect only 
partial information on either balance of payments inflows or 
investment projects. 
 
Kenya's February 2005 Investment Policy Review estimates the 
market value of US investment at around US$285 million, 
primarily in commerce, light manufacturing, and tourism 
industry.  Most foreign investment in manufacturing since 
2001 has been in the EPZs, with the majority (average of 
63.6% of total investment, employment, sales, local resource 
utilization) in AGOA-related textiles.  The government does 
not publish data on the value of foreign direct investment 
(position/stock and annual investment capital flows) by 
country of origin or by industry sector destination. 
Neither is data available on Kenya's investment abroad.  On 
its website, UNCTAD does provide some additional data on FDI 
in Kenya. 
 
More than 200 Trans-National Corporations operate in Kenya. 
The main traditional sources of investment are United 
Kingdom, Germany, and the United States, with Chinese 
investment increasing in the last two years. 
 
------------- 
Web Resources 
------------- 
 
Telkom Kenya - http://www.telkom.co.ke 
 
Communications Commission of Kenya - http://www.cck.co.ke 
 
Safaricom - http://www.safaricom.co.ke 
 
Cable News Network - http://www.cnn.com 
 
British Broadcasting Corporation - http://www.bbc.com 
 
Reuters - http://www.reuters.com 
 
Kenya Broadcasting Corporation - http://www.kbc.co.ke 
 
International Chamber of Commerce - http://www.iccwbo.org 
 
African Trade Insurance Agency - http://www.ati-aca.com 
 
Export Processing Zones Authority - http://www.epzahq.com 
 
African Growth Opportunity Act - http://www.agoa.gov 
 
Capital Markets Authority - http://www.cma.or.ke 
 
Nairobi Stock Exchange - http://www.nse.co.ke 
Central Organization of Trade Union - http://www.cotu- 
kenya.org 
 
Sameer Industrial Park - http://www.sameer-group.com 
 
Central Bank of Kenya - http://www.cbk.go.ke 
 
BELLAMY