Financial Data
Updated 29 May 2017


Kenya

Related sections

Business opportunities and risks

Opportunities for you to do business in Kenya

Kenya-Brochure-Image

Kenya’s government policy encourages investment, offering foreign businesses a positive investment climate. Foreign companies are already securing deals with government to work on infrastructure projects, and investing to improve Kenya’s transportation network.

This positive investment environment also offers businesses in various sectors the opportunity to take advantage of business expansion prospects.

Some of the opportunities available for investment include:

Manufacturing sector

Manufacturing, food and consumer goods processing have become important sub-sectors. The capacity of Kenyan garment factories has grown markedly in recent years due to FDI from Asia and the Middle East, as well as support from the export development zones.

There is no local upstream industry, however, so manufacturers have to import fabrics, which results in longer lead times. Other challenges include the high labour costs and the unreliable energy supply that forces factories to use very expensive generators.

Construction sector

In March 2012, the Lamu Port–South Sudan–Ethiopia Transport and Economic Development (LAPSSET) infrastructure development project was announced. The project includes the construction of infrastructure across many areas, including transport, energy/power, water supply and treatment, the oil industry, healthcare, education, telecommunications, retail, and hotels and tourism.

The Power Africa project, which was launched by Barack Obama in 2013, aims to help provide electricity to two thirds of the 800 million people in sub-Saharan Africa without electricity. It will also add ten gigawatts of electricity generation capacity through co-operation between US government agencies and the private sector.

In the information and communication technology (ICT) domain, the biggest construction opportunity is the IT business hub Konza City. Also known as Africa’s Silicon Savannah, Konza City is valued at US$14.5 billion.

Services sector

Economic activity in Kenya is dominated by the services sector, including banking, a well-developed retail sector, a relatively sophisticated and growing telecommunications sector, and a developed tourism sector.

Retail & wholesale sector

The wholesale and retail sector has been sustained by the increasing urbanisation in the country; a growing middle class; and the changing lifestyle of Kenyans with their demand for shopping. All of this has resulted in the construction of more malls in Kenya and outside the country’s boundaries.

ICT sector

The ICT sector is one of the fastest-growing sectors in Kenya. There has been continued growth in mobile voice, mobile data/internet and mobile money transfer services. At the end of 2014, penetration of mobile (82.6% vs 76.9% at the end of 2013), internet (64.3% vs 52.3% at the end of 2013) and fixed and wireless broadband (9.9% in 2014 compared to 5.9% in 2013) showed there was still opportunity for growth and for companies to enter the market.

Government has been investing  in the telecommunications industry to help make Kenya a hub of telecommunications innovation. There is also more focus on generating policy and legislation to support the growth of the ICT sector.

Oil sector

The development of the country’s oil sector has the potential to take the economy onto a higher growth trajectory. Factors that could limit the effects of lower oil prices on domestic oil investment include:

  • The onshore nature of the country’s oil resources – it is much less expensive to both explore and drill onshore than offshore; and
  • Less exploration activity globally. This will increase competition among oilfield services and infrastructure companies as they try to get business from the few regions that are still involved in oil-related activities.

The most positive signs of investment sentiment come from the companies that are driving the oil sector in Kenya at the moment – Tullow Oil and Africa Oil. They still plan to drill six basin openers in Kenya, and more than a dozen other wells, including exploration wildcats and appraisals. But despite the many positives, there are still significant risks to the development of Kenya’s oil sector.

Operational risks to consider

Increased growth and development across Africa have attracted foreign investment and many multi-national companies to the continent. Yet it has to be said that doing business or operating in African countries holds certain challenges that businesses must consider and mitigate.

The following are some of the potential challenges facing investors operating in Kenya:

  • The country has an unstable domestic security situation, including high levels of crime, the threat of terrorism and an entrenched culture of corruption;
  • Businesses in the country are hindered by inefficient bureaucracy and high levels of taxes;
  • The country’s transport infrastructure and logistics systems are underdeveloped and could limit its ability to become a regional trade and transport hub. This includes customs, goods clearance and weighbridge processes;
  • Kenya offers a large pool of highly qualified and specialised workers, however the high costs of employment in the country, powerful unions, and health issues hold risks to businesses;
  • The inconsistent administration of work permit applications makes it challenging to employ expatriates in the country;
  • The Kenyan government requires that foreign employees must be either key senior managers and/or personnel with special skills that are not available locally. Businesses must prove that they cannot source the necessary skills in the country;
  • Foreign investors also have to sign an agreement with the government that they will train locals and phase out expatriates;
  • The minimum foreign investment for acquiring Government of Kenya investment incentives and an investment certificate is US$100 000. This could deter foreign small and medium enterprise investment, especially in the services sector, which is normally not as capital-intensive as other sectors;
  • Kenya’s legal and judiciary environment could place a burden on businesses due to costly bureaucracy and red tape around all basic business procedures and discourage investors;
  • Kenya has some of the highest waiting times for opening (30 days) and closing (4.5 years) a business and for registering a property (72 days). It also requires businesses to follow many time-consuming and sometimes costly processes. A construction permit can take an average of 125 days to be issued;
  • Foreign investors may also face challenges around land ownership. Foreigners may not buy or lease agricultural land unless they get presidential approval. Only Kenyan citizens or companies with majority Kenyan ownership may buy other types of land. Foreign investors are limited to 99-year leases, which increases costs and the possibility of expropriation;
  • Law enforcement in the country is hampered by corruption and a lack of capacity in government institutions such as the police, the judiciary, and the customs office;
  • The country does not adequately protect intellectual property (IP), including copyrights, patents and trademarks. Businesses must know that although laws covering IP protection are well established, enforcement is inconsistent because of a lack of capacity in anti- counterfeit forces;
  • Several of the country’s oil fields are remote and will require significant infrastructure outlays, including the construction of an oil pipeline towards the coast. This could deter oil companies from developing the Kenyan oil industry;
  • A 5% capital gains tax, effective since 1 January 2015, could also dampen investor interest somewhat. This is especially true for the emerging oil and gas industry, as it will be significantly higher for transactions in this sector
Business challenges
  • Potential investors in the construction industry have to be aware that it takes an average of 125 days to acquire a construction permit
  • Foreign investors are limited to 99-year leases, which increases costs and the risk of expropriation
  • Kenya has some of the highest waiting times for opening (30 days) and closing (4.5 years) a business, for registering a property (72 days), as well as a large number of required procedures (approximately 10).
Rate It12345rating

Introducing the manufacturing opportunities in Africa

Manufacturing is a growth sector within Africa, offering business owners looking to expand into Africa a growth opportunity. Philip Myburgh, Head of Franchising, Rest of Africa discusses the manufacturing opportunities that Africa has to offer.

Login to comment