Kenya as a Business Location

Kenya has a free enterprise economy and the strongest industrial base in the eastern and central African region. In 2003 Kenya's estimated population was 32.2 million, an increase of over 3 million when compared to the figure of 28.7 million people recorded during the last population census in 1999.

Kenya therefore, has about 40% of the total East African Community population of about 80 million people. It is thus, a sizeable market apart from being a strategic investment, tourist and trading location. It has easy access to various export markets such as the Common Market for Eastern and Southern Africa (COMESA), the rest of Africa, Asia, the Middle East and Europe. As a transport and communications hub for the sub-region, Kenya is also competitive when trading with distant markets such as the USA, Canada, and Australia. Increased trade with the USA has been enhanced by the African Growth and Opportunity Act (AGOA).

Kenya is a member of several commercial and economic organizations which make the country a safe and secure place to do business. These include the World Trade Organisation (WTO); the United Nations Conference on Trade and Development (UNCTAD); the African, Caribbean and Pacific/European Unions (ACP/EU) Cotonou Agreement, the International Monetary Fund; the World Bank, the Multilateral Investment Guarantee Agency; and the African Trade Insurance Agency among others. Kenya-German investment activities are further supported by bilateral protocols, especially the double taxation agreement signed between the two countries in 1977, and the Treaty on the Encouragement and Reciprocal Protection of Investments which came into force on 7th December, 2000.

To do a business in Kenya one has to first register the company with the Registrar of companies.
This could be:-
  • A branch office of an overseas company, or
  • A locally incorporated company
Registration could also be done under the Business Names Act.

For the approval and licensing procedures of new investment:-
  • The Kenya Investment Authority (KIA) will process and grant approvals of new investment, once proposals are submitted on a prescribed application form. Proof of company registration must be attached to the application.
  • Where the investment may have adverse impact on security, health or environment, clearance from the competent authorities (such as, National Environment Management Authority (NEMA), Public Health authorities, etc) will be required before approval is granted.
  • Also, clearance is required from parent ministries for investments in restricted areas before IPC approval is granted.

These investments comprise:-
  • Investments to produce excisable goods (clearance from Customs and Excise is a pre-condition.
  • Investments in forest products and mining (clearance from Ministry of Environment and Natural resources).
  • Investments in energy and petroleum products (clearance from Ministry of Energy)
  • Investments in the manufacture Under Bond Programme (MUB) (authority to manufacture under bond must be obtained from Minister for finance).
  • Investments in the tourism industry (clearance from the Ministry of Tourism).

There may be some restrictions to doing business in Kenya these include:-
  • Equity restrictions are only in telecommunications sector (a minimum of 30% must be local).
  • Investments in the insurance industry must have local participation.
  • Ownership of agricultural land by foreigners is restricted.
  • Engagement in petty business by foreigners is also restricted.


PROCEDURE OF STARTING A BUSINESS IN KENYA

Procedure 1.
Obtaining and the approval for the company name from the Registrar of Companies. This takes about 3 days to complete and Cost KES 100 per name reservation it is important to note that the company name reservation lasts 30 days but can be renewed for a similar period.

Procedure 2.
Stamping of the Memorandum and Articles of Association and Statement of the Nominal Capital. This takes about 14 days to complete and Cost of1% of nominal capital + KES 2,005, stamp duty on Memorandum and Articles of Association

Effective January 1, 2005, the Kenya Revenue Authority (KRA) took over stamp duty collection from the Ministry of Lands and Housing. As an administrative requirement, the KRA now requires the personal identification numbers (PINs) of all parties on whose behalf duty-stamped documents are submitted. Documents must be first assessed by the Stamp Duty Office before payment can be processed by the KRA-designated banks. The process has lengthened to about 2 weeks because the Stamp Duty Office must receive confirmation of bank payment after clearance of funds. Bank handling charges of KES 100 for each transaction are also due.

Procedure 3.
Payment of stamp duty at bank. This takes 1 day to complete (included in the previous procedure). It will cost you KES 100 which is the bank commission

Procedure 4.
Declaration of compliance (Form 208) is signed before a Commissioner of Oaths /notary public. This takes 1 day to complete and the cost to complete is KES 200

According to the Companies Act (Cap. 486), the promoter incorporating the company must sign Form 208, the declaration of compliance, which accompanies the registration documents to be submitted to the Registrar of Companies.

Procedure 5.
File deed and details with the Registrar of Companies at the Attorney General's Chambers in Nairobi this procedure takes between14 - 21 days to complete:

The founder must file the incorporation deed and the required documents and forms (listed below) with the Registrar of Companies, which has automated this process. - Stamped memorandum and articles of association. - Statement of capital. - Form 201, Particulars of directors and secretary. - Form 203, Notice of proposed registered office. - Form 208, Declaration of compliance and the prescribed registration fees. Fee schedule for registration: - For the first KES 100,000: KES 2,200. - For every KES 20,000 after the first KES 100,000: KES 120, subject to a maximum of KES 60,000. - Filing fee for three forms: KES 600.

Procedure 6.
Register with the Tax Department for a PIN

It takes 1 day complete and at no cost. Registration for a personal identification number (PIN) is required to register for the VAT, the local service tax, and the pay-as-you-earn (PAYE) tax. The founder must file the certificate of registration and a copy of the memorandum and articles of association.

Procedure 7.
Register with the VAT office

This free of charge process takes you just a day to complete. The VAT office is in the Times Tower building.

Procedure 8.
Apply for a business permit

It takes 1 day complete: The fee to apply for a business permit varies by type of business, number of employees, and size of the company's premises. The fee is payable to the Nairobi City Council, Licensing Department. The City Council will issue a business permit. Fee schedule for business permit: - Medium trader, shop, or retail service from 5 to 20 employees and/or premises 50–300 sq. m. (fair location): KES 5,000. -Mid-size business of 50 employees and premises 300 sq. m.: about KES 20,000 to KES 50,000, depending on the nature of the business. The Licensing Laws (Repeals and Amendments) Act , 2006 (enacted in December of 2006), amends the Local Government Act (Cap. 265) by reducing the number of business permits required for a distributor of goods or provider of services to carry on its business activities. Applicants having obtained a business permit to operate from one local authority will not be required to obtain another business permit in another local authority. In addition, business permit applicants will have an opportunity to elect whether to apply for a 1- or 2-year permit. The 2006 law also eliminated the requirement to obtain a trading license in addition to the permit.

Procedure 9.
Register with the National Social Security Fund (NSSF)
Time to complete: 1 day
Cost to complete: no charge

The National Social Security Fund provides the employee with a lump-sum retirement benefit. Historically, the rate of return paid by the state is considerably less than that achieved by private schemes, but participation is mandatory. The employer pays a standard contribution of about 1% of salary, subject to a maximum of KES 400 per month. Half the contribution is deductible from the employee's salary. The precise amount of the contribution (where less than the maximum) is determined by reference to salary bands.

Procedure 10.
Register with the National Hospital Insurance Fund (NHIF)

Time to complete: 1 day
Cost to complete: no charge

The employee contributes a fixed sum to the National Hospital Insurance Fund (NHIF), which must be deducted by the employer from the employees' salary. The maximum contribution is KES 320 per month. The contributions are used to offset the costs of medical treatment, but they only cover a fraction of actual costs. Hence, most companies provide employees with medical insurance.

Procedure 11.
Register for PAYE

Time to complete: 1 day
Cost to complete: no charge

Procedure 12.
Make a company seal after a certificate of incorporation has been issued

Time to complete: 2 days
Cost to complete is between KES 2500 and KES 3500

N/B;- for those interested in the starting a filming business in Kenya, the Department of Film Services www.filmservices.go.ke, issues licenses for all local and foreign crews undertaking filming in the country.

ECONOMY
 * Figures from the Kenya Central Bureau of statistics 2006 report
  • The economic growth rate as at 2005 was 5.8 per cent.
  • A 16 per cent Value Added Tax is levied on most items and visitors cannot claim a refund on goods purchased.
The Kenyan economy, east Africans largest has grown considerably in the past years due to several key factors. The country has a reasonably well educated labour force; it is a vital port that serves as an empty point for goods destined for countries in central and east African interior, abundant wildlife and miles of attractive coastline, improvement in the infrastructure and a government which, after an uncertain start, seems committed to implementing business reforms.
The key sectors in the Kenyan economy are:-

Agriculture

Agriculture in particular is a cornerstone of the country's economy employing over 80 percent of the population. In fact, more than 50 percent of export earnings are attributed to agricultural products with cash crops of coffee, tea, tobacco, cotton, sisal, pyrethrum, and cashew nuts leading the way.
Exports of fruit, flowers, and vegetables are also attracting an increasing amount of foreign attention and money. Tea continues to create the largest agricultural profit for Kenya. The primary food crops are beans, cassava, potatoes, maize, sorghum, and fruit. As in the early days of the republic, these crops are mainly harvested as subsistence farming today.

Agriculture accounted for approximately 25% of Kenya's GDP in 2005/2006. It was a mixed year for the sector. Horticulture grew slightly:- Kenya produces cut flowers almost exclusively for export, supplying 98% of its 40 types of flowers to European countries. Carnation, statice, alstromeria and roses are the most predominant flowers grown, mostly in the fertile lands surrounding Lake Naivasha. Kenya is the only place in the world that can produce best straight rose stems. Tea, along with coffee which for a long time where mainstay of the Kenyan economy has declined in importance in the last decade as a result of poor market prices and fierce competition from other producers.

For more information on agriculture in Kenya log on to the Ministry of Agriculture website: www.kilimo.go.ke


Tourism
Tourism forms a vital foundation for the country's economy and is highlights two of Kenya's most unique features: wildlife and beaches. Careful planning and proactive leadership have maximized the tourism potential as Kenya continually outpaces its East African neighbors. A solid infrastructure coupled with a devotion to wildlife conservation has propelled Kenya to the forefront of the regional tourism industry.
The tourism sector has been doing well in the recent years contributing to approximately 12% of Kenya's total GDP. After the 1998 terrorist attack in Nairobi and Mombasa followed by travel warnings by the US and UK governments, the tourism sector grew with a whooping 17.4% in the 2005/2006 financial year and an average of $ 608 million of cumulative revenue in the same year (government of Kenya report)
The growth is to both continued demand for safaris and beach holidays from traditional European markets such as Italy, America, UK and Germany; and vigorous marketing of Kenya as a filming and tourism location in new markets such as China, India and Japan.
For more information on tourism in Kenya log on to the Ministry of Tourism website: www.tourism.go.ke

Manufacturing,
This sector had noticeable growth in the 2005/2006 financial year and it account for 10% of Kenya's GDP. The growth was as a result of the increase in the production of cement (7.8%), processed milk (24.4 %), cigarettes (19.9%) and beer (8.5 %)

Transport and communication,
These two together are worth about 11% of the country's GDP. As for transport, it enjoyed only a moderate growth in 2005/2006, but the telecommunications sub sector continues to grow steadily. For instance, the total mobile phone subscribers increased by 40% for the period between June 2005 and June 2006 to 6.5 million people. Fixed line connections rose by 8% in the same period.

Mining industry is also coming up with minerals such as Gold, limestone, soda ash, salt barites, rubies fluorspar and garnets found in different parts of the country.

Other sectors that are doing well include wholesale and retail trade, construction and financial services.