Kenya is the largest economy in Eastern Africa and has had a stable economic growth since President Kibaki first took office in 2002, mainly due to booming tourism and horticulture industries. However, the violence following the December 2007 elections negatively affected Kenya's economy, especially through extensive property loss and the disruption of transport of both workers and goods. Investors have been exerting greater caution in the wake of political and investment climate instability. Kenya's large informal sector, rising inflation, and a growing scarcity of employment opportunities have added to recent economic troubles. The Bertelsmann Foundation 2008 estimates that 50% of entrepreneurial and technological business takes place in the informal sector, and that its growth rate is higher than the formal economy. Furthermore, according to the Bertelsmann Foundation 2010, most enterprises start off in the informal sector and cannot afford the comparatively expensive process of registering with the state. Accordingly, in the World Bank & IFC Enterprise Surveys 2007, more than 40% of the surveyed companies identify the practices of competitors in the informal sector as a major business constraint. Although the government has introduced market reforms, the business climate in Kenya continues to be hampered by corruption, and according to Transparency International Global Corruption Barometer 2010, the private sector is said to influence public policy, laws and regulations through soliciting bribes and gifts. Furthermore, Transparency International's Global Corruption Report 2009 reports that the costs of corruption remain a deterrent to potential investors, and corruption is a major impediment both for existing businesses and those seeking to establish new businesses. In the Transparency International Global Corruption Barometer 2010, 15% of respondents gave corruption within the business and private sector in Kenya a score of 5 on a 5-point scale (1 'not and all corrupt' and 5 'extremely corrupt').

In the World Economic Forum Global Competitiveness Report 2011-2012, corruption continues to top the list of obstacles for doing business with 21% of the companies surveyed naming it as the most problematic factor. This is further supported by the World Bank & IFC Enterprise Surveys 2007, in which over 38% of the surveyed companies consider corruption a major constraint to their operations. The same survey also indicates that it is almost impossible to do business in Kenya without making facilitation payments, as roughly 80% of the companies surveyed cite that they are expected to make informal payments to public officials to 'get things done'. According to Transparency International Kenya's Kenya Bribery Index 2008, private companies are increasingly exposed to demands for bribes, however, the average size of bribes paid by companies in 2008 was half it was in 2006. This decrease could be attributed to a decline in the bribery reported by state-owned companies, which accounted for the largest proportion of business-related bribes in previous surveys. This suggests that the corporate governance and procurement reforms undertaken in that sector are paying off. Also, more investors are reporting that they can now do business with less frequent political interference. Nevertheless, the use of agents to facilitate business operations and transactions in Kenya is widespread and poses a risk for companies, particularly at the entry and business start-up stage. Bribery through agents can lead to legal sanctions, including high fines and a maximum 10-year prison sentence. Therefore, investors are strongly recommended to develop, implement, and strengthen integrity systems and to conduct extensive due diligence when doing business in Kenya.

The majority of companies state that public procurement is an area of business where it is common to encounter corruption and demands for bribes. According to the World Bank & IFC Enterprise Surveys 2007, 71% of the responding companies cite that they expect to give gifts to secure a government contract, with the value of the gift amounting to an average of 8% of the contract in question. Companies are recommended to use a specialised public procurement due diligence tool in order to mitigate corruption risks involving procurement in Kenya. Indeed, many corruption scandals in Kenya have involved fraudulent or inflated public procurement deals, where funds have been redirected to top government politicians and officials.

Kenya has struggled to attract foreign direct investment and the previous government sought to change this by introducing market-based reforms and providing more incentives for both local and foreign private investment, particularly in the export and import sectors and in telecommunications. The new government is continuing these policies and focus on structural reforms, including privatisation and deregulation. Foreign investors seeking to establish a presence in Kenya generally receive the same treatment as local investors and are guaranteed ownership and the right to remit dividends, royalties and capital, but according to the US Department of State 2010, there are some exceptions. In addition, international observers cite lack of transparency and inconsistent application of commercial codes as persistent problems.

According to the US Department of State 2011, the most significant disincentives for investment in Kenya include complexity of government regulations, poor infrastructure, expensive and irregular utilities, general insecurity and high cost associated with crimes. Nevertheless, Kenya was ranked as one of the world's top ten reformers by the World Bank & IFC Doing Business 2008 due to an ambitious licensing reform programme, which has so far succeeded in eliminating 110 licences and simplifying 8 others. Moreover, the government plans to eliminate over 300 and simplify nearly 600 licences. The changes have streamlined business start-up, cut both the time and cost of obtaining building permits, and facilitated cross-border trade. According to the same report, Kenya reported an increase of up to 33% in revenue after the reform. All in all, some of the main positive reforms include starting business, dealing with licences, registering property and getting credit. In addition, an Electronic Regulatory Registry, among others, has been launched to enhance transparency in accessing information on registered companies. The changes have streamlined business start-up, cut both the time and cost of obtaining building permits, and facilitated cross-border trade. According to data from the World Bank & IFC Doing Business 2011, starting a business in Kenya requires a company to go through 11 procedures, which takes an average of 33 days and costs 38% of GNI per capita. The de-licensing programme is envisaged to continue in order to minimise the possibilities for corrupt activities through bribes and facilitation payments to public officials. According to the Bertelsmann Foundation 2010, with the Investment Promotion Act 2004, the government significantly reformed the regulatory framework for setting up businesses, resulting in less red tape and being a measure against corruption.

According to the US Department of State 2011, property rights are recognised and enforced. But in practice, the process of obtaining a land title can be cumbersome and the process is often non-transparent. Foreigners in Kenya can own land, although there are some restrictions to leasing and ownership of land classified as agricultural. Kenya has a comprehensive legal framework to ensure intellectual property rights protection, which includes the Industrial Property Act 2001, the Trade Marks Act 1957 (revised 1994), the Copyright Act 2001 and the Universal Copyright Convention 1971. Moreover, Kenya is a member of the World Intellectual Property Organisation (WIPO) and of the Paris Union (International Convention for the Protection of Industrial Property). Nevertheless, according to the US Department of State 2011, enforcement of intellectual property rights is weak.

Kenya has commercial courts to deal with commercial disputes and there is a separate industrial court that hears disputes over wages and labour terms, the rulings of which cannot be appealed. Contractual rights are enforceable, but the process of doing so is often lengthy. The legal system is adversarial, and most disputes are resolved through litigation in court, although arbitration and alternative dispute resolution are increasingly popular. The Arbitration Act 1995 and Arbitration Rules 1997 form the regulatory framework of domestic arbitration options for companies. Kenya accepts binding international arbitration and has ratified to the New York Convention 1958 as well as being a member of the International Centre for Settlement of Investment Disputes (ICSID). Access Kenyan Law Reports or the Lexadin World Law Guide for a collection of legislation in Kenya.