KENYA Country Profile

General Information

Political Climate


Poor governance and rampant corruption in Kenya have had a negative impact on efforts to attract investments, and widespread poverty, rapid population growth, rising unemployment rates and strained welfare services have long posed problems. Nevertheless, Kenya had been thought of as one of the more politically stable countries in Eastern Africa until ethnic disturbances in the wake of the December 2007 presidential elections. Tensions came to the fore following the contested election results, which led to unprecedented violence resulting in at least a thousand deaths and the displacement of hundreds of thousands in ethnically-based riots. The political situation was extremely volatile up to the point where rival political factions, President Mwai Kibaki of the Party of National Unity (PNU) and opposition leader Raila Odinga of the Orange Democratic Movement (ODM), reached a peace and power-sharing agreement in February 2008, formulated in the National Accord and Reconciliation Act 2008. Under the agreement, the Office of the Prime Minister has been reinstated and, while Kibaki remains President, Odinga has been made Prime Minister with the power to coordinate and supervise the functions of the government. This still fragile setup has created a platform for deepening checks and balances on executive discretion, something that Kenya has lacked for decades, and which led to rampant high-level corruption, state capture, judicial subordination and corruption. Despite a month-long political deadlock between Kibaki and Odinga over the composition of the cabinet, the broad-based coalition government became a reality in the beginning of April 2008, bringing about a return to relative political stability. However, according to Transparency International's Global Corruption Report 2009, this arrangement has inadvertently culminated in the absence of an effective opposition, severely compromising parliament's oversight role over the executive.

Kibaki ran for presidential elections in 2002 on a strong anti-corruption platform and expectations of the new government were high. One of the President's first steps was to sack all state procurement executives due to evidence of widespread abuse of office among these officials. In 2003 and 2004, the government enacted several laws designed to curb corruption. These included the Anti-Corruption and Economic Crimes Act, the Public Officer Ethics Act and the Public Procurement and Disposal of Assets Act. The new legal framework led to the re-launch of the Kenya Anti-Corruption Commission (KACC) and required MPs and civil servants to provide evidence of their source of income. In addition, the position of a permanent Secretary for Ethics was established in the President's office. Yet, according to the Bertelsmann Foundation 2010, these steps were not translated into concrete actions. Through a change in the law, the KACC is legally unable to prosecute corruption incidents that occurred before 2003. Furthermore, the KACC is legally obliged to hand over evidence to the Attorney General's office, thereby limiting the KACC's ability to free itself from executive pressure. Similarly, Transparency International's Global Corruption Report 2009 emphasises that although the KACC is a supposedly independent institution, it depends on the Attorney General's decision as to which cases to prosecute. All-in-all, it appears that the initiatives of the Kibaki government to curb the rampant corruption in Kenya have failed, and USD hundreds of millions are lost to graft each year. According to Transparency International Kenya's East African Bribery Index 2009, household respondents report that the probability to encounter bribery in Kenya has increased in recent years. Several high-level corruption scandals have been revealed over the last few years, and allegations of nepotism flourish. In Transparency International's Global Corruption Barometer 2009, over 60% of the Kenyan households surveyed believe that the government's fight against corruption is 'somewhat/very' ineffective.

There are indications of a changed perception of corruption among the Kenyan public. In the Transparency International Kenya Kenya Bribery Index 2008, citizens' willingness to report corruption remained low but was steadily growing. This is supported by the Transparency International East African Bribery Index 2009, according to which, apathy to bribery and corruption seems to be reducing, while the propensity to bribe and not report fell from 64% in 2008 to 56% in 2009. Public contempt towards corruption is also on the rise because citizens have had to cope with an increased immediacy of corruption related scandals, such as those in the maize and oil sectors. For instance, according to a public survey cited in a February 2009 article by Reuters, more than two-thirds of Kenyans would like senior members of the government to step down to allow graft probes. Moreover, according to Global Integrity 2007, corruption in Kenya has, especially since 2007, taken on an increasingly harsh face manifested by the Mungiki, violent maverick gangs disrupting transport, controlling public utility services, and extorting civilians. Corruption persists despite all the measures taken against it, such as the enactment of elaborate anti-corruption legislation and the establishment of anti-corruption institutions. Considering the present government setup, President Kibaki and Prime Minister Odinga have renewed government promises to curb corruption, aware of the fact that further high-level corruption scandals could lead to the dissolution of the coalition.

Business and Corruption

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 it is reportedly common for civil servants to solicit bribes and gifts from the private sector. According to Transparency International's Global Corruption Report 2009, 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 2009, 16% 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 2009-2010, corruption tops the list of obstacles for doing business with 23% 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. While an average of 29% of private company employees encountered bribery in 2006, this number increased to 48% in 2007 and 58% in 2008. One should note, however, that 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, unlike the pre-2003 period, 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.

There are reports of businesspeople bribing MPs, senior officials and judges in order to influence policy-making, tenders, or to influence the result of a legal case. 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.

Regulatory Environment

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 2009, 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 Investment Climate Statement 2009, the most significant disincentives for investment in Kenya include the complexity of the tax system, crime, local government licences, demands for bribes, and poor infrastructure. Nevertheless, Kenya was ranked as one of the world's top ten reformers by the World Bank & IFC Doing Business 2009 due to an ambitious licensing reform programme, which has so far succeeded in eliminating or repackaging and simplifying nearly 700 of Kenya's more than 1,300 business licences. 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 2010, starting a business in Kenya requires the entrepreneur to go through 12 procedures, which takes an average of 34 days and costs 36.5% 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.

Property rights are recognised and enforced. Nonetheless, the Bertelsmann Foundation 2010 reports that during the post-election violence in early 2008, property rights were violated on a large scale, leaving 600,000 people displaced from their homes. Most of these people have not yet been compensated for their losses. Foreigners in Kenya can own land, although there are some restrictions to leasing and ownership of land classified as agricultural. Moreover, obtaining title to land can be cumbersome and the process is often non-transparent. 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 Investment Climate Statement 2009, 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.