Kenya has a positive investment climate that has made it attractive to international firms seeking a location for regional or pan-African operations. Kenya’s August 2022 general elections ushered in a new government that is focused on attracting more foreign direct investment (FDI) and enacting policies that are conducive to U.S. investment. The new administration’s five-year economic development plan, dubbed the Bottom-Up Economic Transformation Agenda, identifies agriculture; micro, small and medium enterprises (MSMEs); affordable housing and settlement; universal healthcare coverage; digital superhighway; and the creative economy as core pillars towards achieving transformational inclusive growth. In July 2022, the United States and Kenya launched the Strategic Trade and Investment Partnership negotiations, a first-of-its-kind bilateral U.S. trade agreement in sub-Saharan Africa.
In April 2023, the President of Kenya announced a series of tax and regulatory reforms aimed at improving Kenya’s investment climate, including completing Kenya’s National Tax Policy by June 2023, and keeping it in place for a minimum of three years. The President also committed to, by June 2023, removing the VAT on exported services, paying all verified tax refund claims within six months or if not repaid allowing the taxpayer to offset the claims against future tax liabilities, and removing the tax on unrealized gains on employee-allocated shares for startup companies. All these reforms and others were incorporated into the 2023 Finance Act signed by President Ruto in June 2023; implementation of these reforms remained pending as of July 2023 due to legal challenges to other components of the Finance Act. Despite this progress, U.S. businesses operating in Kenya still face burdensome bureaucratic processes and delays in receiving necessary business licenses. Corruption remains pervasive and Transparency International ranked Kenya 123 out of 180 countries in its 2022 Global Corruption Perception Index – reflecting modest progress over the last decade but still below the global average.
Kenya’s Mombasa Port is the gateway to the East African market with almost 500 million consumers. Kenya’s membership in the East African Community (EAC), the Africa Continental Free Trade Area (AfCFTA), and other regional trade blocs provides it with preferential trade access to growing regional markets. Kenya has strong telecommunications infrastructure and a robust financial sector and is a developed logistics hub with extensive aviation connections throughout Africa, Europe, and Asia. In 2018, Kenya Airways initiated direct flights to New York City in the United States.
In 2017 and 2018 Kenya instituted broad reforms to improve its business environment, including passing the Tax Laws Amendment (2018) and the Finance Act (2018), which established new procedures and provisions related to taxes, eased the payment of taxes through the iTax platform, simplified registration procedures for small businesses, reduced the cost of construction permits, and established a “one-stop” border post system to expedite the movement of goods across borders. However, the Finance Act (2021) increased the capital gains tax rate from five to 15 percent and introduced a provision to subject gains from financial derivatives earned by nonresidential persons to a 15 percent withholding tax. The Finance Act also introduced reporting requirements for certain qualifying multinational entities operating in Kenya. The oscillation between business reforms and conflicting taxation policies has raised uncertainty over the Government of Kenya’s (GOK) long-term plans for improving the investment climate.
Kenya’s macroeconomic fundamentals remain among the strongest in Africa as it continued to rebound from the COVID pandemic with real gross domestic product (GDP) increasing with over five percent growth in 2022. However, the economy faces elevated inflationary pressure due to a prolonged drought and global supply chain disruption caused by Putin’s brutal war in Ukraine.
Kenya is a regional leader in clean energy development with more than 90 percent of its on-grid electricity coming from renewable sources. Through its 2020, second Nationally Determined Contribution to the Paris Agreement targets, Kenya has prioritized low-carbon resilient investments to reduce its already low greenhouse gas emissions a further 32 percent by 2030. Kenya has established policies and a regulatory environment to spearhead green investments, enabling its first private-sector-issued green bond floated in 2019 to finance the construction of sustainable housing projects.
American companies continue to show strong interest to establish or expand their business presence and engagement in Kenya. Sectors offering the most opportunities for investors include: agro-processing, financial services, energy, extractives, transportation, infrastructure, retail, restaurants, technology, health care, and mobile banking.
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