The last five years in Kenya have been a time of economic stagnation; in fact, the –3 growth in the year 2000 was the worst since independence. The deceleration is blamed on the prolonged drought (1999-2000), an inadequate power supply, and deterioration of infrastructure. The drought has also led to a lowered estimated GDP for 2004 to a 2.4% increase and a delay in budgetary support from disbursement donors. Pundits feel that Kenya is beginning to regain momentum to sustain economic recovery in 2004-2005 and beyond.
Interest rates in Kenya are down. Commercial rates have dropped from 15.3% in July 2003 to 12.19% in August 2004. The low rates have led to an increase in credit (14.2%).
Inflation has decreased in 2004, from 9.14 in January to 5.94 in June. However, it has increased since then, up to 8.54 in July and 15.8 in August. Oil prices have also increased by 23.5% in August of this year. The increase in inflation and cost of living is mainly due to drought and high oil prices.
According to the Global Economic Prospectus, the near-term forecast for Kenya is favorable. A return to more normal weather in Sub-Saharan Africa will lead to a strong domestic performance.
Kenya has an educated population and a strong history of entrepreneurship. They have a desire to improve themselves in the world market. Furthermore, Kenyans value after sales service. For these reasons, joint venture seems to be the best opportunity.
The small manufacturing and financial industries are the most sophisticated in East Africa. Kenyan firms are working to overcome obstacles to be a stronger player in the world market. Some of those obstacles include: inadequate capital, which has led to an inability to take advantage of economies of scale; lack of local investment; and lack of equipment and personnel. Kenya has recognized these disadvantages and has developed the Kenya Management Assistance Program (K-MAP), which is working on the lack of management skills, lack of access to credit and lack of an enabling environment. In the mid-1980s, 74 large, stable countries agreed to let top and mid level managers act as mentors one day per month to existing and potential entrepreneurs. This program has offered mentors for over 10,000 businesses.
It is advised for foreign firms to use local advertising agencies for leads on advertising norms and translation. Kenya has experienced wholesalers and resellers. It is advised for foreign companies to establish a local reseller/dealer since Kenyans prefer to purchase from international sources with after sales service.
Due to the lack of chain stores, and the desire for home-grown products, it seems that a wholly-owned subsidiary would not be a viable option. Most retail outlets in Kenya are in the general store model and there are no extensive chain stores, except for the state-owned Uchumi Supermarkets.
Although Kenya has a strong record in Intellectual Property Rights (discussed later), they are at a significant disadvantage competing with Western nations, as far as production. Although the manufacturing and financial markets are the best in the region, they are still not up to par. At this time it would be ineffective to license, franchise or sub contract. A better way to help improve the Kenyan manufacturing sector is to partner and be directly involved in the K-MAP program.
Trading from the United States to Kenya may be difficult. Kenya employs exclusive use of British business laws and practices, which has limited other business relationships outside the UK. Kenya applies tariffs based on the International Harmonized System. This system has five rates and the highest is a 40% tariff. Recently, duties have been reduced on manufactured goods. In addition, an 18% Value-Added Tax is levied on goods imported into and manufactured in Kenya. Kenya does not require import licenses, except in the areas of health, environment and security concerns. However, all goods bought by Kenyan-based importers must be insured with companies licensed to conduct business in Kenya. In Kenya, retail outlets resemble wholesalers, with half being individual proprietorships and half partnerships.
Starting a business in Kenya has been made easier with the pro-business President. Kenya is strong in Intellectual Property Rights, maintains friendly business relationships, has a fair insurance system, and a revitalized transportation infrastructure. Kenya is strong in the protection of intellectual property rights. The belong to the Paris Convention Protection of Industrial Property, in addition to the Bern Convention for the Protection of Literary and Artistic Works. Furthermore, they belong to the World Intellectual Property Organization and the African Regional Industrial Property Organization. In 1990, Kenya established an industrial property office that protects industrial property rights; screens technology transfer agreements and licenses; provides patent information and patents; and issues utility model certificates and industrial design certificates. Trademarks are available for a seven-year period. Kenya issues audio, but not video copyrights.
Kenyan business executives are informal and open. Friendship and mutual trust are highly valued, and once earned, a good working relationship is expected. It is important to note that, due to their Indian and Arab influences, Kenyans expect a significant amount of negotiation.
Exporters in Kenya have to be concerned with insurance issues. An exporter my be exposed to losses if the buyer doesn’t have insurance, has limited coverage and suffers and uninsured loss, claims the payment in Kshs (which may cause an exchange loss), or rejects good with no claimable damage. In order to protect themselves, exporters should ship CIF (cost, insurance, freight). CIF shipping is tailored to the exporter, covers all shipments automatically, uses rates competitive for the exporter, not the buyer, and pays locally negotiated claims in US dollars.
At one point in its history, Kenya had the best transportation infrastructure in Africa. However, it has deteriorated and has not kept up to demand. Government reforms have been put in place to increase efficiency with maintenance, rehabilitation, upgrading and expansion. Mombasa is the main seaport in Kenya with 21 berths, 2 bulk oil jetties and dry bulk wharves. There are two international airports in Kenya and over 150 airstrips. Kenya railways are a single track that runs from Mombasa through Nairobi to the Kenyan border, with a central Kenyan spur. International road and railways connect Kenya to Tanzania, Uganda, Sudan, Ethiopia and Somalia. In addition, highways run from Kenya all the way to the southern tip of Africa.
Kenya belongs to multiple trade agreements. It is a member of the Common Market of East and South Africa (COMESA). Due to this agreement, exports within the region get special treatment, with only a nominal tariff in the final destination. Kenya also participated in the Lome Convention, which resulted in a low tariff on Kenyan goods to Europe. Furthermore, Kenya has also signed the United Nations Conference on Trade and Development (UNCTAD) and belongs to the World Trade Organization (WTO). The United States government has extended preferential access to Sub-Saharan African exports to the US through the African Growth and Opportunity Act (AGOA). In fact, last year, the US imported $9 billion from Africa. Kenyan textile growth rates are up 50% from 2003. Closer to home, Kenya was a key signatory in the East African Customs protocol signed in March, 2004. it was signed in Arusha, Tanzania and was designed to decrease the common tariff between Kenya, Tanzania and Uganda. Goods imported into Kenya from Tanzania and Uganda are duty-free. Since the Kenyan economy is by far the largest in the region, its exports have been divided into two groups, one that is duty free immediately, and a second that is on an eight-year tariff reduction plan that will make them duty free in 2012.
