Legal Aspects of Doing Business in Kenya

“IT TAKES YOU ONLY 25 DAYS TO INVEST IN KENYA!”

Kenya is located in East Africa. It lies on the Equator bordered by Somalia, Ethiopia, Sudan, Uganda, Tanzania and the Indian Ocean. It covers an area of some 592,909 sq. km and has a population of approximately 30 million people. Much of the country, especially in the north and east, is arid or semi-arid. Kenya is essentially an agricultural economy mainly dealing in horticulture and crops like coffee and tea.

The Promotion of Investment Act

The Investment Promotion Act (2004) is legislation by the government of Kenya with the purpose of promoting and facilitating both local and foreign investments. Kenya has expressed her intention to help both local and foreign investors to invest in Kenya. The country has enacted the Promotion of Investment Act to help investors under the law. The Act particularly states the licenses and other related requirements that a local or a foreign investor in Kenya should have.

The Kenya Investment Authority is the body established under the Investment Promotion Act to assist investors. It helps the investors, among other things, to get certificates of investment, which is a compulsory first step for a foreigner to invest in the country.

“Foreign investor” means:

1. A natural person who is not a citizen of Kenya;
2. A partnership in which the controlling interest is owned by a person or persons who are not citizens of Kenya; or
3. A company or other body corporate incorporated under the laws of a country other than Kenya.

Contrary to local investors who can invest in Kenya without certificate of investment, a foreign investor must obtain the investment certificate before he/she proceeds to invest in Kenya. However, the procedures to get the certificate are almost identical to that of the local investors.

The Entitlement to Certificate

In order to get a certificate of investment, a foreign investor has to meet some criteria. Section 4(1) provides an applicant shall be entitled to an investment certificate if:

• The application is complete and satisfies the applicable requirements under this Act;
• The amount to be invested by a foreign investor is at least five hundred thousand United States of America dollars or the equivalent in any currency;
• The amount to be invested by a local investor is at least five million shillings or the equivalent in another currency; and
• The investment and the activity related to the investment are lawful and beneficial to Kenya.

Beneficial Investment to Kenya

The issue of criteria for issuance of the certificate of investment leads to the question of which investments are “beneficial to Kenya.” Does this mean that the Kenyan government will take all the profits from the investment? The answer is no. The Act outlines details of beneficial investments. For the investment to be beneficial to Kenya, it must meet the following:

• Creation of employment for Kenyans;
• Acquisition of new skills or technology for Kenyans;
• Contribution to tax revenues or other Government revenues;

In addition to these conditions it should fulfill any or  all of the following conditions:

• A transfer of technology to Kenya;
• An increase in foreign exchange, either through exports or import substitution;
• Utilization of domestic raw materials, supplies and services;
• Adoption of value addition in the processing of local, natural and agricultural resources;
• Utilization, promotion, development and implementation of information and communication technology;
• Any other factors that the Authority considers beneficial to Kenya.  (s.4(2)of the Act)

Procedures for Consideration of the Application

Procedures for consideration of the application are transparent and straightforward. They are provided for under the first schedule to the Investment Promotion Act. According to the schedule, the whole process from filing of the application to the notice of the decision takes no more than twenty-five working days. In this regard, working days exclude Saturdays, Sundays and public holidays.

An application is deemed to have been received when any clarification or additional information required by the board are received (s. 3(3) of the Act and 2(2) first schedule). A report shall be prepared within ten working days after a completed application is received. The authority makes a decision within five days on the report. Then the notice to the applicant on the decision is made within five days.

If the decision is to refuse to issue the certificate, the Kenya Investment Authority is denied the opportunity to abuse its powers. Included with the notice to the applicant, the government must give copies, in writing, of the reasons for denial and a copy of the prepared report. The authority must also give the Minister, within five working days after the decision, a copy of the application, a copy of the reasons for denial and a copy of the report (s.5(1) of the 1st schedule to the Act). In this regard, the Minister refers to the minister responsible for matters relating to investment.

What if the Notice for Application is Late?

If an applicant does not receive a notice of the Authority’s decision within twenty-five working days after the completed application was given to the Authority, the applicant may make a written complaint to the Minister. The Minister shall investigate the complaint and shall, within fifteen working days after the complaint was received, inform the applicant of the results of the investigation (s. 6(1) and (2) of the 1st schedule to the Act).