Overseas Business Risk - Kenya

See below for information on key security and political risks which UK businesses may face when operating in Kenya.

Political and Economic

Economic Risk

Kenya’s economic fortunes are largely determined by commodity prices for its agricultural exports, and for oil, the country's major import. Horticulture is now the leading export ahead of tea and coffee. Foreign remittances and Tourism are also leading foreign exchange earners. Agriculture employs around 75% of the population, over 50% of the country's export earnings, but contributes only 25% to GDP. The over reliance on rainfall for agricultural production has often slowed down or eroded economic gains in periods of drought due to the important of the agricultural sector. The drought situations also have an effect on power production since majority of Kenya’s electricity originates from hydro-power.

The UK is the 7th largest exporter to Kenya, with a 4.5% market share in 2010, up from 3.9% in 2009 after United Arab Emirates, India, China, South Africa, Japan and USA in that order. Trade between the UK and Kenya increased between 2004 and 2009 by 40.1% (UK Exports to Kenya) and 63.8% (UK Imports from Kenya). The UK was the second most important destination for Kenya’s merchandise exports after neighbouring Uganda with an 11% market share in 2009/10. However, exports of goods to the UK especially fresh produce has often faced hitches in the recent past. The recent ash crisis and snow storm across Europe that grounded aircraft for a number of days resulted in unexpected losses to exporters.

Financial Risk

The banking sector has been stable and maintained capital and liquidity ratios above the minimum statutory requirements. The consolidated position for all commercial banks and non bank financial institutions, reflect a 41.9% increase in profitability in the year to June 2010.

On the other hand diaspora remittances had grown by 80.7% between 2004 and 2008 but witnessed its first year on year decline of -0.34% between 2008 and 2009. However, cumulative remittances during the 9 months to September 2010 were 21.9% above the same period in 2009. This shows a recovery from the decline witnessed as a result of the global financial crunch.

The Nairobi Stock Exchange 20 share index posted an average annual return of 36% in 2010 making it the best performing equity market in Africa after the Uganda Securities Exchange. The annual turnover for 2010 was Ksh. 110 billion, a 189% increase compared to 2009. This improvement can be attributed to improved business confidence in the market as a result of the growing economy and adoption of best business practice by capital market players.

The bond market in Kenya is now vibrant and has gone deeper with the success of the debut Infrastructure Bond in February 2009. The Central Bank raised Ksh. 32.9 billion in the financial year 2009/10 and Ksh. 30.6 billion in 2010/11 in order to fund key projects in roads, energy and water sectors and all these offers were oversubscribed. Consequently, corporate issuers such as KenGen, Safaricom, Kenya Commercial Bank, Barclays Bank amongst other financial institutions took advantage of the growing bond market to raise funds to finance their capital projects.

As a result the World Bank report on ‘Ease of Doing Business’ ranked Kenya’s financial sector third in Sub-Saharan Africa. In addition, Kenya’s credit rating was upgraded by Standard & Poor’s to B+ from B as a result of the reduced political risk after the enactment of a new constitution and an improved economic outlook.

Political Risk

After the elections of December 2002, Kenya emerged with a new government which made clear its determination to tackle the problems that had stunted Kenya's economic growth, e.g. rampant corruption within the government, a complete lack of confidence in the judiciary, poor infrastructure (the port, roads and railways). There have been improved monetary policies and reforms in government but the fight against official corruption has been slow.

However, the country has been stable over the past 4 decades until after the disputed elections in December 2007 that led to violence countrywide. The former UN secretary-general Kofi Anan brokered peace talks that resulted into a power-sharing deal between President Kibaki and Prime Minister Raila Odinga and setting up of a coalition government.

After almost 3 years, the coalition government still holds despite various challenges such as corruption allegations but progress has been made on constitutional reforms after the country overwhelmingly enacted a new constitution in August 2010. The new dispensation will see more power and resources devolved to 47 newly created county structures by also reducing the excessive powers previously wielded by the president. However, the implementation process will pose a major challenge due to the numerous legislative agenda ahead.

More information on political risk, including political demonstrations, is available in the FCO Travel Advice

Bribery and Corruption

Businessman reading newspaper

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

In 2010, Kenya was ranked 154 out of 178 in the World Transparency International Corruption index.

Corruption has been a major obstacle in recent and past governments. Various scandals in the grand coalition government have eroded the people’s confidence that have implicated cabinet ministers and high-ranking government officials. The Kenya Anti-Corruption Commission (KACC), a body that was set-up to fight graft lost its credibility especially after interference in its operations by political leaders and bringing to question its independence. However, recent changes in the KACC top leadership have seen renewed efforts in fighting corruption. In addition, the newly enacted constitution has given the body more independence which has led to a number of senior government officials including cabinet ministers arraigned in court to face charges for corruption.

The immediate for Ministers for Higher Education, Foreign Affairs and Industrialisation have had to resign while they face charges or investigation.

Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in Kenya and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our Bribery and corruption page.

Terrorism Threat

Having suffered terrorist attacks in Nairobi and Kikambala in 1998 and 2002 respectively efforts have been made by the government and its international partners to counter any future attacks. This also involved the institution of a new Anti-Terrorist police Unit to better counter the situation. However, there have been renewed terror attacks especially targeting neighbouring Uganda towards the end of 2010. Shipping to the coast of Mombasa faces the threat of Somali pirates in the Gulf of Eden where ships have been hijacked and released only after ransom was paid.

Read the information provided on our Terrorism threat page

Protective Security Advice

Businessman working at a computer

It is necessary for Business travellers to consult with their travel agents or trip planners as well as hotel security about security measures while in the country. Low-income areas are to be avoided and extra precaution should be taken when travelling at night.

Other areas to be avoided include Northern Kenya especially within 30km of the border of Somalia where frequent fights occur.

Read the information provided on our Protective security advice page

Intellectual Property

Read the information provided on our Intellectual Property page.

Organised Crime

Read the information provided on our Organised crime page.