Successfully investing in Kenya

last updated on 16 June 2023 | reading time approx. 3 minutes

How do you assess the current economic situation in Kenya? »
How would you describe the investment climate in Kenya? Which sectors offer the largest potential? »
What challenges do German companies face during their business ventures into Kenya? »
How important is the free trade zone for foreign investors? »
In your opinion, how will Kenya develop? »

How do you assess the current economic situation in Kenya?

Kenya's economy is expected to grow by 5.5 percent (The National Treasury) in 2023. The growth, albeit slower than expected, is encouraging considering that the country, like others in the region, is emerging from one of the worst droughts in decades. The drought has had an impact on the growth of Kenya’s agricultural sector. There has also been a jump in prices of basic commodities leading to reduced disposable income among the population. Additionally, effects of a weakening currency, after-effects of the covid pandemic, rising fuel prices and global conflicts can also be felt.

The Government is keen on ensuring that the country’s economy recovers and has formulated the Bottom-Up Economic Transformation Agenda which is geared towards economic turnaround and inclusive growth. The Bottom-up Approach seeks to:

protect private investments, targeted at human capital development: these include health, education and nutrition;
develop, regulate and protect markets which will ignite and increase production and productivity downstream and increase incomes upstream; and
put in place the digital solutions for enhancement of public service delivery.

The Government has also launched the Hustler Fund with the aim of increasing access to affordable credit among the low-income earners. We are confident that the measurers being put in place by the Government will have a positive impact of the growth of the economy.

How would you describe the investment climate in Kenya? Which sectors offer the largest potential?

Kenya is an economic powerhouse in Sub-Saharan Africa and with its skilled labour force and good infrastructure it remains quite attractive to international investors. The Bottom-Up Economic Transformation Agenda is keen on the below six sectors of the economy and we believe that there will be remarkable growth in the sectors:

Agriculture
Micro, Small and Medium Enterprise (MSME) economy
Housing and Settlement
Healthcare
Digital Superhighway and Creative Industry
Environment and climate change

We anticipate that the Government will put resources into the above sectors to propel their growth. The Government has already taken steps in the agricultural sector by availing subsidized fertilizer to farmers. The Government is also keen on mitigating climate change in the country and the President, His Excellency Dr. William Ruto, has discussed this in different forums, notably at the 2023 Berlin Energy Transition Dialogue.

Kenya is open to climate-resilient development initiatives and renewable energy investments, including production of green hydrogen. Kenya wishes to achieve 100 percent green energy by 2030 and increase its grid capacity from the current 3 Gigawatts to 10 Gigawatts by 2040. Additionally, the Government plans to increase the capacity of its Technical and Vocational Training Institutions (TVETS) and is open to investments and partnerships on this.

What challenges do German companies face during their business ventures into Kenya?

Some of the challenges include:

Weakened consumer spending due to increase of the prices of commodities
Different legal system (common law)
Vulnerability of the economy to internal and external shocks
An ever-evolving tax policy framework – common with developing countries such as Kenya

Is there a move towards investor friendly regulations?

The Government is keen on increasing the attractiveness of Kenya to foreign investors by removing onerous and unfriendly regulations. Recently the Government removed the 30 percent local shareholding requirement for foreign companies wishing to operate in the Information and Communication Technology sector. This allows the companies to invest in this sector without having to cede any shareholding. Further, the Government through the Finance Bill, 2023 has proposed to remove the Value Added Tax (VAT) charged on services exported out of Kenya. These services are now exempt from VAT.

The proposal enhances the competitive of persons exporting services out of Kenya from a regional business perspective. This proposal is in-line with the OECD and the Kenya Draft National Tax Policy which recommend that VAT should be based on the Destination principle.

In addition, through the budget policy statement 2023, The Government proposes:

Tax incentives to commercial transporters and public service vehicles to promote adoption of electric vehicles; and
Tax incentives to increase local manufacture of pharmaceutical product.

We expect to see more investor friendly regulations being passed as the Government looks to attract foreign investment into the country.

How do you think Kenya will develop?

There should be a focus on inclusive growth across all income levels. We already see this being achieved through implementation of the Bottom-Up Economic Transformation Agenda and launching of the Hustler Fund.

Support should also be given to MSMEs as they drive the Kenyan economy. There are plans to create an exchange program between Kenyan and German MSMEs to enrich learning and growth.

Further, the Government should promote and encourage investments in sustainable agricultural ventures.

Additionally, the Government must focus on implementation of the African Continental Free Trade Area (AfCFTA) agreement. This will promote trade and increase exports. Kenya is on the right track to achieve economic growth and development.