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U.S. DEPARTMENT OF STATE
KENYA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                              KENYA

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                     1992     1993       1994 1/

Income, Production and Employment:

Real GDP (1982 prices) 2/           2,773    1,475      1,672
Real GDP Growth (pct.)                0.4      0.1        3.0
GDP (at current prices) 2/          8,562    4,627      6,257
By Sector:
  Agriculture                       2,226    1,219      1,648
  Energy/Water                         86       40         54
  Manufacturing                     1,164      626        653
  Construction                        265      142        381
  Rents                               N/A      N/A        N/A
  Financial Services                  745      401        580
  Other Services                      942      506        883
  Government/Health/Education         856      460        844
  Net Exports of Goods & Services    -256     -131        -94
Real Per Capita GDP (1982 base)       123       55         72
Labor Force (000s)                 11,100   11,800     12,300
Unemployment Rate (pct.) 3/           N/A      N/A        N/A

Money and Prices:

Money Supply (M2)                    34.6     28.1       15.0
Base Interest Rate (pct.)              25       27         19
Personal Saving Rate (pct.)          15.5     20.0       16.0
Retail Inflation                      N/A      N/A        N/A
Consumer Price Index                 27.5     41.0       13.0
Exchange Rate (USD/KSh)                32       65         45

Balance of Payments and Trade:

Total Exports (FOB) 4/              1,033      633      1,458
  Exports to U.S.                      58       53         58
Total Imports (CIF) 4/              2,011    1,208      2,078
  Imports from U.S.                   116      104        141
Aid from U.S.                        30.8     20.1       18.2
Aid from Other Countries              N/A      N/A        N/A
External Public Debt                5,600    6,300      6,700
Debt Service Payments (paid)          265      436        450
Gold & Foreign Exch. Reserves         255      150        800
Trade Balance 4/                     -978     -575       -620
Balance with U.S.                     -58      -51       -117


N/A--Not available.

1/ 1994 figures are estimates based on January - June data.
2/ GDP at factor cost.
3/ The Kenyan Government does not publish unemployment figures
but the 1994 is estimated at 35 - 40 percent.
4/ Merchandise trade.



1.  General Policy Framework

    Kenya's economy is basically agricultural, with a small
industrial base.  Agriculture contributes 26 percent to GDP,
provides 75 percent of total employment and 55 percent of
export earnings.  The main foreign exchange earners are coffee,
tea, horticulture and tourism.  The industrial sector, which
accounts for 14 percent of GDP, is dominated by import
substitution-oriented industries, many of which are agro-based
and highly dependent on the domestic market and neighboring
countries.  The public sector is still large in Kenya,
absorbing over 45 percent of all modern sector wage employees
and 40 percent of total investment.

    Kenya's current policy framework emphasizes the role of the
free market.  Features of the economy include the use of
market-based pricing incentives, a liberal investment code, and
a newly liberalized foreign exchange system.  Non-traditional
areas which have the most potential to augment incomes and
employment include horticulture, non-agricultural exports and
small-scale enterprises.

    Under a World Bank/IMF supported structural adjustment
program in 1993-94, the government made substantial progress
removing impediments to the development of a free market. 
Price controls were abolished, import licensing requirements
removed, the foreign exchange system liberalized, and markets
were opened up to competition.  As a result of the economic
reforms undertaken in the last two years, the economy is on the
road to recovery.  GDP is expected to grow by over 3 percent in
1994, after two years of stagnation (0.4 percent in 1992 and
0.1 percent in 1993).  

    The government brought down the annual inflation rate
(month-to-month) from 101 percent in July 1993 to 13 percent in
October 1994.  The Central Bank of Kenya (CBK) acted swiftly in
1993 to mop up excess liquidity and improve management of the
financial sector.  Starting in March 1993, the CBK offered
weekly sales of $125 million worth of Treasury Bills with
interest rates rising as high as 50 to 70 percent.  The
commercial bank cash ratio was raised steadily to reach 20
percent by the second half of 1994.  A number of weak banks and
non-bank financial institutions were either closed or brought
under statutory management.  

    These policy measures worked.  Money supply, which grew by
28 percent in 1993 decreased substantially to an estimated 15
percent growth in the last quarter of 1994.  Commercial bank
interest rates followed the trends in T-Bill interest; rising
as high as 35 percent in July and then declining to below 20
percent in October, 1994.  In one year, the Kenya shilling
appreciated from KSh 68/USD in October 1993 to KSh 35/USD in
October 1994.  The government continues to rely on traditional
monetary policy instruments such as the cash ratio, discount
rates and open market operations. 

    Under a tax modernization program, the government widened
the tax base, lowered income taxes and introduced the use of 
personal identification numbers for tax-related transactions. 
The government increased the range of goods and services
subject to the Value Added Tax (VAT), which accounted for over
50 percent of domestic revenue in 1994.  Most goods and
services are subject to an 18 percent VAT.  The government will
lower the maximum personal income tax rate from the current 40
percent to 35 percent effective January 1995.  It also reduced
corporate tax from 37.5 percent to 32.5 percent in 1994.  

    Still in process are major government programs to privatize
parastatals and reduce the size of the civil service.  Fraught
with difficulties and political disagreements, parastatal
divestiture has been slow -- only 28 out of a possible 200 have
been privatized since 1991.  The big parastatals, identified as
strategic, are earmarked for restructuring ("commercializing")
in order to make them more cost effective and efficient.  A
three year program to lay off 48,000 civil service workers was
started in July 1993.  The program is roughly on target; 16,000
workers accepted golden handshakes and left by June 1994.  


2.  Foreign Exchange Policy

    From 1981-1993 the Kenya shilling was pegged to the SDR. 
In February 1993, the government suspended the Foreign Exchange
Control Act paving the way for a market determined exchange
rate.  Exporters may now use hard currency earnings directly to
meet import requirements and remit dividends.  By October 1994,
foreign exchange reserves at the Central Bank had risen to a
record high.  The officially acknowledged figure is over
$800 million, or enough to cover six months of import
requirements; but analysts estimate current reserves are
actually closer to $1.2 billion.  

    Borrowing restrictions on foreign and local firms from both
domestic and off-shore sources have been eliminated. 
Expatriates are permitted to operate foreign currency accounts
in Kenyan banks.  Investors may repatriate new investment
earnings without Central Bank (CBK) approval.  Travelers are
free to settle their bills, obtain air tickets and pay airport
taxes in either Kenya shillings or foreign currency.  The only
remaining restrictions, limitations on foreign direct equity
investment and the need for approval of capital gains
repatriations, may be withdrawn in the near future.  


3.  Structural Policies

    After many years of delay, the government took bold steps
and implemented economic reform measures in the 1993-94 period
under a World Bank/IMF-sponsored structural adjustment
program.  The key goals of this program are to reduce the
budget deficit and inflation, provide market-based incentives
for private sector growth, and encourage investment and
exports.  An immediate benchmark of accomplishment is to
achieve a GDP growth rate of at least five percent.  To help
bring the budget deficit down to 3.0 percent of GDP from the
6.5 percent level of FY 93/94 (July 1 - June 30), the
government committed itself to adhere strictly to budget
ceilings.  To improve its performance on revenue collection,
the government introduced a pre-shipment import inspection 
program geared toward apprehending tax evaders.  Inflation has
come down to 13 percent.

    These measures have helped to improve the country's general
investment climate.  Nevertheless, there are a number of
broad-based problem areas which must be ameliorated to ensure
that investor confidence is restored and the declining
investment trend reversed.  These include:  rehabilitation of
the deteriorating physical infrastructure, jump starting the
prodigious privatization and parastatal reform process,
streamlining the civil service and making it more "user
friendly," continuing to curb corruption, and augmenting
political stability.  

    In the beginning stages of the current Structural
Adjustment Program (SAP), January 1993 - April 1994, the
government went through a turbulent economic period marked by
sharp increases in prices and interest rates, and depreciation
of the Kenya shilling.  The positive impacts of economic reform
kicked in during the second half of 1994.  Competition is now
working to lower prices.  Bazaars, once a rare event, have
become far more common.  Producers no longer require large
inventories of raw materials.  With no import licensing, firms
can program production and forecast sales more accurately. 
Shortages of inputs and basic consumer items have become a
thing of the past.  The market for U.S. exports has
substantially improved.  

    Despite these significant advances, numerous specific
problems remain for businessmen in Kenya.  Customs rules are
detailed and rigidly implemented.  This has complicated
manufacturing-under-bond schemes.  A strict constructionist
attitude among customs officials often leads to serious delays
in clearing both imports and exports.  Foreign firms are
excluded from some government tenders.  Kenyan importers must
use local insurance companies to insure imports.  Insurance
companies must reinsure part of their business with the local
parastatal reinsurance company.  All commodities imported into
Kenya are subject to pre-shipment inspection, including price
comparison, by a government appointed inspection firm.  Trade
barriers on certain products are maintained by high import
duties and value-added taxes.  Procurement decisions can be
dictated by donor-tied aid, or influenced by corruption.

    Although substantive economic reforms have been undertaken,
not all bilateral donors are reassured about Kenya's progress
towards political reform including progress toward general good
governance, democratization, protection of human rights and
elimination of corruption.  Persistent ethnic violence
complicates the political landscape.


4.  Debt Management Policies

    For the first time in its history, at the end of 1993,
Kenya had accumulated debt arrears of $715 million.  This
prompted the government to seek a rescheduling of outstanding
official debt at the Paris club in January 1994.  A
multilateral agreement was concluded under non-concessional
terms which rescheduled arrears accumulated from December
1991-1993.  Repayment is scheduled over seven years, starting
with a grace year in 1994 and ballooning to 25 percent in the
later years of the period.  Specific bilateral agreements have
been considered and granted throughout 1994.  This rescheduling
will help improve Kenya's capital account and has added to
Kenya's international credibility.  It is notable that Kenya
neither asked for, nor was granted, concessional terms.  Kenya
did not seek a London Club rescheduling.  Private arrears
accumulated during the 1991-93 period (approximately $70
million) were sufficiently small they could be repaid
directly.  Kenya could use some of its large stock of foreign
exchange reserves ($800 million - $1.2 billion) to pre-pay
international debt.  

    Kenya's stock of international debt was $6.7 billion in
1994 and annual debt payments are in the $400-500 million
range.  Under current conditions of an appreciating currency
and large reserves, this debt is manageable.  Earlier exchange
controls, which provided incentives for Kenyans to keep their
hard currency out of the official system, made debt management
more problematical.  Kenya's adherence to the IMF Article VIII,
which became effective in 1994, forbids Kenya from returning to
exchange controls.  


5.  Significant Barriers to U.S. Exports

    The liberalization of import controls and foreign exchange
rates are major positive steps towards removal of trade
barriers.  As a part of these reforms, in 1994 the government
instituted pre-shipment inspection for quality, quantity and
price for all imports with F.O.B. value of more than $1,613. 
Inspection is done by a government appointed inspection firm
which has offices at major trading points such as New York,
Baltimore, Chicago, New Orleans and Houston.  Goods arriving in
Mombasa without pre-inspection documentation are subject to
inspection at the Port, for an additional fee.  This
requirement has contributed to major back-ups in port
operations during 1994.  Importation of animals, plants, and
seeds is subject to quarantine regulations.  Special labelling
is required for condensed milk, paints, varnishes, and
vegetable/butter ghee.  In addition, imports of prepacked
paints and allied products must be sold by metric weight or
metric fluid measure. 

    Commercial banks are required to ensure that importers have
submitted Import Declaration forms, invoices, a Clean Report of
Findings, and a copy of the customs entry form before releasing
foreign exchange.  Prior exchange approval must be obtained for
imports of machinery and equipment which are regarded as part
of equity capital or are purchased with borrowed funds.   The
Clean Report of Findings is also required by authorized banks
before a shipping guarantee can be issued.  All goods purchased
by importers in Kenya must be insured with companies licensed
to conduct insurance business in Kenya.

    There are barriers to trade in services, in video tapes,
movies and cassettes, construction, engineering, architecture,
legal representation, insurance, leasing and shipping.  Films
are licensed, censored and sold by a government company, the
Kenya Film Corporation.  Foreign companies offering services in
construction, engineering and architecture may face 
discrimination when bidding for public projects.  Kenya's draft
shipping law has been the subject of official protests by the
United States and the European Community for discrimination
against foreign shippers.

    Government procurement for ordinary supplies as well as
materials and equipment for public development programs is a
significant factor in Kenya's total trade.  The hand of
government is particularly evident in programs designed to
ensure citizen control of local commerce.  Because Kenya is a
former British Colony, U.K. firms dominate in the procurement
of government imports.  Many of these are purchased through
Crown Agents, a British quasi-governmental entity.  Sales of
major import items are frequently tied to the source country
providing official development finance.  

    Government procurement is done through tender boards.  The
main boards are the Central Tender Board, Ministerial Tender
Boards, the Department of Defence Tender Board, and District
Tender Boards.  The Kenyan government supplies manuals
outlining procurement practices.  Goods worth over $4,000 must
be purchased through open tender.  Adjudication of the
quotations must be made by three or more responsible officers.  

    In principle, the procurement regulations apply, without
discrimination, to all potential bidders, regardless of
nationality of supplier or origin of the product/service. 
Nevertheless, preferential treatment for domestic
suppliers/products/services is included.  Up to 10 percent
preferential bias is allowed for all firms participating in
Kenyan government tenders whose share capital is at least 51
percent owned by indigenous Kenyans.  The government provides
preference to domestic suppliers for small procurements and
contracts.

    Practice often differs from government regulations. 
Tenders have not infrequently been awarded to uncompetitive
firms in which government officials have a significant
interest.  Medical tenders are a frequent case in point.  The
incidence of corruption, particularly at lower levels, has
increased in the last year to compensate for the closure of key
"political banks" which were previously the major conduits for
ill-gotten gains.  This trend affects the allocation of
government tenders for construction and procurement. 
Prosecution of corrupt officials above the lowest level has
been rare, but may be on the increase.  Recent charges levied
against the Goldenberg/Exchange Bank operation are a sign of
progress.  Corruption involving contract awards is a particular
problem for U.S. companies who are disadvantaged when competing
with non-U.S. firms less constricted in their ability to
provide "incentives" prohibited under U.S. laws.  

    Kenyan law does not permit manufacturers to distribute
their own products.  Additionally they are required to submit
data and information about their distributors.  The Monopolies,
Prices and Trade Restriction Practices Act sets a legal
framework for dealing with restrictive and predatory practices
which might inhibit competitive markets, and controls mergers,
takeovers of enterprises, and monopolies.  This Act was most
recently cited by the government as a warning to oil companies
against collusion in the newly liberalized petroleum market.


6.  Export Subsidy and Tax Policies

    In April 1993, the Kenyan government scrapped an export
compensation scheme which officially paid up to 20 percent of
value to manufacturers whose products had less than 70 percent
import content.  This scheme was a major tool used by the
Goldenberg gold/diamond company (now under investigation) to
extract even higher payments of 35 percent from the government
for questionable, if documented, exports.  At the same time,
another controversial Pre-Export Financing scheme was
eliminated.  In their place, the government enacted a
duty/value added tax remission facility which allows exporters
to purchase tax-free inputs locally.  This facility is designed
to be less "corruptible" but is also less lucrative for
exporters.  

    The government grants a one-time 85 percent investment
allowance tax deduction for the cost of industrial buildings,
fixed plant, and machinery for investments outside Nairobi and
Mombasa.  Thirty-five percent deduction is allowed for
investments within these cities.  This provision reduces income
taxes due during the start-up phase of a project.

    Exporters to the Preferential Trade Area (PTA) regional
market (19 countries of eastern and southern Africa) receive
tax advantages and have the option to trade in local
currencies.  The market has a total population of 190 million
and a GDP of $50 billion.  The aim of the PTA is to eventually
establish a common market with no barriers across member
countries' borders.  Kenya is also a signatory of major
international trade agreements such as the United Nations
Conference on Trade and Development (UNCTAD), the Lome
Convention and the GATT (soon to be the World Trade
Organization).  As such, Kenya is subject to various
requirements agreed to under these umbrellas.

    The government has two major export institutions -- the
Export Processing Zones Authority and the Export Promotion
Programs Office -- which coordinate export promotion
activities.  There is one private Export Processing Zone (EPZ)
which caters to over eleven companies.  This zone, the Sameer
Industrial Park, is a subsidiary of Firestone East Africa.  Two
government sponsored EPZs, one in Mombasa and another near
Nairobi, are nearing completion.  

    The government has progressively reduced the corporate tax
rate from 45 percent in the 1980s to the current 35 percent. 
Withholding tax (ranging from 12.5 percent to 30 percent) is
imposed on royalties, interest, dividends, and management
fees.  Kenya's tax treaties normally follow the Organization
for Economic Cooperation and Development (OECD) model for the
prevention of double taxation.  There is no tax treaty with the
United States.  


7.  Protection of U.S. Intellectual Property

    Kenya is a member of the Paris Union International
Convention for the Protection of Industrial Property (Patents
and Trademarks), together with the United States and 80 other
countries.  Businesses and individuals from signatory states
are entitled to protection under this convention, including
national treatment and "property rights" recognition of
patents.  Although a unified system for the registration of
trade marks and patents for Anglophone Africa was signed in
1976, implementation has been stagnant due to the lack of
cooperation among the signatory states.  Another mechanism to
protect patents, trademarks, and copyrights is embodied in the
African Intellectual Property Organization.  Its enforcement
and cooperation procedures remain untested. 

    Kenya also is a member of the African Regional Industrial
Property Organization.  The government of Kenya accepts binding
international arbitration of investment disputes between
foreign investors and the state.  

    In 1990, the Kenyan government established an Industrial
Property Office (KIPO) for granting industrial property rights,
screening technology transfer agreements and licenses, and
providing patenting information to the public.  Models for
patents and utilities and industrial design certificates are
available through this office.  It also acts as a receiving
office for international applications.  An independent national
patent law to replace pre-independence British procedures was
also enacted in 1990.

    In March 1994, KIPO issued the first patent certificate
under the Kenya Industrial Property Act to three Kenyan
scientists for their work in the development of a tick
resistance vaccine, Novel Tick Resistance Antigenic Indicators
(TRAI).  In its fourth year of operation, KIPO has received 127
patent applications and 38 industrial designs which are being
processed.  Ninety-three of the patent applications are foreign
and 34 are local.  Fifteen of the 38 industrial design
applications are local.

    Protection of copyrights is not particularly extensive or
efficient in Kenya.  The Copyright Act of 1989 provides for
protection from audio copyright infringement.  Video copyright
infringements are not covered by the law, and are widespread.

    Trademark protection is available from the Kenyan
government for a period of seven years from the date of
application.  The first applicant for trademark protection is
entitled to registration.


8.  Worker Rights

    a. The Right of Association

    Other than central government civil servants and university
academic staff, all workers are free to join unions of their
own choosing.  At least 33 unions in Kenya represent
approximately 350,000 workers, or about 20 percent of Kenya's
industrialized work force.  Except for the 150,000 teachers who
belong to the Kenya National Union of Teachers (KNUT) and four
other smaller unions registered by the government, all other
unions belong to one central body, the Central Organization of
Trade Unions (COTU).

    Until early 1993, Kenyan labor enjoyed harmonious relations
with the central government.  In April 1993 this changed, as
workers experienced a large rise in the cost of living. 
Blaming the government, COTU's leaders called for an
across-the-board 100 percent wage increase and dismissal of
Kenyan Vice President George Saitoti.  The call culminated in a
Labor Day (May 1) ceremonies walkout by the Minister for Labor,
the arrest of the COTU secretary-general and his senior
associates, a two-day national strike (which was observed in
key sectors nationwide, even after the Minister had declared it
illegal) and finally, a government-sponsored coup within COTU.

    Without waiting the normal seven-day period to verify the
so-called elections, and disregarding a legal challenge by the
existing COTU officers, the Registrar of Trade Unions
immediately registered the new COTU officers.  These officers
were allowed to occupy COTU headquarters.  The issues of both
the coup's legality and the act of the registrar were still in
court as of November 1994, but no international group has
recognized the new leadership.

    In theory, the Trade Disputes Act permits workers to strike
provided that 21 days have elapsed following the submission to
the Minister of Labor of a written report detailing the nature
of the dispute.  In 1993, however, the Minister of Labor
declared several strikes illegal.  A case in point was the KNUT
strike in July 1993, for which the required notice had been
given.  It was averted at the last minute.  Others included the
national two-day strike after Labor Day, a one-day strike
called by the Islamic Party of Kenya in Mombasa, and an air
traffic controllers' slowdown in November, 1993.  The military,
police, prison guards and members of the National Youth Service
are precluded by law from striking.  Kenyan labor legislation
is silent on the issue of national strikes.

    Internationally, COTU is affiliated with both the continent
wide Organization of African Trade Union Unity and the
International Confederation of Free Trade Unions (ICFTU).  COTU
affiliates are free to establish linkages to international
trade secretariats of their choice.

    b. The Right to Organize and Bargain Collectively

    The 1962 Industrial Relations Charter, executed by the
government, COTU and the Federation of Kenya Employers, gives
workers the right to engage in legitimate trade union
organizational activities.  This charter does not have the
force of law.  

    Both the Trade Disputes Act and the Charter authorize
collective bargaining between unions and employers.  Wages and
conditions of employment are established by negotiations
between unions and management.  In 1994, government wage policy
guidelines which limited salary increments were relaxed as was
the employers' authority to declare workers redundant. 
Collective bargaining agreements must be registered with the
Industrial Court.  The Export Promotion Zone Authority has
determined that local labor laws, including the right to
organize and bargain collectively, will apply in EPZs.  In
practice, exemptions and conditions have been granted within
the Zones, giving rise to public criticism in 1994.

    c. Prohibition of Forced or Compulsory Labor

    The Constitution proscribes slavery, servitude, and forced
labor.  Under the Chiefs' Authority provisions, people may be
required to perform community service in an emergency but there
are no known recent instances of this practice.  People so
employed must be paid the prevailing wage.  The International
Labor Organization's (ILO) committee of experts has found this
provision of Kenyan law in contravention of ILO conventions 29
and 105 on forced labor.

    d. Minimum Age for Employment of Children

    The Employment Act of 1976 proscribes the employment of
children under the age of 16 in any industrial undertaking. 
The law does not apply to the agricultural sector, where about
70 percent of the labor force is employed, or to children
serving as apprentices under the terms of the Industrial
Training Act.  Ministry of Labor officers are authorized to
enforce the minimum age statute.  Given the high levels of
adult unemployment and underemployment, the employment of
children in the formal wage sector is not a significant problem.

    e. Acceptable Conditions of Employment

    In 1994, minimum unskilled worker salaries averaged less
than thirty dollars per month.  The normal work week, by law,
is limited to 52 hours, except for nighttime employees (60
hours) and agricultural workers (excluded).  Non-agricultural
employees receive a minimum of one rest day in a week, one
month's annual leave, and sick leave.  By law, total hours
worked (i.e., regular time plus overtime), in any two-week
period for night workers cannot exceed 144 hours; the limit is
120 hours for other workers.  The Ministry of Labor is tasked
with enforcing these regulations, but reported violations are
few.  The Factories Act of 1951 which sets forth detailed
health and safety standards, was amended in 1990 to encompass
the agriculture, service and government sectors.  Inspection of
work sites continued to improve, although "whistle blowers" are
not protected.  Kenya's worker compensation regulations do not
yet comply with the provisions of ILO Convention No. 17.


  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                              28
Total Manufacturing                                    32
  Food & Kindred Products                     3
  Chemicals and Allied Products              13
  Metals, Primary & Fabricated              (1)
  Machinery, except Electrical                0
  Electric & Electronic Equipment             3
  Transportation Equipment                  (1)
  Other Manufacturing                         1
Wholesale Trade                                         1
Banking                                               (1)
Finance/Insurance/Real Estate                         (1)
Services                                              (1)
Other Industries                                        0
TOTAL ALL INDUSTRIES                                  104      

(1) Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic Analysis

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