Are you interested in starting a business in Kenya? If YES, here is a complete guide plus legal requirements for starting a business in Kenya as a foreigner.
Okay, having provided an in-depth analysis of the top 50 best small business ideas in Kenya and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Kenya. So put on your entrepreneurial hat and let’s proceed.
In official parlance, it is called the Republic of Kenya, and it is a country in Africa and a founding member of the East African Community (EAC), with its capital and the largest city in Nairobi. Kenya’s territory lies on the equator and overlies the East African Rift covering a diverse and expansive terrain that extends roughly from Lake Victoria to Lake Turkana (formerly called Lake Rudolf) and further southeast to the Indian Ocean.
Why Start a Business in Kenya?
The country is circled by smaller economies and also pariah states. It is bordered by Tanzania to the south, west by Uganda, South Sudan to the northwest, Ethiopia to the north and Somalia to the north-east. Kenya covers 581,309 km2 (224,445 square miles) and had a population of approximately 45 million people in July 2014.
The capital, Nairobi, is a regional commercial hub. The economy of Kenya is the largest by GDP in East and Central Africa with a figure estimated at $143.051 billion and Per capita income stands at $3,245. Agriculture is a major employer; the country traditionally exports tea and coffee and has more recently begun to export fresh flowers to Europe which has emerged as an alternative to flowers in Europe. The service industry is also a major economic driver.
If you are considering starting a business in Africa, precisely in East and Central Africa, you should give this multi-ethnic nation a thought as it offers a wide array of opportunities that can be found as an investor. New millionaires are emerging from this frontier market and you can also make enough to be listed on Forbes if you take a step in starting a business in Kenya.
Starting a Business in Kenya as a Foreigner – A Complete Guide
- General Overview
The posture of Kenya’s economy is bright and upright. GDP growth will be supported by infrastructure projects, rising agricultural production, low oil prices and a looser monetary policy, even though ongoing security issues and uncertainty surrounding next year’s elections pose downside risks. Kenya’s growth is projected to rise to 5.9% in 2016 and 6.1 % in 2017.
The positive outlook is predicated on infrastructure investments. Fiscal consolidation is expected to ease pressure on domestic interest rates and increase credit uptake by the private sector. The contraction in the current account deficit will continue to be supported by declining commodity prices and rising exports of tea.
According to the October 2015 Kenya Economic Update, Kenya is poised to be among the fastest growing economies in Eastern Africa. Besides, the 2016 Country Economic Memorandum says that Kenya’s growth prospects will depend a lot on Innovation, Oil, and Urbanization on the long term.
Facts and Figures of the Kenya That Will Interest You as an Investor/Entrepreneur
There are loads of facts and figures that make the Kenya attractive as a business destination. It is no wonder that people frequent the Eastern African country to do one form of business or the other there. This is because of the vast human, natural and material resources that the country possesses. Here are some good facts that you might find handy;
- The official currency of Kenya is known as Kenyan Shilling.
- There are 47 counties in Kenya.
- There is a large deposit of limestone, soda ash, salt, gemstones, fluorspar, zinc, diatomite, gypsum, wildlife, and hydropower.
- Kenya is usually classified as a frontier market or occasionally an emerging market, but it is not one of the least developed countries.
- The service, industry and manufacturing sectors only employ 25% of the labour force but contribute 75% of GDP.
- Kenya is East and Central Africa’s hub for financial services. The Nairobi Securities Exchange (NSE) is ranked 4th in Africa in terms of Market capitalization.
- Kenya is the biggest and most advanced economy in east and central Africa, and has an affluent urban minority.
- The important agricultural sector is one of the least developed and largely inefficient, employing 75% of the workforce compared to less than 3% in the food secure developed countries.
Factors or Incentives Encouraging Investors to Venture into Business in Kenya
The liberalization measures include a shift to market force control of price setting, a repeal of the Exchange Control Act, removal of discretionary clauses in the tax laws, a removal of duty rates on capital goods and abolishing trade licenses to reduce bureaucracy in venture start-ups
- A Business Regulatory Reform Unit was established by the Ministry of Finance to simplify the complex licensing regulations. In 2007, 315 out of 1,325 licenses were eliminated and 379 simplified.
- To encourage manufacturing in Kenya for World Markets, the Government has established an in-bond programme open to both local and foreign investors.
- Enterprises operating under the programme are offered the following incentives: exemption from duty and VAT on imported plant, machinery, equipment, raw materials and other imported inputs, 100% investment allowance on plant, machinery, equipment and buildings.
- Bonded manufacturing enterprises can be licensed to operate in Nairobi, Mombasa, Kisumu, Eldoret, Nakuru, Nyeri and Thika or within the immediate environs of these towns.
Starting a Business in Kenya as a Foreigner – Market Feasibility Research
Kenya’s economy is market-based with a few state-owned infrastructure enterprises and maintains a liberalized external trade system. The country is generally perceived as Eastern and central Africa’s hub for Financial, Communication and Transportation services.
Major industries include: agriculture, forestry and fishing, mining and minerals, industrial manufacturing, energy, tourism and financial services. As of 2015 estimates, Kenya had a GDP of $69.977 making it the 72nd largest economy in the world. Per capita GDP was estimated at $1,587.
The government of Kenya is generally investment friendly and has enacted several regulatory reforms to simplify both foreign and local investment, including the creation of an export processing zone. The export processing zone is expected to grow rapidly through input of foreign direct investment.
An increasingly significant portion of Kenya’s foreign inflows are remittances by non-resident Kenyans who work in the US, Middle East, Europe and Asia. Compared to its neighbours, Kenya has well-developed social and physical infrastructure.
As of March 2014, economic prospects were positive with above 5% GDP growth expected, largely because of expansions in telecommunications, transport, construction and a recovery in agriculture. These improvements are supported by a large pool of English-speaking professional workers. There is a high level of computer literacy, especially among the youth.
List of 10 Well Known Foreign Brands Doing Business in Kenya
Over the years, several brands have gone from being small to becoming household names. One of the good things about these brands is that they are foreign. Here is a list of 10 well known foreign brands in the Kenya;
- British American Tobacco Limited – US and UK
- Cooper Motor Corporation – USA
- Dubai Bank Kenya – UAE
- Total Kenya – USA
- Delta Connection – USA
- Coca Cola – USA
- PriceWaterHouseCoopers – Great Britain
- Pfizer – USA
- Nestlé – Switzerland
- Nokia – Finland
List of 10 Well known indigenous Entrepreneurs in Kenya
Just as there are foreign entrepreneurs doing business and excelling in Kenya, so are there indigenous counterparts. These indigenous moguls have grown from small to solid and have become a force to reckon with. Here is a list of indigenous brands doing business in Kenya;
- KimitiWanjaria & Ian Kahara – Founders, Serene Valley Properties.
- Evans Wandogo – SDFA Kenya.
- CosmasOchieng – Ecofuels Kenya.
- KariukuGathithu – MPAYER
- Eric Muthomi – Stawi Foods and Fruits
- Joe Mwale – Skydrop Enterprises
- Mark Kaigwa – Affrinovator
- Richard Turere – Lion Lights
- Boniface Mwana – PichaMtaani
List of 10 Most Popular Indigenous Entrepreneurs/Business Owners
Owning a business in the Kenya isn’t rocket science. A lot of folks over the centuries have built strong businesses. Whilst some have not made it past the first few years of operation, yet others have stood the test of time and have continued to wax stronger and stronger as the years go by. Infect these businesses have gone beyond being known in Kenya alone, but in Africa and to the world at large. Here are 10 most popular indigenous businesses Kenya;
- Mary Okelo, Makini Schools Ltd
- OryOkolloh, Omidyar Network
- KalpaPadiaRaka, Milk Processors Ltd
- ShivaniRadia Patel, Zen Gardens
- Patrick Quarcoo, Radio Africa Group
- FarazRamji, Norda Industries Ltd
- NjeriRiongeInsite and Wanachi Online (msafiri)
- Aly Khan Satchu, Rich Management
- Atul Shah, Nakumatt Holdings Ltd (msafiri)
- Jonathan Somen, AcessKenya Group Ltd
- Bharat Thakrar, Scangroup Ltd
- JS Vohra, Sarova Hotels, Resorts & Game Lodges
- Anthony Wahome, Linksoft Group
Top 5 Best Cities to Do Business in Kenya
Whilst it is okay to do business generally in the Kenya, there are however some cities and states that have an edge over others because of the very favorable conditions they offer. Different businesses have gone ahead to be borne here and they have birthed other businesses as well. Here is a list of top 5 best cities to do business in Kenya;
The outlook for Kenya’s economy is bright. GDP growth will be supported by infrastructure projects, rising agricultural production, low oil prices and a looser monetary policy, even though ongoing security issues and uncertainty surrounding next year’s elections pose downside risks. Focus Economics Consensus Forecast panelists see the economy expanding 5.8% in 2016, which is unchanged from last month’s projection.
In 2017, the panel sees the economy growing 6.1%.Kenya’s economic performance was more solid last year than most other large African economies. The country’s economy is fairly diversified and relies relatively little on commodities exports, making it more resilient to the price slump in raw materials.
GDP growth likely ticked up to 5.5% in 2015, driven by gains in every sector except tourism, which suffered due to security concerns. While the current account deficit likely narrowed somewhat last year mainly due to low oil prices, Kenya’s large twin deficits remain a concern.
Against this backdrop, the government’s recent calls for moderate fiscal consolidation and Kenya’s recently-secured USD 1.5 billion precautionary deal with the IMF are steps in the right direction to reduce macroeconomic fragility.
Possible Threats and Challenges You will Face When Starting a Business in Kenya
There isn’t a country on the face of the earth that is free from business challenges- no matter how mild. Kenya is not an exception. Here are some challenges to face when you do business there;
- Although the cost of skilled, educated labor in Kenya is high by developing world standards, it is relatively abundant in comparison with neighboring countries. Nonetheless, a large portion of the young population (35 and under) is relatively unskilled, and subsists in an employment environment that offers few opportunities.
- While Kenya’s physical infrastructure is also superior in many cases to that of its neighbors, it remains rudimentary and is a key obstacle to economic development.
- Corruption and insecurity also continue to pose significant challenges to business. Transparency International ranked Kenya number 154 of 183 countries surveyed in 2011. Problems exist particularly in land purchases and large government contracts.
- Kenya’s public contracting law is not an effective tool to limit government officials from steering contracts to those who offer bribes.
- Widespread violations of intellectual property rights (IPR) related to medicines, videos, music, software, and a wide range of consumer goods continue to cause major problems for many firms.
Starting a Business in Kenya as a Foreigner – Legal Aspect
- Business Licenses and Permits that are needed to start a Business in Kenya
For you to start a business in Kenya, you will need federal and state business licenses and permits. However, there are basic and most common licenses and permits that all businesses need. Without these licenses you risk being clamped down on by the authorities involved in the execution of business laws in America. They include the following;
- State registration of legal entity, statistical, and tax registration with the Center for Public Registration. Cost KES 100
- Stamp the memorandum and articles and a statement of the nominal capital. Cost KES 8,080 (1% of nominal capital + KES 2,020 stamp duty on Memorandum and Articles of Association)
- Pay stamp duty at bank. Cost KES 100 (bank commission)
- Declaration of compliance (Form 208) is signed before a Commissioner for Oaths. Cost is KES 200.
- File deed and details with the Registrar of Companies at the Attorney General’s Chamber in Nairobi (Sheria House). Cost KES 5,836.
- Register with the Tax Department for the single taxpayer identification number online. No cost.
- Apply for a business permit. Cost KES 10,000
- Register with the National Social Security Fund (NSSF). No cost
- Register with the National Hospital Insurance Fund (NHIF). No cost
- Make a company seal after a certificate of incorporation has been issued. Cost KES 3,000 (between KES 2,500 and KES 3,500)
The Best Legal Entity to Use in the Country?
Choosing a business entity as you start out in trade is your responsibility. On the flipside, the type of business which you plan to operate may also suggest the type of entity to use. It all depends on the type of business you want to run. Here is a list of entities to guide you;
- Sole Proprietorship
Adopting a sole proprietorship type of entity means that you may be looking to start on a small scale from the outset. The less complex structure is the sole proprietorship, which usually involves just one individual who owns and operates the enterprise.
If you intend to work alone, this may be the way to go. The tax aspects of a sole proprietorship are particularly attractive because income and expenses from the business are included on your personal income tax return
If you are starting a business where you wouldn’t be the only one involved in ownership, then you can consider adopting the partnership style of entity. If your business will be possessed and run by several individuals, you may want to take a look at organizing your business as a partnership.
Partnerships come in two variations: general partnerships and limited partnerships. In a general partnership, the partners accomplish the company and shoulder the responsibility for the partnership’s debts and other responsibilities.
On the flipside, a limited partnership has both general and limited partners. The general partners possess and activate the business and assume liability for the partnership, while the limited partners function as investors only. This means that they take no control over the company and are not saddled with the same liabilities as the general partners.
This type of entity is adopted on a very large scale and adopting the corporate structure is more complex and costly than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it needs fulfilling more regulations and tax requirements.
List of Legal Documents You Need to Run a Business in Kenya
There are several documents that must be in place to run a business in Kenya. The inability to have all or more of these documents in place means that you just might be found wanting along the line. As such, here are some of the documents that you will be needing;
- Certificate of Incorporation
- Business Plan
- Non-Disclosure Agreement (NDA)
- Insurance Policy
- Contract documents
- Patent or Copyright registration
- Operating Agreement
- Business License
List of Government Agencies and Parastatals that are In-charge of Registering businesses and Issuing Licenses and Permits in Kenya.
The Investment Promotion Act 2004 constitutes of a powerful body, the Kenya Investment Authority (KIA) – a semi autonomous agency – which replaced the Investment Promotion Corporation. Its mandate is to promote and facilitate investment.
A foreign investor may obtain an Investment Certificate from the KIA provided he invests US $ 100 000, (a local must invest KES 1 million), and that the investment and the activities related to it are beneficial to Kenya. Beneficial activities are determined by such criteria as creating employment, skills upgrading, transfer of technology, foreign exchange and tax revenue generation, among others.
A Certificate of Incorporation or Registration, Memorandum and Articles of Association and Royalty and Management Agreement (in case of joint ventures) must be submitted to KIA. Obtaining the Investment Certificate at KIA’s “one-stop” is beneficial as Kenya has an extensive licensing requirement.
The Authority encourages investments that are labour intensive, local resource-based, earn or save foreign exchange and lead to efficient transfer of technology. Trademarks are regulated by the Trade and Service Marks Act, and patents are administered by the Kenya Industrial Property Institute (KIPI). The duration of trademarks is seven years from the date of filing and renewable every 14 years.