INVESTMENT CLIMATE STATEMENT 2006

UNCLAS SECTION 01 OF 11 NAIROBI 000274

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DEPT FOR AF/E, AF/EPS, AND EB/IFD/OIA:JNHATCHER)
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TAGS: EINV EFIN ETRD ELAB KTDB PGOV KE
SUBJECT: INVESTMENT CLIMATE STATEMENT 2006

Ref: 05 STATE 202943


1. Following is the 2005 Investment Climate Statement for
Kenya. This information will also be transmitted to
EB/IFD/OIA via e-mail and included in Chapter 6 of the 2006
Country Commercial Guide for Kenya, to be delivered through
FCS channels.

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A.1. Openness to Foreign Investment
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Kenya has had a long history of economic leadership in east
Africa as one of the largest and most advanced economies in
the region. Inconsistent efforts at structural reforms and
poor policies over the past decades generated a prolonged
period of decline in development indicators, and
significantly eroded the leadership position. While Kenya
was a prime choice for foreign investors seeking to
establish a presence in eastern and southern Africa in the
1960s and 1970s, poor economic policies, rising problems of
corruption and governance, and deterioration of public
services have discouraged Foreign Direct Investment (FDI)
since the 1980s. However, the Government of Kenya (GOK
actively encourages FDI.

The respective roles of the public and private sectors have
evolved since independence in 1963, with a shift in emphasis
from public investment to private sector-led investment.
The GOK has introduced market-based reforms and provided
more incentives for both local and foreign private
investment. Foreign investors seeking to establish a
presence in Kenya generally receive the same treatment as
local investors, but there are some exceptions.
Multinational companies make up a large percentage of
Kenya's industrial sector.

A new investment code, the Investment Promotion Act 2004, is
expected to streamline the administrative and legal
procedures to achieve a more effective investment climate.
The legislation replaces the government's Investment
Promotion Center with the new Kenya Investment Authority
(KIA). The new law creates some new barriers, namely, it
sets the minimum foreign investment threshold at US $500,000
(likely to be reduced to $100,000 in 2006),and conditions
some benefits on obtaining an investment certificate from
the KIA. Foreign employees are expected to be key senior
managers or have special skills not available locally.
Foreign investors are required to sign an agreement with the
government stating training arrangements for phasing out
expatriates. Any enterprise, whether local or foreign, may
recruit expatriates for any category of skilled labor if
Kenyans are not available.

The Kenyan government focuses its investment promotion on
opportunities that earn foreign exchange, provide
employment, promote backward and forward linkages, and
transfer technology. The only significant sectors in which
investment (both foreign and domestic) are constrained are
those where state corporations still enjoy a statutory
monopoly. These are restricted almost entirely to
infrastructure (e.g., power, posts, telecommunications and
ports) and the media, although there has been partial
liberalization of these sectors. For example, in recent
years, five Independent Power Producers (IPPs) have begun
operation in Kenya.

All resident companies are subject to tax on their incomes
at the rate of 30%. Branches of non-resident companies pay
tax at the rate of 37.5%. Taxable income is generally
defined to be income sourced in or from Kenya. Value Added
Tax (VAT) is levied on goods imported into or manufactured
in Kenya, and taxable services provided. The standard VAT
rate is 16%. Work permits are required for all foreign
nationals wishing to work in the country. It is becoming
increasingly difficult for expatriates to obtain work
permits because the government says qualified middle level
managers and technical staffs are available locally but this
may be driven more by the high unemployment level in the
country. There is no discrimination against foreign
investors in access to government-financed research. The
government's export promotion programs do not distinguish
between local and foreign-owned goods.

The United Nations Conference on Trade and Development
(UNCTAD),in conjunction with the International Chamber of
Commerce (ICC),published an Investment Guide to Kenya in
May 2005. The guide provides comprehensive analyses of
investment trends, opportunities, and regulatory framework
in the country. According to the UNCTAD report, and most
observers, significant disincentives for investment in Kenya
includes government overregulation and inefficiency,
expensive and irregular electricity and water, an
underdeveloped telecommunications sector, a poor
transportation infrastructure, and high costs associated
with crime and general insecurity.

Efforts have been made to harmonize the investment regimes
and investment incentives among the East African Community
(EAC) countries (Tanzania, Kenya and Uganda). Tariff
barriers between the three East African countries were
removed in 1999. In 2004, Kenya, Tanzania and Uganda signed
a Customs Union Protocol, putting in place a three tier
taxation systems and paving the way for further steps
towards a common market. Under the protocol, EAC member
states are to allow free entry of raw materials from
members, levy a 10% on semi-processed goods and a 25% levy
on finished goods. Non-Tariff Barriers (NTBs) remain a
problem in the EAC. A March 2005 report on NTBs and
Development of a Business Climate Index in the Eastern
African Region by the East African Business Council
identified administration of duties and other taxes as the
main NTB, followed closely by corruption. The report also
indicates that Kenya's level of investment and business
optimism is dampened by low expectations relating to
improvements in infrastructure, access to land, and
profitability in business.

The GOK has sought-out foreign investment through investment
conferences and foreign trips occasionally lead by the Head
of State. In August 2005, Kenyan President Kibaki made a
five-day visit to China to market the country as an
investment destination to Chinese investors.

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A.2. Conversion and Transfer Policies
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There are no restrictions on converting or transferring
funds associated with investment. Under Kenyan law, amounts
above KSh 500,000 (about US $6,400) have to be declared as a
formal check against money laundering although this is
rarely enforced due to lack of appropriate legislation.

Under the Foreign Investment Protection Act (FIPA) (Cap
518),foreign investors are free to convert and repatriate
profits including retained profits, which have not been
capitalized -- proceeds of the investment after payment of
the relevant taxes and the principal and interest associated
with any loan. Foreign exchange is readily available from
commercial banks and foreign exchange bureaus. Local and
foreign investors are allowed to freely buy and sell foreign
exchange. Kenya has a floating exchange rate. The Kenya
shilling is tied to a basket of foreign currencies and has
remained relatively stable in recent years.

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A.3. Expropriation and Compensation
--------------

Kenyan law provides protection against the expropriation of
private property except where due process is followed and
adequate and prompt compensation is provided.
Expropriation may only occur for either security reasons or
public interest. The GOK may revoke a foreign investment
license if: an untrue statement is made while applying for
the license; the provisions of the Investment Promotion Act
or of any other law under which the license is granted are
breached; or, if there is a breach of the terms and
conditions of the general authority. In practice, licenses
are rarely revoked.

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A.4. Dispute Settlement
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Kenya is a member of the World Bank-affiliated Multilateral
Investment Guarantee Agency (MIGA),which issues guarantees
against non-commercial risk to enterprises that invest in
member countries. It is also a signatory to the Convention
on the Settlement of Investment Disputes Between States and
Nationals of Other States. The Convention established the
International Center for Settlement of Investment Disputes
(ICSID) under the auspices of the World Bank and is also a
member of the Africa Trade Insurance Agency (ATIA).

Kenya's judicial system is modeled after the British, with
magistrates' courts, high courts in major towns and a Court
of Appeal at the apex of the judicial system. In addition,
there is a separate industrial court that hears disputes
over wages and labor terms. Its decisions cannot be
appealed. Kenya has commercial courts to deal with
commercial disputes. Company and investment law is centered
on the Companies Act of 1948. Property and contractual
rights are enforceable, but long delays in resolving
commercial cases are common.

The Foreign Judgments (Reciprocal Enforcement) Act provides
for the enforcement in Kenya of judgments given in other
countries that accord reciprocal treatment to judgments
given in Kenya. The countries with which Kenya has entered
into reciprocal enforcement agreements are Australia, the
United Kingdom, Malawi, Tanzania, Uganda, Zambia and
Seychelles. Without such an agreement, a foreign judgment
is not enforceable in the Kenyan courts except by filing
suit on the judgment. Kenyan courts as a general rule
recognizes a governing-law clause in an agreement that
provides for foreign law. A Kenyan court would not give
effect to a foreign law if the parties intended to apply it
in order to evade the mandatory provisions of a Kenyan law
with which the agreement has its most substantial
connection, and which the court would normally have applied.

Foreign advocates are not entitled to practice in Kenya
unless they are instructed and accompanied by a Kenyan
advocate, although a foreign advocate may practice as an
advocate for the purposes of a specified suit or matter if
appointed to do so by the Attorney General.

Kenya does not have a bankruptcy law. Creditors' rights are
comparable to those in other common law countries. Monetary
judgments are usually made in Kenyan shillings. The
government does accept binding international arbitration of
investment disputes with foreign investors. Apart from
being a member of the ICSID, Kenya is a party to the New
York Convention on the Enforcement of Foreign Arbitral
Awards (1958).

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A.5. Performance Requirements and Incentives
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Investors in the manufacturing and hotels sectors are
permitted to deduct from their taxes a large portion of the
cost of buildings and capital machinery. All locally
financed materials and equipment (excluding motor vehicles
and goods for regular repair and maintenance) for use in
construction or refurbishment of tourist hotels are zero-
rated for purposes of Value Added Tax (VAT). The Permanent
Secretary to the Ministry of Finance must approve such

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purchases. The Government permits some VAT remission on
capital goods, including plants, machinery and equipment for
new investment, expansion of investment and replacement.
The investment allowance under the Income Tax Act is set at
100%. Materials imported for use in manufacturing for
export or for production of duty-free items for domestic
sale qualify. Approved suppliers, who manufacture goods to
be supplied to the exporter, are also entitled to the same
import duty relief. The program is also open to Kenyan
companies producing goods that can be imported duty-free or
goods for supply to the armed forces or to an approved aid-
funded project. Fiscal incentives offered by the government
to Export Processing Zone (EPZ) investments and registered
and approved venture-capital-fund investments include 10
years' tax holiday and a flat 25% tax for the next 10 years;
exemption from withholding taxes during the first 10 years;
exemption from import duties on machinery, raw materials,
and inputs; no restrictions on management or technical
arrangements; and exemption from stamp duty and from the VAT
on raw materials, machinery and other inputs. The Export
Promotion Programs Office, set up in 1992 under the Ministry
of Finance, administers the duty remission facility.

The government established a Manufacturing Under Bond (MUB)
program in 1986 that is open to both local and foreign
investors. Enterprises operating under the program are
exempted from duty and VAT on imported plants, machinery,
equipment, raw materials and other imported inputs. The
Kenya Revenue Authority (KRA) administers the program.

Foreign investors are attracted to the EPZs by the single
licensing regime, tax incentives and support services
provided such as power and water. The number of enterprises
operating in EPZs has increased from 66 in 2003 to 74 in

2004. The increase is largely due to preferential access
and duty free status accorded to Kenyan apparel exports into
the U.S. under the African Growth and Opportunity Act
(AGOA). Kenya's major exports under AGOA include apparel
and handicrafts. The majority of Kenya's manufactured
products are entitled to preferential duty treatment in
Canada and the European Union. By statute, manufacturing
companies are not permitted to distribute their own
products.

With the exception of the insurance and telecommunications
sectors and other infrastructure and media companies
discussed earlier, Kenya does not require that its nationals
own a percentage of a company. The percentage of foreign
equity need not be reduced over time. Technology licenses
are, however, subject to scrutiny by the Kenya Industrial
Property Office (KIPO) to assure that they are in line with
the Industrial Property Act. Licenses are valid for five
years and are renewable. Foreign investors are free to
obtain financing locally or offshore.

The government does not steer investment to specific
geographic locations. Local content rules are applied but
only for purposes of determining whether goods qualify for
preferential duty rates within the Common Market for East
and Southern Africa (COMESA).

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A.6. Right to Private Ownership and Establishment
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Private enterprises can freely establish, acquire and
dispose of interest in business enterprises. In general,
"competitive equality" is the standard applied to private
enterprises in competition with public enterprises.
However, certain parastatals have enjoyed preferential
access to markets. Examples include Kenya Reinsurance with
a guaranteed market share, Kenya Seed Company with fewer
marketing barriers than its foreign competitors, and the
Kenya National Oil Corporation with retail market outlets
developed with government funds. Some state corporations
have also benefited from easier access to cheap government
credit.

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A.7. Protection of Property Rights
--------------

Secured interests in property are recognized and enforced.
In theory, the legal system protects and facilitates
acquisition and disposition of all property rights - land,
buildings and mortgages. In practice, obtaining title to
land is a cumbersome and often non-transparent process,
which is a serious impediment to new investment. It is
frequently complicated by improper allocation of access and
easements to third parties. There is also a general
unwillingness of the courts to permit mortgage lenders to
sell land to collect debts. Foreigners may require
Presidential approval to acquire large tracts of
agricultural land or any seashore property. Since January
2003, the government has been nullifying some land
allocations that were illegally acquired. The question of
title to land acquired irregularly under the previous
government is the subject of continued controversy. The
issue is particularly important because 80% of bank loans
are secured with land.

Kenya has a comprehensive legal framework to ensure
intellectual property rights protection, which includes the
Industrial Property Act 2001, the Trade Marks Act, the
Copyright Act 2001, the Seeds and Plant Varieties Act, and
the Universal Copyright Convention. The Copyright Act
protects literary, musical, artistic, audio-visual works,
sound recordings and broadcasts, and computer programs.
Criminal penalties associated with piracy in Kenya include a
fine of up to KSh 800,000 (about US $10,700),a jail term of
up to 10 years and confiscation of pirated material, but
enforcement and the understanding of the importance of
intellectual property, are poor. The Kenya Industrial
Property Institute (KIPI) is responsible for patents,
trademarks and trade secrets, under the Ministry of Trade
and Industry. Copyright protection is the responsibility of
the Attorney General's office.

Kenya is a member of the World Intellectual Property
Organization (WIPO) and of the Paris Union (International
Convention for the Protection of Industrial Property) along
with the U.S. and 80 other countries. A future prospect
for patent, trademark, and copyright protection is embodied
in the African Intellectual Property Organization, although
its enforcement and cooperation procedures are yet untested.
Kenya also is a member of the African Regional Intellectual
Property Organization (ARIPO). Kenya is a signatory to the
Madrid Agreement Concerning the International Registration
of Marks, however, the other EAC members (Uganda and
Tanzania) are not.

Investors are entitled to national treatment and priority
right recognition for their patent and trademark filing
dates. The Trade Marks Act provides protection for
registered trade and service marks that is valid for 10
years and is renewable. However, actual protection for
intellectual property -- copyrights, patents and trademarks
-- is inadequate. The sale of pirated audio and
videocassettes is rampant, although there is little domestic
production. According to the Business Software Association,
an estimated US $3.5 million is lost every year as a result
of the use of illegal software, mainly by businesses. Kenya
enacted Industrial Property Act (KIPA) in 2002 to comply
with WTO obligations, but its implementation of the law
remains weak. In 2003, the Kenya Bureau of Standards
indicated that over KSh 37 billion (about US $493.3 million)
is lost annually in customs and value added taxes due to the
sale of counterfeit goods. The government has not yet
published its draft anti-counterfeit Bill nor submitted it
to Parliament. However, Kenyan authorities have recently
increased their IPR enforcement efforts on behalf of textile
producers to limit the transshipment of foreign-made
garments through the Port of Mombasa (mostly from Asia) that
are fraudulently being exported to the U.S. under AGOA
preferences. Kenya has also begun a campaign to crackdown
on the entry into the local market of counterfeit or
"substandard" goods.

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A.8. Transparency of the Regulatory System
--------------

Investors in Kenya are required to comply with environmental
standards. The National Environment Management Authority
(NEMA) oversees these matters and is the principal
regulatory agency for them. Developers of particular
projects are therefore required to carry out Environmental
Impact Assessments (EIA) prior to project implementation.
Companies are required to submit their up-to-date assessment
reports to NEMA for verification by the environment auditors
before they can receive an Environmental Impact Assessment
license.

In theory, all investors receive equal treatment in the
initial screening process. The government screens each
private sector project to determine its viability and
implications for the development aspirations of the country.
For example, a rural agro-based enterprise, with many
forward and backward linkages, is likely to receive
licensing fairly quickly. However, new foreign investment
in Kenya has historically been constrained by a time-
consuming and highly discretionary approval and licensing
system that have been vulnerable to corrupt practices.

Kenya's competition framework is governed by the Restrictive
Trade Practices, Monopolies and Price Control Act 1989 (with
subsequent amendments). The Act is relatively modern and
has worked well in avoiding anti-competitive practices since
the abolition of price controls in 1994. However, the
Monopolies and Prices Commission is not an independent
regulatory body but rather is under the Ministry of Finance.
Although the Commission is independent in its investigation
of competition-related issues, it must rely on ministerial
powers to enforce orders on companies found to have breached
competition rules. The Commission lacks the capacity to
fully implement the legislation. Practices that seek to
block entry into production and discrimination vis--vis
buyers (for production, resale or final consumption) are
illegal. Mergers and acquisitions must receive the green
light from the Commission and the Minister of Finance in all
cases, regardless of the sector, size or market share of the
companies involved. This puts an unnecessary burden on
investors and the Commission. However, the Commission has
no jurisdiction over the electricity, telecommunication or
insurance sectors. Under the law, manufacturers may not
distribute their own products, and they are required to
supply information to the government about their
distributors.

Incoming foreign investment through acquisitions, mergers or
takeovers is governed by antitrust legislation that
prohibits restrictive and predatory practices that prevent
the establishment of competitive markets. The legislation
also aims at reducing the concentration of economic power by
controlling monopolies, mergers and takeovers of
enterprises. Mergers and takeovers are subject to the
Companies Act, the Insurance Act (in case of insurance
firms) or the Banking Act (in case of financial
institutions).

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A.9. Efficient Capital Markets and Portfolio Investment
-------------- --------------

Kenya has a small capital market consisting of the
government controlled Capital Market Authority (CMA),
Nairobi Stock Exchange (NSE),19 securities and equities
brokerage firms, 18 investment advisory firms, 6 investment
banks, 13 stock brokers, 8 fund managers, 1 credit rating
agency, 1 capital venture fund, 2 collective investment
schemes, 3 authorized securities dealers, and 4 authorized
depositories. The CMA regulates and supervises all these
institutions and oversees the development of Kenya's capital
market. The NSE trades had a market capitalization of KSh
455.5 billion (about US $6.0 billion) at the end of November
2005, up from KSh 321.1 billion (about US $4.2 billion) in
January 2005.

By November 2005, Kenya's banking sector consisted of 47
financial institutions, including 41commercial banks, 2
mortgage finance companies, and 2 building societies. At the
end of July 2005, the total banking assets were KSh
612.5billion (about US $7.9 billion). Loans and advances
accounted for 52% of the total assets equivalent to KSh
320.5 billion (about US $4.1 billion). Seven banks dominate
the banking sector accounting for two thirds of the total
deposits in the banking institutions. Asset quality of
Kenyan banks though improving remains poor with about 19.5%
equivalent to KSh 70.8 billion (about US $0.92 billion) of
assets classified as non-performing. Realization of the
collateral is difficult because of a slump in the property
market as well as a cumbersome court system.

The NSE into three segments: the Main Investment Market
(MIM),the Alternative Investment Market (AIM) and the Fixed
Income Securities Market (FISM). The MIM targets mature
companies with strong dividend streams. The AIM is more
favorable to small and medium sized companies, and allows
firms to access cheaper, longer-term sources of capital
through the capital markets. And, the FISM allows
businesses, financial institutions, government and
supranational authorities to raise capital through the
issuance of debt securities. As of October 2005, the CMA
categorized the listings into 38 companies for the MIM
segment, and 9 companies in the Alternative AIM. The CMA is
involved in the preparation of a proposed integrated East
African Capital Market. As from February 28, 2005 the NSE
started settling all equity trades through an electronic
Central Depository System (CDS).

Trading in commercial paper and corporate bonds issued by
private companies has diversified activity at the NSE, and
is regulated through a set of guidelines developed in
collaboration with private sector. They allow private
companies to raise funds from the public without being
quoted in the NSE. Establishing the CDS encouraged the
development of a secondary market for the government's one-
year floating rate bond. The CDS opened a shop window for
small investors offering products in multiples of KSh 50,000
(about US $667) up to KSh 1 million (about US $13,333).
Expenses related to credit rating services by listed
companies and other issuers of corporate debt securities are
tax deductible. "Cross-shareholding" and "stable
shareholder" arrangements are not used to restrict foreign
investment through mergers and acquisitions. Hostile
takeover defenses are uncommon. Private firms are free to
adopt articles of incorporation, which limit or prohibit
foreign investment, participation or control.

Foreign investors can acquire shares freely in the stock
market subject to a reserved ratio of 25% for domestic
investors in each listed company. To encourage the transfer
of technology and skills, foreign investors are allowed to
acquire up to 49% of local stockbrokerage firms and up to
70% of local fund management companies.

Credit is allocated on market terms and foreign investors
are able to obtain credit on the local market. However, the
number of credit instruments is relatively small. Legal,
regulatory, and accounting systems are generally transparent
and consistent with international norms. The corporate tax
for newly listed companies is 25% for a period of five years
from the date of listing. The withholding tax on dividends
is 7.5% for foreign investors and 5% for local investors.
Foreign investors can acquire shares in the stock market
subject to a minimum reserved ratio of 25% of the share
capital of the listed company for domestic investors. The
75% portion is considered as a free float available to
local, foreign and regional investors without restrictions
on the level of holding. Dividends distributed to residents
and non-residents are subject to a final withholding tax at
the rate of 5%. Dividends received by financial
institutions as trading income are not subject to tax.

The Parliament amended the Banking Act 2004 to delegate the
power to register and deregister commercial banks and
financial institutions from the finance minister to the
Central Bank of Kenya (CBK). Under the Central Bank of
Kenya Act, the security of tenure for the Governor is
enhanced, the Bank's operational autonomy is increased, the
CBK's bank supervision functions are strengthened, and
statutory restrictions on government borrowing from the Bank
are codified. The CBK sets requirements for all banking
institutions and building societies to disclose their un-
audited financial results on a quarterly basis by publishing
them in the print media.

Parliament amended the Central Bank of Kenya Act in December
2004 to establish an independent Monetary Policy Advisory
Committee whose mandate is to advise the Bank with respect
to monetary policy. The amended Act provides for the CBK to
publish the lowest interest rate it charges on loans to
banks referred to as the "central bank rate". Other
amendments transferred powers to revoke and issue licenses
to financial institutions from the Ministry of Finance to
the CBK and introduced an "in Duplum Rule," which limits
fees and fines on non-performing loans to the amount of the
outstanding principal. However, the rule is yet to be
implemented.

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A.10. Political Violence
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There have been clashes in the past between police and
demonstrators over political reform and other issues.
During the campaign period related to the November 21, 2005
Constitutional referendum, there were reported incidents of
violent demonstrations across the country especially in the
cities of Kisumu and Nairobi. Although some shops in major
cities have been damaged or looted during such disturbances,
the damage has been limited and has not been directed at
foreign companies. Similar instances of public disorder are
possible in the run up to likely Presidential and
Parliamentary elections in 2007.

Terrorism and urban crime create insecurity in the country
and the region. On August 7, 1998, bombs exploded at the US
embassies in Nairobi and Dar es Salaam killing over 200 and
wounding more than 5,000 people. A suicide bomber killed 15
people in an Israeli-owned Mombasa Hotel in November 2002.

Kenya has a good relationship with all its immediate
neighbors. However, unstable, porous or conflicted borders
are also a source of insecurity in the region. The 2002
terrorist attacks in Mombasa are thought to have been
planned in Somalia and much of the small arms used in crime
in Kenya likely originates from Somalia. The level of urban
crime in Kenya is one of the highest in Africa. According
to the World Bank, almost 70% of investors reported "major"
or "very severe" concerns about crime, theft and disorder in
Kenya, as opposed to 25% in Tanzania and 27% in Uganda.

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A.11.a Corruption
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Pervasive corruption has been a major reason for
disinvestment in Kenya. In 2003, The government enacted the
Anti-Corruption and Economic Crimes Act and the Public
Officers Ethics Act, setting rules for transparency and
accountability, and defining graft and abuse of office. The
Public Officers Ethics Act requires certain public officials
to declare their wealth and that of their spouses within 90
days from August 2, 2003. In 2004, the government
established the Anti-Corruption Commission, moved forward
with the implementation of the Anti-Corruption and Economic
Crimes Act, and launched full implementation of the code of
Ethics Act for Public Servants in 2004. A Public
Procurement and Disposal Bill become law in 2005. It
establishes a procurement commission to take over all
procurement matters. Large public procurement programs and
military procurement have been at the center of a number of
corruption scandals in recent years.

On the downside, Kenya's Permanent Secretary in charge of
governance and ethics resigned in February 2005, citing a
lack of cooperation from high-level government officials.
The office was unofficially disbanded in December 2005. The
Transparency International Corruption Perceptions Index
2005, released in October 2005, ranks Kenya among the
world's most corrupt nations. According to the report,
Kenya made an improvement in 2004 compared to 2003 but has
remained at the same position since 2004. The report ranked
Kenya 144 out of the 159 nations surveyed.

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11.A.b. Bilateral Investment Agreements
--------------

Kenya does not have a bilateral trade investment agreement
with the United States. Kenya signed a bilateral trade and
investment agreement with Germany in 1996, and agreements
are pending with the United Kingdom, Italy, and Russia.

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11.A.c. OPIC and Other Investment Insurance Programs
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In 2004, the U.S. Overseas Private Investment Corporation
(OPIC) supported four projects in Kenya totaling US $8.75
million. These included a company specializing in land
information services, a well-drilling company, a company
providing humanitarian activities and services, and a
housing company. The housing project, in which a U.S. small
business will use an OPIC loan to build 400 affordable
housing units in Nairobi, represents significant progress
towards fulfilling a 2003 Memorandum of Understanding
between OPIC and the Kenyan government designed to leverage
OPIC programs to increase U.S. private sector investment in
Kenya. Historically, OPIC has committed US $55.8 million to
37 projects in Kenya.

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A.11.d. Labor
--------------

Kenya has a population estimated at over 33 million, about
52% of whom constitute the working population, 75% working
in agriculture sector. Several million Kenyans work in the
informal sector. High population growth of 2.95% per annum
means there is an on-going demand for new jobs. Kenya has
an abundant supply of well-educated and skilled labor in
most sectors at internationally competitive rates. High
HIV/AIDS prevalence (estimated at 6.7%) poses a serious
threat to human resource development.

Kenya's laws generally provide safeguards for worker rights
and mechanisms to address complaints of their violation.
The labor laws of Kenya are embodied in its Employment Act
(revised 1984) and the Regulation of Wages and Conditions of
Employment Act (revised 1980). The Employment Act covers
wages, leaves, housing, health and welfare, local and
foreign contracts of service, the employment of women and
youth, and other administrative matters. Employers in
ailing industries are allowed to retrench workers,
irrespective of the provisions of their collective
bargaining agreements. All labor laws, with the exception
of the Factories Act (permitting occupational safety and
health inspections),apply in Kenya's Export Processing
Zones (EPZ),which employed about 31,000 workers in 2005.
Following a number of strikes in the EPZs in January - March
2003, EPZ workers are now allowed to unionize. In 2004,
seven garment factories in the Athi River EPZ signed a
collective bargaining agreement with a local union. Strikes
in the EPZs declined in 2004, and were virtually non-
existence in 2005.

As few as seven employees may form a union. There are 41
trade unions registered under the Trade Union Act. All but
six, including the 240,000-member Kenya National Union of
Teachers, the Universities Academic Staff Union, and the
Kenya Union of Civil Servants, are affiliated with the
Central Organization of Trade Unions (COTU),which has about
300,000 members. The unions are organized by industry
rather than craft, and union membership is voluntary. In
April 2004 the U.S. government and the International Labor
Organization (ILO)-funded tripartite Labor Law Reform Task
Force completed a new set of labor laws which were presented
to the Attorney General. The proposed new laws incorporate
the ILO core labor standards and are AGOA consistent.
However, these proposed changes to labor law are yet to be
tabled in Parliament for debate and possible enactment.

The law permits strikes, but unions must notify the
government 21-28 days before a strike is called. During
this period, the Minister of Labor and Human Resource
Development may mediate the dispute, nominate an arbitrator,
or refer the matter to the Industrial Court. Once a dispute
is referred to mediation, fact-finding, or arbitration, any
subsequent strike is illegal. Kenya's Industrial Court
provides generally effective and timely rulings. The court
has penalized employers for discriminating against employees
because of their union activities; usually requiring the
payment of lost wages. Reinstatement is not a common
remedy.

Overall, Kenya has relatively harmonious labor relations.
The number of trade disputes reported to the Ministry of
Labor and Human Resource Development under the Trade
Disputes Act was 1,152 in 2004 compared to 2,323 in 2003.
Of the 2004 trade disputes, 131 reached the Industrial Court
for adjudication. The number of strikes dropped from 161 in
the year 2003 to 41 in 2004. The number of workers involved
in 2004 was 31,699 compared to 62,312 in 2003. The main
sectors affected by the strikes in the year 2004 were
manufacturing (14),agriculture (11),and commerce (5).

The normal workweek is 45 hours, after which overtime must
be paid. The Regulation of Wages and Conditions of
Employment Act provides that the total hours worked in any 2-
week period should not exceed 120 hours (144 hours for night
workers). Wages and conditions of employment are
established in negotiations between unions and management.
There are twelve separate minimum wage scales, varying by
location, age and skill level. The lowest minimum wage is
currently US $56 (KSh 4,335) per month in urban areas and US
$30 (KSh 2,312) in rural areas. Workers covered by a
collective bargaining agreement generally receive a better
wage and benefit package than those not covered (on average
US $97 (KSh 7,303) per month),plus a housing and transport
allowance, which may account for 25 to 50 percent of a
Kenyan worker's compensation package.

Kenyan law establishes detailed environmental, health and
safety standards, but these tend to not be strictly
enforced. . Although fines specified in the Factories Act
(regarding occupational safety and health) are the highest
in the labor laws, they have not been increased since 1990
and are generally too low to serve as a deterrent to unsafe
practices. Rules falling under the Directorate of
Occupational Health and Safety Services (OHSS),which
operates under the Ministry of Labor and Human Resource
Development, apply to to employers with 20 or more
employees. The OHSS Directorate maintains a register of
approved and certified Safety and Health advisers who the
employers may use in carrying out safety audits in the
factories and other places of work. These audits are
supposed to be carried at least once a year and a copy of
the audit report forwarded to the OHSS Directorate within 30
days after the audit.

Work permits are required for all foreign nationals who wish
to work in Kenya. Although there is no official time limit,
a visitor's pass or a visa is usually valid for three months
and the Immigration department must grant applicable
extensions upon proper application. Work permits may be
applied for in any major city in Kenya, but all applications
go to Nairobi for processing. Foreign investors are
required to sign an agreement with the government describing
training arrangements for phasing out expatriates. High
unemployment levels have made it increasingly difficult for
expatriates to renew or obtain work permits. The
Immigration Department has occasionally cancelled work
permits before the expiry date without giving reasons.
According to the law, the immigration officer issuing entry
permits may require a bond of not less than KSh 100,000 (US
$1,293) for each permit to be deposited with immigration.

--------------
A.11.e. Foreign-Trade Zones/Free Ports
--------------

By December 2005, 41 Export Processing Zones (EPZs) had been
established around the country and 77 export-oriented firms
were in operation. A government agency, Kenya Export
Processing Zone Authority (EPZA) regulates the zones. Of
the 41 zones, only 2 are developed and managed by the public
sector. The rest are privately owned and managed by
licensed EPZ developers/operators. Of the 77 enterprises
operating in EPZs, 14% are Kenyan owned, 58% are foreign
investments, and 28% are joint ventures. In 2004, 74% of
EPZ exports went to the U.S., with the European Union
accounting for 8.5% and EAC/COMESA 4%. The largest
privately owned EPZ is the Sameer Industrial Park located in
Nairobi's Industrial area. It has been operational since

1990. The Athi River EPZ, near Nairobi, is the largest
publicly owned EPZ, with 230 acres currently developed. The
GOK is also developing another large export processing zone
in Mombasa, Kenya's main seaport.

--------------
A.11.f. Foreign Direct Investment Statistics
--------------

The deterioration in economic performance, together with
rising problems of corruption, governance, inconsistency in
economic policies and structural reforms and the
deterioration of public services and infrastructure
generated a long period of low FDI inflow that started in
the early 1980s and continues to date. FDI inflows in 1996-
2003 averaged US$39 million a year. According to Investment
Policy Review of Kenya February 2005 report, the FDI stock
in 2005 was US$1,045.9 million which compared poorly with
Tanzania and Uganda at US$2,582.5 million and US$2,042.2
million respectively. However, poor data collection leads
to underestimating actual inflows of FDI. There is no clear
mandate by any agency to collect data on FDI. The Central
Bank of Kenya (CBK),the Kenya Investment Authority (KIA),
and the Central Bureau of Statistics (CBS) all collect only
partial information on either balance of payments inflows or
investment projects.

Kenya's February 2005 Investment Policy Review estimates the
market value of US investment at around US$285 million,
primarily in commerce, light manufacturing, and tourism
industry. Most foreign investment in manufacturing since
2001 has been in the EPZs, with the majority (average of
63.6% of total investment, employment, sales, local resource
utilization) in AGOA-related textiles. The government does
not publish data on the value of foreign direct investment
(position/stock and annual investment capital flows) by
country of origin or by industry sector destination.
Neither is data available on Kenya's investment abroad. On
its website, UNCTAD does provide some additional data on FDI
in Kenya.

More than 200 Trans-National Corporations operate in Kenya.
The main traditional sources of investment are United
Kingdom, Germany, and the United States, with Chinese
investment increasing in the last two years.

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Web Resources
--------------

Telkom Kenya - http://www.telkom.co.ke

Communications Commission of Kenya - http://www.cck.co.ke

Safaricom - http://www.safaricom.co.ke

Cable News Network - http://www.cnn.com

British Broadcasting Corporation - http://www.bbc.com

Reuters - http://www.reuters.com

Kenya Broadcasting Corporation - http://www.kbc.co.ke

International Chamber of Commerce - http://www.iccwbo.org

African Trade Insurance Agency - http://www.ati-aca.com

Export Processing Zones Authority - http://www.epzahq.com

African Growth Opportunity Act - http://www.agoa.gov

Capital Markets Authority - http://www.cma.or.ke

Nairobi Stock Exchange - http://www.nse.co.ke
Central Organization of Trade Union - http://www.cotu-
kenya.org

Sameer Industrial Park - http://www.sameer-group.com

Central Bank of Kenya - http://www.cbk.go.ke

BELLAMY