KENYA TRADE POLICY REVIEW SUMMARY - 2000

PRESS RELEASE

PRESS/TPRB/124

19 January 2000

Pursuit of structural reforms can help attract

needed investment in Kenya.

The new WTO secretariat report, along with a statement from the

Kenyan government, will serve as a basis for the second trade

policy review of Kenya which will take place in the WTO Trade

Policy Review Body on 26 and 28 January 2000.

The report notes that while the reforms Kenya is engaged in have

resulted in a certain macroeconomic stability (decline in rate of

inflation and decrease in fiscal deficit), real GDP growth has been

slow and unemployment remains high. The importance of foreign

trade for Kenya has increased but the trade balance has

deteriorated. Kenya imports mainly machinery, transport equipment

and oil products and the European Union remains Kenya's largest

trading partner, both as a source of imports and a destination for

exports.

The report states that Kenya has dismantled its quantitative

restrictions and eliminated its price controls. In addition, Kenya is

amending some pieces of its legislation, including on anti-dumping,

countervailing and intellectual property to bring them into

conformity with the WTO Agreements. Kenya now relies on the

tariff as its main trade policy instrument. The report notes that

while Kenya has recently rationalized its tariff structure, the

conversion of all duties - such as mixed or specific duties - into ad

valorem rates would enhance the transparency of Kenya's tariff

regime. In the same way, limited recourse to "suspended" duties

would reduce room for administrative discretionary decisions.

The report notes that, except for timber and fish, Kenya has no

recourse to export duties and has never applied contingency trade

remedies. The report also notes however that Kenya uses several

incentive schemes to promote its exports. At the same time, the

role of the State in the Kenyan economy remains important, since

privatization has advanced at a slow pace.

The report says that most of Kenya's business activities are open

to foreigners and that in order to attract investment, Kenya offers

tax incentives to local and foreign investors in the form of tax

holidays, accelerated depreciation, investment allowances, lower

duties on intermediate capital goods, and gradual reduction of

corporate tax rates. However, due to reduced investors'

confidence, foreign investment in Kenya remains low. This, in turn,

has weighed on economic growth.

Agriculture accounts for some 27% of real GDP and around 60% of

earning from total merchandise, the report says. Major agricultural

exports are: tea, coffee and horticultural products. Kenya's

agricultural policy aims to ensure food security, defined to include

self-sufficiency in main foodstuffs. Thus Government intervention in

the sector persists and reforms are sometimes reversed. The report

notes that the Kenyan economy is currently organized around

agriculture and linkages between agriculture and other sectors are

important. For instance, agro-processing industries constitute the

major branch of manufacturing.

Manufacturing accounts for about 13% of Kenya's GDP. The report

notes that Kenya's manufacturing sector has been sluggish in

recent years and liberalization reforms have revealed its low

competitiveness. The already high protection of the sector did not

prevent the collapse of several firms, particularly in the textiles and

clothing industry.

The services sector is the major foreign exchange earner and

represents around 54% of GDP, the report notes. It is dominated

by tourism, and financial and communication services. However, its

relatively high-cost structure appears to have imposed a constraint

on the development of other sectors of the economy that are

highly dependent on basic services. State intervention remains

present in most subsectors, including in the financial subsector

where government-owned banks hold the major share of deposits

and loans. The report adds that Kenya has one of the most

developed banking systems in the region and, due to its

geographical location, it has the potential to provide maritime

services to its land-locked neighbours.

Notes to Editors

trade policy reviews are an exercise, mandated in the WTO

agreements, in which member countries' trade and related policies

are examined and evaluated at regular intervals. Significant

developments which may have an impact on the global trading

system are also monitored. For each review, two documents are

prepared: a policy statement by the government of the member

under review, and a detailed report written independently by the

WTO Secretariat. These two documents are then discussed by the

WTO's full membership in the Trade Policy Review Body (TPRB).

These documents and the proceedings of the TPRB's meetings are

published shortly afterwards. Since 1995, when the WTO came into

force, services and trade-related aspects of intellectual property

rights have also been covered.

For this review, the WTO's Secretariat report, together with the

policy statement prepared by Kenya, will be discussed by the

Trade Policy Review Body on 26 and 28 January 2000. The

Secretariat report covers the development of all aspects of

Kenya's trade policies, including domestic laws and regulations, the

institutional framework, trade policies by measure and by sector.

Attached to this press release is a summary of the observations in

the Secretariat report and parts of the government's policy

statement. The Secretariat report and the government's policy

statement are available for the press in the newsroom of the WTO

internet site (www.wto.org). These two documents and the

minutes of the TPRB's discussion and the Chairman's summing up,

will be published in hardback in due course and will be available

from the Secretariat, Centre William Rappard, 154 rue de Lausanne,

1211 Geneva 21.

Since December 1989, the following reports have been completed:

Argentina (1992 and 1999), Australia (1989, 1994 and 1998), Austria (1992),

Bangladesh (1992), Benin (1997), Bolivia (1993 and 1999), Botswana (1998),

Brazil (1992 and 1996), Burkina Faso (1998), Cameroon (1995), Canada

(1990, 1992, 1994, 1996 and 1998), Chile (1991 and 1997), Colombia (1990

and 1996), Costa Rica (1995), C?te d'Ivoire (1995), Cyprus (1997), the Czech

Republic (1996), the Dominican Republic (1996), Egypt (1992 and 1999), El

Salvador (1996), the European Communities (1991, 1993, 1995 and 1997), Fiji

(1997), Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990, 1994

and 1998), Hungary (1991 and 1998), Iceland (1994), India (1993 and 1998),

Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica (1998),

Japan (1990, 1992, 1995 and 1998), Kenya (1993), Korea, Rep. of (1992 and

1996), Lesotho (1998), Macau (1994), Malaysia (1993 and 1997), Mali (1998),

Mauritius (1995), Mexico (1993 and 1997), Morocco (1989 and 1996), New

Zealand (1990 and 1996), Namibia (1998), Nicaragua (1999), Nigeria (1991

and 1998), Norway (1991 and 1996), Pakistan (1995), Papua New Guinea

(1999), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993),

Romania (1992 and 1999), Senegal (1994), Singapore (1992 and 1996),

Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 and

1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 and 1994),

Switzerland (1991 and 1996), Thailand (1991, 1995 and 1999), Togo (1999),

Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and 1998), the

United States (1989, 1992, 1994, 1996 and 1999), Uganda (1995), Uruguay

(1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

TRADE POLICY REVIEW BODY: KENYA

Report by the Secretariat Summary Observations

The Economic Environment

In the early 1990s Kenya embarked on structural and

macroeconomic reform, including in trade, to establish a more

growth-conducive economic environment. The transition from

import-substitution to outward-oriented policies has made some

progress, but has lagged in some areas, such as privatization.

Macroeconomic stabilization appears to be taking hold: the rate of

inflation was at 6% in 1998, down from nearly 46% at the time of

Kenya's first Trade Policy Review in 1993; and the fiscal deficit had

turned from a deficit equivalent to over 5% of GDP in 1993 to a

projected surplus in 1998.

Kenya has dismantled its quantitative import restrictions and price

controls on major products and the tariff is now the main trade

policy instrument. The tariff structure has been rationalized, as

have incentive schemes. Several public enterprises have been

restructured and the influence of most agricultural boards reduced.

Following three devaluations of the Kenyan shilling in 1993, a

managed floating exchange rate system was adopted in 1994.

However, investor confidence has been affected by several

elements, including issues of governance, labour unrest, power

shortages and high utility costs, and adverse weather conditions

that further weakened the infrastructure. The factors have

contributed to a low rate of foreign direct investment, which in

turn has weighed on economic growth. The growth of real GDP,

which had been 4.8% in 1995, has slowed since the second half of

1996, falling to 1.8% in 1999. Unemployment has also remained

high and the trade balance has deteriorated. Nevertheless, the

external debt position is thought to be manageable.

The structure of Kenya's economy has remained fairly stable since

the last Review. Agriculture remains the largest sector of the

Kenyan economy, after services. The agricultural sector accounts

for some 27% of real GDP and around 60% of earnings from total

merchandise exports; some 80% of the population depend on

agriculture for their livelihood. A wide variety of crops is grown in

Kenya; these include maize, rice, wheat, tea the leading export

crop (one third of the value of agricultural exports), coffee,

horticultural products, sugar cane, and fibres. Kenya is the world's

leading supplier of tea, pyrethrum, and bixa. Kenya's herd of

livestock is also diversified. Fishing activities mostly take place in

Lake Victoria. Adverse weather conditions, organizational problems,

weaknesses of infrastructure, and the lack of financing have

hampered the further development of Kenyan agriculture.

Agri-processing industries constitute the major branch of

manufacturing. The sector accounts for about 13% of Kenya's GDP

but with a relatively high cost structure its performance has been

sluggish in recent years. The mining and quarrying sector is still

underdeveloped. Mineral products account for some 10% of total

merchandise exports in value, of which soda ash, the principal

product, contributes more than half. The services sector (excluding

construction and electricity), still dominated by tourism, and

financial and communications services, represents around 54% of

GDP; it is also a major source of employment. Kenya is a net

exporter of services (the major foreign exchange earner).

An upward trend in the ratio of merchandise trade to GDP has

meant that the importance of foreign trade has increased for the

Kenyan economy. Kenya's main imports include machinery and

transport equipment from Europe and Asia, and crude oil and

petroleum products from the Middle East. Imports of agri-foodstuffs

fluctuate with domestic harvests. The European Union (EU) remains

Kenya's largest trading partner (both as a source of imports and a

destination for exports). However, South Africa has increased its

share in Kenyan imports, following its reintegration into the global

economy. The share of Kenya's exports to the other East African

Co-operation countries (Uganda and Tanzania) nearly doubled

between 1993 and 1998, making this trading block the largest

destination for Kenyan products after the EU.

Institutional Framework

Kenya's trade policy objectives include moving towards a more

open trade regime, strengthening and increasing overseas market

access for Kenyan products, especially processed goods, and

further integration into the world economy. These policy objectives

have been pursued through unilateral liberalization, and regional

and bilateral trade negotiations, in particular within the African

region, as well as through its participation in the multilateral trading

system. Kenya is a member of the Common Market for Eastern and

Southern Africa (COMESA), the East African Co-operation (EAC),

the Organization of African Unity (OAU), and the Inter

Governmental Authority on Development (IGAD).

Trade policy formulation is the responsibility of several Ministries,

which constitute the Cabinet's Economic Sub-committee, and the

Central Bank. However, recommendations can be made by two

inter-ministerial and consultative committees, which include the

private sector. No independent bodies review and assess trade

policies in Kenya. Trade policy is implemented mainly by the

Ministry of Tourism, Trade and Industry.

Kenya is a founding member of the WTO; it accords at least MFN

treatment to all its trading partners. Provisions of the WTO

Agreements cannot be invoked before national courts. Kenya is not

a signatory to the plurilateral agreements on Government

Procurement and Trade in Civil Aircraft. Kenya is amending some

pieces of its legislation, including on anti-dumping, countervailing

and intellectual property, to bring them into conformity with the

WTO Agreements.

Kenya encourages foreign investment and grants national

treatment to foreign investors. Most business activities are open to

foreigners, except those related to matters of security or health.

In order to attract investment, Kenya offers tax incentives to local

and foreign investors in the form of tax holidays, accelerated

depreciation, investment allowances, lower duties on intermediate

capital goods, and gradual reduction of corporate tax rates.

Despite these incentives, Kenya has been unable to attract much

investment, due to reasons noted earlier. Wide discretionary

powers in the administration of laws and regulations highlight the

need to ensure full compliance with the rule of law and to address

governance issues. The Government has taken, and continues to

take, steps to address these problems.

Trade Policy Instruments

Tariffs have become Kenya's main trade policy instrument. Since

the previous Review in 1993, Kenya has reduced the overall level of

protection of its economy. It has dismantled most non-tariff

restrictions, except for moral, health, security, and environmental

reasons, or under international conventions to which it is a

signatory. The tariff structure has been simplified through the

reduction of the number of bands from eight in 1994 to five (0, 5%,

10%, 15%, and 25%), and the lowering of maximum ad valorem

rates from 60% in 1992 to 25% in 1999. Mixed duties apply to

around 10% of all tariff lines and specific duties to 30 lines at the

eight-digit level of the Harmonized System (HS); virtually the same

products, including mainly agricultural and petroleum products, are

subject to mixed or specific duties as at the time of the previous

Review. The conversion of these duties into ad valorem rates

would reduce the complexity and enhance the transparency of the

tariff.

In addition to tariffs, "suspended" (stand-by) duties ranging up to

70% increase to 95% the maximum ad valorem import duties on

wheat flour, meslin flour, and certain types of sugar. The

suspended duties replaced variable duties on food and currently

apply to some 17% of all tariff lines at the HS eight-digit level, in

agriculture and manufacturing. The maximum suspended duty of

70% also applies to maize, rice, and milk. The simple average rate

of Kenya's non-specific import duties (inclusive of applied

suspended duties) is 18%. Some 3.7% of all tariff lines are duty

free while 38% carry rates higher than 15%; except paper,

paperboard, cards, and office stationery, rates higher than 35%

apply to agricultural products and their transformations. An import

declaration fee (IDF) of 2.75% is collected on all imports

including those not subject to the preshipment inspection that is

required for all imports worth at least US$5,000. The inclusion of

the fee raises to 20.75% the average rate of import duties. In the

aggregate, the positive escalation of Kenya's tariff (highly

pronounced on products such as textiles, wearing apparel, leather,

and metallic, rubber, petroleum, and chemical products) means

that the effective protection provided to most industries is higher

than the nominal rate. A value-added tax of 15% and excise duties

ranging up to 135% (the excise duties are mixed or specific on

certain products) are levied both on imports and locally produced

goods.

Some 15% of Kenya's tariff lines are bound at ceiling rates ranging

from 18% on pharmaceutical goods to 100% on all agricultural

products. "Other duties and charges" on all these products are

bound at a zero rate, notwithstanding the imposition of the IDF on

all imports and a fee of 1% on agricultural imports. The

predictability of Kenya's tariff regime could be enhanced by an

increase in the coverage of its tariff bindings and the narrowing of

the gap between bound and applied rates.

Except for timber and fish, Kenya has abolished export duties and

taxes on all products. In August 1993, Kenya abolished export

subsidies granted under the Export Compensation Scheme. Three

main incentive schemes, i.e. the Export Processing Zone, the

Manufacturing Under Bond and the Duty Remission Schemes, are

currently available to export-oriented companies. The Minister of

Finance may, on a discretionary basis, remit duties payable on

imports; import duties are remitted on specified inputs or those

used by specified firms, mainly certain state-owned companies.

However, certain agricultural products and food are subject to

special export licences for self-sufficiency purposes. The

sluggishness in the implementation of the parastatal reform

programme since 1996 has meant that several state-owned

companies still hold monopolies or exercise exclusive rights in

various areas of Kenya's economy.

Kenya has never applied contingency trade remedies

(anti-dumping, countervailing and safeguard measures). Awareness

of the non-compliance of Kenya's legislation on anti-dumping and

countervailing measures, and on intellectual property, with the

relevant WTO Agreements has led to the ongoing amendment

process. Kenya has no specific legislation on safeguard measures.

It retained the right to use the transitional safeguard mechanism of

Article 6.1 of the WTO Agreement on Textiles and Clothing but it

has not so far notified the lists of products it was to integrate into

the GATT during Phases I and II. Kenya is to base its customs

valuation method on the transaction value as from January 2000,

i.e. at the end of the transition period allowed to developing

countries under Article 20 of the WTO Agreement on the

Implementation of Article VII of GATT 1994.

Exemption from compliance with a compulsory standard may be

granted by the Minister of Industrial Development on a

discretionary basis. Except for goods and services not available in

Kenya and for purchases under projects funded by foreign

institutions, most public procurement is made through

Kenyan-based firms. Kenya is drafting its legislation on government

procurement.

Counterfeiting in Kenya affects mainly computer programs, sound

recordings and video cassettes.

Sectoral Trade Policy Developments

The Kenyan economy is currently organized around agriculture,

which provides inputs to certain sectors (mainly manufacturing)

and contributes to the development of others (manufacturing and

services). Kenya's agricultural policy aims to ensure food security,

defined to include self-sufficiency in main foodstuffs. To this end,

Kenya has frequently changed its foreign trade regime for

agricultural products and its agricultural reforms have often been

reversed. Almost all the marketing boards there is at least one

board for each major crop are still in operation, albeit with

relatively limited powers. Producer prices are still set and floor

prices maintained by the boards for certain crops (e.g. rice, maize,

pyrethrum, bixa, cashew nuts, and milk) because of their dominant

position or under their statutory powers. The liberalization of

marketing functions, while producer prices for certain crops are still

set at low levels by boards, has encouraged exports of

unprocessed commodities.

The liberalization reforms have revealed the weaknesses of the

intersectoral linkages and the lack of external competitiveness of

Kenya's manufacturing sector. Indeed, the already high protection

of the sector, enhanced by the rationalization of the tariff

structure and of incentive schemes aimed at promoting exports of

local products after transformation, did not prevent the collapse of

several firms, particularly in the textiles and clothing industry,

which enjoys high tariff protection. A two-phase industrialization

strategy was formulated in 1997 with a view to further increasing

the value-added content of Kenya's exports of primary products

(Phase I ending in 2006) and promoting more capital-intensive

industries (Phase II ending in 2020). The mining sector is subject

to little tariff protection but remains dominated by state-owned

companies and is relatively undeveloped.

The services sector has not performed well in recent years; its

relatively high-cost structure appears to have imposed a constraint

on the development of other sectors of the economy that are

highly dependent on basic services, such as transportation,

telecommunications, and financial services. State intervention

remains present in most subsectors including in the financial

subsector where government-owned banks hold the major share of

deposits and loans. Reforms in the sector are yet to fully take hold.

Additional efforts to create an efficient services sector would

appear essential for the further development of the country and to

support its new outward-oriented growth strategy. Under the

General Agreement on Trade in Services (GATS), Kenya made

commitments in telecommunications, financial services, tourism and

travel-related services, and transport services. Kenya is a net

exporter of services, mainly tourism; however, it would seem to

have potential to export other services, such as financial and

transportation services. Kenya has one of the most developed

banking systems in the region and, due to its geographical location,

it has the potential to provide maritime services to its land-locked

neighbours.

Trade Policies and Trading Partners

Kenya's commitments to WTO principles are integral to its

economic policies. In addition to its participation in the multilateral

trading system, Kenya has also pursued preferential trade

agreements as a means of increasing trade flows.

Kenya is engaged in reforms that have resulted in a certain

macroeconomic stability. The monetary and fiscal components of

the reforms, combined with the adoption of a managed floating

exchange rate system, have shown signs of success. Reform

efforts have also been made in the area of trade. Nevertheless,

structural reform has been somewhat hesitant, lengthening the

transition state in which Kenya has been for nearly a decade.

Kenya intends to actively pursue its trade liberalization and

structural reforms to consolidate the re-orientation of its economy

and complete its transition to an outward-oriented economy.

These measures should facilitate the efficient allocation of

resources reflecting Kenya's comparative advantages. Improvement

of the low level of its multilateral commitments, the transparency

and predictability of existing legislation, as well as its enforcement,

would create confidence in the irreversibility of its reforms and

render them more credible, thus improving Kenya's ability to attract

the needed foreign investment and enhancing the country's

adherence to WTO principles.

TRADE POLICY REVIEW BODY: KENYA

Report by the Government - Part V to VII

I. KENYA'S TRADE POLICY

1. Kenya's general trade policy objectives are articulated in the

sessional paper No 1 of 1986 on economic management for

renewed growth.

2. Trade policies in Kenya have evolved over time, changing from

an inward looking import substitution policy regime to the existing

one whose primary objective is the promotion of exports of

consumer and intermediate goods, while at the same time laying

the base for eventual production of capital goods for both

domestic and export markets. This is expected to lead to higher

earnings of foreign exchange, which in turn will help to reduce the

balance of payments deficit and the unemployment problems.

3. The Government has put into place various incentives such as:

the duty and VAT remission;

manufacturing under bond scheme;

export processing zones;

the pursuance of a flexible and realistic exchange rate that

promotes exports. Currently, the export compensation scheme has

been abolished since 1993.

(1) Agriculture

4. Self-sufficiency and expansion of exports are main objectives of

the Government in the agricultural sector. With these objectives,

the Government has evolved a comprehensive policy framework to

meet its stated priorities covering production, pricing and marketing

(i.e. domestic and export trade). For staple foodstuffs, the

Government has embarked on creating an enabling environment

through gradual liberalization of the marketing system.

B. Manufacturing Industry

5. After independence, Kenya relied on the import substitution of

consumer goods, but due to lack of incentives to foster the

production of capital and intermediate goods, a greater demand for

foreign exchange for import substitution was needed compared to

other sectors. The import substitution policy was biased towards

protection of domestic industries at the expense of their

competitiveness, which in turn enabled manufacturers to make

profits even in cases of under utilized capacities. Kenyan

manufacturers thus became inward oriented and failed to venture

into international markets. The Government then had to change

from this policy of import substitution to export promotion in order

to acquire more foreign exchange resources, and increase

employment and productivity.

6. To encourage investment, the Government of Kenya has

resorted to price liberalization. The Government published the

Restrictive Trade Policies, Monopolies and Price Control Act (1988)

to guard against exploitation of smaller firms by larger enterprises.

Import licensing has now been scrapped except for few items that

form the negative list. This list was enacted under the Import,

Export and Essential Supplies Act, for reasons of public health,

wildlife and environment protection, state and public security, or to

meet required sanitary, phytosanitary and environmental

standards.

C. Trade Policy Implementation

7. Trade policy implementation in Kenya is carried out mainly by the

Ministry of Tourism, Trade and Industry, the Customs and Excise

Department of Kenya Revenue Authority, as well as Central Bank of

Kenya. There are also a number of government departments or

agencies, which play a role in the implementation of trade laws in

Kenya. The Government, in its revitalization programme, is

committed to a policy of broad-based liberalization, as well as price

liberalization to encourage investment

D. Multilateral, Regional or Preferential Trading Agreements

8. Kenya's external trade policies are designed to create an

environment conducive to promoting its products in international

markets, especially those of the developed countries of Europe,

America and Japan without prejudice to the promotion of

intra-African trade. Trade policies are formulated with the view to

speeding up Kenya's industrialization process, and in such away to

make access to foreign markets easier for Kenyan products. In

pursuing these objectives, Kenya has entered into Multilateral,

regional, bilateral and preferential trade arrangements as detailed

below. Kenya is a signatory to the Lom? convention, and a member

of the African Economic Community, Common Market for Eastern

and Southern Africa (COMESA), East African Community (EAC) and

Inter-governmental authority on Development (IGAD).

E. Bilateral Trade Agreements

9. Kenya has bilateral trade agreements with the following

countries: Argentine, Bangladesh, Bulgaria, China, the former Czech

and Slovak Republic, Djibouti, Egypt, Ethiopia, India, Iran, Lesotho,

Nigeria, Pakistan, Poland, Romania, Rwanda, Republic of Korea,

Sudan, Tanzania, Thailand, the former USSR, the former

Yugoslavia, Zambia and Zimbabwe.

10. Under these agreements, Kenya and its contracting partners

accord each other the MFN treatment in all matters with respect

to their mutual trade relations. These agreements have been used

as instruments for promoting trade and improving economic

relations between Kenya and these countries.

II. KENYA'S EXTERNAL TRADE RELATIONS

11. External trade plays a vital role in the Kenya's economic

development. Key indicators of international trade and balance of

payments show a poor performance in 1998 compared to the

previous year. The balance of trade worsened owing to a marginal

growth in imports while exports almost stagnated.

12. The volume of trade grew by only 2.5 per cent in 1998 to

stand at Kenya pound 15,948.5 million compared to 13.5 per cent

and 8.5 per cent growth registered in 1996 and 1997 respectively.

The slackened growth of exports and imports volume reflects the

slow growth of the economy.

(2) Exports

13. Kenya's export earnings, continues to be generated mainly from

exports of primary agricultural products including coffee, tea and

horticulture. Food and beverages contributed 57.4 per cent of the

total export earnings, while non-food industrial supplies made up

18.3 per cent in 1998 compared to 22.4 per cent in 1997. Exports

of fuel and lubricants contributed 9.1 per cent of total export

earnings. Export earnings from food and beverages slightly

increased by 6.8% from Kenya pound 3,072.9 million in 1997 to

Kenya pound 3,283.3 million in 1998, mainly due to substantial

increase in exports of primary food and beverages for household

consumption, especially tea, beans and mussels frozen.

A. Imports

14. In 1998, there was a general increase in the values of most

import categories, although imports of non-food industrial supplies

fell by 11.7% in 1998, compared to a 22.9% increase in 1997. This

was mainly due to the liberalization of trade, through the removal

of import licensing, quantitative import restrictions and foreign

exchange controls.

B. Balance of Trade

15. One effect of the aforementioned measures has been that the

increase in the value of imports has not been matched by a

corresponding increase in export earnings, and the balance of trade

has deteriorated.

16. In should, however, be noted that even though liberalization

has increased the volume of imports, exports have also grown but

at a lower rate than imports.

C. Direction of Trade

17. African Countries continued to be the major destination of

Kenya's exports followed by the European Union (EU). In 1998, the

market share of total exports to African countries and European

Union (EU) stood at 47.3% and 30.0%, respectively.

18. The share of total exports to the European Union (EU) reduced

by 2.6% points while of that African countries increased by 1.3%

points. Exports to the Far East and Middle East accounted for

12.8% and 4.0% of total exports, respectively.

19. Exports to all European Union countries except United Kingdom

decreased by 7.5% in 1998, while exports to Middle East, and Far

East and Australia increased by 24.3% and 26.9% respectively.

Exports to Uganda and Tanzania jointly stood at Kenya pound

1,779.1 million, equivalent to 29.4% of total exports.

III. INVESTMENT POLICY

20. The government investment policy is outlined in various

sessional papers and national development plans, the most notable

ones being sessional paper 1 of 1986 on economic management for

renewed growth and sessional paper no. 1 of 1994 on recovery and

sustainable development which emphasizes on the increased role of

the private sector in economic growth. The Government has

undertaken key economic reforms with a view to promote both

domestic and foreign investment. These include abolishing export

and import licensing, rationalizing and reducing import tariffs,

liberalization of foreign exchange and price controls and partial

liberalization of the capital markets among other measures.

(3) Investment Promotion Centre (IPC)

21. Investment Promotion Centre is a public funded institution,

which was established in 1992 as a one-stop shop geared to

promote investment in the country. IPC processes all applications

for new investments and forwards recommendations to the Ministry

of Finance and Planning for approval by the Minister. A General

Authority license is issued within one month with prior approval

from the relevant authority in charge of issuing the license.

22. The Foreign Investments Protection Act (FIPA) (Cap518)

guarantees repatriation of capital, after tax profits and remittance

of dividends and interests accruing from investing in the country.

The constitution also provides guarantee against expropriation of

private property unless for security or public interest and when this

happens fair and prompt compensation is paid.

A. Major Investment Incentives

23. While the Government policy is to formulate and implement

measures in favour of private sector investment, the following

represent a summary of current incentive :

investment allowance - is provided as an incentive for investment

in the manufacturing and hotel sectors the rate of 60%

countrywide;

depreciation - liberal rates are allowed for depreciation of assets

based on value as follows:

buildings and hotels

machinery e.g. tractors and aircrafts;

loss carried forward - business enterprises that suffer losses can

carry forward such losses to be offset against future taxable

profits;

duty remission facility - material imported for use in manufacture

for export or for the production of raw materials for use in export

oriented manufacture or for the production of duty free items for

sale domestically are eligible for duty remissions. Applications for

this facility may be made to the Export Promotion Programme Office

in the Ministry of Finance and Planning.

B. Manufacturing Under Bond (MUB)

24. To encourage manufacturing in Kenya for world markets, the

Government has established an in-bond programme open to both

local and foreign investors. IPC and Ministry of Finance and

Planning (Department of Customs and Excise) administer the

program. Enterprises operating under the programme are offered

the following incentives:

exemption from duty and VAT on imported plant, machinery and

equipment, raw material and other imported inputs; and

100% investment allowance on plant machinery equipment and

buildings.

C. Export Processing Zones Authority (EPZA)

25. Export Processing Zones are coordinated by the Export

Processing Zones Authority (EPZA). A number of EPZs have already

been established. Enterprises operating in export processing zones

in Kenya enjoy the following benefits:

10 years tax holiday and a float 25% tax for the next 10 years;

exemption from all withholding taxes on dividends and other

payments to non-residents during the first 10 years;

exemption from import duties on machinery raw materials and

intermediate inputs;

no restriction on management or technical arrangement;

exemption from stamp duty; and

exemption from VAT and operate on one license only.