An overview of doing business and starting a business in Kenya. Among other prospective areas, construction and IT services can be profitable.
Benjamin Okyere
With a population of approximately 39 million, Kenya is slowly recovering from the fallout of the 2008 postelection violence. Furthermore, persistent droughts have slowed economic growth for 2010/2011. The real GDP growth for 2011 is estimated at 4.2 up from 3.6 in 2010. Kenya is a hub for East African countries, and will benefit from further integration of the East African Community (EAC), which has a combined population of 132 million, which plans to have a common central bank and common currency to further enhance trade within the region. The country’s strategic location, its international access with the port of Mombasa and Nairobi airport, and its well-developed financial and services sectors facilitate international business. The two fiber-optic cables (TEAMS and SEACOM) that came into operation in 2009 increased bandwidth sevenfold, placing Kenyan businesses, especially those operating in the developing information and computer technology sector, in strategic positions for major expansion and economic growth.
Major Economic Sectors
Th Africa Economic Outlook maintains that agriculture accounts for approximately 25% of Kenya’s GDP and employs more than 50% of the labor force. Main agricultural products include cereals (maize and wheat), horticulture, industrial crops (sugar cane and pyrethrum), permanent crops (coffee and tea) and livestock. Manufacturing is dominated by food processing, processing of consumer goods, and refining of crude petroleum into petroleum products, which are all mainly consumed locally. Tourism accounts for approximately 5% of GDP, and is a major foreign currency earner. Recently the building and construction sectors have been important contributors to economic growth. Government initiated an infrastructuredevelopment program, which contributed to this growth, and has increased investments in road networks and the provision of affordable housing.
Starting a Business
According to the World Bank, in 2009, the cost of business start-up procedures in Kenya was 36.50% of GNI per capita. There are 12 procedures to start a business in Kenya according to the Kenya Investment Authority:
1. Obtain approval for the company name from the Registrar of Companies (3 days)
2. Stamp the memorandum and articles and a statement of the nominal capital (8 days)
3. Pay stamp duty at bank (1 day)
4. Declaration of compliance (Form 208) is signed before a Commissioner of Oaths/notary public (1 day)
5. File deed and details with the Registrar of Companies at the Attorney General’s Chambers (7-14 days)
6. Register with the Tax Department for a PIN (1 day)
7. Register with the VAT office (1 day)
8. Apply for a business permit (1 day)
9. Register with the National Social Security Fund (NSSF) (1 day)
10. Register with the National Hospital Insurance Fund (NHIF) (1 day)
11. Register for PAYE (Pay As You Earn) with the Kenya Revenue Authority (1 day)
12. Make a company seal after a certificate of incorporation has been issued (2 days).
The World Bank states that doing business is easier in the cities of Narok, Malaba, and Thika. It is more difficult in Kilifi, Nairobi, and Isiolo. Although the capital city Nairobi has the fastest time to start a business, it lags behind in the time needed to register property or enforce a contract before the courts. Another major business center, Mombasa, is the best locality in registering property and it is relatively easy to start a business here. Starting a company would be fastest and least expensive in Nairobi, as it takes approximately 34 days and costs 36% of income per capita. In Nyeri, it would take 80 days and cost 42% of income per capita. Obtaining all the permits to build a new warehouse and link up utilities would take approximately 69 days in Narok, similar to Hong Kong, China and in Denmark according to World Bank 2010 estimates. It would take approximately 111 days in Malaba, and 127 days in Isiolo. Processing a construction permit costs less in Nyeri (132% of income per capita), however, in Kilifi, it will cost more than twice as much (284% of income per capita).
Prospective Business Development Areas
Kenya has been pioneering the mobile banking revolution, according to the Africa Economic Outlook, by allowing mobile phone owners to make person-to-person transfers and pay bills regardless of distance. This has been a successful model of mobile banking and Safaricom’s M-Pesa service, after being launched in March 2007, broke the 9 million customers mark in January 2010. Therefore, the good communications infrastructure can support mobile, networking, call center and IT businesses. Although Kenya is a major hub for the rest of East Africa, it suffers from an important infrastructure deficit which requires more investment in housing and road networks. Currently only 18% of Kenyans have access to electricity in their homes, with only 3% of families in rural areas having access. More development and investment is required in this sector.
References
African Economic Outlook, “Kenya”
Kenya Investment Authority, “Procedures for Starting a Business in Kenya”
World Bank (2010), “Doing Business in Kenya 2010,” New York.
