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KENYA: An Introduction

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Following a particularly difficult year in 2017 brought on principally by election induced uncertainty, poor rains and a slowdown in credit growth in the private sector, Kenya's economic growth declined to a 5-year low to about 4.8% according to the World Bank's Kenya Economic Update 2018. The country's GOP is however projected by the World Bank to recover to 5.7% in 2018.

Despite the challenges faced in the last year, Kenya continued to retain its position as the anchor economy of East Africa, attracting global investment principally from China, Europe, India, Japan and the USA. According to the United Nations Conference on Trade and Development's World Investment Report 2018, foreign direct investment into Kenya in the year 2017 increased by 71%, with the increase attributable primarily to increased domestic demand and inflows into ICT industries coupled with increased tax incentives offered by the Kenyan Government to foreign investors. In its 2019 Ease of Doing Business Report, the World Bank cited Kenya as one of the economies with the most improvement from the previous year. Kenya rose from the 80th position worldwide in the 2018 report to 61st in the 2019 report with key indicators for improvement cited as the Kenya Revenue Authority's simplification of the process of providing value added tax information by enhancing its existing online system, and the implementation of an online land rent financial management system by the Ministry of Lands and Physical Planning. In practice however, the digitisation of the land rent management system continues to be hampered by the requirement for hard copy documents evidencing payment of land rent in previous years in order to update the land rent records.

The passing of various land-related regulations in April 2018, which include regulations governing extension and renewal of land leases and promulgation of standard forms to be used in land-related transactions, has resulted in additional certainty with regard to property ownership, use and transfer in Kenya. The Ministry of Lands and Physical Planning is also in the process of creating regulations to govern online land transactions so that matters such as land searches, registration of land transfers and securities can be undertaken online. It is hoped that the move to a digital land management system will reduce current problems such as delays, fraud and corruption in land-related transactions in Kenya.

The Kenya ICT Authority's recent digitisation of records in the Companies Registry has led to increased efficiency in company incorporation, which now takes a maximum of five to ten business days to be completed, allowed for company searches to be conducted online and received instantaneously for most companies, and increased compliance by registered companies when undertaking their continuous obligations as returns are filed online and updated automatically. A key concern however remains the fact that registration of securities granted by companies to lenders is still being done manually and it is therefore not possible to place reliance on search records with respect to securities registered with the Companies Registry. The online Collateral Registry created under the Movable Property Rights Act, 2017 which governs creation of securities over movable assets is however proving to be quite reliable with respect to securities registered thereunder as it provides for instantaneous registration and reliable searches based on information uploaded at the time of registration.

Efforts are being made to digitise court records and the overall court process but these efforts have yet to result in working systems, hence court processes in Kenya are still being undertaken manually.

In line with its Vision 2030 launched in 2008, the Government of Kenya continues to allocate significant resources towards the improvement of infrastructure in the country. This has, however, led to heavy local and external borrowing resulting in an external debt level representing 50.9% of the country's total debt, a factor which continues to create concerns on the possible effects this will have on the country's currency and overall stability.

As part of the implementation of Vision 2030, in December 2017, the President of Kenya launched the "Big 4 Agenda" under which the government aims to enhance manufacturing, ensure 100% food security and nutrition, achieve universal health coverage and provide affordable housing by constructing 500,000 new homes in the next five years. The government intends to pass legislation to achieve this agenda and has begun by passing laws creating a National Housing Development Fund to which it is proposed that all employees and employers make a contribution of 1.5% of an employee's basic salary, subject to a maximum cap of KES5000 in each month.

The interest rate cap introduced in September 14, 2016 through the Banking (Amendment) Act, 2016 requiring Kenyan banks to cap interest on loans at no more than 4% above the prevailing Central Bank base rate continues to have major negative effects on the Kenyan lending market. The Central Bank of Kenya's March 2018 Report on the Impact of Interest Rate Capping on the Kenyan Economy notes in this regard that although the capping initially led to an increase in borrowing by the private sector, this has over time declined with banks now shunning lending to small-scale borrowers and instead focusing on lending to government and large corporates. Another key effect of the interest rate cap has been to increase reliance on alternative credit providers who are largely unregulated and hence, in practice, consumer protection cannot be enforced with respect to such lenders. The government has expressed an intention to regulate these non-bank lenders and has to this end proposed the Financial Markets Conduct Bill of 2018 which aims to provide for the establishment of uniform practices and standards in relation to the conduct of providers of financial products and financial services, and to regulate the cost of credit. The key concern with the bill is that it proposes to remove credit oversight functions from the Central Bank of Kenya and transfer these functions to an authority to be known as the Financial Markets Conduct Authority.

The Finance Act 2018 amended the Excise Duty Act to increase (i) the excise duty rate on fees charged on money transfer services by banks and other fees charged by financial institutions from 10% to 20%, and (ii) the excise duty on fees charged by mobile money transfer operators from 10% to 12%. These increases may result in reduced volumes of bank and mobile money transactions in Kenya.

In March 2017, as part of the government's continued bid to fight corruption and regulate money laundering, the Proceeds of Crime and Anti-Money Laundering Act, 2009 was amended to require reporting institutions to apply enhanced customer due diligence on business relationships and transactions with any natural and legal persons, legal arrangements or financial institutions originating from countries identified by the government as posing a higher risk of money laundering and terrorism. Countermeasures introduced by the amendment Act include limiting or terminating business relationships with persons located in the concerned countries and applying enhanced due diligence measures on correspondent banking relationships with financial institutions located in the concerned countries.