A new constitution brings in a raft of new legislation

On August 27, 2010, after much debate and a public referendum, Kenya adopted a new constitution. The first general elections under the new constitution were held in March 2013, following which the country ushered in a new government structure. Under the new structure, the republic became a unitary state with a devolved governance system comprising a national government and 47 county governments. The executive arm of the national government is headed by the president who is elected by a simple majority; the legislature is made up of the national assembly and the senate; and the judiciary is headed by the chief justice. The new county governments are mandated with the regulation of trade, licensing and general development in their respective counties. County-level legislation is thus becoming increasingly important to investors.

Legislative Overhaul 

Much of Kenya’s legislation dates back to colonial times; however, in line with the requirements of the constitution of 2010 new laws relating to public-private partnerships, competition, consumer protection, the capital markets, banking and payment systems, the demutualisation of the Nairobi Securities Exchange, medical services, the judicial system, the land regime (including real estate investment trusts) and revenue collection have been passed and legislation has been proposed to cover company law, insolvency and insurance, amongst others. Vision 2030 (an ambitious plan to lift Kenya to a middle-income economy by the year 2030) remains the country’s developmental blueprint and numerous legislative changes have been made to steer Kenya towards this goal.

The stated aim of the current government is to have minimal interference in business, with government increasingly adopting the role of regulator rather than active market participant. The recently enacted Public-Private Partnerships Act 2013 is designed to expand the participation of the private sector in infrastructure. A new Value-Added Tax (VAT) Act of the same year aims to ease the processing of VAT refunds and introduces an IT platform in tax filings. The Capital Markets Act has been reviewed and new regulations for derivatives and futures trading have been introduced together with the establishment of the growth enterprises market segment to allow small and medium-sized enterprises to access market liquidity. Discoveries of petroleum reserves in Kenya continue to attract investors and have led to aggressive competition for petroleum blocks. A new Mining Bill has been proposed with the aim of providing the clarity and certainty needed to develop the exploration and extractive industries, outlining revenue sharing principles between the central and county governments and any affected communities.

Regional Player

Kenya is a member of the East African Community, the Common Market for Eastern and Southern Africa (COMESA), and the World Trade Organisation. Regional cooperation within the East African region has increased with initiatives to establish the East African Community Monetary Union. A protocol was signed between the East African member states to initiate a move that would result in East Africa forming a single currency area by 2023. Kenya, Uganda and Rwanda have also agreed to waive requirements for travel documentation across borders for these countries. In addition, the elimination of tariff and non-tariff barriers by COMESA and the adoption of the COMESA Competition Regulations has allowed for healthy cross-border competition.

Financial Sector 

There is readily available debt in both local and foreign currencies, and residents and non-residents are permitted to hold foreign-currency accounts. In January 2013 developments in the national, regional and global arenas prompted the central bank to issue new prudential guidelines to strengthen the regulatory framework for the country’s banks.

Kenya offers numerous opportunities for foreign investors; however, the speed with which the legal landscape is changing and the breadth of legislation that has recently been passed or is in the pipeline means that anyone proposing to do business in the country should to do so with care and up-to-date legal advice.

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The Report: Kenya 2014

Legal Framework chapter from The Report: Kenya 2014

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