Kenya Seeks Closer Cooperation With Russia

Published on 12th January 2015

By its geographical spread, the Republic of Kenya is rich in natural resources. The country is located in the Great Lakes region of East Africa. The capital, Nairobi, is a commercial hub. Kenya’s economy is the largest by GDP in Southeast and Central Africa. Agriculture is a major employer, the country traditionally exports tea and coffee, and has more recently begun to export flowers to Europe. For some reasons, many foreign investors choose Kenya: it is a politically and socially stable country and a preferred investment destination that serves as a gateway to the burgeoning market in East Africa.

Kenya’s external diplomacy has been on the rise, mostly focused on strengthening economic cooperation with foreign countries. For example, Kenya and Russia had established diplomatic relations on December 14, 1963 and now have growing solid relations. In November, the current Kenyan Ambassador to the Russian Federation, H.E. (Dr.) Paul Kibiwott Kurgat invited Kester Kenn Klomegah, Regional Editor-in-Chief for Russia and Eurasia at the Buziness Africa Media Group to his office where he gave this interview. He discussed Russia’s economic cooperation with Kenya as well as the investment and business climate for foreign players in Kenya.

Interview excerpts:

BuzinessAfrica: How would you describe Russia’s economic investments and cooperation with Kenya during the past few years?

H.E. (Dr) Paul Kurgat: Russia has longstanding and cordial relations with Kenya dating back to independence in 1963. Kenya would like to build on this long history of strong and comprehensive engagement, through developing closer ties with Russia in trade, investment and economic cooperation.

Currently, the trade statistics indicate that economic and trade interactions between the two countries remains relatively low, however, there is exits enormous potential of boosting economic ties for mutual benefits for the people our great nations. In 2013, trade in goods between the two countries increased considerably to US$ 341.1million from US$ 161.4 in 2010. The balance of trade was very much in favour of Russia with Kenya’s exports to Russia in 2013 valued at US$ 77.6million compared to imports of goods from Russia valued at US$ 263.4million. The major export commodities were tea, horticultural products, tobacco and coffee.

BA: Is the private sector also attracting Russian investors? And how competitive are these private sectors for foreign players?

Kurgat: Kenya has positioned itself as a preferred investment destination in the eastern Africa region with key reforms in several areas. The country is also implementing its vision 2030, a development blue print that aims at making Kenya a globally competitive and prosperous nation with high quality of life by the year 2030.

The Blue print sets development benchmarks for a number of priority sectors ranging from infrastructure and energy development, industrialization of agriculture, tourism, and manufacturing among others. The developments open a myriad of investment opportunities to all potential investors across the globe including Russia. This is further complemented by Kenya being a member of both the EAC and COMESA economic regional blocs which both gives a combined market with a population of over 400 million people.

The number of Russian investors is expected to increase significantly by the signing anticipated bilateral trade agreement between the two countries and establishment of direct flights between Kenya and Russia to facilitate movement of people, goods and services. The current Bilateral Air Services agreement between the two countries (signed in 1983 with the former Soviet Union) may need to be reviewed.

BA: To what extent is the business climate favorable for foreign businesses in your country? What efforts has your government taken to improve investment climate or to make it more attractive?

Kurgat: Kenya is the leading economy in East Africa, Kenya’s’ strategic location, extensive business regulatory reforms intended to substantially to lower the cost of doing business and its well developed business infrastructure, makes it a natural choice for investors whilst Kenyan exports enjoy preferential access to world markets under a number of special access and duty reduction programmes.

At the economic level, prudent policies have helped anchor the conditions for strong and stable growth. Fiscal discipline has improved both the external and domestic debt positions. A more modern framework for monetary policy has helped keep inflation expectations in check, despite adverse shocks. And stronger supervisory powers have maintained financial stability, even as the financial system is expanding rapidly and capital markets opening up.

At the political level, Kenya has not only overhauled its form of government by implementing the 2010 Constitution, but also gone through a delicate political transition - a transition that culminated with the March 2013 peaceful elections. Kenya’s new system of checks and balances enshrined in the New Constitution means that management of public resources is now more transparent and subject to more accountability.

Kenya's investment code, articulated in the Investment Promotion Act of 2004, which came into force in 2005, streamlined the administrative and legal procedures to create a more attractive investment climate. The Act’s objective is to attract and facilitate investment by assisting investors in obtaining the licenses necessary to invest and by providing other assistance and incentives. Further regulatory reforms include the Licensing Act of 2007, which eliminated or simplified 694 licenses, and a 2008 reduction in the number of licenses required to set up a business from 300 to 16.

BA: What kinds of incentives are available for foreign investors? Do you also have special economic zones and how does it work for foreign investors in Kenya?

Kurgat: The Government of Kenya established Export Processing Zones programme to provide for the establishment of export oriented businesses which will enhance economic growth and industrial development of Kenya. The Authority welcomes any project which is export oriented, in the eligible activities and represents a new investment in Kenya.

The following are the incentives currently available to foreign investors:
Tax benefits:-

10 year corporate income tax holiday and a 25% tax rate for a further 10 years thereafter (except for EPZ commercial enterprises)

10 year withholding tax holiday on dividends and other remittances to non-resident parties (except for EPZ commercial licence enterprises)

Perpetual exemption from VAT and customs import duty on inputs – raw materials, machinery, office equipment, certain petroleum fuel for boilers and generators, building materials, other supplies. VAT exemption also applies on local purchases of goods and services supplied by companies in the Kenyan customs territory or domestic market.

Motor vehicles which do not remain within the zone are not eligible for tax exemption.

Perpetual exemption from payment of stamp duty on legal instruments
100% investment deduction on new investment in EPZ buildings and machinery, applicable over 20 years.

 b) Easier Procedures and Smoother Operations:-

Operation under one license issued by EPZA seeks to minimize bureaucracy and eliminate administrative procedures and facilitate licensing, set up and operations of EPZ projects. This includes exemption from compliance with various laws such as the Import, Export and Essential Supplies Act, the Standards Act, the Industrial Registration Act, the Factories Act, and the Statistics Act. The EPZ Authority acts as the primary licensing and regulatory agency on behalf of the government, and collects the necessary information and data from the companies.

Rapid Project approval and licencing within 30 days (with exception of projects requiring environmental licence from National Environmental Management Agency NEMA) No Exchange Controls –liberalised foreign exchange regime and easy repatriation of capital and profits, access to foreign currency accounts, domestic and offshore borrowing.

On-site customs documentation and inspection by Customs Staff. All zones have a resident Customs office for on-site customs documentation and clearance. A Senior Revenue Officer is attached to the EPZA management to assist in all matters relating to customs and excise.

c) Physical Infrastructure Benefits:-

All zones are built to exacting international standards and provide facilities suited to export production

Serviced land and ready factory buildings are available for sale or lease to licensed EPZ companies. Water, sewerage, electricity, all weather roads and an illuminated perimeter fence or wall are standard requirement for zones.

Zone developers provide 24 hour security, street lighting, landscaping and street cleaning services in the zones. Private garbage collection firms are retained do dispose of normal office waste. Office premises and storage warehouses are available for lease in most zones.

BA: How is the business of Kenyan tea and flowers developing in Russian market and other republics? Are there any peculiar problems with exports to Russia?Do you plan to increase exports to the market in future?

Kurgat: Kenya is the world’s top exporter of black tea by weight. Tea exports compete with tourism and horticulture to be the country’s top foreign exchange earner. Like most black tea, Kenyan tea is produced from the Camellia sinensis var assamica plant, native to the Assam region of India.

The Russian market recorded the highest increase in Kenya’s tea exports from 15.7million kgs in 2010 to 30.3million kgs in 2013. The value of tea exports also increased from US$40.2million to US$69.4million during the same period. Kenya tea exporters are currently undertaking intensive marketing campaign in Russia to further increase their market share. The Kenya Tea Board is expected to participate at the PRODEXPO'2015 in Moscow.

Kenya is the lead exporter of rose cut flowers to the European Union (EU) with a market share of about 38%. Approximately 65% of exported flowers are sold through the Dutch Auctions, although direct sales are growing. Russia is one of the fastest export destinations of Kenyan flowers. However, the growth is currently hampered by language barrier and lack of direct flights (passenger and cargo) between the two countries.

BA: Is tourism your priority, how do you plan to increase the flow of Russian tourists to Kenya? And do you also see potential tourists from other republics?

Kurgat: The Government is shifting focus from marketing Kenya's tourism as a sun, sand and wildlife affair. New strategies such as meetings and conferences, culture, sports and agro-tourism will now be added on the menu to expand Kenya's tourism market. Thorough promotion of sports’ tourism, building upon the reputation of Kenya's sporting prowess will be undertaken to transform the country into a preferred destination for Russian and athletes from other countries.

Strategies includes broadcasting campaigns on Russian media, holding tourism seminars, participation in exhibitions and offering Kenyan locations with facilities to promote nontraditional activities such as foreign film productions in the country. With the envisaged aggressive marketing of Kenya as a tourist destination of choice, the number of Russian tourists visiting Kenya is expected to increase.

BA: What are your other priorities during the next few years as Kenyan Ambassador in the Russian Federation?

Kurgat: First and foremost, I will strive to expand and strengthen the long standing cordial diplomatic relations between the Republic of Kenya and the Federal Republic of Russia based on the mutual benefit of our two nations. My main priority is to build up economic ties and to accomplish growth in trade and investments between the two countries to unprecedented levels.

By Kester Kenn Klomegah

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