WHY KENYA?

Why Kenya? A Blueprint for Innovative Companies

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 WHY KENYA?

Executive Summary
Kenya presents an array of viable business opportunities for Innovative Companies. The country
adopts a market-based economy that represents the largest and most advanced economy in East
and Central Africa. This noteworthy development is further highlighted by the country's GDP
standing, which accounts for more than 50% of the regions total. Current estimates project the
country's GDP to increase to 5.6% in 2018 - and 6.2% in 2019, respectively. Associated benefits
for innovative companies that both operate and are considering to establish their business
activities, within the Kenyan marketplace include: (1) A variety of tax treaties and investment
promotion and protection agreements, (2) Political and macroeconomic stability, (3) Progressive
regulatory reforms, (4) Access to a large pool of highly educated and skilled work force, (5)
Strategic location to the larger East African Community (EAC) and adjacent regional markets, (6) A
highly developed social and physical infrastructure, (7) A fully liberalised economy, (8) Preferential
market access to neighbouring and adjacent markets, and (9) A well-established and robust
private sector. Correspondingly, the associated challenges for innovative companies that both
operate and are considering to establish their business activities, within the Kenyan marketplace
include: (1) Occasional mild political instability, and (2) Corruption impediments.

Overall, it is apparent that the associated benefits of doing business in Kenya respectively override
the associated challenges, therein. Hence, Kenya's Business Markets, in spite of their varied
challenges – have continuously been touted as representing some of the most promising growth
markets in Africa.

The following highly productive industries provide viable business opportunities for Innovative
Companies: Agribusiness, Renewable Energy, Health Care, FinTech, Information &
Communications Technology (ICT), Education, Manufacturing, Infrastructure and Building &
Construction. Correspondingly, the following ideal entry mode strategies will ensure the long-term
success of Innovative Companies that both operate and are considering to establish their business
activities, within the Kenyan marketplace: (1) Exporting, (2) Joint Venturing, (3) Franchising (4)
Mergers & Acquisitions, and (5) Strategic Alliancing.

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 WHY KENYA?

Market Overview
Economically, Kenya adopts a market-based economy, representing the largest and most
advanced economy in East and Central Africa. Its GDP accounts for more than 50% of the regions
total. Current estimates project the country's GDP to increase to 5.6% in 2018 - and 6.2% in 2019,
respectively. Kenya is recognised as the key logistical conduit into the East African Community's
(EAC) regional market, consisting: of Tanzania, Uganda, Rwanda, Burundi and South Sudan. As a
result, a number of foreign companies establish their regional headquarters in Kenya. Table 1
provides a summarised overview of Kenya's key facts.

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 WHY KENYA?

Table 1. Country's Key Facts

Key Facts

Capital Nairobi

Region Africa

Time Zone EAT (UTC+3)

Calling Code +254

Population 49,125,325 (2017)

Currency Kenyan shilling (KES)

GDP (nominal) $85.980 billion

GDP (growth) 5.8% (2018)

GDP (per capita) $3,500 (2017)

Source: African Strategic-Ventures (ASV) & CIA World Factbook

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 WHY KENYA?

Associated Benefits
Associated benefits for innovative companies that both operate and are considering to establish
their business activities, within the Kenyan marketplace include:

1. Tax Treaties and Investment Promotion and Protection Agreements

Kenya is a signatory to a large and growing number of tax treaties and investment promotion and
protection Agreements such as the Multilateral Trade System (MTS), ACP-EU Cotonou
Partnership Agreement, and the Africa Growth and Opportunities Act (AGOA). This allows exports
from Kenya to enjoy preferential access to world markets under a number of special access and
duty reduction programmes.

2. Stability
Since independence, Kenya has maintained remarkable stability despite changes in its political
system. Since the re-emergence of multiparty democracy and promulgation of a new constitution in
2011, Kenyans have enjoyed an increased degree of freedom.

3. Regulatory Reforms
Kenya is making efforts to lower the cost of doing business by conducting extensive business
regulatory reforms intended to substantially reduce the number of licensing requirements, to make
the licensing regimes more simple and transparent, and focused on legitimate regulatory purposes.

4. Access to a Large pool of Highly Educated and Skilled Work Force

Kenya prides itself on its large pool of highly educated, skilled and sought after work force in Africa
- trained from within the country, and from reputable internationally renowned institutions around
the world.

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 WHY KENYA?

5. Strategic Location
As the leading economy in East Africa, Kenya's strategic location and its well-developed business
infrastructure make it a natural choice for investors and many international firms have made it their
regional hub. This grants investors' access to the larger East African Community (EAC) and
regional markets - with access to over 385 million consumers. Nairobi is also a major transport
Hub in East Africa, with Connections from Jomo Kenyatta International Airport to Major
Destinations around the world. All these are coupled with a convenient Time zone of (GMT +3).

6. Highly Developed Social and Physical Infrastructure

Kenya affords a pleasant and quality standard of living with its spectacular and diverse natural
resources. These impressive qualities range from wildlife and sceneries - that includes the world
famous Maasai Mara. The country also boasts of high quality social amenities such as restaurants,
hospitals and entertainment spots. Hence, these impressive qualities further justify the reason as
to why the country attracts a high number of Expatriates.

7. Fully Liberalised Economy

Kenya fully liberalised its economy by eliminating all obstacles that previously hampered the free
flow of trade and private investment. These include exchange controls, import and export licensing,
as well as restrictions on remittances of profits and dividends.

8. Preferential Market Access

Kenya is signatory to a number of multilateral and bilateral trade agreements as part of its trade
policy. Kenya is a member of the World Trade Organisation (WTO), making her products access
more than 90% of world markets - at Most Favoured Nation (MFN) treatment. In addition, Kenya is
member to several trade arrangements and beneficiary to trade-enhancing schemes that include
the Africa Growth and Opportunity act (AGOA), ACP-EU Trade Agreement and Common Market of
Eastern and Southern Africa (COMESA).

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 WHY KENYA?

9. Well Established and Vocal Private Sector

Kenya endows a robust private sector, including a significant number of foreign investors and is
touted as one of the most resilient in the world. The country has always been a market economy.
Key players in voicing private-sector concerns include: The Kenya Private Sector Alliance
(KEPSA), Federation of Kenya Employers (FKE) and The Kenya Association of Manufacturers
(KAM). Furthermore, the government frequently conducts regular policy dialogues with private
sector players - through various impactful stakeholder Round Tables.

Associated Challenges
Associated challenges for innovative companies that both operate and are considering to establish
their business activities, within the Kenyan marketplace include:

1. Political Situation

Terrorism remains a serious challenge in Kenya. However, Kenya remains relatively stable despite
its location in a neighbourhood where there are on-going conflicts and insurgencies. Kenya's
military incursion targeting Al-Shabaab militants in neighbouring Somalia has heightened security
concerns and led to heightened security measures at business premises and public institutions
around the country.

2. Corruption
Varied corruption impediments continue to be one of the main inhibitors of transacting viable
business ventures. In particular, the offering of bribes as a means to speed-up service provision -
is proving to be a major huddle for concerned stakeholders within Kenya's Business Markets.
Hence, this counterproductive practice continues to somewhat demoralise the ambition of
innovative companies that both operate and are considering to establish their business activities,
within the country's marketplace.

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 WHY KENYA?

Growth Potential

Kenya's real GDP growth was a robust 5.8% in 2016, driven mainly by services (which accounted
for 66% of growth) and industry (which accounted for 19% of growth). Agriculture accounted for
15% of growth, the lowest in recent years. Growth in services was driven by real estate (which
grew 12%) and transport and storage (which grew 10%), and growth in industry was driven by
construction (which grew 8.2%) and manufacturing (which grew 6.2%). Real GDP growth declined
to an estimated 5% in 2017, due to subdued credit growth caused by caps on commercial banks’
lending rates, drought, and the prolonged political impasse over the presidential election. The half-
year estimates show that the economy remained fairly resilient, growing 4.8%. Services accounted
for 82% of that growth, and industry accounted for 17%; agriculture’s poor performance continued.
The economy is projected to rebound to a GDP growth of 5.6% in 2018 and 6.2% in 2019,
respectively.

Viable Business Opportunities

The following viable business opportunities exist for innovative companies that both operate and
are considering to establish their business activities, within the Kenyan marketplace:

1. Agribusiness
Agricultural productivity levels are considered to account for one of the highest - within the EAC
(East African Community) region. In terms of exports, the sector accounts for 70% of output,
therein. As per employment levels, the sector employs an estimated 85% of the rural workforce.
Currently, the sector attracts approximately 20% of FDI (Foreign Direct Investment) within the
region – a development that further enhances its commercial attractiveness.

Opportunities in this sector include:

§ Agro-processing – commercial irrigation, grains milling and marketing (maize and wheat),
sugar, dairy, fruits (mangoes, pineapples and oranges), poultry, pigs and oil crops
(sunflower, sesame, canola and groundnuts).

§ Light manufacturing – construction materials, agricultural machinery and equipment,

plastic and packaging industry, leather industry, pharmaceuticals and animal feeds.

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 WHY KENYA?

2. Renewable Energy
Kenya’s Energy sector is amongst the most vibrant in Africa and thus, energy demand, and in
particular renewable energy - is expected to support this growth trajectory.

Opportunities in this sector include:

§ Biomass - Co-generation using sugarcane bagasse and other agricultural residues.

§ Biogas - Potential to produce over 130 MW of power, availability of municipal coffee and
sisal waste, and potential to generate slaughter wastes.

3. Health Care
A number of favourable reforms in the health care sector are on course. In this regard, the sector is
poised to experience substantial growth. For instance, its currently valued at $ 2.2 billion and
contributes 2% to the country's GDP.

Opportunities in this sector include:

§ Health Equipment – manufacturing of medical devices.

§ Health Products – provision of expertise in the life sciences and pharmaceuticals.

§ Health Technologies – provision of expertise in ICT solutions.

§ Health Care Financing - provision of an array of investment funds.

4. FinTech
The financial sector is becoming increasingly sophisticated and diversified, whereby it represents
the third largest in Sub-Saharan Africa (SSA).

Opportunities in this sector include:

§ ICT Enabled Financial Services – service providers with the expertise of developing
compatible ICT enabled services.

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 WHY KENYA?

§ Risk Management - provision of expertise in cyber security.

5. Information & Communications Technology (ICT)

The Information & Communications Technology (ICT) sector is considered to be the regional
leader in East & Central Africa. Moreover, it is recognised as one of the predominant innovation
hubs in Sub-Saharan Africa (SSA).

Opportunities in this sector include:

§ Capacity Development - service providers with the expertise in upgrading ICT networks,
increasing Internet affordability, the improvement of infrastructure within institutions of
learning and to train qualified ICT professionals.

§ Retail – provision of e-commerce technologies.

§ Education – provision of varied digital tools and solutions.

§ Agriculture - provision of varied agri-tech digital tools and solutions.

6. Manufacturing
The manufacturing sector plays a key role in economic development through its overall significant
contribution to national output, exports and job creation.

Opportunities in this sector include:

§ Direct and joint venture investments in iron and steel industries.

§ Manufacture of fertiliser and agro-processing.

§ Manufacture of garments.

§ Manufacture of plastics, paper, chemicals and pharmaceuticals.

§ Manufacture of machinery and machine tools.

§ Assembly of automotive components and electronics.

§ Manufacture of metal and engineering products.

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 WHY KENYA?

7. Infrastructure
The infrastructure sector is continuing with its vibrant developments, coupled with supportive
governmental policies.

Opportunities in this sector include:

§ Construction material and equipment – provision of high-quality equipment and

materials.

8. Building & Construction

The building & construction sector is well developed and possesses an array of quality engineering
and architectural design services.

Opportunities in this sector include:

§ Low Cost Housing – provision of varied expertise in the building of durable low-cost
housing estates.

§ Commercial Property Development - provision of varied expertise in the development of

commercial property.

Ideal Market Entry Mode Strategies

Innovative companies should utilise the following ideal entry mode strategies to the Kenyan
marketplace, to ensure their long-term success.

1. Exporting

Exporting is the least-risky market entry strategy to the Kenyan marketplace. It is categorised into
two forms, namely indirect exporting and direct exporting. These are distinctively operationalized
on the basis of how your company manages its transaction with the Kenyan importer/buyer.
Hence, in relation to indirect exporting, your company leverages upon the expertise of local
independent marketing organisations – in the import and distribution business. As per direct

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 WHY KENYA?

exporting, your company will both undertake the independent importation and distribution of your
products/services.

2. Joint Venture

Joint venturing will involve your company partnering with a local company – through the acquisition
of shares and controlling interests. This market entry strategy is ideal, if your company possesses
assets, distribution channels and technologies – that are complementary with your target local
company. This arrangement is typically a mutually beneficial relationship, whereby common
objectives are intended to be achieved, such as risk/reward sharing, technology sharing, joint
product development, political connections, and conforming to governmental regulations.

3. Franchising

Franchising involves a local company (franchisee) paying agreed upon fees and royalties to your
company (franchiser) – in return for possessing the rights to utilise your trademark, sell your
products/services and adopt your overall business operational infrastructure. Nonetheless, this
arrangement is categorised into two types of systems. One of the systems involves the provision of
exclusive rights to a local company to utilise your company's overall business operational
infrastructure. The other system specifically focuses on providing your local partner the rights to
distribute your product(s)/service(s) – as opposed to providing exclusive rights to utilise your
company's overall business operational infrastructure.

4. Mergers & Acquisitions

Mergers involve the consolidation of your company with a local partner – with the intent of forming
a new business entity. The core thrust of this arrangement is to benefit from a number of
advantages, ranging from the accumulation of the assets and liabilities of distinct entities,
economies of scale, tax reliefs, bolstered growth, synergies and diversification interests.
Correspondingly, acquisitions involve your company acquiring controlling interests in a local
company. This arrangement however does not lead to the dissolution of the local company,
instead – it alters its ownership structure.

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 WHY KENYA?

5. Strategic Alliance

Strategic alliances involve the formation of various voluntary formal agreements between your
company and a local company. The overriding objective is to pool your resources to ensure the
achievement of common objectives, whilst maintaining your independent identities. A key feature
in this arrangement is that it is utilised to expand the production capacity, and increase the market
share of products. Associated benefits therein include buttressing new technology development,
leveraging brand image and the market knowledge of either company. Figure 1 provides an
encapsulated summary of the ideal entry mode strategies for innovative companies that both
operate and are considering to establish their business activities, within the Kenyan marketplace.

Figure 1. Ideal Entry Mode Strategies

Source: African Strategic-Ventures (ASV)

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 WHY KENYA?

Bringing it all together: Why Kenya?

As hitherto conveyed, Kenya presents an array of viable business opportunities for Innovative
Companies. The country adopts a market-based economy that represents the largest and most
advanced economy in East and Central Africa. This noteworthy development is further highlighted
by the country's GDP standing, which accounts for more than 50% of the regions total. Current
estimates project the country's GDP to increase to 5.6% in 2018 - and 6.2% in 2019, respectively.

Associated benefits for innovative companies that both operate and are considering to establish
their business activities, within the Kenyan marketplace include:

§ A variety of tax treaties and investment promotion and protection agreements

§ Political and macroeconomic stability

§ Progressive regulatory reforms

§ Access to a large pool of highly educated and skilled work force

§ Strategic location to the larger East African Community (EAC) and adjacent regional
markets

§ A highly developed social and physical infrastructure

§ A fully liberalised economy

§ Preferential market access to neighbouring and adjacent markets

§ A well established and robust private sector

Correspondingly, the associated challenges for innovative companies that both operate and are
considering to establish their business activities, within the Kenyan marketplace include:

§ Occasional mild political instability

§ Corruption impediments

Overall, it is apparent that the associated benefits of doing business in Kenya respectively override
the associated challenges, therein. Hence, Kenya's Business Markets, in spite of their varied
challenges – have continuously been touted as representing some of the most promising growth

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 WHY KENYA?

markets in Africa. Table 2 provides an encapsulated summary of the associated benefits and
challenges for innovative companies that both operate and are considering to establish their
business activities, within the Kenyan marketplace.

Table 2. Associated Benefits and Challenges for Business Opportunity Exploitation

Strengths Opportunities

+ Political and Economic Stability. + Tax Treaties and Investment Promotion

and Protection Agreements.
+ Access to a Large pool of Highly Educated
and Skilled Work Force. + Regulatory Reforms.
+Strategic Location. + Preferential Market Access.
+ Highly Developed Social and Physical + Fully Liberalised Economy
Infrastructure.
+Well Established and Robust Private Sector.

Weaknesses Threats

- Corruption. - Political Situation.

Source: African Strategic-Ventures (ASV)

- Author(s) & Contributor(s): ASV, Client Relations

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