EAC-Kenya WT/TPR/S/171/KEN
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ANNEX 1

KENYA

EAC-Kenya WT/TPR/S/171/KEN
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EAC-Kenya WT/TPR/S/171/KEN
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CONTENTS

Page

I. Economic environment 35

(1) Major Features of the Economy 35

(2) Recent Economic Developments 36

(3) Trade and Investment Performance 38

(i) Trade in goods and services 40

(ii) Investment 43

(4) Outlook 43

II. trade and investment regimes 45

(1) General Framework 45

(2) Policy Objectives 48

(3) Trade Agreements 48

(4) Investment Framework 50

III. trade policies and practices by measure 52

(1) Introduction 52

(2) Measures Directly Affecting Imports 52

(i) Business registration, customs procedures, and valuation 52

(ii) Tariffs 53

(iii) Other duties and charges 54

(iv) Import prohibitions, restrictions, and licensing 55

(v) Contingency trade remedies 55

(vi) Standards and technical requirements 56

(vii) Other measures 60

(3) Measures Directly Affecting Exports 60

(i) Procedures 60

(ii) Export taxes and charges 60

(iii) Export prohibitions, restrictions, and licensing 61

(iv) Export subsidies and incentives 61

(v) Export finance, insurance, and guarantees 63

(vi) Export promotion and marketing assistance 63

(4) Measures Affecting Production and Trade 63

(i) Incentives 63

(ii) Government procurement 64

(iii) State-trading enterprises, state ownership, and privatization 65

(iv) Competition policy and price controls 67

(v) Intellectual property rights 68

IV. trade policies by sector 73

(1) Introduction 73

(2) Agriculture and Related Activities 73

(i) Main features 73

(ii) Policy developments 74

(iii) Selected products 77

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(3) Mining, Quarrying, and Energy 85

(i) Mining and quarrying 85

(ii) Energy 88

(4) Manufacturing 91

(5) Services 94

(i) Financial services 94

(ii) Telecommunications and postal services 97

(iii) Transport 99

(iv) Tourism 103

References 107

APPENDIX TABLES 109


CHARTS

Page

I. ECONOMIC ENVIRONMENT

I.1 Structure of merchandise trade, 1999-04 41

I.2 Direction of merchandise trade, 1999-04 42

TABLES

I. ECONOMIC ENVIRONMENT

I.1 Economic indicators, 1999-04 37

I.2 Balance of payments, 1999-04 39

I.3 Investment, 1999-03 43

II. TRADE AND INVESTMENT REGIMES

II.1 Main trade-related laws, June 2006 46

II.2 Selected notifications to the WTO, June 2006 49

III. TRADE POLICIES AND PRACTICES BY MEASURE

III.1 Key EPZ performance indicators, 2000-05 62

III.2 Privatized enterprises, 1991-02 66

III.3 Key state-owned enterprises scheduled for privatization during 2003-07 67

III.4 Kenya's membership of WIPO treaties, 2006 68

III.5 Overview of IPR protection, 2006 69

IV. TRADE POLICIES BY SECTOR

IV.1 Production of crops at current prices, 2000-04 77

IV.2 Production and average yield of tea and coffee by type of grower, 2000-04 79

IV.3 Exports of fresh horticultural produce, 2000-04 81

IV.4 Production and consumption of sugar, 2000-04 81

IV.5 Production and sale of livestock and dairy products, 2000-04 83

IV.6 Fish production, 2000-04 84

IV.7 Forest products, 2000-04 85

IV.8 Mineral production, 2000-04 86

IV.9 Mining licences, 2006 87

IV.10 Production, trade, and consumption of energy, 2000-04 88

IV.11 Installed capacity and generation of electricity, 2000-04 89

IV.12 Petroleum supply and demand, 2000-04 90

IV.13 Manufacturing production index, 2000-04 92

IV.14 Selected telecommunication indicators, 2000-04 98

IV.15 Transport output, 2000-05 100

IV.16 Railway traffic, 2000-05 102

IV.17 Tourism in Kenya, 2000-05 104

IV.18 Regulated tourist enterprises 106

APPENDIX TABLES

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I. ECONOMIC ENVIRONMENT

AI.1 Structure of exports, 1999-04 111

AI.2 Structure of imports, 1998-04 112

AI.3 Destination of exports, 1999-04 113

AI.4 Origin of imports, 1998-04 114

III. TRADE POLICIES AND PRACTICES BY MEASURE

AIII.1 Products subject to excise duties, 2006 115

AIII.2 Products subject to prohibition or licensing, February 2006 118

AIII.3 Products subject to pre-export verification of conformity to standards, May 2006 121

IV. TRADE POLICES AND PRACTICES BY SECTOR

AIV.1 Summary of Kenya's specific commitments in services 125

EAC-Kenya WT/TPR/S/171/KEN
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I.  Economic environment

(1)  Major Features of the Economy

  1. The Republic of Kenya encompasses a landmass of 586,650 square kilometres (8.1% arable) on Africa's eastern coast.[1] In 2003, 60.1% of Kenya's estimated population of 32.2 million lived in rural areas.[2] During 1999-03, its population expanded at an average annual rate of 2.9%. Nairobi (1.3million people) is the capital and is situated in the most densely populated region; it is also Kenya's main centre of commercial activity.[3] According to the most recent census, Kenya's population is relatively young: 38.4% in the 0-13 range, 58.3% in the 14-64 range and 3.3% were 65 or older; most live in central and western regions, the most fertile agricultural areas.
  2. Performance in poverty reduction stagnated until 2003 when several projects were initiated. In 2004, Kenya had an estimated real GDP per capita of US$416, down from US$426 in 2000, and an estimated income per capita of US$400, up from US$360 in 1999.[4] Kenya's UNDP human development index, which has worsened significantly since the early 1990s, ranked it 154 out of 177countries in 2003, below Uganda but above Tanzania. In 2003, 22.8% of the population lived on up to US$1 a day (58.3% on up to US$2 a day).[5]
  3. Kenya has the largest economy amongst the EAC countries. Moreover, Kenya's actual GDP may be underestimated.[6] As a proportion of GDP, Kenya's three main sectors in 2004 were: services (about 60%), of which public administration is the main component (some 16% of GDP); agriculture, including forestry and fishing (around 27%); and manufacturing (about 11%).[7] Foreign trade (exports and imports) as a proportion of GDP remained stable during 2000-03 at an average of 41%.[8] In 2004, this proportion increased to 45% due to the higher value of imports reflecting higher international petroleum prices.
  4. Kenya accepted the obligations of Article VIII of the IMF agreement in February 1994, and maintains no exchange rate restriction on current transactions. The objective of monetary policy in Kenya is to maintain internal price stability and to provide liquidity to a market-based financial system.[9] Kenya maintains a managed floating exchange rate regime with Central Bank of Kenya (CBK) interventions to smooth out unwarranted fluctuations of the Kenyan Shilling (K Sh).[10] The exchange rate against the U.S. dollar remained relatively stable during the period under review (KSh72.9 per US$ at end 1999, KSh74.0 per US$ in December 2005).
  5. Kenya has had on-off relations with the donor community due principally to apprehensions related to governance and management of donations in Kenya. In November 2003, Kenya agreed with the IMF on a Poverty Reduction and Growth Facility (PRGF) programme that was to provide US$250 million over three years; a further US$4 billion was pledged at a consultative group meeting of donor countries. However, both EU and IMF funds for budget support were deferred in 2004 due to governance concerns. The IMF nevertheless endorsed the first year of the PRGF at the end of 2004 and released further funds in January 2006, while the EC deferment was lifted temporarily in early 2006. In 2003, the Government also drafted its Economic Recovery Strategy, which takes into account the PRSP but covered other issues upon which many subsequent public policy and budgetary decisions have been based, particularly those concerning poverty-reducing projects. In June 2004, the World Bank approved a Country Assistance Strategy (CAS) that was linked closely to Kenya's own PRSP. Thus, in 2005, there were nine World Bank projects under the CAS initiative, totalling US$418.8 million for the period 2003-05.[11]

(2)  Recent Economic Developments

  1. Kenya's economic activity has picked up since 2003, after years of irregular performance. However, external shocks, mainly high oil prices and droughts, have affected output. Inflation increased significantly in 2003, making real interest rates negative, but tighter monetary policy seems to have contained it. Total factor productivity has decreased since the early 1990s (-0.27 for 2000-04), as has output per worker (-2.2% during 1996-01).[12] In addition, during 1998-02, unevenness in income distribution worsened: the poorest 20% of the population received 6% of national income whilst the upper 20% took 49.1%.[13]
  2. Real GDP growth picked up to 4.3% in 2003 (Table I.1): the largest contributors during 2003-04 were transport and communications, retailing and manufacturing. Tourism, Kenya's leading foreign exchange earner, was negatively affected by terrorist acts in 1998 and 2002, lack of adequate infrastructure, and competition from other regional destinations. The situation seemed to have turned around by 2004, as visitor arrivals increased by 21.1% due to a renewal of European charter flights, but the subsector still needs significant investment in accommodation and road infrastructure (for maintenance in particular), and in overall security.[14]
  3. The unemployment rate was estimated at 14.6% in 1999, and significantly higher in urban areas. A 2003 study found that informal employment had outgrown formal employment making it the main form of employment.[15] This might have led to less sophisticated and lower-skilled production arrangements, thus contributing to Kenya's low growth performance. In 2003, commercial, social and personal services accounted for the biggest share of employment (42%), followed by agriculture (18%), manufacturing (14%), and wholesale and retail (9%).[16]
  4. After having decreased during 2000-02, inflation rose consistently to reach its highest level since 1995 (19% in September 2004). The reasons for this increase were: an excessively loose monetary policy (i.e. fast broad-money growth), poor harvest, high energy prices, and a deterioration of the currency.[17] The increase in inflation made real interest rates negative. In response, the CBK decelerated broad-money growth to an annual rate of 7.5% in 2004/05 in an effort to curb inflation. Additionally, as part of the PRGF, Kenya pledged to reduce government borrowing from local sources to avoid its crowding-out effects; if implemented fully, this should also contribute to lower domestic interest rates. According to the authorities, Kenya's long-term inflation target is around 5%.

Table I.1

Economic indicators, 1999-04

1999 / 2000 / 2001 / 2002 / 2003 / 2004a
Miscellaneous
Nominal GDP at factor costs (K Sh billion) / 805.0 / 858.9 / 912.8 / 922.3 / 1,016.2 / 1,141.8
GDP per capita (current market prices in US$) / .. / 430.2 / 429.5 / 421.4 / 466.6 / 484.9
Gross national income (US$ million) / 10,041 / 10,074 / 11,059 / 12,345 / 14,249 / ..
(per cent)
Real GDP growth, market prices / .. / 0.6 / 4.4 / 0.4 / 2.8 / 4.3
Ratio of exports to imports / 59.4 / 54.3 / 50.9 / 65.7 / 65 / 59
Gross domestic investment (% of GDP at market prices) / .. / 17.4 / 19.2 / 16.3 / 17.4 / 18.3
Savings (% of GDP at market prices) / .. / 6.7 / 5.3 / 4.9 / 6.2 / 8.1
Consumer price index growth (end of period) / 5.8 / 10.0 / 5.8 / 2.0 / 9.8 / 11.6
Exchange rate (K Sh/US$, end of period) / 72.9 / 78.0 / 78.6 / 77.1 / 76.1 / 77.3
Current account (% of GDP at market prices) / .. / -1.9 / -2.9 / -1.3 / 0.4 / ..
Monetary sector / (percentage change)
Broad money (M3) / 6.5 / 4.9 / 2.8 / 11.7 / 11.9 / 13.7
Gross official reserves (US$ million, end of period) / 791 / 897 / 1,064 / 1,067 / 1,480 / 1,519
Gross official reserves (months of imports of goods and non-factor services) / 2.9 / 2.8 / 3.2 / 3.3 / 4.2 / 3.5
Share of GDP (at factor prices) / (per cent)
Agriculture, forestry, and fishing / 32.8 / 32.8 / 31.1 / 28.8 / 28.2 / 27.0
Manufacturing / 11.4 / 11.6 / 10.9 / 11.1 / 10.8 / 11.1
Electricity, gas, and water supply / 2.1 / 2.2 / 2.2 / 2.3 / 2.3 / 2.0
Mining and quarrying / 0.36 / 0.48 / 0.54 / 0.55 / 0.59 / 0.56
Services / 53.3 / 52.9 / 55.3 / 57.3 / 58.1 / 59.3
Public administration / 14.2 / 14.2 / 14.7 / 16.1 / 16.8 / 16.5
Construction / 3.4 / 3.2 / 3.5 / 3.5 / 3.6 / 4.0
Wholesale and retail trade (incl. restaurants and hotels) / 11.3 / 11.6 / 11.5 / 11.4 / 11.3 / 12.5
Transport and communication / 9.2 / 10.0 / 10.8 / 11.3 / 11.2 / 11.8
Financial services / 9.2 / 7.1 / 7.9 / 7.4 / 8.1 / 7.4
Other services / 5.9 / 6.8 / 6.8 / 7.5 / 7.2 / 7.1
Government finance
Overall balance to GDP (fiscal years ending in June)
Including grants / -0.6 / 0.2 / -1.3 / -3.0 / -3.4 / -0.4
Excluding grants / .. / -0.3 / -4.1 / -4.1 / -5.0 / -1.6
Total public debt stock (US$ billion, fiscal year to 30 June) / .. / 7.7 / 7.7 / 7.9 / 9.29 / 9.4
Memorandum
Grants (per cent of GDP) / .. / 1.2 / 11.1 / 4.0 / 6.1 / 9.2
External debt stock (per cent of GDP) / .. / 42.2 / 39.5 / 36.6 / 37.3 / 36.4
External debt service (per cent of exports) / 27.3 / 19.1 / 14.3 / 10.2 / 10.3 / 6.5
Terms of trade / 86 / 84 / 79 / 78 / 81 / ..

.. Not available.

a Preliminary.

Note: Data for the current account in 2003 as well as all figures for 2004 are preliminary. External debt service ratio was calculated after 2004 Paris Club rescheduling.