USTR - 1996 National Trade Esimate-Kenya
Office of the United States Trade Representative

 

1996 National Trade Esimate-Kenya

In 1995, the U.S. trade surplus with Kenya was $12 million, $49 million less than in 1994. U.S. merchandise exports totaled $114 million in 1995, down $56 million from 1994. Agricultural products and manufactured goods predominated and included such items as wheat, appliances, fertilizers, soybean oil, and aircraft parts. Kenya was the United States' one hundred-third largest export market in 1995 and its eighth largest in Sub-Saharan Africa. U.S. imports from Kenya amounted to $102 million in 1995, six percent less than in 1994.

In 1995, Kenya's economy continued its recovery from a period of near-zero growth in 1992-1993. The Government estimates that in 1995 the nation's GDP grew by 5 percent, a 2 percent improvement over 1994, and the 1996, GDP is predicted to increase by 5-6 percent.

While Kenya, the most industrialized country in East Africa, has a policy of supporting a free market economy with liberal investment regulations and foreign exchange system, its parastatal sector is large and requires downsizing.

The Kenyan Government's intention to privatize the parastatal sector began to make progress in 1994. Of the 207 "non-strategic" parastatals, approximately 110, including 45 tea factories, have been sold and the remaining non-strategic parastatals are to be privatized by the end of 1997. In December 1995, the Government sold 26 percent of Kenya Airways to KLM. The Government intends to sell an additional 48 percent of the national carrier in 1996 as well as significant shares in the two Government banks and the largest sugar refinery.

IMPORT POLICIES

After strengthening during the first quarter of 1995, the shilling-dollar exchange rate declined, stabilizing mid-year at 55 Kenya shillings to the dollar. The resulting high cost of imports, the relatively high transport costs from the United States, and competition from Kenya's traditional European suppliers are major constraints in expanding sales of American products.

In June 1994, Kenya reduced the number of custom duty bands from 8 to 7. In June 1995, the number of bands was reduced to 5. The maximum tariff fell in 1994 from 50 percent to 45 percent. In 1995, the Government lowered the maximum rate to 40 percent. The duty on computers, specifically, was reduced in 1995 from 10 to 5 percent. Tariff rates on processed agricultural imports, such as vegetable oil and breakfast cereal, remain high. The potential increase in U.S. exports if agricultural tariffs were reduced is probably less than $10 million.

Kenya abolished import licensing in 1993, except for a list of items based on health, environmental and security concerns. The list includes livestock and commercial seeds. From April-June 1995, the Government banned the import of sugar, soft wheat and corn. Imported dairy products were also banned in April 1995. In January 1996, the Government imposed a one-year import ban on dairy products.

All exports with F.O.B. value of more than $500 require Pre-Shipment Inspection (PSI). For shipmentsoriginating from the United States, this inspection is done by the Swiss firm Cotecna Inspection S.A. In addition to a "Clean Report of Findings" certifying that the goods are consistent with the invoice, the agencies also furnish a "Valuation Certificate," which enables the Kenyan Government to determine the correct duty chargeable. The PSI fee, two percent of FOB value, is high, and, effective Feb. 1, 1996, if importers fail to obtain the inspection in advance, the penalty is 20 percent for motor vehicles and 10 percent for other goods.

The Government has recently taken steps to crackdown on corruption at the Port of Mombasa. Twenty-two officials have been suspended and charged with duty evasion. The Government has also agreed in principle with the Singapore Port Authority to have it manage the container terminal at the Port.

STANDARDS, TESTING, LABELING

Since July 1995, the Kenya Bureau of Standards has inspected imports to ensure conformity to national standards. The fee is 0.2 percent. Agricultural goods are further subject in some instances to inspection by the Kenya Agricultural Research Institute (KARI).

Commercial hybrid grain seed must be evaluated for a period of three years by KARI. In 1995, however, the Government-operated seed company was permitted to import corn seed without meeting this requirement. Furthermore, in early 1996, Kenya, citing environmental standards, in effect banned commercial seed imports by requiring that nearly all approved seed be grown in the country. The rule, if enforced, would reduce U.S. exports by less than $10 million.

Products must be labeled in metric units. Products must further be packaged in even units (e.g., 1.5 Ltrs., not 1.51). Shipments which violate these rules, however, are not re-exported.

GOVERNMENT PROCUREMENT

Kenya has a buy national rule giving local firms a 10 percent preference in government tenders. That rule has not been repealed, but it is no longer followed. According to government regulations, goods worth over $4,000 must be purchased through open tender. In practice, however, tenders are frequently awarded to uncompetitive firms in which government officials have a significant interest. Conflict-of-interest regulations are not enforced. Some of the largest government contracts, including $83 million for an international airport in 1994 and $50 million for a presidential jet in 1995, have been awarded in secret. More transparent government procurement could boost U.S. exports by $100-500 million.

EXPORT SUBSIDIES

In 1992, the Government enacted a duty/VAT remission facility which allows exporters to purchase imported inputs tax-free. There is no general system of preferential financing, but sectoral government development agencies in areas such as tourism and tea are supposed to provide funds at below market rates to promote investment and exports by Kenyans.

Since late 1995, the National Cereals and Produce Board (NCPB) has sold 403,000 metric tons of subsidized corn to Southern Africa. The combined production and export subsidy amounts to approximately $75 per ton.

LACK OF INTELLECTUAL PROPERTY PROTECTION

Kenya is a member of the World Intellectual Property Organization (WIPO) and the African Regional Industrial Property Organization. It has joined both the Paris Convention on the Protection of Industrial Property and the Berne Convention for the Protection of Literary and Artistic Works. Although a unified system for the registration of trademarks and patents from anglophone Africa was signed in 1976, the effort has remained stagnant due to a lack of cooperation and funds. A future prospect for patent, trademark and copyright protection is embodied in the African Intellectual Property Organization, although the enforcement and cooperation procedures are untested.

Kenya is in the process of amending its intellectual property laws to conform to WIPO guidelines and international conventions. In December 1995, the Parliament revised the Copyright Act, incorporating, among other changes, protection for computer technology and satellite transmissions. The Industrial Property (Patent) and Trademark Acts are scheduled to be amended in 1996.

The Copyright Act Protects sound as well as video recordings. Violations are subject to a fine of up to 200,000 Kenya shilling ($3,600) or 5 years' imprisonment or both. In practice, however, the Attorney General's Office, which is responsible for copyright matters, and the police seldom enforce the laws. Pirated sound recordings are common and nearly 100 percent of the videos available in shops are unlicensed.

At the end of 1995, the Kenya Broadcasting Corporation owed the local music copyright community nearly $100,000 for artists' royalties. Kenya Film Corporation, a bankrupt parastatal which until 1993 controlled the importation, distribution and exhibition of feature films, routinely shows unlicensed films at Nairobi's biggest movie theater. Other commercial theaters and a Kenyan Cable Television Company also violated copyright norms in 1995. Given the small size of the market, improved copyright protection might increase exports by less than $10 million.

SERVICES BARRIERS

There are no explicit barriers on the provision of services by U.S. professionals. For example, a U.S. bank is the top provider of foreign exchange services in Kenya, and a U.S. life insurance firm is the leader in its industry sector. Nevertheless, foreign companies offering services in construction, engineering and architecture may face discrimination when bidding for public projects, and the Kenyan Bar has declined to admit foreign lawyers for over 10 years. New foreign investors with expatriate staff are required to submit plans to phase them out.

INVESTMENT BARRIERS

Foreign Equity Investment on the Nairobi Stock Exchange has been authorized since January 1, 1995, Subject to certain limits. The limits were increased in June 1995 to 40 percent for combined foreign ownership and 5 percent for individuals. Life insurance companies are required to have at least 33 percent local ownership. In other industrial sectors, local partners are encouraged but not mandatory. Small-scale

commercial enterprises no longer require a Kenyan partner. Technology transfer requirements and foreign exchange controls have been abolished. Difficulty in obtaining clear title to land, lack of confidence in speedy and fair resolution of disputes and requests from officials for illicit payments continue to hamper investment.

LACK OF ACTION AGAINST ANTI-COMPETITIVE PRACTICES

The Kenyan Government has removed most of the monopolies, including all trading monopolies, formerly enjoyed by the country's "strategic" parastatals. Nevertheless, several of these state corporations are still a major source of anti-competitive practices. In the case of the media, the Government allocates licenses based on political loyalties. Kenya Broadcasting Corporation (KBC) is no longer the sole provider of television, but the only other current operator is controlled by the governing party. A third TV broadcasting license has been given to a private Kenyan company with close ties to the Government. KBC Radio will have a competitor beginning in the fall of 1996, but again the license was awarded to a firm with connections to the governing party. In 1995, the government, also prevented an opposition leader from buying the country's second most important daily newspaper.

The Government has been hesitant to open up public infrastructure to competition, Although there may soon be progress in this area. Private power companies are not yet allowed to operate although the Government is soliciting bids for a limited build-own-operate private program. There has been discussion of allowing private firms to build and operate roads. Since 1994, refined oil products may be imported, but they are Subject to high duties to protect the national refinery's market share. The state re-insurance company is still entitled to 20 percent of all general insurance business.

Kenya Posts and Telecommunications Corporation has authorized private pay phones and private Very Small Aperture Terminals (VSAT), but has dragged its feet on authorizing various satellite and Internet projects and more direct competition in telephone services. The company is scheduled to be split into three parts by December 1996: posts, telecommunications and a regulatory Agency. Thereafter at least a 30 percent share in the telecom company will be sold to the public. Removal of these barriers in telecommunications alone could allow U.S. firms to increase their exports by $10-25 million.

The state agriculture sector is another area in which anti-competitive practices abound. Only the National Cereals and Produce Board is permitted to export corn. All coffee produced in Kenya must be sold through the Coffee Board of Kenya. Kenya Seed Company and the National Dairy Cooperative are subsidized. Private firms do not restrict the sale of U.S. goods and services. There is, in fact, significant demand for U.S. products. The difficulty lies in overcoming the bias by importers and distributors toward additional suppliers in Europe and the United Kingdom, Kenya's former colonial ruler, in particular.

 
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