Kenya is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencies
Latest FATF Statement - 27 June 2014
The FATF welcomes Kenya’s significant progress in improving its AML/CFT regime and notes that Kenya has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in February 2010. Kenya is therefore no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. Kenya will work with ESAAMLG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report.
Compliance with FATF Recommendations
The latest follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Kenya was undertaken by the Financial Action Task Force (FATF) in 2017. According to that Evaluation, Kenya was deemed Compliant for 1 and Largely Compliant for 24 of the FATF 40 + 9 Recommendations.
US Department of State Money Laundering assessment (INCSR)
Kenya is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Kenya remains vulnerable to money laundering, financial fraud, and terrorism financing. It is the financial hub of East Africa and is at the forefront of mobile banking. Money laundering occurs in the formal and informal sectors, deriving from domestic and foreign criminal operations. Criminal activities include transnational organized crime, cybercrime, corruption, smuggling, trade invoice manipulation, illicit trade in drugs and counterfeit goods, trade in illegal timber and charcoal, and wildlife trafficking.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 31
World Governance Indicator – Control of Corruption 25
Kenya's competitiveness is held back by high corruption levels that penetrate every sector of the economy. A weak judicial system and frequent demands for bribes by public officials lead to increased business costs for foreign investors. Widespread tax evasion hinders Kenya's long-term economic growth, and fraud in public procurement is rampant. Corruption, active and passive bribery, abuse of office and bribing a foreign public official are criminalized under the Anti-Corruption and Economic Crimes Act 2003, in addition to the Bribery Act of 2016 which strengthens the fight against the supply-side of corruption. Facilitation payments are criminalized and there are rules for what types of gifts public officials are allowed to accept. Adequate enforcement of Kenya's anti-corruption framework is an issue as a result of weak and corrupt public institutions. For further information - GAN Integrity Business Anti-Corruption Portal
Kenya is the economic and transport hub of East Africa. Kenya’s real GDP growth has averaged over 5% for the last seven years. Since 2014 Kenya has been ranked as a lower middle income country because its per capita GDP crossed a World Bank threshold. While Kenya has a growing entrepreneurial middle class and faster growth, its economic and development trajectory is threatened by weak governance and corruption. Unemployment and under-employment are high, but reliable numbers are hard to find.
Agriculture remains the backbone of the Kenyan economy, contributing 25% of GDP. About 80% of Kenya’s population of roughly 42 million work at least part-time in the agricultural sector, including livestock and pastoral activities. Over 75% of agricultural output is from small-scale, rain-fed farming or livestock production.
Inadequate infrastructure continues to hamper Kenya’s efforts to improve its economic growth to the 8-10% range so that it can meaningfully address poverty and unemployment. The KENYATTA administration sought external investment in infrastructure development. International financial institutions and donors remain important to Kenya's economic growth and development, but Kenya has also successfully raised capital in the global bond market. Kenya issued its first sovereign bond offering in mid-2014. Nairobi has contracted with a Chinese company to construct a new standard gauge railway connecting Mombasa and Nairobi, with completion expected in 2017. The country is in the process of devolving some state revenues and responsibilities to the counties. Inflationary pressures and sharp currency depreciation peaked in early 2012 but have since abated following low global food and fuel prices and monetary interventions by the Central Bank. Chronic budget deficits, including a shortage of funds in mid-2015, hampered the government’s ability to implement proposed development programs, but the economy is back in balance with many indicators, including foreign exchange reserves, interest rates, inflation, and FDI moving in the right direction.
Tourism holds a significant place in Kenya’s economy. Multiple terror attacks by the Somalia-based group al-Shabaab in the time since the 2013 attack on Nairobi’s Westgate mall, which killed at least 67, had a negative effect on international tourism earnings, but the sector is starting to recover. Kenya’s success in hosting a series of incident-free high-profile events in the second half of 2015, including the visit of US President Obama, has helped improve the outlook for tourism.
Agriculture - products:
tea, coffee, corn, wheat, sugarcane, fruit, vegetables; dairy products, beef, fish, pork, poultry, eggs
small-scale consumer goods (plastic, furniture, batteries, textiles, clothing, soap, cigarettes, flour), agricultural products, horticulture, oil refining; aluminium, steel, lead; cement, commercial ship repair, tourism
Exports - commodities:
tea, horticultural products, coffee, petroleum products, fish, cement
Exports - partners:
Uganda 11.2%, US 8.3%, Tanzania 8.1%, Netherlands 7.4%, UK 6%, Pakistan 4.2% (2015)
Imports - commodities:
machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics
Imports - partners:
China 30%, India 15.5%, UAE 5.7%, US 4.8%, Japan 4.7% (2015)
Investment Climate - US State Department
Kenya has a generally positive investment climate that has made it attractive to international firms seeking a location for their regional or pan-African operations. The investment climate is characterized by stable monetary and fiscal conditions and a legal environment that makes few distinctions between foreign and domestic investment. Kenya has a strong telecommunications infrastructure, a robust financial sector, solid aviation connections within Africa and to Europe and Asia, and the Mombasa Port is the major trade gateway for much of East Africa. Increasing integration among the members of the East African Community as well as Kenya’s membership in other regional trade blocks provide growing access to a large regional market outside of Kenya. Key challenges for investors are Kenya’s consistently low rankings on international measures of corruption and ease of doing business, although Kenya has made significant progress on the latter since 2013 as reported by the latest World Bank Group’s Doing Business 2016. Kenya also faces a significant security risk from terrorism and crime.
Key macroeconomic fundamentals are strong. Inflation is stable in the range of five to eight percent. The exchange rate is largely stable, although it has depreciated from an average of 87.92 Kenyan shillings (2014) to 98.6 Kenyan shillings (2015) to the U.S. dollar as the U.S. dollar strengthened internationally. The exchange rate has continued to display relatively less volatility compared with regional currencies. The Central Bank of Kenya (CBK) adopted a tight monetary policy stance in June 2015 in order to anchor inflationary expectations and to moderate demand pressures in the economy attributed largely to exchange rate movements. It raised the Central Bank Rate (CBR) from 8.5 percent to 10.0 percent in June, and further to 11.5 percent in July 2015. It raised the Kenya Banks’ Reference Rate (KBRR) to 9.87 percent in July, from 8.54 percent. The CBK retained the two rates at these levels for the rest of 2015 with the exception of a temporary spike to over 24 percent in September 2015, before it returned to its historic baseline.
The United Nations Council on Trade and Development (UNCTAD) 2014 World Investment Report states that Kenya is becoming a favored regional business hub, not only for oil and gas exploration but also for manufacturing and transport. The report noted overall increases in FDI of 15 percent to $6.2 billion in the East African region as a result of rising flows to Ethiopia and Kenya. The World Bank Group’s Doing Business 2016 report ranked Kenya as the third most improved country, Kenya moved up 21 places to 108 of the 189 economies reviewed on business regulatory reforms.
2015 was also an active year for Kenya in improving the environment for foreign investment. Highlights include
Passage of the new Companies Act (2015) which modernized registration and operating procedures for public and private corporations;
Passage of the Business Registration Services Bill (2015) which created a one stop shop agency for business registration;
Passage of the Insolvency Act (2015) to modernize the legal framework for bankruptcies;
Continued progress by the Kenya Investment Authority (KenInvest) and the Business Environment Delivery Unit to reduce bureaucracy and simplify the business registration process; and
Progress on legislative modernization as the Energy, Mining, and Petroleum Bills make their way through the enactment process. In particular, revisions to the Mining Bill (2014) during the last year point to a more positive investment climate for the extractives industries.
Despite its advances in ease of doing business, corruption and some remaining weaknesses in the legislative frameworks continue to undermine Kenya’s business environment. Corruption remains a major impediment to investment, with Kenya ranking 139 of 168 countries on Transparency International’s 2015 corruption perceptions index. Allegations of irregularities in public tenders are frequent, and corruption scandals appear almost daily in local media. Foreign companies continue to complain of significant delays in work permits.
The risk of terrorism and insecurity has hindered the economy since a series of high-profile terrorist incidents beginning with an attack on Nairobi’s Westgate Mall in 20013, killing 67.
Kenya’s tourism industry cites the fear of terrorist attacks and international perceptions about the risk of Ebola in Africa as explanations for the decline suffered since 2013, as well as the slow pace of the industry’s recovery.
Despite these obstacles, American firms are operating successfully in many sectors in Kenya, and more American firms are seeking to set up their operations in the country. The sectors offering the most opportunities to investors are: energy, extractives, transportation, infrastructure, light manufacturing, retail, restaurants, technology, health care, mobile banking, and finance.
Other Useful Links
FATF AML Deficiency List
US Dept of State Money Laundering assessment
Non - Compliance with FATF MER Recommendations
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)