author
Joanna M.
Business
09 / 2020

Starting an Import/Export Business in Kenya - 15 Things You Need to Know

export import africa

Kenya is East and Central Africa's most advanced and largest economy. It further boasts of a rapidly expanding market for consumables. The nation's booming demand for consumer goods is fueled by the country's emerging urban middle-class with a taste for high-quality imported goods and services. In 2019 alone, the East African nation imported goods and services worth about $14 billion. On the other hand, Kenya also exports to various markets all over the world. In the same period, the country exported goods worth $3.44 billion.

Though the glaring contrast between these two figures represents a trade imbalance, when evaluated from an investment point of view, it means there's a ready market for both imported goods and services. The export market is equally booming. Below are key things to consider before starting up an import or export business in Kenya.

Ease of Doing Business in Kenya

In the World Bank Ease of Doing Business index report for the year 2020, Kenya ranked number 56 out of 190 countries globally. This new ranking signifies an improvement from the country's ranking as number 61 in the previous year. More so, since 2014, Kenya has moved up 80 places in its ease of doing business rating. This is undoubtedly a pointer to the gains the country has recorded by positioning itself as an investment destination in the East African region.

The most noticeable progress made in the past year was in speedy business registrations, resolving insolvency, electricity connection, greater access to credit, faster cargo clearance, dealing with construction permits, efficient tax administration, improved border movement, and protecting minority investments. It now takes just five days to register a business in Kenya against 34 days. Similarly, to register a property, all the paperwork will be done in 12 days instead of 72 days.

Overview of the Kenyan Economy

Over the last decade, Kenya recorded massive gains pursuing several structural, political, and economic reforms. These reform programs translated into noticeable social development, economic growth, and political stability. On the economic front, Kenya as Africa's third-largest economy {behind South Africa and Nigeria} is built on its tourism sector, agriculture, manufacturing, IT services, wholesale/retail trade, and financial services.

Jointly, these key sectors led to the steady growth of the nation's Gross Domestic Product (GDP) from $40 billion in 2010 to $41.95 billion (2011), $50.41 billion (2012), $55.1 billion (2013), $61.45 billion (2014), $64.01 (2015), $69.19 billion (2016), $78.76 billion (2017), $87.91 billion (2018) and finally to $99.246 billion (2019 estimate).

With this upward trend, the Kenyan government is not resting on its oars but is vigorously implementing several programs to attain its developmental visions. This vision is aptly titled Kenya Vision 2030. It began in 2008 and has been on course since then. It is the roadmap to transforming the East African nation as a middle-income and newly industrialized nation which provides its citizens with a high quality of life in a hygienic and secure environment. The journey to this point involves massive and sustained investment in science, technology, and innovation, public sector reforms, tourism, and agriculture. Obviously, for this to happen, there has to be a considerable import of needed raw materials and machinery, as the export of Kenya's domestic produce to earn foreign exchange.

Availability of Market Information

Though the availability of data for adequate market analysis is a persistent problem in many African countries, Kenya is visibly getting it right in this regard. There's an availability of data on imports, local market demand, and potential foreign markets from The Kenya National Chamber of Commerce and Industry (KNCCI). Simultaneously, information about exports can be readily found with the Export Promotion Council (EPC) and the Export Processing Zones Authority (EPZA).

Besides providing information on the import and export market, an investor can also determine potential trade partners willing to trade with Kenya. Business directories offer contact details of various importers and exporters with a specialty in multiple lines of trade and organizations that render services on particular trades. Lastly, established exporters and importers can also provide business advisory services to new investors in the sector.

Kenya's Main Exports and Export Destinations

Kenya, like many other African countries, has a comparative advantage in regards to agricultural products. Over the years, the country's top exportable commodities were tea, coffee, spices, live trees, plants, fruits, nuts, vegetables, clothing, leather, and spices. In 2019 alone, these products accounted for about $3.44 billion worth of export to other countries. In Africa, Kenya's top trading partners are Uganda, Somalia, Tanzania, South Sudan, Democratic Republic of Congo, Egypt, and Rwanda. While for the rest of the world, you have Pakistan, United Kingdom, United Arab Emirates, United States, and the Netherlands.

Looking at this, it's glaring that Kenya mainly exports to other African countries, which buy about 35.2% of its export, Asia buys about 30.5%. In contrast, Europe, North America, Latin America, and Oceania buys 24%, 8.4%, 0.9%, and 0.5% of Kenya's exports. Regardless, there's still lots of ground to be covered, especially in marketing and selling Kenya's produce to countries beyond the shores of Africa.

Opportunities in the Export Market

In the pursuit of Kenya's Vision 2030, the government, through a series of development projects, has been pushing on all fronts to achieve this objective. One vital area is the expansion of Kenya's export of locally produced goods. It's projected to contribute a 10% growth to the country's GDP yearly. However, for this to happen, there needs to be a paradigm shift from the status quo. For the most part, Kenya has been importing natural products with little to no gain.

All this makes Kenya's export less competitive in the international market against other exports. So, to fill in the gaps in Kenya's export sector, locally produced goods need to be processed to meet export market opportunities and satisfy foreign preferences before goods are exported to overseas markets. The Kenyan government, as part of its National Export Development and Promotion Strategy (NEDPS) plan, has already made interventions in this regard.

Altogether, they create a favorable business environment for exporters, setting up robust export financing programs, and providing stimulants and incentives to manufacturers.

Kenya's Main Imports and Import Sources

Kenya's imports come mainly from developed and industrialized countries and usually range from machinery, vehicles, iron, steel, plastics, pharmaceuticals, cereals, paper, and computers. In 2019, these imports amounted to $14 billion, which, however, signified a decrease of 13.1% from the country's import bill of $18.6 billion in 2015. It equally pointed to a 19.4% decrease in its $17.38 billion import bill of 2018. This puts Kenya's 49.4 million population into perspective; its $14 billion import value in 2019 suggests a yearly $300 demand for consumables per individual. Kenyan consumes an array of imported goods and services daily, as their needs are.

Kenya mainly sources its imports from China, the United Arab Emirates, Japan, South Africa, Uganda, United States, Indonesia, and Germany. From a continental perspective, 67.5% of Kenya's imports come from Asia, 15.5% from Europe, 11.7% from Africa, 3.7%, 1.3%, and 0.4% from North America, Latin America, Oceania, and Australia, respectively. An analysis of Kenya's import trend suggests that there has been a steady rise in the import of consumables such as plastics, electric machinery, iron, and steel.

Gaps in the Import Market

As a developing country, Kenya's import list is still dominated by goods and services aimed at accelerating the country's development process and also improving the standard of living for locals and foreigners. Based on this, there's an ever-increasing demand for imported machines, electronics, and electrical components, among others.

While these determine Kenya's import market trend for a long time, a recent study shows a significant shift in demand for goods like mobile phones, tablets, laptops, cameras, Hifi systems, and their accessories. The constant need for this line of products is fueled by the fact that they come in numerous designs with ever-changing features and capabilities. Honestly, many Kenyans love to keep up with global trends. However, various gaps still exist in the import market because many of these tech gadgets come at a price; not many Kenyans can afford it. But with the right product sourcing, importers stand an excellent chance of cashing out when a first-of-a-kind product is introduced in the Kenyan market.

Air and Seaport Infrastructure

Whether you plan to export locally produced goods or import foreign-made products to resell, at one point or the other, you will have to consider the availability of transport infrastructure in Kenya. As East and Central Africa's biggest economy, Kenya has an extensive network of infrastructure that connects various parts of the country and links it to other regions.

Airport

They're about four international airports in Kenya; Moi International Airport, Jomo Kenyatta International Airport, Kisumu International Airport, and Eldoret International Airport. Of these four, Jomo Kenyatta International Airport and Nairobi and Eldoret International Airport are designated air cargo terminals. The Kenyan government, through the Kenya Airports Authority (KAA), put in place several policies to ensure business process automation, infrastructure development, expansion of cargo facilities, aggressive marketing, and publicity of its airports. Airports have increased passenger and cargo traffic within Kenya's international airports.

Seaports

The Kenya Ports Authority principally shoulders the responsibility of maintaining regulations in Kenya's seaports on the Indian Ocean. The main ones are the Port of Malindi and the Port of Mombasa. The latter is also used by 12 countries in the region to meet their shipping needs. As a result of this immense pressure on the port, the government of Kenya has designed lots of development projects to increase the port's capacity.

Road and Rail Infrastructures

There are both paved and unpaved roads that extend across the country's considerably vast landmass. Similarly, Kenya's railway system links to various airports and seaports; it even extends to Uganda. Developing a standard gauge railway (SGR) is currently ongoing to phase out the inefficient meter-gauge network gradually. Already, the Mombasa–Nairobi Standard Gauge Railway is in operation, conveying passengers and goods through the two big cities.

Requirements for Importing Goods in Kenya

Except for goods exempted from levies and taxes, any good/s imported into Kenya must be cleared by customs. At that point, the dues and levies on have to be paid before it's released.

An importer should use a clearing agent when importing goods with Kenyan custom authority. The following documents are required:

  1. A Certificate of Conformity (CoC) from the PVoC agent for regulated products;
  2. An import standards mark (ISM) when applicable;
  3. Valid Commercial Invoice from the exporting firm
  4. Valid pro forma invoices from the exporting firm.
  5. Bill of Lading (sea cargo)/Airway Bill (air cargo)
  6. Certificate of origin
  7. Freight invoice for sea cargo
  8. Logbook and its translation if it is not in English (motor vehicle)
  9. Permit/License for restricted goods
  10. Personal or Taxpayer Identification Number (PIN certificate)
  11. Exemption letter (in case goods are exempted)
  12. Purchase Orders/Contracts
  13. Certificate of Roadworthiness for Motor Vehicles
  14. Packing List
  15. Letter of Credit (if available)

Items Restricted and Prohibited

While importing many essential and luxury goods into Kenya, some restrictions are put in place against the importation of some products. The items listed on Kenya's Custom website are:

Restricted items

  1. Fruits
  2. Children toys
  3. Precious metal
  4. Precious stones
  5. Unprepared ivory
  6. Gold and diamonds
  7. Historical artifacts
  8. Imitation firearms
  9. Arms, ammunition, and explosives of all types are banned except they come with a police permit.
  10. Cats and dogs must have a certificate of good health, including rabies is required, while every other animal can only travel as cargo.
  11. Wild birds being imported from countries currently suffering from bird flu will need a sanitary import permit to be issued by the Director of Veterinary Services.
  12. Meat and meat products must be declared at customs and are not allowed to be imported.

Prohibited items

On the other hand, the items listed below are prohibited from being imported into Kenya.

  1. Soil
  2. Illegal drugs
  3. Hazardous materials
  4. Pornographic materials
  5. Dangerous hunting weapons.
  6. Unauthorized plant products.

Requirements for Exporting Goods out of Kenya

Just like it is with importation, exportation out of Kenya also requires you to process documents with customs by a clearing agent. You're required to provide the clearing agent with the following documents:

  1. A valid Commercial Invoice;
  2. Certificate of origin
  3. Permit/License for restricted goods
  4. Personal or Taxpayer Identification Number (PIN certificate)
  5. Purchase Orders/Contracts
  6. Packing List

To clear your goods, your agent will have to make a customs declaration per Section 73 of the East Africa Community Customs Management Act 2004. Afterward, Customs check and process all compliant declarations. After that, your agent will present all documents about your goods before stuffing, verification, and release. After this, they'll be released for exit at the border or port with a certificate of export.

Import Duties

At various times, governments worldwide might restrict or tighten their country's import using various fiscal tools. Kenya is no exception, as there are many duties and taxes payable by importers in the country. They include:

  • Import duties vary between 0%, 10%, and 25% of the value of the imported product as provided by the East Africa Community Common External Tariff (CET).
  • Secondly, we have the Excise duty, which is a form of indirect tax used to discourage the purchase of specific goods so long as they are excisable.
  • There's also the value-added tax (VAT), which used to be 16% of the value of the product, but according to the VAT Act of 2013, it is now 0%.
  • Finally, we have Import Declaration Fees (IDF) & Railway Development Levy (RDL) as required by the Miscellaneous Fees and Levies Act of 2016, which is 2% and 1.5%.

Export Duties

There are about six export processing zones in Kenya, and there, manufacturers enjoy various tax incentives, which range from a 10-year corporate tax holiday (25% afterward), a 10-year withholding tax holiday on dividend remittance, and also exemption from most other regulatory schemes. The Kenyan Manufacturing Under Bond (MUB) also gives similar incentives to companies outside the export processing zone.

Some select items attract an export Levy as outlined in the First Schedule of the Miscellaneous Fees and Levies Act of 2016. The bill requires that an export levy be charged on all exports to countries outside the East Africa Community (EAC); this levy is decided upon by ad valorem regime and a hybrid tax regime (including both specific and ad valorem rate). However, the export levy applicable in this instance will not be charged to goods exported to EAC partner countries. Goods classified under the First Schedule are:

  • Raw hides and skins at the rate of 80% or USD0.52 per Kg
  • Waste and scrap metal at a rate of 20%.

Incentives to Imports and Exports in Kenya

To encourage Kenyan traders to engage in international trade, the Kenyan government has drawn up a lot of incentives aimed at making the sector attractive to willing investors. These incentives comprise programs and packages like the duty drawbacks, Manufacture Under Bond (MUB), Tax Remission for Exports Office (TREO) Scheme, and Export Processing Zones (EPZ) programs.

For duty drawbacks, the EA Customs Management Act allows the liability of import duty on goods imported into Kenya to manufacture other products meant for export. It also will enable products transferred to a free port or an export processing zone.

The MUB, on the other hand, accommodates the import of plant, machinery, industrial equipment, and raw materials without tax levied on them. This is provided that they will be used to manufacture goods meant for export.

TREO offers tax remission on inputs to make goods defined as essential for the domestic market. It's also aimed at encouraging local manufacturers to export their products by remitting duty and VAT on raw materials used to manufacture goods.

Lastly, EPZ investors are entitled to attractive fiscal incentives coupled with simplified operating procedures and superior business and industrial infrastructure.

Financial Institutions Aiding Export/Import

Importation and exportation require a substantial amount of money. Sometimes it's hard for the importer or exporter to shoulder it on their own. Nevertheless, there are financial institutions that offer various services ranging from providing funds to purchase goods, cover freight costs, provide insurance, and even process taxes and duty payments.

These financial institutions include commercial banks like Equity Bank Kenya, Kenya Commercial Bank, Diamond Trust Bank of Kenya, Standard Chartered Bank Kenya, etc. with various credit facilities designed for importers and exporters. We have Export-Import banks and development banks that facilitate international trade between countries. There's also the option to use development banks which provide long term funding for your import/export business in Kenya.

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