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What you need to know as a foreign investor
Among the changes that are luring investors to markets like Africa are promotion of democracy and the rule of law. Photo/REUTERS
Many foreign investors from developed and emerging markets are eyeing frontier markets like Africa.
The reasons are varied, some of them being saturation of the domestic markets and the 2007 global recession which is pushing companies to diversify.
With time, the political and legal environments of frontier markets have changed making them more attractive to investors.
Among the changes that are luring investors to markets like Africa are promotion of democracy and the rule of law.
The shift from nationalisation to privatisation of industries has opened investment opportunities for foreign investors who are now able to participate in the market, but also ensure that high quality is maintained in the provision of core services.
Kenya remains an attractive frontier market as it is strategically located and it is not landlocked, a plus for investors.
The government is currently taking on a number of infrastructure development projects such as building and expansion of roads —that will link the region to other regions in the continent— ports, railway lines and air strips.
The level of development of infrastructure is a key consideration for investors.
Kenya is East Africa’s strongest economy and with the coming into force of the East African Community (EAC) protocol, the region now has a larger market for investors.
Kenya also won favour with investors for enacting a New Constitution peacefully.
With the unrest in the North African states of Tunisia and Egypt, investors are likely to shift to other frontier African markets like Kenya, a country that is making great strides improving the business climate through reforms such as in the legal sector.
What should investors need to know before investing in Kenya?
First, an investor must acquaint himself with the legal regime of the country.
This includes knowing the Supreme laws of the land and relevant legal statues in whatever area of business the investor seeks to undertake.
To do this, a local counsel will assist in interpreting the relevant laws and providing the investor with guidelines and opinions.
Secondly, the investor must decide which legal vehicle he will enter the market with.
In Kenya, there are five main types of business organisations and that is, sole proprietorships, partnerships, companies, societies and NGOs.
The most preferred business organisation is a company as there are several advantages of setting up one.
A foreign company can set up either as a foreign company registered under Part X of the Act or could form a Kenyan subsidiary if it is registered in the mother country.
Other forms of market entry include getting a local distributor, franchising, forming a joint venture with a local company, purchase of equity in a local company, forming strategic alliances, debt capital, equipment leases and manufacturing contracts.
All these forms of market entry are very intricate and require the counsel of a domestic commercial lawyer well acquainted with the Kenyan laws.
A foreign company should be well aware of the tax regime in the country. The tax laws may favour some industries while discouraging others.
The investor must also seek to find out if Kenya has a double taxation treaty with its mother country.
Immigration laws must also be adhered to if the investor shall be resident in Kenya.
There are different classes of entry permits and an investor must find out which one appertains to him or suits his needs most.
Trade licences and other licenses are required before business can take off. If the investor is a miner who wishes to mine in the country, he must get the relevant licence.
If it is an air operator then the relevant licence is also required. The same for investment funds, telecoms operators, bio prospectors and just about any business.
A foreign investor should be aware that the fact that they are foreign means some special laws and rules would apply to them in some cases.
Once again to do this a local lawyer is needed as the process is very technical.
The Kenyan Constitution specifically ensures that there is a right to own property.
This means that there is no risk of losing one’s investments due to dictatorships and other political upheavals.
There is no risk of having to pay a “protection fee “to the authorities. Before setting business in Kenya, foreign companies should consider the above factors so as to avoid facing many start-up challenges.
