IMPORTANT NOTICE

THIS PRELIMINARY PROSPECTUS IS AVAILABLE ONLY: (1) TO QUALIFIED INSTITUTIONAL

BUYERS (AS DEFINED BELOW) OR (2) OUTSIDE OF THE U.S.
IMPORTANT: You must read the following before continuing. The following applies to the Preliminary
Prospectus following this notice, and you are therefore advised to read this carefully before reading,
accessing or making any other use of the Preliminary Prospectus. In accessing the Preliminary Prospectus,
you agree to be bound by the following terms and conditions, including any modifications to them any time
you receive any information from Kenya and the Managers (each as defined in the Preliminary
Prospectus) as a result of such access.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES
FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES
DESCRIBED IN THIS PRELIMINARY PROSPECTUS HAVE NOT BEEN AND WILL NOT BE,
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTIONS OF THE U.S.
AND MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. (AS DEFINED IN REGULATION S
UNDER THE SECURITIES ACT (REGULATION S)), EXCEPT PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THIS
PRELIMINARY PROSPECTUS MAY ONLY BE COMMUNICATED TO PERSONS IN THE UNITED
KINGDOM IN CIRCUMSTANCES WHERE SECTION 21(1) OF THE FINANCIAL SERVICES AND
MARKETS ACT 2000 DOES NOT APPLY. THE FOLLOWING PRELIMINARY PROSPECTUS MAY
NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE
REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR
REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE
TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES
ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS
TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE
NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE SECURITIES
DESCRIBED THEREIN.
Confirmation of your representation: In order to be eligible to view this Preliminary Prospectus or make
an investment decision with respect to the securities, investors must be either: (1) Qualified Institutional
Buyers (QIBs) (within the meaning of Rule 144A under the Securities Act) or (2) outside the United
States. This Preliminary Prospectus is being sent at your request and by accepting the email and accessing
this Preliminary Prospectus, you shall be deemed to have represented to us that (1) you and any customers
you represent are either: (a) QIBs or (b) outside the U.S., (2) unless you are a QIB, the electronic mail
address that you gave us and to which this e-mail has been delivered is not located in the U.S., (3) you are a
person who is permitted under applicable law and regulation to receive this Preliminary Prospectus and
(4) you consent to delivery of such Preliminary Prospectus by electronic transmission.
You are reminded that this Preliminary Prospectus has been delivered to you on the basis that you are a
person into whose possession this Preliminary Prospectus may be lawfully delivered in accordance with the
laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver this
Preliminary Prospectus to any other person.
This Preliminary Prospectus does not constitute, and may not be used in connection with, an offer or
solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that
an offering of securities described herein be made by a licensed broker or dealer and any Manager or any
affiliate of any Manager is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be
made by such Manager or such affiliate on behalf of Kenya or holders of the applicable securities in such
jurisdiction. This Preliminary Prospectus has been sent to you in an electronic form. You are reminded that
documents transmitted via this medium may be altered or changed during the process of electronic
transmission and consequently neither Kenya, the Managers nor any person who controls them nor any
director, officer, employee nor agent of them or affiliate of any such person accepts any liability or
responsibility whatsoever in respect of any difference between the Preliminary Prospectus distributed to you
in electronic format and the hard copy version available to you on request from Kenya and the Managers.
Please ensure that your copy is complete. You are responsible for protecting against viruses and other
destructive items. Your use of this e-mail is at your own risk, and it is your responsibility to take
precautions to ensure that it is free from viruses and other items of a destructive nature.
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.
SUBJECT TO COMPLETION, DATED 3 JUNE 2014
PRELIMINARY PROSPECTUS
THE REPUBLIC OF KENYA
US$ per cent. Notes due
Issue Price: per cent.
The US$ per cent. Notes due (the Notes) to be issued by the Republic of Kenya, acting through
the National Treasury (the Issuer or Kenya) are direct, unconditional and unsecured obligations of Kenya.
The Notes will bear interest from (and including) 2014 at the rate of per cent. per annum payable
semi-annually in arrear on and , each year commencing on 2014. The Notes will mature on
(the Maturity Date). Payments on the Notes will be made in US dollars without deduction for or on account
of taxes imposed or levied by Kenya to the extent described under Terms and Conditions of the NotesTaxation.
The Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities
Act), or with any securities regulatory authority of any State or other jurisdiction of the United States, and may not
be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act. For a summary of certain restrictions on resale, see Transfer
Restrictions and Plan of Distribution.
The Notes will be offered and sold outside the United States in reliance on Regulation S under the Securities Act
(Regulation S) and within the United States to qualified institutional buyers (QIBs) within the meaning of
Rule 144A under the Securities Act (Rule 144A). Prospective purchasers are hereby notified that sellers of the Notes
may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.
An investment in the Notes involves a high degree of risk. Prospective investors should have regard to the factors
described under the heading Risk Factors on page 9.
This Prospectus has been approved by the Central Bank of Ireland (the Central Bank), as competent authority under
Directive 2003/71/ EC, as amended (including the amendments made by Directive 2010/73/EU) (the Prospectus Directive).
This Prospectus constitutes a prospectus for the purposes of the Prospectus Directive. The Central Bank only approves this
Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Such approval
relates only to Notes that are to be admitted to trading on the regulated market of the Irish Stock Exchange (the Main
Securities Market) or on another regulated market for the purposes of Directive 2004/39/EC (the Markets in Financial
Instruments Directive) or that are to be offered to the public in any member state of the European Economic Area (EU
Member States). Application has been made to the Irish Stock Exchange for the Notes to be admitted to its official list (the
Official List) and trading on the Main Securities Market. In addition, the Issuer intends to make an application, after the
Notes are delivered against payment, for the Notes to be listed on the Fixed Income Securities Market Segment of the Nairobi
Securities Exchange. However, the Notes will not be traded on the Fixed Income Securities Market Segment of the Nairobi
Securities Exchange, unless appropriate protocols are put in place after the Notes are delivered against payment.
The Notes are expected to be rated B+(EXP) by Fitch Ratings Ltd (Fitch) and B+ by Standard & Poors Credit Market
Services Europe Limited (S&P). All references to Fitch and S&P in this Prospectus are to the entities as defined in this
paragraph. Fitch is established in the European Union and registered under Regulation (EC) No 1060/2009 of the European
Parliament and of the Council of 16 September 2009 on credit rating agencies (the CRA Regulation). A rating is not a
recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the
assigning rating organisation.
The Notes will be offered and sold in registered form in denominations of US$200,000 or any amount in excess thereof which
is an integral multiple of US$1,000. Notes that are offered and sold in reliance on Regulation S (the Unrestricted Notes)
will be represented by beneficial interests in a global Note (the Unrestricted Global Note) in registered form without
interest coupons attached, which will be registered in the name of Citivic Nominees Limited, as nominee for, and will be
deposited on or about the Closing Date with, Citibank, N.A., London, as common depositary for Euroclear Bank S.A./N.V.
(Euroclear) and Clearstream Banking, socit anonyme (Clearstream, Luxembourg). Notes that are offered and sold in
reliance on Rule 144A (the Restricted Notes) will be represented by beneficial interests in a global Note (the Restricted
Global Note and, together with the Unrestricted Global Note, the Global Notes) in registered form without interest
coupons attached, which will be deposited on or about the Closing Date with Citibank, N.A., London, as custodian (the
Custodian) for, and registered in the name of Cede & Co. as nominee for, The Depository Trust Company (DTC).
Interests in the Restricted Global Note will be subject to certain restrictions on transfer. Beneficial interests in the Global
Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC, Euroclear,
Clearstream, Luxembourg and their respective participants. Except in the limited circumstances as described herein,
certificates will not be issued in exchange for beneficial interests in the Global Notes.
Joint Lead Managers
BARCLAYS J.P. MORGAN QNB CAPITAL STANDARD BANK
Co-Manager
DYER & BLAIR
Prospectus Dated 2014
RESPONSIBILITY STATEMENT
Kenya accepts responsibility for the information contained in this Prospectus and declares that, having taken all
reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of its
knowledge, in accordance with the facts and contains no omission likely to affect its import.
To the best of the knowledge and belief of Kenya, the information contained in this Prospectus is true and
accurate in every material respect and is not misleading in any material respect, and this Prospectus, does not
omit to state any material fact necessary to make such information not misleading. The opinions, assumptions,
intentions, projections and forecasts expressed in this Prospectus with regard to Kenya are honestly held by
Kenya, have been reached after considering all relevant circumstances and are based on reasonable assumptions.
IMPORTANT NOTICE
No person has been authorised to give any information or to make any representation other than those contained
in this Prospectus in connection with the offering of the Notes and, if given or made, such information or
representation must not be relied upon as having been authorised by Kenya or the managers listed in the section
entitled Plan of Distribution (the Managers). Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, constitute a representation or create any implication that there has been
no change in the affairs of Kenya since the date hereof. This Prospectus may only be used for the purpose for
which it has been published.
This Prospectus does not constitute an offer of, or an invitation by, or on behalf of, Kenya or the Managers
to subscribe for, or purchase, any of the Notes in any jurisdiction in which such offer or invitation is
unlawful. This Prospectus does not constitute an offer, and may not be used for the purpose of an offer to,
or a solicitation by, anyone in any jurisdiction or in any circumstances in which such an offer or
solicitation is not authorised or is unlawful. The distribution of this Prospectus and the offering, sale and
delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this
Prospectus comes are required by Kenya and the Managers to inform themselves about and to observe any
such restrictions.
This Prospectus is not intended to provide the basis of any credit or other evaluation and should not be
considered as a recommendation by Kenya or the Managers that any recipient of this Prospectus should purchase
any of the Notes. Each investor contemplating purchasing Notes should make its own independent investigation
of the financial condition and affairs, and its own appraisal of the creditworthiness, of Kenya.
The Managers have not separately verified the information contained in this Prospectus. Accordingly no
representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted
by the Managers or any of them as to the accuracy or completeness of the information contained in this
Prospectus or any other information provided by Kenya in connection with the Notes or their distribution.
For a description of certain restrictions on offers, sales and deliveries of the Notes, see Plan of
Distribution.
The Republic of Kenya is a sovereign state. Consequently, it may be difficult for investors to obtain or enforce
judgments or arbitral awards. See Risk FactorsKenya is a sovereign state and accordingly it may be difficult
to obtain or enforce judgments or arbitral awards.
The Notes have not been approved or disapproved by the U.S. Securities and Exchange Commission, any State
securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing
authorities passed upon or endorsed the merits of the offering of the Notes or the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal offence in the United States.
IN CONNECTION WITH THE ISSUE OF THE NOTES, J.P. MORGAN SECURITIES PLC AS STABILISING
MANAGER (THE STABILISING MANAGER) (OR PERSONS ACTING ON BEHALF OF THE
STABILISING MANAGER) MAY OVERALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW
TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH
MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING
MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) WILL
i
UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER
THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE
NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER
THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER
THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILISATION ACTION OR OVER
ALLOTMENT SHALL BE CONDUCTED BY THE STABILISING MANAGER (OR PERSONS ACTING ON
BEHALF OF THE STABILISING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND
RULES.
This Prospectus may not be copied or reproduced in whole or in part nor may it be distributed or any of its
contents disclosed to anyone other than the prospective investors to whom it is originally submitted.
Each purchaser or holder of interests in the Notes will be deemed, by its acceptance or purchase of any such
Notes, to have made certain representations and agreements as set out in Transfer Restrictions.
Notwithstanding anything herein to the contrary, from the commencement of discussions with respect to the
transaction contemplated by this Prospectus, all persons may disclose to any and all persons, without limitation
of any kind, the tax treatment and tax structure of the transaction described herein and all materials of any kind
(including opinions and other tax analyses) that are provided to such persons relating to such tax treatment and
tax structure, except to the extent that any such disclosure could reasonably be expected to cause this transaction
not to be in compliance with securities laws. For the purposes of this paragraph, the tax treatment of this
transaction is the purported or claimed U.S. federal income tax treatment of this transaction and the tax structure
of this transaction is any fact that may be relevant to understanding the purported or claimed U.S. federal income
tax treatment of this transaction.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR
A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF NEW
HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF
THIS PARAGRAPH.
ii
PRESENTATION OF ECONOMIC AND OTHER INFORMATION
Annual information presented in this Prospectus is based upon a fiscal year commencing on 1 July in one year
and ending on 30 June in the subsequent year, unless otherwise indicated. While the fiscal year ends on 30 June
of each year, certain information in this prospectus provided by the Kenya National Bureau of Statistics,
including GDP and GDP sector information, are provided as of 31 December of each year. Certain figures
included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same
category presented in different tables may vary slightly and figures shown as totals in certain tables may not be
the sum of the figures which precede them. Statistical information reported herein has been derived from official
publications of, and information supplied by, a number of agencies and ministries of Kenya, including the
National Treasury, the Central Bank of Kenya and the Kenya National Bureau of Statistics. Some statistical
information has also been derived from information publicly made available by third parties such as the
International Monetary Fund (the IMF) and the World Bank (the World Bank). Where such third party
information has been so sourced, the source is stated where it appears in this Prospectus. Kenya confirms that it
has accurately reproduced such information and that, so far as it is aware and is able to ascertain from
information published by third parties, it has omitted no facts which would render the reproduced information
inaccurate or misleading. As used in this prospectus, the term central government is interchangeable and means
the same as national government.
The Kenya National Bureau of Statistics initiated the process of rebasing and revision of the national account
statistics in 2010 and is set to conclude the process by the end of 2014. In this revision, there will be a change in
the base year of the national account statistics from 2001 to 2009. The revision will also include revisions to the
annual and quarterly national account statistics for the period of 2006 to 2013 and will include the development
of supply and use tables to give detailed information on the production processes, the interdependences in
production, the use of goods and services and the generation of income in production. Figures that undergo such
rebasing may include material revisions from the information provided in this prospectus, including information
related to GDP. The Kenya National Bureau of Statistics initial estimates for the revised GDP estimate for 2009
is KES486.6 billion higher than previous estimates, this represents a 20.6 per cent. increase in the level of GDP
previously reported.
Similar statistics may be obtainable from other sources, but the date of publication, underlying assumptions,
methodology and, consequently, the resulting data may vary from source to source. In addition, statistics and data
published by one ministry or agency may differ from similar statistics and data produced by other agencies or
ministries due to differing underlying assumptions, methodology or timing of when such data is reproduced.
Certain historical statistical information contained herein is provisional or otherwise based on estimates that
Kenya and/or its agencies believe to be based on reasonable assumptions. Kenyas official financial and
economic statistics are subject to internal review as part of a regular confirmation process. Accordingly, the
financial and economic information set out in this Prospectus may be subsequently adjusted or revised and may
differ from previously published financial and economic information. While Kenya does not expect such
revisions to be material, no assurance can be given that material changes will not be made.
References to any individual period such as 2010/11 and so on are references to a fiscal year commencing on
1 July in one year and ending on 30 June in the subsequent year. References to any individual period as 2010 and
so on are references to a calendar year commencing on 1 January and ending on 31 December in the same year.
All references in this document to Kenyan shilling, shilling and KES are to the currency of the Republic of
Kenya; to US dollars, US$ and $ are to the currency of the United States of America; and to euro are to
the currency introduced at the start of the third stage of European economic and monetary union pursuant to the
Treaty establishing the European Community, as amended by the Treaty of European Union. For ease of
information, certain financial information relating to the Republic of Kenya included herein is presented as
translated into US dollars at the US dollar/KES rates of exchange deemed appropriate by Kenya. Unless
otherwise specified, such rates were applicable as of the end of such specified period(s). Such translations should
not be construed as a representation that the amounts in question have been, could have been or could be
converted into US dollars at that or any other rate. References to SDR are to the Special Drawing Right, a unit
of account having the meaning ascribed to it from time to time by the Rules and Regulations of the IMF.
References in this document to billions are to thousands of millions. References to the government are to the
government of Kenya.
iii
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements, which involve risks and uncertainties. These
forward-looking statements can be identified by the use of forward-looking terminology, including the terms
believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their
negative, or other variations or comparable terminology. These forward-looking statements include all matters
that are not historical facts. They appear in a number of places throughout this Prospectus and include statements
regarding the governments intentions, beliefs or current expectations concerning, among other things, the
general political and economic conditions in Kenya. All forward-looking statements are based upon information
available to Kenya on the date of this Prospectus, and Kenya undertakes no obligation to update any of these in
light of new information or future events. Kenya derives many of its forward-looking statements from its budgets
and forecasts, which are based upon many detailed assumptions. While Kenya believes that its assumptions are
reasonable, it cautions that it is very difficult to predict the impact of known factors, and, of course, it is
impossible to anticipate all factors that could affect Kenyas actual results. These factors include, but are not
limited to:
External factors, such as:
the impact of changes in international oil prices;
the impact of changes in other international commodity prices including tea, coffee and horticultural
products;
interest rates in financial markets outside Kenya;
the impact of changes in the credit rating of Kenya;
economic conditions in Kenyas major export markets;
the impact of possible future regional instability;
changes in the amount of remittances from non-residents; and
the decisions of international financial institutions and creditor countries regarding the amount and terms of
their financial assistance to Kenya;
as well as internal factors, such as:
general economic, political and business conditions in Kenya;
the impact of possible future social and political unrest;
present and future exchange rates of the Kenyan currency;
the level of foreign currency reserves;
the impact of natural disasters, health epidemics and agricultural blights;
the level of domestic and external public debt;
domestic inflation;
the ability of Kenya to implement important economic reforms;
the ability of Kenya to upgrade its infrastructure;
the levels of foreign direct and portfolio investment; and
the levels of domestic interest rates in Kenya.
iv
ENFORCEMENT OF CIVIL LIABILITIES
Kenya is a sovereign state, and substantially all of the assets of Kenya are located in Kenya. Consequently, it
may be difficult for investors to obtain or enforce judgments of courts and/or arbitral tribunals in England, the
United States or anywhere else against Kenya. Kenya has not submitted to the jurisdiction of any courts, but
instead has agreed to resolve disputes by arbitration in accordance with rules and procedures of the London Court
of International Arbitration (LCIA). Kenya has waived certain immunities for the purpose of arbitration of
disputes arising out of or in connection with the Notes. Kenya has not, however, waived immunity from
execution or attachment in respect of certain of its assets. See Terms and Conditions of the NotesGoverning
Law, Arbitration and EnforcementConsent to Enforcement and Waiver of Immunity. Kenya is a party to the
United Nations (New York) Convention on Recognition and Enforcement of Foreign Arbitral Awards.
Kenyas waiver of immunity is, however, limited. Such a waiver constitutes only a limited and specific waiver
for the purposes of the Notes, and under no circumstances shall it be interpreted as a general waiver by Kenya or
a waiver with respect to proceedings unrelated to the Notes.
Arbitral awards obtained outside Kenya may be enforced in Kenya under the Arbitration Act 1995. Leave to
enforce the award as a decree of the High Court must be obtained. Where an order is made against the
government for the payment of money or costs, a further application must follow for a certificate of order against
the government and must be served on the Attorney General. The amount can then be paid out of appropriations
provided in the national budget. Aside from this procedure, no execution, attachment or process may be issued by
any Kenyan court for enforcing payment by the government of any money or costs and no person shall be
individually liable under any order for payment by the government, any government department or any officer of
the government in relation to such money or costs. Injunctive relief and orders for specific performance may not
be made by Kenyan courts against the government. Because it may be difficult to obtain or enforce judgments in
Kenya, third parties may seek to attach assets of the Issuer abroad, including funds intended for use in payments
for other third parties.
v
EXCHANGE RATES
The currency of Kenya is the Kenyan shilling. The following table sets forth, for the periods indicated, the high,
low, average and year end official rates set by the Central Bank of Kenya, expressed in US dollars. These
translations should not be construed as representations that KES amounts actually represent such US dollar
amounts or could be converted into US dollars at the rate indicated as of any of the dates mentioned in this
Prospectus at all.
Average High Low Period End
(KES:US$1.00)
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88.87 105.96 80.74 85.07
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.52 88.44 82.27 86.03
2013
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.90 87.61 86.08 87.61
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87.45 87.63 86.24 86.24
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85.82 86.58 85.32 85.64
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.19 84.99 83.77 83.82
May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.15 85.29 83.72 85.12
June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85.49 86.06 84.88 86.01
July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.86 87.41 85.83 87.28
August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87.49 87.70 87.37 87.60
September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87.41 87.58 86.65 86.65
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85.31 86.79 84.72 85.15
November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.10 86.99 85.27 86.99
December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.31 86.72 85.72 86.31
2014
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.36 86.96 85.46 85.88
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.28 86.58 86.06 86.23
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.49 86.58 86.18 86.44
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.71 87.09 84.40 86.87
May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87.41 87.86 86.87 87.78
Source: Central Bank of Kenya
The US dollar versus KES exchange rate as set by the Central Bank of Kenya on 3 June 2014 was
US$0.013974 per 1 KES.
vi
TABLE OF CONTENTS
Page
PRESENTATION OF ECONOMIC AND OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
ENFORCEMENT OF CIVIL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
EXCHANGE RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
REPUBLIC OF KENYA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
THE ECONOMY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
BALANCE OF PAYMENTS AND FOREIGN TRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
MONETARY AND FINANCIAL SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
PUBLIC FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
PUBLIC DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
TERMS AND CONDITIONS OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
THE GLOBAL NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
CLEARING AND SETTLEMENT ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
vii
OVERVIEW
This Overview must be read as an introduction to this Prospectus. Any decision to invest in the Notes should be
based on a consideration of this Prospectus as a whole. This Overview does not purport to be complete and is
qualified in its entirety by the more detailed information elsewhere in the Prospectus. Prospective investors
should also carefully consider the information set forth in the Risk Factors below prior to making any
investment decision. Capitalised terms not otherwise defined in this Overview have the same meaning as
elsewhere in this Prospectus. See The Republic of Kenya and The Economy, amongst others, for a more
detailed description of the Issuer. References in this Overview to a Condition are to the numbered condition
corresponding thereto set out in the Terms and Conditions of the Notes.
The Republic of Kenya
General
Kenya occupies a land area of 581,309 square kilometres. Kenya lies on the equator and is bordered by the Indian
Ocean in the south east, Tanzania to the south, Uganda to the west, South Sudan to the north west, Ethiopia to the
north and Somalia to the north east. Kenya has a population of approximately 44 million. Nairobi is the largest
city and the capital of the country. In August 2010, Kenyans overwhelmingly adopted a new constitution (the
Constitution) in a national referendum. The Constitution introduced additional checks and balances to
executive power, including a bill of rights for Kenyan citizens, and significant devolution of power and resources
to 47 semi-autonomous newly created counties, each headed by an elected Governor. It also eliminated the
position of Prime Minister following the first presidential election under the Constitution, which occurred on
4 March 2013. Uhuru Kenyatta, the son of founding president Jomo Kenyatta, won the March elections in the
first round by a close margin and was sworn into office on 9 April 2013.
Economy
From 2011 to 2013, Kenyas economy exhibited a positive growth trend. Kenyas real GDP increased by
4.4 per cent. in 2011, 4.6 per cent. in 2012 and 4.7 per cent. in 2013.
Kenyas capital and financial account registered surpluses of US$2,957.2 million in 2010/11, US$4,150.4 million
in 2011/12 and US$3,788.6 million in 2012/13, while its current account registered deficits of
US$2,656.1 million in 2010/11, US$3,342.2 million in 2011/12 and US$3,696.5 million in 2012/13. Between
2010/11 and 2012/13, gross official international reserves grew every year. Gross official international reserves
were US$4,120.5 million in 2010/11, US$5,241.4 million in 2011/12 and US$5,522.0 million in 2012/13. Gross
international reserves represented the equivalent of approximately 2.9 months of imports in 2010/11, 3.4 months
of imports in 2011/12 and 3.8 months of imports in 2012/13.
Exports of goods increased from US$5,563.6 million in 2010/11 to US$5,960.9 million in 2011/12, and further
increased to US$6,251.1 million in 2012/13. Imports of goods increased from US$12,738.1 million in 2010/11 to
US$14,903.0 million in 2011/12, and further increased to US$15,833.0 million in 2012/13.
From 2011 to 2013, the overall inflation rate in Kenya decreased from 14.0 per cent. in 2011 to 9.4 per cent. in
2012, and further decreased to 5.7 per cent. in 2013.
From 2010/11 to 2012/13, the central government recorded fiscal deficits of 4.3 per cent. of GDP in 2010/11,
5.2 per cent. of GDP in 2011/12 and 6.3 per cent. of GDP in 2012/13.
The central governments total public debt reached US$14,717.8 million at 30 June 2011 (47.5 per cent. of
GDP), US$18,018.2 million at 30 June 2012 (45.9 per cent. of GDP) and US$22,022.4 million (51.7 per cent. of
GDP) at 30 June 2013.
Vision 2030
In 2007, the government announced Vision 2030 as the governments long-term plan for attaining middle
income status as a nation by 2030. In line with Vision 2030, the government prepares successive Medium Term
Plans (MTP) that outline the policies, programmes and projects that the government intends to implement over
a five year period. The first MTP covered the period from 2008 to 2012.
1
In the initial year of the first MTP, a number of projects aimed at national healing and reconciliation following
the 2007 post-election violence were implemented. Repair of damaged infrastructure, assistance to affected small
scale businesses and resettlement of internally displaced persons were all undertaken in order to raise GDP
growth (which fell to 1.5 per cent. in 2008 from 7.0 per cent. in 2007) and to promote national reconciliation.
The second MTP of Vision 2030 was announced in October 2013. The second MTP gives priority to devolution
as specified in the Constitution and to more rapid socio-economic development with equity as a tool for building
national unity. The second MTP also aims to build on the successes of the first MTP, particularly in increasing
the scale and pace of economic transformation through infrastructure development, and strategic emphasis on
priority sectors under the economic and social pillars of Vision 2030. Under the second MTP, transformation of
the economy is focused on rapid economic growth in a stable macro-economic environment, modernisation of
infrastructure, diversification and commercialisation of agriculture, food security, a higher contribution of
manufacturing to GDP, wider access to African and global markets, wider access for Kenyans to better quality
education and health care, job creation targeting unemployed youth, provision of better housing and improved
water sources and sanitation to Kenyan households that presently lack these.
On 14 February 2014, the National Treasury presented to Parliament the Budget Policy Statement, a document
that states the governments plans for raising and spending money in the coming fiscal year 2014/15 and the
main priorities on which it will spend its resources. Consistent with the second MTP, the government announced
in the Budget Policy Statement that it plans to (i) create a business environment conducive to encourage
innovation, investment, growth and expansion of economic and employment opportunities; (ii) invest in
agricultural transformation and food security to expand food supply, reduce food prices, support expansion of
agro-processing industries and spur export growth; (iii) invest in first class transport and logistics hub and scale
investments in other key infrastructure products, including roads, energy and water to reduce cost of doing
business and improve competitiveness; (iv) invest in quality and accessible healthcare services and education as
well as social safety net to reduce the burden on households and to enhance the nations prospects for long term
growth and development; and (v) further entrench devolution for the delivery of better government services and
enhanced rural economic development.
On 28 April 2014 the Cabinet approved the budget estimates for the 2014/15 budget. The budget estimates
include allocations, among others, of KES116.7 billion for on-going and new road projects, KES19.4 billion for
the Standard Gauge Rail project, KES3.5 billion for an urban commuter rail system, KES1.3 billion for
enhancing security to the Jomo Kenyatta International Airport and KES43.6 billion to energy related initiatives.
The 2014/15 budget assumes:
economic growth of 5.8 per cent. for 2014 and 6.4 per cent. for 2015;
inflation will remain in the upper limit target of 7.5 per cent. in 2014;
the net-public debt to GDP ratio will decline from 52.1 per cent. at the end of June 2014 to
49.8 per cent. in 2016/2017; and
for ordinary revenue to be up to 25.5 per cent. of GDP in 2014/15.
Selected Economic Information
For the year
ended 31 December
2011 2012 2013*
Domestic economy
Nominal GDP (US$ millions) . . . . . . . . . . . . . . . . . . . . . . . . . 31,830 39,956 44,004
Real GDP (growth rate)(per cent.) . . . . . . . . . . . . . . . . . . . . . . 4.4 4.6 4.7
Overall inflation rate (per cent.) . . . . . . . . . . . . . . . . . . . . . . . . 14.0 9.4 5.7
2
For the year
ended 30 June
2011 2012 2013
Balance of payments
Exports of goods, f.o.b. (US$ millions) . . . . . . . . . . . . . . . . . . . . 5,563.6 5,960.9 6,251.1
Imports of goods, f.o.b. (US$ millions) . . . . . . . . . . . . . . . . . . . . 12,738.1 14,903.0 15,833.0
Balance of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,174.5) (8,942.2) (9,581.9)
Current account balance (US$ millions) . . . . . . . . . . . . . . . . . . . (2,656.1) (3,342.2) (3,696.5)
Capital and financial account balance (US$ millions) . . . . . . . . . 2,957.2 4,150.4 3,788.6
Gross official reserves (end of period) (US$ millions) . . . . . . . . 4,120.5 5,241.4 5,522.0
Public finance
Central government revenues (KES millions) . . . . . . . . . . . . . . . 686,309 763,453 868,167
Central government expenditures (KES millions) . . . . . . . . . . . . 811,849 947,777 1,117,018
Deficit including grants (cash basis) (KES millions) . . . . . . . . . . (118,772) (171,742) (232,458)
per cent. of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 5.2 6.3
At 30 June
At
31 December
2011 2012 2013 2013
Public debt
(1)
Central government external debt (US$ millions) . . . . . . . . . . . . . 7,765.6 8,893.9 9,808.0 10,181.6
Central government internal debt (US$ millions) . . . . . . . . . . . . . . 6,952.2 9,124.3 12,214.4 13,778.1
Total central government debt (US$ millions) . . . . . . . . . . . . . . . . 14,717.8 18,018.2 22,022.4 23,959.7
per cent. of GDP
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.5 45.9 51.7 54.5
Notes: * Estimated
(1) Central Government Debt excludes certain publicly guaranteed debt such as debt of state-owned
enterprises and debt of local government.
(2) Figures calculated at 30 June are calculated with the nominal GDP as at 30 June of the year provided,
while figure calculated for 31 December 2013 is calculated using nominal GDP as at 31 December
2013.
Source: Kenya National Bureau of Statistics; National Treasury; Central Bank of Kenya; and Kenyan authorities
and IMF staff estimates and projections for balance of payments figures.
3
The Offering
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . The Republic of Kenya, acting through the National Treasury.
Notes Being Issued . . . . . . . . . . . . . . . . . per cent. Notes due in the aggregate principal
amount of US$ .
Issue Price of Notes . . . . . . . . . . . . . . . . per cent., of the principal amount of the Notes.
Issue Date . . . . . . . . . . . . . . . . . . . . . . . . 2014.
Maturity and Redemption . . . . . . . . . . The Notes will mature on and will be redeemed at par on
that date. The Notes are not redeemable prior to maturity.
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . The Notes will bear interest from and including 2014 to but
excluding at the rate of per cent., per annum, payable
semi-annually in arrear on and in each year
commencing on 2014.
Status . . . . . . . . . . . . . . . . . . . . . . . . . . . The Notes will constitute direct, unconditional, unsubordinated and
(subject to a negative pledge, described below) unsecured obligations
of the Issuer and will rank pari passu without any preference among
themselves and at least pari passu with all other present and future
unsubordinated and (subject as provided in the negative pledge
described below) unsecured obligations of the Issuer, save only for
such obligations as may be preferred by mandatory provisions of
applicable law. The Notes are backed by the full faith and credit of
the Issuer.
Negative Pledge . . . . . . . . . . . . . . . . . . . So long as any Note remains outstanding, the Issuer has undertaken
that it will not (save for the specific exceptions provided in the
Conditions) create, incur, assume or permit to subsist any Security (as
defined in the Conditions) upon the whole or any part of its present or
future assets or revenues to secure (i) any of its Public External
Indebtedness, (ii) any guarantees in respect of Public External
Indebtedness or (iii) Public External Indebtedness of any other
person, without, at the same time or prior thereto, securing the Notes
equally and rateably therewith or providing such other arrangement as
shall be approved by Noteholders.
Events of Default . . . . . . . . . . . . . . . . . . Condition 10 (Events of Default) provides that Noteholders who hold
at least 25 per cent. in aggregate principal amount of the Notes then
outstanding may declare the Notes to be immediately due and payable
at their principal amount together with accrued interest if, inter alia,
(i) the Issuer fails to pay principal or interest on the Notes when due
and continues to do so for 15 business days or 30 days, respectively;
(ii) the Issuer does not comply with one or more of the terms of the
Notes, the Agency Agreement or the Deed of Covenant and (if
capable of remedy) such default continues for 45 days following
service of notice by any Noteholder requiring such breach be
remedied, (iii) the Issuer is in default or there is an acceleration in
maturity in relation to any External Indebtedness or default in any
guarantee thereof in excess of US$25,000,000; (iv) the Issuer declares
a moratorium in respect of its External Indebtedness; (v) the Issuer
ceases to be a member of the IMF or ceases to be eligible to use the
general resources of the IMF, (vi) the Issuer denies the validity of the
Notes or any of its obligations under the Notes, or it shall become
unlawful for the Issuer to perform or comply with all or any of its
4
obligations set out in the Notes as a result of any change in law or
regulation in Kenya or final and unappealable ruling of a court in
Kenya; or such obligations cease to be in full force and effect; or
(vii) if any authorisation, consent of, or filing or registration with any
governmental authority necessary for the payment of the Notes when
due ceases to be in effect; all as more particularly described in
Condition 10 (Events of Default). A declaration of acceleration may
be rescinded in certain circumstances by the resolution in writing of
the holders of at least 50 per cent. in aggregate principal amount of
the outstanding Notes in accordance with the procedures in
Condition 10 (Events of Default).
Noteholder Meetings . . . . . . . . . . . . . . . A summary of the provisions for convening meetings of Noteholders
to consider matters relating to their interests is set out in Condition 13
(Meetings of Noteholders and Modification).
Withholding Tax . . . . . . . . . . . . . . . . . . All payments by the Issuer under the Notes are to be made without
withholding or deduction for or on account of Taxes (as defined in
Condition 8 (Taxation)) unless the withholding or deduction for taxes
is required by law. In such circumstances, the Issuer may be required
to pay additional amounts so that Noteholders will receive the full
amount which otherwise would have been due and payable under the
Notes; all as more particularly described in Condition 8 (Taxation).
Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . Application has been made to the Irish Stock Exchange for the Notes
to be admitted to the Official List and trading on the Main Securities
Market. In addition, the Issuer intends to make an application, after
the Notes are delivered against payment, for the Notes to be listed on
the Fixed Income Securities Market Segment of the Nairobi Securities
Exchange. However, the Notes will not be traded on the Fixed
Income Securities Market Segment of the Nairobi Securities
Exchange, unless appropriate protocols are put in place after the
Notes are delivered against payment.
Form and Denomination . . . . . . . . . . . . The Notes will be in registered form and will be offered and sold in a
minimum denomination of US$200,000 and integral multiples of
US$1,000 thereof.
Settlement . . . . . . . . . . . . . . . . . . . . . . . . The Notes will initially be represented by Global Notes. One or more
Restricted Global Notes will be issued in respect of Notes offered and
sold in reliance on Rule 144A. The Unrestricted Global Note will be
issued in respect of the Notes offered and sold in reliance on
Regulation S.
Transfer Restrictions . . . . . . . . . . . . . . The Notes have not been registered under the Securities Act, and are
subject to certain restrictions on transfers. See Transfer Restrictions
and Plan of Distribution.
Use of Proceeds . . . . . . . . . . . . . . . . . . . Kenya expects the net cash proceeds of the issue of the Notes to
amount to US$ , which Kenya expects to use for general
budgetary purposes, including for the funding of infrastructure
projects and repayment of a US$600 million loan incurred in 2011/12
that matures in August 2014.
Fiscal Agent . . . . . . . . . . . . . . . . . . . . . . Citibank, N.A., London Branch.
Registrar . . . . . . . . . . . . . . . . . . . . . . . . . Citigroup Global Markets Deutschland AG.
5
ISIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Code . . . . . . . . . . . . . . . . . . . .
CUSIP . . . . . . . . . . . . . . . . . . . . . . . . . . .
Further Issues . . . . . . . . . . . . . . . . . . . . The Issuer may from time to time, without notice to or the consent of
the registered holders of the Notes, issue additional securities that will
form a single series with the Notes, subject to certain conditions set
out in Condition 15 (Further Issues).
Governing Law . . . . . . . . . . . . . . . . . . . The Agency Agreement, the Deed of Covenant and the Notes
(including any non-contractual obligations arising from or in
connection with any of them) are governed by, and will be construed
in accordance with, English law.
Arbitration . . . . . . . . . . . . . . . . . . . . . . . Any dispute arising out of or in connection with the Notes shall be
resolved by arbitration under the Arbitration Rules of the London
Court of International Arbitration, as more particularly described in
Condition 16 (Governing Law, Arbitration and Enforcement). The
parties have expressly excluded the jurisdiction of the courts.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . Any one or more of the risk factors below could affect Kenyas
economy, its ability to fulfil its obligations under the Notes and your
investment in the Notes.
Risks Relating to the Republic of
Kenya . . . . . . . . . . . . . . . . . . . . . . . . . Emerging market investment generally poses a greater degree
of risk than investment in more mature market economies
because the economies in the developing world are more
susceptible to destabilisation resulting from domestic and
international developments.
A significant portion of the Kenyan economy is not recorded.
The statistical information published by Kenya may differ
from that produced by other sources and may be unreliable.
Statistical information may also be more limited in scope and
published less frequently than in the case of other countries
such that adequate monitoring of key fiscal and economic
indicators may be difficult.
An unsuccessful administration of the devolution of power
under the Constitution could result in weak fiscal
management, control, accountability and transparency, and
delay or increase the cost of implementing the national MTP.
Implementing the transition to devolved government, in
tandem with many other reforms to the institutions of national
government, poses enormous challenges.
Because the legal reforms in a number of areas were adopted
fairly recently and are largely untested, any perceived
inadequacy in the Kenyan legal system may generally deter
foreign and domestic investment in Kenya and adversely
affect Kenyas economic growth. In addition, no assurance
can be given that these reforms might not lead to increased
costs for the government and adversely affect Kenyas
economic growth.
Kenya continues to be challenged by internal security issues.
6
Political instability may ensue if the International Criminal
Court (the ICC) at The Hague ultimately convicts President
Uhuru Kenyatta or Deputy President William Ruto.
Kenya has in the past experienced volatility and violence
related with acquisition or maintenance of political power. If
significant political violence occurs again, Kenyas capital
markets, level of tourism and foreign investment, among other
things, may suffer and potentially affect Kenyas economic
condition. In addition, political instability may affect the
stability of the Kenyan economy.
An escalation in tensions with Kenyas neighbours could
materially disrupt the Kenyan economy and have negative
consequences for Kenya in its international diplomatic and
trade relations.
Stability and growth in Kenya may be threatened if the
government fails to address high levels of poverty,
unemployment and inequality in income.
Failure to address actual and perceived risks of corruption and
money laundering may adversely affect Kenyas economy and
ability to attract foreign direct investment.
Kenya may be unable to meet its economic growth and reform
objectives and policies which may adversely affect the
performance of the Kenyan economy.
High inflation could have a material adverse effect on Kenyas
economy and its ability to service its debt, including the
Notes.
Further increases in the public sector wage bill could crowd
out spending in much-needed infrastructure investment and
social protection. Reforms which negatively impact the
remuneration of civil servants could, however, lead to
protests, demonstrations and strikes by civil servants.
Instability in the civil service sector could, in turn, affect the
stability of the Kenyan economy.
Failure to significantly improve Kenyas infrastructure could
adversely affect Kenyas economy, competitive ranking and
growth prospects, including its ability to meet GDP growth
targets.
A sudden reversal of accommodative monetary policies in
developed markets may cause capital outflows from emerging
and frontier markets, and generate a negative impact on
emerging and frontier economies, such as Kenya.
Natural disasters such as floods and droughts have negatively
affected Kenya in the past and may negatively affect it in the
future.
Any shortage of water in Kenya could have an adverse effect
on Kenyas economy and its level of economic growth.
Chronic power shortages, over-dependence on hydropower
and high energy costs may negatively impact economic
growth.
Kenyas energy sector relies exclusively on imported oil to
meet its petroleum requirements and is therefore vulnerable to
oil price increases and any prolonged weakening of the Kenya
shilling against the US dollar.
7
Health risks could adversely affect Kenyas economy.
Any significant depreciation of the Kenyan shilling against the
US dollar or other major currencies might have a negative
effect on Kenyas ability to repay its debt denominated in
currencies other than the Kenyan shilling, including the
amounts due under the Notes.
Risks Relating to the Notes . . . . . . . . . . An investment in the Notes may not be suitable for all
investors.
Events in other emerging markets, including those in other
African countries, may negatively affect the Notes.
The credit ratings of the Notes are subject to revision or
withdrawal, either of which could adversely affect the trading
price of the Notes.
Legal investment considerations may restrict certain
investments.
The liquidity of the Notes may be limited and trading prices
may fluctuate.
Fluctuations in exchange rates and interest rates may
adversely affect the value of the Notes.
Definitive Notes not denominated in an integral multiple of
US$200,000 or its equivalent may be illiquid and difficult to
trade.
The terms of the Notes may be modified, waived or
substituted without the consent of all the Noteholders.
Kenya is a sovereign state and accordingly it may be difficult
to obtain or enforce judgments or arbitral awards against it.
Payments made in certain EU Member States may be subject
to withholding tax under the EU Savings Directive.
8
RISK FACTORS
An investment in the Notes involves a high degree of risk. You should carefully consider the risks described
below as well as the other information contained in this Prospectus before buying any of the Notes. Any of the
following risks could materially adversely affect Kenyas economy and your investment in the Notes. The risks
described below are not the only risks Kenya faces. Additional risks and uncertainties not currently known to
Kenya or that Kenya currently deems to be immaterial may also materially affect Kenyas economy and its
ability to fulfil its obligations under the Notes. In any such case, you may lose all or part of your investment in
the Notes.
Risks Relating to the Republic of Kenya
Investing in securities in emerging markets such as Kenya generally poses a greater degree of risk than
investment in more mature market economies because the economies in the developing world are more
susceptible to destabilisation resulting from domestic and international developments.
Investing in securities in emerging markets such as Kenya generally poses a greater degree of risk than
investment in more mature market economies because the economies in the developing world are more
susceptible to destabilisation resulting from domestic and international developments. These risks include, but
are not limited to, higher volatility and more limited liquidity in respect of the Notes, greater political risk, a
fragile export base, budget deficits, lack of adequate infrastructure necessary to accelerate economic growth and
changes in the political and economic environment. Although significant progress has been made in reforming
Kenyas economy and its political and judicial systems, Kenya is still in the process of developing the necessary
infrastructure, regulatory and judicial framework that is essential to support market institutions and broad-based
social and economic reforms. Emerging markets can also experience more instances of corruption by government
officials and misuse of public funds than more mature markets, which could affect the ability of governments to
meet their obligations under issued securities. Investors should also note that emerging markets such as Kenya
are subject to rapid change and that the information set out in this Prospectus may become outdated relatively
quickly. Any such political risks, budget deficits, lack of sufficient infrastructure or unimplemented government
reforms may adversely impact Kenyas economy.
In addition, Kenyas economy and macroeconomic goals are susceptible to adverse external shocks, including the
recent global economic crisis, the ongoing instability in the international financial markets, the recent turmoil in
the European banking system and the sovereign debt market of certain members of the European Monetary
System. If economic recovery from the global recession is slow or stalls and some of Kenyas primary trading
partners continue to experience economic difficulties or euro area members experience difficulties issuing
securities in the sovereign debt market or servicing existing debt, it could result in fewer exports by Kenya,
which relies on the export market. The European Union is Kenyas second largest export market and accounted
for 21.0 per cent. of total exports in 2012. The Common Market for Eastern and Southern Africa (COMESA)
remained the dominant destination of exports accounting for 70.1 per cent. of the value of total exports to Africa
in 2012. The value of exports to COMESA decreased slightly from US dollar 2.1 billion in 2011 to US dollar
2.0 billion in 2012. Russia, India and China, three of the five countries that are considered fast developing
economies (BRICS, Brazil, Russia, India, China and South Africa), recorded approximately 5.7 per cent. of
total exports in 2012 (excluding Brazil) and have become a new source of tourism in Kenya. However, Italy,
Germany, U.S. and UK, which accounted for a combined 48.6 per cent. of departing tourists, remain the major
source of tourism. A decline in demand for exports from Kenyas major trading partners, such as the European
Union or COMESA countries, or a decline in tourism receipts, could have a material adverse impact on Kenyas
balance of payments and have a material adverse affect on Kenyas economic growth.
A significant portion of the Kenyan economy is not recorded.
A significant portion of the Kenyan economy is comprised of the informal, or shadow, economy. Based on
information from the Kenya National Bureau of Statistics, approximately 82.5 per cent. of employment in 2012
was in the informal sector. The informal economy is not recorded and is only partially taxed, resulting in a lack
of revenue for the government, ineffective regulation, unreliability of statistical information (including the
understatement of GDP and the contribution to GDP of various sectors) and inability to monitor or otherwise
regulate a large portion of the economy. Lack of effective regulation and enforcement in this sector also gives
rise to other issues, including health and safety issues. Although the government is attempting to address the
informal economy by streamlining certain regulations, particularly tax laws, there can be no assurance that such
reforms will adequately address the issues and bring the informal economy into the formal sector thus having a
material adverse effect on Kenyas economic growth.
9
The statistical information published by Kenya may differ from that produced by other sources and may be
unreliable. Statistical information may also be more limited in scope and published less frequently than in the
case of other countries such that adequate monitoring of key fiscal and economic indicators may be difficult.
The National Treasury, Kenya National Bureau of Statistics and the Central Bank of Kenya all produce, and prior
to August 2010 the Ministry of Finance produced, statistics relating to Kenya and its economy. Although
collaborative efforts are being taken by the relevant agencies in order to produce accurate and consistent social
and economic data, there may be inconsistencies in the compilation of data and methodologies used by some of
these agencies, and in common with many developing economies, given the relative size of the informal
economy in Kenya there may be material omissions or misstatements in the statistical data prepared by such
agencies. As a result, there can be no assurance that these statistics are as accurate or as reliable as those
published by more developed countries. In addition, Kenyas statistical information may also be more limited in
scope and published less frequently than in the case of other countries such that adequate monitoring of key fiscal
and economic indicators may be difficult. Some of the statistics contained in this Prospectus for 2011, 2012 and
2013 may be indicated as estimated or provisional figures that are subject to later revision. In particular,
prospective investors should be aware that figures relating to Kenyas GDP, its balance of payments and other
figures cited in this Prospectus may be subject to some degree of uncertainty and that the information set forth in
this Prospectus may become outdated relatively quickly, which may result in such figures being revised in future
periods. Although there have been significant efforts to improve the compilation of Kenyas balance of payments
data in recent years, including through technical assistance provided by the IMF, errors and omissions in the
balance of payments data persist and may complicate the assessment of such data. The inability to improve
compilation of key fiscal and economic indicators may affect how effectively government policy is made in
response to such statistical information and thus have a material adverse effect on Kenyas economic growth.
An unsuccessful administration of the devolution of power under the Constitution could result in weak fiscal
management, control, accountability and transparency, and delay or increase the cost of implementing the
national MTP. Implementing the transition to devolved government, in tandem with many other reforms to the
institutions of national government, poses enormous challenges.
Prior to the promulgation of the Constitution, Kenya had a system of provincial administration through which
Provincial Commissioners held significant power, including responsibility for law and order, but were civil
servants appointed by, and directly accountable to, the national government. After the Constitution was
promulgated in 2010, the governance framework in Kenya was fundamentally altered by abolishing the
provincial administration, promoting devolution and creating a two-tier governmentone at the national level
and the other in each of the 47 counties, led by locally elected Governors and County Assemblies. Under the new
system of devolution, government functions have been distributed between the two levels of government. In
addition, the Constitution provides that (i) counties must be allocated not less than 15 per cent. of all revenue
collected by the national government; (ii) marginalised areas will receive an additional 0.5 per cent. of all the
revenue collected by the national government to bring the quality of basic services including water, roads, health
facilities and electricity in those areas to the same level as that generally enjoyed by the rest of the country; (iii) a
Commission on Revenue Allocation will make recommendations for equitable sharing of national government
revenue between the national and county governments, and among the county governments, thus likely reducing
total fiscal receipts for the national government; (iv) a county government may also impose property rates,
entertainment taxes, service charges and other taxes that it is authorised to impose by law in order to raise
revenue; and (v) counties will be responsible for establishing and abolishing offices in the public service,
appointing persons to hold such offices and removing them from holding or acting in those offices. Given that
the devolution of governmental power in Kenya is a relatively recent event and is still in process, an unsuccessful
administration of the devolution of power could result in weak fiscal management, control, accountability and
transparency of national accounts.
In addition, counties have development responsibilities that are central to the implementation of the central
governments MTP, among them agriculture, county hospitals and public health, early childhood education,
cooperatives, trade, county roads, fisheries and livestock. Harmonising the medium term plan with county
integrated development plans and urban plans will require coordinated action between national and local
government authorities. A failure in coordination or cooperation between national and local governments may
result in delays or increased costs to the completion of the projects and programmes contained in the national
MTP.
Furthermore, implementing the transition to devolved government, in tandem with many other reforms to the
institutions of national government, poses enormous challenges such as: the movement of staff from line
10
ministries and local authorities to county governments without disruption in service delivery or labour unrest;
establishing systems in the 47 counties to enable them to operate quickly after the county governments were
elected in 2013; coordination among counties with respect to the construction of inter-county roads; potential
duplication of expenditures at national and county levels; and capacity building at the county level to ensure that
they can make their own laws, manage new powers and resources, and properly plan, execute and report county
budgets. Capacity building will include training to use government wide electronic systems such as the Integrated
Financial Management Systems (IFMIS), the automated system for public finance management, and Kenya
Electronic Single Window System (KESWS), the automated system for clearance of import and export
documents, and move away from the old manual systems.
Some of these challenges were manifest during 2013 when doctors that were impacted by the implementation of
devolution went on strike demanding that their salaries and allowances not be paid at the county level. In
addition, during the counties first fiscal year 2013/14, county governments experienced challenges in planning,
executing and reporting on budgets because of timing challenges, with elections having just been concluded in
March 2013, as well as human resource capacity constraints.
In February 2012, the National Assembly enacted three laws to implement devolution. Together with the
provisions of the Constitution, these laws provide a set of institutional arrangements for managing transition
through a Transition Authority, an independent body with broad membership and powers to coordinate
implementation by the various organs of the government. Although there is a legal framework for managing
transition a great deal of work remains to be done. No assurance can be given that there will be a smooth
transition or that there will not be service delivery disruptions which could adversely affect residents or
businesses, and in turn materially adversely affect the countrys growth prospects.
Because legal reforms in a number of areas were adopted fairly recently and are largely untested, any
perceived inadequacy in the Kenyan legal system may generally deter foreign and domestic investment in
Kenya and adversely affect Kenyas economic growth. In addition, no assurance can be given that these
reforms might not lead to increased costs for the government and adversely affect Kenyas economic growth.
The justice system in Kenya is going through major changes. The reform of the legal and institutional framework
includes reforms to the judiciary and the police services.
With respect to the judiciary, a new and independent Judicial Service Commission responsible for nominating
judges was created and competitively appointed with the approval of Parliament. On 22 March 2011, a Judicial
Service Act was enacted that establishes the mandate and membership of the Judicial Service Commission,
creates a Judiciary Fund, and regulates appointment and removal of judges, among other things. Judges and
magistrates have undergone public vetting and many new judges and magistrates have been appointed to increase
capacity. Infrastructure development, including the construction of new courts and the purchase of equipment,
has been completed. The Chief Justice and the Deputy Chief Justice of the Supreme Court were competitively
appointed with the approval of Parliament. In addition, the judiciary now has its own Judiciary Fund and the
government has increased funding from KES2 billion in 2011/12 to KES16.5 billion for 2013/14. Moreover, new
court procedural rules have also been promulgated, which are aimed at improving efficiency. Because the legal
reforms in a number of areas were adopted fairly recently and are largely untested, any perceived inadequacy in
the Kenyan legal system may generally deter foreign and domestic investment in Kenya and adversely affect
Kenyas economic growth.
With respect to the police services, the Constitution has provided for major changes to security and police
governance, including provisions to diminish political manipulation and increase accountability of the police.
The Constitution also merged the prior two police forces (the Kenya Police Service and the Administration
Police Service) into one National Police Service. In August 2011, three key police reform laws were passed: the
National Police Service Act, 2011, which provides for the establishment, structure, powers and operations of the
police service; the National Police Service Commission Act No. 30, which makes further provisions for the
functions and powers of the National Police Service Commission and the qualifications and procedures for
appointment of such; and the Independent Policing Oversight Authority Act, 2011, which provides for civilian
oversight of the work of the police and establishes the Independent Policing Oversight Authority, as well as its
functions and powers. Reforms to the police force are still in early stages and are continuing. No assurance can
be given that these reforms might not lead to increased costs for the government and materially adversely affect
Kenyas economic growth.
11
Kenya continues to be challenged by internal security issues.
Kenya has from time to time experienced internal security concerns. For example, on 21 September 2013, a
terrorist attack occurred at the Westgate Mall in Nairobi. The al-Shabaab group, an extremist militant group,
claimed responsibility for the attack and resumed its threats of continued attacks, not only against Kenya but also
against Western countries for their intervention in Somalia. Al-Shabaab claimed that the attack at Westgate Mall
was prompted by the presence of Kenyan troops in southern Somalia as part of the peacekeeping forces of the
African Union Mission in Somalia (AMISOM). Al-Shabaab also announced that it would continue its attacks
until Kenya withdrew its troops from Somalia.
Since 2012, there have been numerous attacks involving grenades or explosive devices in Kenya. Between
January 2012 and January 2014, a total of 27 improvised explosive device (IED) attacks occurred in Kenya,
causing the deaths of 128 people and injuring another 427. The attacks mostly occurred in the North Eastern,
Nairobi and the Coast regions, targeting police stations and police vehicles, nightclubs and bars, churches, a
mosque, a religious gathering, a downtown building consisting of small shops and a bus station. In addition to
attacks which were carried out in this period, Kenyan law enforcement authorities have also disrupted several
suspected terrorist plots, including attempted car bombings in Nairobi and Mombasa. In May 2014, following a
series of fatal attacks and attempted attacks in Nairobi and Mombasa between 24 April and 16 May, the UK, US,
France and Australia issued new travel advisories advising their citizens to avoid or reconsider travel to certain
areas within Kenya. The UK and US were, respectively, the largest and third largest sources of foreign tourists to
Kenya in 2013. Accordingly, these travel warnings may have a significant impact on the level of foreign tourism,
and may have a wider economic impact as tourism is one of Kenyas largest sources of foreign exchange, and the
industry is one of Kenyas largest employers. See The EconomyGDPTourism for more information.
Approximately 500,000 Somalis live in the Dadaab refugee complex in north east Kenya. Originally established
in 1991 to house refugees from the Somali civil war, the Dadaab complex has elicited tension among the
surrounding communities. Some have alleged that the existence of the settlement can compromise border
security and have caused significant law and order problems within Kenyas territory. In November 2013, the
Somali and Kenyan governments signed an agreement with the United Nations High Commission for Refugees
to begin repatriating Somali refugees. While most repatriations are done voluntarily, any forced repatriation of
Somali refugees, or even the perception of such repatriation, could potentially build resentment among affected
individuals and enhance al-Shabaabs appeal and recruitment efforts in Kenya. There can also be no assurance
that repatriated persons will not seek to return to Kenya.
In addition, the Mombasa Republican Council, a separatist organisation based at the coastal town of Mombasa,
has demanded that Mombasa secede from the rest of the country. The Council was formed in 1999 to address
perceived historical injustice against the indigenous people of the coast who do not own land. The government
believes that members of Mombasa Republican Council could potentially be a recruiting ground for al-Shabaab.
Kenya also suffers from high crime rates. The total number of crimes reported to the police increased by
2.8 per cent. from 75,733 in 2011 to 77,852 in 2012. The total number of crimes reported to the police declined
by 7.7 per cent. from 77,852 in 2012 to 71,832 in 2013. The number of reported offenders increased from 82,052
in 2011 to 83,853 in 2012 and declined to 81,900 in 2013. Although, the number of persons who committed
offences against morality (i.e., rape, incest, sodomy, bestiality, indecent assault and bigamy) and other offences
against persons declined by 8.7 per cent. from 28,270 in 2011, 25,809 in 2012 to 28,899 in 2013, the total
number of persons reported to have committed homicides increased by 25.3 per cent. from 2,494 in 2011 to
3,124 in 2012 and declined by 10.9 per cent to 2,784 in 2013. The number of persons reported to have committed
robbery and other thefts increased by 7.9 per cent from 32,595 in 2011 to 35,168 in 2012 and declined by
3.3 per cent to 32,240 in 2013.
If the level of instability, crime or violence increases in the future, Kenyas level of tourism and foreign
investment, among other things, may suffer and potentially materially adversely affect Kenyas economic
growth.
Political instability may ensue if the ICC at The Hague ultimately convicts President Uhuru Kenyatta or
Deputy President William Ruto.
On 8 March 2011, President Uhuru Kenyatta, Deputy President William Ruto and radio executive Joshua Arap
Sang were summoned to appear before the ICC at The Hague following accusations of crimes against humanity
12
related to the violence that occurred in the aftermath of the 2007 presidential elections. President Kenyatta and
Deputy President Ruto have been cooperating and appearing at the proceedings, consistent with the ICC Rules of
Procedure and Evidence. These rules have recently been amended to provide that defendants may be excused
from appearing in person, under certain circumstances. President Kenyatta has been charged but the prosecutor
has requested an adjournment of the hearing in his case. On 31 March 2014, the ICC rejected the request by
President Kenyatta for the termination of the case and set a commencement date of 7 October 2014 for the
trial. The ICC also rejected a prosecution request to suspend the proceeding indefinitely pending compliance by
Kenya with its cooperation obligations.
As at the date of this Prospectus, the proceedings have not interfered with, and the ICC has shown sensitivity not
to interfere with, the ability of the President and the Deputy President to fulfil their constitutional duties,
although there can be no guarantee that this will always be the case. Further, the political impact of a conviction,
if confirmed after appeal, of either the President or the Deputy President cannot be predicted. Any ensuing
political instability as a result of a conviction may impact your investment in the Notes. In accordance with
Article 146(b) of the Constitution, if the office of the President and Deputy President is vacant, or the Deputy
President is unable to assume the office of President, the Speaker of the National Assembly shall act as President
and an election to the office of President shall be held within sixty days after the vacancy arose. However, should
political instability occur due to the ICC ultimately convicting the President or the Deputy President, such
political instability could adversely affect Kenyas economic growth. See Legal Proceedings for more
information.
Kenya has in the past experienced volatility and violence related with acquisition or maintenance of political
power. If significant political violence occurs again, Kenyas capital markets, level of tourism and foreign
investment, among other things, may suffer and potentially affect Kenyas economic condition. In addition,
political instability may affect the stability of the Kenyan economy.
Kenya has in the past experienced volatility and violence related with the acquisition or maintenance of political
power. During the 1992, 1997 and 2007 elections, threats, harassment and violent clashes between supporters for
different parties occurred. Although the 2002 election campaign experienced a significant decrease in political
violence compared to its two proceeding elections, political rallies did on some occasions lead to violence.
Violence erupted after the disputed elections in 2007, which left an estimated 1,133 people dead and more than
500,000 people displaced while fleeing the violence. A power sharing agreement was signed on 28 February
2008 and a unity government with the Party of National Unity and Orange Democratic Movement began on
17 April 2008. The agreement also provided for the prosecution in the ICC or in Kenya of those connected with
inciting the violence. Although Kenya held peaceful elections in 2013, no assurance can be made that incidents
of political violence or political instability will not occur in the future. If significant political violence or political
instability occurs, Kenyas capital markets, level of tourism and foreign investment, among other things, may
suffer and potentially materially adversely affect Kenyas economic growth.
An escalation in tensions with Kenyas neighbours could disrupt the Kenyan economy and have negative
consequences for Kenya in its international diplomatic and trade relations.
Kenya has in the past been involved, and may continue to have, in territorial disputes with its neighbours. In
2008, Migingo island was claimed by both Kenya and Uganda. A joint re-demarcation line of the border was
launched on 2 June 2009 to recover and to place survey markers on land, making delineation of the boundary on
the lake more precise. The two countries have established a joint technical experts committee to demarcate the
borderline along the island. Also, Kenya has submitted to the U.N. Commission on the Limits of the Continental
Shelf its filing on claims to mineral exploitation rights on waters beyond the 200 nautical mile baseline. Somalia
and Kenya are in discussion over the non-objection of their respective submissions. See Republic of Kenya
Border Disputes for more information. An escalation in tensions with Kenyas neighbours could materially
adversely affect the Kenyan economy and have negative consequences for Kenya in its international diplomatic
and trade relations.
Stability and growth in Kenya may be threatened if the government fails to address high levels of poverty,
unemployment and inequality in income.
Despite recording annual real GDP growth rates of 4.4 per cent., 4.6 per cent. and 4.7 per cent. in 2011, 2012 and
2013, respectively, poverty remains high in Kenya, with approximately 45 per cent. of the population living
below the poverty line in 2013. Kenyas most recent employment data is derived from the 2005/06 Kenya
13
Integrated Household Budget Survey, which recorded overall unemployment at approximately 12.7 per cent. and
youth unemployment of approximately 25 per cent. The countrys Vision 2030 acknowledges that there are also
large disparities in incomes and access to education, healthcare and land, as well as to basic needs, including,
clean water, adequate housing and sanitation. High and persistent levels of poverty and unemployment and
increasing inequality may individually or in the aggregate have negative effects on the Kenyan economy.
However, if these reforms do not address the high levels of poverty, unemployment and inequality, such
continued conditions may materially adversely affect Kenyas economic growth.
Failure to address actual and perceived risks of corruption and money laundering may adversely affect
Kenyas economy and ability to attract foreign direct investment.
Although Kenya has implemented and is pursuing major initiatives to prevent and fight corruption and money
laundering, both remain important issues in Kenya. Kenya is ranked 136 out of 175 in Transparency
Internationals 2013 Corruption Perceptions Index and placed at the 12.4 percentile rank (with 100 the highest
rank) on the World Banks Worldwide Governance Indicators for 2012. Although the total number of cases
handled by the Kenya Ethics and Anti-Corruption Commission declined by 51.0 per cent. from 7,326 in 2011 to
3,592 in 2012 following the enactment of the Ethics and Anti-corruption Commission Act, 2011 and the
Anti-Corruption and Economic Crimes (Amnesty and Restitution) Regulations, 2011, corruption continues to be
a concern. On 18 October 2013, the Financial Action Task Force on Money Laundering (FATF) established by
the G-7 countries identified Kenya as one of 11 jurisdictions with strategic anti-money laundering deficiencies.
Since 2002, Kenya has implemented various initiatives aimed at combating corruption, money laundering and
financing of terrorism. Parliament has enacted several pieces of legislation dealing with corruption and money
laundering, including the following: the Anti-Corruption and Economic Crimes Act 2003 which provides for the
prevention, investigation and punishment of corruption, economic crime and related offences; the Proceeds of
Crime and Anti-Money Laundering Act 2009 which establishes the offence of money laundering and introduces
measures for combating the offence; the Ethics and Anti-corruption Commission Act 2011 creating an agency
responsible for investigating and litigating corruption cases, tracing assets and recovery of illegally acquired
public assets; and the Prevention of Terrorism Act 2012, as amended, which gives law enforcers more powers in
fighting terrorism. On 28 March 2013, the Proceeds of Crime and Anti-Money Laundering Regulations, 2013
were issued by the Minister for Finance which provide for the due diligence and reporting requirements of
certain reporting institutions licensed and regulated by Kenyan regulatory authorities.
The government has developed a strategy as part of its MTP to address corruption in government, specifically in
the public procurement sector. Under the plan, the government aims to (i) implement an e-procurement and
interactive system to enable any supplier to bid for tenders in a transparent manner, (ii) execute laws such as the
Ethics and Anti-corruption Commission Act, 2011 and the Anti-Corruption and Economic Crimes (Amnesty and
Restitution) Regulations, 2011 (which provides for interest on property or money irregularly obtained, the
procedures for amnesty applications and restitution of property to rightful owners), and (iii) enhance the
investigative capacity of and grant prosecutorial powers to the Ethics and Anti-Corruption Commission.
There is no certainty, however, as to the success of these measures. Failure to implement these strategies,
continued corruption in the public sector and deficiencies in the systems for addressing money laundering
activities could have a material adverse effect on the Kenyan economy and may have a negative effect on
Kenyas ability to attract foreign investment. See also Legal Proceedings for recent allegations against the
Governor of the Central Bank of Kenya and The EconomyMajor Infrastructure ProjectsExpansion of
Railway Transport for a discussion of the procurement process in the Mombasa to Nairobi Standard Gauge
Railway project.
Kenya may be unable to meet its economic growth and reform objectives and policies which may adversely
affect the performance of the Kenyan economy.
Although the government has announced its intention to pursue a series of economic and fiscal reform initiatives,
including those set forth in Vision 2030 and the second MTP, no assurance can be given that such initiatives will
be adequately funded, will achieve or maintain the necessary long-term political support, will be fully
implemented or prove successful in achieving their objectives. Continued pursuit of long-term objectives such as
those set forth in Vision 2030 and the second MTP will depend on a number of factors including continued
political support at many levels of the Kenyan society, adequate funding, effective transition to devolved
government, improved security, power sector reform, availability of human capital and significant coordination.
The significant funding requirements for these plans may prove difficult or impossible to meet. Kenya may be
unable to complete planned flagship projects or may experience difficulties implementing reforms. If the
14
government is not able to fund or implement the medium-term objectives contained in the second MTP, or if
there is a delay in such funding or implementation, then the government may not be able to meet the long-term
strategic objectives set forth in Vision 2030, which could result in a material adverse effect on the economy.
High inflation could have a material adverse effect on Kenyas economy and its ability to service its debt,
including the Notes.
Historically, inflation in Kenya has fluctuated significantly from year to year. International food and petroleum
prices in the past resulted in inflation levels as high as 14.0 per cent. in 2011, although inflation has decreased to
9.4 per cent. in 2012 and further to 5.4 per cent. for the eleven month period ended November 2013. For more
information on historical inflation rates, please see Monetary and Financial SystemInflation and interest
rates. Although tighter monetary policies have historically helped to curb inflation, the impact on inflation of
higher fuel and other import prices is beyond the governments control. There can be no assurance that the
inflation rate will not rise in the future. Significant inflation could have a material adverse effect on Kenyas
economy and the ability to service the Notes.
Further increases in the public sector wage bill could crowd out spending in much-needed infrastructure
investment and social protection. Reforms which negatively impact remuneration of civil servants could,
however, lead to protests, demonstrations and strikes by civil servants. Instability in the civil service sector
could, in turn, affect the stability of the Kenyan economy.
In 2012, the government raised wages for doctors, nurses, teachers and lecturers. Combined with the addition of
new public employees, the adjustment in civil service remuneration raised the governments wage bill from
approximately 30 per cent. of government revenue in 2009/10 (7.0 per cent. of GDP) to approximately
33.9 per cent. of government revenue (7.8 per cent. of GDP) in 2012/13. Any further increases in the wage bill
could crowd out spending in needed infrastructure investment and social protection.
The government has sought to contain pressures on the wage bill by rationalising the salary scheme for all levels
of government in line with the Public Finance Management Act (2012) (the PFMA) and limit the scope for ad
hoc wage increases. The Salaries and Remuneration Commission is currently conducting a nationwide job
evaluation to gradually move to a harmonised salary scales framework for both central and county government
levels. The government is committed to be guided by the Salaries and Remuneration Commissions advice and
has set a target ceiling of 7 per cent. of GDP for all general government wages in the medium term. Reforms to
address the wage bill could include reductions in public sector employment in addition to decreases in
remuneration. Resistance to these reforms by those who will be immediately affected may be followed by
protests, demonstrations and strikes. Instability in the civil service sector could affect the stability of the Kenyan
economy. On the other hand, if the government fails to implement reforms to the wage bill, the governments
fiscal position could deteriorate and the Kenyan economy may be materially adversely affected.
Failure to significantly improve Kenyas infrastructure could adversely affect Kenyas economy, competitive
ranking and growth prospects, including its ability to meet GDP growth targets.
Failure to grow the key sectors of its economy may constrain Kenyas economic growth. The lack of
infrastructure (including inadequate power supply and transportation systems) may be a significant constraint in
further development in the key sectors of the economy and Kenyas current rate of growth may decline in future
periods as a result of poor infrastructure development. Over the last five years, however, Kenya has made
progress in the development and expansion and improvement of airports, ports, rail, pipelines, hydropower,
geothermal plants, ferries, housing and public works facilities. It has, among other things, expanded and
modernised the Kisumu International Airport and selected airstrips countrywide and began such process on the
Jomo Kenyatta International Airport, improved shipping and maritime facilities with the dredging and widening
of Mombasa Port and the development of Berth No.19, upgraded the commuter rail core system with the
completion of JKIA Commuter Rail Phase I and the construction of a railway station at Syokimau, and
constructed 2,200 km of roads and rehabilitated/reconstructed 1,863 km of roads. Nevertheless, government
concerns still exist over the length of future planning and consultative processes, inadequate funding,
prioritisation among projects in light of uncertainties related to devolution, contracting disputes and low/poor
maintenance of key projects. For example, the government has identified that:
in the aviation sector, there is a lack of adequate and skilled flight safety inspectors and reconstruction
of the Jomo Kenyatta International Airport is necessary as a result of a significant fire in August 2013;
in the shipping and maritime sector, there is inadequate equipment and machinery that limits handling
capacity at the ports and a lack of a training vessel to offer practical sea time to commercial shipping
trainees;
15
in the railway sector, a large capital outlay is required to construct standard gauge railway lines and
commuter rail services, and there are inadequate trained engineers, encroachments of unauthorised
buildings upon railway lines and aging wagons;
in the road transport sector, there is rapid urbanisation and increased traffic volume, lack of specific
standards and capacity for devolved county roads, a large maintenance backlog of the road network,
weak enforcement of axle load rules and regulations, high cost/delays in relocation of utilities and
services along and across road reserves, and high cost of road construction; and
in the public works sector, there are delayed projects under the Economic Stimulus Programme and
high rental accommodation charges in foreign missions abroad.
A failure to significantly improve Kenyas infrastructure in order to support growth in the key sectors of its
economy may constrain Kenyas overall economic growth, which may in turn result in a material adverse effect
on Kenyas ability to meet its debt obligations, including those under the Notes. For more information on risks to
growth of key sectors of the economy, see Kenya may be unable to meet its economic growth and reform
objectives and policies which may adversely affect the performance of the Kenyan economy.
A sudden reversal of accommodative monetary policies in developed markets may cause capital outflows from
emerging and frontier markets, and generate a negative impact on emerging and frontier economies, such as
Kenya.
A sudden reversal of accommodative monetary policies in developed markets may cause capital outflows from
emerging and frontier markets, and generate a negative impact on emerging and frontier economies, such as
Kenya. Of significance, short-term private capital flows, a large source of financing for Kenyas capital and
financial account, may decline if developed markets scale back accommodative monetary policy measures and
adversely affect funding for the current account deficit. As of 30 June 2013, short-term private capital flows of
US$1.5 billion financed 39 per cent. of Kenyas capital and financial account. A portfolio shift to larger
economies with increasing yields could lead to a depreciation of the Kenyan shilling and increase exchange rate
volatility. Higher volatility in the exchange rate could bring uncertainty in the currency market. Faced with
uncertainty, investors tend to postpone making investment decisions, which could lead to less investment in the
economy and have a material adverse effect on Kenyas economy.
Natural disasters such as floods and droughts have negatively affected Kenya in the past and may negatively
affect it in the future.
Like other countries in Africa, Kenya has historically been affected by a variety of natural disasters, including
floods and droughts. Natural disasters such as floods may lead to casualties, the destruction of crops and
livestock, the outbreak of waterborne disease and the destruction of infrastructure, such as roads and bridges.
Droughts may negatively affect the supply of agricultural commodities, the food supply in general and the
generation of hydroelectric power. During 2012, Kenya experienced serious floods in certain areas which
resulted in the destruction of infrastructure, crops and loss of human life and livestock. In addition, during the
first quarter of 2012, some parts of Kenya also experienced drought conditions that resulted in reduced
production of milk and tea. Expenditures associated with natural disaster relief efforts may adversely affect
Kenyas budgetary position and, as a result, may impair Kenyas ability to service the Notes. In addition, because
agriculture and forestry has historically accounted for a significant portion of Kenyas GDP (25.9 per cent. of
GDP in 2012), Kenyas economy is particularly vulnerable to natural disasters such as floods and droughts, thus
any such natural disasters could have a material adverse effect on its economy.
Any shortage of water in Kenya could have an adverse effect on Kenyas economy and its level of economic
growth.
Kenya is classified as a water scarce country by the United Nations (UN). According to the Kenya Population
Census, 2009, 27.9 per cent. of the population obtained piped water from water service providers while
37.2 per cent. obtained their water from either improved or unimproved springs, wells or boreholes. Over
29 per cent. received their water supply from other unsafe sources like streams, lakes, ponds and 5.9 per cent.
received water from water vendors. Kenya also has historically been affected by droughts. In recognition of the
importance of sustainable management of water resources, the government initiated reforms in the sector
including, among others, the rehabilitation and protection of Kenyas five water towers; review of six catchment
area management strategies; construction of 50 sand dams and/sub-surface dams along seasonal rivers especially
in arid and semi-arid land; mapping of shared water resources of the country; and development of a national
water allocation plan. Kenya could face water shortages, however, if planned reforms are not implemented. Such
16
water shortages could have an impact on the agriculture and forestry products sector of the economy including
the important exports of tea and horticulture, potentially leading to trade and current account imbalances. Any
shortage of water in Kenya could have a material adverse effect on Kenyas economy and its level of economic
growth.
Chronic power shortages, over-dependence on hydropower and high energy costs may negatively impact
economic growth.
In spite of investments in the power sector in recent years, lack of reliable electricity supply remains a serious
impediment to Kenyas economic growth and development. Recorded peak electricity demand, which is
considered suppressed, stands at 1,664 MW recorded in October 2013, while the unsuppressed demand is
estimated at 1,700 MW, thus depicting a shortfall of 546 MW after providing for a 30 per cent. margin.
Insufficient power generation, aging or insufficient infrastructure, inadequate funding and weak distribution
networks result in frequent power outages, high transmission and distribution losses and power rationing,
particularly during the dry season. Droughts also have impacted electricity generation as Kenya depends on
hydropower generation for much of its power generation capacity (46.3 per cent. of total power generation in
2012). During severe droughts, electricity generation is switched from hydropower to more expensive thermal
generation. Kenya also suffers from high energy costs of up to US$0.21 per Kwh compared to approximately
US$0.06 per Kwh in India and China.
The government has identified the improvement of electricity generation, transmission and distribution
infrastructure as a critical element in meeting economic growth and development objectives. To address these
issues, the government has launched a series of policy initiatives under Vision 2030 and the second MTP. The
government has identified the exploitation of green growth opportunities such as the use of carbon credits
(especially in reforested catchment towers), clean energy use in geothermal, hydro, wind and solar power, the
promotion of natural products initiatives, promotion of resource efficiency and clean production systems as
elements of a strategy to improve the energy infrastructure and promote development of a reliable, adequate and
cost effective energy supply. In addition, the government has identified major projects in the power sector
expected to be completed by 2018 such as the development of an additional 3,085 MW of geothermal energy at
Olkaria, Menengai and Silali-Bogoria and the development of multi-purpose dams such as the High Grand Falls
dam (700 MW), the Magwagwa dam (120 MW), the Arror dam (60 MW) and the Nandi Forest dam (50 MW).
The government also intends to develop the transmission network to minimise transmission distances and losses.
No assurances can be given that Kenya will be able to effectively reform the power sector or that the reforms will
not cost significantly more than what is estimated. Failure to adequately address the significant deficiencies in
Kenyas power generation, transmission and distribution infrastructure could lead to lower GDP growth and
reduce the countrys ability to attract investment, thereby causing a material adverse effect on Kenyas economy.
Kenyas energy sector relies exclusively on imported oil to meet its petroleum requirements and is therefore
vulnerable to oil price increases and prolonged weakness in the Kenya shilling to US dollar exchange rate.
Kenyas energy sector relies exclusively on imported oil to meet its petroleum requirements. Accordingly, a rise
in the international price of oil significantly affects Kenyas economy because, among other things, a higher oil
price increases Kenyas imports bill and thereby increases its trade and current account deficits and exerts
upward pressure on prices and inflation.
Kenya procures oil through an open tender system, under which the government tenders for petroleum products
to be purchased every month. The oil marketing company that offers the lowest price on freight and premium
wins the tender and is contracted to deliver the petroleum products on behalf of the other licenced oil marketing
companies. The participants in the tender are all licenced import and wholesale oil marketing companies. This
tender is done online. Because the price is fixed for the amount of oil needed for a month, Kenya will not be able
to take advantage of any decreases in the market price of oil during the month of purchase.
Oil prices and markets historically have been volatile, and they are likely to continue to be volatile in the future.
Prices of oil are subject to wide fluctuations in response to relatively minor changes in the supply of, and demand
for, oil, market uncertainty and a variety of additional factors that are beyond Kenyas control. These factors
include, but are not limited to, political conditions in the Middle East and other regions, internal and political
decisions of OPEC and other oil producing nations to decrease or increase production of crude oil, domestic and
foreign supplies of oil, consumer demand, weather conditions, domestic and foreign government regulations,
transport costs, the price and availability of alternative fuels and overall economic conditions.
Further, international oil prices are typically denominated in US dollars, and so prolonged weakness in the
exchange rate of the Kenyan shilling against the US dollar will increase the local cost of petroleum and other
17
oil-based products, even if there is no change in the international price of oil. Should oil prices increases and
prolonged weaknesses in the Kenya shilling to US dollar exchange rate occur such events could have a material
adverse effect on Kenyas economy.
Health risks could adversely affect Kenyas economy.
HIV/AIDS, tuberculosis (which is exacerbated in the presence of HIV/AIDS) and malaria are major healthcare
challenges in Kenya and other East African countries. In the period 2010/11 to 2012/13, national HIV prevalence
declined from 7.2 per cent. to 5.6 per cent. of adults aged 15-64 years, while prevalence dropped from
3.8 per cent. to 2.1 per cent. of adults aged 15-24 years and 10.5 per cent. to 6.4 per cent. of adults aged 25-34
and the total number of persons living with HIV is estimated to be in the region of 1.6 million.
About 25 million Kenyans live in malaria endemic regions of the former provinces of Western, Nyanza and the
Coast, with a majority of them under the age of 15. While combination therapies and use of indoor residual
spraying have resulted in reduction of prevalence from 38 per cent. in 2010 to 21 per cent. in 2012; some regions
of Western and Nyanza, however, still have contributed to little or no changes in the period 2010/11 to 2012/13
(between 37 per cent. and 47 per cent.).
No assurance can be given that the high prevalence rate of HIV/AIDS, tuberculosis, malaria, or other diseases in
Kenya will not have a material adverse effect on the economy of Kenya.
Any significant depreciation of the Kenyan shilling against the US dollar or other major currencies might
have a negative effect on Kenyas ability to repay its debt denominated in currencies other than the Kenyan
shilling, including the amounts due under the Notes.
The Kenyan shilling experienced considerable volatility during 2012. The shilling depreciated against most of
the selected major trading currencies as reflected in the overall trade weighted exchange rate index, which
increased by 1.0 per cent. from 109.6 in 2011 to 110.8 in 2012. The shilling weakened against the pound sterling,
euro and US dollar by 6.0, 3.2 and 1.1 per cent., respectively, in the year ended at 31 December 2012. For the
three month period ended 31 December 2013, the Kenya shilling depreciated against the US dollar, pound
sterling and euro by 0.01, 0.04 and 0.02 per cent. respectively. For the same period, the shilling appreciated
against the Japanese yen by 0.05. The shilling stood at KES86.31 to the US dollar at end of December 2013. At
31 December 2013, 28.1 per cent. of the public external debt was denominated in US dollars, 34.7 per cent. was
denominated in euros, 14.4 per cent. was denominated in Japanese yen and 5.8 per cent. was denominated in
pound sterling. Any significant depreciation of the Kenyan shilling against the US dollar or other major
currencies might have a material adverse effect on Kenyas ability to repay its debt denominated in currencies
other than the Kenyan shilling, including the amounts due under the Notes.
Risks Relating to the Notes
An investment in the Notes may not be suitable for all investors.
Generally, investment in emerging markets such as Kenya is only suitable for sophisticated investors who fully
appreciate the significance of the risks involved in, and are familiar with, investing in emerging markets.
Investors are urged to consult their own legal, tax and financial advisers before making an investment. Such risks
include, but are not limited to, higher volatility and more limited liquidity in respect of the Notes, a fragile export
base, budget deficits, lack of adequate infrastructure necessary to accelerate economic growth and changes in the
political and economic environment. Emerging markets can also experience more instances of corruption by
government officials and misuse of public funds than do more mature markets, which could affect the ability of
governments to meet their obligations under issued securities.
Investors should also note that emerging markets such as Kenya are subject to rapid change and that the
information set out in this Prospectus may become outdated relatively quickly.
Each potential investor in the Notes must determine the suitability of that investment in light of its own
circumstances.
In particular, each potential investor should:
have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and
risks of investing in the Notes and the information contained in this Prospectus or any applicable
supplement;
18
have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the Notes and the impact the Notes will have on its
overall investment portfolio;
have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes,
including where the currency for principal or interest payments is different from the potential investors
currency;
understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant
financial markets; and
be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for
economic, interest rate and other factors that may affect its investment and its ability to bear the
applicable risks.
Events in other emerging markets, including those in other African countries, may negatively affect the Notes.
Economic distress in any emerging market country may adversely affect prices of securities and the level of
investment in other emerging market issuers as investors move their money to more stable, developed markets.
Financial problems or an increase in the perceived risks associated with investing in emerging market economies
could dampen foreign investment in Kenya, adversely affect the Kenyan economy or adversely affect the trading
price of the Notes. Even if the Kenyan economy remains relatively stable, economic distress in other emerging
market countries could adversely affect the trading price of the Notes and the availability of foreign funding
sources for the government. Adverse developments in other countries in sub-Saharan Africa, in particular, may
have a negative impact on Kenya if investors perceive risk that such developments will adversely affect Kenya or
that similar adverse developments may occur in Kenya. Risks associated with sub-Saharan Africa include
political uncertainty, civil unrest and conflict, corruption, the outbreak of diseases and poor infrastructure.
Investors perceptions of certain risks may be compounded by incomplete, unreliable or unavailable economic
and statistical data on Kenya, including elements of the information provided in this Prospectus. See The
statistical information published by Kenya may differ from that produced by other sources and may be
unreliable.
The credit ratings of the Notes are subject to revision or withdrawal, either of which could adversely affect the
trading price of the Notes.
The Notes are expected to be rated B+ (EXP) by Fitch and B+ by S&P. The ratings may not reflect the potential
impact of all risks related to structure, market, additional factors discussed above, and other factors that may
affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be
subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Other than
pursuant to Article 16 of the Prospectus Directive, Kenya has no obligation to inform Noteholders of any
revision, downgrade or withdrawal of its current or future sovereign credit ratings. A suspension, downgrade or
withdrawal at any time of a credit rating assigned to Kenya may adversely affect the market price of the Notes.
Fitch and S&P are established in the European Union and registered under the CRA Regulation. In general,
European regulated investors are restricted under the CRA Regulation from using credit ratings for regulatory
purposes, unless such ratings are issued under the CRA Regulation (and such registration has not been withdrawn
or suspended). Such general restriction will also apply in the case of credit ratings issued by non-EU credit-rating
agencies, unless the relevant credit ratings are endorsed by an EU-registered credit rating agency or the relevant
non-EU rating agency is certified in accordance with the CRA Regulation (and such endorsement or certification,
as the case may be, has not been withdrawn or suspended).
Legal investment considerations may restrict certain investments.
The investment activities of certain investors are subject to legal investment laws and regulations, or review or
regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether
and to what extent the Notes are legal investments for it, the Notes can be used as collateral for various types of
borrowing and other restrictions apply to its purchase or pledge of the Notes. Financial institutions should consult
their legal advisors or the appropriate regulators to determine the appropriate treatment of the Notes under any
applicable risk-based capital or similar rules.
19
The liquidity of the Notes may be limited and trading prices may fluctuate.
The Notes have no established trading market. While application has been made to list the Notes on the Irish
Stock Exchange and any one or more of the Managers may make a market in the Notes, they are not obligated to
do so and may discontinue any market making, if commenced, at any time without notice. There can be no
assurance that a secondary market will develop for the Notes or, if a secondary market therein does develop, that
it will continue. If the Notes are traded after their initial issuance, they may trade at a discount to their initial
offering price, depending upon prevailing interest rates, the market for similar securities, general economic
conditions and the financial condition of Kenya.
Fluctuations in exchange rates and interest rates may adversely affect the value of the Notes.
The Issuer will pay principal and interest on the Notes in US dollars. This presents certain risks relating to
currency conversions if an investors financial activities are denominated principally in a currency or currency
unit (the Investors Currency) other than US dollars. These include the risk that exchange rates may
significantly change (including changes due to devaluation of the US dollar or revaluation of the Investors
Currency) and the risk that authorities with jurisdiction over the Investors Currency may impose or modify
exchange controls. An appreciation in the value of the Investors Currency relative to the US dollar would
decrease the Investors Currency-equivalent yield on the Notes, the Investors Currency equivalent value of the
principal payable on the Notes and the Investors Currency equivalent market value of the Notes.
Government and monetary authorities (including where the investor is domiciled) may impose (as some have
done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors
may receive less interest or principal than expected, or no interest or principal. In addition, investment in the
Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of the
Notes.
Definitive Notes not denominated in an integral multiple of US$200,000 or its equivalent may be illiquid and
difficult to trade.
The Notes have denominations consisting of a minimum of US$200,000 plus integral multiples of US$1,000 in
excess thereof. It is possible that the Notes may be traded in amounts that are not integral multiples of
US$200,000. In each, such holder who, as a result of trading such amounts, holds an amount which is less than
US$200,000 in his account with the relevant clearing system at the relevant time may not receive a Certificate in
respect of such holding (should Certificates be printed) and would need to purchase a principal amount of Notes
such that its holding amounts to US$200,000.
If Certificates are issued, holders should be aware that Certificates which have a denomination that is not an
integral multiple of US$200,000 may be illiquid and more difficult to trade than Notes denominated in an
integral multiple of US$200,000.
The terms of the Notes may be modified, waived or substituted without the consent of all the Noteholders
The Terms and Conditions of the Notes contain provisions for convening meetings of Noteholders to consider
matters affecting their interest. The provisions permit defined majorities to bind all Noteholders including
Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary
to the majority.
Kenya is a sovereign state and accordingly it may be difficult to obtain or enforce judgments or arbitral
awards against it.
Kenya is a sovereign state and has waived only certain immunities and has not submitted to the jurisdiction of
any court outside Kenya, but instead has agreed to resolve disputes by arbitration in accordance with rules and
procedures of the London Court of Arbitration. As a result, a LCIA arbitration proceeding is the exclusive forum
in which a holder may assert a claim against Kenya. In addition, it may not be possible for investors to effect
service of process upon Kenya within their own jurisdiction, obtain jurisdiction over Kenya in their own
jurisdiction or enforce against Kenya judgments or arbitral awards obtained in their own jurisdiction. See
Enforcement of Civil Liabilities and Condition 16(b) (Arbitration).
20
Payments made in certain EU Member States may be subject to withholding tax under the EU Savings
Directive.
Under EC Council Directive 2003/48/EC on the taxation of savings income (the Savings Directive),
EU Member States are required, from 1 July 2005, to provide to the tax authorities of another EU Member State
details of payments of interest (or similar income) paid by a person established within its jurisdiction to (or for
the benefit of) an individual resident, or certain types of entity established, in that other EU Member State.
However, for a transitional period, Luxembourg and Austria will (unless during that period they elect otherwise)
instead operate a withholding system in relation to such payments. The current rate of withholding under the
Directive is 35 per cent. The transitional period is to terminate at the end of the first full fiscal year following
agreement by certain non-EU countries to exchange information procedures relating to interest and other similar
income. The Luxembourg government has announced its intention to elect out of the withholding system in
favour of automatic exchange of information with effect from 1 January 2015.
The Council of the European Union has adopted a Directive (the Amending Directive) which will, when
implemented, amend and broaden the scope of the requirements of the Savings Directive described above. The
Amending Directive will expand the range of payments covered by the Savings Directive, in particular to include
additional types of income payable on securities, and the circumstances in which payments must be reported or
paid subject to withholding. For example, payments made to (or for the benefit of) (i) an entity or legal
arrangement effectively managed in an EU Member State that is not subject to effective taxation, or (ii) a person,
entity or legal arrangement established or effectively managed outside of the EU (and outside any third country
or territory that has adopted similar measures to the Savings Directive) which indirectly benefit an individual
resident in an EU Member State, may fall within the scope of the Savings Directive, as amended. The Amending
Directive requires EU Member States to adopt national legislation necessary to comply with it by 1 January
2016, which legislation must apply from 1 January 2017.
A number of non-EU countries and certain dependent or associated territories of certain EU Member States have
adopted similar measures to the Savings Directive.
If a payment were to be made or collected through an EU Member State which has opted for a withholding
system and an amount of, or in respect of, tax were to be withheld from that payment pursuant to the Savings
Directive or any other Directive implementing the conclusions of the ECOFIN Council meeting of
26-27 November 2000 on the taxation of savings income or any law implementing or complying with, or
introduced in order to conform to such Directive, neither the Issuer nor any paying agent nor any other person
would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such
withholding tax. Furthermore, once the Amending Directive is implemented and takes effect in EU Member
States, such withholding may occur in a wider range of circumstances than at present, as explained above. The
Issuer is, however, required to maintain a paying agent in an EU Member State, if any, that will not be obliged to
withhold or deduct tax pursuant to the Savings Directive. Noteholders should consult their own tax advisers
regarding the implications of the Savings Directive in their particular circumstances.
21
USE OF PROCEEDS
Kenya expects the net cash proceeds of the issue of the Notes to amount to US$ which Kenya expects to use
for general budgetary purposes, including for the funding of infrastructure projects and repayment of a
US$600 million loan incurred in 2011/12 that matures in August 2014.
22
REPUBLIC OF KENYA
Location and Geography
Kenya occupies a land area of 581,309 square kilometres. Kenya lies on the equator and is bordered by the Indian
Ocean in the south east, Tanzania to the south, Uganda to the west, South Sudan to the north west, Ethiopia to the
north and Somalia to the north east. Kenya has a population of approximately 44 million. It is divided into
47 semi-autonomous counties that are headed by Governors who were elected in the first general election under
the Constitution in March 2013. Nairobi is largest city and the capital of the country.
Kenya has a warm and humid climate along its Indian Ocean coastline, with wildlife-rich savannah grasslands
inland towards the capital. Nairobi has a cool climate that gets colder approaching Mount Kenya. Further inland
there is a warm and humid climate around Lake Victoria, and temperate forested and hilly areas in the western
region. The north-eastern regions along the border with Somalia and Ethiopia are arid and semi-arid areas with
near-desert landscapes. Lake Victoria, the worlds second largest fresh-water lake and the worlds largest tropical
lake, is situated to the southwest and is shared with Uganda and Tanzania.
The long rains season occurs from March/April to May/June. The short rains season occurs from October to
November/December. The rainfall is sometimes heavy and often falls in the afternoons and evenings. The
temperature remains high throughout these months of tropical rain. The hottest period is February and March,
leading into the season of the long rains, and the coldest is in July and August.
Kiswahili and English are both official languages in Kenya, and Kiswahili is the national language.
Border Disputes
Maritime Border with Somalia
On 6 May 2009, Kenya submitted to the UN Commission on the Limits of the Continental Shelf, information on
the limits of the continental shelf beyond 200 nautical miles from the baselines from which the breadth of the
territorial sea is measured. The submission is intended to give Kenya the right to explore and exploit mineral
resources on this additional territory under the Convention on the Law of the Sea. Kenya and Somalia are in
discussion with regards to their respective submissions to the UN Commission.
Migingo Island
Migingo is a 2,000-square-metre (half-acre) island in Lake Victoria. In 2008, the island was claimed by both
Kenya and Uganda. The rationale for dispute revolves primarily around the lucrative fishing rights, mostly for
valuable Nile perch. In July 2009, the Ugandan government shifted its official position, stating that while
Migingo Island was in fact Kenyan, much of the waters near it were Ugandan.
In April 2009, the Ugandan flag was lowered and Ugandan security personnel withdrew from the island. A joint
re-demarcation line of the border was launched on 2 June 2009 to recover and to place survey markers on land,
making delineation of the boundary on the lake more precise. The two countries have established a joint technical
experts committee to demarcate the borderline along the island. The committee has held several meetings aimed
at concluding the exercise.
Ilemi Triangle
The Ilemi Triangle is an area of disputed land in East Africa, measuring between 10,320 and 14,000 square
kilometres (3,985 and 5,405 sq mi). The territory which borders Ethiopia is claimed by South Sudan and Kenya.
Since its independence, Kenya, however, has had de facto control of the area.
History
Kenya was not a unified political entity prior to the last decade of the 19
th
century. In 1890, Britain established
the East Africa Protectorate, which in 1920 became a crown colony by the name of Colony of Kenya. Organised
resistance to colonial rule began in the 1920s, intensified in the 1940s, and became violent in 1952 following the
formation of the Mau Mau Resistance movement. After nearly eight decades of colonial rule, Kenya gained
independence from Great Britain on 12 December 1963 and became a republic a year later. Jomo Kenyatta, an
icon of the struggle for liberation, led Kenya as Prime Minister, and later President, from independence in 1963
until his death in 1978, when President Daniel arap Moi took power in a constitutional succession. The country
23
was a de facto one party state from 1969 until 1982 when the ruling Kenya African National Union (KANU)
made itself the sole legal party in Kenya. President arap Moi acceded to internal and external pressure for
political liberalisation in late 1991. The ethnically fractured opposition failed to dislodge KANU from power in
elections in 1992 and 1997, which were marred by violence and fraud, but were viewed as having generally
reflected the will of the Kenyan people. President arap Moi stepped down in December 2002 following fair and
peaceful elections. Mwai Kibaki, running as the candidate of the multi-ethnic, united opposition group, the
National Rainbow Coalition (NARC), defeated KANU candidate Uhuru Kenyatta (the son of founding
President Jomo Kenyatta) and assumed the presidency following a campaign centred on an anti-corruption
platform. Kibakis NARC coalition splintered in 2005 over a constitutional review process. Government
defectors joined with KANU to form a new opposition coalition, the Orange Democratic Movement (ODM),
which defeated the governments draft constitution in a popular referendum in November 2005. President
Kibakis re-election in December 2007 brought charges of vote rigging from ODM candidate Raila Odinga and
unleashed two months of violence in which an estimated 1,133 people died. African Union-sponsored mediation
led by former UN Secretary General Kofi Annan in late February 2008 resulted in a power-sharing accord
bringing Mr. Odinga into the government in the restored position of Prime Minister. The power-sharing accord
included a broad reform agenda, the centre piece of which was constitutional reform. In August 2010, Kenyans
overwhelmingly adopted the Constitution in a national referendum. The Constitution introduced additional
checks and balances to executive power, including a bill of rights for Kenyan citizens, and significant devolution
of power and resources to 47 newly created counties. It also eliminated the position of Prime Minister following
the first presidential election under the Constitution, which occurred on 4 March 2013. While allegations of
irregularities in the voting process were made, the elections were not marred by violence and the result was
confirmed by the newly constituted Supreme Court, which dismissed the oppositions appeal. Uhuru Kenyatta,
running against a field including Prime Minister Odinga, won the March elections in the first round by a close
margin and was sworn into office on 9 April 2013.
Population
The population of Kenya was approximately 44 million as at July 2013. According to the 2009 population
census, ethnic groups in the nation are represented as follows: Kikuyu (22 per cent.), Luhya (14 per cent.),
Luo (13 per cent.), Kalenjin (12 per cent.), Kamba (11 per cent.), Kisii (6 per cent.), Meru (6 per cent.), other
African (15 per cent.) and non-African (Asian, European, and Arab) (1 per cent.). The vast majority of Kenyans
are Christian (83 per cent.), with 47.7 per cent. regarding themselves as Protestant and 23.5 per cent. as Roman
Catholic of the Latin rite, while other Kenyans are Muslim (11.2 per cent.), irreligious (2.4 per cent.) or have
indigenous beliefs (1.7 per cent.).
Population density is estimated at approximately 75 persons per square kilometre, with approximately
24 per cent. of the population living in urban areas. Nairobi, the capital of the country and its largest city, has an
estimated population of 3.4 million. Other main cities of Kenya are Mombasa, Kisumu and Nakuru with
estimated population of 966,000, 388,000 and 307,000, respectively.
Kenya has a diverse population that includes most major ethnoracial and linguistic groups found in Africa. There
are an estimated 42 different communities, with Bantus (67 per cent.) and Nilotes (30 per cent.) constituting the
majority of local residents. Cushitic groups also form a small ethnic minority, as do Arabs, Indians and
Europeans. The country has a young population with 73 per cent. of residents aged below 30 years.
The following table sets out selected comparative macroeconomic statistics regarding certain socioeconomic
indicators for 2012 (unless otherwise indicated) for Kenya and for certain other countries.
Selected Comparative Socieconomic Statistics
Per capita GDP
(in constant 2005 US$)
Life expectancy
(in years)
(1)
Adult
literacy
rate
(2)
Doing
Business
Ranking
(3)
Debt/GDP
2013
Estimate
(4)
Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798 55.8 61.4 83 31.8
Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724 60.8 71.5 67 53.1
Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595 60.4 72.2 129 50.7
Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483 60.1 67.8 145 42.7
Uganda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 58.0 73.2 132 30.7
Rwanda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390 62.9 65.9 32 23.5
Burundi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 53.1 86.9 140 47.6
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Notes: (1) 2011 data.
(2) 2010 data, except for Kenya and Zambia, which are 2007 data, and Burundi, which is 2008 data.
(3) Doing Business Index 2014.
(4) Estimated
Source: World Bank Statistical Compendium; The World Factbook
Public Health
Kenyas public health policy is guided by the policy of having the highest attainable standard of health in a
manner responsive to the needs of the population. At the national level, the Ministry of Health has been working
to move towards the devolution model provided by the Constitution. A two-tier system is being implemented
which provides a role for institutions at the national and county level, instead of the previous sector wide
approach. Under the current health sector approach, the sector is comprised of the Ministry of Health and eight
semi autonomous government agencies namely, Kenyatta National Hospital, Moi Teaching & Referral Hospital,
Kenya Medical Research Institute, Kenya Medical Supplies Agency, Kenya Medical Training College, National
Health Insurance Fund, National Aids Control Council and HIV & AIDS Tribunal, which provide the Ministry of
Health with support of the following core functions through specialised health service delivery; medical research
and training; procurement and distribution of drugs; and financing through health insurance.
Under the proposed framework to comply with devolution, the Ministry of Health is primarily responsible for
developing national policy, providing technical support, monitoring quality standards of performance of the
county governments and community organisations, providing guidelines on tariffs and conducting studies
required for administrative and management purposes. During this transitional period of 2012-2017, the national
government will also support the establishment of capabilities of the institutions at the county level.
As a result of the Constitution, most of the delivery of health services will be provided by the counties, with
further responsibilities at the county level being provided at a sub-county and community level. The one
exception is the Ministry of Health will retain national referral services, which are comprised of all secondary
and tertiary referral facilities that provide specialised services. The county health services will be responsible for
all level 4 (primary) hospitals and services in the county, including those managed for non-state entities. The
county health services thus will be primarily responsible for comprehensive in-patient diagnostics, medical
surgical and rehabilitative care, including reproductive health services, specialised outpatient services and
facilitating and managing referrals from the sub-county and community health level. The sub-county health
management will comprise all level 2 (dispensary) and level 3 (health centres) facilities, including those managed
by non-state entities. The primary responsibilities at this sub-county level is for disease prevention and health
promotion, basic outpatient diagnostic, medial surgical and rehabilitative services, inpatient services for
emergency patients waiting referral, patient observation and normal delivery services. The sub-county level
institutions are also responsible for facilitating referrals from the community health level. Finally, the community
health level comprised of the community units in the county have as their primary responsibilities the promotion
of better health behaviours, recognition of signs and symptoms of conditions requiring referral and facilitation of
community diagnostics, management and referrals to the higher levels.
As of 30 June 2013, the Ministry of Health owned and operated 3,965 facilities or 42.9 per cent. of all health
facilities in the country, with private institutions and private practices, faith based organisations, other public
institutions, and non-governmental organisations owning and operating, 3,500 (37.8 per cent.),
1,053 (11.4 per cent.), 438 (4.7 per cent.), and 293 (3.2 per cent.), respectively.
The table below provides summary statistics about the public health system for the periods presented.
Public Health System
As of December 31,
2010 2011 2012
Number of primary care facilities 7,111 8,006 8,375
Number of registered medical personnel 100,411 95,960 105,369
Medical personnel in training 8,985 8,261 11,338
Source: Ministry of Health
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The table below provides the total actual expenditures by programme for the periods presented.
Expenditures by Programme
2009/2010 2010/2011 2011/2012
(KES millions)
Curative Health 26,818.70 25,109.20 29,314.70
Preventative and Promotive Health 9,670.60 17,090.44 29,588.99
Research and Development 7,398.00 6,454.00 8,283.00
Source: Ministry of Health
HIV/AIDS, Malaria and Tuberculosis
HIV/AIDS, tuberculosis and malaria are major healthcare challenges in Kenya and other East African countries.
In the period 2010/11 to 2012/13, national HIV prevalence declined from 7.2 per cent. to 5.6 per cent. of adults
aged 15-64 years, while prevalence dropped from 3.8 per cent. to 2.1 per cent. of adults aged 15-24 years and
10.5 per cent. to 6.4 per cent. of adults aged 25-34 and the total number of persons living with HIV is estimated
to be in the region of 1.6 million. Tuberculosis infections are mostly opportunistic infections relating to immune
system suppression due to HIV. In 2013, there were 11,186 deaths due to tuberculosis compared to 10,611 deaths
due to tuberculosis in 2012, an increase of 5.4 per cent.
About 25 million Kenyans live in malaria endemic regions of the former provinces of Western, Nyanza and the
Coast, with a majority of them under the age of 15. While combination therapies and use of indoor residual
spraying have resulted in reduction of prevalence from 38 per cent. in 2010 to 21 per cent. in 2012; some regions
of Western and Nyanza, however, still have experienced little or no changes in the period 2010/11 to 2012/13
(between 37 per cent. and 47 per cent.).
Education
The education sector has as its overall goals to increase access to education and training, improve quality and
relevance of education, reduce inequality as well as develop knowledge and skills in science, technology and
innovation for global competitiveness. The education sector is comprised of the Ministry of Education, Science
and Technology, the Teachers Service Commission and their affiliated institutions. In order to align the sector
with the Constitution, international commitments and other policies such as Kenya Vision 2030 there are several
reforms being considered to reshape the sector. The national governments role is in setting policy, allocating the
national education budget and supervising and regulating the education system. At the school level, the sector is
already decentralised. However, decisions regarding what specific functions currently performed by the Ministry
of Education, Science and Technology will be devolved to the counties and if there will be a management level
equivalent to an education department at the county level is still to be determined. Expenditures by the Ministry
of Education, Science and Technology were KES179,000 million, KES207,460 million, KES247,715 million for
the periods 2010/2011, 2011/2012 and 2012/2013, respectively.
Other recent initiatives in the sector include:
Creation of programmes targeting marginalised children, such as the School Feeding and Gender in
Education programmes;
The construction/rehabiltiation or expansion of 560 secondary schools. Under the economic stimulus
initiative, commenced in 2009 a total of KES6.3 billion was disbursed to 355 secondary schools.
Construction/rehabilitation works aimed at transforming the 200 schools into centres of excellence is
still ongoing and under the infrastructure programme, funds were disbursed to 371 schools for
rehabilitation/expansion and work is ongoing. Cumulatively 60 schools have been upgraded from the
former provincial schools to national schools and an additional 27 provincial schools have been
earmarked for upgrading to national schools in 2013/14;
Establishment of a voucher system programme in the five poorest districts. The programme seeks to
enhance financial assistance targeting vulnerable groups to supplement the already existing initiatives
including the school feeding and nutrition programme, bursary, free primary education and free
secondary education.
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Primary, Secondary and Higher Education
At present basic education covers two years of pre-school, eight years of primary education, four years of
secondary education and four years of basic university degree. The table below provides student enrolment in
primary and secondary schools for periods provided below
Primary and Secondary School Enrolment
2010 2011 2012
(thousands of students)
Primary school
(1)
9,381 9,857 9,971
Secondary school
(2)
1,653 1,768 1,915
Notes: (1) Figures are provisional for the periods 2010, 2011 and 2012.
(2) Figures are provisional for the 2012 period.
Source: Ministry of Education, Science and Technology.
As of 2013, there are 22 public universities and nine constituent university colleges and 35 private universities.
The table below provides student enrolment in public and private universities by the period
Enrolment in Public and Private Universities
2010/2011 2011/2012 2012/2013
Public Universities
(1)
139,770 157,916 195,528
Private Universities 37,848 40,344 45,023
Total enrolment 177,618 198,260 240,551
Notes: (1) Includes information as to enrolment only as to the following universities: University of Nairobi,
Kenyatta University, Moi University, Egerton University, Jomo Kenyatta University of Agriculture
and Technology, Maseno University, Masinde Muliro University of Science and Technology, Kenya
Polytechnic University and Mombasa Polytechnic University College.
Source: Ministry of Education, Science and Technology.
Political System
General
Kenya is a multi-party democratic state comprising the executive, the legislature, the judiciary and the devolved
government.
The President, the Deputy President, and the Cabinet constitute the executive branch of the Kenyan government.
The President is Head of State and government, the Commander in Chief of the Kenya Defence Forces and the
chairperson to the National Security Council. The President is elected by registered voters in a national election
for a five-year term and can only be re-elected for one additional term. The Deputy President is the principal
assistant of the President and deputises the President in the execution of the Presidents functions. The Cabinet
comprises the President, the Deputy President, the Attorney General and the Cabinet Secretaries who should not
be less than 14 and not more than 22. The President nominates and, with the approval of the National Assembly,
appoints Cabinet Secretaries. Kenya currently has 18 Cabinet Secretaries.
The legislature is composed of the Senate and the National Assembly.
The total number of Senators is 67 members. Fourty-seven are elected by the registered voters in the 47 counties
of Kenya, 16 women members are nominated by political parties according to their proportion of members in the
Senate, four members (two men and two women) represent the youth and persons with disabilities and are
elected on the basis of proportional representations by use of party lists. The Speaker is an ex officio member of
the Senate. The Speaker is elected from candidates who are not Senators by the votes of two-thirds of all the
Senators. If no candidate reaches the required number of votes, then a runoff election is held between the two
candidates that received the highest and next highest number of votes; however, if more than one candidate
receives the highest number of votes, then only the candidates that received the highest number of votes will
participate in the runoff election. The candidate who receives the highest number of votes in the runoff election
will be declared the Speaker.
27
Each of the 290 constituencies elect a member to the National Assembly. Under the Constitution, there must be a
womens representative member of parliament elected from each county, guaranteeing a minimum of 47 women
members in the National Assembly. Twelve additional members are nominated by parliamentary political parties
according to their proportion of members in the National Assembly. The total number of members to the
National Assembly is 349. Similar to the Senate, the Speaker is an ex officio member of the National Assembly
and is elected from candidates who are not members of the National Assembly. The procedure for election of the
Speaker of the National Assembly is similar to the election of the Speaker of the Senate.
As at 31 December 2013, the coalition of political parties supporting President Kenyatta holds 53.6 per cent.
(187/349) of the seats in the National Assembly and 49.3 per cent. (33/67) of the seats in the Senate.
The most recent presidential and legislative elections in Kenya took place in March 2013 and the next
presidential and legislative elections are scheduled for August 2018.
Since the occurrence of the 2007-2008 post-election violence, Kenya has made concerted efforts to put in place
an institutional framework intended to facilitate peaceful transfer of power. The most notable measures that have
been implemented are the following:
the promulgation of the Constitution, which contains elaborate provisions in respect of the general
election cycle and the requirement that election petitions be determined within six months after the
declaration of the results, establishes the Supreme Court of Kenya, whose mandate includes hearing
and determining petitions arising out of a presidential election, and provides for the process of the
swearing in a newly elected President;
the enactment of legislation containing provisions aimed at addressing concerns that might have
contributed to the 2007 post election violence as further detailed below;
the establishment of various independent commissions whose mandates are to implement the
provisions of the Constitution as further detailed below;
undertaking extensive on-going judicial reforms aimed at instilling public confidence in the Kenyan
judicial system, in particular the public vetting of judicial officers including Magistrates and Judges of
Kenyas subordinate and superior courts, respectively; and
the establishment of the Constitutional Implementation Oversight Committee, which is a select
committee of Parliament established under the Constitution and whose mandate is to maintain
oversight over the implementation of the Constitution.
As mentioned above, several independent commissions have been established under the Constitution with unique
respective mandates aimed at entrenching constitutionalism, respect for the rule of law, and the implementation
of the devolved system of government. The independent commissions include:
the National Cohesion and Integration Commission (the NCIC), which is established under the
National Cohesion and Integration Act, 2008 (the NCIC Act). The NCIC was established to facilitate
and promote equality of opportunity, good relations, harmony and peaceful co-existence between
persons of the different ethnic and racial communities of Kenya, and to advise the government on all
aspects in respect thereof. In addition, the NCIC has the lead role in promoting the elimination of all
forms of discrimination on the basis of ethnicity or race, promoting tolerance, understanding and
acceptance of diversity in all aspects of national life and encouraging full participation by all ethnic
communities in the social, economic, cultural and political life of other communities, promoting
arbitration, conciliation, mediation and similar forms of dispute resolution mechanisms in order to
secure and enhance ethnic and racial harmony and peace, investigating complaints of ethnic or racial
discrimination and to make recommendations to the Attorney-General, the Kenya National Human
Rights Commission or any other relevant authority on the remedial measures to be taken where such
complaints are valid, identifying and analysing factors that inhibit the attainment of harmonious
relations between ethnic communities, particularly barriers to the participation of any ethnic
community in social, economic, commercial, financial, cultural and political endeavours, amongst
other roles set out in the NCIC Act;
the Kenya National Commission on Human Rights (the KNCHR), which is established under the
Kenya National Commission on Human Rights Act, 2011. The functions of the KNCHR include,
among others, promoting the respect for human rights and developing a culture of human rights in
Kenya, monitoring, investigating and reporting on the observance of human rights in all spheres of life
in Kenya, to receive and investigate complaints about the alleged abuses of human rights and taking
28
steps to secure appropriate redress where human rights have been violated, and on its own initiative or
the basis of complaints, to investigate or research a matter in respect of human rights, and make
recommendations to improve the functioning of state organs;
the Independent Electoral and Boundaries Commission, which is established under the Independent
Electoral and Boundaries Commission Act, 2011 and whose role is to supervise elections and referenda
at the county and national government levels;
the National Police Service Commission established under Article 246 of the Constitution and whose
role includes staffing of the National Police Service, and exercising disciplinary control over the
members of the National Police Service;
the National Land Commission established under Article 67(1) of the Constitution and whose functions
include, managing public land on behalf of the national and county governments and initiating
investigations, on its own initiative or on a complaint, into present or historical land injustices and to
recommend appropriate redress; and
the Commission for the Implementation of the Constitution established under the Constitution and
whose mandate is to monitor, facilitate and oversee the development of legislation and administrative
procedures required to implement the Constitution, to co-ordinate with the Attorney-General and the
Kenya Law Reform Commission in preparing for tabling in Parliament, the legislation required to
implement the Constitution, preparing and submitting a report every three months to the Constitutional
Implementation Oversight Committee of Parliament in respect of progress made in the implementation
of the Constitution, and any impediments to its implementation, and to work with each Constitutional
commission to ensure that the letter and spirit of the Constitution is respected.
In addition to the Constitution and statutes already mentioned above, the following statutes have been enacted
with the aim of fostering the peaceful transition and transfer of power:
the Assumption of the Office of President Act, 2012 (the AOP Act), which came into force upon the
announcement of the date of the first elections in March 2013 under the Constitution. The provisions of
the AOP Act apply in relation to the assumption into office by the President and the Deputy President
and it sets out the procedure for the swearing in ceremony of the President and the Deputy President;
the National Police Service Act, 2011 (the NPS Act) that among other provisions, provides for the
recruitment, enlisting and training of police officers and the implementation of the ongoing police
reforms, which involve among other measures, the public vetting of senior officials serving in the
National Police Service; and
the Land Act, 2012 and the Land Registration Act, 2012, which were enacted in line with Article 68 of
the Constitution and were intended to address unequal distribution of land, one of the perceived causes
of the 2007 post election violence. The two statutes revise, consolidate and rationalise existing land in
accordance with the Constitutional principles aimed at ensuring equitable access to land, security of
land rights, transparent and cost effective land administration, among others.
The judiciary comprises of three superior courts: the Supreme Court; the Court of Appeal; and the High Court.
The Supreme Court is the highest judiciary organ consisting of the Chief Justice, the Deputy Chief Justice and
five other judges. The Supreme Court has original jurisdiction to hear and determine disputes relating to the
office of the President and appellate jurisdiction to hear and determine appeals from the Court of Appeal and any
other court or tribunal as prescribed by national legislation.
The Court of Appeal consists of the number of judges, being not fewer than 12, as may be prescribed by an Act
of Parliament. This court has jurisdiction to hear appeals from the High Court and any other court or tribunal as
prescribed by an Act of Parliament.
The High Court consists of such number of judges prescribed by an Act of Parliament and has: (i) unlimited
jurisdiction in civil and criminal matters; (ii) jurisdiction to determine any infringements of the rights and
freedoms under the Bill of Rights, to hear appeals from a decision of a tribunal appointed under the Constitution
to consider the removal of a person from office and to hear any questions with respect to the interpretation of the
Constitution; (iii) and supervisory jurisdiction over all other subordinate courts and any other persons, body or
authority exercising judicial or quasi-judicial functions.
The Constitution establishes 47 counties, each with its own county government. County governments consist of a
county assembly and a county executive.
29
The county assembly is made up of members elected from different wards in the county, the number of special
seat members necessary to ensure that no more than two thirds of the membership of the assembly are the same
gender and the number of members of marginalised groups, including persons with disabilities and the youth
prescribed under an Act of Parliament. The speaker of the county assembly is an ex officio member and is
elected by the county assembly from among persons who are not members of the county assembly.
The executive authority of the county is vested in and exercised by a county executive committee. The executive
committee consists of the county governor, the deputy governor and the members appointed by the county
governor with the approval of the county assembly (from among persons who are not members of the assembly).
Voters in each county elect their governor. Each county governor nominates a person who is qualified for
nomination as county governor as a candidate for deputy governor. The governor and the deputy governor shall
not hold office for more than two terms.
Some of the provisions of the Constitution with regard to devolved governments are still in the process of being
implemented. Parliament is required to enact legislation within three years of the adoption of the Constitution to
support the full implementation of devolved government.
The 2010 Constitution and Devolution
After the 1997 general elections, Parliament enacted the Constitution of Kenya Review Act (2002) that formed
the legal groundwork for constitutional reforms. A constitutional review body was created to provide civic
education, seek public input and draft a new constitution to be studied by a National Constitutional Conference.
The draft constitution, however, was rejected in the 2005 referendum. The draft constitution was eventually
revived after the 2007 post-election violence in Kenya. A Committee of Experts published a proposed
constitution on 23 February 2010 that was presented to Parliament. Parliament approved the proposed
constitution on 1 April 2010. The proposed constitution was subjected to a referendum on 4 August 2010,
approved by 67 per cent. of Kenyan voters, and became the Constitution. The Constitution introduced additional
checks and balances to executive power, including a bill of rights for Kenyan citizens, and significant devolution
of power and resources to 47 newly created counties.
Although devolution is one of the key concepts in the Constitution, it is not new to Kenyas political history.
Prior to Kenyas independence in 1963, there was already a movement to transfer significant powers to regional
authorities. While regional governments during the period after independence could be characterised as having
some autonomy, successive central government administrations moved rapidly to centralise and consolidate state
power. The clamour for devolution grew during the 1990s. Although there were some piecemeal decentralisation
efforts from 1998 to 2006 with the introduction of devolved (geographically earmarked) funds (such as the Local
Authority Transfer Fund created through the LATF Act No 8 of 1998, the Road Maintenance Levy Fund created
through the Kenya Roads Act, 2007, the Rural Electrification Fund created through the Energy Act of 2006 and
the Constituency Development Fund created through the CDF Act of 2003), it was not until the adoption of the
Constitution that devolution was placed at the core of the law of the land and the political system. The
implementation of devolution as established in the Constitution, however, will require a process by which
important acts must be approved by Parliament. The acts passed in accordance with the Constitution include the
Urban Areas and Cities Act, The County Governments Public Finance Management Transition Act, 2013,
Division of Revenue Act, The National Government Co-ordination Act, The Transition County Allocation of
Revenue Act, 2013, The Transition County Appropriation Act, 2013, The County Governments Act and The
Public Finance Management Act.
Audit Report
Article 229 of the Constitution requires that an audit report be submitted to Parliament within six months after
the end of each fiscal year. The Auditor General prepares the initial draft of the audit report with the information
that the Ministries have made available to him at the time of submission, which is often incomplete at such time
and, as a result, the Auditor General is understandably unable to account for all public funds in the government
accounts of the prior year. Consequently, the draft report submitted to Parliament typically has significant audit
queries. The Ministries continue to provide the required information and, at the time the report is adopted by
Parliament, virtually all outstanding queries in the submitted report typically will have been addressed. If the
Parliament finds a weakness in internal controls it makes a recommendation for improvement, and National
Treasury is required to respond within six months through a memorandum which, if adopted by Parliament,
concludes the audit. For the fiscal years 2010/2011 and 2011/2012, the audit reports are currently under scrutiny
30
by the Public Accounts Committee of Parliament. For the fiscal year 2012/2013, the Auditor General has not yet
submitted a report to Parliament.
Legal Proceedings
ICC Proceedings
On 8 March 2011, President Uhuru Kenyatta, Deputy President William Ruto, former Industrialisation Minister
Henry Kosgey, former head of Public Service and Secretary to the Cabinet Francis Muthaura, radio executive
Joshua Arap Sang and former police commissioner Mohammed Hussein Ali were summoned to appear before
the ICC at The Hague following accusations of crimes against humanity related to the violence that occurred in
the aftermath of 2007 presidential elections. The government of Kenya and the National Assembly both
attempted to put in place mechanisms to have the cases tried in Kenya. The government appealed to both the
UN Security Council and the ICC itself regarding the admissibility of the case. The National Assembly voted in
favour of removing Kenya as a state party to the Rome Statute, the international treaty which established the
ICC. Despite this opposition, the suspects cooperated with the proceedings and attended preliminary hearings in
The Hague in April 2011 and confirmation of charges hearings in September of that year. The Pre-Trial
Chamber II of the ICC confirmed the charges against Kenyatta, Ruto, and Sang and declined to confirm the
charges against Ali, Kosgey, and Muthaura. The trial of Ruto and Sang began on 10 September 2013, while that
of Kenyatta was set to begin on March 2014, but the prosecutor has requested an indefinite adjournment of the
hearing citing insufficient evidence. President Kenyatta and Deputy President Ruto have been cooperating and
appearing at the proceedings, consistent with the ICC Rules of Procedure and Evidence. These rules have
recently been amended to provide that defendants may be excused from appearing in person, under certain
circumstances. The prosecutor in President Kenyattas case has requested an adjournment of the hearing in his
case. On 31 March 2014, the ICC rejected the request by President Kenyatta for the termination of the case and
set a commencement date of 7 October 2014 for the trial. The ICC also rejected a prosecution request to suspend
the proceeding indefinitely pending compliance by Kenya with its cooperation obligations.
As at the date of this Prospectus, the proceedings have not interfered with, and the ICC has shown sensitivity not
to interfere with, the ability of the President and the Deputy President to fulfil their constitutional duties,
although there can be no guarantee that this will always be the case. Further, the political impact of a conviction,
if confirmed after appeal, of either the President or the Deputy President cannot be predicted.
Governor of the Central Bank of Kenya
On 11 February 2014 the Director of Public Prosecutions ordered the arrest and prosecution of the Governor of
the Central Bank of Kenya, Njuguna Ndungu, alleging abuse of office for failure to comply with public
procurement regulations related to the award of a contract for the installation of security software at the Central
Bank of Kenya. Governor Ndungu has denied the allegations and sought an order that he could not be arrested
or charged. On 14 February 2014, the High Court of Kenya ruled that the Ethics and Anti-Corruption
Commission, the Director of Public Prosecutions and the police could not arrest or charge Governor Ndungu
until his petition before the High Court was heard and determined. A hearing to determine this petition had been
set for 14 May 2014. In May 2014, three successive judges recused themselves from hearing the case and the
hearing on 14 May 2014 was vacated. The case was referred to Chief Justice for the appointment of a new
judge. The Chief Justice has referred the case to a judge of the Judicial Review Division of the High Court. As of
2 June 2014, no new date has yet been set for the hearing. If Governor Ndungu is charged, he would be
suspended from office and the Deputy Governor of the Central Bank of Kenya, Haron Sirima, will temporarily
take over the duties of the Governor.
Anglo Leasing
In December 2003, the Department of Immigration contracted for a loan for the issuance of secure passports and
the equipment to be used at Kenyas borders. Kenyas procurement laws were not followed and a company
named Anglo Leasing and Finance Company Ltd. was awarded the contract. Subsequent review revealed that
there were 18 contracts similar to the one arranged by Anglo Leasing and Finance Company Ltd. and these
contracts have been collectively referred to as the Anglo Leasing contracts. On 12 August 2004, the then
Ministry of Finance suspended all payments pursuant to the 18 contracts pending further
investigation. Investigations followed by the Ministry of Finance, the Public Accounts Committee of Parliament,
the Controller and Auditor General. Additionally, PricewaterhouseCoopers, an independent auditor, was
contracted to conduct a forensic audit and valuation of the Anglo Leasing contracts. The various reports
31
concluded, among other things, that Kenyans procurement laws were not followed, there was gross overpricing
for goods and services, pre-financing payments were made, Kenya was paying interest on its own funds, in some
cases, and there was evidence of corruption and abuse of office.
Of the 18 Anglo Leasing contracts, (i) four contracts with a value of KES18.9 billion were cancelled and
KES1 billion were recovered; (ii) three contracts with a value of KES6.8 billion have been completed and paid
out; and (iii) eleven contracts with a value of KES30.6 billion were at various stages of completion. Of the eleven
partially completed contracts, six have not been active, two have been settled directly with the parties and two
had final judgments totaling approximately US$14.8 million plus interest and costs entered against Kenya in
courts in Switzerland and England. On 19 May 2014, Kenya paid a negotiated amount of US$16.4 million
concerning these two judgments. The negotiated amount was due on 28 April 2014. The Attorney General of
Kenya does not believe that the claimant creditors will seek further payments from Kenya, but if they do, Kenya
is prepared to resolve the matter. As for the eleventh contract, which involved a contract for the design, supply
and installation of various electronic security equipment for the National Intelligence Service, the contractor
terminated the contract in October 2013 and sent Kenya a claim for approximately KES3.05 billion. The claimant
has yet to file any litigation to enforce its claim. In May 2014, the President ordered an investigation by the
Ethics and Anti-corruption Commission into the corruption allegations in connection with the Anglo Leasing
contracts. Given the public scrutiny associated with the contracts, the government will oppose vigorously any
claim connected to the Anglo Leasing contracts.
International Relations
WTO Membership
Kenya has been a member of the World Trade Organisation (the WTO) since 1 January 1995. In connection
with Kenyas WTO membership, the government is committed to supporting the progressive elimination of
export subsidies as well as the substantial reduction of trade-distorting domestic support, whilst ensuring that it
retains the right to support its own producers. As part of Kenyas goal of ensuring its citizens have access to
foreign goods and services that are not readily available in the country, the government is committed to engage in
successive WTO Services negotiations to improve market access in partner WTO countries.
United Nations
Kenya has been a member of the UN since 1963. Kenya recognises the vital role of the UN in establishing and
maintaining international peace and security, as well as in sustainable development and democratisation. Kenya
continues to contribute military, police and corrections personnel to UN peace keeping operations with most of
them being in Africa. Kenya has peacekeepers in Somalia, Sudan, South Sudan, Sierra Leone and Liberia.
EU Relations
Kenya participates in political, trade and co-operation relations with the EU through the Cotonou Agreement,
the revised draft of which the EU and 79 countries in Africa, the Caribbean and the Pacific (the ACP) signed in
March 2010. The agreement has the objective of reducing and eventually eradicating poverty consistent with the
objectives of sustainable development and the gradual integration of the ACP countries into the world economy.
The agreement is designed to establish a comprehensive partnership, based on three complementary pillars:
development cooperation, economic and trade cooperation, and the political dimension.
World Bank and IMF
Kenya has been a member of the World Bank and the International Monetary Fund (IMF) since 1964. See
Public DebtRelations with the IMF for more information on Kenyas relationship with the IMF.
Regional Relations
African Union. Kenya is an active member of the African Union (AU), the successor of the Organisation of
African Unity (OAU), which formally launched in July 2002 at a meeting in South Africa of African heads of
state. The AU is modelled on the EU and has plans for a parliament, a central bank, a single currency, a court of
justice and an investment bank. These plans include the Pan-African Parliament, which was inaugurated in
March 2004 and has since held a number of sessions, although it does not yet play a legislative role.
AMISOM. The African Union Mission in Somalia (AMISOM) is an active regional peace support mission set
up by the Peace and Security Council of the African Union with the full support of the UN. The principal aim of
the mission is to provide support for the Federal Government of Somalia in its efforts to stabilise the country and
32
foster political dialogue and reconciliation. AMISOM is also mandated to facilitate the delivery of humanitarian
aid and create necessary conditions for the reconstruction and sustainable development of Somalia. AMISOM
staff come from a wide range of nations across Africa, although a large number of its troops come from five
countries: Uganda, Burundi, Djibouti, Kenya and Sierra Leone. AMISOM was created with an initial six-month
mandate though subsequent renewals of its mandate by the AU Peace and Security Council and the UN Security
Council have been authorised. UN Security Council resolution 2124 renewed the mandate of the troops to
31 October 2014. The strength of AMISOM uniformed personnel stands now at 17,731, including 3,664 from
Kenya.
East African Community. Kenya is also an active member of the East African Community (EAC). The EAC is
a regional intergovernmental organisation of the Republics of Burundi, Kenya, Rwanda and Uganda and the
United Republic of Tanzania. The Treaty for Establishment of the East African Community was signed on
30 November 1999 and entered into force on 7 July 2000 following its ratification by the original three partner
statesKenya, Tanzania and Uganda. Rwanda and Burundi acceded to the treaty on 18 June 2007 and became
full members on 1 July 2007. The EAC aims at widening and deepening co-operation among its members in,
among others, political, economic and social fields for their mutual benefit. The EAC countries established a
customs union in 2005 and a common market in 2010. The common market comprises over 133 million people
across five member states with a total GDP of approximately US$79 billion. The EAC expects to enter into the
next phase of integration which contemplates monetary union and the entry into a political federation of the East
African states.
The EAC customs union has assisted to level the playing field for the regions producers by imposing uniform
competition policy and law, customs procedures and external tariffs on goods imported from third countries,
which has supported the region to advance its economic development and poverty reduction agenda.
Further to this, the customs union has promoted cross-border investment and served to attract investment into the
region. As an enlarged market with minimal customs clearance formalities, it is more attractive to investors than
the smaller markets of individual nations. In addition, the customs union offers a more predictable economic
environment for both investors and traders across the region, as regionally administered Common External Tariff
(CET) and trade policy tend to be more stable.
Private sector operators based in the region with cross-border business operations are able to exploit the
comparative and competitive advantages offered by regional business locations, without having to factor in the
differences in tariff protection rates, and added business transaction costs arising from customs clearance
formalities. The regionally based enterprises are also getting better protection, as enforcement of the CET is at a
regional level.
Most importantly, however, is the signalling effect that arises from the member states agreeing to implement a
common trade policy in their relationship with the rest of the world. This is important in view of the
developments at the global level, where countries are entering into economic partnership as regional groupings.
The EAC common market provides for freedom of movement for all the factors of production between the
member states, the factors of production thus become more efficiently allocated, further increasing productivity.
For both business within the market and consumers, a single market is a very competitive environment, making
the existence of monopolies more difficult. This means that inefficient companies will suffer a loss of market
share and may have to close down. However, efficient firms can benefit from economies of scale, increased
competitiveness and lower costs, as well as expect profitability to be a result.
Consumers have benefited by the single market in the sense that the competitive environment brings them
cheaper products, more efficient providers of products and also increased choice of products. What is more,
businesses in competition will innovate to create new products; another benefit for consumers.
Other benefits include common and coordinated policies that increase efficiency especially in those countries that
are behind in instituting good policies. In addition, the common regulatory regime and frameworks ensure that
best practice within the regional framework are not only in place but are also adhered to. The use of a single
market ensures that good procedures will be instituted and practiced. This creates an efficient bloc that operates
in a higher indifference curve in consumption and efficient production curve.
33
On 30 November 2013, the protocol on monetary union was signed by the member states, establishing a target to
have a unified currency by 2023. The protocol will be implemented over a ten-year period, subsequently leading
to creation of a regional central bank whose mandate is to stabilise financial prices. The protocol aims to provide
a wide scope of cooperation in monetary and financial sectors among the EAC member states. Member states are
expected to surrender monetary and exchange rates policies to one authority leading to a single currency regime
within the region.
Kenya has benefited from EAC integration with trade in goods and services increasing since the launch of the
customs union. In 2012, EAC member states accounted for 26.1 per cent. of Kenyas total exports, with Uganda
as the leading destination within the EAC, accounting for approximately 49.6 per cent. of exports to the EAC.
In a bid to enhance trade within the EAC, member states have been addressing issues relating to movement of
goods and services. Recently, the heads of state of Kenya, Uganda and Rwanda launched a project to revamp the
existing railway from the port of Mombasa to Nairobi extending to Kampala, Uganda, which will also have links
to Kigali, Rwanda. A new railway, road and pipeline under the LAPSSET project is expected to be built from
Lamu, Kenya to South Sudan, which also will have a connection to Ethiopia. The infrastructure projects are
expected to boost trade and economic integration in the EAC member states. The three member states also
launched the single customs territory that saw the reduction of transit time for goods from Mombasa port to
Kigali from 22 days to eight, and to Kampala from 18 days to five days.
South Sudan, Somalia and Ethiopia have expressed interest in joining the EAC.
COMESA. Kenya attaches great significance to COMESA, as it provides a market for its manufactured products.
The COMESA region is a vibrant economic area and membership in the free trade area was launched in October
2000, and has since been a catalyst to increased trade and investment. The COMESA member states are Burundi,
Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Libya, Madagascar, Malawi,
Mauritius, Seychelles, Sudan, South Sudan, Swaziland, Zambia and Zimbabwe.
Currently, COMESA (which includes members of the EAC) is the leading destination of Kenyas export,
constituting over 33.9 per cent. of total exports. Kenyas exports to COMESA increased by 63 per cent. from
KES111.1 billion in 2008 to KES175.7 billion in 2012. Kenyas leading exports to COMESA include tea,
cement, natural sodium carbonate, iron and steel bars and cigarettes. Kenya now hosts a number of COMESA
institutions which include, the Monetary Institute, ZEP-RE (re-insurance company) and COMESA reference
laboratory for plant health at the Kenya Plant Health Institute.
Within the framework of EAC and COMESA, Kenya has been negotiating the Tripartite, an umbrella of
organisations consisting of three of Africas regional economic communities, which are EAC, COMESA and
South African Development Community (SADC). The first Tripartite summit was held on 22 October 2008 in
Kampala, Uganda, and the heads of state conveyed in their communiqus a sense of urgency for the
establishment of single free trade area covering the 26 countries of COMESA, EAC and SADC.
The objective of the Tripartite is to contribute to the broader objectives of the AU, namely accelerating economic
integration of the continent and achieving sustainable economic development, thereby alleviating poverty and
improving quality of life for the people of Eastern and Southern Africa region. The Tripartite works towards
harmonisation of the various regional integration programmes of its member regional economic communities.
These regional integration programmes focus on expanding and integrating trade and include the establishment
of a free trade area, a customs union, a monetary union, and a common market; as well as infrastructure
development projects in transport, information, communication, technology and energy sectors.
The Tripartite negotiations for the first phase were meant to be completed by June 2014. However, current
indications are that negotiations are likely to conclude by the end of 2014. Kenya is expected to benefit from the
Tripartite framework due to an increase market for goods and services as well as increased investments with
member states.
Nile Water Agreement of 1929. The Nile Water Agreement of 1929 grants Egypt the majority share of the Nile
Rivers waters. Under the treaty, Egypt is guaranteed access to 55.5 billion cubic metres of water out of a total of
84 billion cubic metres. To forestall any potential disputes, the Nile Basin Initiative was formally launched in
February 1999 by the water ministers of nine countries that share the riverEgypt, Sudan, Ethiopia, Uganda,
Kenya, Tanzania, Burundi, Rwanda and the Democratic Republic of Congo, with Eritrea as an observer. The Nile
Basin Initiative is a partnership among the Nile riparian states that seeks to develop the river in a cooperative
34
manner, share substantial socioeconomic benefits, and promote regional peace and security. The Nile Basin
Initiative has been signed by six countries, including Ethiopia. Rwanda, Tanzania and Kenya are in the process of
ratifying. Egypt and Sudan have not signed the Initiative.
Relations with Neighbouring Countries
South Sudan. South Sudan remains a country with special links to Kenya premised on cultural, social, political,
economic and other strategic factors. Culturally, the border communities share languages and traditions.
Furthermore Kenya has hosted many of South Sudans refugees during the struggle for independence. When
South Sudan achieved independence in 2005, some of the refugees returned to South Sudan. The foregoing
factors have contributed to the close relations both between the governments and the people of the two countries.
Kenya also helped the negotiation processes between South Sudan and Sudan leading to the birth of the new
country of South Sudan. This included the signing of the Comprehensive Peace Agreement in Nairobi in January
2005. Following the independence of South Sudan, the two countries agreed on several initiatives aimed at
strengthening and formalising relations. As a priority area, Kenya supported South Sudan in establishing its new
government system. Kenya also strongly supports the African Union process led by the High Level
Implementation Panel aimed at securing permanent and conclusive solutions to the pending issues between these
nations including, resolution over the disputed area of Abyei and the border dispute between South Sudan and
Sudan.
When internal conflict broke out in South Sudan in December 2013, some of the South Sudanese refugees
returned to Kenya. In January 2014, under an African Union initiative, Kenya was designated to receive political
prisoners as a precondition to the cessation of hostilities between Sudan and South Sudan.
Kenya continues to support South Sudan in developing a stable, prosperous and peaceful state. Several Kenyan
citizens currently reside in South Sudan, run businesses, offer technical expertise and human resource,
notwithstanding the several other Kenyan firms investing in the new state. A new railway, road and pipeline
under the LAPSSET project is expected to be built from Lamu, Kenya to South Sudan, which also will have a
connection to Ethiopia. Mobilisation of funds are underway for the construction of the 1,800 kilometre Lamu-
South Sudan and Ethiopia Railway. See The EconomyMajor Infrastructure ProjectsDevelopment of the
Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor.
Additionally, given South Sudans position as an immediate neighbour with Kenya and its ensuing participation
in East African development projects, the government expects relations between the two countries to be
strengthened in various strategic fields of national development.
Somalia. Kenya enjoys cordial relations with the Somalia Federal Government. The launch of the Joint
Commission of Cooperation in June 2013 aims to boost bilateral ties as well as provide a platform for the
economic and technical cooperation between Kenya and Somalia. Following the conflict in Somalia in October
2011, Kenya intervened to help stabilise, promote peace and reconciliation in the war torn country, which has
contributed to good bilateral relations between the two countries. In addition, Kenya is involved in regional peace
initiatives in Somalia and has contributed troops to the AMISOM peacekeeping forces in Somalia.
Uganda. Kenya has cordial relations with Uganda, which is Kenyas largest export destination. Exports to
Uganda totalled US$893 million in 2011 and US$784 million in 2012. There is a large population of Kenyan
students in Uganda.
Ethiopia. Kenya has cordial relations with Ethiopia. Kenya plans to import electricity from Ethiopia under the
Eastern Electricity Highway Project, a project that aims to connect Ethiopias electrical grid with Kenyas and
allow Ethiopia to sell its surplus power to Kenya. Funding is expected to be provided by the World Bank, African
Development Bank and the French Agence Franaise de Dveloppement. In addition, a new railway, road and
pipeline under the LAPSSET project is expected to be built from Lamu, Kenya to South Sudan, which also will
have a connection to Ethiopia. Mobilisation of funds are underway for the construction of the 1,800 kilometre
Lamu-South Sudan and Ethiopia Railway. See The EconomyMajor Infrastructure ProjectsDevelopment of
the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor.
Tanzania. Kenya has cordial relations with Tanzania. Exports to Tanzania totalled US$491 million in 2011 and
US$535 million in 2012. Imports from Tanzania totalled US$184 million in 2011 and US$167 million in 2012.
Kenya, Tanzania and Zambia are planning to construct a power grid interconnection among the three countries.
Funding for construction of the project, expected to be between US$650 million and US$800 million is still to be
sourced.
35
THE ECONOMY
Background and Economic History
Kenya is the largest economy in East Africa and is a regional financial and transportation hub. After
independence, Kenya promoted rapid economic growth through public investment, encouragement of
smallholder agricultural production, and incentives for private (often foreign) industrial investment.
Kenya has experienced continued growth in GDP over the last few years, driven primarily by growth in
(i) financial intermediation, (ii) wholesale and retail trade, repairs and (iii) construction sectors of the economy.
Real GDP grew 4.4 per cent. in 2011, 4.6 per cent. in 2012 and 4.7 per cent. in 2013. This growth was largely
attributed to continued growth in the wholesale and retail trade, repairs sector, which in real terms grew
7.3 per cent. in 2011, 9.0 per cent. in 2012 and 7.5 per cent. in 2013. The World Bank has forecasted Kenyas
GDP growth to be 5.1 per cent. in 2014.
Vision 2030
In 2007, the government announced Vision 2030 as the governments long-term plan for attaining middle
income status as a nation by 2030. In line with Vision 2030, the government prepares successive MTPs that
outline the policies, programmes and projects that the government intends to implement over a five year period.
The first MTP covered the period from 2008 to 2012.
In the initial year of the first MTP, a number of projects aimed at national healing and reconciliation following
the post election violence were implemented. Repair of damaged infrastructure, assistance to affected small scale
businesses and resettlement of internally displaced persons were all undertaken in order to raise GDP growth
(which fell to 1.5 per cent. in 2008) and to promote national reconciliation.
Up to the year 2012, progress recorded included the following:
enrolment in early childhood education increased by 40 per cent. from 1.72 million in 2008 to 2.4
million;
transition rate from primary to secondary education increased from 64 per cent. in 2008 to 77 per cent.;
the number of students enrolled in university education increased by 103 per cent. from 118,239 in
2008 to 240,551;
a total of 2,200 km of roads were constructed exceeding the MTP target of 1,500 km;
three undersea submarine fibre optic networks linking Kenya to the global internet networks were
completed including 5,500 km of terrestrial fibre optic network;
total installed capacity for generation of electricity increased by 22 per cent.; and
enactment of the Constitution.
The second MTP of Vision 2030 was announced on October 2013. The second MTP gives priority to devolution
as specified in the Constitution and to more rapid socio-economic development with equity as a tool for building
national unity. The second MTP also aims to build on the successes of the first MTP, particularly in increasing
the scale and pace of economic transformation through infrastructure development, and strategic emphasis on
priority sectors under the economic and social pillars of Vision 2030. Under the second MTP, transformation of
the economy is focused on rapid economic growth on a stable macro-economic environment, modernisation of
infrastructure, diversification and commercialisation of agriculture, food security, a higher contribution of
manufacturing to GDP, wider access to African and global markets, wider access for Kenyans to better quality
education and health care, job creation targeting unemployed youth, provision of better housing and provision of
improved water sources and sanitation to Kenyan households that presently lack these.
Macroeconomic stability continues to be a key objective in the second MTP. The second MTP aims at sustained
growth in agriculture, manufacturing, and service sectors in order to achieve an overall GDP growth rate of
10 per cent. by 2017. To sustain and increase the growth momentum inherited from the first MTP, the second
MTP aims to increase local savings, remittances from the Kenya diaspora and foreign direct investment in all the
sectors. The second MTP also aims at an enhanced regional and international trade strategy to grow and diversify
exports, in order to improve balance of payments position and ensure exchange rate stability.
36
The second MTP aims to sustain and expand physical infrastructure to ensure that it can support a rapidly-
growing economy, the demands imposed on it by higher rural and urban incomes, and by new economic
activities. A national spatial plan and county specific spatial plans will be developed in order to rationalise
utilisation of space for economic and social development. In addition, air transport facilities will be expanded
within the country and Kenya will strengthen its position as the air transport hub in the region. Priority will also
be given to improving the efficiency of ports, and the implementation of the single window clearance system.
With the construction of the standard gauge railway line from Mombasa to Malaba, rail transport will be
expected to handle 50 per cent. of the freight cargo throughput, thus easing the pressure on roads, lowering the
cost of doing business, and enhancing trade and regional integration in Eastern Africa. The new Lamu port and
the LAPSSET corridor will be implemented as part of upgrading the national transport framework in
collaboration with other countries in Eastern Africa. To relieve congestion in Kenyas main urban areas, planned
mass rapid transit systems will be constructed. Expansion of roads will be continued.
With regard to energy, a strategy is in place for modernising energy infrastructure network, increasing the share
of energy generated from renewable energy sources, and providing energy that is affordable and reliable to
businesses and homes.
Development in the information and communications technology sector (ICT) will build on achievements
realised under the first MTP. This will include a modern ICT policy aimed at more growth and regulation that is
necessary to increase local and foreign investment in ICT. The policy will provide for more utilisation of digital
technology in goods and service sectors. The government intends to promote the use of ICT in learning
institutions starting with schools and improve cyber security in order to facilitate more use of ICT in business and
commercial transactions. New policies will also aim at facilitating usage of ICT in research and development,
and to drive learning and innovation in the Kenyan economy.
In addition, the second MTP aims to ensure that on-going efforts in land reform, security of land tenure, more
efficient registration of titles and records, and resolution of historic grievances are completed. Security and rule
of law at both levels of government will remain a priority. The government will seek to address insecurity in the
country in order to provide individual safety to Kenyans, to address investors concerns about security-related
increase in cost of doing business in Kenya and to minimise crime whose occurrence affects the poor and the
residents of arid and semi-arid lands disproportionately. This will require a better trained and equipped Kenya
Police Service backed by research and technology. In line with the Constitution, security force regulations and
behaviour will be made to conform to local and international human rights standards.
The economic pillar in the second MTP consists of six priority sectors: tourism; agriculture, livestock and
fisheries; trade; manufacturing; financial; business process outsourcing and information technology enabled
services; and a recently added seventh priority sector, oil and other minerals. The overall strategy for the tourism
sector is to turn the country into a top 10 long haul tourist destination in the world. This will be achieved through
growth and diversification of tourist sources from the traditional areas (i.e., Western Europe and North America),
and from non-traditional sources in the Middle East and East Asia. The sector will also market new high- end
tourist segments like business, cultural and ecological tourism. Construction of two coastal resort cities and three
upcountry tourist resort cities in Isiolo, Lamu and Lake Turkana will be initiated and measures taken to increase
bed capacity, to open more five-star hotels and improve the standards of tourist accommodation and facilities.
Under agriculture and livestock, the second MTP gives top priority to increased acreage under irrigation in order
to reduce the countrys dependence on rain fed agriculture. Measures will be taken to mechanise agricultural
production, revive cooperatives and farmers unions and subsidise farm inputs to raise productivity.
Trade within and outside the country remains a priority sector of the economic pillar. Over the plan period the
government expects to strengthen economic partnerships with neighbours in East Africa and the rest of Africa.
Foreign policy will aim at increasing international trade, and international economic partnerships.
The second MTP gives additional attention to growth and diversification in the manufacturing sector with the
aim of increasing the sectors contribution to Kenyas GDP and foreign exchange earnings. To achieve this, three
special economic zones targeting manufacturing in Mombasa, Kisumu and Lamu will be established. Other
initiatives in the sector include building clusters for meat and leather products, a stronger dairy sector, and the
development of industrial and SME parks that will provide linkages to other sectors like agricultural and
services.
The government will aim at universal access to ICT, development of digital content, promoting e-government
services and encourage the establishment of more ICT based industries.
37
Oils and other mineral resources is a new priority sector under the economic pillar of the plan. In the plan period,
the government aims to develop the policy, legal, and institutional framework for the exploitation and
management of Kenyas natural resources (oil, gas and other minerals). It will also ensure that legislation for
transparency and fair sharing of the revenue generated is enacted, and safeguards erected to protect the
environment and to avoid risks usually associated with huge inflows of resource-based external earnings.
Under education, the government aims to continue strengthening access to universal primary education and to
provide wider access to secondary education for all primary school leavers. It will also introduce universal access
to computers, promote wider use of ICT as an instrument of instruction and training in schools, lower the student/
teacher ratio by more recruitment of teachers, and provide more textbooks and teaching equipment to schools.
In the health sector, the government in partnership with county governments, aims to continue to emphasise
primary health care, access to clean water to households, and better management of communicable diseases. The
government will continue to support efforts to make Kenya a regional health services hub, and to encourage new
local and foreign investment in medical research, pharmaceutical production, and modern hospital care.
The government aims at increasing the supply of modern housing units especially for the low-income segment of
the market where supply lags behind demand.
The government aims to ensure a rapid and efficient transition to a two-tier government under which county
governments assume full responsibility of the functions assigned to them under the Constitution. Priority at the
national level will be given to provision of adequate finance to match functions assigned to counties, and
capacity building for policy-making and project implementation in all county governments in order to bring the
full benefits of devolution to the people. The Public Finance Management Act (2012) will be implemented with
the aim of exercising controls in public spending and improving the quality of public expenditure through full
implementation of the IFMIS at national and county levels.
GDP
The following table sets out Kenyas nominal GDP by economic sector for the periods presented.
Nominal GDP by Economic Sector
For the year ended 31 December
2011 2012
(1)
2013
(2)
(US$ millions)
Agriculture and forestry 8,523 9,734 11,144
Fishing 177 190 200
Mining and quarrying 249 274 260
Manufacturing 3,437 3,681 3,920
Electricity and water supply 379 549 616
Construction 1,471 1,646 1,934
Wholesale and retail trade, repairs 3,772 4,069 4,493
Hotels and restaurants 594 655 655
Transport and communication 3,586 3,814 4,004
Financial intermediation 2,269 2,064 2,132
Real estate, renting and business services 1,584 1,701 1,809
Public administration and defence 1,792 2,165 2,966
Education 2,074 2,190 2,940
Health and social work 873 951 845
Other community, social and personal services 1,137 1,263 1,533
Private households with employed persons 155 176 198
Less: Financial services indirectly measured (374) (323) (427)
All industries at basic prices 31,695 35,356 39,223
Taxes less subsidies on products 4,128 4,632 4,781
GDP at market prices 35,823 39,563 44,004
Notes: (1) Revised
(2) Provisional
Source: Kenya National Bureau of Statistics
38
The following table sets out each economic sectors contribution to Kenyas nominal GDP for the periods
presented.
Nominal GDP by Economic Sector
For the year ended 31 December
2011 2012
(1)
2013
(2)
(per cent. contribution)
Agriculture and forestry 23.8 24.6 25.3
Fishing 0.5 0.5 0.5
Mining and quarrying 0.7 0.7 0.6
Manufacturing 9.6 9.5 8.9
Electricity and water supply 1.1 1.4 1.4
Construction 4.1 4.2 4.4
Wholesale and retail trade, repairs 10.5 10.5 10.2
Hotels and restaurants 1.7 1.7 1.5
Transport and communication 10.0 9.6 9.1
Financial intermediation 6.3 5.2 4.8
Real estate, renting and business services 4.4 4.3 4.1
Public administration and defence 5.0 5.5 6.7
Education 5.8 6.1 6.7
Health and social work 2.4 2.4 1.9
Other community, social and personal services 3.2 3.2 3.5
Private households with employed persons 0.4 0.4 0.4
Less: Financial services indirectly measured (1.0) (0.8) (1.0)
All industries at basic prices 88.5 88.9 89.1
Taxes less subsidies on products 11.5 11.1 10.9
GDP at market prices 100.0 100.0 100.0
Notes: (1) Revised
(2) Provisional
Source: Kenya National Bureau of Statistics
The following table sets out Kenyas real GDP by economic sector for the periods presented.
Real GDP by Economic Sector
(1)
For the year ended 31 December
2011 2012
(2)
2013
(3)
(US$ millions)
Agriculture and forestry 3,802 3,918 4,020
Fishing 69 71 74
Mining and quarrying 85 88 94
Manufacturing 1,742 1,778 1,857
Electricity and water supply 381 416 439
Construction 632 655 689
Wholesale and retail trade, repairs 1,954 2,105 2,256
Hotels and restaurants 244 248 236
Transport and communication 2,248 2,328 2,460
Financial intermediation 765 806 861
Real estate, renting and business services 951 972 1,010
Public administration and defence 567 576 602
Education 1,068 1,113 1,164
Health and social work 387 395 407
Other community, social and personal services 658 671 691
Private households with employed persons 53 54 54
Less: Financial services indirectly measured (139) (136) (160)
All industries at basic prices 15,467 16,057 16,755
Taxes less subsidies on products 2,642 2,665 2,781
GDP at market prices 18,109 18,722 19,536
Notes: (1) Constant 2001 prices
(2) Revised
(3) Provisional
Source: Kenya National Bureau of Statistics
39
The following table sets out Kenyas real GDP growth by economic sector for the periods presented.
Real GDP Growth by Economic Sector
For the year ended
31 December
(as a percentage of GDP)
2011 2012
(1)
2013
(2)
Agriculture and forestry 1.5 4.2 2.9
Fishing 3.1 3.4 5.4
Mining and quarrying 7.1 4.1 7.4
Manufacturing 3.4 3.2 4.8
Electricity and water supply (2.6) 10.3 5.9
Construction 4.3 4.8 5.5
Wholesale and retail trade, repairs 7.3 9.0 7.5
Hotels and restaurants 4.9 2.6 (4.5)
Transport and communication 5.0 4.7 6.0
Financial intermediation 7.8 6.5 7.2
Real estate, renting and business services 3.6 3.3 4.3
Public administration and defence 2.5 2.7 4.7
Education 4.8 5.4 4.9
Health and social work 3.5 3.4 3.3
Other community, social and personal services 4.6 3.2 3.2
Private households with employed persons 2.0 2.0 2.0
Less: Financial services indirectly measured 5.2 (1.0) 17.5
All industries at basic prices 3.9 5.0 4.7
Taxes less subsidies on products 7.8 2.0 4.7
GDP at market prices 4.4 4.6 4.7
Notes: (1) Revised
(2) Provisional
Source: Kenya National Bureau of Statistics
Principal Sectors of the Economy
Agricultural and Forestry
The agricultural and forestry sector was the largest contributor to the economy in 2013. It is comprised of four
subsectors: growing of crops and horticulture; farming of animals; agricultural and husbandry services; and
forestry and logging. In 2011, it accounted for US$3.8 billion of real GDP and 23.8 per cent. of nominal GDP. In
2012, the sector accounted for US$3.9 billion of real GDP and 24.6 per cent. of nominal GDP. In 2013, the sector
accounted for US$4.0 billion of real GDP and 25.3 per cent. of nominal GDP. The agricultural and forestry
sector grew 1.5 per cent. in 2011, 4.2 per cent. in 2012 and 2.9 per cent. in 2013.
The following table sets out the agricultural and forestry sectors output and input values at current and constant
prices for the periods presented.
Agricultural Output and Input
For the year ended 31 December,
2011 2012 2013
(1)
(KES millions)
PRODUCTION AT CURRENT PRICES
Output at basic prices 881,572 1,001,277 1,042,305
Intermediate consumption 178,871 189,003 106,092
Value added at basic prices, gross 702,701 812,274 936,213
PRODUCTION CONSTANT PRICES
Output 409,121 424,625 435,539
Intermediate consumption 97,130 99,433 100,893
VALUE ADDED, GROSS 311,991 325,193 334,646
Notes: (1) Provisional
Source: Kenya National Bureau of Statistics
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The following table sets out the value of marketed production in the agricultural sector for the periods indicated.
Recorded Marketed Production at Current Prices
For the Year Ended 31 December,
2011 2012 2013
(1)
(KES millions)
CEREALS
Maize 10,145.5 13,153.0 10,121.1
Wheat 3,045.0 5,612.8 6,926.1
Others 7,090.9 5,721.2 7,555.3
Total 20,281.4 24,48 7.0 24,602.5
HORTICULTURE
(2)
Cut flowers 58,835.0 64,962.6 55,975.7
Vegetables 26,251.2 20,225.4 22,923.3
Fruits 3,535.4 4,680.0 4,482.5
Total 88,621.7 89,868.0 83,381.5
TEMPORARY INDUSTRIAL CROPS
Sugar-cane 18,615.6 21,676.2 24,583.4
Pyrethrum 133.4 17.0 52.6
Others 2,775.8 1,706.1 849.0
Total 21,524.8 23,399.3 25,485.0
PERMANENT CROPS
Coffee 17,826.3 15,375.2 10,910.2
Tea 100,145.5 100,262.3 94,722.0
Sisal 2,513.3 2,915.3 2,810.8
Total 120,485.2 118,552.7 108,443.0
Total crops 250,913.1 256,307.0 241,912.0
LIVESTOCK AND PRODUCTS
Cattle and Calves 48,943.4 54,140.6 58,237.0
Dairy Produce 14,548.4 15,413.9 16,776.7
Chicken and eggs 5,553.0 6,482.2 7,086.4
Others 11,854.9 12,266.7 10,727.3
Total 80,899.7 88,305.3 92,827.4
Grand total 331,812.8 344,612.3 334,739.4
Notes: (1) Provisional
(2) Data refers to fresh horticultural exports only.
Source: Kenya National Bureau of Statistics
The overall marketed production of the agricultural sector decreased by 2.9 per cent. from KES331,812.8 million
in 2011 to KES344,612 million in 2012 and increased marginally by 0.03 per cent. to KES334,739.4 million in
2013 from 2012. Increased production during 2013 occurred in key crops like tea, wheat, vegetables, potatoes
and sugar cane, while maize, beans, coffee, cut flowers and fruits recorded declines in production. Coffee
marketed production decreased by 29.2 per cent. in 2013 due mostly to the decline in international coffee prices.
The marketed value for tea decreased by 5.6 per cent. due to lower international prices which more than offset
increased production. The value of marketed maize production decreased by 23.1 per cent. as a result of lower
marketed volumes and lower prices paid to farmers for the crop. The marketed production of livestock and its
products increased by 5.0 per cent. in 2013 with most of the subsectors recording growth.
Under the agriculture and forestry sector, the second MTP will give top priority to increased acreage under
irrigation in order to reduce the countrys dependence on rain fed agriculture. A total of 404,800 hectares will be
put under irrigation during the plans 2013-2017 period. The construction of the High Grand Falls Dam and
implementation of other irrigation projects across the country will be part of this effort.
Other measures included in the second MTP include:
improved agricultural production through mechanisation;
revival of cooperatives and farmers unions;
41
subsidies of farm inputs in order to raise productivity;
implementation of a fertiliser cost reduction strategy;
support to extension services;
establishment of greenhouses and agro processing plants at the county level;
promotion of value addition in farm products;
policies to increase exports of agricultural and livestock products;
adoption of climate-smart agriculture, such as the use of farm waste as an organic fertiliser and the use
of bio-fertilisers, which do not contribute to harmful emissions;
adoption of better weather forecasting/early warning systems;
promotion of resilient food crops; and
better management of post harvest losses, including crop insurance.
Efforts will also be put in place for increased involvement of youth in income generating ventures in the
Agriculture, Livestock and Fisheries sector. The flagship projects implemented are enactment of the
Consolidated Agricultural Reform Bill: Out of the five Bills currently under consideration by Parliament,
three Acts have been enacted and assented namely: the Agriculture, Fisheries and Food (AFFA) Act 2012, Crops
Act 2012 and National Agricultural Research Act 2012. These acts had several intended consequences in
multiple areas, among them:
Fertiliser Cost Reduction Project: A total of 274,000 MT of fertiliser was procured as a price
stabilisation mechanism while the feasibility study for viability of a manufacturing plant was
completed.
Establishment of Disease Free Zones (DFZ): A road map for implementation of Kenya DFZ was
developed focusing on one out of the four DFZ due to financial and other logistical challenges.
Expansion of Irrigation Coverage: The area under irrigation expanded from 119,000 to
159,000 hectares in small holders as well as large schemes namely; Bura, Hola, Kano, Bunyala,
Perkerea and Mwea.
Other Programmes and Projects: The sector implemented a number of other priority programmes and projects.
These other interventions were in research and development; improving delivery of extension services;
strengthening producer institutions; intensification and expansion of irrigation; seed improvements; livestock
development and fisheries development.
Wholesale and Retail Trade, Repairs
The wholesale and retail trade, repairs sector was the second largest contributor to the economy in 2013. This
sector includes wholesale and retail sales (i.e., sale without transformation of any type of goods and the rendering
of services incidental to the sale of these goods, including maintenance and repairs of motor vehicles and
motorcycles). Wholesaling and retailing are the final steps in the distribution of goods. In 2011, the sector
accounted for US$2.0 billion of real GDP and 10.5 per cent. of nominal GDP. In 2012, the sector accounted for
US$2.1 billion of real GDP and 10.5 per cent. of nominal GDP. In 2013, the sector accounted for US$2.3 billion
of real GDP and 10.2 per cent. of nominal GDP. The wholesale and retail trade, repairs sector grew 7.3 per cent.
in 2011 and 9.0 per cent. in 2012 and 7.5 per cent. in 2013.
Transport and Communication
The transport and communications sector comprises road, railway, water, air and pipeline transport, as well as
communications and other services incidental to transport. The transport and communications sector was the
third largest contributor to the economy in 2013. In 2011, it accounted for US$3.6 billion of real GDP and
10.0 per cent. of nominal GDP. In 2012, the sector accounted for US$3.8 billion of real GDP and 9.6 per cent. of
nominal GDP. In 2013, the sector accounted for US$4.0 billion of real GDP and 9.1 per cent. of nominal GDP.
The transport and communications sector grew 5.0 per cent. in 2011, 4.7 per cent. in 2012 and 6.0 per cent. in
2013.
42
The following table sets out the value of output for various transport and communication subsectors for the
periods presented.
Transport and CommunicationValue of Output
For the year ended 31 December
2011
(1)
2012 2013
(2)
(KES millions)
Road Transport 386,636 402,452 415,031
Railway Transport 6,017 5,613 5,172
Water Transport 28,188 29,869 29,801
Air Transport 100,203 108,780 116,576
Services Incidental to Transport 60,097 60,484 60,466
Pipeline Transport 15,474 17,755 18,735
Communications 110,022 115,819 127,282
Total 706,637 740,772 773,063
Notes: (1) Revised
(2) Provisional
Source: Kenya National Bureau of Statistics
The sectors total output value increased from KES706.7 billion in 2011 to KES740.8 billion in 2012 and
increased to KES773.1 billion in 2013, representing a growth of 4.8 per cent. and 4.36 per cent. in 2012 and
2013, respectively. The road transport subsector accounted for 53.7 per cent. of the total value of output in 2013.
The output value for road transport recorded growth of 3.1 per cent. in 2013 while the value of output for water
transport marginally decreased by 0.22 per cent. In 2013, the value of output for air transport registered growth
of 7.1 per cent. to KES116.6 billion compared to a growth of 8.6 per cent. in 2012. The value of output of
pipeline transport grew by 5.5 per cent to stand at KES18.7 billion in 2013 up from KES17.8 billion recorded in
2012. Similarly, the output value of communications sub-sector expanded by 9.9 per cent. in 2013. While the
output value of the railway transport subsector decreased by 7.9 per cent. during 2012, the value of services
incidental to transport dropped marginally in the same period.
The following table sets out information regarding fixed and wireless connections, international call traffic and
mobile connections.
Telecommunications Indicators
At 31 December
2011
(1)
2012
(1)
2013
(2)
(in thousands)
Fixed Lines, CDMA, and other Wireless
Capacity 401 380 408
Wire line Connections 188 75 57
Wireless Connections 192 188 160
Total Wire line and Wireless Connections 380 263 217
International outgoing traffic (minutes)
(3)
17,651 16,383 15,736
International incoming traffic (minutes)
(3)
22,195 16,522 12,232
Mobile Telephony
Mobile Telephone Capacity 47,677 49,977 55,077
Connections 26,981 30,433 31,309
Mobile Money Transfer Service Subscribers
(2)
17,396 19,319 26,016
Notes: (1) Revised
(2) Provisional
(3) Fixed lines
(4) As at 30 June of the provided year
Source: Communications Commission of Kenya
The total number of fixed line subscriptions, including wireless, declined in 2011 and 2012 and increased in 2013
while the total fixed line, including wireless connections dropped to approximately 217,000. The fixed wire line
connections declined from approximately 75,000 recorded in 2012 to approximately 57,000 in 2013. The fixed
wire line capacity increased by 7.4 per cent. reversing the downward trend that has occurred since 2010. The
increase is explained by the transformation of the fixed network infrastructure by Telkom Kenya and the entrance
of Mobile Telephone Network into the market.
43
Outgoing calls for fixed international voice traffic declined to record 15.7 million minutes in 2013 compared to
16.4 million minutes in 2012, a decline of 3.5 per cent. This was due to stiff competition from voice over internet
protocol service, which in comparison is more affordable. Fixed line voice incoming international traffic declined
by 26.0 per cent. in 2013, partly due to competition from mobile cellular telephony and the reduction in fixed
connections.
Following the liberalisation of the telecommunications sector in the late 1990s, there are now many players in the
sector providing satellite based broadband access. In particular, the mobile telephony providers have introduced
internet access products, including mobile phone banking. Mobile phone based financial transactions commenced
in March 2007 with the introduction by Safaricom of MPESA, a mobile-phone based money transfer and micro
financing service. As at 30 June 2013, the average size of mobile phone based banking transactions increased
from US$45.5 in March 2007 to US$78.6, while total mobile phone transactions per day reached an average of
US$58.4 million (KES5.1 billion). The mobile telephony market, recorded an increased market penetration rate
from 68.2 per cent. in 2011 to 74.9 per cent. in 2012 and remained the same in 2013.
All mobile phone based banking products offered by banks are regulated by the Central Bank of Kenya under the
Banking Act similar to other banking products. Following the enactment of the National Payment System Act in
2011, the Central Bank of Kenya is empowered to oversee all payment system platforms including mobile phone
based payments. The regulations to implement the National Payment System Act are currently being finalised.
Information, Communication and Technology
The government recognises ICT as a foundation for economic development. Since 2008, the government, under
the first MTP, has executed several significant ICT infrastructure projects. In 2009, the government, in
cooperation with the government of the United Arab Emirates, completed the installation of The East African
Marine Systems (TEAMS), a submarine cable that extends from Mombasa to Fujairah, United Arab Emirates and
provides Kenya with high-capacity bandwidth. In 2010, the government established the National Fibre Optic
Network through which all major towns in the country are now connected. In 2009, the government also
established the Government Common Core Network, a network that functions as a shared and secure
interoperable government-wide ICT system, integrates work processes and information flows and improves inter-
ministerial sharing of databases and exchange of information.
As a result of these flagship projects, demand for internet and data services has been rising with internet
subscription increasing from 6.2 million subscribers in 2011 to 8.5 million in 2012 and to 13.2 million in 2013.
This has enhanced business activities and created job opportunities. In 2012, the government increased
bandwidth of broadband internet capacity to government offices from 80 to 100 Megabits per second. This has
improved the quality and reliability of the governments communication system. Several ministries have
developed online systems geared towards improving service delivery. These systems include: the re-engineered
Integrated Financial Management Information System (an automated system used for public financial
management that enhances budget planning, procurement process, financial data recording, tracking and
information management), the County Revenue Collection System, application of public service jobs online,
status tracking of ID and passports, public examination results and candidate selection into secondary schools,
digitised education content in 12 subjects in secondary school level; online submission of tax returns, online
custom declaration, electronic reporting of corruption, and a business licensing e-registry. These achievements
have resulted in Kenya ranking second in Africa and 22nd out of 77 countries worldwide in the open data
initiative of the Open Data Institute and World Wide Web Foundation in 2012.
The government also developed and implemented the Kenya Communications (Amendment) Act, 2009 and
Kenya Information and Communications Regulations, 2010, which led to improved competition and broad
choices of ICT services.
Multinational technology companies have expressed interest in investing in Kenya. In March 2013, Microsoft
launched its 4Afrika initiative that includes working with the Kenyan government and a Kenyan Internet service
provider to deliver low-cost, high-speed wireless access in the country. In November 2013, IBM inaugurated its
first research facility in Africa in Nairobi. Researchers at the facility aim to focus on finding technological
solutions to some of Africas most-pressing problems.
Under the second MTP, the government aims to continue the development of the ICT infrastructure by:
extending the National Fibre Optic Network to every county headquarters, providing connectivity to all
public buildings such as hospitals, schools, police stations and other public service institutions;
44
establishing wide area networks and network operations centres to ensure that each county
headquarters use a broadband network, VOIP telephony and unified communication systems;
rolling out 4G networks to provide faster internet and increase bandwidth capacity; migrating
80 per cent. of television viewers to a digital platform;
establishing national data centres and disaster recovery centres to ensure that strategic public data is
stored in secure locations with minimal risk and delivered cost-effectively; and
integrating ICT in education to familiarise young Kenyans with ICT as a learning tool.
One of the major projects under the second MTP is the development of the Konza Technology City that is aimed
at positioning Kenya as the ICT hub in Africa. The project will be developed in phases and the first phase will
consist of the following: construction of a BPO park; a science park, residential buildings, a data centre and part
of the central business district. It will also involve the construction of basic infrastructure including access roads,
telecommunications, water and sewerage and electricity. The first phase is expected to be developed by 2017 and
is projected to generate approximately 17,000 jobs and provide homes for approximately 30,000 residents.
The project has already completed the following steps: acquired 5,000 acres of land at Malili Ranch; completed a
feasibility and demand assessment study; developed the approved local physical development plan; completed
the preparation of a strategic environmental and social impact assessment; established the Konza Technopolis
Development Authority to lead the implementation of the project; established access roads and drilling of
six boreholes; and conducted a ground breaking ceremony.
The National Treasury is in the process of engaging a contractor to undertake the actual implementation of the
project. The government expects that the implementation of the first phase will begin in July 2014. The
development of on-site infrastructure and sales pavilion, including roads, power, sewerage and railway is
estimated to cost approximately US$760,000,000 over five years, of which 10 per cent. is expected to be funded
by the national budget, through public private partnerships.
Manufacturing
The manufacturing sector was the fourth largest contributor to the economy in 2013. In terms of employment
generation, the sector is estimated to employed approximately 280,300 in 2013, an increase of 3.4 per cent. from
2012. In 2011, it accounted for US$1.7 billion of real GDP and 9.6 per cent. of nominal GDP. In 2012, the sector
accounted for US$1.8 billion of real GDP and 9.2 per cent. of nominal GDP. In the 2013, the sector accounted
for US$1.87 billion of real GDP and for 8.9 per cent. of nominal GDP. The manufacturing sector grew
3.4 per cent. in 2011, 3.1 per cent. in 2012 and 4.8 per cent. in 2013.
45
The following table sets out the quantum index of manufacturing production using 2009 as the base year.
Quantum Index of Manufacturing Production
(Base 2009 = 100)
2011 2012 2013
(1)
Meat and meat products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.2 107.0 106.6
Processing and preserving of fish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115.2 91.9 75.4
Prepared and preserving of fruits and vegetables . . . . . . . . . . . . . . . . . . . . . 115.0 114.7 128.7
Vegetables and animal oils and fats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.4 106.3 110.7
Dairy products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151.1 186.6 194.0
Grain Mill Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.1 120.1 129.2
Bakery products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.0 98.2 101.9
Sugar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89.5 90.1 109.5
Cocoa, Chocolate and Sugar Confectionery . . . . . . . . . . . . . . . . . . . . . . . . . 99.8 113.1 108.7
Food products M.P.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.7 115.1 130.5
Animal feeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.2 115.4 125.3
Total food products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.5 110.5 120.7
Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.9 104.7 102.1
Tobacco products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110.8 116.5 100.6
Beverages and Tobacco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.9 106.6 101.9
Textiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110.7 105.4 112.3
Wearing apparel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.4 81.8 85.4
Leather and related products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142.3 138.8 139.2
Wood and products wood and cork except furniture . . . . . . . . . . . . . . . . . . . 103.2 98.2 99.4
Paper and paper products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.5 108.3 114.6
Printing and reproduction of recorded media . . . . . . . . . . . . . . . . . . . . . . . . . 101.5 98.8 101.4
Refined petroleum products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.0 91.4 47.0
Chemical and Chemical Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116.8 116.8 118.5
Pharmaceuticals Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.0 160.8 180.4
Rubber Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.0 82.1 100.2
Plastic Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117.3 126.9 120.2
Rubber and plastics products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.3 121.9 118.0
Other non-metallic mineral products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119.5 125.5 133.5
Basic Metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124.8 128.1 149.5
Fabricated metal products except machinery and equipment . . . . . . . . . . . . 125.8 139.1 162.6
Electrical Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.9 125.7 116.9
Machinery and Equipment n.e.c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83.8 74.1 75.1
Motor vehicles, trailers and semi-trailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.7 126.7 130.8
Manufacture of Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.6 102.6 116.1
Other Manufacturing M.P.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.7 110.4 111.7
Repair and installation of machinery and equipment . . . . . . . . . . . . . . . . . . . 106.8 106.8 110.2
Total Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.3 112.9 115.8
Notes: (1) Provisional
Source: Kenya National Bureau of Statistics
During 2013, manufacturing activities were positively affected by political stability that prevailed after the
March 2013 general elections which increased investor confidence, the ease in inflationary pressure, stable
exchange rates and lower interest rates, which also contributed to capital accumulation, thus boosting production.
There were increases in production of food products, textiles, basic metals, fabricated metals, motor vehicles,
trailers and semi-trailers, furniture and non-metallic mineral products.
The overall manufacturing quantum index increased by 2.6 per cent. in 2013, after registering 0.4 per cent.
growth in 2012. Sectors that registered improved performance were prepared and preserving of fruits and
vegetables, sugar, rubber products, basic metals and fabricated metal products (except machinery and equipment)
which grew by 12.2, 21.5, 22.0, 16.7 and 16.9 per cent., respectively. However, there was a significant drop in
the quantity of refined petroleum products by 48.6 per cent., a decline of 18 per cent. in the processing and
preserving fish, and tobacco products of 13.6 per cent. The decline in the refined crude oil was due to a reduction
in output of refined petroleum products processed at Kenya Petroleum Refineries, Ltd. due to costs of operations
and lower international oil prices.
Export Processing Zones (each, an EPZ) are specific areas set up by the government to promote, attract and
facilitate investment in industrial and commercial exports. The zones enjoy incentives such as exemptions from
46
certain taxes and business regulations. During 2013, the EPZ programme reported improved performance.
However, the businesses within the zones were adversely affected by the high cost of doing business in the
country. Furthermore, under EAC union requirements, EPZ firms are now allowed to sell only 20 per cent. of
their annual output to the EAC market. This has affected companies that were set up targeting this market. The
number of enterprises operating under the EPZ declined from 82 in 2012 to 81 in 2013. During 2013, the number
of gazetted zones increased to 50 from 47 in 2012, with only two zones being public while the others are owned
and operated privately. There are 22 zones located in Mombasa, nine in Nairobi, three in Athi River, four in
Kilifi, and one each in Voi, Kerio Valley, Thika, Isinya, Ruiru, Malindi, Eldoret, Muranga, Meru, Bomet and
Nandi.
The value of sales from the EPZ enterprises increased to KES49.5 billion in 2013 from KES44.3 billion in 2012.
The value of exports from the EPZ increased from KES40.0 billion in 2012 to KES43.6 billion in 2013.
Domestic sales accounted for 11.9 per cent. of the total sales in 2013 to stand at KES5.9 billion. During 2013,
local purchases of goods and services decreased to KES7.2 billion from KES8.0 billion recorded in 2012.
Financial Intermediation
The financial intermediation sector recorded the third highest rate of growth in the economy during 2013. The
financial intermediation sector comprises institutions that carry out banking and similar activities, insurance and
pension funding and auxiliary financial activities. The financial intermediation sector grew 7.2 per cent. in 2013,
compared to 6.5 per cent. in 2012. At the start of the year, credit demand was generally low due to uncertainty
associated with the general election. However, with the peaceful conclusion of the March 2013 general election,
the demand for credit greatly improved. Broad money supply (M3) grew by 13.3 per cent. in 2013 compared to
14.1 per cent. in 2012, which was attributed to positive increase in net foreign assets and domestic credit. In
terms of employment generation, the sector is estimated to employ an average of 2.5 per cent. of the labour force
in the formal sector.
In 2011, the sector accounted for US$765 million of real GDP and accounted for 6.3 per cent. of nominal GDP.
In 2012, the sector accounted for US$806 million of real GDP and accounted for 5.2 per cent. of nominal GDP.
In the 2013, the sector accounted for US$861 million of real GDP and accounted for 4.8 per cent. of nominal
GDP.
Construction
The construction sector is the eighth largest contributor to the economy and comprises the roads and
public/private housing subsectors. In terms of employment generation, the sector is estimated to employ an
average of 5.8 per cent. of the labour force in the formal sector. In 2011, it accounted for US$632 million of real
GDP and 4.1 per cent. of nominal GDP. In 2012, the sector accounted for US$655 million of real GDP and
4.2 per cent. of nominal GDP. In 2013, the sector accounted for US$689 million of real GDP and 4.4 per cent. of
nominal GDP. The construction sector grew 4.3 per cent. in 2011, 4.8 per cent. in 2012 and 5.5 per cent. in 2013.
The following table sets out the classification of road networks by type and length as at the dates indicated.
Kilometres of Road by Type and Classification
As at July 1,
2009 2013
(1)
(in thousands of Km)
Type of Road Bitumen
Earth/
Gravel Bitumen
Earth/
Gravel
AInternational Trunk 2.83 0.82 2.89 0.70
BNational Trunk 1.54 1.16 1.58 1.11
CPrimary 2.81 5.16 3.46 4.57
DSecondary 1.28 9.48 2.09 8.62
EMinor 0.66 26.07 1.05 26.46
FSpecial Purpose
(2)
0.16 10.38 0.16 10.95
Total 9.28 53.07 11.23 52.41
Notes: (1) Provisional
(2) Special purpose roads include Government access, settlement, rural access, sugar, tea and wheat
roads.
Source: Ministry of Roads
47
Electricity and Water
The electricity and water sector recorded the highest rate of growth in the economy during 2012. The electricity
and water sector grew 5.9 per cent. in 2013, compared to an increase of 10.3 per cent. in 2012. The increase was
mainly a result of public investment by government and private investment by independent power producers in
the sector.
In 2011, it accounted for US$381 million of real GDP and accounted for 1.1 per cent. of nominal GDP. In 2012,
the sector accounted for US$416 million of real GDP and accounted for 1.4 per cent. of nominal GDP. In 2013,
the sector accounted for US$439 million of real GDP and accounted for 1.4 per cent. of nominal GDP.
The following table sets out information regarding installed capacity and generation of electricity by different
producers.
Installed Capacity and Generation of Electricity
(1)
INSTALLED CAPACITY MW
(2)
GENERATION GWh
(3)
Hydro
Thermal
Oil Geothermal
Co-
generation Total Hydro
(4)
Thermal oil
Geothermal
Co-
generation Wind Total KenGen IPP EPP Total
2011 735.0 582.7 190.6 26.0 1,534.3 3,217.2 903.0 1,538.8 358.7 2,800.5 1,443.7 80.9 17.6 7,559.9
2012 769.9 610.6 199.6 26.0 1,606.1 4,015.9 682.5 1,208.9 309.0 2,200.4 1,515.9 104.7 14.4 7,851.3
2013
(5)
766.6 693.2 236.5 21.5 1,717.8 4,435.0 598.3 1,386.2 177.2 2,161.7 1,780.9 55.6 14.7 8,447.9
Notes: IPP: Independent Power Producers
EPP: Emergency Power Producers
(1) Includes generation for industrial establishment with generation capacity of over 100KVA plus emergency supply of 99 MW by
contract.
(2) 1 megawatt = million watts = 1,000 kilowatts.
(3) 1 Gigawatt hour = 1,000,000 kilowatt hours.
(4) Includes imports from Uganda and Tanzania.
(5) Provisional
Source: Kenya Power & Lighting Company Ltd. / Kenya Electricity Generation Company Ltd.
During 2013, total installed capacity of electricity expanded by 7.0 per cent. to 1,717.8 MW in 2013 from 1,606.1
MW in 2012. Similarly, total electricity generation expanded from 7,851.2 GWh in 2012 to 8,447.9 GWh in
2013, reflecting a growth of 7.6 per cent. Total domestic demand for electricity recorded growth of 2.2 per cent.
from 6,273.6 million KWh in 2011 to 6,414.4 million KWh in 2012. The number of customers connected under
the Rural Electrification Programme (REP), a government program intended to increase connectivity of rural
areas to the national grid, grew by 18.5 per cent. to stand at 453,544 customers as at June 2013.
The following table sets out information regarding demand and supply of electricity for the periods indicated.
Electricity Supply and Demand Balance
For the Year Ended December
2011 2012 2013
(1)
(million KWh)
DEMAND
Domestic and Small Commercial 2,471.4 2,568.5 2,866.1
Large & Medium (Commercial and Industrial) 3,440.3 3,409.2 3,585.3
Off-peak 37.9 36.0 32.7
Street Lighting 17.9 20.6 17.2
Rural Electrification 306.1 380.1 426.8
TOTAL DOMESTIC DEMAND 6,273.6 6,414.4 6,928.1
Exports to Uganda & Tanzania 37.3 32.7 43.7
Transmission losses
(2)
and unallocated demand 1,248.9 1,404.2 1,476.1
TOTAL DEMAND = TOTAL SUPPLY 7,559.8 7,851.2 8,447.9
of which imports from Uganda and Tanzania 33.9 39.1 49.0
Net generation 7,525.9 7,812.1 8,398.9
Notes: (1) Provisional
(2) Voltage losses in power transmission lines.
Source: Kenya Power & Lighting Company Ltd.
48
The following table sets out information for demand and supply of commercial energy in terms of primary
source.
Production, Trade and Consumption of Energy distributed in Terms of Primary Sources
1
For the Year Ended 31 December
2011 2012 2013
(2)
(000 tonnes of Oil Equivalent)
COAL AND COKE CONSUMPTION 236.3 211.3 208.9
Imports of crude oil 1,772.1 997.1 567.4
Net exports of petroleum 1,883.5 2,532.3 2,917.0
Stock changes and balancing item (34.0) (102.7) 192.1
TOTAL CONSUMPTION OF LIQUID FUELS 3,857.9 3,638.0 3,676.5
HYDRO AND GEOTHERMAL ENERGY
Local production of hydro power 276.6 345.3 381.3
Local production of geothermal power 124.1 130.3 153.1
Imports of hydro power 2.9 3.4 4.2
TOTAL CONSUMPTION OF HYDRO AND
GEOTHERMAL ENERGY 403.7 479.0 538.6
TOTAL LOCAL ENERGY PRODUCTION 400.7 464.3 534.4
TOTAL NET IMPORTS 127.8 (1,320.5) (2,136.5)
TOTAL ENERGY CONSUMPTION 4,497.9 4,328.3 4,424.0
LOCAL PRODUCTION AS PERCENTAGE OF TOTAL 8.9 10.7 12.1
PER CAPITA CONSUMPTION IN TERMS OF
KILOGRAMS OF OIL EQUIVALENT 113.7 106.5 105.9
Notes: (1) Modern sector only fuel wood and charcoal are excluded.
(2) Provisional
Source: Kenya National Bureau of Statistics
Tourism
Tourism is an important contributor to the economy. In terms of employment generation, the sector is estimated
to employ an average of 3.2 per cent. of the labour force in the formal sector.
The following table sets out information on departing visitors by country of residence for 2012.
Departing Visitors by Country of Residence
Country of Residence
Number
(in thousands) per cent.
2011 2012 2013 2013
Germany 129.1 133.2 135.1 12.7
United Kingdom 206.1 198.0 196.2 18.5
Switzerland 39.1 37.1 34.9 3.3
Italy 87.4 87.3 90.6 8.5
France 39.7 39.7 36.5 3.4
Scandinavia 36.1 33.9 38.8 3.7
Other Europe 107 105.8 106.5 10.0
Total Europe 644.5 634.8 638.6 60.3
USA 113.5 109.1 101.1 9.5
Canada 25.2 23.4 23.2 2.2
Total North America 138.7 132.5 124.3 11.7
Uganda 34.2 33.2 36.1 3.4
Tanzania 35 34.3 30.5 2.9
Other Africa 114.1 113.7 116.3 11.0
Total Africa 183.3 181.3 182.9 17.3
India 33 29.8 20.9 2.0
Japan 15.6 13.7 11.8 1.1
Israel 10.3 7.5 7.1 0.7
Other Asia 50.6 48.2 45.6 4.3
Total Asia 109.5 99.2 85.4 8.1
Australia and New Zealand 21.0 18.0 12.8 1.2
All other Countries 22.5 18.8 15.9 1.5
Total 1,119.5 1,084.6 1,059.9 100.0
49
In 2011, the hotels and restaurants sector accounted for US$244 million of real GDP and 1.7 per cent. of nominal
GDP. In 2012, the sector accounted for US$248 million of real GDP and 1.7 per cent. of nominal GDP. In 2013,
the sector accounted for US$236 million of real GDP and 1.5 per cent. of nominal GDP. The hotels and
restaurants sector grew 4.9 per cent. in 2011, 2.6 per cent. in 2012 and experienced a decline of 4.5 per cent. in
2013. The decline was primarily due to the low bookings from international visitors mainly linked to
uncertainties over the countrys general elections held in March 2013.
Receipts accruing to the tourism sector decreased by 1.9 per cent. to stand at KES96.0 billion in 2012 and further
decreased by 2.1 in 2013 to stand at KES94.0 billion. International visitor arrivals decreased from
1,822.9 thousand in 2011 to 1,710.8 thousand in 2012 and further decreased to 1,519.6 thousand in 2013 due to a
slow-down in the global economy, especially in the euro zone, coupled with negative travel advisories following
security concerns. The government believes that tourism will benefit from Kenya Airways fleet expansion plans.
The number of hotel bed-nights occupied decreased by 3.8 per cent. from approximately 6,860,800 in 2012 to
approximately 6,596,700 in 2013. The number of visitors to national parks and game reserves decreased from
approximately 2,492,200 in 2012 to approximately 2,337,700 in 2013. Similarly, the number of visitors to
museums, snake parks and other historical sites registered a 6.5 per cent. decline to stand at approximately
770,800 in 2013. However, the number of local and international conferences held in Kenya increased by 14.6
and 8.8 per cent. in 2013, respectively. There were 11 global brand hotels under construction in Kenya in 2013
amounting to an addition of 1,469 rooms. Seven of the brands were new entrants to Kenya.
In May 2014, UK, US, France and Australia issued new travel advisories in advising their citizens to avoid or
reconsider travel to certain areas within Kenya following a series of fatal attacks and attempted attacks in Nairobi
and Mombasa. See Risk FactorsKenya continues to be challenged by internal security issues. The
government has taken remedial measures in order to mitigate the effects of these advisories to the tourism sector
including promotion of local tourism, exemption of value added taxes to all travel agents, reducing landing
charges in Mombasa and Malindi as the main tourist destinations and providing budgetary reallocations to
promote domestic tourism. In 2013, tourism accounted for 1.5 per cent. of nominal GDP.
Oil
On 15 January 2014, Tullow Oil plc announced oil discoveries at the Amosing-1 and Ewoi-1 exploration wells in
Block 10BB onshore northern Kenya. As a result of these latest discoveries and prior discoveries at Ekales-1 and
Agete-1, Tullow Oil plc updated its estimate of discovered resources in this basin to over 600 million barrels of
oil. Tullow Oil plc also announced that the overall potential for the basin, which is expected to be fully assessed
over the next two years through a significant programme of exploration and appraisal wells, could be in excess of
one billion barrels of oil.
Seeking prospects, exploring for and developing oil reserves involves a high degree of operational and financial
risk. The actual costs of seeking prospects, drilling, completing and operating wells may exceed Tullow Oil plcs
budgeted costs and can increase significantly when drilling costs rise due to a tightening in the supply of various
types of oil field equipment and related services. Prospects may be unsuccessful for many reasons, including
geological conditions, weather, cost overruns, equipment shortages and mechanical difficulties. Exploratory
wells bear a much greater risk of loss than development wells. Moreover, the successful drilling of an oil well
does not necessarily result in a profit on investment. A variety of factors, both geological and market-related, can
cause a well to become uneconomic or only marginally economic. Initial costs associated with identifying
prospects and drilling wells require significant additional exploration and development, regulatory approval and
commitments of resources prior to commercial development.
Kenya stopped its licensing of new open blocks of petroleum exploration licenses to allow time for the on-going
review of the legal and regulatory framework of Oil and Gas operations in the country. Parliament is debating a
new licensing process under the proposed Energy Bill that would be more competitive and use bidding rounds
instead of a first-come, first serve approach under the current framework.
Role of the State in the Economy; Privatisation
General
The government is active in various sectors of the economy. State corporations as defined under the State
Corporations Act (466) comprise both commercial and non-commercial entities including regulatory agencies
and statutory boards, research institutions, institutions of higher learning and referral hospitals. Among
commercial state corporations are corporations that have a public goods mandate for which the government is
50
required to meet full cost using budgetary resources approved by the National Assembly, such as the Kenya
Broadcasting Corporation, Kenya Ferry Services Limited and National Cereals Produce Board. Non-commercial
state corporations act as implementing agencies of the government in areas ranging from social services such as
education and health, to physical infrastructure (roads, transport, energy and water) and regulatory services. They
are specialised agencies that deliver public projects and programmes, including Vision 2030 flagship projects.
Examples of infrastructure non-commercial state corporations through which the government implements
projects are the Kenya National Highways Authority, Kenya Rural Roads Authority, Kenya Urban Roads
Authority, Geothermal Development Corporation, Rural Electrification Authority and National Irrigation Board.
Commercial state corporations do not, in general, depend on central government funds to meet their operations,
except in cases where: (i) the corporation is required to carry out social (non-commercial) programmes/activities
on behalf of the government (e.g., the National Cereals and Produce Board, Kenya Broadcasting Corporation and
Kenya Ferry Services) or (ii) the corporation is unable to sustain itself on account of persistent poor performance
(e.g., Pyrethrum Board of Kenya, Kenya Meat Commission and Numerical Machining Complex).
Some commercial state corporations are key implementing agencies for purposes of major infrastructure projects
of the government. They therefore receive central government budgetary resources for these projects (e.g., Kenya
Airports Authority and Kenya Ports Authority). The government from time to time also provides guarantees on
their behalf for purposes of raising funds to finance projects of national importance.
To meet their recurrent and development budgetary requirements, non-commercial state corporations rely on
internally-generated revenue and/or central government funding. In any given year, however, these corporations
post surpluses or deficits. The corporations either retain these surpluses or remit whole, or part of it, to the central
government. According to the State Corporations Act and the Public Finance Management Act, state
corporations may contract commercial debts on the strength of their balance sheets with the approval of the
Cabinet Secretaries of the line ministry and with the approval of the National Treasury. The line ministries refer
to the ministries charged with the following functions: (i) Interior and Co-ordination of National Government;
(ii) Devolution and Planning; (iii) Foreign Affairs; (iv) Defence; (v) Education, Science and Technology;
(vi) The National Treasury; (vii) Health, (viii) Transport and Infrastructure; (ix) Environment, Water and Natural
Resources; (x) Land, Housing and Urban Development; (xi) Information, Communication and Technology;
(xii) Sports, Culture and the Arts; (xiii) Labour, Social Security and Services; (xiv) Energy and Petroleum;
(xv) Agriculture, Livestock and Fisheries; (xvi) Industrialisation and Enterprise Development; (xvii) East African
Affairs, Commerce and Tourism and (xviii) Mining. In accordance with the Public Finance Management Act, the
government may provide guarantees to borrow provided that: (i) the proceeds of the loan will be utilised for
capital expenditure; (ii) the guarantee will be approved by the National Assembly; and (iii) the loan will be
accommodated within the approved national debt ceiling.
The following table sets out information regarding the significant state corporations mandate, government
ownership and summary financial information.
As at and for the year ended
30 June 2013
(1)
Name Mandate
Government
Share
Holdings
Assets
(in KES
millions)
Liabilities
(in KES
millions)
Profits/
(Losses)
(in KES
millions)
Kenya Electricity
Generating Company Power generation and sale of electricity. 70% 188,673 114,545 5,250
Kenya Pipeline Company To provide efficient,
reliable, safe and cost effective means
of transporting petroleum products
from Mombasa to the hinterland and to
market, process, treat, deal in petroleum
products and other products and goods. 100% 60,161 3,430 8,086
Kenya Power and
Lighting Company
Transmission, distribution and retail of
electricity. 51% 177,158 129,758 4,479
Geothermal Development
Company
To fast track development of
geothermal resource which is
indigenous, abundant, affordable,
reliable and environmentally- friendly
source of electricity. 100% 42,602 3,846 -298
51
As at and for the year ended
30 June 2013
(1)
Name Mandate
Government
Share
Holdings
Assets
(in KES
millions)
Liabilities
(in KES
millions)
Profits/
(Losses)
(in KES
millions)
Consolidated Bank of
Kenya
To provide flexible financial solutions
that support customers to achieve
success 51% 18,000 16,427 139
Kenya Reinsurance
Corporation Limited
Mandated to provide reinsurance
services for most classes of business. 60% 25,770 10,034 2,802
National Housing
Corporation
To play a principal role in the
implementation of the Governments
Housing Policies and Programmes and
provision of affordable housing. 100% 12,299 2,832 569
East African Portland
Cement
To manufacture cement for
infrastructure development in the East
African region. 25.3% 16,134 9,043 1,775
Kenya Tourist
Development
Corporation
Facilitating and providing affordable
development funding and advisory
services for long-term investments in
Kenyas tourism sector. 100% 3,266 179 473
Industrial and
Commercial
Development
Corporation
To promote economic growth and
industrial development through
provision of affordable credit. 100% 17,134 1,112 341
Kenya Airports Authority To construct, operate and maintain
aerodromes and other related facilities. 100% 37,928 8,897 5,304
Kenya Ports Authority To maintain, operate, improve and
regulate all scheduled sea ports situated
along Kenyas coastline. 100% 79,950 20,427 6,594
Kenya Railways
Corporation
Provide effective railway services and
promote, facilitate and participate in
railway networks developments 100% 53,946 2,038 680
Notes: (1) For the Consolidated Bank of Kenya and Kenya Reinsurance Corporation Limited figures are as at
and for the year ended 31 December 2013.
Source: Department of Government Investments & Public Enterprises
State-Owned Financial Institutions
The government owns a substantial majority of the capital stock of several financial institutions such as the
Development Bank of Kenya, the National Bank of Kenya and the Consolidated Bank of Kenya, although it
intends to decrease its participation in the financial system over the medium term, providing assistance only to
specific sectors of the Kenyan economy.
Under the parastatal reform programme, ten parastatals were transferred to the Agriculture, Fisheries and Food
Authority (AFFA), following the enactment of the AFFA Act, No. 13 of 2013. The functions of the ten
pararastals are now performed by the new AFFA and during the transition in order to enable the transfer of the
functions, assets, and liabilities of those institutions their accounts have been frozen. The parastatals which were
transferred to the AFFA are the following: (i) the Coconut Development Authority; (ii) The Kenya Sugar Board;
(iii) The Tea Board of Kenya; (iv) Coffee Board of Kenya; (v) Horticultural Crops Development Authority;
(vi) Pyrethrum Board of Kenya; (vii) Cotton Development Authority; (viii) Sisal Board of Kenya; (ix) Pests
Control Products Board; and (x) Kenya Plant Health Inspectorate Service.
The government is currently reviewing the parastatal sector for reforms, which could include privatisation of
state owned companies.
52
Major Infrastructure Projects
Expansion of Railway Transport
Kenya has an existing metre gauge railway that is over 100 years old. The railway design and its current state of
repair limits its capacity and delivery speed and cannot therefore meet future demand for rail transport in the
country and the region. The government believes that Uganda and the Democratic Republic of the Congo need a
fast and dependable means of transportation that can facilitate trade and industrial development. In view of
expected local and international demand for reliable transport, the government intends to develop a standard
gauge railway line between Mombasa through Nairobi to Malaba with connectivity to Kisumu, Uganda and
Rwanda. With the construction of the standard gauge railway line from Mombasa to Malaba, rail transport is
expected to handle 50 per cent. of the freight cargo throughput, thus easing the pressure on roads, lowering the
cost of doing business, and enhancing trade and regional integration in Eastern Africa.
Construction is expected to take place in three phases. Phase I, which was launched by President Kenyatta on
28 November 2013, involves the construction of a 495 kilometre line from Mombasa to Nairobi. A contractor has
been selected for this phase of the project and financing agreements with the Export-Import Bank of China in the
form of a US$2.0 billion commercial loan and the government of China in the form of a US$1.6 billion semi-
concessional loan was signed on 11 May 2014. Phase II involves the construction of the NairobiMalaba
Kisumu line for which feasibility and preliminary designs are being undertaken. Phase III of the project involves
the construction of the MalabaKampala, UgandaKigali, Rwanda line for which feasibility and preliminary
designs are also being undertaken. The entire project is expected to be completed by 2018 at a cost of
approximately US$13 billion. On February 2014, the Committee on Transport, Public Works and Housing
completed a report on the Mombassa-Nairobi Standard Gauge Railway project and found that there were no
improprieties under the Public Procurement and Disposal Act in the procurement process. The committee
accepted an interpretation that the procurement was a government-to-government procurement and therefore did
not require a competitive bid process under the Public Procurement and Disposal Act. Prior to the report, the
Attorney General had issued an opinion on April 2014 that did not agree with the interpretation of the
procurement as a government-to-government procurement. The Public Investments Committee from
Parliament also completed their report on 29 April 2014 and concluded that the project had complied with the
procurement laws.
Development of the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor.
The Lamu PortSouthern SudanEthiopia Transport (LAPSSET) Corridor project is another major transport
and infrastructure project of the government. The objective of the project is to open up northern Kenya, provide a
reliable transport corridor for Ethiopia and Southern Sudan, promote trade between regions and enhance socio-
economic activity along the corridor, and open up new tourist destinations by initiating development of resort
cities. The project will involve the following components:
a standard gauge railway line;
a new road network;
an oil pipeline, crude oil pipeline and refined oil pipeline from Lamu to Juba and Ethiopia;
an oil refinery at Lamu with capacity of 120,000 barrels per day;
a modern oil terminal at Lamu port to facilitate tanker loading and offloading;
a refined petroleum products pipeline from Lamu connecting to the existing Mombasa-Kampala
pipeline;
international airports at Lamu, Isiolo and Lokichoggio;
a free port at Lamu (Manda Bay) including three berths to handle container, conventional and bulk
cargo vessels,
Lamu Port Management Building, Lamu Port Police Station and staff housing, as well as a dispensary
and club house;
three resort cities in Lamu (at Manda Bay), Isiolo and on the shores of Lake Turkana; and
1,420km 220 KV double circuit electricity transmission line along the LAPSSET corridor.
Currently, the development of the first three berths at Lamu is undergoing design review and construction is
expected to commence in the first half of 2014. Construction of roads along the GarrissaIsiolo,
53
IsioloNginyany and KitaleSuamEndebess are awaiting award for design studies. Mobilisation of funds are
underway for the construction of the 1,800 kilometre Lamu-South Sudan and Ethiopia Railway and the Lamu,
Isiolo and Lake Turkana Airports.
The cost of the project is expected to reach KES1.6 trillion (US$18.1 billion) with construction expected to be
completed by 2018. The government anticipates that funding for the various components will be made through a
publicprivate partnership of government and one or more private sector companies.
Improvement of Shipping and Maritime Facilities.
The objective of this programme is to build port capacity of 50 million tonnes and transform Kenya into a
maritime hub by facilitating trans-shipment of cargo at the port of Mombasa. In order to achieve this, the
government plans to improve port efficiency, construct a second container terminal at Mombasa, provide new
handling facilities at the Mombasa Port, develop Dongo Kundu Free Trade Port, and modernise ferry services to
increase passenger capacity per year.
The second terminal is expected to have a capacity of 1.2 million twenty foot equivalent units (TEUs). The
construction of the second terminal is expected to be completed by 2018. The KES23.0 billion (US$267 million)
project is being funded by a JPY 26.7 billion loan from the Japan International Cooperation Agency.
Increasing Electricity Availability through Power Generation.
The government plans to improve the energy infrastructure network and promote development and use of
renewable energy sources to create a reliable, adequate and cost effective energy supply regime to support
industrial take off for economic growth. One of the key projects prioritised for implementation is the
development of an additional 3,085 MW of geothermal energy at Olkaria, Menengai and Silali-Bogoria. The cost
of the project is expected to reach KES753.9 billion (US$8.7 billion) with construction expected to be completed
by 2018. The government anticipates that funding will be made through a publicprivate partnership of
government, development partners and one or more private sector companies.
Other key projects are the development of multi-purpose dams such as the High Grand Falls dam (700 MW), the
Magwagwa dam (120 MW), the Arror dam (60 MW) and the Nandi Forest dam (50 MW). The cost of the project
is expected to reach KES1.4 trillion (US$16.8 billion) with construction expected to be completed by 2018. The
government anticipates that funding will be made through a publicprivate partnership of government,
development partners and one or more private sector companies.
The government also plans to upgrade and expand the national power transmission and distribution network to
improve supply and reliability, reduce losses and connect two million new customers by 2017. The government
aims to connect 6,304 public facilities, including electrifying 2,600 main public facilities (trading centres,
secondary schools, health centres and dispensaries) and other facilities such as primary schools, tea buying
centres, water supply systems and places of worship, among others.
Replacement of the Mombasa-Nairobi Pipeline
On March 2014 the Kenyan Pipeline Company Ltd. (KPC) began the procurement process for the replacement
of the Mombasa-Nairobi multi-product pipeline (Line 1). Line 1 was originally commissioned in 1978 and is
approximately 449.1 km long. An in-line inspection of the pipeline was done in fiscal year 2009/2010 and the
resulting report recommended replacement of the pipeline because of extensive corrosion damage and metal loss
throughout the entire pipeline, making it no longer economical to repair. The new proposed pipeline will entirely
replace the old pipeline, thus ensuring continued uninterrupted supply of petroleum products while construction
occurs. The project is expected to be financed through KPC internally generated funds and external borrowing.
The loan limit for the project is set in a range of US$400 million to US$500 million. Work is expected to
commence in July 2014.
Employment and Wages
Total number of people employed outside small scale agriculture and pastoralist activities improved from
12.8 million in 2012 to 13.5 million in 2013, a growth of 5.8 per cent. in 2013. There were 116.8 thousand new
jobs created in the formal sector in 2013. The increase is mostly due to recruitment in the devolved structures and
employment of more teachers. The growth in the formal-private and informal sectors may be attributed to
expansion in sectors that are labour intensive including; wholesale and retail trade, Information, Communication
54
and Technology (ICT) and construction. Wage employment in the modern sector registered growth of
5.1 per cent. in 2013 compared to 3.4 per cent. recorded in 2012. The number of self-employed and unpaid
family workers engaged in the modern sector increased by 9.0 per cent. in 2013 compared to an increase of
4.2 per cent. registered in 2012. The informal sector is estimated to have created 625.9 thousand new jobs in
2013 compared to the 591.4 thousand jobs created in 2012. This constituted 84.3 per cent. of all the new jobs
created in 2013.
Average nominal earnings per employee went up by 13.0 per cent. in 2013, which was higher than the increase of
6.6 per cent. recorded in 2012. The real average earnings increased by 7.7 per cent. in 2013, compared to a
decrease of 3.1 per cent. registered the previous year.
The following table sets out certain employment data as at the dates indicated.
Total Recorded Employment
(1)
At 31 December
2011 2012 2013
(2)
(in thousands)
Modern EstablishmentsUrban and Rural Areas
Wage employees 2,084.1 2,155.8 2,265.7
Self-employed and unpaid family workers 73.8 76.9 83.8
Informal sector 9,958.3 10,549.4 11,175.3
Total 12,116.2 12,782.0 13,524.8
Notes: (1) Employment numbers excludes small scale farming and pastoral activities.
(2) Provisional
Source: Kenya National Bureau of Statistics
The following table sets out wage employment in the modern sector by industry and sector for the periods
presented.
Wage Employment by Industry and Sector
For the Year Ended 31 December
2011 2012 2013
(1)
(in thousands)
PRIVATE SECTOR:
Agriculture, forestry and fishing 289.0 295.5 303.8
Mining and quarrying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0 8.3 8.7
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245.2 245.4 254.1
Electricity, gas, steam and air conditioning supply . . . . . . . . 1.1 1.1 1.1
Water supply; sewerage, waste management and
remediation activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 1.3 1.4
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88.8 98.7 112.0
Wholesale and retail trade; repair of motor vehicles and
motorcycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189.6 197.1 211.4
Transportation and storage . . . . . . . . . . . . . . . . . . . . . . . . . . 56.1 58.1 59.0
Accommodation and food service activities . . . . . . . . . . . . . 64.2 67.6 72.3
Information and communication . . . . . . . . . . . . . . . . . . . . . . 78.8 83.9 90.9
Financial and insurance activities . . . . . . . . . . . . . . . . . . . . . 48.5 51.3 56.4
Real estate activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 3.7 3.8
Professional, scientific and technical activities . . . . . . . . . . . 55.6 56.9 59.5
Administrative and support service activities . . . . . . . . . . . . 4.2 4.5 4.8
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.9 106.9 112.8
Human health and social work activities . . . . . . . . . . . . . . . 68.9 73.8 80.4
Arts, entertainment and recreation . . . . . . . . . . . . . . . . . . . . 3.9 4.0 4.3
Other service activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.3 28.2 29.8
Activities of households as employers; undifferentiated
goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.8 106.3 109.7
Activities of extraterritorial organizations and bodies . . . . . 1.0 1.0 1.1
Total private sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,440.8 1,493.6 1,577.3
PUBLIC SECTOR: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agriculture, forestry and fishing . . . . . . . . . . . . . . . . . . . . . . 41.4 42.2 42.9
55
For the Year Ended 31 December
2011 2012 2013
(1)
(in thousands)
Mining and quarrying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 0.7 0.7
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0 25.6 26.2
Electricity, gas, steam and air conditioning supply . . . . . . . . 10.3 13.2 13.6
Water supply; sewerage, waste management and
remediation activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 7.2 8.1
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.3 17.4 18.3
Wholesale and retail trade; repair of motor vehicles and
motorcycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.9 1.0
Transportation and storage . . . . . . . . . . . . . . . . . . . . . . . . . . 16.8 17.1 17.4
Accommodation and food service activities . . . . . . . . . . . . . 1.4 1.3 1.4
Information and communication . . . . . . . . . . . . . . . . . . . . . . 1.7 1.8 1.8
Financial and insurance activities . . . . . . . . . . . . . . . . . . . . . 9.6 10.3 10.6
Professional, scientific and technical activities . . . . . . . . . . . 5.7 5.8 5.9
Public administration and defence; compulsory social
security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206.0 207.4 217.8
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269.1 277.9 288.0
Human health and social work activities . . . . . . . . . . . . . . . 29.0 30.9 32.4
Arts, entertainment and recreation . . . . . . . . . . . . . . . . . . . . 2.4 2.4 2.4
Total public sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643.5 662.1 688.5
Total wage employment . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,084.3 2,155.7 2,265.8
Notes: (1) Provisional
Source: Kenya National Bureau of Statistics
During 2013, the share of private sector employment in the modern sector increased from 69.2 per cent. recorded
in 2012 to 69.5 per cent. in 2013. Growth in employment in this sector improved from 3.7 per cent. recorded in
2012 to 5.6 per cent. in 2013. This represented an increase of approximately 83,700 workers from 2012 levels.
In 2013, the leading activities providing wage employment in the private sector were agriculture, forestry and
fishing, manufacturing and wholesale and retail trade and repair of motor vehicles, accounting for 19.2, 16.1 and
13.4 per cent. of the total private sector employment, respectively. The share of education, human health, and
building and construction industries in the private sector employment increased slightly. The building and
construction industry registered the highest growth in employment posting an increase of 13.5 per cent., followed
by financial and insurance at 9.9 per cent. This is attributable to the expansion of financial and insurance services
to rural areas by increasing branch networks and embracing agency banking. Human health, communications and
arts, entertainment and recreation registered growth of 8.9 per cent., 8.3 per cent. and 7.5 per cent., respectively.
Employment creation in the transport and storage industry registered growth of 1.5 per cent. in 2013 compared to
an increase of 3.6 per cent. in 2012.
Employment in the public sector registered growth of 4.0 per cent. in 2013 compared to a 2.9 per cent. growth
recorded in 2012. Most economic activities in the public sector registered positive growths in employment while
the rest remained at the same level as in the previous year. Though employment in water supply, sewerage and
waste management and remediation activities recorded growth of 12.5 per cent. Human health and social work
sector grew by 4.9 per cent. in the review period while financial and insurance activities rose by 2.9 per cent.
Education services recorded growth of 3.6 per cent. in 2013, which was slightly higher than the 3.3 per cent.
growth recorded in 2012.
The informal sector is defined to include all small-scale activities that are semi-organised, unregulated and use
low and simple technologies while employing few persons. The informal sector plays a central role in the
economy as a source of employment opportunities for the youthful population and persons exiting from the
formal sector of the economy. The sector also plays a vital role in the economic development of the country by
increasing competition, fostering innovation, besides generating employment. The inter-linkages between the
informal sector and the formal sector including government are also crucial in fostering growth in the sector.
Majority of the small businesses such as retailers, hawkers and other service providers fall in this sector. The
sector has also expanded to cover areas such as manufacturing and information and communications. The
government expects to build on the current tax and revenue reform movement to seal tax loopholes, broaden the
tax base to ensure equity in the tax system, review and modernise existing tax legislation, enhance capacity of tax
administration including widening the tax brackets to include the informal sector.
56
An estimated 10.5 million persons were engaged in informal sector economic activities in 2012, an increase of
5.8 per cent. Growth in the formal-private and informal sectors was attributed to notable economic growth
especially in labour intensive sectors including; wholesale and retail trade, and construction. The following table
sets out informal sector employment by region for the periods presented.
Informal Sector Employment by Region
(1)
For the Year Ended 31 December
Province 2010 2011 2012
(2)
(in thousands)
Nairobi 2,303.5 2,459.8 2,624.4
Central 1,475.5 1,567.8 1,667.5
Nyanza 1,069.7 1,129.2 1,200.5
Western 696.1 744.5 786.4
Rift Valley 1,756.9 1,865.2 1,971.6
Eastern 819.9 862.6 898.7
Coast 1,170.7 1,248.8 1,319.8
North Eastern 40.3 41.9 42.3
Total 9,332.6 9,919.8 10,511.2
Urban 3,276.0 3,441.0 3,614.8
Rural 6,056.6 6,478.8 6,896.4
Notes: (1) Estimated
(2) Provisional
Source: Kenya National Bureau of Statistics
The following table sets out the distribution of the informal sector by industry for the periods presented.
Informal Sector Employment by Activity
(1)
For the Year Ended 31 December
2011 2012 2013
(2)
(in thousands)
Manufacturing 1,969.7 2,044.4 2,238.9
Construction 261.3 282.5 292.9
Wholesale and Retail Trade, Hotels and Restaurants 6,007.0 6,406.5 6,708.3
Transport and Communications
3
308.9 328.7 346.1
Community, Social and Personal Services 967.4 1,029.9 1,086.7
Others 449.0 457.9 502.4
Total 9,958.3 10,549.9 11,175.3
Notes: (1) Estimated
(2) Provisional
(3) Includes mainly support services to transport activity.
Source: Kenya National Bureau of Statistics
The manufacturing and wholesale and retail trade, hotels and restaurants activities registered the highest growths
of 6.8 per cent. and 9.9 per cent., respectively, in terms of employment in the informal sector in 2013. Informal
sector workers in wholesale and retail trade, hotels and restaurants accounted for 60.0 per cent. of all workers in
the sector. The second largest employer was manufacturing which absorbed 20.0 per cent. of the informal sector
labour force.
Minimum Wage
The Salaries and Remuneration Commission (SRC) is established by the Constitution and the Salaries &
Remuneration Commission Act, 2011. The mandate of the commission is to set and regularly review the
remuneration and benefits of state officers, realign and restore harmony and equity in the public service
remuneration structure and banding system. In performing its functions, the commission is expected to: ensure
that the total public compensation bill is fiscally sustainable; ensure that the public services are able to attract and
retain the skills required to execute their functions; recognise productivity and performance; and transparency
and fairness.
57
SRC has set and published remuneration breakdown for state officers including the President, Deputy President,
Governors, Members of Parliament and Cabinet Secretaries, among others.
The government has held an active minimum wage setting policy since Kenyas independence in 1963.
Minimum wages apply to all salaried employees who are at least 18 years old and work in the formal sector.
However, the minimum wages do not apply to the skilled and professional personnel employees. During 2012, a
high number of professionals like teachers and doctors went on strike demanding improved work environment,
higher salaries and allowances.
On 1 May 2013, the government announced new statutory minimum wage rates that reflected a 14.0 per cent.
increase in the wages specified in both the Regulation of Wages Agriculture Order, 2012 and the Regulation of
Wages (General) Order, 2012. In 2013, the annual inflation rate was 7.2 per cent., implying, in real terms the
minimum wage increase was positive.
On average, the monthly basic minimum wages for the agricultural industry increased from KES5,044 in 2011 to
KES5,704 in 2012 and KES6,503 in 2013, reflecting an increase of 13.1 per cent. in 2012 and 14.0 per cent. in
2013. The lowest paid category of workers, unskilled employees had their monthly wages raised from KES3,765
in 2011 to KES4,258 in 2012 and to KES4,854 in 2013. Wages for the highest paid category of workers, namely
farm foreman and farm clerks was increased from KES6,792 in 2011 to KES7,681 in 2012 and to KES8,757 in
2013.
The average gazetted monthly basic minimum wages in Nairobi, Mombasa and Kisumu cities increased from
KES11,911 in 2011 to KES13,471 in 2012. For other municipalities, average basic minimum monthly wage
increased from KES11,066 in 2011 to KES12,515 in 2012. Similarly, the wages in all other towns rose from
KES9,413 to KES10,646 over the same period.
The following table sets out the average monthly basic minimum wage for the agricultural sector.
Gazetted Monthly Basic Minimum Wages for Agricultural Industry
For the Year Ended
31 December
Type of Employee 2011 2012 2013
(KES)
Unskilled employees 3,765 4,258 4,854
Stockman, Herdsman and Watchman 4,348 4,917 5,606
SKILLED AND SEMI-SKILLED EMPLOYEES:
House servant or cook 4,298 4,861 5,542
Farm foreman 6,792 7,681 8,757
Farm clerk 6,792 7,681 8,757
Section foreman 4,397 4,973 5,669
Farm artisan 4,500 5,089 5,802
Tractor driver 4,772 5,397 6,153
Combine harvester driver 5,257 5,945 6,778
Lorry driver or car driver 5,517 6,239 7,113
AVERAGE 5,044 5,704 6,503
Source: Ministry of Labour & Human Resource Development
58
The following table sets out the average monthly basic minimum wages in urban areas for the periods presented.
Gazetted Monthly Basic Minimum Wages in Urban Areas
(1)
Nairobi, Mombasa &
Kisumu Cities
All Municipalities and
Mavoko, Ruiru &
Limuru Town Councils All other towns
For the Year Ended 30 June
Occupation 2011 2012 2013 2011 2012 2013 2011 2012 2013
(KES)
General labourer 7,586 8,579 9,781 6,999 7,915 9,024 4,047 4,577 5,218
Miner, stone cutter, turnboy,
waiter, cook 8,193 9,266 10,564 7,269 8,221 9,372 4,676 5,288 6,029
Night watchman 8,463 9,571 10,912 7,846 8,873 10,116 4,827 5,459 6,224
Machine attendant 8,598 9,724 11,086 8,001 9,049 10,316 6,485 7,334 8,361
Machinist 9,815 11,100 12,655 9,182 10,384 11,839 7,507 8,490 9,679
Plywood machine operator 10,239 11,580 13,202 9,450 10,687 12,184 7,811 8,834 10,071
Pattern designer 11,684 13,214 15,065 10,682 12,081 13,773 9,108 10,301 11,743
Tailor, driver (medium
vehicle) 12,877 14,564 16,603 11,835 13,385 15,259 10,553 11,935 13,606
Dyer, crawler, tractor driver,
salesman 14,216 16,078 18,329 13,264 15,001 17,102 11,971 13,539 15,435
Saw doctor, caretaker
(building) 15,732 17,793 20,284 14,690 16,614 18,940 13,685 15,477 17,645
Cashier, driver (heavy
commercial) 17,118 19,360 22,071 16,109 18,219 20,770 15,104 17,083 19,474
Artisan (ungraded) 10,239 11,580 13,202 9,450 10,686 12,184 7,811 8,834 10,071
Artisan Grade III 12,877 14,564 16,603 11,835 13,385 15,259 10,533 11,913 13,581
Artisan Grade II 13,908 15,730 17,932 13,264 15,002 17,102 11,971 13539 15,435
Artisan Grade I 17,118 19,361 22,071 16,109 18,219 20,770 15,104 17,083 19,474
AVERAGE 11,911 13,471 15,357 11,066 12,815 14,267 9,413 10,646 12,136
Notes: (1) Excludes housing allowance.
Source: Ministry of Labour & Human Resource Development
Social Security
The National Social Security Fund (NSSF) provides social security protection to workers in the formal and
informal sectors. The number of registered employers and employees increased marginally in 2013. There were
more male registered employees compared to females in 2012. The number of male and female employees
registered increased marginally, during 2013. Annual contributions increased marginally and benefits increased
by 2.9 per cent. during 2013.
In December 2013, the National Social Security Fund Act 2013 transformed the NSSF from a provident fund
which pays a limited number of lump sum benefits into a social security scheme paying retirement pension as
well as additional benefits such as invalidity and funeral grants. The Act increases contribution rates by members
and employers significantly from the current cap of KES400.00 to a total of 12 per cent. of a members
pensionable earnings.
The Act divides a members contributions into Tier I and Tier II. Tier I is based on emoluments up to the average
minimum wage, while Tier II is based on emoluments above this level. Tier I contributions must be retained in
NSSF whereas an employer can opt out of the NSSF and make Tier II contributions to another retirement
benefits scheme, subject to fulfilling certain requirements. In determining pensionable earnings, the Act sets an
upper limit set at the average national wage in the first year but rising to four times the average national wage in
the fifth year.
59
The following table sets out details of registered employers, registered employees, annual contributions and
benefits to members of the NSSF.
As at and for the Year Ended
31 December
2011 2012 2013
(1)
Registered Employers (in thousands) 84.2 92.1 92.1
Registered Employees (in thousands)
Male 2,720.0 2,954.7 2,955.0
Female 945.2 1,001.2 1,001.3
Total 3,665.2 3,955.9 3,956.3
Annual contribution (KES millions) 5,990.6 6,571.1 6,571.6
Annual benefits paid (KES millions) 2,387.1 2,765.3 2,844.6
Notes: (1) Provisional
Source: National Social Security Fund
The Social Protection Fund was established to facilitate access to credit and cash transfer on flexible terms in a
bid to attain a meaningful and better quality of life for poor and vulnerable individuals by transferring a monthly
stipend. The government increased the allocated fund for social protection for older persons from KES1.0 billion
in 2011/12 to KES1.5 billion in 2012/13. The direct cash disbursement increased from KES949.5 million in
2011/12 to KES1.5 billion in 2012/13. The increase in allocation and direct cash disbursement was attributed to
increased monthly cash transfers from 1,500 to 2,000 per household and the number of households from
45,000 to 49,000 in the same period.
The Social Protection Fund for Orphans and Vulnerable Children (OVC) was started in 2004 in response to the
strong need to protect and assist the highly vulnerable children and also to strengthen the capacity of the
households to protect and care for OVC within their families and communities. The fund is currently directed to
the poor households taking care of OVC through the department of childrens services. The funding allocated for
OVC increased from KES1,081.4 million in 2012/13 to KES4,763.1 million in 2013/14. The direct cash
disbursement increased from KES1,030.3 million in 2012/13 to KES4,524.9 million in 2013/14. The increased
allocation and direct cash disbursements was attributed to increased capital transfers and increased number of
targeted households from 44,000 in 2012 to 135,000 in 2013.
The following table sets out the funds allocated to OVC through the department of childrens services.
Social Protection Fund for Older
Persons
Social Protection Fund for OVC
Allocation
Direct Cash
Disbursement Allocation
Direct Cash
Disbursement
(KES millions)
2011 530.0 394.0 827.7 766.9
2012 1,000.0 949.5 1,026.9 896.9
2013 1,519.2 1,478.0 1,081.4 1,030.3
2014
(1)
3,168.0 2,919.0 4,763.1 4,524.9
Notes: (1) Provisional
Source: Department of Gender and Social Development
60
BALANCE OF PAYMENTS AND FOREIGN TRADE
Balance of Payments
The balance of payments records the value of the transactions carried out between a countrys residents and the
rest of the world. The balance of payments is composed of:
The current account, which includes:
net exports of goods and services (the difference in value of exports minus imports);
net financial and investment income; and
net transfers; and
The capital and financial accounts, which comprise the difference between financial capital inflows and
financial capital outflows.
The current account of the Kenyas balance of payments for the past three years has been characterised by
deficits, which were partially offset by capital and financial account surpluses. During this period, the current
account deficit averaged 9.4 per cent. of Kenyas nominal GDP.
The current account deficits in 2011, 2012 and 2013 were primarily due to widening merchandise trade deficit
that reflected increased imports of machinery and transport equipment, food imports and a large oil import bill
following higher international oil prices. For 2013, the current account deficit registered 8.4 per cent. of 2013
nominal GDP compared to 9.3 per cent. of 2012 nominal GDP.
The following table sets forth Kenyas balance of payments for the periods indicated.
Balance of Payments
For the Year Ended 30 June
2011 2012 2013
(US$ millions)
Current Account (2,656.1) (3,343.2) (3,696.5)
Excluding Official Transfers (2,634.4) (3,320.5) (3,906.5)
Exports, f.o.b. 5,563.6 5,960.9 6,251.1
Coffee 212.8 263.0 277.2
Tea 1,108.4 1,138.2 1,347.2
Horticulture 732.0 647.9 725.5
Imports, f.o.b. (12,738.1) (14,903.0) (15,833.0)
Oil (3,299.2) (4,192.3) (4,126.9)
Other Private (9,277.0) (10,398.5) (11,515.1)
of which: Capital Imports
1
(2,976.5) (3,116.8) (4,209.4)
Balance on Goods (7,174.5) (8,942.2) (9,581.9)
Balance on Services
2
1,823.2 2,651.4 2,246.7
of which: foreign travel credit
3
909.7 970.7 832.8
Balance on goods and services (5,351.4) (6,290.8) (7,335.2)
Income (net) 23.8 (144.9) (258.4)
Current transfers (net) 2,671.5 3,092.5 3,897.2
Private (net) 2,693.2 3,115.1 3,687.1
of which: remittances 1,232.8 1,658.1 2,130.8
Capital and Financial Account 2,957.2 4,150.4 3,788.6
Capital account (incl. capital transfers) 228.5 173.4 654.0
Financial account
4
2,728.6 3,977.0 3,134.7
Net Foreign Direct Investment 694.0 830.0 1,382.6
in Kenya 759.2 855.7 1,422.3
abroad (65.2) (25.7) (39.8)
Net other investment 1,962.9 2,186.4 1,756.2
Official, medium and long term 338.1 1,128.8 204.3
Inflows 583.6 1,416.9 508.5
Project loans 583.6 807.0 431.8
Commercial loans 0.0 609.8 76.7
Outflows (245.5) (288.1) (304.2)
61
For the Year Ended 30 June
2011 2012 2013
(US$ millions)
Private, medium and long term 49.7 690.7 72.7
Energy financing 57.2 60.0 70.4
Kenya Airways 76.3 17.8 97.3
Other 30.5 612.9 (95.0)
Short-term capital 1,674.5 366.9 1,479.2
of which: public net (includes trade credit) 0.0 0.0 0.0
private net 465.8 366.9 1,479.2
of which: commercial banks 465.8 94.1 (55.6)
Errors and omissions 83.7 974.2 0.0
Overall balance 301.1 807.2 92.2
Financing items 301.1 (807.2) (92.2)
Reserve assets (gross) 321.9 (1,120.9) (280.6)
Use of Fund credit and loans to the Fund (net) 78.8 307.8 182.6
Disbursements 103.3 319.7 225.3
Repayments 24.4 (11.9) (42.7)
Rescheduling/debt swap 5.4 5.9 5.9
Memorandum items:
Gross official reserves (end of period) 4,120.5 5,241.4 5,522.0
Notes: (1) Excludes power generation related machinery and airplanes but includes oil-exploration related
machinery and equipment.
(2) Service receipts were revised retroactively upwards in September 2013 to account for 90 per cent. of
classified receipts as reported by commercial banks.
(3) The foreign travel credit comprises two components, recorded tourism inflows and an estimate of
additional under- reported tourism receipts.
(4) Historical figures include errors and omissions.
(5) 2012 includes the US$600 million syndicated loan.
Source: Kenyan authorities and IMF staff estimates and projections.
Current Account
The current account deficit increased from US$3.3 billion in 2012 to US$3.7 billion in 2013. The increase in the
current account deficit was mainly due to a relatively greater increase in imports from US$14.9 billion in 2012 to
US$15.8 billion in 2013 compared to the increase in exports from US$6.0 billion in 2012 to US$6.3 billion in
2013. The Euro zone sovereign debt crisis that continued in 2012 affected the shilling, making it depreciate
against major currencies, which in turn contributed to the high import bill. The current account deficit increased
by 10.6 per cent., or US$353.3 million, to US$3.7 billion in 2013.
Based on discussions with the IMF, the government believes that the current account deficit may be overstated.
This is based on several grounds. First, the deficit appears at odds with the observed 5-10 per cent. real exchange
rate appreciation in the Kenyan shilling. The rise of capital goods imports associated with higher investment may
be part of the explanation. If capital goods imports were excluded, the current account would have been in
surplus. Second, the government believes that part of unclassified services reported by commercial banks are
excluded from current account receipts because of possible inappropriate classification by commercial banks.
These unclassified services have quadrupled in the last four years. Third, foreign direct investment may have
been substantially underreported. A survey conducted by the Kenya National Bureau of Statistics in 2010 found
that foreign direct investment underreporting was higher than 50 per cent. Considering the foregoing, the
government believes that external current account net of long-term financing may be close to balance. See Risk
FactorsThe statistical information published by Kenya may differ from that produced by other sources and
may be unreliable.
62
The following table sets out information on the balance of trade for the periods presented.
Balance of Trade
For the Year Ended 31 December,
2011 2012 2013
(1)
(KES millions)
EXPORTS (f.o.b.)
Domestic Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484,507 479,706 455,689
Re-exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,097 38,141 46,598
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512,604 517,847 502,287
IMPORTS (c.i.f.):
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283,111 1,360,408 1,403,225
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,639 14,179 10,091
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,749 1,374,587 1,413,316
BALANCE OF TRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (788,145) (856,740) (911,029)
TOTAL TRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813,354 1,892,434 1,915,603
COVER RATIO
(2)
(in percentage) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.4 37.7 35.5
Notes: (1) Provisional
(2) Cover ratio is the ratio of exports to imports.
Source: Kenya National Bureau of Statistics/Kenya Revenue Authority
In 2013, the value of domestic exports decreased by 5.0 per cent. while the value of imports rose by 3.1 per cent.
The value of re-exports increased by 22.2 per cent. There were increases in the value of petroleum products,
medicament and fixed vegetable fat re-exports during 2012. The trade deficit widened by 6.3 per cent. from
KES856.4 billion in 2012 to KES911.0 billion in 2013. The export/import cover ratio decreased from
39.4 per cent. in 2011 to 37.7 per cent. in 2012.
International trade in services registered an increase of 19.6 per cent., from a surplus of KES173.9 billion in
2010/11 to a surplus of KES208.0 billion in 2011/12. During 2011/12, earnings from transportation improved
while tourism earnings declined. Current transfer flows increased by 0.2 per cent., supported by remittances from
Kenyans living outside the country.
Remittances from the Kenyan diaspora are a major contributor to Kenyas economic growth and development.
From 2011 to 2012, remittance inflows to Kenya have grown. In 2012, remittances grew 34.5 per cent. from
US$1.2 billion in 2011 to US$1.7 billion in 2012. In 2013, remittances grew 28.5 per cent. to US$2.1 billion.
North America has remained the main source of remittances, accounting for approximately 50 per cent. of total
inflows as at September 2013. However, as a share of total inflows, remittances from this region has declined
slightly from an average of about 54 per cent. in 2011 to about 50 per cent. in 2013. Diaspora remittances, along
with tourism, tea and horticulture are among Kenyas leading foreign exchange earners.
Directions of foreign trade
Most of Kenyas exports are destined for other African countries. In 2012, the share of the value of exports to
other African countries registered 48.4 per cent. of total exports and grew by 1.2 per cent. Of total exports to
Africa during 2012, exports to countries that are members of the COMESA remained the dominant destination,
accounting for 70.1 per cent. of the value of total exports to Africa. The total value of exports to COMESA
countries, however, decreased from US$2.1 billion in 2011 to US$2.0 billion in 2012.
For the year ended 31 December 2013, exports to Uganda, Tanzania, Egypt and Rwanda represented
27.2 per cent. of total exports.
The value of exports to the EAC region, which includes some members who are also members of COMESA,
declined from US$1.57 billion in 2012 to US$1.45 billion in 2013 and accounted for 65.4 per cent. of the total
value of exports to Africa. However, a decline was recorded in the value of total exports to Rwanda and Tanzania
during 2013. Total exports to Rwanda and Tanzania decreased by 16.7 per cent. and 12.3 per cent., respectively.
Exports to Uganda was the largest share of total exports to Africa in 2013, accounting for 34.2 per cent., even
though exports to that country declined by 3.4 per cent. during 2013 from US$784 million in 2012 to
US$757 million in 2013.
63
The region that recorded the second largest share of the value of exports during 2013 was the EU, accounting for
20.8 per cent. of total exports. The countries in the EU that received the most exports from Kenya by value were
the United Kingdom and the Netherlands, with each receiving 35.6 per cent. and 31.1 per cent. of total exports to
the EU, respectively. During 2013, exports to the United Kingdom decreased by 7.6 per cent. while the
Netherlands increased, by 4.4 per cent. Exports to Germany and Sweden, on the other hand, increased by
25.3 per cent. and 25.7 per cent. in 2012, respectively. For year ended 31 December 2013, exports to the United
Kingdom and the Netherlands represented 7.4 per cent. and 6.3 per cent. of total exports, respectively.
Exports to the Far East accounted for the third largest share of the value of exports during 2012 at 12.2 per cent.
Pakistan received the most exports in the region at US$278 million, or 37.7 per cent. of total exports to the Far
East. Although total exports to the Far East increased by 1.2 per cent. during 2012, exports to China and Pakistan
increased by 40.7 per cent. and 12.6 per cent., respectively. The increase in total exports to China is partly
explained by growth in scrap metal exports during 2012. Exports to Indonesia and India declined by
28.0 per cent. and 20.0 per cent., respectively. For the ten-month year ended 31 October 2013 exports to Pakistan
represented 4.7 per cent. of total exports.
Exports to the Middle East accounted for the fourth largest share of the value of exports during 2012 at
8.1 per cent. and increased by 26.4 per cent. in 2012. Total exports to the United Arab Emirates increased by
42.3 per cent. from US$234 million in 2011 to US$333 million in 2012. This increase is partly explained by rises
in non-monetary gold exports from KES5.8 billion in 2011 to KES13.6 billion in 2012. Total value of exports to
Israel and Saudi Arabia decreased by 12.6 per cent. and 39.3 per cent., respectively, during the same period.
Exports to Iran, however, decreased by 34.8 per cent. during 2012. Exports to United Arab Emirates represented
4.1 per cent. of total exports for the ten-month period ended 31 October 2013. Exports to Iran totalled
US$23.0 million in 2011 and US$15.0 million in 2012. Imports from Iran totalled US$43.0 million in 2011 and
US$43.0 million in 2012. The major export commodities to Iran include tea, mate, crude vegetable minerals,
while imports include residual petroleum and related material.
The following table sets out the value of total exports by destination for the periods presented.
Value of Total Exports by Destination
For the Year Ended 31 December
2011 2012 2013
(1)
(US$ millions)
Europe
Western Europe
European Union
Belgium 54 61 72
Finland 15 17 13
France 66 57 62
Germany 91 114 96
Italy 78 63 53
Netherlands 386 361 377
Spain 26 22 23
Sweden 35 44 29
United Kingdom 554 472 436
Other 57 52 52
Total 1,362 1,264 1,212
Other Western Europe 124 66 81
Total Western Europe 1,486 1,330 1,293
Eastern Europe
Russia Federation 68 77 79
Other 48 49 56
Total 116 125 136
Total Europe 1,602 1,455 1,429
America
U.S.A. 303 307 347
Canada 14 18 15
Other 7 10 29
Total America 324 334 391
64
For the Year Ended 31 December
2011 2012 2013
(1)
(US$ millions)
Africa
South Africa 33 31 38
Rwanda 159 188 156
Egypt 275 250 197
Tanzania 491 535 469
Uganda 893 784 757
Burundi 69 62 65
Other 990 1,064 999
Total Africa 2,911 2,913 2,682
Asia
Middle East:
Iran 23 15 32
Israel 17 24 13
Jordan 3 3 3
Saudi Arabia 28 39 37
United Arab Emirates 234 333 291
Other . 83 76 81
Total Middle East 387 489 458
Far East
China 45 63 49
India 110 88 110
Indonesia 25 18 15
Japan 27 29 31
South Korea 6 12 12
Pakistan 247 278 280
Singapore 13 4 19
Other 263 246 273
Total Far East 737 737 789
Total Asia 1,124 1,226 1,246
Australia & Oceanic
Australia 11 19 31
Other 2 3 2
Total Australia & Oceanic 12 22 33
All Other Countries 12 14 17
Aircraft and Ships Stores 41 56 22
Total Exports 6,026 6,019 5,820
Notes: (1) Provisional
Source: Kenya National Bureau of Statistics and Kenya Revenue Authority
Most of Kenyas imports originate from Asia. During 2013, imports from the Far East and the Middle East
accounted for 41.6 per cent. and 20.7 per cent. of total imports, respectively. The countries with the greatest share
of Kenyas total imports during 2012 were India and China, accounting for 14.2 per cent. and 12.2 per cent. of
the total, respectively. Imports from India increased 30.0 per cent. from US$1.7 billion in 2011 to US$2.3 billion
in 2012, while imports from China increased 15.0 per cent. from US$1.7 billion in 2011 to US$1.9 billion in
2012. During 2012, imports from Japan increased 10.4 per cent. and accounted for 4.6 per cent. of total imports.
Imports from the United Arab Emirates decreased 25.6 per cent. during 2012, but still accounted for
10.9 per cent. of total imports. For the year ended 31 December 2013, imports from India, China and Japan
represented 37.1 per cent. of total imports and combined represented an increase of 18.6 per cent. compared to
the same period in 2012. For the year ended 31 December 2013, imports from United Arab Emirates and
Saudi Arabia represented 11.2 per cent. of total imports and combined registered a decrease of 36.9 per cent.
compared to the same period in 2013.
The region with the second largest share of total imports during 2012 was the EU, accounting for 14.9 per cent.
of total imports. The value of imports from Europe, however, decreased by 3.1 per cent. in 2012 compared to
2011. Imports from Finland, the Russian Federation and the Netherlands declined by 53.6 per cent.,
34.4 per cent. and 22.3 per cent., respectively. Imports from Italy, on the other hand, increased by 41.8 per cent.
from US$170 million in 2011 to US$241 million in 2012, mainly due to increases in the importation of edible
65
products and preparations and bituminous mixtures. The value of imports from France increased from
US$233 million to US$315 million during the same period. This is partly explained by increased imports of
aircraft and associated equipment; civil engineering and contractors plant and equipment; and measuring and
controlling instruments and apparatus. Increases of 28.5 per cent. and 24.0 per cent. were also recorded for
imports from Germany and Spain during the same period. Imports from Germany and France decreased by 9.9
and 24.1 per cent. for the year ended 31 December 2013 compared to the same period in 2012, respectively.
Imports from the United Kingdom and Netherlands increased during the year ended 31 December 2013,
increasing by 11.4 and 40.0 per cent. compared to the same period in 2012, respectively.
The region with the third largest share of total imports during 2012 was Africa, accounting for 10.2 per cent. of
total imports. The value of imports from Africa, however, decreased from US$1.8 billion in 2011 to
US$1.6 billion recorded in 2012. This is partly explained by a decrease in the value of imports from South Africa
from US$831 million in 2011 to US$720 million occasioned by the reduction in the importation of flat rolled
products of iron and non-alloy steel during 2012. The value of imports from Uganda, on the other hand, increased
by 45.9 per cent. primarily due to increased importation of fresh vegetables and sugars, molasses and honey.
Imports from South Africa increased by 13.8 per cent. for year ended 31 December 2013 compared to the same
period in 2012, with its share of total imports increasing to 4.8 per cent. of total imports from 4.5 per cent. for the
same period in 2012.
Additionally, Zimbabwe and Kenya have a joint permanent commission which has been instrumental in the
proportion of trade between the two countries. Exports to Zimbabwe totalled US$21.0 million in 2013 and
US$20.0 million in 2012. Imports from Zimbabwe totalled US$9.5 million in 2013 and US$12.3 million in 2012.
Total imports from COMESA decreased by 5.7 per cent. from US$715 million in 2012 to US$675 million in
2013. The value of imports from Uganda increased by 4.6 per cent. to US$186 million in 2013 from US$178
million in 2012.
Imports from United States of America increased by 46.4 per cent. from US$524 million in 2011 to US$767
million in 2012. This was occasioned by increases in the value of imports of aircraft and associated equipment,
fertilisers, internal combustion engines and steam turbines. Imports from Canada more than doubled partly due to
increased imports of automatic data processing machines in preparation of 2013 general elections from US$87
million in 2011 to US$155 million in 2012. For the year ended 31 December 2013, imports from the United
States of America decreased by 13.2 per cent., compared with corresponding period of 2012.
The following table sets out the value of total imports by country of origin for the periods presented.
Value of Imports by Country of Origin
For the Year Ended 31 December
2011 2012 2013
(1)
(US$ millions)
Europe
Western Europe
European Union
Belgium 126 127 151
Finland 56 26 42
France 233 315 239
Germany 375 482 434
Italy 170 241 235
Netherlands 264 205 287
Spain 75 93 97
Sweden 99 94 82
United Kingdom 507 510 568
Other 369 280 268
Total 2,275 2,373 2,406
Other Western Europe 401 249 278
Total Western Europe 2,675 2,622 2,683
66
For the Year Ended 31 December,
2011 2012 2013
(1)
(US$ millions)
Eastern Europe
Russia Federation 270 177 269
Other 51 105 184
Total 322 282 452
Total Europe 2,997 2,903 3,136
America
U.S.A. 524 767 665
Canada 87 155 76
Other 320 464 238
Total America 931 1,387 979
Africa
South Africa 831 720 819
Tanzania 184 167 135
Uganda 122 178 186
Other 641 570 572
Total Africa 1,778 1,636 1,713
Asia
Middle East:
Iran 43 43 28
Israel 75 84 109
Jordan 10 14 9
Saudi Arabia 629 777 480
United Arab Emirates 2,340 1,742 1,360
Other 425 643 561
Total Middle East 3,522 3,303 2,548
Far East
China 1,691 1,944 2,113
India 1,746 2,269 2,992
Indonesia 511 642 522
Japan 665 734 970
South Korea 310 262 284
Pakistan 203 150 181
Singapore 362 151 225
Other 501 502 555
Total Far East 5,990 6,654 7,842
Total Asia 9,511 9,956 10,389
Australia & Oceanic
Australia 27 53 144
Other 8 41 7
Total Australia & Oceanic 35 94 151
All Other Countries 38 2 7
Total Imports 15,291 15,978 16,375
Notes: (1) Provisional
Source: Kenya National Bureau of Statistics and Kenya Revenue Authority
Content of Foreign Trade
Tea was the leading commodity foreign exchange earner in 2012, accounting for 21.1 per cent. of total domestic
export earnings. Export earnings from tea, however, decreased from KES102.2 billion in 2011 to KES101.4
billion in 2012. Horticulture exports, which is the second largest export, reached KES81.1 billion in 2012, a
decline of 2.6 per cent. from 2011 levels. The reduced production of tea was due to adverse conditions including
frost in some of the tea growing regions and drought in the first quarter of 2012. Foreign exchange earnings from
medicinal and pharmaceutical products, sugar confectionary and coffee increased by 16.8, 11.7 and 6.7 per cent.,
respectively, in 2012. The value of domestic exports of petroleum products, however, decreased by 47.0 per cent.
from KES6.2 billion in 2010/11 to KES3.3 billion in 2011/12.
67
For the year ended 31 December 2013, Kenya exported approximately 446 thousand metric tons of tea worth
KES105 million. Tea accounted for 23.0 per cent. of total domestic export earnings for the year ended
31 December 2013. Export earnings from tea increased to KES104.6 billion for the year ended 31 December
2013 from KES88.8 billion in the corresponding period of 2012. Horticulture exports reached KES89.3 billion
for the year ended 31 December 2013.
With respect to principal imports, petroleum products and industrial machinery had the largest share of total
imports, collectively accounting for 34.2 per cent. of the total in 2013. The value of imported petroleum products
increased by 6.3 per cent. to KES252.7 billion in 2013 while the value of imported industrial machinery
increased by 18.8 per cent. to KES231.4 billion in 2012.
Fuel, lubricants and machinery and other capital equipment accounted for 37.1 per cent. of total imports for the
ten-month year ended 31 December 2013.
The following table sets out the values of principal exports and imports for the periods presented.
Values of Principal Exports and Imports
For the Year Ended 31 December
2011 2012 2013
(1)
(KES millions)
Domestic Exports
Fish and fish preparations 4,955 5,392 3,362
Maize (raw) 169 57 192
Meals and flours of wheat 159 290 145
Horticulture 83,331 81,129 89,339
Sugar confectionery 5,211 5,818 5,401
Coffee, unroasted 20,863 22,271 16,328
Tea 102,236 101,441 104,648
Margarine and shortening 2,950 2,684 2,245
Beer made from malt 2,961 3,209 3,636
Tobacco and tobacco manufactures 18,633 16,615 13,709
Hides and skins (undressed) 108 504 134
Sisal 1,212 1,184 1,020
Stone, sand and gravel 494 385 389
Fluorspar 3,928 3,272 1,714
Soda ash 12,371 9,724 8,997
Metal scrap 1,050 2,826 2,498
Petroleum products 6,217 3,294 2,652
Animal and vegetable oils 14,166 12,727 8,156
Medicinal and pharmaceutical products 7,446 8,699 7,068
Essential oils 13,822 13,623 11,172
Insecticides and fungicides 1,828 801 771
Leather 7,208 7,036 8,491
Wood manufactures n.e.s. 193 140 159
Paper and paperboard 651 474 639
Textile yarn 851 792 885
Cement 8,898 8,118 8,292
Iron and steel 18,165 15,098 15,560
Metal containers 734 715 500
Wire products, nails screws, nuts, etc. 1,142 1,649 1,036
Footwear 3,562 4,148 3,992
Articles of plastic 9,350 10,278 10,263
Articles of apparel and clothing accessories 22,260 20,676 24,379
All other commodities 107,385 114,637 97,916
Total 484,507 479,706 455,688
Imports
Wheat, unmilled 31,371 29,743 30,189
Rice 12,548 14,520 14,111
Maize 11,479 6,451 2,291
68
For the Year Ended 31 December
2011 2012 2013
(1)
(KES millions)
Wheat flour 2,517 2,120 1,964
Sugars, molasses and honey 11,088 17,030 16,770
Textile fibres and their waste 5,093 5,025 5,099
Second-hand clothing 6,831 8,400 8,345
Crude petroleum 124,042 68,086 41,037
Petroleum products 199,120 237,557 252,673
Animal/vegetable fats and oils 56,733 54,876 48,371
Organic & inorganic chemicals 19,593 22,080 22,303
Medicinal & pharmaceutical products 39,681 41,307 40,114
Essential oils & perfumes 13,454 15,351 16,935
Chemical Fertilisers 23,045 20,184 27,957
Plastics in primary & non-primary forms 49,296 47,650 55,182
Paper and paperboard 22,947 20,049 21,356
Iron and steel 62,087 56,667 80,749
Non-ferrous metals 13,863 12,119 14,626
Hand &machine tools 2,335 2,794 3,265
Industrial machinery 177,174 194,666 231,440
Agricultural machinery and tractors 5,532 6,347 7,802
Bicycles, assembled or partly assembled 395 354 429
Road motor vehicles 62,870 73,768 83,330
All other Commodities 347,657 417,442.28 386,978.26
Total 1,300,749 1,374,587 1,413,316
Notes: (1) Provisional
Source: Kenya National Bureau of Statistics and Kenya Revenue Authority
The following table sets out the quantities of principal exports and imports for the periods presented.
For the Year Ended 31 December
Unit of
Quantity 2011 2012 2013
(1)
Domestic Exports
Fish and fish preparations Tonne 15,519 17,455 11,712
Maize (raw) Tonne 1,173 548 1,236
Meals and flours of wheat Tonne 4,624 7,488 3,076
Horticulture Tonne 363,799 367,985 394,387
Sugar confectionery Tonne 33,092 33,188 30,159
Coffee, unroasted Tonne 37,570 51,713 48,890
Tea Tonne 385,425 376,996 446,033
Margarine and shortening Tonne 20,288 18,532 15,924
Beer made from malt 000 Lt. 59,054 62,638 48,166
Tobacco and tobacco manufactures Tonne 40,290 35,259 53,093
Hides and skins (undressed) Tonne 2,250 10,200 2,832
Sisal Tonne 12,040 11,066 10,010
Stone, sand and gravel Tonne 45,962 39,138 29,632
Fluorspar Tonne 116,600 105,753 78,002
Soda ash Tonne 592,207 458,811 478,822
Metal scrap Tonne 4,342 5,465 4,478
Petroleum products Mn. Lt. 89 27 18
Animal and vegetable oils Tonne 106,420 99,252 70,339
Medicinal and pharmaceutical products Tonne 11,446 13,063 12,419
Essential oils Tonne 121,919 120,059 94,157
Insecticides and fungicides Tonne 3,301 1,709 1,416
Leather Tonne 26,485 22,698 26,542
Wood manufactures n.e.s. Tonne 712 608 468
Paper and paperboard Tonne 9,572 5,063 7,313
Textile yarn Tonne 2,263 1,859 2,046
Cement Tonne 708,384 737,496 826,941
69
For the Year Ended 31 December
Unit of
Quantity 2011 2012 2013
(1)
Iron and steel Tonne 170,143 150,182 155,442
Metal containers Tonne 3,262 3,432 2,831
Wire products, nails screws, nuts, etc. Tonne 8,356 10,931 9,232
Footwear 000 Pairs 47,288 51,712 52,021
Articles of Plastic 55,882 48,370
Imports
Wheat, unmilled Tonne 1,002,710 1,044,848
Rice Tonne 337,446 399,699 1,033,054
Maize Tonne 359,232 324,622 409,576
Wheat flour Tonne 61,850 54,397 93,473
Sugars, molasses and honey Tonne 176,174 267,679 30,853
Textile fibres and their waste Tonne 18,182 19,451 276,542
Second-hand clothing Tonne 76,533 82,216 18,183
Crude petroleum Tonne 1,772,133 997,028 101,066
Petroleum products Mn. Lt. 2,874 3,484 567,432
Animal/vegetable fats and oils Tonne 553,087 591,488 3,760
Organic & inorganic chemicals Tonne 240,714 241,719 636,120
Medicinal & pharmaceutical products Tonne 16,637 16,110 256,736
Essential oils & perfumes Tonne 33,273 50,269 17,187
Chemical Fertilisers Tonne 522,200 425,840 46,097
Plastics in primary & non-primary forms Tonne 317,119 342,163 688,436
Paper and paperboard Tonne 278,797 263,089 377,340
Iron and steel Tonne 792,093 778,859 279,700
Non-ferrous metals Tonne 45,425 42,405 1,217,865
Hand &machine tools 000 No 9,534 11,027 52,588
Bicycles, assembled or partly assembled 000 No 143 134 10,682
Road motor vehicles Nos. 65,987 74,111 166
Notes: (1) Provisional
Source: Kenya National Bureau of Statistics and Kenya Revenue Authority
The volume of coffee exports increased by 37.6 per cent. in 2012. Export quantities of wire and products, metal
scrap, medicinal and pharmaceutical products, fish and fish preparations and footwear increased by 30.8, 25.9,
14.1, 12.5 and 9.4 per cent, respectively, in 2012. On the other hand, the export quantities of soda ash, iron and
steel declined by 22.5 per cent. and 11.7 per cent., respectively, in 2012. Export quantities of tea declined by
2.2 per cent. in 2012 while export quantities of maize decreased by 53.3 per cent.
For the year ended 31 December 2013, the volume of coffee exports reached 48,890 tonnes, compared to
51,713 tonnes during the same period in 2012. For the year ended 31 December 2013, the volume of horticulture
exports reached 394,387 tonnes, compared to 367,985 tonnes during the same period in 2012.
During 2012, imported quantities of sugars, molasses and honey increased by 51.9 per cent. Essential oil and
perfume imports increased by 51.1 per cent. while imports of un-milled wheat increased from 1,002.7 thousand
tonnes in 2011 to 1,044.8 thousand tonnes in 2012. Notable increases were recorded in the import quantities of
rice, petroleum products, hand and machine tools and road motor vehicles which increased by 18.5, 21.2,15.7 and
12.3 per cent. respectively, in 2012. Quantity imports of crude petroleum decreased by 43.7 per cent. from
1,772.1 thousand tonnes in 2011 to 997.0 thousand tonnes in 2012. Similarly, the quantity of chemical fertiliser
imports decreased by 18.5 per cent. to stand at 425,840 tonnes in 2012. During the review period, quantities of
imported un-milled maize declined by 9.6 per cent. Imports of processed wheat, non- ferrous metals and, paper
and paperboard decreased by 12.1, 6.7 and 5.6 per cent., respectively.
Capital and Financial Account
The capital and financial account registered a surplus of US$4.2 billion in 2012 compared to a surplus of
US$3.0 billion in 2011 primarily due to increased long-term and medium-term loan disbursements. Net foreign
direct investment inflows increased from US$694.0 million in 2011 to US$830.0 million in 2012, while the
short-term capital account decreased from US$1.7 billion in 2011 to US$0.4 billion in 2012. The improvement in
the short-term capital account was mainly due to decreased participation by foreign investors during the first half
70
of 2012. The capital and financial account decreased by 8.7 per cent., or US$361.8 million, to a surplus of
US$3.8 billion in 2012/13 primarily due to increases recorded in both long and short term net capital flows.
The following table sets out information on foreign investor net cash inflow activity in the equity market
according to the Nairobi Securities Exchange for the periods indicated.
2011 2012 2013
(KES millions)
January 1,987 (812) 2,133
February 622 795 (3,927)
March 1,552 2,651 1,810
April (3,024) 1,771 3,026.00
May (3,334) 1,099 3,475.00
June (1,597) 1,639 2,602.00
July 1,173 828 1,625.00
August 621 1,048 9,839.00
September 535 3,286 2,063.00
October 719 2,965 2,723.00
November 31 4,335
December 935 2,129
Net Cash Inflow 220 21,734 25,369
Source: Nairobi Securities Exchange
The government plans to implement the following objectives in order to increase foreign investment in Kenya:
expand energy sources to provide reliable energy to industries at competitive rates;
improve Kenyas investment climate by simplifying processes;
finalise commercial laws aimed at increasing efficiency in business and investment in the country;
improve investor facilitation by creating one-stop shops for information;
prioritise and effectively carry out the necessary institutional reforms to improve governance;
maintain and expand existing infrastructure; and
enhance internal security.
Foreign Reserves
Gross international reserves increased by 11.4 per cent. from KES480.7 billion (US$5.59 billion) at 31 December
2012 to KES535.3 billion (US$6.20 billion) at 31 December 2013. The increase is primarily attributable to the
purchases of foreign exchange from the domestic interbank market by the Central Bank of Kenya and the
disbursement of IMF loans under the Extended Credit Facility (ECF). Net foreign assets of the Central Bank
increased from KES283.0 billion (US$3.3 billion) at 31 December 2011 to KES390.4 billion (US$4.54 billion) at
31 December 2012, and further to KES430.6 billion (US$4.99 billion) at 31 December 2013 . The reserve
position in the IMF increased from KES1.69 billion (US$0.02 billion) at 31 December 2011 to KES1.71 billion
(US$0.02 billion) at 31 December 2012, and further to KES1.77 billion (US$0.02 billion) at 31 December 2013,
while the Special Drawing Rights (SDRs) declined from KES1.4 billion (US dollar 0.02 billion) at
31 December 2011 to KES596 million (US$0.01 billion) at 31 December 2012. The decline in the SDRs is
primarily due to conversion of the SDRs to the major foreign currencies by the IMF. At 31 December 2013,
SDRs were at KES1.4 billion. The foreign liabilities of the Central Bank consisting of external banks deposits
and use of fund credit increased by 29.5 per cent. to stand at KES88.5 billion (US$1.03 billion) at 31 December
2012, compared to a total of KES68.3 billion (US$0.80 billion) at 31 December 2011. The foreign liabilities of
the Central Bank stood at KES102.7 (US$1.19 Billion) billion at 31 December 2013.
Kenya has been pursuing with its partners in the East African Community a common currency. The benefits
expected from the single currency include price harmonisation among the member countries, elimination of
exchange rate risk among the member countries, economies of international reserves and overall reduction in
transaction costs.
71
The following table sets out the stock of international reserves held by the Central Bank of Kenya and the
National Treasury as at the dates indicated.
Official Foreign Assets and Liabilities
Central Bank of Kenya Central Government
As at end of S.D.R.s
Foreign
Exchange
(cash +
gold)
External
Banks
Deposits
Use of
Fund
Credit
Total Net
Foreign
Assets of
Central Bank
Reserve
Position in
IMF
Other
Holdings
Total Reserves
of Central
Government
Gross Foreign
Reserves of
Central Monetary
Authorities
(KES millions)
2011
January 24,295 289,547 2,819 33,678 277,345 1,643 43 1,686 315,528
February 24,723 303,335 2,896 42,805 282,357 1,677 40 1,717 329,775
March 1,961 329,657 4,095 43,484 284,039 1,704 35 1,739 333,357
April 2,047 340,090 5,051 44,689 292,397 1,751 31 1,782 343,919
May 2,047 337,599 5,106 45,333 289,206 1,76 27 1,803 341,448
June 2,731 363,361 5,440 47,495 313,157 1,861 23 1,884 367,976
July 2,048 368,422 5,961 53,338 311,171 1,895 63 1,948 372,418
August 2,121 383,682 7,600 55,188 323,015 1,950 62 2,013 387,815
September 2,144 389,852 8,263 57,074 326,650 2,017 50 2,067 394:053
October 2,181 382,367 7,694 57,845 319,010 2,044 47 2,092 386,640
November 1,881 348,274 10,911 50,958 288,285 1,801 76 1,877 352,032
December 1,431 349,877 8,829 59,507 282,972 1,690 68 1,757 353,065
2012
January 786 341,956 7,737 59,146 275,859 1,703 64 1,766 344,508
February 762 354,781 8,071 58,210 289,261 1,676 59 1,735 357,277
March 758 376,283 7,073 58,021 311,947 1,670 55 1,725 378,766
April 2,564 416,877 5,808 67,448 346,185 1,675 51 1,726 421,167
May 2,597 396,526 8,899 68,541 321,683 1,702 46 1,748 400,871
June 7,200 424,690 7,581 71,487 352,822 1,659 41 1,700 428,591
July 1,562 418,957 8,379 65,449 346,691 1,649 76 1,725 422,245
August 1,577 440,596 8,691 66,122 367,360 1,666 72 1,738 443,911
September 1,606 453,854 10,779 67,754 376,927 1,707 71 1,778 457,238
October 1,110 454,531 9,572 67,112 378,957 1,703 63 1,766 457,407
November 1,113 478,096 12,964 76,966 389,279 1,713 113 1,826 481,035
December 596 478,288 11,653 76,814 390,417 1,713 113 1,826 480,710
2013
January 128 460,742 11,940 77,742 371,188 1,756 104 1,861 462,731
February 1,292 440,108 12,671 75,204 353,525 1,700 94 1,794 443,194
March 1,268 451,058 10,623 73,808 367,895 1,671 89 1,761 454,087
April 1,915 492,146 9,917 81,451 402,693 1,647 85 1,732 495,793
May 2,972 513,952 11,234 82,064 423,626 1,662 81 1,743 518,667
June 2,694 514,081 11,651 83,605 421,519 1,662 81 1,743 518,518
July 2,694 514,244 12,046 83,582 421,311 1,721 95 1,816 518,760
August 2,094 524,599 9,827 84,000 432,865 1,731 93 1,824 528,574
September 2,087 519,566 9,301 84,110 428,243 1,749 93 1,842 523,547
October 2,097 529,465 9,608 82,375 439,580 1,738 126 1,864 533,469
November 1,583 515,999 7,541 83,113 426,929 1,765 127 1,892 519,510
December 1,369 531,981 10,377 92,333 430,640 1,765 123 1,888 535,302
Source: Central Bank of Kenya
Foreign Exchange
Kenya follows a floating exchange regime. The Central Bank of Kenya allows the exchange rate to move in line
with the fundamentals in the economy and has a policy to only intervene in the foreign exchange market if there
is excess volatility in the trading level of the local currency that hampers proper functioning of the market.
The Kenyan shilling has depreciated against most of the selected major trading currencies as reflected in the
overall trade weighted exchange rate index, which increased by 1.0 per cent. from 109.6 in 2011 to 110.8 in
2012. The depreciation of the Kenyan shilling against the leading world currencies could be attributed to the
large current account deficit occasioned by the high import bill vis--vis export earnings. The depreciation of the
72
Kenyan shilling could also be attributed to the global economic volatility resulting from the Euro zone sovereign
debt crisis and currency speculation activities within the foreign exchange market. The Kenyan shilling
weakened against the sterling pound, euro and US dollar by 6.0, 3.2 and 1.1 per cent., respectively, at
31 December 2012. However, the Kenyan shilling strengthened against the Japanese yen by 10.2 per cent. at
31 December 2012. As at 30 June 2013, the Kenyan shilling remained relatively the same against the Euro and
US dollar, but strengthened against the Japanese yen.
The table below sets out the foreign exchange rates for the Kenyan shilling computed as a simple average of the
mean buying and selling exchange rate prevailing as at the last trading day of the year, which is presented as the
simple average of the mean buying and selling exchange rate prevailing as at the last trading day of the month.
Foreign Exchange Rates of Shilling for Selected Currencies
December
2011
December
2012
December
2013
1 Euro
(1)
110.06 113.56 119.22
1 US dollar 85.07 86.03 86.31
1 Pound Sterling 131.12 139.02 142.40
100 Japanese Yen 111.25 99.90 82.42
Notes: (1) Countries in the Euro area included in the computation of Trade Weighted Fishers Ideal index are:
Germany, France, Switzerland, Netherlands, Belgium and Italy.
Source: Central Bank of Kenya
Trade policy
Exports from Kenya enjoy preferential access to world markets under a number of special access and duty
reduction programmes. Kenya is signatory to a number of multilateral and bilateral trade agreements as part of its
trade policy. Kenya is a member of the WTO which provides Kenyas export products access to more than 90 per
cent. of world markets at most favoured nation treatment. In addition, Kenya is member to several trade
arrangements and beneficiary to trade-enhancing schemes that include the Africa Growth and Opportunity Act
(AGOA), the ACP-EU Trade Agreement and the COMESA.
Regional Agreements
Kenya as a member of the EAC enjoys preferential tariff rates for exports and imports within the region. Member
states of the EAC have signed a protocol to establish a customs union.
Kenya is also a member of COMESA. The COMESA agenda is to deepen and broaden the integration process
among member states through the adoption of more comprehensive trade liberation measures such as the
complete elimination of tariff and non-tariff barriers to trade and elimination of customs duties.
Under the ACP/Cotonou Partnership Agreement, exports from Kenya entering the EU are entitled to duty
reductions and freedom from all quota restrictions. Trade preferences include duty-free entry of all industrial
products as well as a wide range of agricultural products including beef, fish, dairy products, cereals, fresh and
processed fruits and vegetables.
Under the AGOA, Kenya qualifies for duty free access to the U.S.A. market. Kenyas major products that qualify
for export under AGOA include textiles, apparels, handicrafts, etc.
Under the Generalised System of Preferences, a wide range of Kenyas manufactured products are entitled to
preferential duty treatment in the U.S.A., Japan, Canada, New Zealand, Australia, Switzerland, Norway, Sweden,
Finland, Austria and other European countries. In addition, no quantitative restrictions are applicable to Kenyan
exports on any of the 3,000-plus items currently eligible for GSP treatment.
Bilateral Trade Agreements
Kenya has signed bilateral trade agreements with several countries around the world. Some of the countries are
already members of existing schemes offering market access/duty reduction preferences explained above.
73
Kenya has concluded Avoidance of Double Taxation Agreements with the United Arab Emirates, United
Kingdom, Germany, India, Canada, Norway, Sweden, Denmark, Zambia, France and South Africa, and is
currently negotiating a number of others with various countries.
Kenya has concluded Investment Promotion and Protection Agreements with France, Finland, Germany, Italy,
Netherlands, Switzerland, China, Libya, Iran, Burundi and the United Kingdom, among others.
Export Promotion Council
The Export Promotion Council (EPC) through the Centre for Business Information in Kenya continued to
support Kenyan exporters by consolidating, diversifying and expanding Kenyas export products and markets.
The EPC facilitated producers and exporters of goods and services through enhancing market access, value
addition and dissemination of trade information. The EPC exposed the beneficiary firms to the opportunities
availed through enhanced international visibility for their products and ease of transacting business.
Under the trade policy facilitation, the EPC continued to advocate a trade policy environment that aids growth
and development of Kenyas export sector. This was achieved through participation and contribution in several
bilateral and multilateral trade negotiations policy forums to ensure expansion of export markets for the countrys
products. These fora included EAC-EU Economic Partnership Agreements, EAC/COMESA/SADC tripartite
negotiations, the AGOA, the COMESA, and the EAC common market negotiations among others.
The EPC within its strategy of export consolidation and diversification undertook a market research, covering
broad economic and social categories in the Republic of South Sudan and the Democratic Republic of Congo to
aid the economic operators in Kenya to conduct business with their counterparts in these countries. The findings
of the studies identified business opportunities for expanding Kenyas export of goods and services, and also
pointed out the market entry requirements for Kenyan investors and businessmen into South Sudan and the
Democratic Republic of Congo. Under market research, 27 trade statistical analyses were done on Kenyas
foreign trade to establish the direction of bilateral trade with Kenyas trading partners by identifying potential
products for development and promotion; and markets for expansion and diversification. The reports facilitated
policy interventions to promote export growth.
The EPC also organised and facilitated the participation of Kenyas exhibitors in major international trade fairs
and exhibitions in Tanzania, China, Zambia, Uganda, DRC, Zimbabwe, USASpecialty Coffee Association of
America (SCAR) and Mozambique. These events were aimed at consolidation and expansion of market shares as
well as enabling the Kenyan exhibitors to gauge competitiveness of their products, appoint distributors, study
consumer trends and identify joint venture opportunities in these markets.
In the Micro Small and Medium Enterprises (MSMEs) Development, the EPC provided assistance to
strengthen the export supply base and mainstreaming MSMEs in the export process. This was achieved through
the establishment of Export Production Villages (EPVs) and capacity building programmes for SME exporters.
The EPC facilitated the establishment of 19 EPVs and is assisting them to form co-operatives to maximise the
production capacity of individual units through collective selling. In 2012, a total of 736 exporters were trained
under various modules to enhance exporters skills and knowledge to enable them to respond effectively to
opportunities in the export market. The Training Modules included basic, intermediate and advanced courses in
Export Marketing, Etrade, International Commercial Terms (INCOTERMS), ExportLogistics,
Documentation and Payment.
74
MONETARY AND FINANCIAL SYSTEM
Central Bank of Kenya
The Central Bank of Kenya was established in 1966 through an Act of Parliamentthe Central Bank of Kenya
Act of 1966. The establishment of the bank was a direct result of the desire among the three East African states to
have independent monetary and financial policies. This led to the collapse of the East Africa Currency Board
(EACB) in the mid-1960s. Following the promulgation of the Constitution on 27 August 2010, the Central Bank
of Kenya was established as an autonomous institution under Article 231 of the Constitution. Under this Article
the Central Bank of Kenya has the responsibility of formulating monetary policy, promoting price stability,
issuing currency and performing any other functions conferred on it by an Act of Parliament. The Central Bank
of Kenya Act limits the Central Bank of Kenyas lending to the government to 5 per cent. of the governments
audited revenue.
The functions and powers of the Central Bank of Kenya are the following:
to formulate and implement monetary policy directed to achieving and maintaining stability in the
general level of prices;
to foster the liquidity, solvency and proper functioning of a stable market-based financial system;
subject to the above, the bank shall support the economic policy of the government, including its
objectives for growth and employment;
to formulate and implement foreign exchange policy;
to hold and manage its foreign exchange reserves;
to license and supervise authorised dealers;
to formulate and implement such policies as best promote the establishment, regulation and supervision
of efficient and effective payment, clearing and settlement systems;
to act as banker and adviser to, and as fiscal agent of the government; and
to issue currency notes and coins.
Under the Central Bank of Kenya Act (Cap. 491), the responsibility for determining the policy of the bank, other
than the formulation of monetary policy, is given to the Board of Directors. The Board comprises 11 members
consisting of the Chairperson, the Governor; the Permanent Secretary to the National Treasury or his
representative who shall be a non-voting member, and eight other non-executive directors. The chairperson and
directors are appointed by the President with the approval of Parliament and hold office for a period of four years
but shall be eligible for re-appointment for one further term of four years. Persons eligible to be appointed to the
Board must be citizens of Kenya who are knowledgeable or experienced in monetary, financial, banking and
economic matters or other disciplines relevant to the functions of the bank.
The Central Bank of Kenya operates from its Head Office in Nairobi and has branch offices in Mombasa,
Kisumu and Eldoret. The Central Bank of Kenya also runs Currency Centres in Nyeri, Nakuru and Meru. The
Bank also has a major stake in the Kenya School of Monetary Studies which is headed by an executive director
answerable to the Governor of the Central Bank of Kenya.
75
The following table sets out the financial position of the Central Bank of Kenya as at the dates indicated.
Central Bank of Kenya
Statement of Financial Position
At 30 June
2011 2012 2013
Assets (KES millions)
Balances due from banking institutions and gold holdings 368,835 395,283 450,693
Funds held with IMF 2,731 2,200 2,694
Items in the course of collection 409
Advances to banks 49 9,973 351
Loans and advances 30,642 3,560 2,645
Financial assets at fair value through profit or loss 42,678 77,929
Investments in securities 6
Other assets 5,385 2,557 4,119
Retirement benefit asset 1,897 2,193 2,967
Property and equipment 3,117 11,651 12,052
Intangible assets 1,171 1,272 973
Due from government of Kenya 32,380 38,131 35,960
Total assets 446,616 509,498 590,389
Liabilities
Currency in circulation 147,718 159,216 183,047
Investments by banks 35,673 41,589
Deposits 135,792 160,642 191,671
IMF 81,829 101,868 118,568
Other liabilities 9,447 1,332 2,595
Dividends payable 2,641
Accruals 98
Total liabilities 377,525 458,731 537,470
Equity and reserves 69,091 50,767 52,919
Share Capital 5,000 5,000 5,000
General reserve fund 62,722 35,368 39,020
Asset revaluation reserve 1,369 8,899 8,899
Proposed Dividends 1,500
Total liabilities and equity 446,616 509,498 590,389
Source: Central Bank of Kenya
Structure and development of the Kenya Banking System
Commercial banks and mortgage finance institutions
Commercial banks and mortgage finance institutions are licensed and regulated pursuant to the provisions of the
Banking Act and the Regulations and Prudential Guidelines issued thereunder. They are the dominant players in
the Kenyan banking system.
Currently there are 43 licensed commercial banks and one mortgage finance company. Out of the 44 institutions,
31 are locally owned and 13 are foreign owned. The locally owned financial institutions comprise 3 banks with
significant shareholding by the government and state corporations (Consolidated Bank of Kenya (77.8 per cent.
owned by the government), Development Bank of Kenya (wholly-owned owned by the government) and
National Bank of Kenya (70.6 per cent. owned by the government), 27 commercial banks and one mortgage
finance institution. There has been no consolidation in the banking sector in the past five years.
The current minimum capital requirement is KES1 billion (US$11.5 million) with the minimum core capital and
total capital ratios to risk weighted assets at 8 per cent. and 12 per cent., respectively. Effective on 1 January
2013, banks will have until 31 December 2014 to comply with new effective minimum core capital and total
capital ratios of 10.5 per cent. and 14.5 per cent., respectively. To ensure full adherence with the Basel I Accord
(International Convergence of Capital Measurement and Capital Standards; Basel Committee on Banking
Supervision (July 1988)), capital charges for operational and market risk became effective from 1 January 2014.
Banks will now be required to set aside specific capital charges for credit, market and operational risks.
76
The Central Bank of Kenya reviews the legal and regulatory environment, on an on-going basis, to align it to the
Basel Core Principles for Effective Banking Supervision. With regard to the Basel II Accord (International
Convergence of Capital Measurement and Capital Standards: A Revised Framework; Basel Committee on
Banking Supervision (June 2004)) and Basel III Accord (International Framework for Liquidity Risk
Measurement, Standards and Monitoring; Basel Committee on Banking Supervision (December 2010)), the
Central Banks of the EAC have agreed to adopt those aspects of the Accords that are relevant and applicable to
the East African region given the current state of financial infrastructure. In this regard, the Central Bank of
Kenya issued revised prudential and risk management guidelines in January 2013 that incorporated pertinent
aspects of the Basel II Accord on supervisory review (Pillar II) and market disclosures (Pillar III) and the
Basel III Accord on capital buffer and enhanced liquidity requirements. In view of the cross border nature of the
Kenyan banking sector, the Central Bank of Kenya has implemented consolidated supervision and has set up
supervisory colleges for three of the largest Kenyan regional banking groups. To manage the growing country
risks as Kenyan banks expand their footprint in other African countries, guidelines on country risk management
were issued by the Central Bank of Kenya in 2013. Other reforms to enhance financial inclusion include
introduction of agency banking and expanding credit information sharing mechanism to incorporate both positive
and negative information and to extend it beyond banks to incorporate deposit taking microfinance institutions.
The four major risks affecting the Kenyan banking sector in order of severity are credit risk, operational risk,
country risk and transfer risk. Credit risk is the current or prospective risk to earnings and capital arising from an
obligors failure to meet the terms of any contract with the bank or if an obligor otherwise fails to perform as
agreed. Credit risk in the Kenyan banking sector was enhanced in 2013 as a result of high interest rates that
prevailed in 2011 and 2012 and the slowing down of economic activity in 2013 due to the general elections.
Operational risk is the risk of losses resulting from inadequate or failed internal processes, people and systems or
from external events. Operational risk in the Kenyan banking sector has been elevated by the adoption of
information communication technology by banks. To enhance banks ICT risk management, the Central Bank of
Kenya issued ICT Risk Management Guidelines that took effect from January 2013. Country risk is the risk that
economic, social, political conditions and events in a foreign country will adversely affect an institutions
financial condition. Transfer risk is the risk that a borrower may not be able to secure foreign exchange to service
its external obligation. Country and transfer risk is increasing in the Kenyan banking system as Kenyan banks
expand into the East African Community region and beyond. To mitigate this risk, the Central Bank of Kenya
has issued country and transfer risk guidelines that took effect from January 2013.
Microfinance Institutions
The Microfinance Act, 2006 and the Microfinance Regulations issued thereunder sets out the legal, regulatory
and supervisory framework for the microfinance industry in Kenya. The Microfinance Act became operational
with effect from 2 May 2008. As at September 2013, there were nine deposit taking microfinance institutions.
Forex Bureaus
Forex bureaus were established and first licensed in January 1995 to foster competition in the foreign exchange
market and to narrow the exchange rate spread in the market. As authorised dealers, forex bureaus conduct
business and are regulated under the provisions of the sections 33A to 33O of the Central Bank of Kenya Act
(Cap 491) and Guidelines issued thereunder. As at September 2013, there were 106 licensed forex bureaus
located in various towns.
Credit Reference Bureaus
Credit reference bureaus complement the central role played by banks and other financial institutions in
extending financial services within an economy. CRBs help lenders make faster and more accurate credit
decisions. They collect, manage and disseminate customer information to lenders within a regulatory
frameworkthe Banking (Credit Reference Bureau) Regulations, 2008 which were operationalised effective
February 2, 2009. The Banking (Credit Reference Bureau) Regulations 2008, will govern licensing, operation
and supervision of CRBs by the Central Bank of Kenya. As at September 2013, there were two licensed credit
reference bureaus.
77
Capital adequacy ratios
The table below sets out the two main capital adequacy ratios (CARs) for the Kenyan banking sector.
Period
At 31 December
2011 2012 2013
CAR Ratio
(1)(2)
Core Capital (tier 1) to Risk weighted Assets 17.3% 18.9% 19.5%
Total (Regulatory) Capital to Risk weighted Assets 19.4% 21.7% 22.9%
Notes: (1) The above capital adequacy ratios are based on Basel I Capital Accord standards.
(2) The current minimum capital requirement is KES1 billion (US$11.5 million) with the minimum core
capital and total capital ratios to risk weighted assets at 8 per cent. and 12 per cent., respectively.
Banks will have until 31 December 2014 to comply with new effective minimum core capital and
total capital ratios of 10.5 per cent. and 14.5 per cent., respectively.
Non-performing loans
The Central Bank of Kenya classifies credit exposures of commercial banks in five categories according to their
performance at a given point in time. These five categories are:
Normal: loans performing in accordance with the contractual terms and which are up to date on
repayments, and expected to continue in this condition.
Watch: Loans which are generally past due by between 30 and 90 days.
Substandard: These are generally past due for more than 90 days but less than 180.
Doubtful: These are generally past due for more than 180 days but less than 360.
Loss: These are generally past due for more than 360 days.
Loans classified as sub-standard, doubtful and loss are considered as non-performing loans.
The following table sets out the amount of non-performing loans in the banking sector at the dates indicated.
Non-performing Loans in the Banking Sector
(1)
At 31 December
2011 2012 2013
(US$ millions)
Category
Substandard
(2)
124 190 305
Doubtful
(3)
372 345 401
Loss
(4)
114 173 211
Total 610 708 917
Notes: (1) Figures converted at the prevailing exchange rate as at 30 November 2013 of US$1 to KES87.
(2) Substandard loans are loans past due for more than 90 days but less than 180 days.
(3) Doubtful loans are loans past due for more than 180 days but less than 360 days.
(4) Loss loans are loans past due for 360 days or more.
Source: Central Bank of Kenya
The following table sets out the amount of loan loss reserves in the banking sector at the dates indicated.
Loan Loss Reserves
At 31 December
2011
At 31 December
2012
At 30 September
2013
(US$ millions)
Interest in suspense 147 129 125
Specific provisions 323 269 313
General provisions 103 100 88
Gross provisions 573 498 526
Source: Central Bank of Kenya
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The table below sets out the amount of non-performing loans by the type of bank ownership.
Non-performing Loans per Year
(1)
At 31 December,
2011 2012 2013
(US$ millions)
Bank Ownership Category
(2)
Local private Banks (28) 525 630 673
Foreign Banks (13) 68 59 170
Local Public Banks (3) 17 19 74
Total 610 708 917
Notes: (1) Figures converted at the prevailing exchange rate as at 30 November 2013 of US$1 to KES87.
(2) Banks are categorised based on the control of their shareholding. A bank with local shareholding of
more than 50 per cent. is categorised as local, whereas one with foreign shareholding of more than
50 per cent. is categorised as foreign and those with more than 50 per cent. shareholding of GOK or
its entities shareholding are categorised as public banks.
Source: Central Bank of Kenya
Gross loans of the banking sector reached KES1,330,365 million with gross NPLs of KES61,917 million in
2012. In 2013, gross loans reached KES1,578,768 million with gross NPLs of KES81,857 million. Returns on
assets in 2012 were 4.6 per cent., while return on equities were 29.8 per cent. In 2013, returns on assets were
4.7 per cent., while return on equities was 29.1 per cent.
Monetary policy framework
The Central Bank of Kenyas principal object is the formulation and implementation of monetary policy directed
at achieving and maintaining stability in the general level of prices. The aim is to achieve stable prices (i.e., low
inflation) and to sustain the value of the Kenyan shilling. Following amendments to the law, the Minister for
Finance may by notice in writing to the Central Bank of Kenya set the price stability targets of the government.
Monetary policy is the main tool used in the preservation of the value of the currency in an economy. It involves
the control of liquidity circulating an economy to levels consistent with growth and price objectives set by the
government. The volume of liquidity in circulation influences the levels of interest rates, and thus the relative
value of the local currency against other currencies. It is the responsibility of the Monetary Policy Committee to
formulate the monetary policy of the Central Bank of Kenya. Movements in the general price level are influenced
by the amount of money in circulation, and productivity of the various economic sectors, the Central Bank of
Kenya regulates the growth of the total money stock to a level that is consistent with a predetermined economic
growth target as specified by the government and outlined in its Monetary Policy Statement.
The Monetary Policy Committee is the organ of the Central Bank of Kenya responsible for formulating monetary
policy. The membership of the MPC is as follows:
the Governor, who is the chairman;
the Deputy Governor, who is the deputy chairman;
two members appointed by the Governor from the Central Bank of Kenya. One being a person with
executive responsibility within the Central Bank of Kenya for monetary policy analysis (Director of
Research Department) and the other is a person with responsibility within the Bank for monetary policy
operations (External Payments and Reserves Management);
four external members who have knowledge, experience and expertise in matters relating to finance,
banking, fiscal and monetary policy, who are appointed by the Minister for Finance; and
the Principal Secretary, National Treasury, or his designated alternate as representing the National
Treasury. The National Treasury representative is a non-voting member of the committee.
Each external member of the Committee serves for a term of three years, which is renewable once.
79
There are three major tools the Central Bank of Kenya uses to implement monetary policy:
Open market operations: Through open market operations, the Central Bank of Kenya buys or sells
securities in the secondary market in order to achieve a desired level of reserves. Alternatively, the
Central Bank of Kenya injects money into the economy through buying securities in exchange for
money stock. As the law of supply and demand takes effect to determine the cost of credit (interest
rates) in the money market, money stock adjusts itself to the desired level. This process influences
availability of money in the economy.
Discount window operations: The Central Bank of Kenya, as lender of last resort, may provide secured
short-term loans to commercial banks on overnight basis at punitive rates, thus restricting banks to seek
funding in the market resorting to Central Bank of Kenya funds only as a last solution. The discount
rate is set by the Central Bank of Kenya to reflect the monetary policy objectives.
Reserve requirements: The Central Bank of Kenya is empowered by the law to retain a certain
proportion of commercial banks deposits to be held as non-interest bearing reserves at the Central
Bank of Kenya. An increase in reserve requirements restricts commercial banks ability to expand bank
credit and the reverse is regarded as credit easing.
The Central Bank Rate (CBR) was the main instrument used to signal the direction of monetary policy stance
and was reviewed and announced at least every month in 2012. The monetary policy operations framework
focused on reduced volatility in the interbank rate in alignment with the CBR. Pricing for open market operations
and discount window was referenced to the CBR for enhancement of clarity and certainty in the money market.
See Inflation and interest rates.
Under the Protocol on the Establishment of the East African Monetary Union, the exchange rate of a member
state will be fixed against the single currency for the EAC. In addition, the members of the EAC will transfer the
power to set monetary policy to the EAC Central Bank. The powers of the EAC Central Bank include the power
to manage the monetary policy of the EAC member states, as well as to manage liquidity and stability of the
financial system through open market operations, marginal lending facilities, reserve requirements and other
policy instruments which may be available to the EAC Central Bank. The EAC Central Bank will be an
independent body. The EAC Central Bank will set monetary policy with a view to the EAC community as a
whole. Therefore, where economic events are limited to Kenya or do not affect the EAC community as a whole,
any action taken by the EAC Central Bank might not be as immediate or as swift as such action would have been
had the Central Bank of Kenya possessed the sole power to set monetary policy to alleviate the effects of a
financial crisis in Kenya.
Inflation and interest rates
During the first half of 2012, the Central Bank of Kenya maintained the CBR at the December 2011 level of
18.0 per cent. The monetary policy yielded reduced inflation rates and stable exchange rates. While the inflation
target for the second half of fiscal year 2011/12 was 9.0 per cent., the overall inflation rate declined from 18.9 per
cent. in December 2011 to 7.7 per cent. in July 2012 and further to 3.2 per cent. in December 2012. Following
the decline in inflation rate, the Central Bank of Kenya eased the monetary policy by lowering the CBR to
16.5 per cent., 13.0 per cent. and 11.0 per cent. in the months of July, September and November 2012,
respectively. This downward adjustment of the CBR was aimed at providing a signal to commercial banks to
lower the interest rates and therefore promote uptake of private sector credit to support economic activities.
Reflecting these measures, interest rates declined with the average inter-bank rate declining from 21.75 per cent.
in December 2011 to 17.18 per cent. in June 2012 and 5.89 per cent. in December 2012. The average 91-day
treasury bills rate declined from 18.30 per cent. in December 2011 to 10.09 per cent. in June 2012 before settling
at 8.25 per cent. in December 2012. The weighted average commercial bank lending and overdraft rates were at
approximately 20.3 per cent. in January through to August 2012 but eased thereafter to stand at 17.79 per cent. in
December 2012. The average deposit rate decreased from 6.99 per cent. in December 2011 to 6.80 per cent. in
December 2012. Consequently, the interest rate spread narrowed to 11.35 per cent. in December 2012 compared
to 13.05 per cent. in December 2011.
As at 30 June 2013, the CBR stood at 8.50 per cent., while the average 91-day treasury bills rate reached
6.21 per cent. The average deposit rate was at 6.65 per cent. as at 30 June 2013.
80
The following table sets out the nominal principal interest rates as at the end of the months indicated.
Principal Interest Rates
2011 2012 2013
December June December June December
Central Bank of Kenya
91 day Treasury Bills Rate 18.30 10.09 8.25 6.21 9.52
Central Bank Rate 18.00 18.00 11.00 8.50 8.50
Repo rate 17.59 17.75 6.85 7.93 7.95
Inter-bank rate 21.75 17.18 5.89 7.14 8.98
Commercial Banks
1
Average deposits 6.99 7.88 6.80 6.65 6.65
Savings deposits 1.59 1.46 1.60 1.73 1.58
Loan and Advances 20.04 20.30 18.15 16.97 16.99
Overdraft 20.20 20.36 17.79 16.92 16.51
Notes: (1) Weighted average commercial bank interest rates
Source: Central Bank of Kenya
The following table sets selected real interest rates for the periods indicated.
Trends in Selected Real Interest Rates
Year
(1)
Nominal
Interest
Inflation
Rate
Real
Interest
(2)
(in per cent.)
Average Interest Rate for 91-day
Treasury Bills 2011 18.3 18.9 (0.6)
2012 8.3 3.2 5.1
2013 9.5 7.2 2.4
Commercial bank savings deposits
(average) 2011 1.6 18.9 (17.3)
2012 1.6 3.2 (1.6)
2013 1.6 7.2 (5.6)
Commercial bank loans and advances
(maximum) 2011 20.0 18.9 1.1
2012 18.2 3.2 15.0
2013 17.0 7.2 9.8
Inter-Bank Rate 2011 22.1 18.9 3.2
2012 5.8 3.2 2.6
2013 9.0 7.2 1.8
Notes: (1) At 31 December for 2011 and 2012 data. At 31 October for 2013 data.
(2) Real interest rate equals nominal rate minus inflation rate.
Source: Central Bank of Kenya
At the beginning of fiscal year 2010/11, the governments overall inflation target was 5 per cent. 2 per cent.
During the period from July to December 2010, overall inflation remained within the governments target.
Following the escalation of food and fuel prices between March and June 2011, overall inflation, however, rose
above the target band. Depressed rains in the first quarter of 2011 and political crises in the Middle East and
North Africa during the period resulted in significant rises in food and crude oil prices, respectively.
Overall inflation rose from 14.5 per cent. in June 2011 to 19.7 per cent. in November 2011, but decreased to
18.9 per cent. in December 2011. The high inflation was attributed to persistently high food and fuel prices and
exchange rate volatility during most of the period from June to November 2011. Demand driven inflationary
pressures were also evident during such period as non-food and non-fuel inflation increased above target in the
period. The government revised the overall inflation target for the period from January 2012 to June 2012 to
9 per cent. During the period from January to June 2012, overall inflation declined gradually towards the
governments revised target, to stand at 10.1 per cent. in June 2012.
81
Overall inflation declined to 3.2 per cent. in December 2012, reflecting an easing in food prices, stabilisation of
world oil prices as well as easing demand pressure in the economy. Similarly, non-food-non-fuel inflation
declined from 9.3 per cent. to 4.8 per cent. during the period. In December 2012, the government set the overall
inflation target at 5 per cent. 2.5 per cent. Overall inflation increased to 4.9 per cent. in June 2013 as a
consequence of an increase in food prices coupled with the impact of the base effect attributed to the decline in
the Consumer Price Index in mid-2012. Non-food-non-fuel inflation declined from 4.8 per cent. to 3.9 per cent.
during the same period.
Average annual inflation decreased from 9.4 per cent. in 2012 to 5.4 per cent. in 2013. The deceleration in
overall inflation reflected slowing food and fuel inflation.
The following table sets the consumer price index for the periods indicated.
Consumer Price Indices
1
2011 2012 2013
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110.57 130.82 135.62
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.06 130.76 136.59
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.62 132.51 137.96
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118.29 133.74 139.28
May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119.48 134.09 139.52
June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120.91 133.06 139.59
July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122.44 131.92 139.87
August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.97 131.51 140.29
September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125.23 131.89 142.82
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127.20 132.46 142.75
November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.13 133.33 143.14
December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130.09 134.25 143.85
Annual Average CPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121.17 132.53 140.10
Average Inflation (per cent.) . . . . . . . . . . . . . . . . . . . . . . . . . . 14.0 9.4 5.4
Notes: (1) Base: February 2009 = 100.
Source: Kenya National Bureau of Statistics
82
Liquidity and Credit Aggregates
The following table sets out the deposit liabilities and liquid assets of commercial banks as at the end of each
month indicated.
Commercial Banks-Deposit Liabilities and Liquid Assets
1
Deposit
Liabilities Liquid Assets
2
Overall Liquidity
Ratio
3
(KES millions) (in per cent.)
2011 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,451,189 548,300 37.8
2012 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,457,364 564,765 38.8
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,468,374 552,948 37.7
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,488,194 566,408 38.1
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,491,916 569,176 38.2
May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,530,022 599,907 39.2
June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,554,528 607,662 39.1
July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,546,678 592,778 38.3
August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,595,668 648,495 40.6
September . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,633,502 681,391 41.7
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,656,984 693,253 41.8
November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,128 733,512 43.1
December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,675,878 707,019 42.2
2013 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,725,558 722,631 41.9
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,722,785 719,414 41.8
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,754,879 751,174 42.8
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,766,331 751,685 42.6
May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,804,138 771,198 42.7
June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,805,510 770,895 42.7
July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,832,581 759,702 41.5
August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,831,253 748,808 40.9
September . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,855,401 750,282 40.4
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,840,923 732,785 39.8
November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,863,166 727,300 39.0
Notes: (1) Deposits and liquid assets are calculated as an average of three days balances.
(2) Includes notes and coins, balances at Central Bank of Kenya, net inter-bank balances in Kenya and
overseas (included only if positive) and treasury bills.
(3) The ratios given in this column are not consistent with figures in the other two columns because of
the inclusion of certain other min or items in the denominator.
Source: Central Bank of Kenya.
Net foreign assets of the banking system declined by 2.0 per cent. to stand at KES363.1 billion at 30 November
2013, compared with KES370.5 billion at 30 November 2012. The decrease in net foreign assets of the banking
system was reflected in decreased Net foreign assets of banks following increased loans from non-residents and
other accounts payable. Over the same 12-month period, holdings by the Central Bank of Kenya grew by
15.6 per cent. from KES364.3 billion at 30 November 2012 to KES421.2 billion at 30 November 2013, reflecting
an accumulation of foreign exchange reserves. During the same period, total domestic credit expanded by
14.6 per cent. compared to a 11.2 per cent. growth over a similar period in 2012.
The primary contributors to foreign exchange are as follows: (a) exports (tea, coffee, horticulture produce,
manufactured goods, etc.), (b) tourism, (c) international organisation/aid agencies; (d) foreign investments
(foreign direct investment, portfolio investments, etc.); (e) loans and grants and (f) remittances. Remittances
from workers abroad has demonstrated a growing trend in the past few years, with remittances of US$1.3 billion,
US$1.2 billion and US$0.89 billion in the 12-month year ended in 2013, 2012 and 2011, respectively.
Domestic credit to the private sector including other public sector (comprised of, among others, semiautonomous
and autonomous government agencies (parastatals), municipalities, and local governments) expanded at a rate of
18.4 per cent. in the 12-month period ended 30 November 2013, compared to an expansion of 10.6 per cent.
recorded in the previous 12-month period ended 30 November 2012. This contributed to acceleration in credit to
the private sector, which grew by 20.0 per cent. in the 12-month period ended November 2013, compared with a
83
growth of 9.1 per cent. in the 12-month period ended 30 November 2012. The slowdown in net foreign assets and
other domestic assets of the banking system led to a deceleration in monetary expansion with broad money
supply increasing by 10.3 per cent. in the 12-month period ended November 2013, compared to an increase of
16.8 per cent. recorded in the 12-month period ended 30 November 2012. This expansion was marginally below
the targeted growth of 12.0 per cent. and was in line with the monetary policy objective to reign in inflation and
inflationary expectations and to maintain stability in the exchange rate.
The following table sets out monetary indicators as at the dates indicated.
Monetary Indicators
As at 31 December
Net Foreign
Assets (KES
Million)
DOMESTIC CREDIT
(KES Million)
Money
2
Supply
(M3) (KES
Million)
Commercial
Bank liquidity
Ratio
(per cent.)
Advances/
Deposits
Ratio (per
cent.) Private
1
Government Total
2011 295,203 1,162,739 311,581 1,505,129 1,514,152 37.8 79
2012 325,992 1,283,873 368,823 1,702,510 1,727,324 42.2 79
2013 389,179 1,595,205 411,957 2,007,163 1,957,492 40.3 82
Source: Central Bank of Kenya
The following table sets out monetary aggregates as at the dates indicated.
Monetary Aggregates
Quasi-Money Broad Money Supply
Overall
Liquidity
As at 31 December Money
1
(M1) Banks Others
2
M2 M3 L
(KES millions)
2011 622,731 613,279 18,089 1,253,958 1,514,152 1,876,142
2012 710,744 737,083 22,272 1,469,037 1,727,324 2,129,475
2013 788,319 844,526 1,632,845 1,957,492 2,484,480
Notes: (1) Currency outside banks plus all demand deposits except those of central government, local
government, commercial banks, non-residents and foreign currency denominated deposits.
(2) Following the conversions and mergers there are no operational non-bank financial institutions.
Source: Central Bank of Kenya
Narrow money supply (M1) grew by 14.9 per cent. from KES691.4 billion at 30 November 2012 to
KES794.3 billion at 30 November 2013, while broad money supply (M2) increased by 10.9 per cent. to
KES1.6 trillion. The overall liquidity expanded by 14.4 per cent. in the 12-month period ended 30 November
2013 compared to 16.3 per cent. expansion recorded in the 12-month period ended 30 November 2012.
Securities Markets
Kenya has one stock exchange, the Nairobi Securities Exchange, which was established in 1954. The Capital
Markets Authority of Kenya is the government regulator charged with licensing and regulating the capital
markets in Kenya. It also approves public offers and listings of securities traded at the Nairobi Securities
Exchange. The Capital Markets Authority was set up in 1989 through an Act Parliament (Cap 485A, Laws of
Kenya). As of 31 October 2013, each of the government of Kenya and the CMA Investor Compensation Fund
hold a 5.1 per cent. interest in the Nairobi Securities Exchange, with 22 other shareholders each holding a
4.08 per cent. interest in the shares of the exchange. Two per cent. remains unissued and has been earmarked for
the employee share ownership scheme
The total number of shares traded in 2012 decreased by 3.5 per cent. from 5.7 billion in December 2011
(KES79 billion) US$929 million to stand at 5.5 billion in December 2012 (KES86 billion) US$1,000 million.
Market capitalisation increased by 46.5 per cent. to stand at KES1,272.0 billion (US$14,79 billion) in December
2012, up from KES868.0 billion (US$10.20 billion) in December 2011. The total number of deals on the stock
exchange in 2012 decreased by 3.8 per cent. to 342,235 from a high of 355,738 in 2011. Total bond turnover
increased by 26.7 per cent. to KES565 billion (US$6.6 billion) in 2012, up from KES446 billion (US$5.2 billion)
in 2011. Total net foreign portfolio inflow improved in 2012, with total inflow rising to KES9.4 billion
84
(US$61 million) in the fourth quarter, up from KES5.2 billion (US$109 million) registered in the preceding
quarter, an 82 per cent. improvement. The number of investment banks decreased from 11 in 2011 to ten in 2012,
while stockbrokers, fund managers and custodians increased by seven, two and one, respectively, to stand at 12,
21 and 15, respectively.
The following table sets out information on various capital markets indicators for the periods indicated.
For the Year Ended 31 December,
2010 2011 2012
Equities:
Total No. of Shares (millions) 7,546 5,721 5,464
Total No. of Deals 127,379 355,738 342,235
Total Value of Shares (US$ billions) 0.31 0.93 1.0
NSE 20 Share Index (Base Jan1966=100) 4,433 3,205 4,133
Market Capitalisation (US$ billions) 13.72 10.20 14.79
Fixed Income Securities Market:
Total Bond Turnover (US$ billions) 5.9 5.2 6.6
85
PUBLIC FINANCE
Budget Process
The Constitution provides that all revenue raised by the national government must be shared equitably among the
national and county governments. For every financial year, the equitable share of the revenue raised nationally
that is allocated to the county governments shall not be less than fifteen per cent. (15%) of all the revenue
collected by the national government . This amount is calculated on the basis of the most recent audited accounts
of revenue received, as approved by the National Assembly . County governments may however be given
additional allocations from the national governments share of the revenue either conditionally or
unconditionally.
At least two months before the end of each financial year, a Division of Revenue Bill is introduced in Parliament
to divide revenue raised nationally between the national government and the county governments. Similarly, a
County Allocation of Revenue Bill is introduced in Parliament that divides among the counties the revenue
allocated to the county governments. Both these bills must be passed by the National Assembly and the Senate.
However, the National Assembly has power under the Constitution to amend or veto the County Allocation of
Revenue Bill that has been passed by the Senate by a resolution supported by two thirds of the members of the
National Assembly.
The Division of Revenue Bill and the County Allocation of Revenue Bill are submitted to parliament by
28 February in each financial year.
The revenue allocated to the national government must be dealt with through a process involving the introduction
of budget estimates (proposals as to how the money should be spent) and then the annual Appropriation Bill
(which authorises the executive to spend).
Three separate sets of budget estimates are submitted to the National Assembly. They are:
the expenditure of the national government prepared by the National Treasury and submitted by the
Cabinet Secretary for Finance;
the expenditure by the parliamentary service submitted by the Parliamentary Service Commission; and
the expenditure by the judiciary submitted by the Chief Registrar of the judiciary.
The budget estimates prepared by the National Treasury incorporates estimates of the projects and programs
provided for in the MTP.
The Constitution does not require estimates for the parliamentary service or the judiciary to be considered by the
National Treasury before they are submitted to Parliament.
Before the National Assembly considers the estimates of revenue and expenditure, a committee of the National
Assembly discusses and reviews the estimates and makes recommendations to the National Assembly.
In discussing and reviewing the estimates, the committee must seek representations from the public and the
recommendations shall be taken into account when the committee makes its recommendations to the National
Assembly.
When the estimates of the national government expenditure and the estimates of expenditure for the Judiciary
and the Parliament have been approved by the National Assembly, they are included in an Appropriation Bill
which is introduced into the National Assembly to authorise withdrawal from the Consolidated Fund of the
money needed for the expenditure and appropriation of that money for purposes mentioned in the Appropriation
Bill.
The budget estimates and Appropriation Bill are submitted to the National Assembly by 30 April in each
financial year.
On the basis of the Division of Revenue Bill passed by Parliament, each county government prepares and adopts
its own budget and appropriation bill based on the revenue they raise themselves as well as their share of the
revenue raised nationally that is divided among the counties in a special County Allocation of Revenue Act.
86
In line with the Constitution, Section 15 of the Public Financial Management Act, 2012, sets out fiscal
responsibility principles to ensure prudency and transparency in the management of public resources. The law
provides that:
over the medium term, a minimum of thirty per cent. (30%) of the national budget shall be allocated to
development expenditure;
the national governments expenditure on wages and benefits for its public officers must not exceed a
percentage (as prescribed by regulation) of total national government revenue;
over the medium term, the national governments borrowings should be used only for the purpose of
financing development expenditure and not for recurrent expenditure;
the public debt should be maintained at a sustainable level;
fiscal risks should be managed prudently; and
a reasonable degree of predictability with respect to the level of tax rates and tax bases should be
maintained, taking into account any tax reforms that may be made in the future.
In order to control the flow of cash between treasury and spending units and reduce the procedural bottlenecks
encountered in the actual execution of budgets, the Public Finance Management Act (2012) provides for the
establishment of single treasury accounts for each of the national government and county governments through
which payments of money should be made.
While county governments have a greater involvement in the budget process now than they had prior to the
adoption of the Constitution as a result of devolution, the Constitution also provides the basis for a coherent
public financial management legal framework. Under the Constitution, the Controller of Budget shall oversee the
implementation of the budgets of the national and county governments by authorising withdrawals from public
funds. In addition, the Public Finance Management Act (2012) also provides that the County Fiscal Strategy
Paper must align with the national objectives in the Budget Policy Statement. The County Fiscal Strategy Paper
contains the broad strategic priorities and policy goals that will guide the county government in preparing its
budget for the coming financial year and over the medium term.
In addition, intergovernmental fora, which facilitate closer cooperation between the national and county
governments such as the Intergovernmental Budget and Economic Council, the Intergovernmental Relations
Summit and the Council of County Governors have been established. The Intergovernmental Budget and
Economic Council is a forum for consultation on economic and financial matters. Moreover, the national
government, in accordance with the requirements of the Constitution, has been supporting county governments
by building their capacity in the management of public finances. The government is also working closely with
the Salaries and Remuneration Commission, which is mandated to set salaries in the public sector, to devise a
policy that will govern wage issues.
Revenues and Expenditures
In 2011/12, the fiscal deficit increased to 5.2 per cent. of GDP from 4.3 per cent. of GDP in 2010/11. The
increase in the fiscal deficit as a percentage of GDP was primarily driven by increased government expenditures.
In 2012/13, the governments fiscal deficit stood at 6.3 per cent. of GDP. The deficit increased from the
5.2 per cent. of GDP recorded in 2011/12 primarily due to lower growth in Government revenues compared to
growth in expenditures. The actual deficit in 2012/2013 was KES67.4 billion, or 29.0 per cent., less than the
target deficit included in the budget for this fiscal year. This was mainly the result of a reduction of KES186.2
billion, or 16.7 per cent., in actual government expenditures, partially offset by reduced actual revenues and
grants of KES121.3 billion, or 14.0 per cent., when compared to the target government expenditures and
revenues, respectively, included in the budget for this year.
87
The following tables sets forth the fiscal accounts of the government for the periods indicated.
2010/2011 2011/2012 2012/2013 2013/14
Actual Target Actual Target Actual Target Actual Target
(KES millions)
A. TOTAL REVENUE AND
GRANTS 686,309 730,149 763,453 846,744 868,167 989,465 466,852 524,560
1.Revenue
Ordinary revenue 667,540 686,422 748,167 804,500 847,217 915,282 445,129 455,555
Import duty 46,072 48,392 51,712 56,595 57,650 61,484 47,493 50,456
Excise duty 80,567 86,774 78,884 81,763 85,502 91,810 48,050 54,304
Income tax 258,651 247,330 312,463 311,465 373,422 370,600 210,699 216,566
VAT 171,881 172,561 183,386 193,825 184,581 216,000 110,723 106,845
Investment Revenue 11,086 13,900 14,132 13,582 15,264 19,120 4,515 5,262
Others 40,967 36,931 50,156 67,664 63,017 64,640 23,648 22,122
Appropriation-in-Aid 58,316 80,534 57,434 79,606 67,781 91,628 14,289 33,684
2.Grants 18,769 43,727 15,286 42,244 20,950 74,183 7,434 35,321
Programme Grants 1,132 5,826 18,913 2,591 1,604
Cash 7,468 13,634 7,765 12,733 5,188 13,886 2,357 5,767
Appropriation-in-Aid 11,301 30,093 7,521 28,379 9,936 41,384 2,486 27,950
B. TOTAL EXPENDITURE AND
NET LENDING 811,849 918,053 947,777 1,082,930 1,117,018 1,303,233 549,790 685,023
1. Recurrent Expenditure 592,427 611,646 647,120 697,527 818,103 882,373 343,485 358,629
Domestic Interest 69,209 67,193 82,339 77,692 110,184 108,132 60,097 57,965
Foreign Interest due 6,989 6,989 8,880 8,880 11,051 11,620 5,020 5,020
Pensions etc 25,724 28,797 26,052 32,562 26,996 31,625 13,978 20,167
Wages & Salaries 198,549 202,340 224,568 229,374 274,407 292,239 131,605 136,729,
O & M/Others 291,956 306,327 305,281 349,021 385,682 428,974 132,785 138,748
Transitional Transfer to
County Governments 0 0 0 0 9,783 9,783 66,542 97,119
Judicial Service
Commission 6,714 6,053
2. Development and Net
Lending 219,422 306,407 300,657 385,403 298,915 420,360 119,316 215,656
3. CCF 0 0 0 0 500 0 2,500
C. DEFICIT EXCL. GRANT
(Commitment basis) (144,309) (231,631) (199,610) (278,430) (269,801) (387,951) (87,372) (195,784)
D. DEFICIT INCLUDING GRANTS
(Commitment basis) (125,540) (187,904) (184,324) (236,186) (248,851) (313,768) (79,938) (160,463)
E. ADJUSTMENT TO CASH BASIS 6,768 (595) 12,582 1,954 16,814 13,861 (1,595) 0
F. DEFICIT INCLUDING GRANTS
(cash basis) (118,772) (188,499) (171,742) (234,232) (232,458) (299,907) (78,343) (160,463)
G. FINANCING 118,772 188,499 171,742 234,232 232,458 299,907 78,343 160,463
1.Net Foreign Financing 28,390 62,905 98,524 172,279 62,681 134,907 10,952 77,331
Disbursements 0 82,882 70,735 144,970 79,559 161,354 23,846 93,798
World bank Counterpart
Refinancing 0 3,000
Project Cash Loans 0 27,010 19,342 39,485 23,569 43,405 12,519 23,565
Loans AIA 55,872 51,393 102,485 55,990 111,318 11,327 70,233
Repayments due
(current) 0 (20,461) (25,375) (25,375) (23,994) (26,931) (16,008) (16,467)
Rescheduling/Debt
Swap 0 484 484 484 484 484
of which principal
of which interest
Change in arrears
(current) 1,422 3,114 0
Repayments (arrears)
Commercial Financing 51,258 52,200 6,632 6,632
2. Domestic financing 90,382 125,594 73,218 61,953 169,777 165,000 67,368 82,528
MEMO ITEM
Nominal GDP ESTIMATE 2,787,300 2,787,301 3,306,310 3,306,310 3,662,558 3,662,559 4,164,600 4,164,600
Source: National Treasury
88
Ordinary revenue increased from KES667.5 billion in 20120/11 to KES748.2 billion in 2011/12. The increase in
ordinary revenues was primarily due to increased revenues from income tax and value added tax (VAT).
Ordinary revenue increased to KES847.2 billion in 2012/13 primarily due to increased income tax revenues.
Tax revenues decreased from 19.9 per cent. of GDP in 2010/11 to 19.3 per cent. of GDP in 2011/12, primarily
due to higher growth in GDP as compared to growth in tax revenues. In absolute terms, tax revenues in 2011/12
recorded an increase of 12.4 per cent., compared to an increase of 19.4 per cent. in 2010/11. During 2011/12, the
increase in tax revenues in absolute terms was primarily due to increasing income tax by KES60.9 billion,
income taxes increased by 20.8 per cent. in 2011/12. Revenues from VAT increased by 6.7 per cent. in 2011/12
compared to 2010/11. The growth in VAT was due to growth in GDP. Non-tax revenues increased 10.3 per cent.
in 2011/12 as compared with 2012/11, primarily due to higher increase in investment revenues.
Tax revenues in 2012/13 recorded an increase of 11.9 per cent., compared with an increase of 12.4 per cent., in
2011/12. During 2012/13, most categories of tax receipts increased. Income taxes increased 19.5 per cent. in
2012/13. There was marginal growth in VAT in 2012/13 due to increase in VAT as the VAT Act was being
reviewed. Overall non-tax revenues grew by 20.2 per cent. in 2012/13 as compared to 10.3 per cent. increase in
2011/12.
Actual revenue in 2012/2013 was KES121.3 billion, or 14.0 per cent., less than the target revenue included in the
budget for this fiscal year. This was mainly the result of a reduction of KES68.1 billion, or 8.0 per cent., in actual
ordinary revenue, which in part was due mainly to less than budgeted VAT and Appropriation-in-Aid revenues,
and a reduction of KES53.2 billion, or 254 per cent., in actual revenue from grants, when compared to their
respective targets included in the budget for this year.
The following table sets forth information regarding the composition of fiscal revenues as a percentage of total
revenues and grants, for the periods indicated.
2010/2011 2011/2012 2012/2013
Actual Target Actual Target Actual Target
1.Revenue
Ordinary revenue 97.3% 94.0% 98.0% 95.0% 97.6% 92.5%
Import duty 6.7% 6.6% 6.8% 6.7% 6.6% 6.2%
Excise duty 11.7% 11.9% 10.3% 9.7% 9.8% 9.3%
Income tax 37.7% 33.9% 40.9% 36.8% 43.0% 37.5%
VAT 25.0% 23.6% 24.0% 22.9% 21.3% 21.8%
Investment Revenue 1.6% 1.9% 1.9% 1.6% 1.8% 1.9%
Others 6.0% 5.1% 6.6% 8.0% 7.3% 6.5%
Appropriation-in-Aid 8.5% 11.0% 7.5% 9.4% 7.8% 9.3%
2.Grants 2.7% 6.0% 2.0% 5.0% 2.4% 7.5%
Programme Grants 0.0% 0.0% 0.0% 0.1% 0.7% 1.9%
Cash 1.1% 1.9% 1.0% 1.5% 0.6% 1.4%
Appropriation-in-Aid 1.6% 4.1% 1.0% 3.4% 1.1% 4.2%
Source: National Treasury
The impact of informal sector on tax revenues is minimal. The overall aim of Kenyas tax policy is to move more
to expenditure-based taxes that cover all sectors including the informal sector. The only tax that the informal
sector may not pay is income tax that is about 10 per cent. of GDP. The potential for this tax with respect to the
informal sector is very low given the turnover of an average informal sector business unit. In addition, the
administration and enforcement costs are very high and do not justify enhanced focus on the informal sector.
The Kenya Revenue Authority has been intensifying efforts to educate taxpayers in the informal sector and
accustom them to paying income taxes, especially small and medium enterprises. Kenya Revenue Authority has
now prioritised the real estate sector as a potential source of revenues. Kenya is also working with development
partners to develop a fiscal framework for management of natural resources wealth as another potential source of
revenues. These efforts, together with increased use of technology, is expected to help improve administration
and compliance and tax revenue performance.
The recent review of the VAT Act has simplified administration and compliance and is expected to result in
increased revenue. The focus now of the government is on other taxes including excise and income taxes. Kenya
Revenue Authority is also implementing and new customs management system and integration of these with the
KESWS is expected to bring more transparency, accountability and higher revenues.
89
Out of the total expenditure for 2011/12, recurrent expenditure was KES647.1 billion, or 68.3 per cent. of total
expenditure, compared to KES592.4 billion, or 73.0 per cent. of total expenditure in 2010/11. Development
expenditure increased to KES300.7 billion, or 31.7 per cent. of total expenditure in 2011/12, compared to
KES219.4 billion, or 27.0 per cent. of total expenditure in 2010/11.
The three largest components of expenditures in 2011/12 are expenditures for the Teachers Service Commission
at 11.6 per cent. of total expenditures, expenditures for the Ministry of Roads at 8.9 per cent. of total
expenditures and expenditures for the Ministry of Defence at 6.7 per cent. of total expenditures. Expenditures for
the Teachers Service Commission is composed primarily of payments for salaries. Expenditures for the Ministry
of Roads entail payments for construction of roads and personal emoluments. Expenditures for the Ministry of
Defence entail payments for salaries, operations and maintenance.
Total expenditure for 2012/2013 amounted to KES1,117.0 billion, against a target of KES1,303.2 billion. The
shortfall of KES186.2 billion was attributable to lower absorption recorded in both recurrent and development
expenditures by the line ministries. Recurrent expenditure for 2012/2013 amounted to KES818.1 billion, or
73.2 per cent. of total expenditure, against a target of KES882.4 billion, with underperformance recorded in
pensions, wages and salaries, and operations and maintenance, which accounted for 3.3 per cent., 33.5 per cent.
and 47.1 per cent. of total recurrent expenditure. Development expenditure also lagged behind only recording
KES298.9 billion or 71.1 per cent. of the budgeted amount of KES420.3 billion. This is mainly attributed to
delays in the procurement process.
Actual foreign interest payments for 2012/2013 amounted to KES11.1 billion, compared to KES8.9 billion for
2011/12. The domestic interest payment totalled KES110.2 billion for 2012/2013, which was higher than the
KES82.3 billion paid for 2011/2012, mainly due to higher domestic borrowing.
Total cumulative ministerial and other public agencies expenditure was KES917.1 billion for 2012/2013 against a
target of KES1,139.6 billion. Recurrent expenditure was KES660.1 billion for 2012/2013 against a target of
KES721.7 billion, while development expenditure was KES257.0 billion for 2012/2013 against a target of
KES417.9 billion. The percentage of total expenditures to target was 80.5 per cent. as at the end of 2012/2013.
As at the end of June 2013, expenditures by the ministries of Education; Higher Education, Science and
Technology; Medical Services and Public Health and Sanitation accounted for 41.4 per cent. of total recurrent
expenditure. 53.4 per cent. of actual development expenditure was taken up by the ministries of Agriculture,
Roads, Water and Irrigation, and Public Health and Sanitation, this is in line with the governments priority of
spending on infrastructure projects and social programmes.
Analysis of the development outlay indicates that by the end of June 2013, the Ministry of Roads accounted for
the largest actual share of the total development expenditures at 21.6 per cent., followed by Ministries of Energy,
Water and Irrigation, Planning and National Development & Vision 2030, and Agriculture which accounted for,
13.9 per cent., 8.1 per cent. and 7.4 per cent., respectively. In total, these ministries accounted for 55 per cent. of
actual expenditures.
The following table sets forth information regarding the composition of fiscal expenditures as a percentage of
total expenditures and net lending, for the periods indicated.
2010/2011 2011/2012 2012/2013
Actual Target Actual Target Actual Target
1. Recurrent Expenditure 73.0% 66.6% 68.3% 64.4% 73.2% 67.7%
Domestic Interest 8.5% 7.3% 8.7% 7.2% 9.9% 8.3%
Foreign Interest due 0.9% 0.8% 0.9% 0.8% 1.0% 0.9%
Pensions etc 3.2% 3.1% 2.7% 3.0% 2.4% 2.4%
Wages & Salaries 24.5% 22.0% 23.7% 21.2% 24.6% 22.4%
Operations and Maintenance/Others
1
36.0% 33.4% 32.2% 32.2% 34.5% 32.9%
Transitional Transfer to County Governments 0.0% 0.0% 0.0% 0.0% 0.9% 0.8%
2. Development and Net Lending 27.0% 33.4% 31.7% 35.6% 26.8% 32.3%
3. CCF 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Notes: (1) Other expenditures consist of personal emoluments, utilities for use of goods and services, current
and capital transfers which includes subscriptions.
Source: National Treasury
90
The following table sets forth information regarding the composition of ministerial expenditures as a percentage
of total expenditures, for the periods indicated.
2010/2011 2011/2012 2012/2013
Recur. Devel. Total % of Total Recur. Devel. Total % of Total Recur. Devel. Total % of Total
(KES millions) (KES millions) (KES millions)
Ministry of State for
Provincial
Administration &
Internal Security 44,905 1,887 46,792 5.76% 52,661 2,467 55,128 5.7% 64,322 3,839 68,161 6.0%
Ministry of Foreign
Affairs 7,758 131 7,889 0.97% 8,353 308 8,661 0.9% 9,648 232 9,880 0.9%
Office of the Vice-
President and
Ministry of Home
Affairs 12,137 1,553 13,690 1.69% 11,581 782 12,363 1.3% 11,960 1,070 13,030 1.1%
Ministry of State for
Planning, National
Development &
V2030 2,141 15,692 17,833 2.20% 2,600 24,576 27,176 2.8% 2,520 18,923 21,443 1.9%
Office of the Deputy
Prime Minister and
Ministry of Finance 22,776 9,661 32,437 4.00% 17,379 20,886 38,265 4.0% 21,507 13,908 35,415 3.1%
Ministry of State for
Defence 50,283 50,283 6.19% 64,537 64,537 6.7% 77,485 77,485 6.8%
Ministry of Agriculture 7,750 7,279 15,029 1.85% 7,988 8,445 16,433 1.7% 8,232 10,602 18,834 1.7%
Ministry of Medical
Services 22,984 1,534 24,518 3.02% 27,938 1,788 29,726 3.1% 43,366 4,587 47,953 4.2%
Office of the Deputy
Prime Minister and
Ministry of Local
Government 13,423 4,161 17,584 2.17% 18,209 3,184 21,393 2.2% 19,455 5,000 24,455 2.1%
Ministry of Roads 24,365 47,650 72,015 8.87% 26,015 59,677 85,692 8.9% 30,292 55,576 85,868 7.5%
Ministry of Water and
Irrigation 3,552 19,238 22,790 2.81% 3,806 23,528 27,334 2.8% 3,963 20,725 24,688 2.2%
Judicial Department 2,924 554 3,478 0.43% 6,137 1,174 7,311 0.8% 10,025 2,004 12,029 1.1%
Ministry of Energy 2,020 26,229 28,249 3.48% 2,244 40,034 42,278 4.4% 2,046 35,604 37,650 3.3%
Ministry of Education 133,792 5,965 139,757 17.21% 31,630 4,187 35,817 3.7% 39,918 6,338 46,256 4.1%
Ministry of Higher
Education, Science
and Technology 25,628 6,334 31,962 3.94% 25,620 10,652 36,272 3.8% 34,278 7,790 42,068 3.7%
National Security
Intelligence Service 10,616 10,616 1.31% 14,798 14,798 1.5% 13,749 13,749 1.2%
The Teachers Service
Commission 0.00% 111,876 111,876 11.6% 139,570 139,570 12.2%
Ministry of Public
Health and
Sanitation 9,560 6,018 15,578 1.92% 12,272 12,776 25,048 2.6% 16,337 14,855 31,192 2.7%
Independent Electoral
and Boundaries
Commission 0.00% 0.0% 25,158 25,158 2.2%
Parliamentary Service
Commission 0.00% 0.0% 11,642 1,710 13,352 1.2%
Other
1
71,894 44,641 116,535 14.4% 81,175 51,929 133,104 13.9% 74,613 54,240 128,853 11.3%
Total 468,535 198,527 667,062 82.16% 526,819 266,393 793,212 82.5% 660,086 257,003 917,089 80.5%
Notes: (1) Other includes more than 50 ministries and government agencies, none of which represents more
than 1.0 per cent. total government expenditures for 2012/2013. These agencies include, among
others, the Ministry of State for Special Programmes, Ministry of Gender and Children, Ministry of
Transport, Ministry of Environment and Mineral Resources, Ministry of State for Immigration and
Registration of Persons, Ministry of Regional Development Authorities, Ministry of Public Works,
Ministry of Lands, Ministry of Industrialisation, Ministry of Housing, Cabinet Office, Ministry of
Fisheries Development, Ministry of Justice, Office of the Prime Minister, etc.
Source: National Treasury
91
2014 Budget
The 2014 budget law was approved by Parliament on 24 October 2013. The key objectives outlined in 2013/14
budget include the following:
accelerating growth by improving productivity and competitiveness, and opening up the economy to
investment and trade opportunities to boost exports;
support for small and medium enterprises through targeted financial support, skills development, and
access to market through a revamped public procurement system so as to expand business and to
reduce joblessness among the Kenyan youth;
sustaining investment programmes with the highest impact to growth, covering roads, railways,
pipelines, ports, and energy;
creating a business climate that encourages innovation, investment and growth;
improving the quality of education and training through leveraging on ICT, starting with the primary
level;
modernising the police force to effectively and efficiently respond to crime;
boosting food security by investing in agriculture including opening up at least one million acres of
new land through irrigation in order to end food insecurity;
maintaining macroeconomic stability by keeping inflation low, and striving for a stable and
competitive exchange rate, while enhancing capacity to respond to external shocks;
sealing leakages in revenue collection system and extending the tax base, while ensuring efficiency in
public expenditure;
supporting devolution through capacity building to effectively deliver public services and ensuring
county governments receive adequate resources to fund their functions; and
investing in Kenyas greatest capital resource, its people, and provision of what the Constitution
demands, progressive social protection for every Kenyan.
These strategic interventions are expected to help create one million jobs per year and thereby lift at least ten
million Kenyans out of poverty, as well as expand social protection coverage to all vulnerable members of the
Kenyan society. The budget is in effect intended to take care of the poor and the vulnerable, the youth and
women as well as businesses and investments the basis for achieving these development objectives.
The total revenue estimates for fiscal year 2013/14 is KES1.0 trillion, comprising of KES961.3 billion of
ordinary revenue and KES67.0 billion of appropriations-in aid. The total revenue estimate represents an increase
of 7.5 per cent. over the budget estimates for 2012/13. As a percentage of GDP, budgeted revenues are estimated
at 24.7 per cent. in 2013/14. The revenues target is premised on projected economic growth, but takes into
account the challenges experienced in the past two years with collection of VAT. Scaling up the on-going
reforms in tax policy and administrative measures, to seal out loopholes and ensure sustainability in domestic
resource mobilisation, are part of the key assumptions supporting the revenue projection. In addition, new tax
measures, including the introduction of the railway development levy on all imports, are expected to contribute to
the growth in revenues in 2013/14. The 2013/14 budget includes external grants from development partners
amounting to KES67.4 billion.
Total expenditure in the 2013/14 budget is estimated to amount to KES1.4 trillion, which is expected to result in
an overall fiscal deficit of KES329.7 billion (7.9 per cent. of GDP). The deficit is expected to be financed by net
foreign financing of KES223.0 billion, which includes redemptions amounting to KES88.6 billion, and
KES106.7 billion net borrowing from domestic market.
The recurrent expenditures comprises KES110.2 billion for domestic interest payments, KES11.2 billion for
foreign interest payments and KES38.2 billion for civil servants pensions. Gross development expenditures for
2013/14 is estimated at KES447.9 billion.
92
The following table sets out the budget allocation by sector for the 2013/14 budget as provided in the Budget
Review and Outlook Paper published in September 2013.
Sectors
2013/14
Recurrent Expenditure
Allocations
2013/2014
Development
Expenditure Allocations Total Allocation
(KES millions)
Education 245.83 30.42 276.24
Energy, infrastructure and IT 27.53 189.00 216.53
Agriculture, rural and urban development 15.02 38.32 53.34
Public administration and international relations 73.86 99.60 173.45
Governance, justice law and order 111.26 14.89 126.15
National security 84.72 84.72
Social protection, culture and recreation 10.89 9.65 20.54
Environment protection, water and natural
resources 13.20 43.93 57.13
Health services 20.32 15.89 36.22
General economic and commercial affairs 7.94 4.99 12.93
Totals 610.58 446.69 1,057.27
Preliminary Results for First Six Months of 2013/14
Ordinary revenues (inclusive of the railway levy) grew by 24.0 per cent. in the first six months of 2013/14
compared to the same period in 2012/13. Excluding the levy, ordinary revenues grew by 21.1 per cent.
As at 31 December 2013, total revenue amounted to KES460.6 billion, against a target of KES489.6 billion,
resulting in an underperformance of KES28.6 billion. The underperformance was in respect of KES10.4 billion
in ordinary revenue (inclusive of railway levy) and KES18.2 billion in AppropriationsinAid (A-I-A). The
underperformance in ordinary revenue was mainly reflected in excise and income taxes while the shortfall in
A-i-A partly reflects underreporting by line ministries.
Expenditure execution lagged behind in the first six months of 2013/14 because of lower absorption of funds
from external sources. Total expenditure (based on disbursement) amounted to KES572.2 billion against a target
of KES685.0 billion. This reflected an overall under-spending of KES112.8 billion, of which KES30.6 billion
was in respect of lower than projected disbursements to the counties, while KES105.0 billion was in respect of
development expenditure and net lending. Development expenditures financed with domestic resources were
below target by KES13.7 million, and those financed with foreign resources were below target by
KES90.3 billion. Recurrent expenditures were above target by KES25.3 billion.
1 July to 31 December
for 2012/13
1 July to 31 December
for 2013/14
Actual Target Preliminary Deviation
(KES millions)
TOTAL REVENUE AND GRANTS 387.9 524.6 469.0 (55.6)
TOTAL REVENUE 381.6 489.2 460.6 (28.6)
Ordinary revenue (Incl. RDL) 359.1 455.6 445.1 (10.4)
Import Duty 28.2 34.3 34.5 0.2
Excise Duty 40.5 54.3 48.1 (6.3)
Income tax 168.4 216.6 210.7 (5.9)
VAT 87.6 106.8 110.7 3.9
Other Revenue 34.4 37.1 31.1 (5.9)
Railway Levy 0.0 6.5 10.1 3.5
Ministerial AIA 22.5 33.7 15.5 (18.2)
GRANTS 6.3 35.3 8.4 (27.0)
TOTAL EXPENDITURE AND NET LENDING 510.5 685.0 574.2 (110.8)
Recurrent Expenditure 385.4 368.0 394.9 26.9
Interest Payments 59.1 63.0 65.1 2.1
Pensions & Other CFS 14.4 21.9 15.5 (6.4)
Ministerial Recurrent 312.0 283.1 314.3 31.2
o/w Wages and Salaries 131.1 135.0 136.5 1.5
Development 125.1 217.4 112.8 (104.7)
Domestically Financed (Gross) 95.6 96.8 83.1 (13.7)
Foreign Financed 28.2 119.4 29.4 (89.9)
93
1 July to 31 December
for 2012/13
1 July to 31 December
for 2013/14
Actual Target Preliminary Deviation
(KES millions)
Net Lending 1.2 1.2 0.2 (1.0)
Contingency Fund 0.0 2.5 0.0 (2.5)
County Transfer 0.0 97.1 66.5 (30.6)
BALANCE INCLUSIVE OF GRANTS (122.5) (160.5) (105.2) 55.2
TOTAL FINANCING 123.6 160.5 74.6 (85.9)
NET FOREIGN FINANCING 11.0 77.3 7.2 (70.1)
NET DOMESTIC FINANCING 112.6 83.1 67.4 (15.7)
Discrepancy 1.0 0.0 (30.7) (30.7)
Source: National Treasury
2014/15 Budget
On 14 February 2014, the National Treasury presented to Parliament the Budget Policy Statement, a document
that states the governments plans for raising and spending money in the coming fiscal year 2014/15 and the
main priorities on which it will spend its resources. Consistent with the second MTP, the government announced
in the Budget Policy Statement that it plans to (i) create a business environment conductive to encourage
innovation, investment, growth and expansion of economic and employment opportunities; (ii) invest in
agricultural transformation and food security to expand food supply, reduce food prices, support expansion of
agro-processing industries and spur export growth; (iii) invest in first class transport and logistics hub and scale
investments in other key infrastructure products, including roads, energy and water to reduce cost of doing
business and improve competitiveness; (iv) invest in quality and accessible healthcare services and education as
well as social safety net to reduce the burden on households and to enhance the nations prospects for long term
growth and development; and (v) further entrench devolution for the delivery of better government services and
enhanced rural economic development.
On 28 April 2014 the Cabinet approved the budget estimates for the 2014/15 budget. The budget estimates
includes allocations, among others, of KES116.7 billion for on-going and new road projects, KES19.4 billion for
the Standard Gauge Rail project, KES3.5 billion for the urban commuter rail system, KES1.3 billion for
enhancing security to the Jomo Kenyatta International Airport and KES43.6 billion to energy related initiatives.
The 2014/2015 budget assumes:
economic growth of 5.8 per cent. for 2014 and 6.4 per cent. for 2015;
inflation will remain in the upper limit target of 7.5 per cent. in 2014;
the net-public debt to GDP ratio will decline from 52.1 per cent. at the end of June 2014 to
49.8 per cent. in 2016/2017; and
ordinary revenue to be up to 25.5 per cent. of GDP in 2014/15.
On 12 June 2014, the Cabinet Secretary for the National Treasury will deliver the Budget Statement for the fiscal
year 2014/15 to the National Assembly.
94
PUBLIC DEBT
Overview
Government debt comprises external and domestic debt. Domestic debt is reported on a gross basis and excludes
government deposits in commercial banks, Central Bank of Kenya and Treasury advances to parastatals. It
consists of government securities and loans and advances from the banking system. All domestic debt is in local
currency; there is no foreign currency domestic debt. External debt consists of public and publicly guaranteed
debt from outside the country contracted in foreign currency.
Total stock of central government debt stood at US$18.0 billion as at the end of June 2012, representing a
22.4 per cent. increase from US$14.7 billion in 2011. The proportion of central governments external debt to
total debt decreased from 52.8 per cent. in 2011 to 49.4 per cent. in 2012, mainly due to continued efforts by the
central government to limit foreign borrowing in favour of domestic borrowing that comes with lower costs and
risks. Total stock of central government debt stood at US$24.0 billion as at the end of December 2013.
The following table sets out a summary of central government debt disaggregated into foreign and domestic debt
as at the dates indicated.
Central Government Public Debt
Stocks Other Debt Total
(US$ millions)
External Internal Total External Internal Total External Internal Total
As at 30 June,
2011 7,765.6 6,952.2 14,717.8 7,765.6 6,952.2 14,717.8
2012 8,893.9 9,124.3 18,018.2 8,893.9 9,124.3 18,018.2
2013
(1)
9,808.0 12,214.4 22,022.4 9,808.0 12,214.4 22,022.4
As at 31 December 2013 10,181.6 13,778.09 23,959.7 10,181.6 13,778.09 23,959.7
Notes: (1) Provisional
Source: National Treasury/Central Bank of Kenya
The following table sets out a summary of central government debt disaggregated into fixed rate debt and
floating rate debt as at the dates indicated.
As at 30 June 2011 As at 30 June 2012 As at 30 June 2013 As at 31 December 2013
Amount
(KES million) Percentage
Amount
(KES million) Percentage
Amount
(KES million) Percentage
Amount
(KES million) Percentage
Floating rate debt 29,742.2 2% 16,228.0 1% 56,823.5 3% 59,144.7 3%
Fixed rate debt 1,457,367.8 98% 1,606,573.0 99% 1,837,293.5 97% 2,052,407.5 97%
Total 1,487,110.0 100% 1,622,801.0 100% 1,894,117.0 100% 2,111,552.17 100%
Source: National Treasury/Central Bank of Kenya
Total multilateral debt rose by 12.0 per cent. to stand at US$5.5 billion at 30 June 2012 while total bilateral debt
increased from US$2.9 billion at 30 June 2011 to US$2.9 billion at 30 June 2012. Although the government
exerted efforts to restrict borrowing to sources that attract low interest rates as well as long-term repayment
period, the depreciation of the Kenyan shilling contributed to the overall increase in external debt. External debt
from most bilateral lenders decreased in 2011/12, except that from the Peoples Republic of China which
recorded the highest increase during 2011/12. The stock of debt from the IMF increased from US$529.5 million
at 30 June 2011 to US$909.6 million at 30 June 2012 as a result of the continued disbursement of the ECF.
Total multilateral debt rose by 9.5 per cent. to stand at US$6.5 billion at 31 December 2013 compared with
US$6.0 billion at 30 June 2013 while total bilateral debt increased by 10.1 per cent. from US$3.0 billion at
30 June 2013 to US$3.3 billion at 31 December 2013. As at 31 December 2013, approximately 6.0 per cent. of
external debt is floating-rate debt.
95
The following table sets out the total public and publicly guaranteed debt by source as at the dates indicated.
Total Public and Publicly Guaranteed Debt by Source
At 30 June At 31 December
2011 2012 2013
(1)
2013
(1)
(US$ millions)
EXTERNAL DEBT:
Lending Countries:
Germany 296.8 295.4 291.2 305.1
Japan 1,244.60 1,275.10 1,009.10 956.8
France 449 435.8 551.1 683.6
USA 65.7 61 56 53.4
Netherlands 33.5 34.7 30.2 32.5
Denmark 35.4 24.7 23.1 23.5
Finland 1.5 1.2 1.1 1.1
China 361.1 466.8 734 940.6
Belgium 100.6 87.4 88.4 87.9
Austria 22.5 15.6 11.9 10.1
Canada 14.2 17.6 16.2 15.4
Italy 48.8 34.8 24.8 19.9
UK 25.9 23 20.1 20.3
Other 160.08 150.3 138.4 150.3
Total Lending Countries 2,859.50 2,923.40 2,995.60 3,300.3
International Organisations:
IDA/IFAD 3,552.80 3,532.00 3,867.40 4,143.2
EEC/EIB 139.1 129.8 183.3 187.7
IMF 529.5 909.6 857.8 966.0
ADF/AfDB 585.8 811.1 938.6 1,115.7
Others 98.9 112.8 103.4 105.9
Total International Organisations 4,906.10 5,495.30 5,950.50 6,518.5
Commercial Banks 600
(4)
685.1 685.3
Export Credit 278.7 175.8 176.8 182.6
Total External 8,044.30 9,194.50 9,808.00 10,686.7
(KES millions)
INTERNAL DEBT:
Treasury Bills
(2)
126,605.00 132,047.00 267,693.00 307,262.00
Treasury Bonds 595,661.00 686,950.90 744,174.00 816,289.00
Non Interest bearing debt 31,663.00 29,998.76 28,889.00 28,889.00
Others (includes stocks)
(3)
10,293.00 9,833.00 9,800.00 36,743.00
Less government deposits & on-lending (139,470.00) (90,260.29) (161,435.00) (244,599.00)
Total Internal (net) 624,752.00 768,569.26 889,121.00 944,584.00
Total debt 1,322,598.28 1,517,729.68 1,732,683.00 1,866,953.00
Notes: (1) Provisional
(2) Excludes repo bills.
(3) Others consist of Central Bank of Kenya overdraft to the government of Kenya, cleared items
awaiting transfer to PMG, commercial bank advances and tax reserve certificates.
(4) Standard Bank Plc, one of the Managers for the offering of the Notes, is a lender for the US$600
million syndicated loan recorded in 2011/12 that matures in August 2014. The use of proceeds for
the offering of the Notes includes the repayment of such syndicated loan. See Use of Proceeds.
Source: National Treasury/Central Bank of Kenya
At 31 December 2013, approximately US$505.1 million of the indebtedness of the non-financial public sector
was guaranteed by the central government.
96
The table below sets out information on publicly guaranteed debt of the non-financial public sector at the dates
indicated.
Publicly Guaranteed Debt
Agency Year Loan Loan Balance
At 30 June,
At
31 December,
Contracted Creditor 2011 2012 2013 2013
(US dollar millions)
City Council of Nairobi 1985 USA 3.40 2.59 1.70 1.28
Kenya Broadcasting Corporation 1989 Japan 74.80 72.17 45.74 39.56
Telkom Kenya Ltd 1990 Canada 4.50 4.36 4.10 4.00
Tana and Athi River Development Authority 1990 Japan 32.83 30.04 20.82 18.24
East African Portland Cement 1990 Japan 40.81 37.34 25.88 22.67
KenGen Ltd 1995 Japan 73.91 70.64 51.65 46.71
1997 Japan 69.27 66.97 49.63 45.21
2004 Japan 131.01 134.83 106.81 100.78
2007 Japan 36.03 50.37 42.68 40.33
2010 Japan 0.62 0.49 0.46
Kenya Ports Authority 2007 Japan 0.01 54.76 111.71 140.87
Kenya Railways 2008 IDA 45.00 45.62 45.00 45.00
Total 511.58 570.30 506.20 505.11
Source: National Treasury
Net external debt servicing charges rose from US$353.9 million in 2010/11 to US$409.0 million in 2011/12
while net internal debt servicing charges decreased by 5.4 per cent. to stand at US$1.7 billion in 2011/12. This
may be attributed to longer maturity of treasury bonds that constitute the larger component of internal debt.
Interest and loan receipts grew by 23.1 per cent from US$368.7 million in 2010/11 to US$427.5 million in
2011/12.
Net external debt servicing charges rose to US$422.5 million in 2012/13, while net internal debt servicing
charges decreased by 23.0 per cent. to stand at US$1.3 billion in 2012/13.
The following table sets out a summary of central government debt service as at the dates indicated.
Year Ended 30 June Annual Debt Servicing Charges
1
Interest and Loan
Repayment Receipts Net Servicing Charges
(US$ millions)
External Internal Total External Internal Total External Internal Total
2011 353.93 1,764.10 2,118.03 14.75 14.75 353.93 1,749.35 2,103.28
2012 408.96 1,664.84 2,073.81 18.50 18.50 408.96 1,646.35 2,055.31
2013
(2)
422.50 1,281.06 1,703.56 22.87 22.87 422.50 1258.19 1,680.69
Notes: (1) Annual debt servicing charges = central government and guaranteed debt redemption + interest.
(2) Provisional
Source: National Treasury
The following table sets out the central government debt service over the periods indicated.
2012/13 2013/14 2014/15 2016/17
(KES millions)
Domestic interest 110,184 112,645 113,040 106,296
External interest 11,051 13,780 10,227 11,444
Total interest 121,235 126,425 123,267 117,740
External Principal Repayment 23,993 80,791 28,815 35,280
Total Debt Service 145,228 207,216 152,082 153,020
Source: National Treasury
Relations with the IMF
The IMF approved a three-year Extended Credit Facility (ECF) arrangement for Kenya on 31 January 2011 in
an amount equivalent to SDR 325.68 million (US$508.7 million). The program is aimed at protecting Kenyas
external position, while allowing a gradual fiscal adjustment. The program is designed to help rebuild Kenyas
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international reserves by supporting the conditions for sustainable growth while preserving macroeconomic
stability and help address balance of payments financing needs and provide a reserve cushion to help Kenya deal
with adverse shocks. On 9 December 2011, the IMF approved an augmentation of the ECF arrangement in an
amount equivalent to SDR 488.52 million (approximately US$748.4 million). On 2 December 2013, the IMF
announced that it had completed its sixth review of Kenyas economic program supported by the ECF and
approved the immediate disbursement of an amount equivalent to SDR 71.921 million (approximately US$110.2
million), which will bring total disbursements to the full arrangement amount of SDR 488.52 million. The Article
4 Mission is tentatively scheduled for June 2014, but is still subject to confirmation. The government has not
made any additional request for IMF support.
Debt Record
History of Debt Restructuring
Paris Club. Kenya has approached the Paris Club of creditors three times since 1990 to seek debt relief and a
rescheduling of its external debt. The first debt rescheduling agreement was reached in January 1994 and granted
debt relief with respect to US$535 million of indebtedness to bilateral creditors on non-concessional terms with
an eight-year repayment period, including a one-year grace period. The amount covered by the first rescheduling
agreement has been fully repaid. While the first rescheduling agreement was flow rescheduling, which limited
the rescheduling to the debt servicing (principal plus interest) falling due within a specified period (consolidation
period), the second rescheduling agreement received stock treatment, which takes into account the entire
outstanding stock (principal plus accumulated arrears) and reprofiles it over an extended period of time. The
second debt rescheduling agreement was signed in November 2000 and granted debt relief with respect to
US$301 million of indebtedness to bilateral creditors, with maturities due from 1 July 2000 to 30 June 2001
(including the debt service payments in arrears as of July 1, 2000). As part of this rescheduling, Kenya received
an extension of repayment of Official Development Assistance (ODA) of 20 years and an extension of
repayment of non-ODA credits of 18 years, with a three-year grace period.
The third rescheduling agreement was signed in January 2004. Approximately US$353 million of debt owed to
bilateral creditors was rescheduled and the Republic received an extension of repayment of ODA credits of
20 years, with a ten-year grace period, and an extension of repayment of non-ODA credits of 15 years, with a
five-year grace period. The total stock of bilateral debt eligible under the agreement covered maturities falling
due from 1 January 2004 to 31 December 2006 (including the debt service payments in arrears as of
31 December 2003).
London Club. Kenya has also received debt relief from the London Club creditors. In 1998, the London Club
creditors rescheduled Kenyas debts amounting to US$70 million over ten years, including a three year grace
period, at prevailing market interest rates. In 2003-04, approximately US$23 million of debt owed to London
Club creditors was rescheduled over two years at prevailing market interest rates.
Bilateral Debts. Kenya has also received bilateral debt cancellations from Finland, Netherlands and China in
various past years. In 2006, Kenya entered into a debt-for-development swap agreement with the Italian
government amounting to US$44 million.
The Tables below summarises the current status of the rescheduled debts
A. Paris Club
Rescheduling year
Amount rescheduled
(US dollar million)
Outstanding amount,
end 31 December 2013
(US dollar million)
1994 535 Nil
2000 301 208
2004 353 346
B. London Club
1998 70 Nil
2003 23 Nil
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TERMS AND CONDITIONS OF THE NOTES
The following is the text of the Terms and Conditions of the Notes which, upon issue, will represent the terms and
conditions applicable to all Notes, and, subject to completion and amendment, will be endorsed on each
Certificate and will be attached and (subject to the provisions thereof) apply to each Global Note:
The US$ per cent. Notes due (the Notes, which expression shall in these Conditions,
unless the context otherwise requires, include any further notes issued pursuant to Condition 15 and forming a
single series with the Notes) of the Republic of Kenya (the Issuer) are issued subject to and with the benefit of
a Fiscal Agency Agreement dated 2014 (such agreement as amended and/or supplemented and/or
restated from time to time, the Agency Agreement) made between the Issuer, Citigroup Global Markets
Deutschland AG as registrar (the Registrar), Citibank, N.A., London Branch as fiscal agent and principal
paying agent (the Fiscal Agent), Citibank, N.A., London Branch as transfer agent (the Transfer Agent) and
the other initial paying agents named in the Agency Agreement (together with the Fiscal Agent, the Paying
Agents) and the other agents named in it (together with the Fiscal Agent, the Registrar, the Transfer Agent and
the other Paying Agents, the Agents). The Notes also have the benefit of a Deed of Covenant dated
2014 (the Deed of Covenant) executed by the Issuer relating to the Notes.
The statements in these Conditions include summaries of, and are subject to, the detailed provisions of and
definitions in the Agency Agreement. Copies of the Agency Agreement and the Deed of Covenant are available
for inspection during normal business hours by the holders of the Notes (the Noteholders) at the Specified
Office (as defined in the Agency Agreement) of each of the Paying Agents. The Noteholders are entitled to the
benefit of, are bound by, and are deemed to have notice of, all the provisions of the Agency Agreement
applicable to them. References in these Conditions to the Fiscal Agent, the Registrar, the Paying Agents and the
Agents shall include any successor appointed under the Agency Agreement.
1 Form, Denomination and Title
(a) Form and Denomination: The Notes are issued in registered form in denominations of US$200,000
and integral multiples of US$1,000 in excess thereof (each, an Authorised Denomination). A
registered note certificate (each, a Certificate) will be issued to each Noteholder in respect of its
registered holding of Notes. Each Certificate will be numbered serially with an identifying number
which will be recorded on the relevant Certificate and in the register of Noteholders (the Register)
which the Issuer will procure to be kept by the Registrar in accordance with the provisions of the
Agency Agreement.
(b) Title: Title to the Notes passes only by registration in the Register. The holder of any Note will (except
as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is
overdue and regardless of any notice of ownership, trust or any interest or any writing on, or the theft
or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the holder.
In these Conditions Noteholder, and in relation to a Note, holder means the person in whose name
a Note is registered in the Register (or, in the case of a joint holding, the first named thereof).
2 Transfers of Notes and Issue of Certificates
(a) Transfers: Subject to Condition 2(d) and Condition 2(e), a Note may be transferred by depositing the
Certificate issued in respect of that Note, with the form of transfer on the back duly completed and
signed, at the Specified Office of the Registrar or any of the Transfer Agents together with such
evidence as the Registrar or Transfer Agent may require to prove the title of the transferor and the
authority of the individuals who have executed the form of transfer; provided however, that a Note may
not be transferred unless the principal amount of the Notes transferred and (where not all of the Notes
held by a Noteholder are being transferred) the principal amount of the Notes not transferred, are
Authorised Denominations.
(b) Delivery of new Certificates: Each new Certificate to be issued upon transfer or exchange of Notes
will, within five business days of receipt by the Registrar or the Transfer Agent of the duly completed
form of transfer endorsed on the relevant Certificate, be mailed by uninsured mail at the risk of the
holder entitled to the Note to the address specified in the form of transfer. For the purposes of this
Condition 2(b), business day shall mean a day on which banks are open for business in the city in
which the Specified Office of the Registrar or the Transfer Agent with whom a Certificate is deposited
in connection with a transfer is located.
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Where some but not all of the Notes in respect of which a Certificate is issued are to be transferred a
new Certificate in respect of the Notes not so transferred will, within five business days of receipt by
the Registrar or the Transfer Agent of the original Certificate, be mailed by uninsured mail at the risk
of the holder of the Notes not so transferred to the address of such holder appearing on the Register or
as specified in the form of transfer.
(c) Formalities free of charge: Registration of transfer of Notes will be effected without charge by or on
behalf of the Issuer, the Registrar or any Transfer Agent but upon payment (or the giving of such
indemnity as the Registrar or any Agent may reasonably require) in respect of any tax or other
governmental charges which may be imposed in relation to such transfer.
(d) Closed Periods: No Noteholder may require the transfer of a Note to be registered during the period of
15 calendar days ending on (and including) the due date for any payment of principal or interest on that
Note.
(e) Regulations: All transfers of Notes and entries on the Register will be made subject to the detailed
regulations concerning transfer of Notes scheduled to the Agency Agreement. The regulations may be
changed by the Issuer with the prior written approval of the Registrar. A copy of the current regulations
will be mailed (free of charge) by the Registrar to any Noteholder upon request.
3 Status
The Notes constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 4)
unsecured obligations of the Issuer and rank, and will rank, pari passu and without any preference among
themselves, and at least pari passu with all other present and future unsubordinated and (subject as provided
in Condition 4) unsecured obligations of the Issuer, save only for such obligations as may be preferred by
mandatory provisions of applicable law. The Notes are backed by the full faith and credit of the Issuer.
4 Negative Pledge
(a) Negative Pledge: So long as any Note remains outstanding (as defined in the Agency Agreement) the
Issuer will not, save for the exceptions set out below in Condition 4(c) create, incur, assume or permit
to subsist any Security upon the whole or any part of its present or future assets or revenues to secure
(i) any of its Public External Indebtedness, (ii) any Guarantees in respect of Public External
Indebtedness or (iii) the Public External Indebtedness of any other person, without at the same time or
prior thereto securing the Notes equally and rateably therewith or providing such other arrangement
(whether or not comprising Security) as shall be approved by an Extraordinary Resolution of
Noteholders or by a Written Resolution (as defined in Condition 13(a)). For the avoidance of doubt,
any such approval shall not constitute a Reserved Matter (as defined in Condition 13(a)).
(b) Interpretation: In these Conditions:
(i) Guarantee means any obligation of a person to pay the Indebtedness of another person
including, without limitation: an obligation to pay or purchase such Indebtedness, an obligation to
lend money or to purchase or subscribe shares or other securities or to purchase assets or services
in order to provide funds for the payment of such Indebtedness, an indemnity against the
consequences of a default in the payment of such Indebtedness or any other agreement to be
responsible for such Indebtedness;
(ii) Extraordinary Resolution means a resolution passed at a meeting of Noteholders (whether
originally convened or resumed following an adjournment) duly convened and held in accordance
with Schedule 6 (Provisions for Meetings of the Noteholders) to the Agency Agreement by a
majority of not less than three quarters of the votes cast;
(iii) Indebtedness means any obligation (whether present or future) for the payment or repayment of
money which has been borrowed or raised (including money raised by acceptances and leasing);
(iv) person means any individual, company, corporation, firm, partnership, joint venture,
association, organisation, trust or other juridical entity, state or agency of a state or other entity,
whether or not having a separate legal personality;
(v) Public External Indebtedness means any Indebtedness which (i) is expressed, denominated or
payable, or at the option of the relevant creditor may be payable, in any currency other than the
lawful currency from time to time of the Republic of Kenya, and (ii) is in the form of, or is
100
represented by, bonds, notes or other securities with a stated maturity of more than one year from
the date of issue which are, or are capable of being, quoted, listed or ordinarily purchased or sold,
dealt in or traded on any stock exchange, automated trading system, over-the-counter or other
securities market; and
(vi) Security means any mortgage, pledge, lien, hypothecation, security interest or other charge or
encumbrance including, without limitation, anything analogous to the foregoing under the laws of
any jurisdiction.
(c) Exceptions: The following exceptions apply to the Issuers obligations under Condition 4(a):
(i) any Security upon property to secure Public External Indebtedness of the Issuer or any Guarantee
by the Issuer of Public External Indebtedness of any other person incurred for the purpose of
financing the acquisition or construction of such property and any renewal and extension of such
Security which is limited to the original property covered thereby and which (in either case)
secures any renewal or extension of the original secured financing;
(ii) any Security securing Public External Indebtedness of the Issuer or any Guarantee by the Issuer of
Public External Indebtedness of any other person incurred for the purpose of financing all or part
of the costs of the acquisition, construction or development of a project; provided that (A) the
holders of such Public External Indebtedness or Guarantee expressly agree to limit their recourse
to the assets and revenues of such project or the proceeds of insurance thereon as the principal
source of repayments of such Public External Indebtedness and (B) the property over which such
Security is granted consists solely of such assets and revenues; and
(iii) any Security securing the Public External Indebtedness of the Issuer or any Guarantee by the
Issuer of Public External Indebtedness of any other person which was in existence on
2014.
5 Interest
(a) Interest Rate and Interest Payment Dates: The Notes bear interest from and including 2014
(the Issue Date) to but excluding the Maturity Date (as defined in Condition 7(a)) at the rate of
per cent. per annum (the Rate of Interest), payable semi-annually in arrear on and
in each year (each, an Interest Payment Date), subject as provided in Condition 6(d). Each
period beginning on (and including) the Issue Date or any Interest Payment Date and ending on (but
excluding) the next Interest Payment Date is herein called, an Interest Period.
(b) Interest Accrual: Each Note will cease to bear interest from and including its due date for redemption
unless, upon surrender of the Certificate representing such Note, payment of the principal in respect of
the Note is improperly withheld or refused or unless default is otherwise made in respect of payment.
In such event, interest will continue to accrue (both before and after judgment) until whichever is the
earlier of:
(i) the date on which all amounts due in respect of such Note up to that date have been received by or
on behalf of the relevant Noteholder; and
(ii) the day seven days after the date on which the full amount of the moneys payable in respect of
such Notes has been received by the Fiscal Agent and notice to that effect has been given to the
Noteholders in accordance with Condition 12 (except to the extent that there is any subsequent
default in payment to the relevant Noteholders).
(c) Calculation of Interest: The amount of interest payable in respect of each Note for any Interest Period
shall be calculated by applying the Rate of Interest to the principal amount of such Note, dividing the
product by two and rounding the resulting figure to the nearest cent (half a cent being rounded
upwards). If interest is required to be calculated for any period other than an Interest Period, it will be
calculated on the basis of a year of 360 days consisting of 12 months of 30 days each and, in the case of
an incomplete month, the actual number of days elapsed.
6 Payments
(a) Payments in respect of Notes: Payment of principal and interest will be made by transfer to the
registered account of the Noteholder or by a cheque in US dollars drawn on a bank that processes
payments in US dollars mailed to the registered address of the Noteholder if it does not have a
registered account. Payment of principal will only be made against surrender of the relevant Certificate
101
at the Specified Office of any of the Paying Agents. Interest on Notes due on an Interest Payment Date
will be paid to the Noteholder shown on the Register at the close of business on the date (the record
date) being the fifteenth day before the due date for the payment of interest.
For the purposes of this Condition 6(a), a Noteholders registered account means the US dollar
account maintained by or on its behalf with a bank that processes payments in US dollars, details of
which appear on the Register at the close of business, in the case of principal, on the second Business
Day (as defined below) before the due date for payment and, in the case of interest, on the relevant
record date, and a Noteholders registered address means its address appearing on the Register at
that time.
(b) Payments subject to Applicable Laws: Payments in respect of principal and interest on Notes are
subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but
without prejudice to the provisions of Condition 8.
(c) No commissions: No commissions or expenses shall be charged to the Noteholders in respect of any
payments made in accordance with this Condition 6.
(d) Payment on Business Days: Where payment is to be made by transfer to a registered account,
payment instructions (for value the due date or, if that is not a Business Day, for value the first
following day which is a Business Day) will be initiated and, where payment is to be made by cheque,
the cheque will be mailed, on the due date for payment or, in the case of a payment of principal, if later,
on the Business Day on which the relevant Certificate is surrendered at the Specified Office of an
Agent. If any date for payment in respect of a Note is not a Business Day, the Noteholder shall not be
entitled to payment until the next following Business Day.
Noteholders will not be entitled to any interest or other payment for any delay after the due date in
receiving the amount due if the due date is not a Business Day, if the Noteholder is late in surrendering
its Certificate (if required to do so) or if a cheque mailed in accordance with this Condition 6(d) arrives
after the due date for payment.
In this Condition 6, Business Day means a day (other than a Saturday or Sunday) on which
commercial banks are open for general business in London, New York City and, in the case of
surrender of a Certificate, in the place in which the Certificate is surrendered.
(e) Partial Payments: If the amount of principal or interest which is due on the Notes is not paid in full,
the Registrar will annotate the Register with a record of the amount of principal or interest in fact paid.
(f) Agents: The names of the initial Agents and their initial Specified Offices are set out in the Agency
Agreement. The Issuer reserves the right at any time to vary or terminate the appointment of any Agent
and to appoint additional or other Agents; provided that, there will at all times be: (i) a Fiscal Agent,
(ii) a Registrar, (iii) a Transfer Agent, (iv) a Paying Agent in a Member State of the EU (if any) that is
not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any other
directive implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 on
the taxation of savings income or any law implementing or complying with, or introduced in order to
conform to, such Directive and (v) such other agents as may be required by any stock exchange on
which the Notes may be listed.
Notice of any termination or appointment and of any changes in Specified Offices will be given to the
Noteholders promptly by the Issuer in accordance with Condition 12.
In acting under the Agency Agreement and in connection with the Notes, the Agents act solely as
agents of the Issuer and do not assume any obligations towards or relationship of agency or trust for or
with any of the Noteholders.
7 Redemption and Purchase
(a) Redemption at Maturity: Unless previously purchased and cancelled as provided below, the Issuer
will redeem the Notes at their principal amount on (the Maturity Date).
(b) Purchases and Cancellation: The Issuer may at any time purchase Notes in the open market or
otherwise at any price and for any consideration. All Notes so purchased may be cancelled or resold.
Any Notes so purchased, while held by or on behalf of the Issuer, shall not entitle the Noteholder to
vote at any meeting of Noteholders and shall not be deemed outstanding for the purpose of such
meetings. Any Notes cancelled shall not be reissued.
102
8 Taxation
(a) Payment without Withholding: All payments in respect of the Notes by or on behalf of the Issuer
shall be made without withholding or deduction for, or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature (Taxes) imposed or levied by or on
behalf of the Relevant Jurisdiction, unless the withholding or deduction of the Taxes is required by law.
In that event, the Issuer will pay such additional amounts as may be necessary in order that the net
amounts received by the Noteholders after the withholding or deduction shall equal the respective
amounts which would have been receivable in respect of the Notes in the absence of the withholding or
deduction, except that no additional amounts shall be payable in relation to any payment in respect of
any Note:
(i) held by or on behalf of a Noteholder who is liable to the Taxes in respect of such Note by reason
of his having some connection with the Relevant Jurisdiction other than the mere holding of the
Note; or
(ii) in respect of which the Certificate representing it is surrendered for payment more than 30 days
after the Relevant Date (as defined below), except to the extent that the relevant Noteholder would
have been entitled to such additional amounts on surrendering the Certificate representing such
Note for payment on the last day of such period of 30 days assuming, whether or not such is in
fact the case, that day to have been a Business Day (as defined in Condition 6); or
(iii) where such withholding or deduction is imposed on a payment to an individual and is required to
be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing
the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 on the taxation of
savings income or any law implementing or complying with, or introduced in order to conform to,
such Directive; or
(iv) held by or on behalf of a Noteholder who would have been able to avoid such withholding or
deduction by arranging to receive the relevant payment through another Paying Agent in a
Member State of the EU.
(b) Interpretation: In these Conditions:
(i) Relevant Date in respect of any Note means the date on which the payment first becomes due
but, if the full amount of the money payable has not been received by the Fiscal Agent on or
before the due date, it means the date on which, the full amount of the money having been so
received, notice to that effect has been duly given to the Noteholders by the Issuer in accordance
with Condition 12; and
(ii) Relevant Jurisdiction means the Republic of Kenya or any political subdivision or any
authority thereof or therein having power to tax in respect of payments in respect of the Notes.
(c) Additional Amounts: Any reference in these Conditions to any amounts in respect of the Notes shall
be deemed also to refer to any additional amounts which may be payable under this Condition 8.
9 Prescription
Claims against the Issuer for payment in respect of the Notes will be prescribed and become void unless
made within six years (in the case of principal) and five years (in the case of interest) from the Relevant
Date (as defined in Condition 8).
10 Events of Default
(a) Events of Default: If any of the following events (Events of Default) shall have occurred and be
continuing:
(i) Non-payment: (A) the Issuer fails to pay any principal on any of the Notes when due and payable
and such failure continues for a period of 15 business days; or (B) the Issuer fails to pay any
interest on any of the Notes or any amount due under Condition 8 when due and payable, and such
failure continues for a period of 30 days; or
(ii) Breach of Other Obligations: the Issuer does not perform or comply with any one or more of its
other obligations in the Notes, the Agency Agreement or the Deed of Covenant, which default is
incapable of remedy or is not remedied within 45 days following the service by any Noteholder on
the Issuer of notice requiring the same to be remedied; or
103
(iii) Cross-default: (A) the acceleration of the maturity (other than by optional or mandatory
prepayment or redemption) of any External Indebtedness of the Issuer, or (B) any default in the
payment of principal of any External Indebtedness of the Issuer shall occur when and as the same
shall become due and payable if such default shall continue beyond the initial grace period, if any,
applicable thereto or (C) any default in the payment when due and called upon (after the expiry of
any originally applicable grace period) of any Guarantee of the Issuer in respect of any External
Indebtedness of any other person; provided that, the aggregate amount of the relevant External
Indebtedness in respect of which one or more of the events mentioned in this paragraph (iii) have
occurred equals or exceeds US$25,000,000 or its equivalent; or
(iv) Moratorium: a moratorium on the payment of principal of, or interest on, the External
Indebtedness of the Issuer shall be declared by the Issuer; or
(v) IMF Membership: the Issuer shall cease to be a member of the International Monetary Fund
(IMF) or shall cease to be eligible to use the general resources of the IMF; or
(vi) Validity: (A) the validity of the Notes shall be contested by the Issuer, or (B) the Issuer shall deny
any of its obligations under the Notes (whether by a general suspension of payments or a
moratorium on the payment of debt or otherwise) or (C) it shall be or become unlawful for the
Issuer to perform or comply with all or any of its obligations set out in the Notes, including,
without limitation, the payment of interest on the Notes, as a result of any change in law or
regulation in the Republic of Kenya or any ruling of any court in the Republic of Kenya whose
decision is final and unappealable or for any reason such obligations cease to be in full force and
effect; or
(vii) Consents: if any authorisation, consent of, or filing or registration with, any governmental
authority necessary for the performance of any payment obligation of the Issuer under the Notes,
when due, ceases to be in full force and effect or remain valid and subsisting,
then the holders of at least 25 per cent. in aggregate principal amount of the outstanding Notes may, by
notice in writing to the Issuer (with a copy to the Fiscal Agent), declare all the Notes to be immediately
due and payable, whereupon they shall become immediately due and payable at their principal amount
together with accrued interest without further action or formality. Notice of any such declaration shall
promptly be given to all other Noteholders by the Issuer.
If the Issuer receives notice in writing from holders of at least 50 per cent. in aggregate principal
amount of the outstanding Notes to the effect that the Event of Default or Events of Default giving rise
to any above mentioned declaration of acceleration is or are cured following any such declaration and
that such holders wish the relevant declaration to be withdrawn, the Issuer shall give notice thereof to
the Noteholders (with a copy to the Fiscal Agent), whereupon the relevant declaration shall be
withdrawn and shall have no further effect but without prejudice to any rights or obligations which may
have arisen before the Issuer gives such notice (whether pursuant to these Conditions or otherwise). No
such withdrawal shall affect any other or any subsequent Event of Default or any right of any
Noteholder in relation thereto.
In this Condition 10, External Indebtedness means Indebtedness expressed or denominated or
payable or which, at the option of the relevant creditor, may be payable in a currency other than the
lawful currency from time to time of the Republic of Kenya.
11 Replacement of Certificates
If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the Specified Office of
the Registrar upon payment by the claimant of the expenses incurred in connection with the replacement and
on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced
Certificates must be surrendered before replacements will be issued.
12 Notices
All notices to the Noteholders will be valid if mailed to them at their respective addresses in the Register at
the time of publication of such notice by pre-paid first class mail (or any other manner approved by the
Registrar (or the Fiscal Agent on its behalf), which may be by electronic transmission) and for so long as the
Notes are listed on the Irish Stock Exchange and the rules of the Irish Stock Exchange so require, shall be
sent to the Companies Announcement Office of the Irish Stock Exchange. Any such notice shall be deemed
to have been given on the fourth week day (being a day other than a Saturday or Sunday) after being so
mailed.
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13 Meetings of Noteholders and Modification
(a) Meetings of Noteholders: The Agency Agreement contains provisions for convening meetings of the
Noteholders to consider any matter affecting their interests, including the modification or abrogation by
Extraordinary Resolution of any of these Conditions or any of the provisions of the Agency
Agreement. Such a meeting may be convened by the Issuer and shall be convened by the Issuer upon
the request in writing of Noteholders holding not less than 10 per cent. of the aggregate principal
amount of the Notes for the time being outstanding (as defined in the Agency Agreement). The quorum
at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or
representing more than 50 per cent. in principal amount of the Notes for the time being outstanding, or
at any adjourned meeting one or more persons present whatever the principal amount of the Notes held
or represented by him or them, except that at any meeting the business of which includes the
modification or abrogation of certain of these Conditions or certain of the provisions of the Agency
Agreement (including any proposal to change any date fixed for payment of principal or interest in
respect of the Notes, to reduce the amount of principal or interest payable on any date in respect of the
Notes, to alter the method of calculating the amount of any payment in respect of the Notes or the date
for any such payment, to change the currency of payments under the Notes or to change the quorum
requirements relating to meetings or the majority required to pass an Extraordinary Resolution (each, a
Reserved Matter)) the necessary quorum for passing an Extraordinary Resolution will be one or
more persons present holding or representing not less than two thirds, or at any adjourned meeting not
less than one third, of the principal amount of the Notes for the time being outstanding. An
Extraordinary Resolution passed at any meeting of the Noteholders will be binding on all Noteholders,
whether or not they are present at the meeting.
In addition, the Agency Agreement contains provisions relating to Written Resolutions. A Written
Resolution is a resolution in writing signed by or on behalf of the holders of at least 75 per cent. of
the aggregate principal amount of the outstanding Notes, in the case of a Reserved Matter, or
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2
3 per cent. of the aggregate principal amount of the outstanding Notes, in the case of a matter other
than a Reserved Matter. Any Written Resolution may be contained in one document or several
documents in the same form, each signed by or on behalf of one or more Noteholders. Any Written
Resolution shall be binding on all of the Noteholders, whether or not signed by them.
(b) Modification: The Fiscal Agent may agree, without the consent of the Noteholders, to any
modification of any of the provisions of the Agency Agreement either (i) for the purpose of curing any
ambiguity or of curing, correcting or supplementing any manifest or proven error or any other defective
provision contained herein or therein or (ii) in any other manner which could not reasonably be
expected to be prejudicial to the interests of the Noteholders, as determined in the sole opinion of the
Issuer. Any modification shall be binding on the Noteholders and shall be notified by the Issuer to the
Noteholders as soon as practicable thereafter in accordance with Condition 12.
14 Noteholders Committee
(a) Appointment: The Noteholders may, by a resolution passed at a meeting of Noteholders duly
convened and held in accordance with the Agency Agreement by a majority of at least 50 per cent. in
aggregate principal amount of the Notes then outstanding, or by notice in writing to the Issuer (with a
copy to the Fiscal Agent) signed by or on behalf of the holders of at least 50 per cent. in aggregate
principal amount of the Notes then outstanding (as defined in the Agency Agreement), appoint any
person or persons as a committee to represent the interests of the Noteholders if any of the following
events has occurred:
(i) an Event of Default;
(ii) any event or circumstance which could, with the giving of notice, lapse of time, the issuing of a
certificate and/or fulfilment of any other requirement provided for in Condition 10 become an
Event of Default;
(iii) any public announcement by the Issuer, to the effect that the Issuer is seeking or intends to seek a
restructuring of the Notes (whether by amendment, exchange offer or otherwise); or
(iv) with the agreement of the Issuer, at a time when the Issuer has reasonably reached the conclusion
that its debt may no longer be sustainable while the Notes are outstanding;
provided however, that no such appointment shall be effective if the holders of more than 25 per cent.
of the aggregate principal amount of the outstanding Notes have either (A) objected to such
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appointment by notice in writing to the Issuer (with a copy to the Fiscal Agent) during a specified
period following notice of the appointment being given (if such notice of appointment is made by
notice in writing to the Issuer) where such specified period shall be either 30 days or such other longer
or shorter period as the committee may, acting in good faith, determine to be appropriate in the
circumstances or (B) voted against such resolution at a meeting of Noteholders duly convened and held
in accordance with the Agency Agreement. Such committee shall, if appointed by notice in writing to
the Issuer, give notice of its appointment to all Noteholders in accordance with Condition 12 as soon as
practicable after the notice is delivered to the Issuer. In appointing a person or persons as a committee
to represent the interests of the Noteholders, the Noteholders may instruct a representative or
representatives of the committee to form a committee with any person or persons appointed for similar
purposes by other affected series of debt securities.
(b) Powers: Such committee in its discretion may, among other things, (i) engage legal advisers and
financial advisers to assist it in representing the interests of the Noteholders, (ii) adopt such rules as it
considers appropriate regarding its proceedings, (iii) enter into discussions with the Issuer and/or other
creditors of the Issuer, (iv) designate one or more members of the committee to act as the main point(s)
of contact with the Issuer and provide all relevant contact details to the Issuer, (v) determine whether or
not there is an actual or potential conflict of interest between the interests of the Noteholders then
outstanding and the interests of the holders of debt securities of any one or more other series issued by
the Issuer and (vi) upon making a determination of the absence of any actual or potential conflict of
interest between the interests of the Noteholders then outstanding and the interests of the holders of
debt securities of any one or more other series issued by the Issuer, agree to transact business at a
combined meeting of the committee and such other person or persons as may have been duly appointed
as representatives of the holders of securities of each such other series. Except to the extent provided in
this Condition 14(b), such committee shall not have the ability to exercise any powers or discretions
which the Noteholders could themselves exercise.
15 Further Issues
The Issuer may from time to time, without the consent of the Noteholders, create and issue further notes
having the same terms and conditions as the Notes in all respects (or in all respects except for the first
payment of interest) so as to form a single series with the Notes, provided that either (i) such additional
notes, for purposes of U.S. federal income taxation (regardless of whether any holders of such notes are
subject to the U.S. federal income tax laws), are not treated as issued with original issue discount (or are
issued with a de minimis amount of original issue discount as defined in U.S. Treasury Regulation
1.1273-1(d)), or (ii) such additional securities are issued in a qualified reopening for U.S. federal income
tax purposes.
16 Governing Law, Arbitration and Enforcement
(a) Governing Law: The Fiscal Agency Agreement and the Notes (including any non-contractual
obligations arising from or in connection with them) are governed by, and will be construed in
accordance with, English law.
(b) Arbitration: Any dispute arising out of or in connection with the Notes (including any dispute as to
(i) the existence of the Notes, (ii) the validity or termination of the Notes, (iii) any non-contractual
obligation arising out of or in connection with the Notes, (iv) the consequences of the nullity of the
Notes or (v) this Condition 16(b)) (each, a Dispute) shall be referred to and finally resolved by
arbitration under the Arbitration Rules of the London Court of International Arbitration (the LCIA)
(the Rules) as at present in force and as modified by this Condition 16(b), which Rules, as so
modified, are deemed incorporated by reference into this Condition 16(b). The number of arbitrators
shall be three, one of whom shall be appointed by the claimant(s), one by the respondent(s) and the
third of whom, who shall act as chairman, shall be nominated by the two party-nominated arbitrators,
provided that if the claimant(s) or respondents(s) fail to nominate an arbitrator within the time limits
specified by the Rules or the party-nominated arbitrators fail to nominate a chairman within 30 days of
the nomination of the second party-nominated arbitrator, such arbitrator shall be appointed promptly by
the LCIA. The seat of Arbitration shall be London, England and the language of the arbitration shall be
English. The parties exclude the jurisdiction of the courts under Sections 45 and 69 of the Arbitration
Act 1996.
(c) Appointment of Process Agent: The Issuer has appointed the High Commissioner of the Republic of
Kenya in London, presently located at 45 Portland Place, London W1B 1AS as its agent for service of
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process in relation to any proceedings (Proceedings) before the English courts permitted by the
Rules in connection with any arbitral proceedings pursuant to Condition 16(b), or in connection with
the enforcement of any arbitral award rendered pursuant to Condition 16(b) and hereby undertakes that,
in the event of the High Commissioner of the Republic of Kenya ceasing so to act or ceasing to be
located in England, it will appoint another person as its agent for service of process in England for such
purposes as soon as reasonably practicable thereafter. Nothing in these Conditions shall affect the right
to serve Proceedings in any other manner permitted by law.
(d) Consent to Enforcement and Waiver of Immunity: Except as provided below in this Condition
16(d), to the extent the Issuer may in any jurisdiction claim for itself or its assets or revenues immunity
from suit, arbitral award, judgment, execution, attachment (whether in aid of execution, before
judgment or otherwise) or other legal process in respect of (i) any arbitration proceedings to resolve a
Dispute under Condition 16(b) or (ii) any Proceedings, and to the extent that such immunity (whether
or not claimed) may be attributed in any such jurisdiction to the Issuer or its assets or revenues, the
Issuer agrees not to claim and irrevocably waives such immunity to the full extent permitted by the
laws of such jurisdiction (and consents generally for the purposes of the State Immunity Act 1978 to
the giving of any relief or the issue of any process in connection with any such proceedings). The
Issuer does not hereby waive such immunity from execution or attachment in respect of (a) property,
including any bank account, used by a diplomatic or consular mission of the Issuer or its special
missions or delegations to international organisations, (b) property of a military character or in use for
military purposes and in each case under the control of a military authority or defence agency of the
Issuer or (c) property located in the Republic of Kenya.
17 Rights of Third Parties
No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any
term of the Notes, but this does not affect any right or remedy of any person which exists or is available
apart from that Act.
18 Currency Indemnity
If any sum due from the Issuer in respect of the Notes or any arbitration award or any order or judgment
given or made in relation thereto has to be converted from the currency (the First Currency) in which the
same is payable under these Conditions or such award, order or judgment into another currency (the
Second Currency) for the purpose of (i) making or filing a claim or proof against the Issuer,
(ii) obtaining an award, order or judgment in any arbitral tribunal or court or (iii) enforcing any award, order
or judgment given or made in relation to the Notes, the Issuer shall indemnify each Noteholder, on the
written demand of such Noteholder addressed to the Issuer and delivered to the Issuer or to the Specified
Office of the Fiscal Agent, against any loss suffered as a result of any discrepancy between (x) the rate of
exchange used for such purpose to convert the sum in question from the First Currency into the Second
Currency and (y) the rate or rates of exchange at which such Noteholder may in the ordinary course of
business purchase the First Currency with the Second Currency upon receipt of a sum paid to it in
satisfaction, in whole or in part, of any such award, order, judgment, claim or proof. This indemnity
constitutes a separate and independent obligation of the Issuer and shall give rise to a separate and
independent cause of action.
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THE GLOBAL NOTES
The Global Notes contain the following provisions which apply to the Notes in respect of which they are
issued whilst they are represented by the Global Notes, some of which modify the effect of the Terms and
Conditions of the Notes. Terms defined in the Terms and Conditions of the Notes have the same meaning in
paragraphs 1 to 6 below.
1 Accountholders
For so long as any of the Notes are represented by one or more Global Notes, each person (other than
another clearing system) who is for the time being shown in the records of DTC or Euroclear or
Clearstream, Luxembourg (as the case may be) as the holder of a particular aggregate principal amount of
such Notes (each an Accountholder) (in which regard any certificate or other document issued by DTC
or Euroclear or Clearstream, Luxembourg (as the case may be) as to the aggregate principal amount of such
Notes standing to the account of any person shall be conclusive and binding for all purposes) shall be treated
as the holder of such aggregate principal amount of such Notes (and the expression Noteholders and
references to holding of Notes and to holder of Notes shall be construed accordingly) for all purposes
other than with respect to payments on such Notes, the right to which shall be vested, as against Kenya,
solely in the nominee for the relevant clearing system (the Relevant Nominee) in accordance with and
subject to the terms of the Global Notes. Each Accountholder must look solely to DTC or Euroclear or
Clearstream, Luxembourg, as the case may be, for its share of each payment made to the Relevant Nominee.
2 Cancellation
Cancellation of any Note following its purchase by Kenya will be effected by reduction in the aggregate
principal amount of the Notes in the register of Noteholders.
3 Payments
Payments of principal and interest in respect of Notes represented by a Global Note will be made, in the
case of payment of principal, against presentation and surrender of such Global Note to or to the order of the
Fiscal Agent, or such other Agent as shall have been notified to the holders of one or more Global Note for
such purpose.
All payments in respect of the Notes represented by a Global Note will be made to, or to the order of, the
person whose name is entered on the Register at the close of business on the Clearing System Business Day
immediately prior to the date for payment, where Clearing System Business Day means Monday to Friday
inclusive except 25 December and 1 January.
Holders of book-entry interests in the Notes held through DTC will receive, to the extent received by the
Fiscal Agent, all distributions of amounts with respect to book-entry interests in such Notes from the Fiscal
Agent through DTC. Distributions in the United States will be subject to relevant U.S. tax laws and
regulations.
A record of each payment made will be entered in the register of Noteholders by or on behalf of the Fiscal
Agent and shall be prima facie evidence that payment has been made.
4 Notices
So long as the Notes are represented by a Global Note and such Global Note is held on behalf of a clearing
system, notices to Noteholders may be given by delivery of the relevant notice to that clearing system for
communication by it to entitled Accountholders in substitution for notification as required by
Condition 12 (Notices) as set forth herein. See Terms and Conditions of the Notes. Any such notice shall
be deemed to have been given to the Noteholders on the day after the day on which such notice is delivered
to DTC.
Whilst any of the Notes held by a Noteholder are represented by a Global Note, notices to be given by such
Noteholder may be given by such Noteholder (where applicable) through DTC and otherwise in such
manner as the Fiscal Agent and DTC may approve for this purpose.
The Issuer shall also ensure that notices are duly given or published in a manner which complies with the
rules and regulations of any stock exchange or other relevant authority on which the Notes are for the time
being listed. Any notice shall be deemed to have been given on the day after being so mailed or on the date
of publication or, if so published more than once or on different dates, on the date of the first publication.
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5 Registration of Title
Registration of title to Notes in a name other than that of the Relevant Nominee will not be permitted unless
DTC notifies Kenya that it is unwilling or unable to continue as a clearing system in connection with a
Global Note or DTC ceases to be a clearing agency registered under the U.S. Securities Exchange Act of
1934, as amended (the Exchange Act) and in each case a successor clearing system is not appointed by
Kenya within 90 days after receiving such notice from DTC or becoming aware that DTC is no longer so
registered. In these circumstances, title to a Note may be transferred into the names of holders notified by
the Relevant Nominee in accordance with the Conditions, except that Certificates in respect of Notes so
transferred may not be available until 21 days after the request for transfer is duly made.
The Registrar will not register title to the Notes in a name other than that of the Relevant Nominee for a
period of 15 calendar days preceding the due date for any payment of principal, or interest in respect of the
Notes.
6 Transfers
Transfers of book-entry interests in the notes will be effected through the records of Euroclear, Clearstream,
Luxembourg and DTC and their respective participants in accordance with the rules and procedures of
Euroclear, Clearstream, Luxembourg and DTC and their respective direct and indirect participants, as more
fully described under Clearing and Settlement Arrangements.
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CLEARING AND SETTLEMENT ARRANGEMENTS
Kenya has obtained the information in this section from sources it believes to be reliable, including from DTC,
Euroclear and Clearstream, Luxembourg. Kenya takes no responsibility, however, for the accuracy of this
information. Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the following procedures
in order to facilitate transfers of interests in the Unrestricted Global Note and in the Restricted Global Note
among participants of DTC, Euroclear and Clearstream, Luxembourg, they are under no obligation to perform
or continue to perform such procedures, and such procedures may be discontinued at any time. Neither Kenya
nor the Fiscal Agent will have any responsibility for the performance by DTC, Euroclear or Clearstream,
Luxembourg or their respective participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
DTC
DTC is a limited-purpose trust company organised under the New York Banking Law, a banking organisation
within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code and a clearing agency registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its
participating organisations (DTC Participants) and to facilitate the clearance and settlement of securities
transactions between DTC Participants through electronic book-entry changes in accounts of its DTC
Participants, thereby eliminating the need for physical movement of certificates. DTC Participants include
securities brokers and dealers, brokers, banks, trust companies and clearing corporations and may include certain
other organisations, Indirect access to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly
or indirectly (Indirect DTC Participants).
Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect DTC Participants
and certain banks, the ability of a person having a beneficial interest in a note to pledge such interest to persons
or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate of such interest. The Rules applicable to DTC and its Participants are
on file with the U.S. Securities and Exchange Commission.
Euroclear and Clearstream, Luxembourg
Euroclear and Clearstream, Luxembourg hold securities for participating organisations, and facilitate the
clearance and settlement of securities transactions between their respective participants, through electronic book-
entry changes in accounts of such participants. Euroclear and Clearstream, Luxembourg provide to their
participants, among other things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg
interface with domestic securities markets. Euroclear and Clearstream, Luxembourg participants are recognised
financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain
other organisations and include the Managers. Indirect access to Euroclear or Clearstream, Luxembourg is also
available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodian
relationship with a Euroclear or Clearstream, Luxembourg participant, either directly or indirectly.
Book-Entry Ownership
Euroclear and Clearstream, Luxembourg
The Unrestricted Global Note will have an ISIN and a Common Code and will be registered in the name of a
nominee for, and deposited with a common depositary on behalf of Euroclear and Clearstream, Luxembourg. The
address of Euroclear is 1 Boulevard du Roi Albert II. B1210 Brussels, Belgium, and the address of Clearstream,
Luxembourg is 42 Avenue J.F. Kennedy. L-l855, Luxembourg.
DTC
The Restricted Global Note will have a CUSIP number and will be deposited with a custodian (the Custodian)
for and registered in the name of Cede & Co., as nominee of DTC. The Custodian and DTC will electronically
record the principal amount of the Notes held within the DTC system. The address of the DTC is 55 Water
Street, New York, New York 10041, USA.
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Relationship of Participants with Clearing Systems
Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or DTC as the holder of a Note
evidenced by a Global Note must look solely to Euroclear, Clearstream, Luxembourg or DTC (as the case may
be) for his share of each payment made by Kenya to the holder of such Global Note and in relation to all other
rights arising under the Global Note, subject to and in accordance with the respective rules and procedures of
Euroclear, Clearstream, Luxembourg or DTC (as the case may be). Kenya expects that, upon receipt of any
payment in respect of Notes evidenced by a Global Note, the common depositary by whom such Global Note is
held, or nominee in whose name it is registered, will immediately credit the relevant participants or account
holders accounts in the relevant clearing system with payments in amounts proportionate to their respective
beneficial interests in the principal amount of the relevant Global Note as shown on the records of the relevant
clearing system or its nominee. Kenya also expects that payments by direct participants in any clearing system to
owners of beneficial interests in any Global Note held through such direct participants in any clearing system
will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no
claim directly against Kenya in respect of payments due on the Notes for so long as the Notes are evidenced by
such Global Note and the obligations of Kenya will be discharged by payment to the registered holder of such
Global Note in respect of each amount so paid. None of Kenya, the Fiscal Agent or any agent will have any
responsibility or liability for any aspect of the records relating to or payments made on account of ownership
interests in any Global Note or for maintaining, supervising or reviewing any records relating to such ownership
interests.
Settlement and Transfer of Notes
Subject to the rules and procedures of each applicable clearing system, purchases of Notes held within a clearing
system must be made by or through direct participants, which will receive a credit for such Notes on the clearing
systems records. The ownership interest of each actual purchaser of each such Note (the Beneficial Owner)
will in turn be recorded on the direct and indirect participants records. Beneficial Owners will not receive
written confirmation from any clearing system of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic statements of their holdings, from
the direct or indirect participant through which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in Notes held within the clearing system will be effected by entries made on the books of
participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in such Notes, unless and until interests in any Global Note held within a clearing
system are exchanged for interests evidenced by a definitive note certificate.
No clearing system has knowledge of the actual Beneficial Owners of the Notes held within such clearing system
and their records will reflect only the identity of the direct participants to whose accounts such Notes are
credited, which may or may not be the Beneficial Owners. The participants will remain responsible for keeping
account of their holdings on behalf of their customers. Conveyance of notices and other communications by the
clearing systems to direct participants, by direct participants to indirect participants, and by direct participants
and indirect participants to Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
The laws of some jurisdictions may require that certain persons take physical delivery in definitive form of
securities. Consequently, the ability to transfer interests in a Global Note to such persons may be limited.
Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect DTC Participants,
the ability of a person having an interest in a Restricted Global Note to pledge such interest to persons or entities
that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by a lack of
physical certificate in respect of such interest.
Investors that hold their interests in the Notes through DTC will follow the settlement practices applicable to
global bond issues. Investors securities custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors that hold their interests in the Notes through Clearstream, Luxembourg or Euroclear accounts will
follow the settlement procedures applicable to conventional Eurobonds in registered form. The interests will be
credited to the securities custody accounts on the settlement date against payment in same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to establish at the time of trade where both
the purchasers and sellers accounts are located to ensure that settlement can be made on the desire value date.
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Trading between DTC Participants
Secondary market trading between DTC Participants will be settled using the procedures applicable to global
bond issues in same-day funds.
Trading between Euroclear and/or Clearstream, Luxembourg participants
Secondary market trading between Euroclear participants and/or Clearstream, Luxembourg participants will be
settled using the procedures applicable to conventional Eurobonds in same-day funds.
Trading between DTC seller and Euroclear or Clearstream, Luxembourg purchaser
When Notes are to be transferred from the account of a DTC Participant to the account of a Clearstream,
Luxembourg or Euroclear participant, the purchaser will send instructions to Clearstream, Luxembourg or
Euroclear through a Clearstream, Luxembourg or Euroclear participant, as the case may be, at least one business
day prior to settlement. Clearstream, Luxembourg or the Euroclear operator will instruct its respective depositary
to receive the Notes against payment. Payment will include interest accrued on such beneficial interest on the
Note from and including the last interest payment date to and excluding the settlement date. Payment will then be
made by the depositary to the DTC Participants account against delivery of Notes. After settlement has been
completed, the Notes will be credited to the respective clearing system, and by the clearing system, in accordance
with its usual procedures, to the Clearstream, Luxembourg or Euroclear participants account. The securities
credit will appear the next day (European time) and the cash debit will be back-valued to, and the interest on the
Note will accrue from, the value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the trade fails), the Clearstream,
Luxembourg or Euroclear cash debit will be valued instead as of the actual settlement date.
Euroclear and Clearstream, Luxembourg participants will need to make available to the respective clearing
system the funds necessary to process same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on-hand or existing lines of credit. Under this approach,
participants may take on credit exposure to the Euroclear operator or Clearstream, Luxembourg until the interests
in the Note are credited to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a line of credit to a Clearstream,
Luxembourg or Euroclear participant, as the case may be, such participant may elect not to pre-position funds
and may allow that credit line to be drawn upon to finance settlement. Under this procedure, Clearstream,
Luxembourg participants or Euroclear participants purchasing interests in a Note would incur overdraft charges
for one day, assuming they cleared the overdraft when the interest in the Note were credited to their accounts.
However, interest on the Note would accrue from the value date. Therefore, in many cases, the investment
income on the interest in the Note would accrue from the value date. Therefore, in many cases, the investment
income on the interest in the Note earned during that one-day period may substantially reduce or offset the
amount of such overdraft charges, although this result will depend on each participants particular cost of funds.
Since the settlement is taking place during New York business hours, DTC Participants can employ their usual
procedures for transferring interests in the Global Notes to the respective depositaries of Clearstream,
Luxembourg or Euroclear for the benefit of Clearstream, Luxembourg participants or Euroclear participants. The
sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants, a cross-
market sale transaction will settle no differently than a trade between two DTC Participants.
Trading between Clearstream, Luxembourg or Euroclear Seller and DTC purchaser
Due to time zones differences in their favour, Clearstream, Luxembourg and Euroclear participants may employ
their customary procedures for transactions in which interests in a Note are to be transferred by their respective
clearing system, through its respective depositary, to a DTC Participant, as the case may be, at least one business
day prior to settlement. In these cases, Clearstream, Luxembourg or Euroclear will instruct its respective
depositary to deliver the interest in the Note to the DTC Participants account against payment. Payment will
include interest accrued on such beneficial interest in the Note from and including the interest payment date to
and excluding the settlement date. The payment will then be reflected in the account of the Clearstream,
Luxembourg participant or Euroclear participant the following day, and receipt of the cash proceeds in the
Clearstream, Luxembourg or Euroclear participants account would be back-valued at the value date (which
would be the preceding day, when settlement occurred in New York). Should the Clearstream, Luxembourg or
Euroclear participant have a line of credit in its respective clearing system and elect to be in debit in anticipation
112
of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft charges occurred
over that one-day period. If settlement is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Clearstream, Luxembourg or Euroclear participants account would instead be valued as
of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear to purchase interests in a Note from DTC
Participants for delivery to Clearstream, Luxembourg participants or Euroclear participants should note that these
trades will automatically fail on the sale side unless affirmative action is taken. At least three techniques should
be readily available to eliminate this potential problem:
borrowing through Clearstream, Luxembourg or Euroclear for one day (until the purchase side of the day
trade is reflected in their Clearstream, Luxembourg or Euroclear accounts) in accordance with the clearing
systems customary procedures;
borrowing the interests in the United States from a DTC Participant no later than one day prior to
settlement, which would give the interests sufficient time to be reflected in their Clearstream, Luxembourg
or Euroclear account in order to settle the sale side of the trade; or
staggering the value date for the buy and sell sides of the trade so that the value date for the purchase from
the DTC Participant is at least one day prior to the value date for the sale to the Clearstream, Luxembourg
participant or Euroclear participant.
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TRANSFER RESTRICTIONS
Because of the following restrictions, purchasers are advised to consult legal counsel prior to making any
offer, resale, pledge or other transfer of the Notes offered hereby.
The Notes have not been registered under the Securities Act, and may not be offered or sold in the United
States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S under the Securities
Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements
of the Securities Act. Accordingly, the Notes are being offered and sold (1) in the United States only to
QIBs within the meaning of Rule 144A under the Securities Act and (2) outside the United States in
offshore transactions pursuant to Regulation S under the Securities Act. Terms used herein that are defined
in Rule 144A or Regulation S under the Securities Act are used herein as defined therein, as applicable.
1 Transfer Restrictions
On or prior to the 40th day after the Closing Date, a beneficial interest in the Unrestricted Global Note may
be transferred to a person who wishes to take delivery of such beneficial interest through a Restricted Global
Note only upon receipt by the Registrar of a written certification from the transferor (in the form scheduled
to the Agency Agreement) to the effect that such transfer is being made to a person whom the transferor
reasonably believes is a QIB, in a transaction meeting the requirements of Rule 144A and in accordance
with any applicable securities laws of any state of the United States or any other jurisdiction. After such
40th day, such certification requirements will no longer apply to such transfers, but such transfers will
continue to be subject to the transfer restrictions contained in the legend appearing on the face of such Note,
as set out below.
The Restricted Global Note will bear a legend substantially identical to that set out below and neither a
Restricted Global Note nor any beneficial interest in the Restricted Global Note may be transferred except in
compliance with the transfer restrictions set forth in such legend.
A beneficial interest in the Restricted Global Note may be transferred to a person who wishes to take
delivery of such beneficial interest through the Unrestricted Global Note only upon receipt by the Registrar
of a written certification from the transferor (in the form scheduled to the Agency Agreement) to the effect
that such transfer is being made in accordance with Regulation S or Rule 144 (if available) under the
Securities Act.
Any beneficial interest in either the Restricted Global Note or the Unrestricted Global Note that is
transferred to a person who takes delivery in the form of a beneficial interest in the other Global Note will,
upon transfer, cease to be a beneficial interest in such Global Note and become a beneficial interest in the
other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures
applicable to a beneficial interest in such other Global Note for so long as such person retains such an
interest.
Kenya is a foreign government as defined in Rule 405 under the Securities Act and is eligible to register
securities on Schedule B of the Securities Act. Therefore Kenya is not subject to the information provision
requirements of Rule 144A(d)(4)(i) under the Securities Act.
2 Restricted Notes
Each prospective purchaser of Notes in reliance on Rule 144A (a 144A Offeree), by accepting delivery of
this Prospectus, will be deemed to have represented, agreed and acknowledged as follows:
such 144A Offeree acknowledges that this Prospectus is personal to such 144A Offeree and does not constitute
an offer to any other person or to the public generally to subscribe for or otherwise acquire Notes. Distribution of
this Prospectus, or disclosure of any of its contents to any person other than such 144A Offeree and those
persons, if any, retained to advise such 144A Offeree with respect thereto and other persons meeting the
requirements of Rule 144A or Regulation S is unauthorised, and any disclosure of any of its contents, without the
prior written consent of Kenya, is prohibited; and
such 144A Offeree agrees to make no photocopies of this Prospectus or any documents referred to herein.
Each purchaser of Restricted Notes within the United States, by accepting delivery of this Prospectus, will
be deemed to have represented, agreed and acknowledged as follows:
the purchaser (i) is a QIB, (ii) is acquiring the Notes for its own account or for the account of a QIB and (iii) is
aware that the sale of the Notes to it is being made in reliance on Rule 144A. If it is acquiring any Notes for the
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account of one or more QIBs, it represents that it has sole investment discretion with respect to each such account
and that it has full power to make the herein acknowledgments, representations and agreements on behalf of each
such account;
the purchaser understands that such Restricted Notes are being offered only in a transaction not involving any
public offering in the United States within the meaning of the Securities Act, such Restricted Notes have not been
and will not be registered under the Securities Act or any other applicable State securities laws, the purchaser
acknowledges that such Restricted Note is a restricted security (as defined in Rule 144(a)(3) under the
Securities Act) and that (i) if in the future the purchaser decides to offer, resell, pledge or otherwise transfer such
Restricted Notes, such Restricted Notes may be offered, sold, pledged or otherwise transferred only (A) in the
United States to a person that the seller reasonably believes is a QIB purchasing for its own account in a
transaction meeting the requirements of Rule 144A whom the seller has notified, in each case, that the offer,
resale, pledge or other transfer is being made in reliance on Rule 144A, (B) in an offshore transaction in
accordance with Rule 903 or Rule 904 of Regulation S, (C) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if available) but only upon delivery to Kenya of an opinion of
counsel in form and scope satisfactory to Kenya or (D) to Kenya; in each case in accordance with any applicable
securities laws of any state of the United States, and (ii) no representation can be made as to the availability at
any time of the exemption provided by Rule 144 for the resale of the Notes;
the purchaser agrees that it will deliver to each person to whom it transfers Notes notice of any restriction on
transfer of such Notes;
the purchaser understands that the Restricted Notes offered hereby will bear a legend to the following effect,
unless Kenya determines otherwise in accordance with applicable law:
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR WITH ANY
SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF
THE UNITED STATES AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES
ACT TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) BUT ONLY UPON DELIVERY TO KENYA OF AN OPINION OF COUNSEL IN
FORM AND SCOPE SATISFACTORY TO KENYA, OR (4) TO KENYA, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY STATE OF THE
UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF
THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALE OF
THIS NOTE.
THIS NOTE AND RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED
FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR
RESALES AND OTHER TRANSFERS OF THIS NOTE TO REFLECT ANY CHANGE IN
APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN
PRACTICES RELATING TO THE RESALE OR TRANSFERS OF RESTRICTED SECURITIES
GENERALLY. BY ACCEPTANCE OF THIS NOTE, THE HOLDER HEREOF SHALL BE
DEEMED TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.
the purchaser understands that Notes offered in reliance on Rule 144A will be represented by a Restricted Global
Note. Before any interest in a Note represented by a Restricted Global Note may be offered, sold, pledged or
otherwise transferred to a person who takes delivery in the form of an interest in an Unrestricted Global Note, it
will be required to provide the Registrar with a written certification (in the form provided in the Agency
Agreement) as to compliance with applicable securities laws; and
the purchaser understands that Kenya, the Registrar and the Managers and their affiliates and others will rely
upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.
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For so long as the Notes are held in global form, Noteholders may not require transfers to be registered
during the period beginning on the third business day before the due date for any payment of principal or
interest in respect of such Notes.
Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from
the provisions of Section 5 of the Securities Act provided by Rule 144A.
3 Unrestricted Notes
Each purchaser of Notes outside the United States pursuant to Regulation S and each subsequent purchaser
of such Notes in resales prior to the expiration of the distribution compliance period (within the meaning of
Regulation S), by accepting delivery of this Prospectus and the Notes, will be deemed to have represented,
agreed and acknowledged that:
(a) It is, or at the time Notes are purchased will be, the beneficial owner of such Notes and (i) it is not a
U.S. person and it is located outside the United States (within the meaning of Regulation S) and (ii) it is
not an affiliate of Kenya or a person acting on behalf of such an affiliate.
It understands that such Notes have not been and will not be registered under the Securities Act and it will not
offer, sell, pledge or otherwise transfer such Notes except (i) to Kenya, (ii) in accordance with Rule 144A under
the Securities Act to a person that it reasonably believes is a QIB purchasing for its own account or the account
of a QIB whom it has notified, in each case, that the offer, resale, pledge or other transfer is being made in
reliance on Rule 144A, (iii) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S,
or (iv) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if
available) but only upon delivery to Kenya of an opinion of counsel in form and scope satisfactory to Kenya in
each case in accordance with any applicable securities laws of any State of the United States.
It understands that Kenya, the Registrar, the Managers and their affiliates, and others will rely upon the truth and
accuracy of the foregoing acknowledgments, representations and agreements.
It understands that the Notes offered in reliance on Regulation S will be represented by the Unrestricted Global
Note. Prior to the expiration of the distribution compliance period (within the meaning of Regulation S), before
any interest in the Unrestricted Global Note may be offered, sold, pledged or otherwise transferred to a person
who takes delivery in the form of an interest in the Restricted Global Note, it will be required to provide the
Registrar with a written certification (in the form provided in the Agency Agreement) as to compliance with
applicable securities laws.
None of Kenya, the Managers or any person representing any such entity has made any representation to it with
respect to any such entity or the offering or sale of any Notes, other than the information in this Prospectus.
It understands that the Notes, while represented by the Unrestricted Global Note or if issued in exchange for an
interest in the Unrestricted Global Note or for Note Certificates, will bear a legend to the following effect:
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, (THE SECURITIES ACT). THIS NOTE MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
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TAXATION
The following is a general description of certain tax considerations relating to the Notes. It does not purport to
be a complete analysis of all tax considerations relating to the Notes. Prospective purchasers of Notes should
consult their tax advisers as to the consequences under the tax laws of the country of which they are resident for
tax purposes and the tax laws of the Republic of Kenya of acquiring, holding and disposing of Notes and
receiving payments of interest, principal and/or other amounts under the Notes. This summary is based upon the
law in effect on the date of this Prospectus and is subject to any change in law that may take effect after such
date.
The Republic of Kenya
Income Tax in Kenya is charged under the provisions of the Income Tax Act (Chapter 470, Laws of Kenya)
(ITA). Pursuant to section 3 of the ITA, income tax is chargeable on all the income of a person, whether
resident or non-resident, which accrued in or was derived from Kenya. Interest payable on the Notes has been
exempted from income tax under section 13(2) of the ITA by virtue of the Gazette Notice 56/2014 dated 22 May
2014 (the Exemption). The Exemption came into effect upon publication in the Kenya Gazette but must be
laid before Parliament in accordance with the Statutory Instruments Act, 2013. When tabled, the Exemption
stands referred to the Committee on Delegated Legislation (the Commitee), which must scrutinise the
Exemption in accordance with the principles of good governance and the rule of law. If the Committee is not
satisfied that the Exemption complies with the law, it has the power to refer the matter to Parliament, which in
turn, may modify or revoke the Exemption. There are no time limits specified for the consideration of the
Exemption by the Committee or any subsequent action by Parliament.
If this Exemption is modified or revoked by Parliament or otherwise ceases to be in force for any reason, interest
income earned on the Notes by a person, whether resident or non-resident, could become subject to income tax in
Kenya. In such circumstances, the Government would be obliged to deduct withholding tax at the rate then
prevailing. The current rate applicable to interest income is fifteen per cent. (15%) of the gross amount payable.
Under the terms and conditions of the Notes, the Issuer is required to pay additional amounts so that the
Noteholders will receive the full net amount which they would otherwise have received had there been no
deduction of income tax.
United Kingdom Taxation
The comments in this part are based on current United Kingdom tax law as applied in England and Wales and
HM Revenue & Customs practice (which may not be binding on HM Revenue & Customs) They assume that
interest on the Notes does not have a United Kingdom source and, in particular, that the Issuer is not United
Kingdom resident or acting through a permanent establishment in the United Kingdom in relation to the Notes.
These comments are only a summary of certain United Kingdom taxation issues. In particular, they do not
address the United Kingdom taxation position of Noteholders who are resident in, or have some other taxing
connection with, the United Kingdom who may be liable to United Kingdom taxation on income or gains which
accrue to them in respect of the Notes.
Withholding
Payments of interest on the Notes by the Issuer may be made without withholding or deduction for or on account
of United Kingdom income tax.
United Kingdom Stamp Duty and Stamp Duty Reserve Tax
No United Kingdom stamp duty or stamp duty reserve tax should be payable on the issue or transfer of a Note.
United States Federal Income Taxation
TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE
HEREBY NOTIFIED THAT: ANY U.S. FEDERAL TAXATION DISCUSSION IN THIS PROSPECTUS
IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY
ANY TAXPAYER FOR PURPOSES OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON
SUCH TAXPAYER UNDER THE INTERNAL REVENUE CODE. ANY SUCH TAX DISCUSSION WAS
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WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE
MEANING OF CIRCULAR 230) BY THE ISSUER OF THE NOTES TO BE ISSUED OR SOLD
PURSUANT TO THIS PROSPECTUS. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE
TAXPAYERS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER.
Generally
The following is a summary of certain U.S. federal income tax consequences to original purchasers of the Notes
of the purchase, ownership and disposition of the Notes by a U.S. Holder (as defined below). This summary is
based upon tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as of
the date hereof and all subject to change at any time, possibly with retroactive effect. No assurances can be given
that any changes in these laws or authorities will not affect the accuracy of the discussions set forth in this
summary.
This summary does not purport to discuss all aspects of U.S. federal income taxation that may be relevant to, or
the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or
disposition of Notes by a particular investor in light of that investors individual circumstances, such as investors
whose functional currency is not the U.S. dollar or certain types of investors subject to special tax rules (e.g.,
financial institutions, insurance companies, dealers in securities or currencies, investors liable for the alternative
minimum tax or the net investment income tax, individual retirement accounts and other tax-deferred accounts,
certain securities and currency traders, regulated investment companies, pension plans, and tax-exempt
organisations and investors that hold the Notes as a position in a straddle, conversion, hedging,
integrated or constructive sale transaction for U.S. federal income tax purposes). In addition, this summary
does not discuss any non-U.S., state, or local tax considerations. This summary only applies to investors that hold
Notes as capital assets (generally, property held for investment) within the meaning of the U.S. Internal
Revenue Code of 1986, as amended (the Code).
For purposes of this summary, the term U.S. Holder means a beneficial owner of a Note who, for U.S. federal
income tax purposes, is an individual citizen or resident of the United States, a corporation created or organised
in or under the laws of the United States, any state of the United States or the District of Columbia, an estate
whose income is subject to U.S. federal income tax regardless of its source or a trust if a court within the United
States is able to exercise primary supervision over the administration of the trust and one or more United States
persons, as defined for U.S. federal income tax purposes, have the authority to control all substantial decisions
of the trust or the trust has in effect a valid election to be treated as a United States person.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds the Notes, the
tax treatment of a partner in such partnership will generally depend upon the status of the partner and the
activities of the partnership. Prospective purchasers that are entities treated as partnerships for U.S. federal
income tax purposes should consult their tax advisers concerning the U.S. federal income tax consequences to
their partners of the acquisition, ownership and disposition of Notes by the partnership. As used herein, the term
non-U.S. Holder means a beneficial owner of a Note that is not a U.S. Holder for U.S. federal income tax
purposes.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR
GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT
THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
ACQUIRING, OWNING, AND DISPOSING OF THE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS AND POSSIBLE CHANGES
IN TAX LAW.
U.S. Holders
Payments of Interest and Additional Amounts
We expect, and the remainder of this summary assumes, that the Notes will be issued at par or at a discount that
is de minimis for U.S. federal income tax purposes. Accordingly, payments of interest on a Note generally will
be taxable to a U.S. Holder as ordinary income at the time they are received or accrued, depending on the
U.S. Holders regular method of tax accounting. In addition to interest on a Note, if withholding taxes are
imposed on payments of interest, the Issuer may be required to pay additional amounts to U.S. Holders so that
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U.S. holders receive the same amounts they would have received had no withholding taxes been imposed. If
taxes are withheld from a payment of interest on the Notes, a U.S. Holder will be required to include the amount
of any such tax withheld as ordinary income, even though such holder did not in fact receive it, as well as any
additional amounts paid in respect of such tax withheld.
Subject to certain limitations, a U.S. Holder generally will be entitled to a credit against its U.S. federal income
tax liability, or a deduction in computing its U.S. federal taxable income, for Kenyan income taxes withheld by
the Issuer. For purposes of the foreign tax credit limitation, foreign source income is classified in one of two
baskets, and the credit for foreign taxes on income in any basket is limited to U.S. federal income tax allocable
to that income. Interest (and any additional amounts paid) on the Notes will constitute income from sources
outside the United States. Under the foreign tax credit rules, that interest generally will be classified as passive
category income (or, in certain cases, as general category income), which may be relevant in computing the
foreign tax credit allowable to a U.S. Holder under the U.S. federal income tax laws. In certain circumstances a
U.S. Holder may be unable to claim foreign tax credits (and may instead be allowed deductions) for taxes
imposed on a payment of interest if the U.S. Holder has not held the Notes for at least 16 days during the 31-day
period beginning on the date that is 15 days before the date on which the right to receive the payment arises.
Prospective purchasers should consult their tax advisers concerning the foreign tax credit implications of the
payment of these Kenyan taxes.
Sale, Exchange, Retirement or Other Taxable Disposition of a Note
A U.S. Holder generally will recognise gain or loss upon the sale, exchange, retirement or other taxable
disposition of a Note (including payments as a result of an acceleration) in an amount equal to the difference
between the amount realised upon that sale, exchange, retirement or other taxable disposition (other than
amounts representing accrued and unpaid interest not previously included in income, which will be taxable as
interest income) and the U.S. Holders adjusted tax basis in the Note. The amount realised is the sum of cash plus
the fair market value of any property received upon the sale, exchange, retirement or other taxable disposition of
a Note. A U.S. Holders adjusted tax basis in a Note generally will equal the U.S. Holders initial investment in
the Note. Gain or loss on the sale, exchange, retirement or other taxable disposition of a Note generally will be
capital gain or loss, and will be long-term capital gain or loss if the Note is held by the U.S. Holder for more than
one year. The ability of a U.S. Holder to offset capital losses against ordinary income is limited. Any capital gain
or loss recognised on sale, exchange, retirement or other taxable disposition of a Note generally will be treated as
income or loss from sources within the United States for foreign tax credit limitation purposes. Therefore,
U.S. Holders may not be able to claim a credit for any Kenyan tax imposed upon a sale, exchange, retirement or
other taxable disposition of a Note unless (subject to special limits) such holder has other income from foreign
sources and certain other requirements are met. Prospective purchasers should consult their tax advisers as to the
foreign tax credit implications of the sale, exchange, retirement or other taxable disposition of Notes.
Medicare Tax
A U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is
exempt from such tax, will be subject to a 3.8 per cent. tax on the lesser of (i) the U.S. Holders net investment
income (or, in the case of an estate or trust, the undistributed net investment income) for the relevant taxable
year and (ii) the excess of the U.S. Holders modified adjusted gross income for the taxable year (or, in the case
of an estate or trust, the U.S. Holders adjusted gross income for the taxable year) over a certain threshold (which
in the case of individuals will be between US$125,000 and US$250,000, depending on the individuals
circumstances). A U.S. Holders net investment income generally will include its interest income and its net
gains from the disposition of a Note, unless such interest income or net gains are derived in the ordinary course
of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading
activities).
Information with Respect to Foreign Financial Assets
U.S. taxpayers that own specified foreign financial assets, including debt of foreign entities, with an aggregate
value in excess of $50,000 on the last day of the taxable year, or $75,000 at any time during the taxable year
generally will be required to file information reports with respect to such assets with their U.S. federal income
tax returns. Depending on the holders circumstances, higher threshold amounts may apply. Specified foreign
financial assets include any financial accounts maintained by foreign financial institutions, as well as any of the
following, but only if they are not held in accounts maintained by certain financial institutions: (i) stocks and
securities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have
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non-U.S. issuers or counterparties and (iii) interests in non-U.S. entities. The Notes may be treated as specified
foreign financial assets and U.S. Holders may be subject to this information reporting regime. Failure to file
information reports may subject U.S. Holders to penalties. U.S. Holders should consult their own tax advisors
regarding your obligation to file information reports with respect to the Notes.
Non-U.S. Holders
Payments of Interest and Additional Amounts
Subject to the discussion below of backup withholding, payments of interest and any additional amounts on the
Notes generally are not subject to U.S. federal income tax, including withholding tax, if paid to a
non-U.S. Holder, as defined above, unless the interest is effectively connected with such non-U.S. Holders
conduct of a trade or business within the United States (or, if an income tax treaty applies, the interest is
attributable to a permanent establishment or fixed place of business maintained by such non-U.S. Holder within
the United States). In that case, the non-U.S. Holder generally will be subject to U.S. federal income tax in
respect of such interest in the same manner as a U.S. Holder, as described above. A non-U.S. Holder that is a
corporation may, in certain circumstances, also be subject to an additional branch profits tax in respect of any
such effectively connected interest income currently imposed at a 30 per cent. rate (or, if attributable to a
permanent establishment maintained by such non-U.S. Holder within the United States, a lower rate under an
applicable tax treaty).
Sale, Exchange, Retirement or Other Taxable Disposition of a Note
Subject to the discussion below of backup withholding, a non-U.S. Holder generally will not be subject to
U.S. federal income or withholding tax on any gain realised on the sale, exchange, retirement or other taxable
disposition of a Note unless: (1) the gain is effectively connected with the conduct by such non-U.S. Holder of a
trade or business within the United States (or, if an income tax treaty applies, the gain is attributable to a
permanent establishment or fixed base in the United States.), or (2) such non-U.S. Holder is a non-resident alien
individual, who is present in the United States for 183 or more days in the taxable year of the disposition and
certain other conditions are met. Non-U.S. Holders who are described under (1) above generally will be subject
to U.S. federal income tax on such gain in the same manner as a U.S. Holder and, if the non-U.S. Holder is a
foreign corporation, such holder may also be subject to the branch profits tax as described above.
Non-U.S. Holders described under (2) above generally will be subject to a flat 30 per cent. tax on the gain
derived from the sale, exchange, retirement or other taxable disposition of Notes, which may be offset by certain
U.S. capital losses (notwithstanding the fact that such holder is not considered a U.S. resident for U.S. federal
income tax purposes). Any amount attributable to accrued but unpaid interest on the Notes generally will be
treated in the same manner as payments of interest, as described above under Payments of Interest and
Additional Amounts.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to payments of principal and interest and any additional
amounts on the Notes to non-corporate U.S. Holders if such payments are made within the United States or by or
through a custodian or nominee that is a U.S. Controlled Person, as defined below. Backup withholding will
apply to such payments if a U.S. Holder fails to provide an accurate taxpayer identification number or,
certification of exempt status or, in the case of interest payments and the accrual of interest, fails to certify that it
is not subject to backup withholding or is notified by the IRS that it has failed to report all interest and dividends
required to be shown on its U.S. federal income tax returns.
Non-U.S. Holders are generally exempt from these withholding and reporting requirements (assuming that the
gain or income is otherwise exempt from U.S. federal income tax), but such non-U.S. Holders may be required to
comply with certification and identification procedures in order to prove their exemption. If a non-U.S. Holder
holds a Note through a foreign partnership, these certification procedures would generally be applied to such
holder as a partner. The payment of proceeds of a sale or redemption of Notes effected at the U.S. office of a
broker generally will be subject to the information reporting and backup withholding rules, unless such
non-U.S. Holder establishes an exemption. In addition, the information reporting rules will apply to payments of
proceeds of a sale or redemption effected at a non-U.S. office of a broker that is a U.S. Controlled Person, as
defined below, unless the broker has documentary evidence that the holder or beneficial owner is not a U.S.
Holder (and has no actual knowledge or reason to know to the contrary) or the holder or beneficial owner
otherwise establishes an exemption.
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As used herein, the term U.S. Controlled Person means:
a United States person;
a controlled foreign corporation for U.S. federal income tax purposes;
a non-U.S. person 50 per cent. or more of whose gross income is derived for tax purposes from the
conduct of a U.S. trade or business for a specified three-year period; or
a non-U.S. partnership in which United States persons hold more than 50 per cent. of the income or
capital interests or which is engaged in the conduct of a U.S. trade or business.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a
payment to a holder of a Note generally will be allowed as a refund or a credit against the holders U.S. federal
income tax liability as long as the holder provides the required information to the IRS in a timely manner.
EU Directive on the Taxation of Savings Income
Under the Savings Directive, EU Member States are required, from 1 July 2005, to provide to the tax authorities
of another EU Member State details of payments of interest (or similar income) paid by a person established
within its jurisdiction to (or for the benefit of) an individual resident, or certain types of entity established, in that
other EU Member State. However, for a transitional period, Luxembourg and Austria will (unless during that
period they elect otherwise) instead operate a withholding system in relation to such payments. The current rate
of withholding under the Directive is 35 per cent. The transitional period is to terminate at the end of the first full
fiscal year following agreement by certain non-EU countries to exchange information procedures relating to
interest and other similar income. The Luxembourg government has announced its intention to elect out of the
withholding system in favour of automatic exchange of information with effect from 1 January 2015.
The Council of the European Union has adopted the Amending Directive which will, when implemented, amend
and broaden the scope of the requirements of the Savings Directive described above. The Amending Directive
will expand the range of payments covered by the Savings Directive, in particular to include additional types of
income payable on securities, and the circumstances in which payments must be reported or paid subject to
withholding. For example, payments made to (or for the benefit of) (i) an entity or legal arrangement effectively
managed in an EU Member State that is not subject to effective taxation, or (ii) a person, entity or legal
arrangement established or effectively managed outside of the EU (and outside any third country or territory that
has adopted similar measures to the Savings Directive) which indirectly benefit an individual resident in an EU
Member State, may fall within the scope of the Savings Directive, as amended. The Amending Directive requires
EU Member States to adopt national legislation necessary to comply with it by 1 January 2016, which legislation
must apply from 1 January 2017.
A number of non-EU countries and certain dependent or associated territories of certain EU Member States have
adopted similar measures to the Savings Directive.
The Proposed Financial Transactions Tax (FTT)
The European Commission has published a proposal for a Directive for a common FTT in Belgium, Germany,
Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member
States). The proposed FTT has very broad scope and could, if introduced in the form proposed by the European
Commission, apply to certain dealings in the Notes (including secondary market transactions) in certain
circumstances.
Under the current European Commission proposal the FTT could apply in certain circumstances to persons both
within and outside of the participating Member States. Generally, it would apply to certain dealings in the Notes
where at least one party is a financial institution, and at least one party is established in a participating Member
State. A financial institution may be, or be deemed to be, established in a participating Member State in a
broad range of circumstances, including (a) by transacting with a person established in a participating Member
State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member
State.
Notwithstanding the European Commission proposals, a statement made by the participating Member States
(other than Slovenia) indicates that a progressive implementation of the FTT is being considered, and that the
FTT may initially apply only to transactions involving shares and certain derivatives, with implementation
occurring by 1 January 2016. However, full details are not available.
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The proposed FTT remains subject to negotiation between the participating Member States and the timing
remains unclear. Additional EU Member States may decide to participate. Prospective holders of the Notes are
advised to seek their own professional advice in relation to the FTT.
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PLAN OF DISTRIBUTION
Each of the managers named in the table (the Managers) has, pursuant to a Subscription Agreement (the
Subscription Agreement) dated 2014 severally (but not jointly) agreed to subscribe or procure
subscribers for the principal amount of Notes set out opposite its name in the table below at the issue price of
per cent. of the principal amount of Notes, less a management and underwriting commission.
Managers Principal Amount
Barclays Bank PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
J.P. Morgan Securities plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QNB Capital LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standard Bank Plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dyer & Blair Investment Bank Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total: $
Kenya has agreed to indemnify the Managers against certain liabilities (including liabilities under the Securities
Act) incurred in connection with the issue of the Notes. The Subscription Agreement may be terminated in
certain circumstances prior to payment of the net subscription money in respect of the Notes to Kenya.
To the extent that the Joint Lead Managers intend to effect any sales of the Notes in the United States, they will
do so through their respective selling agents, or through one or more U.S. registered broker-dealers or as
otherwise permitted by applicable U.S. law.
Standard Bank Plc, one of the Managers for the offering of the Notes, is a lender for the US$600 million
syndicated loan recorded in 2011/12 that matures in August 2014.
United States
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold
within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. Accordingly, the Managers have agreed, severally (but not jointly), to offer
the Notes for resale in the United States initially only (1) to persons they reasonably believe to be QIBs
purchasing for their own account or for the account of a QIB in reliance on Rule 144A, or (2) outside the United
States in offshore transactions in reliance on Regulation S. Terms used in this paragraph have the respective
meanings given to them by Regulation S.
In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within the United
States by any dealer (whether or not participating in the offering) may violate the registration requirements of the
Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A under the Securities
Act.
Each Manager has represented and agreed severally (but not jointly), that, except as permitted by the
Subscription Agreement, it has not offered and sold, and will not offer and sell, the Notes by means of any
general solicitation or advertising in the United States or otherwise in any manner involving a public offering
within the meaning of Section 4(a)(2) of the Securities Act. Accordingly, neither such Manager nor its affiliates,
nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts (as
defined in Regulation S) with respect to the Notes, and such Manager, its affiliates and any persons acting on its
or their behalf have complied and will comply with the offering restrictions requirement of Regulations S.
United Kingdom
Each Manager has represented and agreed, that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the United Kingdom Financial Services and Markets Act 2000 (FSMA)) received by it in
connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does
not apply to Kenya; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done
by it in relation to the Notes in, from or otherwise involving the United Kingdom.
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Dubai International Financial Centre
Each Manager has represented and agreed that it has not offered and will not offer the Notes to any person in the
Dubai International Financial Centre unless such offer is (i) an Exempt Offer in accordance with the Offered
Securities Rules of the DFSA and (ii) made only to persons who meet the Professional Client criteria set out in
Rule 2.3.2 of the DFSA Conduct of Business Module.
Republic of Italy
The offering of the Notes has not been registered with the Commissione Nazionale per le Societ e la Borsa
(CONSOB) pursuant to Italian securities legislation and, accordingly, each Manager represents and warrants
that, save as set out below, it has not offered or sold, and will not offer or sell, any Notes in the Republic of Italy
in a solicitation to the public and that sales of the Notes in the Republic of Italy shall be effected in accordance
with all Italian securities, tax and exchange control and other applicable laws and regulation.
Accordingly, each Manager represents and agrees that it will not offer, sell or deliver any Notes or distribute
copies of the Prospectus and any other document relating to the Notes in the Republic of Italy except:
(a) to Professional Investors, as defined in Article 31.2 of CONSOB Regulation No. 11522 of 1 July 1998, as
amended (Regulation No. 11522), pursuant to Article 30.2 and 100 of Legislative Decree No. 58 of
24 February 1998, as amended (Decree No. 58);
(b) that it may offer, sell or deliver Notes or distribute copies of any Prospectus relating to such Notes in a
solicitation to the public in the period commencing on the date of publication of such Prospectus, provided
that such Prospectus has been approved in accordance with the European Directive 2003/71/ EC, as
implemented in Italy under Decree No. 58 and CONSOB Regulation No. 11971 of 14 May 1999, as
amended (Regulation No. 11971), and ending on the date which is 12 months after the date of publication
of such Prospectus; and
(c) in any other circumstances where an express exemption from compliance with the solicitation restrictions
applies, as provided under Decree No. 58 or Regulation No. 11971.
Any such offer, sale or delivery of the Notes or distribution of copies of this Prospectus or any other document
relating to the Notes in the Republic of Italy must be:
(a) made by investment firms, banks or financial intermediaries permitted to conduct such activities in the
Republic of Italy in accordance with Legislative Decree No. 385 of 1 September 1993 as amended (the
Banking Act), Decree No. 58, Regulation No. 11522 and any other applicable laws and regulations;
(b) in compliance with Article 129 of the Banking Act and the implementing guidelines of the Bank of Italy, as
amended, pursuant to which the Bank of Italy may request information on the offering or issue of securities
in Italy or by Italian persons outside of Italy; and
(c) in compliance with any other applicable notification requirement or limitation which may be imposed by
CONSOB or the Bank of Italy.
Hong Kong
Each Manager represents and agrees that:
(a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, the Notes
other than (i) to professional investors within the meaning of the Securities and Futures Ordinance
(Cap. 571) and any rules made under that Ordinance; or (ii) in other circumstances which do not result
in the document being a Prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong
or which do not constitute an offer to the public within the meaning of that Ordinance; and
(b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its
possession for the purposes of issue (in each case whether in Hong Kong or elsewhere), any
advertisement, invitation or document relating to the Notes, which is directed at, or the contents of
which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under
the laws of Hong Kong) other than with respect to the Notes which are or are intended to be disposed
of only to persons outside Hong Kong or only to professional investors as defined in the Securities
and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance.
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Singapore
The Prospectus has not been registered as a Prospectus with the Monetary Authority of Singapore. Accordingly,
each Manager represents, warrants and agrees that the Prospectus and any other document or material in
connection with the offer or sale, or invitation for subscription or purchase, of the Notes may not be circulated or
distributed, nor may the Notes be offered or sold, or be made the subject of an invitation for subscription or
purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under
Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person, or
any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the
SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the
SFA.
Where the Notes are subscribed or purchased under Section 275 by a relevant person which is:
(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole
business of which is to hold investments and the entire share capital of which is owned by one or more
individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and
each beneficiary is an individual who is an accredited investor,
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest in
that trust (howsoever described) shall not be transferable for six months after that corporation or that trust has
acquired the Notes under Section 275 except:
(i) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any
person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
(ii) where no consideration is or will be given for the transfer;
(iii) where the transfer is by operation of law;
(iv) as specified in Section 276(7) of the SFA; or
(v) as specified in Regulation 32 of the Securities and Futures (Offer of Investments) (Shares and
Debentures) Regulations 2005 of Singapore.
Republic of Kenya
This Prospectus and the initial offering of Notes has not been and will not be approved by the Capital Markets
Authority in Kenya and the Notes will not be listed on the Nairobi Securities Exchange when they are issued.
The Notes may not be issued, offered or sold in Kenya.
South Africa
Each Manager represents and agrees that:
(a) it has not offered and will not offer for sale or, subscription, and will not sell or transfer, whether
directly or indirectly, within the Republic of South Africa, any Notes to any person, company or other
juristic person resident in the Republic of South Africa except in accordance with: (i) all South African
Reserve Bank Exchange Control Regulations or with the approval of the South African Reserve Bank
(where applicable); (ii) the Companies Act, 1973 (as amended); (iii) the Banks Act, 1990, and the
regulations promulgated in terms thereof (including but not limited to the Commercial Paper
Regulations); (iv) the Financial Advisory and Intermediary Services Act, 2002; and (v) in
circumstances which would not constitute an offer to the public within the meaning of the South
African Companies Act, 1973 (as amended); and
(b) it shall not offer any Notes for subscription or sell any Notes to any single addressee for an amount of
less than Rl,000,000.
State of Qatar (excluding the Qatar Financial Centre)
Each Manager represents and agrees that it has not offered or sold, and will not offer or sell, directly or
indirectly, any Notes in the State of Qatar, except (i) in compliance with all applicable laws and regulations of
the State of Qatar and (ii) through persons or corporate entities authorised and licensed to provide investment
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advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the State of Qatar. The
Prospectus has not been reviewed or approved beforehand by the Qatar Central Bank or the Qatar Financial
Markets Authority and is only intended for specific recipients in compliance with the foregoing.
Switzerland
The Prospectus is not intended to constitute an offer or solicitation to purchase or invest in the Notes described
therein. The Notes may not be publicly offered, sold or advertised, directly or indirectly, in, into or from
Switzerland and will not be listed on the SIX Swiss Exchange or on any other exchange or regulated trading
facility in Switzerland. Neither the Prospectus nor any offering or marketing material relating to the Notes
constitutes a prospectus as such term is understood pursuant to article 652a or article 1156 of the Swiss Code of
Obligations or a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange or any other
regulated facility in Switzerland or a simplified prospectus or a prospectus as such term is defined in the Swiss
Collective Investment Scheme Act, and neither the Prospectus nor any other offering or marketing material
relating to the Notes may be publicly distributed or otherwise made publicly available in Switzerland.
Neither the Prospectus nor any other offering or marketing material relating to the offering, the Issuer or the
Notes has been or will be filed with or approved by any Swiss regulatory authority. The Notes are not subject to
the supervision by any Swiss regulatory authority, e.g., Swiss Financial Markets Supervisory Authority FINMA,
and investors in the Notes will not benefit from protection or supervision by such authority.
United Arab Emirates (excluding the Dubai International Financial Centre)
Each Manager represents and agrees that the Notes have not been and will not be offered, sold or publicly
promoted or advertised by it in the United Arab Emirates other than in compliance with any laws applicable in
the United Arab Emirates governing the issue, offering and sale of securities.
General
No action has been taken by Kenya or any of the Managers that would, or is intended to, permit a public offer of
the Notes in any country or jurisdiction where any such action for that purpose is required. Accordingly, each
Manager has undertaken that it will not, directly or indirectly, offer or sell any Notes or distribute or publish any
offering circular, Prospectus, form of application, advertisement or other document or information in any country
or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance
with any applicable laws and regulations and all offers and sales of Notes by it will be made on the same terms.
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GENERAL INFORMATION
Contact Information
The address of the Republic of Kenya, acting through the National Treasury is: The National Treasury,
Harambee Avenue, Nairobi, GPO 00100. The telephone number of Kenya is +254 20 225 2299.
Listing
Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and
trading on the Main Securities Market. The listing of the Notes is expected to be granted on or around the Issue
Date. The total expenses related to the admission to trading of the Notes are expected to be approximately
US$ .
Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in relation to the
Notes and is not itself seeking admission of the Notes to the Official List of the Irish Stock Exchange or to
trading on the Main Securities Market of the Irish Stock Exchange.
In addition, the Issuer intends to make an application, after the Notes are issued, for the Notes to be listed on the
Fixed Income Securities Market Segment of the Nairobi Securities Exchange. However, the Notes will not be
traded on the Fixed Income Securities Market Segment of the Nairobi Securities Exchange, unless appropriate
protocols are put in place after the Notes are issued.
Indication of Yield
Based upon a re-offer price of per cent. of the principal amount of the Notes, the yield of the Notes is
per cent., on an annual basis. The yield is calculated at the Issue Date. It is not an indication of future
yield.
Authorisations
Kenya has obtained all necessary consents, approvals and authorisations in connection with the issue and
performance of its obligations under the Notes. The governments power to borrow has been duly exercised in
accordance with the PFMA.
Documents on Display
For so long as any Notes shall be outstanding, physical copies of: (i) Kenyas budget for the current fiscal year,
(ii) the Agency Agreement and (iii) the Deed of Covenant may be inspected during normal business hours at the
specified offices of the Fiscal Agent.
Clearing Systems
The Notes have been accepted for clearance through Euroclear, Clearstream, Luxembourg and DTC. The
Unrestricted Global Note has been accepted for clearance through Euroclear and Clearstream, Luxembourg under
the Common Code No. and the ISIN . The Restricted Global Note has been accepted for
clearance through DTC. The CUSIP number for the Restricted Global Note is 374422 AB9, the Common Code
No. is , and the ISIN is . The address of Euroclear is 1 Boulevard du Roi Albert II, B. 1210
Brussels, Belgium, the address of Clearstream, Luxembourg is Avenue J.F. Kennedy, L-1855, Luxembourg and
the address of DTC is 55 Water Street, New York, NY, 10041, USA.
Litigation
Save as disclosed on pages 31 under the heading Legal Proceedings, Kenya is not involved in, and has not been
involved for 12 months prior to the date of this Prospectus in, any governmental, legal or arbitration proceedings
which may have or have had in the recent past a significant effect on its financial position nor, so far as Kenya is
aware, is any such proceeding pending or threatened.
Material Change
Since the end of the last fiscal year in 30 June 2013, there has been no significant change in Kenyas (a) tax and
budgetary systems, (b) gross public debt or the maturity structure or currency of its outstanding debt and debt
127
payment record (c) foreign trade and balance of payment figures (d) foreign exchange reserves including any
potential encumbrances to such foreign exchange reserves as forward contracts or derivatives (e) financial
position and resources including liquid deposits available in domestic currency and (f) income and expenditure
figures.
Interest of Natural and Legal Persons
So far as the Issuer is aware, no person involved in the offer or the Notes has an interest material to the offer.
Managers transacting with the Issuer
Certain of the Managers and their affiliates have engaged, and may in the future engage in investment banking
and/or commercial banking transactions with, and may perform services to, the Issuer and its affiliates in the
ordinary course of business. See Plan of Distribution for more information.
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ISSUER
Republic of Kenya, acting through the National Treasury
The National Treasury
Harambee Avenue
Nairobi
Republic of Kenya
P.O. Box 30007 GPO 00100
JOINT LEAD MANAGERS AND JOINT BOOKRUNNERS
Barclays Bank PLC
5 The North Colonnade
Canary Wharf
London E14 4BB
United Kingdom
J.P. Morgan Securities plc
25 Bank Street
Canary Wharf
London E14 5JP
United Kingdom
QNB Capital LLC
QNB Al Mathaf Tower14
th
Floor
Old Museum Area
PO Box 1000
Doha
Qatar
Standard Bank Plc
20 Gresham Street
London EC2V 7JE
United Kingdom
CO-MANAGER
Dyer & Blair
10
th
Floor, Pension Towers
P.O. Box 45396
Loita Street, Nairobi
Kenya
FISCAL, TRANSFER AND PAYING AGENT REGISTRAR
Citibank, N.A., London Branch
Citigroup Centre
Canada Square
London E14 5LB
United Kingdom
Citigroup Global Markets Deutschland AG
Frankfurter Welle
Reuterweg 16
Frankfurt am Main
Germany
LEGAL ADVISERS
To Kenya as to English law and U.S. law To Kenya as to Kenyan law
Arnold and Porter (UK) LLP
25 Old Broad Street
London, EC2N 1HQ
United Kingdom
Arnold and Porter LLP
399 Park Avenue
New York, New York 10022
United States
Anjarwalla & Khanna
ALN House, Eldama Ravine Gardens, Off
Eldama Ravine Road, Westlands
Nairobi, Kenya
To the Managers as to English and U.S. law To the Managers as to Kenyan law
Linklaters LLP
One Silk Street
London EC2Y 8HQ
United Kingdom
Kaplan & Stratton
9th Floor, Williamson House,
P.O. Box 40111
Fourth Ngong Ave,
Nairobi, Kenya
LISTING AGENT
Arthur Cox Listing Services Limited
Earlsfort Centre
Earlsfort Terrace
Dublin 2
Ireland
Printed by RR Donnelley 656248