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Sub-Saharan Africa

Kenya risk report

Updated:

Kenya's competitiveness is held back by high corruption levels that penetrate every sector of the economy. A weak judicial system and frequent demands for bribes by public officials lead to increased business costs for foreign investors. Widespread tax evasion hinders Kenya's long-term economic growth, and fraud in public procurement is rampant. Corruption, active and passive bribery, abuse of office and bribing a foreign public official are criminalized under the Anti-Corruption and Economic Crimes Act 2003, in addition to the Bribery Act of 2016 which strengthens the fight against the supply-side of corruption. Facilitation payments are criminalized and there are rules for what types of gifts public officials are allowed to accept. Adequate enforcement of Kenya's anti-corruption framework is an issue as a result of weak and corrupt public institutions.

Judicial system Moderate risk

Companies face a moderate risk of corruption when dealing with Kenya's judicial sector. Companies report bribes and irregular payments in return for favorable decisions are common (GCR 2015-2016). A third of Kenyans view the judiciary as corrupt (GCB 2015). The judiciary is established as an independent body by the constitution, and largely demonstrates independence and impartiality in practice, yet is undermined by allegations of corruption (HRR 2016). Following major reforms in 2011, many unqualified judges were removed from their posts, and the reputation of the judiciary subsequently improved (BTI 2016). The judiciary has become more accessible and has reduced its backlog of cases (BTI 2016). Companies encounter difficulties resolving disputes because of weak institutional capacity, a lack of transparency and discrimination in favor of local actors (ICS 2016). Companies perceive the judiciary as not being sufficiently independent and do not consider the legal framework effective for dispute settlement or challenging regulations (GCB 2016-2017). A third of companies see the court system as a major constraint to their ability to do business in Kenya (ES 2013). Enforcing a contract takes 465 days on average, which is significantly lower than the regional average (DB 2017).

In early 2016, allegations surfaced that Supreme Court judge Philip Tunoi took a bribe worth USD 2 million in order to influence an election petition opposing Nairobi's governor (HRR 2016). The judge was ultimately not investigated on the grounds that the prosecution lacks a legal mandate after Tunoi retired at the legally mandated age of 70 (HRR 2016).

Kenya is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, but it is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Police Very high risk

Corruption is rampant within Kenya's police. The Kenya National Police Service is ranked as the most corrupt institution in the country, and bribery is reported to be the only way to access the police and expedite services (HRR 2016). Three out of four Kenyans consider most or all police officers as corrupt (GCB 2015). Half of all Kenyans who have come into contact with the police report having paid a bribe (GCB 2015). The police also struggle with a lack of oversight and organizational and technical deficiencies (BTI 2016). Kenya's police relentlessly engage in false imprisonment, abuse of human rights and fabrication of charges to extort bribes (BTI 2016). Corrupt police officers are rarely arrested or prosecuted for corruption crimes (HRR 2016). Companies report the business costs of crime in Kenya to be high and police reliability is rated as poor (GCR 2016-2017).

In December 2016, Kenya's National Police Service Commission fired 127 traffic police officers after they found evidence of large suspicious money transfers between officers that could not be explained (Kenyans, Dec. 2016).

Public services Very high risk

The competitiveness of Kenya's business environment is impeded by rampant public-service corruption. Complying with administrative requirements takes a lot of time and is plagued by red tape (GCR 2016-2017). Registration and licensing services are severely affected by bribery, making starting a business very costly (TI Kenya, 2014). One in six companies expects to give gifts and make informal payments to get an operating license, and every third company expects to pay bribes to obtain a construction permit (ES 2013). Businesses also experience difficulties when dealing with utility services; an estimated quarter of all firms report paying bribes and facilitation payments to acquire electrical and water connections (ES 2013). Companies report bribes and irregular payments to utility companies are common (GCR 2015-2016). Getting an electric connection takes fewer procedures than the regional average and the time required is also significantly shorter (DB 2017). Starting a business takes slightly less time than elsewhere in the region (DB 2017).

Land administration Very high risk

There is a very high risk of corruption in Kenya's land administration. Kenyans report a high likelihood of bribery demands in meetings with land service officials, and corrupt practices reportedly occur in almost 20% of all interactions (TI Kenya, 2014). Companies should be aware that possession of a land title does not guarantee property ownership, making land-grabbing and seizures by powerful elite common as a result of pervasive corruption and impunity (BTI 2016). Fake land title deeds are frequently used and disappearances of title deeds from the Registrar's office are common; houses built on illegaly acquired property are often demolished without prior notice (BTI 2016).

In addition, property rights protections are inadequately enforced (GCR 2016-2017). Registering property in Kenya takes around the same time as the regional average, but it requires 9 steps compared to an average of 6 steps elsewhere in the region (DB 2017).

Tax administration Very high risk

The tax administration in Kenya carries a high risk of corruption. Companies report that irregular payments and bribes in the process of tax payments are very common (GCR 2015-2016). Around one in three Kenyans perceives most or all tax officials to be corrupt (GCB 2015). Tax rates are identified among the most problematic factors for business (GCR 2016-2017), and the process of filing taxes is burdensome (TI Kenya, 2014). On average, companies make 31 tax payments a year and spend nearly 200 hours filing, preparing, and paying taxes (DB 2017).

Customs administration Very high risk

Companies face a high risk of corruption in Kenya's customs administration. Rampant corruption at Kenya's ports and border points is the most problematic factor for international trade, followed by tariffs, burdensome import procedures and crime (GETR 2016). Companies report that irregular payments and bribes are common (GETR 2016). The lack of transparency in the customs administration has serious consequences for security in Kenya. Border compliance procedures in Kenya take significantly longer than the regional average (DB 2017).

Bribery of border officials lets Al-Shabaab fighters enter the country easily to organize terrorist attacks that fuel the costs of business (LA Times, Apr. 2015). It is also alleged that Kenya's army is involved in a sugar-smuggling racket with the Islamist group Al-Shabaab, worth as much as USD 400 million a year (The Economist, Nov. 2015). The Port of Mombasa has been named as a major hub in the illicit ivory trade; corruption, conflicting interests of the various authorities involved, and weak scanning abilities facilitate the trade (The Citizen, May 2016).

Public procurement Very high risk

Kenyan public procurement is subject to rampant corruption and bribery. Companies report that bribes and irregular payments are highly common in the process of awarding public contracts (GCR 2015-2016). Tendering fraud is the fastest growing economic crime in Kenya: One in every three companies reports experiencing fraud in procurement during the past two years (PwC 2016). Businesses report that the vendor selection stage is most likely to be subject to fraud (PwC 2016). Allegations exist that high-level corruption takes place in energy, airport construction, and infrastructure procurement processes; a number of contracts were awarded to foreign firms that allegedly did not comply with public procurement laws in Kenya (ICS 2016). Furthermore, the process of devolution has led to an increase of patronage in county-level procurement processes (BTI 2016). A survey among government officials concluded that procurement fraud is prevalent, particularly on the county level (EACC 2016). Companies report diversion of public funds and favoritism in the decisions of public officials to be common (GCR 2016-2017).

On the Public Procurement Oversight Authority (PPOA) website, companies can find information on Kenya's public procurement regulations, debarment from participation and procurement manuals, and can submit bids. Companies found guilty of violating procurement regulations may be debarred at the discretion of the director general. All major transactions require competitive bidding by law (ICS 2016). Companies are recommended to use a specialized public procurement due diligence tool to mitigate the corruption risks related to public procurement in Kenya.

Kenya Power, the national electricity company, stands accused of procurement fraud over handing a contract to a Chinese firm that had been in existence for only 11 months and thus not meeting the requirement of having audited reports for the last 18 months, raising suspicion about the transaction (Standard Digitial, Dec. 2016). Furthermore, the price of the contract was KES 1.2 billion higher than the bid of the lowest bidder (Standard Digitial, Dec. 2016). In another instance, a major pipeline construction project in Kenya has reportedly cost taxpayers over USD 350 million following allegations that officials colluded to construct a pipeline with a much higher capacity than necessary for the purpose of operating a kickback scheme (Daily Nation, Mar. 2017).

The country's top politicians are facing corruption charges from Kenya's Ethics and Anti-Corruption Commission and from Swiss authorities. Former finance ministers, permanent secretaries, and senior government officials have been linked to extensive bribery schemes involving a number of inflated state contracts worth USD 700 million that were awarded to phantom vendors. As a result, a number of necessary infrastructure projects were not delivered (Guardian, Mar. 2015). No one has been sent to jail over the case so far (Tuko, Dec. 2016). The fallout of the scandal is continuing; Swiss prosecutors are trying to recover funds stashed away in Swiss bank accounts (The Star, Apr. 2017).

Natural resources Very high risk

High levels of corruption threaten Kenya's natural resources. Six senior officials from the Kenya Wildlife Service (KWS) were suspended due to alleged corruption and neglect of duty that contributed to pervasive poaching (Save the Rhino, May 2014). Despite the government's efforts to curb corruption in the KWS, conviction rates for corrupt officials and wildlife offenders are very low (Save the Rhino, May 2014). Extensive deforestation and forest degradation in Kenya are direct results of extensive corruption by forest management officials (REDD 2013). It is alleged that some members of Kenya's Forest Service collude with loggers in kickback schemes (Standard Media, Nov. 2016).

Legislation

Businesses should note the enforcement of anti-corruption legislation in Kenya is inadequate as a result of the weak judicial system and a lack of strong institutions (BTI 2016). Kenya's Anti-Corruption and Economic Crimes Act 2003 and Penal Code criminalize corruption, active and passive bribery, bribing a foreign official, Nonemoney laundering, abuse of office, extortion, conflict of interest, bid rigging and bribery involving agents. The penalties for corruption include a fine of up to KES 1 million or ten years' imprisonment. The Bribery Act of 2016 criminalizes primarily private sector bribery, broadly defined as "offering, promising, or giving a financial or other advantages to another person", which may include facilitation payments. The Act imposes a duty on public and private entities to have appropriate anti-bribery procedures in place (LexAfrica, Feb. 2017). Companies convicted under the Act will be barred from doing business with the government for 10 years (LexAfrica, Feb. 2017). The Public Officers Ethics Act 2003 sets rules for transparency and accountability, as well as gifts and hospitality. High-level politicians are required to declare their income and assets. The Public Procurement and Disposal Act prohibits corruption in public procurement, while the Finance Act 2006 provides for measures against tax fraud and guidelines on tax administration; it also provides sanctions on corrupt practices and expands the tax bracket to capture a wider tax base, thereby reducing opportunities for tax evasion. The Service Commissions Act has a Code of Regulations for civil servants that requires meritocratic recruitment and promotion of public officials; it also enshrines their political independence. The Anti-Corruption and Economic Crimes Act and the Witness Protection Act provides for protection of whistleblowers and forbids any disciplinary action to be taken against any private or public employee who assists an investigation or discloses information for such an investigation. However, the Witness Protection Agency is underfunded and doubts about its independence exist (HRR 2016). Kenya has ratified the African Union Convention on Preventing and Combating Corruption and the United Nations Convention against Corruption (UNCAC).

Civil society

Kenya's Constitution guarantees freedoms of press and expression (HRR 2016). In practice, the government does not completely respect these rights; journalists are facing increasing pressure from authorities and new laws that challenge their ability to report freely (FotP 2016). Self-censorship is on the rise and journalists experience harassment from authorities that try to prevent critical work from being published (FitW 2016). However, a variety of views and critical reporting is published by the country's private media outlets (FotP 2016). The Information and Communication Act provides for excessive government control of Kenya's media and allows the government-controlled board to impose fines on media houses and reporters for violations of a code of conduct created by the board (FitW 2016). One blogger was arrested in Eastern Kenya under the Act for "causing public anxiety" after reporting on corruption in the region (FotP 2016). Kenya's media environment is considered 'partly free' (FotP 2016).

Freedoms of association and assembly are provided by the Constitution. Parliament generally welcomes the expertise of civil society organizations (CSOs), but decision-makers in government generally ignore civil society (BTI 2016). The influence of CSOs has gradually decreased over the past decade (BTI 2016). In the past few years, the government has attempted a (thus far largely unsuccessful) crackdown on civil society. Particularly in times of high political tension, Kenyan civil society tends to operate according to lines of ethnic interests (BTI 2016).

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