Prevention and Remedies for Legal Risks of Investment of Chinese Enterprises in Kenya

Elizabeth W.Karanja[1]

1.Introduction

There is no doubt that China-Africa trade and cooperation has developed exponentially in the past 10 years.According to Gao Hucheng,China’s Minister for Commerce,“China-Africa trade has expanded in large scale.In 1965,trade between China and Africa was only US$ 250 million.In 2013,bilateral trade volume reached US$ 210.3 billion,exceeding US$ 200 billion for the first time.China has been the largest trade partner of Africa for 5 consecutive years.”[2]

China has had a 50 year bilateral relationship with Kenya,dating back to 14th December 1963,when just two days after Kenya’s independence,the Embassy of China was opened.[3] Since then,there has been a large number of development projects in Kenya involving Chinese State-owned corporations (SOEs) and private sector companies.According to Kenya’s official website of the President,Chinese investment in Kenya increased significantly during President Mwai Kibaki’s term in office (2002 to 2012) and has been further developed since 2013 in President Uhuru Kenyatta’s rule.The Office of the President reports that in 2013,trade volumes between China and Kenya rose to USD 3.27 Billion,up from USD 2.8 Billion in 2012.

Kenya has an ambitious development blue-print,Vision 2030,which seeks to propel Kenya to become a middle-income economy by 2030.Ambitious projects are planned under the Vision 2030 blueprint,including projects in infrastructure,transport,energy,oil＆；gas,health and agriculture.This also follows on from recent commercially viable oil finds in Northern Kenya.

In August 2013,the President of Kenya made a State visit to China where he met President Xi Jinping of China to discuss Sino-Kenya cooperation.During this State visit,infrastructure and energy deals worth USD 5 Billion were signed.President Xi Jinping reciprocated President Kenyatta’s visit when he made a State visit to Kenya on 9th May,2014 during his Africa tour.Shortly after President Xi Jinping’s State visit to Kenya,Kenya and China signed an agreement for the construction of a USD 2.6 Billion standard gauge railway linking Mombasa and Nairobi,and to be constructed by the China Roads and Bridges Company.[4] It is estimated that in Kenya,about fifty (50) Chinese companies have been contracted for about 80 projects with a value of about USD2 Billion.The Projects are in roads,railway,housing,water processing,power upgrading,consultation and design,geothermal wells and ports and airports.[5]

Chinese corporations are not only involved in public infrastructure development in Kenya,but are also heavily involved in private investment and developments,including in real estate and hospitality.For instance,the China National Aero-Technology International Engineering Corporation (CATIC) is the major sub-contractor in Nairobi’s Two Rivers Development,a major KES 17 Billion (approximately USD 200 Million) mixed use development on a 100 acre parcel of land being developed by Centum Investments Limited.[6]

2.Legal risk a major consideration for investors

The World Economic Forum’s Global Competitiveness Report 2013-2014[7],which provides a ranking of the competitiveness of countries in investment,based its country rankings on 12 pillars of competitiveness.The first and most important pillar is “institutions”,which relates to the legal and administrative framework of the country.

The first step towards avoiding legal risks when it comes to investment in Kenya is understanding the legal requirements for investment in the country.The country has a robust legal and institutional framework that is also in the process of further development.To guard against and deal with legal risk when it occurs,it is important to understand the country’s legal and institutional framework as it relates to investment,and I discuss this in detail below.

3.Overview of Kenya’s legal and constitutional framework

Much of Kenyan law has its roots in the English legal system,and follows English common law.Under Kenya’s Judicature Act,the Constitution is the supreme law of the land.Other sources of law include: all written laws,the substance of common law,doctrines of equity and statutes of general application in force in England on or before 1897.The application of the substance of English common law and doctrines of equity is subject,however,to any statutes enacted that override the common law or equitable doctrines,and is applicable only so far as circumstances in Kenya permit.

On 28th August 2010,Kenya promulgated a new Constitution,the Constitution of 2010.The Constitution brought about sweeping changes to the country’s legal and governance regime.Among the key changes brought about by the Constitution of 2010 which affect investment include:

(a) Devolution of power: power is no longer concentrated in the national Government and President,and is devolved to county governments；

(b) Under article 2 of the Constitution,general rules of international law form part of Kenyan law.Further,any treaty or convention ratified by Kenya forms part of Kenyan law.This is a departure from the previous position,where a treaty or convention needed to be domesticated to Kenyan law through enactment of a statute,before the treaty could be regarded as having the force of law in Kenya；

(c) In Chapter 4 of the Constitution,fundamental rights and freedoms were expanded to not only cover individuals,but also non-natural persons.Fundamental rights and freedoms are not only actionable against the State,but also private persons.Further,fundamental rights and freedoms were expanded to include other rights not previously recognised,including: economic and social rights；right to privacy；labour rights；consumer rights；and environmental rights；

(d) The land regime was overhauled,and certain restrictions were placed on ownership of land；and

(e) Chapter 6 of the Constitution introduced provisions on leadership and integrity,which constitutionally provide for an ethics code of conduct for public offers.

4.Devolved Government

The Constitution introduced a new system of government - the devolved system of government.The transition from the old national system of government,which was characterized by the centralization of political and economic power,to a federal system of government,was geared towards equitable distribution of resources and power.Implementation of the devolved system commenced after the March 2013 elections.Under the devolved system,there are 47 counties,each with its own executive and legislative arm.The devolved system envisages that the national and county governments are distinct systems of government.

Each system of government has its own legal and administrative framework.The Constitution provides for the distinct powers and functions of each system and the areas of overlap and cooperation.

5.Investment promotion and legislative protections

Kenya has taken measures,both at a national level and at an international level to promote foreign investment in the country.Chinese investors can take advantage of the various measures put into place,and I discuss some of these measures below.

(A) Bilateral investment treaties (BITs)[8]

Kenya has to date concluded 13 bilateral investment treaties with various countries.Out of the 13 BITs entered into by Kenya,5 BITs are in force,whilst 8 are not yet in force.Kenya’s BIT with China was signed on 16th July 2001 but has to date not entered into force.It is hoped that with increasing trade and investment between the 2 countries,the BIT will soon enter into force.

(B) Foreign investment promotion and protection statutes

The three main statutes geared towards promotion and protection of foreign investment in Kenya are the Investment Promotions Act,2004 (the IPA),the Foreign Investments Protection Act (Chapter 518,Laws of Kenya) (the FIPA) and Export Processing Zones Act (Chapter 517,Laws of Kenya) (the EPZ Act).

(i) benefits under the IPA

The primary aim of the IPA is to reduce the bureaucracy faced by an investor when setting up in Kenya.The IPA establishes the Kenya Investments Authority (KIA).

Under the IPA,a foreign investor with a minimum capital of USD 100,000 or its equivalent in another currency can apply to the KIA for an investment certificate.A local investor with a minimum capital of KES 1,000,000 (approximately USD 12,000) or its equivalent in another currency can also apply for an investment certificate.Benefits include speedy issuance of business licences and permits,exemptions under certain taxation legislation and provision of a certain number of work permits and entry permits for the investors and their dependants,as well as management and technical staff.

The Investment Promotion (Investment Registration and Certificates) Regulations,2005 provide for the process of applying for,and the requirements for granting an investment certificate.

(ii) Benefits under the FIPA

Although the FIPA is of less relevance in Kenya since exchange controls were repealed in 1995,pursuant to the FIPA foreign nationals (that is persons who are not Kenyan citizens) can apply to the Government for a certificate of approved enterprise.

Profits (including retained profits which have not been capitalized (after taxation)) from such an approved enterprise may be freely transferred out of Kenya.The principal and interest of any loan specified in the certificate from such an approved enterprise may be freely transferred out of Kenya.Further,approved investments cannot be compulsorily acquired without compensation under the Constitution.This provision is however redundant as the Constitution provides for the right to compensation in the case of compulsory acquisition of land.

(iii) Special economic zones

At present,the only legislation dealing with special economic zones in Kenya is the Export Processing Zones Act (Chapter 517,Laws of Kenya) (the EPZ Act).The activities eligible to be carried out within EPZs include manufacturing activities,commercial activities or service activities.EPZ licensed businesses are granted certain tax exemptions including:

(a) payment of VAT and customs duties on certain capital materials；

(b) payment of income tax for the first ten (10) years from the date of first sale as an EPZ enterprise,except that the income tax rate shall be limited to twenty-five (25) per cent for the ten (10) years following the expiry of the exemption；

(c) exemption from the payment of withholding tax on dividends and other payments made to non-residents during the period that the EPZ enterprise is exempted from payment of income tax；and

(d) exemption from stamp duty on the execution of any instruments relating to the business activities of an EPZ Enterprise.

The establishment of new “special economic zones” is a key objective of the Vision 2030 development blueprint[9].There was a special economic zones bill that was being conceptualized in 2013 with a view to repealing the EPZ Act,but this is yet to be finalised.[10]

6.Company registration

Under Kenyan law,a business can be recognised under various forms including: (a) sole proprietorships；(b) partnerships；(c) trusts；(d) cooperative societies；(e) nongovernmental organizations；and (f) companies.

The most commonly used entity for investment is a private limited liability company.The principal statute dealing with company law is the Companies Act (Chapter 486,Laws of Kenya) (the Companies Act) which is based substantively on the 1948 Companies Act of England.The Companies Act sets out provisions dealing with all aspects of company law including the incorporation of companies generally,share capital provisions,shareholder rights,offers to the public,the management and administration of companies,accounts,directors duties,consequences of winding up and the regulation of foreign companies based in Kenya.The Companies Act recognises three (3) types of companies: (a) a company limited by shares；(b) a company limited by guarantee；and (c) an unlimited company.Companies may either be private companies or public companies.

When setting up in Kenya,a Chinese investor can either: (a) establish a local company in Kenya (which would most commonly be a private company limited by shares and can be a subsidiary of the parent company in China)；or (b) register a branch office of a foreign (Chinese) registered company.

(A) Setting up a branch office

Under section 366 of the Companies Act,an investor intending to register branch office is required to deliver to the Registrar of Companies the following documents and information:

(a) A certified copy of its constitutional documents；

(b) A list of the directors and secretary of the Company,including personal details and addresses；

(c) A statement of all subsisting charges created by the Company (not being charges comprising solely property situate outside Kenya)；

(d) The names and postal address of one or more persons resident in Kenya authorised to accept summons and notices on behalf of the Company；and

(e) The full address of the registered or principal office of the Company.

Prescribed forms issued by the Companies Registry are used to provide the information required to register a branch.The Registrar of Companies then issues a certificate of compliance.A branch which is not a private company incorporated in the Commonwealth is required to prepare a balance sheet and profit and loss account (income statements) and if it is a holding company,group accounts,in the form prescribed under the Companies Act and deliver copies of these documents to the Registrar on an annual basis.

(B) Setting up a subsidiary or local company

In order to incorporate a company in Kenya the following information is required:

(a) the proposed name of the company.The name must be approved by the Registrar of Companies.In this regard a search can be carried out to ascertain that the desired name is available for registration；

(b) details of the main objects of the company；

(c) the share structure of the company.Save in certain cases only,there are no minimum capital requirements.A company can be incorporated with any amount as its authorised share capital.A company can increase or reduce its share capital if authorised by its Articles.Where a company increases or reduces its share capital,the company is required to notify the Registrar of Companies within thirty (30) days of passing the resolution.In the case of a reduction of share capital,a special resolution and the confirmation of the court to the reduction are required.Creditors are allowed to oppose the reduction of the share capital of a company.There is no requirement in law for the capital of a company to be in the form of cash (e.g.cash deposits in the bank).The nominal share capital is required to be provided for purposes of stamp duty；

(d) details of the persons (at least two) who are to be shareholders in the company.A private company must have at least two shareholders.Where a shareholder is a company the information required is the name,address,date of incorporation and country of incorporation of that shareholder.It is also possible for a private company to have only one director if it also has a company secretary；

(e) details of the registered office of the company,that is,its postal and physical address (plot number,building and road).This information will be required before incorporation.In the event that the investor has not acquired an office by the time of incorporation the investor may opt to use the registered office of the company secretary and change it once they set up an office；

(f) details of the persons who will be directors in the company；and

(g) details of the person who is to be the company secretary,including his company secretarial registration number.In Kenya,the company secretary must be registered with the Institute of Certified Public Secretaries of Kenya.

The constitutional documents of the company are: the memorandum of association,which provides for the objects of the company；and the articles of association,which provide the regulations for management of the company.The constitutional documents are required to be in the English language and signed by the original subscribers of the company.In the case of articles of association,the Companies Act contains articles of association that a private company can adopt in Table A of the Companies Act.A private company can adopt the articles of association provided for in Table A fully,adopt the articles of association provided for in Table A with amendments or disregard Table A and prepare its own articles of association.

In order for the company to be registered,the constitutional documents and the statement of nominal capital are first required to be lodged for stamping upon payment of the relevant stamp duty to the collector of stamp duty.Upon stamping,the documents are required to be lodged with the Registrar of Companies upon payment of the relevant registration fees.Once documents are lodged and accepted by the Registrar of Companies,the Registrar issues a Certificate of Incorporation.The company incorporation process takes a period of about three (3) to four (4) weeks to complete.

7.Conclusion of contracts

A contract is what creates legally binding obligations between parties.Investors coming into Kenya should therefore be aware of the Kenyan law as it relates to conclusion of contracts.

Pursuant to section 2 of the Law of Contract Act (Chapter 23 Laws of Kenya), unless otherwise provided for in any written law in force in Kenya,the common law of England relating to contract,as modified by the doctrines of equity,and by certain Acts of Parliament of the United Kingdom set out in the Law of Contract Act,shall apply.

For a contract to be binding,there is required to be a valid offer,acceptance and consideration.Contracts executed as deeds do not require consideration.Oral contracts are recognised in Kenya,although there is an evidential threshold that is required to be met to prove an oral contract.

Under the Law of Contract Act,there are certain contracts which are required to be in writing,and these are set out under section 3.These include: contracts to answer for the debt,default or miscarriages of another person；or contracts to charge one person in respect of assurances made so that another person can obtain credit,money or goods (guarantee contracts).Further under section 3 (3) of the Law of Contract Act,contracts for the disposition of an interest in land are required to be in writing,signed by the parties thereto,and the signature of each party should be attested by a witness who is present at the time the contract is signed by the party.

Other laws may require contracts to be formed in certain ways.For instance,the Government Contracts Act (Chapter 25,Laws of Kenya) and the Public Procurement and Disposal Act (Chapter 412A,Laws of Kenya) (the PPDA) require contracts entered into by the Government to be executed by certain persons.

8.Public procurement and contracting with the Government

Where the government or any governmental authority contracts with or partners with another entity (other than the Government or another authority of the Government),the transaction is regulated by the Government Contracts Act and the PPDA.

(A) The Government Contracts Act

Contracts made in Kenya on behalf of the Government are required to be signed either by the accounting officer or by the receiver of revenue of the Ministry or for the department of the Government concerned,or by any public officer duly authorised in writing by such accounting officer or receiver of revenue.[11] For contracts made outside Kenya,they are binding if made by,“a person either generally or specially authorized in writing in that behalf by the Minister…”[12]

(B) Public procurement

All procurement and disposals by public entities[13],including entry into public-private partnerships,is required to comply with the provisions of the PPDA.A lot of Chinese investment is in infrastructure development and public works.It is therefore important for investors to be aware of the public procurement legislation in order to avoid the pitfalls of non-compliance.

Under section 29 of the PPDA,for each procurement,a procuring entity is required to use open tendering (under a competitive bid process) or an alternative procurement procedure,only if the procedure is allowed under the PPDA.Under Part IV of the PPDA,the alternative procurement procedures are: (a) restricted tendering；(b) direct procurement；(c) request for proposals；(d) request for quotations；(e) low value procurements；and (f) specially permitted procurement procedures.

The usual procurement method to be used is open tendering,unless there are reasons why other procurement methods should be used.For instance,direct procurement is valid only if,before using the procedure,the procuring entity obtains the written approval of its tender committee and records in writing the reasons for using the alternative procurement procedure[14].

The PPDA makes provision for the matters that should be set out in tender documents,the timelines for procurement,the qualifications for successful bids and the mode of entry into procurement contracts after successful bidding,and notification of the award of the tender.Under the First Schedule to the PPDA Regulations,certain officers of a public entity are responsible for signing the contract based on different thresholds of procurement.In most instances,the accounting officer of the public entity is responsible for signing the contract on behalf of the procuring entity.

Where a bidder is aggrieved by a public entity’s procurement process,they can make an application for review of the process to the Public Procurement Review Board.Under section 98 of the PPDA,upon completing a review,the Review Board has powers to make various orders,including annulment of the procurement proceedings.

Public procurement by county governments is required to comply with the Public Procurement (County Governments) Regulations,2013.

Public private partnerships (PPPs) are required to comply with the provisions of the PPP Act (Act no.15 of 2013).

9.Dealings in Land

A high value is based on land in Kenya,as witnessed by the real estate boom over the last 10 years.According to a study conducted in 2012 by estate agents Knight Frank and Citi Private Wealth,Nairobi was the best performing prime residential market in the world.Values in the city grew up by 25％ in 2011,leaving behind other luxury cities such as London,Miami and Hong Kong.[15] Under Kenyan law,land can be owned under either a freehold or leasehold title.There are certain restrictions on ownership of land by foreigners which Chinese investors should be aware of.These are:

(a) Under the Constitution,non-citizens cannot own land under a freehold title but can have leasehold interests of up to 99 years；[16]

(b) Under the Land Control Act (Chapter 302,Laws of Kenya),there are restrictions on ownership of agricultural land by foreigners.[17] Under section 6 of the Land Control Act,the consent of a land control board is required in order to deal with agricultural land.Land control board consent is required to be refused in the case where agricultural land or a share of a company owning agricultural land is to be disposed to a non-Kenyan citizen.A non-Kenyan citizen may apply to the President for an exemption from the application of the Land Control Act.

Further,when it comes to dealings in land,one must ensure that the process followed to acquire land is in line with the requirements of the Constitution,the Land Act,(Act Number 6,2012),the Land Registration Act,Act Number 3,2012 and the National Land Commission Act,(Act Number 5,2012).

10.Taxation regime

Kenya has several statutes dealing with taxation,including:

(a) The Income Tax Act (Chapter 470,Laws of Kenya)；

(b) The VAT Act (Act No.35 of 2013)；

(c) The Stamp Duty Act (Chapter 480,Laws of Kenya) and

(d) The East African Community Customs Management Act,2004 (the EACCMA).

Kenya has double taxation agreements (DTAs) which several countries,but has to date not concluded a DTA with China.[18]

Income tax in Kenya is chargeable pursuant to the provisions of the Income Tax Act.taxable persons are required to be registered for income tax and have a personal indentification number (PIN) certificate.

Income tax is charged directly on profits made by corporate bodies such as limited liability companies.The Income Tax Act sets out the matters to be considered in the determination of taxable income and also sets out the rates of taxation.The rates differ between resident and non-resident entities.The corporate income tax rates are currently as follows:

(a) Resident company　　　　　　　　　　　 30％

(b) Non-resident company (branches)　　　37.5％

Withholding tax is payable on dividends,interest,royalties and management fees.

There is currently no capital gains tax applicable in Kenya.

There are thin capitalization rules which limit deductability of loans made by a parent company to a Kenyan subsidiary.

There are also transfer pricing regulations which are geared towards ensuring that dealings between related entities are conducted on an arms-length basis.

Under the VAT Act,VAT on chargeable goods and services is calculated at the rate of 16％.A person is required to be registered for VAT and obtain a VAT certificate if he makes taxable supplies or expects to make taxable supplies of KES 5,000,000 (approximately USD 50,000) or more in any period of twelve months.

Under the Stamp Duty Act,stamp duty is charged at a nominal or ad valorem rate depending on the instrument being stamped.Stamp duty on transfer of land within a municipality is 4％ of the value of the land.Stamp duty on transfer of land outside a municipality is 2％ of the value of the land,stamp duty on a transfer of share is 1％ of the value.There is no stamp duty payable on the transfer of shares in a listed company.

Under the EACCMA,customs duties are payable on certain imported goods.

11.Labour relations and immigration

Kenya has a robust employment law regime,which comprises of: the Constitution；the Employment Act (Act No.11 of 2007) (the Employment Act)；the Labour Institutions Act (Act No.12 of 2007)(the Labour Institutions Act)；the Industrial Court Act,(Act No.20 of 2011) (the Industrial Court Act)；the Labour Relations Act (Act No.14 of 2007) (the Labour Relations Act)；the Occupational Safety and Health Act,2007 (Act No.15 of 2007) (the OSHA)；and the Work Injury Benefits Act (Act No.12 of 2007) (the WIBA).

Kenya has also ratified international treaties relating to employment,which form part of Kenyan law pursuant to Article 2 of the Constitution.According to the National Council for Law Reporting Treaties Database,Kenya has to date ratified 169 International Labour Organisation (ILO) conventions dealing with labour matters.

I have discussed some of the key elements that an investor should be aware of below.

(A) General employment matters

The principal employment statute applicable in Kenya is the Employment Act.This statute provides for the minimum terms and conditions of employment,and any contract of employment which provides for less favourable terms than those set out in the Employment Act would be considered void.Where a contract provides for more favourable terms,the favourable terms would be enforced.

The Employment Act recognizes and applies to both oral and written contracts of service.Contracts for periods of 3 months or more are required to be in writing.An employer that is a party to a written contract is responsible for causing the contract to be drawn up stating the particulars of employment and that the contract is consented to by the employee.Section 10 of the Employment Act provides for the minimum particulars that should be provided in an employment contract.

Under both the Constitution and the Employment Act,employees are entitled to fair labour practices.An employee or potential employee should not be discriminated against.There are also prohibitions against sexual harassment.

There are certain minimum terms and conditions that are assured for all employees under the Employment Act.These include: 21 days annual leave；paid public holidays (there are currently 12 in a year under the Public Holidays Act)；sick leave for a period of 7 days with full pay and 7 days with half pay；housing/housing allowance；regulated working hours；provision of medical attention；and provision of adequate water.

Wages are protected and are required to be paid in the currency of Kenya.Wages should not go below the minimum wages provided under the Labour Institutions Act.

Termination of employment,whether by notice,has to have fair reasons for termination.In the case of termination by notice,the minimum notice period applicable where wages are paid monthly is 28 days notice.In the case of summary termination,this can be without notice,but the employer has to go through fair disciplinary procedures prior to termination.The Employment Act also contains provisions for termination on account of redundancy.

Under the Employment Act and the Industrial Court Act,no other tribunal other than the Industrial Court has jurisdiction to hear labour disputes.

(B) Tax and social security

Under the Income Tax Act,employment income is taxed on a graduated scale,based on levels of remuneration with the lowest bracket being charged tax at a rate of 10％,and the highest being charged at 30％.It is the duty of the employer to deduct and remit the employee’s income tax (known as Pay As You Earn (PAYE)) to the Kenya Revenue Authority.The employer is required to be registered for tax,and ensure that taxable employees are registered for tax.

Under the recently National Social Security Fund Act (No.45 of 2013),both employers and employees are required to be registered contributors to the NSSF,and it is the employer’s duty to remit employer contributions and deduct and remit employee contributions to the NSSF on a monthly basis.The applicable rates are the subject to a court case,and in the meantime,the applicable rates are those set out under the old NSSF Act (Chapter 258,Laws of Kenya),being KES 200 contributed by the employer and KES 200 deducted from the employee’s remuneration.

Under the National Hospital Insurance Fund Act (Chapter 255,Laws of Kenya) (the NHIF Act),employers are required to deduct standard monthly contributions from their employees’ remuneration and remit the same to the NHIF monthly.The funds are used to assist the employee settle in-patient medical bills.

(C) Occupational safety and work injuries

Health and safety is provided for in the OSHA.The OSHA applies to all workplaces,whether temporary or permanent.

The OSHA requires every workplace to be registered with the Director of Occupational safety and Health.The “occupier” of a workplace (the employer) is required to prepare a safety and health policy statement and,as often as may be appropriate,revise a written statement of its general policy with respect to the safety and health at work of its employees.The occupier is also required to establish a health and safety committee.

All sessions accidents in a workplace are required to be notified to an occupational safety and health officer.Where an accident causes the death of a person,the employer should inform the Occupational Safety and Health Officer within 24 hours of the occurrence of the accident.

Workmen’s compensation is provided for under the WIBA.Under the WIBA,an employer has an obligation to pay an employee workers’ compensation for injury or disease suffered in the workplace.the rates of compensation are payable according to the level of injury.For example,compensation for permanent disablement shall be calculated on the basis of ninety six (96) months’ earnings subject to the minimum and maximum amounts determined by the Minister,after consultation with the National Labour Board and as set out in the Third Schedule to the WIBA.

(D) Trade unions and labour relations

Kenya has a robust trade union movement,especially in the “blue collar” industrial sector.However,every worker,irrespective of their vocation,has a right to join a trade union.Under article 41 of the Constitution,every worker has the right to form,join or participate in the activities and programmes of a trade union.

The conduct and management of trade unions are governed by the Labour Relations Act,2007.Under the Labour Relations Act,all employees have a right to be members of a trade union of their choice and it is an offence to discriminate against a person or treat a person unfairly due to his or her membership in a trade union.

The Labour Relations Act provides that a trade union may represent an employee,who is a member,in his or her dealings with the employer.Employees have a right to participate in trade union activities,and termination of employment due to participation in a lawful strike or due to the employee taking part in trade union activities outside working hours or within working hours with the employers consent is an unfair termination.

(E) Immigration

In order for a foreigner to work in Kenya,they must have a valid entry permit,issued under Kenya’s immigration laws.The applicable immigration law in Kenya is the Kenya Citizenship and Immigration Act,2011 (the Kenya Citizenship and Immigration Act).The recently enacted Kenya Citizenship and Immigration Regulations,2012 provides for the various types of visas,permits and passes.

The various types of permits are specified in the seventh schedule to the Regulations.The classes of entry permits range from class A to class M as follows: Class A: Prospecting and mining；Class B: Agriculture and animal husbandry；Class C: Prescribed profession；Class D: Employment；Class F: Specific manufacturing；Class G: Specific trade,business or consultancy；Class I: Approved religious and charitable activities；Class K: Ordinary residents；and Class M: Refugees.

In the case of Class D entry permits,commonly known as work permits,the obligation is on the employer to apply for an entry permit for the respective foreign employees,and it is an offence to gainfully employ a foreigner who does not have a valid work permit.The employer is required to prove the expertise of the foreign employee and show that the work to be undertaken by the foreigner is work that cannot be done by a Kenyan.Work permits are usually issued for a period of 2 years,upon payment of the prescribed fees.

The Immigration Regulations also provide for other passes such as: dependant passes for the dependants (such as spouse and children) of persons issued with an entry permit；short term internship and research passes；and one month tourist visas,which are issued at ports of entry.

12.Environmental regime

Article 42 of the Constitution assures every person of the right to a clean and healthy environment.The Environmental Management and Coordination Act of 1999 (the EMCA) is the principal statute regulating environmental matters.

Under the EMCA,development projects are required to undergo an Environmental Impact Assessment (EIA),and to obtain approval from National Environmental Management Authority.The project proponent is first required to submit a project report NEMA in the prescribed form,giving the prescribed information and which shall be accompanied by the prescribed fee.The project report should among others,state: the nature of the project；the location of the project；the activities that shall be undertaken；the potential environmental impacts of the project；the project budget；and an action plan for the prevention of any accidents.

NEMA on considering the project report will either grant approval or require an EIA study to be carried out if it is of the opinion that the project may have adverse effects on the environment.When an EIA study is required,the proponent is required to contract experts to carry out the EIA study.The experts then prepare an EIA study report and forward it to NEMA which holds public hearings,and considers the report with the help of a technical assistance committee.NEMA can then decide to refuse the licence or grant an EIA Licence with or without conditions.The EMCA also requires annual environmental audits to be carried out.

13.Other licences and requirements

Depending on the particular commercial activity a company is engaged in,there may be other industry-specific licences,approvals or permits that the company would be required to obtain.For instance:

(a) Where the company is undertaking a development,it is required to obtain planning permission under the Physical Planning Act of 1996；

(b) in order to be a telecommunications provider,a company would have to obtain a telecommunications licence from the Communications Commission of Kenya under the Kenya Information and Communication Act (Chapter 411A,Laws of Kenya)；

(c) if a company is investing in the energy sector,it would have to obtain the relevant licence from the Energy Regulatory Commission under the Energy Act (Chapter 314,Laws of Kenya)；

(d) if an investor is investing in the mining sector,it would be required to obtain a mining licence under the Mining Act (Chapter 306,Laws of Kenya)；

(e) where an investor is importing goods and equipment to Kenya,then aside from payment of import duties,it would have to ensure the goods undergo pre-shipment inspection,and comply with the requirements under the Standards Act (Chapter 496,Laws of Kenya).

The investor would also need to periodically check that they are in compliance with the various laws in order to maintain successful operations,and prevent the legal risks that would arise out of non-compliance.

14.Conclusion

Kenya has great investment potential,especially in energy and natural resources,telecommunications and ICT,infrastructure,finance,real estate and hospitality.There is no doubt that opportunities for investors abound.

Kenya also has a robust legal and institutional framework for investment,and for Chinese investors coming to Kenya,the best way to prevent legal risk in investment is to ensure that one is in compliance with the applicable laws and regulations.In my paper,I have conducted a high level review of the laws and regulations that would be relevant to general investment,and also specific sectors,with an aim of highlighting some of the important considerations to be made.This paper is not intended to provide legal advice and only provides a guide to some of the applicable laws.The laws discussed are not conclusive,and it is important for any investor to obtain comprehensive legal advice on the applicable laws and regulations,prior to making an investment.

Disclaimer: The contents of this discussion paper are intended to be for general use only and should not be relied upon without seeking specific legal advice on any matter.

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[1]The author is Senior Associate at Jmiles＆；Co.an international arbitration,investigation and consulting practice based in Nairobi,Kenya,E-mail: ewk@jmilesarbitration.com.

[2]“With Accumulations and Highlights,China-Africa Economic and Trade Cooperation Boasts Broad Prospects”,Gao Hucheng,5th May 2014.Available at 〈 http://search.mofcom.gov.cn/swb/recordShow.jsp?flag=0 ＆lang=1＆base=iflow_02＆id=english201405005788111＆value=(Africa)〉.

[3]“Kenya-China Relations: A journey of Friendship and cooperation”,8th May 2014.Blog available on the Official Website of the President of Kenya,The Presidency http://www.president.go.ke/kenya-china-relations-ajourney-of-friendship-and-cooperation/.

[4]“Kenya,China sign standard gauge railway agreement”,11th May 2014,Daily Nation,http://mobile.nation.co.ke/news/East-Africa-China-Standard-Gauge-Railway/-/1950946/2310836/-/format/xhtml/-/12mcyetz/-/index.html.

[5]“Kenya-China Relations: A journey of Friendship and cooperation”,8th May 2014.Blog available on the Official Website of the President of Kenya,The Presidency 〈 http://www.president.go.ke/kenya-china-relations-ajourney-of-friendship-and-cooperation/〉.

[6]“Centum to build East Africa’s largest mall in Nairobi”,19th August 2014,Kenya Construction Business Review 〈http://www.constructionkenya.com/2429/centum-two-rivers-mall-runda/〉.

[7]Available at 〈http://www.weforum.org/reports/global-competitiveness-report-2013-2014〉.The other pillars are infrastructure；macroeconomic environment；health and primary education；higher education and training；goods market efficiency；labour market efficiency；financial market development；technological readiness；market size；business sophistication；and innovation.

[8]A BIT is an agreement between two countries for the reciprocal encouragement,promotion and protection of investments in each other’s territories by individuals or companies based in either territory.Depending on the specific arrangements agreed on,BITS offer several incentives and protections to investment including: promotion of investment；fair and equitable treatment；most favoured nation treatment；protection from expropriation；free transfer of funds；and dispute settlement.

[9]More information available at 〈 http://www.vision2030.go.ke/index.php/pillars/project/Economic/36〉.

[10]“Special Economic Zones Bill set for debate in Parliament”,The Business Daily,1st January 2013.Available at 〈 http://www.businessdailyafrica.com/Special-Economic-Zones-Bill-set-for-debate-in-Parliament/-/539546/1655626/-/11g2nscz/-/index.html〉.

[11]Section 2 of the Government Contracts Act.

[12]Section 3 of the Government Contracts Act.

[13]A public entity is described under section 2 of the PPDA as including: the Government or any department of the Government；the courts；the commissions established under the Constitution；a local authority under the Local Government Act (Cap.265)；a State corporation within the meaning of the State Corporations Act (Cap.446)；the Central Bank of Kenya established under the Central Bank of Kenya Act (Cap.491)；a co-operative society established under the Co-operative Societies Act (Cap.490)；a public school within the meaning of the Education Act (Cap.211)；a public university within the meaning of the Universities Act (Cap.210B)；a college or other educational institution maintained or assisted out of public funds；or an entity prescribed as a public entity for purposes of the PPDA.

[14]Section 29 (3) of the PPDA.

[15]“Lavish and sleek: Kenya’s prime property market boom”,28th June 2012,CNN.Available at 〈 http://edition.cnn.com/2012/06/28/business/kenya-luxury-housing-boom/〉.

[16]Article 65 of the Constitution.

[17]Section 2 of the Land Control Act defines “agricultural land” as “　…land that is not within a municipality or a township or an area which was,on or at any time after the 1st July,1952,a township under the Townships Ordinance (now repealed) or an area which was,on or at any time after the 1st July,1952,a trading centre under the Trading Centres Ordinance (now repealed) or a market or land in the Nairobi Area or in any municipality,township or urban centre that is declared by the Minister,by notice in the Gazette,to be agricultural land for the purposes of the LCA,other than land which,by reason of any condition or covenant in the title thereto or any limitation imposed by law,is subject to the restriction that it may not be used for agriculture or to the requirement that it shall be used for a non-agricultural purpose.”

[18]Information on Kenya’s DTA status is available from the Kenya Revenue Authority 〈 http://www.revenue.go.ke/lto/ltodta.html〉.