Kenya achieves very low overall compliance with international standards and codes, with a score of 6.67 out of 100 in our Standards Compliance Index. Six out of the twelve standards have an "insufficient information" rating, making a full assessment of the country's observance of international standards difficult. Still, having five standards rated "no compliance" shows that Kenya is seriously deficient in transparency standards, and progress is hindered by an ineffective legal framework, archaic practices, heavy bureaucratic controls, and lack of capacity. The infrastructure and supervisory regime in the financial sector is very weak, but Kenya is moving forward with enabling legislation and the aid of the World Bank. Kenya has also drafted an anti-money laundering bill and launched a National Payment System Project.

Macroeconomic Policy and Data Transparency

Kenya does not subscribe to the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF). Rather, it participates in the IMF's less rigorous General Data Dissemination System (GDDS), to which it subscribed on October 29, 2002. Kenya has three data-producing statistical agencies: the Central Bureau of Statistics, the Ministry of Finance, and the Central Bank of Kenya. In 2005, the IMF issued a Report on the Observance of Standards and Codes Data Module, in which it assessed Kenya's data collection, compilation, and dissemination standards to be highly professional and ethical, but in need of significant improvements in the areas of data quality, reliability, and other aspects of transparency. Ongoing reforms, including the drafting of a new Statistics Act and the creation of a new statistical framework, called the Strategic Implementation Masterplan, aim to address many of these outstanding issues. More »

Although there is no specific, publicly available information directly addressing Kenya's compliance with the International Monetary Fund's (IMF) monetary policy transparency standard, suggestive data can be gleaned from a number of sources. The legislative underpinnings of CBK monetary policy functions and goals are generally clear and are contained in the provisions of the Central Bank of Kenya Act. The IMF's 2005 Report on the Observance of Standards and Codes for data dissemination discloses several specific problem areas. Insufficiently detailed Central Bank of Kenya accounts source data, inadequate procedures for the assessment of data consistency, and incomplete differentiation between preliminary and revised data all contribute to transparency difficulties. Kenya does not subscribe to the IMF's Special Data Dissemination Standard, but has posted metadata on the GDDS website since 2002. More »

In a 2003 report, the Institute of Democracy in South Africa (IDASA) notes that legislation in Kenya, specifically the Constitution, does not allocate a fiscal policy oversight role to parliament, and a variety of other factors contribute to a lack of accountability and transparency in Kenyan fiscal policy. According to IDASA, these factors include inadequate staffing, insufficient training of existing staff, a lack of modern technological resources, and a bureaucratic culture that encourages the use of inherited practice over compliance with existing legislation. Kenya receives an overall score of 48%, or "some," openness on the Open Budget Index (OBI) report for the International Budget Project. This score reflects the fact that Kenya provides five out of the seven budget documents that the OBI tracks in determining the transparency and accountability of government budgetary reporting processes, but the degree of detail offered in the documents has substantial room for improvement. More »

Institutional and market infrastructure

The World Bank and the International Finance Corporation, in assessing Kenya's investment climate, found the insolvency regime to be costly and subject to lengthy delays, and called for the reform and modernization of the existing legislation. According to information cited in this report, Kenya's insolvency regime suffers from infrastructural inadequacies relating to both the legal and institutional frameworks underpinning insolvency practice and property and creditor rights. A "Doing Business 2008" report released annually by the World Bank Group disclosed that it takes an average of 4.5 years to complete formal insolvency proceedings, at an average cost of 22% of the estate, and a return to creditors of, on average, thirty-one cents on the dollar. More »

An assessment of the accounting and auditing environment in Kenya was conducted by the World Bank in 2001. The World Bank noted that Kenya had adopted International Accounting Standards (IASs) in 1998, thereby "closing the gap" between national and international accounting standards. However, compliance with reporting requirements was only partial, due to inadequacies in the enforcement mechanism, legal and institutional framework, and education in the field of accounting. The World Bank recommended amending the main acts governing accounting and auditing practices, clarifying financial reporting requirements for listed companies and financial institutions, and simplifying reporting requirements for small and medium-size enterprises. Since 2001 the International Accounting Standards Board (IASB) has revised the IASs and issued new IFRSs for the areas where no guidance previously existed. Although the Institute of Certified Public Accountants of Kenya, in its 2005 self-assessment prepared for the International Federation for Accountants, states that international standards are adopted without any modifications, there is insufficient information publicly available regarding adoption of the new and revised standards in Kenya. More »

According to a London Business School's 2003 report on corporate governance in Africa, the governance and efficacy of listed companies had improved in the years prior to the report, making it comparable to the rest of the world's capital markets. By introducing and enforcing the necessary regulations, the Capital Market Authority (CMA) and Nairobi Stock Exchange have improved governance. However, legal processes are lengthy, and the legal system's ability to resolve complex commercial disputes is questionable. Also, minority shareholders rights are lacking in some respects. The CMA released its Guidelines on Corporate Governance Practices by Public Listed Companies in 2002. They were given legal status in the Capital Markets Act 485A. The Guidelines require that entities either comply with the 1999 Private Sector Corporate Governance Trust's corporate governance code or provide reason for noncompliance in the statement of the director in the annual report. In addition, they must state the steps being taken to achieve compliance. However, overall, there is insufficient publicly available information that directly addresses Kenya's compliance with this standard. More »

According to an assessment of the accounting and auditing environment in Kenya conducted by the World Bank in 2001, Kenya adopted International Standards in Auditing (ISAs) in 1998, thereby "closing the gap" between national and international auditing standards. However, the World Bank noted that Kenya was only partially compliant with the international requirements because of weak enforcement mechanisms and inadequate resources. Other weaknesses identified include the absence of guidance on application of ISAs, inadequacies in the legal and institutional framework, and lack of professional training and education. The World Bank recommended amending the main acts governing accounting and auditing practices and simplifying reporting requirements for Small and Medium-size Enterprises. However, since 1998 the ISAs have been revised and there is insufficient information publicly available regarding adoption of the new and revised standards in Kenya. More »

According to the 2007 U.S. Department of State (DoS) Report, Kenya does not have an effective anti-money laundering (AML) regime and has not yet criminalized terrorist financing. The 2007 World Bank Annual Report on Kenya notes that Kenya has taken steps towards implementing Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) legislation; and has also been building capacity against money laundering and terrorism financing, notably with the establishment of the National Task Force on Anti-Money Laundering and Combating Financing of Terrorism in 2003. The 2007 U.S. DoS report also refers to the 2006 anti-money laundering proposed legislation titled "Proceeds of Crime and Anti-Money Laundering Bill," which was expected to be reintroduced in 2007. However, no further information is available as to the passage of the bill. Further, the World Bank informs that the Central Bank of Kenya (CBK) has plans to adopt an AML policy to be followed by all financial institutions licensed under the Banking Act. Kenya has also continued to enhance the investigative capacity of the Kenya Anti-Corruption Commission and the Office of the Attorney General. However, the reform process appears to have suffered a setback with a challenge to the CBK's AML related supervisory authority by court rulings. More »

In July 2005, Kenya implemented the Kenya Electronic Payment and Settlement System, its first Real Time Gross Settlement system. The system is operated by the Montran Corporation, and all commercial banks in Kenya participate in the system. The Central Bank of Kenya (CBK) declares in its 2007 Payment Systems Policy Framework Report that, in conducting payment system oversight, it follows the Core Principles for Systemically Important Payment Systems promulgated by the Committee on Payment and Settlement Systems. It will also use standards, principles and recommendations established by the CBK, the East African Monetary Affairs Committee (a committee of the three East Africa Central Bank Governors of Kenya, Tanzania and Uganda), and other international financial organizations. The CBK also states that by the end of 2008, through the National Payment System Project, Kenya shall have put in place a modern payment system that is effective, efficient, secure, compliant with international standards, and compatible with other international payment systems. The CBK also plans to designate and continuously review and evaluate Systemically Important Payment Systems in Kenya to ensure that their design and operations continue to meet, at the very minimum, international best practices, standards and protocols. More »

Financial Regulation and Supervision

In a 2007 report, titled "Kenya: Poverty Reduction Strategy Annual Progress Report - 2004/2005," the International Monetary Fund (IMF) enumerates the financial sector reforms that Kenya has been planning, and notes that Kenya is in the process of implementing a new regulatory framework that would enhance good governance and competitiveness. According to the IMF report, the plan includes, inter alia, developing a financial sector strategy that involves transferring licensing, regulatory and disciplinary authority from the Ministry of Finance to the Central Bank of Kenya (CBK); enhancing the supervisory capacity of the CBK; improving the prudential framework in relation to non-performing loans; tightening provisioning regulations to conform to international best practice and stepping up the remedial measures against undercapitalized institutions; implementing anti-money laundering legislation; and altering the legal framework to remove uncertainties in the banking sector. Furthermore, according to the 2006 Annual Report by the CBK, the authorities have initiated a review of the Banking Act so as to align it with the Basel Core Principles (BCPs) for Effective Banking Supervision. However, commenting on the expressed intention of Kenya to initiate financial sector reforms, the IMF in another 2007 report on Kenya states that there have been considerable delays in the development of a financial sector strategy and stresses the need to accelerate reform. Moreover, the IMF finds specific reforms that still need to be completed. These include restructuring and privatizing the National Bank of Kenya and other state owned banks, and strengthening the regulatory oversight of the banking sector. There is little further information publicly available as to Kenya's actual compliance with the BCPs. More »

According to the 2005 World Bank Financial Sector Assessment, a report deriving from the Financial Sector Assessment Program (FSAP) that was completed in 2003, the small size of Kenya's capital market is, in part, due to the inability of most companies to issue stocks and bonds. The assessment suggests that while Kenya has a reasonable legal framework for its capital markets, enforcement is weak due to a lack of institutional capacity and poor financial supervision. The laws that apply to all companies that issue securities are the Capital Markets Act, the Companies Act, and the regulations of the Capital Market Authority. The principal regulator is the Capital Market Authority (CMA). The secondary regulator is the Nairobi Stock Exchange. The FSAP report notes that regulatory oversight is weak and recommends that the CMA's supervisory and enforcement capacity be improved by making the CMA operationally independent and supplying it with more resources for training. Components of a 2004 World Bank project that would improve securities regulation seemed to have made little progress. More »

There is insufficient information publicly available as to Kenya's compliance with the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2003. According to a Financial Sector Assessment Program (FSAP) published by the World Bank in 2005, the Insurance Commission (IC), which is the competent authority within the Ministry of Finance (MoF) for regulating the insurance industry, suffers from a lack of operational independence, as well as a lack of financial and human resources to effectively perform supervision of insurance activities. Furthermore, some shortcomings were identified in the areas of financial reporting and prudential regulation. Hence, according to the same report, the World Bank recommends establishing an independent insurance authority, and revising the Insurance Law and regulations in order to strengthen compliance with IAIS standards. In October 2004, the World Bank approved an International Development Association (IDA) Technical Assistance Credit of US $18 million to help Kenya implement a financial and legal sector reform program. According to a 2005 International Monetary Fund (IMF) Poverty Reduction Strategy Paper, the Government of Kenya is designing a comprehensive strategy for insurance services market development. However, as stated in an IMF 2004/2005 Poverty Reduction Strategy Annual Progress Report published in 2007, this strategy has not yet been implemented. More »

Legend:

Credit Ratings

Moody's Not rated

Fitch B+/Negative

Standard & Poor's B/Stable

Macroeconomic Data

2007 GDP (Current Prices): 29.299 billion USD (IMF)

2007 GDP (Per Capita): 845 USD (IMF)

2008 GDP (Growth Forecast): 2.5% (IMF)

2008 Inflation (CPI): 12.3% (IMF)

2007 Unemployment: 40% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 0.0051 billion USD (UNCTAD)

FDI (Outward): 0.0024 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 943 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)