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An Analysis of Kenya's Service Sector

Clinic: Kenyatta University

Beneficiary: Western Cape Tourism, Trade, and Investment Promotion Agency (Wesgro)

Executive Summary

Read the full report here

With the security and predictability provided by the multilateral trading system as well as the economic theories underpinning multilateral trade, there has been an exponential increase in trade among countries. The increased demand for “good” trade networks can best be exemplified by the number of Regional Trade Agreements (RTAs) that have been concluded and Regional Economic Communities (RECs) that have been formed or fortified in the past two (2) decades. This trend in multilateral trade is not limited to the free flow of goods; trade in services has also exponentially increased in the past few decades. This increase has led to a rise in the flow of investment, poverty alleviation, the transfer of knowledge, and the creation of employment. This research prepared by the TradeLab Law Clinic aims to examine Kenya’s services industry in terms of regulatory, legislative, structural and policy opportunities and gaps to the benefit of Wesgro’s role of advising South African investors. The research covers five (5) main services sectors that are of interest to Wesgro: Financial Services, Construction, Architecture, Engineering and ICT.

Kenya, popularly known as being the only country with a national park in its capital city and for its scenic landscapes, is located in the East African region and has a population of about 51.39 million people as per the 2018 Census. Due to its location, and among other considerations, Kenya is an economic hub that is highly attractive to foreign investors.

Kenya is considered to have a relatively diversified and sophisticated economy that plays an important role in the East African Community, a customs union also comprising Uganda, Tanzania, Rwanda, Burundi and South Sudan. The agricultural sector is an important foreign currency earner and source of employment (39.34% in 2018). The services sector, however, still remains as the largest sector. It comprises vibrant financial and telecommunications industries: mobile phone coverage is estimated at 75.8 people per 100 and internet usage at 42. Telebanking is widespread among mobile phone users. Furthermore, Nairobi is regarded the financial centre of East Africa. Tourism and transportation are also important for the economy, as Kenya is an important vacation destination and a regional hub for logistics. Africa and Europe are Kenya’s largest export markets. Additionally, Kenya is ranked 56 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings (2019).

Kenya has been a WTO member since 1st January 1995 and a member of GATT since 5th February 1964. Kenya was among the founding members of the WTO when the Marrakesh Agreement was signed in Morocco on 15th April 1994. As a member, Kenya is signatory to all WTO agreement including GATS. Of the twelve service sectors covered by the GATS, Kenya has made commitments only in five sectors: communication services, financial services, tourism and travel-related services, transport services, and other services not included elsewhere. The specific sectors will be discussed in detail in the research.

In summary, there are still several opportunities that are yet to be utilized in Kenya’s service sector. The Government seems to be very keen on increasing the effectiveness of the sector and the ease of doing business in Kenya through use of various tools such as business laws, tax incentives, trade agreements among others. A prudent yet shrewd investor would profit from doing business in Kenya.

Read the full report here

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