Foreign investment can help Kenya attain middle-income status

President Uhuru Kenyatta (second from left), Africa Union chairman and Japan's Prime Minister Shinzo Abe (pointing) at the opening ceremony of the Sixth Tokyo International Conference on African Development at Kenyatta International Convention Centre in Nairobi on August 27, 2016. PHOTO | SALATON NJAU | NATION MEDIA GROUP

What you need to know:

  • Training institutions should produce appropriate skilled labour for type of investment Kenya seeks to attract.

  • The country should also pursue regional integration efforts to expand market opportunities, natural resources, and supplies.

Kenya is emerging as a favourite destination for high-level talks that have a huge impact on global trade initiatives and investment.

Last December, Nairobi hosted the 10th Ministerial Conference of the World Trade Organisation. In July this year, the 14th Session of the United Nations Conference on Trade and Development came calling. The sixth Tokyo International Conference on Africa’s Development summit recently concluded in Nairobi.

Over the past year, President Uhuru Kenyatta has also hosted powerful investment delegations from economically influential countries led by heads of state and government from Africa and beyond.

These delegations cause traffic gridlocks and security nightmares, but they also come with both soft and hard benefits: a vote of confidence in our national security, conference tourism foreign currency, and opportunities for foreign direct investment (FDI).

Properly harnessed, this type of investment can make an invaluable contribution to Kenya’s quest to attain the status of middle-income country, providing a high quality of life to all its citizens by 2030 or sooner. Foreign direct investment contributed slightly over 1.5 per cent of Kenya’s GDP in 2014, by World Bank figures. The Africa Investment Report indicates that out of 660 FDI projects on the continent in the same year, Kenya ran away with 57, representing about 9 per cent of all such investment in Africa. Kenya received $2.2 billion of FDI, about 3 per cent of the $87 billion invested in the continent in that year.

HIGHEST NUMBER

Comparatively, South Africa attracted the highest number of FDI projects at 18 per cent, with Egypt getting the highest investment in absolute terms at $17.9 billion. Kenya was ranked as the third most popular investment location in Africa. These figures may change tremendously following investments in the standard gauge railway and the energy industry in 2015 and 2016.

Foreign investment can have a positive effect on the host country’s economy. Aside from creating employment opportunities, it boosts a country’s foreign exchange reserves and may help reduce balance of payment problems.

It can also lead to introduction of new technology and training of local personnel, better management systems, and ultimately, open access to new export markets. According to World Bank projections, a country is highly successful on this front if it is able to routinely attract annual foreign investments that exceed 5-6 per cent of its GDP. This means that at 1.5 per cent, Kenya still has some way to go.

Traditionally, foreign investment in Africa focused on energy, mining, and raw resources. It is now diversifying into manufacturing, financial services, real estate, auto components, industrial machinery, ICT, chemicals, communications, transportation, oil and gas, and renewable energy.

STRATEGIC ASSETS

Foreign investment follows efficiency and strategic assets or resources. Kenya must continually create an enabling policy, legal, and administrative framework that supports a favourable business and investment environment. Training institutions should produce appropriate skilled labour for the type of investment we seek to attract.

The country should also pursue regional integration efforts to expand market opportunities, natural resources, and supplies. Kenya can also become more attractive by providing fiscal incentives, creating access to affordable financing, rationalisation of taxation on foreign investment proceeds, and physical infrastructure development.

A dispute resolution mechanism that strikes the delicate balance between the interests of foreign investors and host country concerns is imperative in attracting and retaining good quality foreign investment.

 

James Mamboleo is the dean of Africa Nazarene University’s law school. [email protected]