Foreign Direct Investments in Kenya: The gains and losses of foreign involvement

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In this thesis the effect of foreign direct investment on the economic development of Kenya will be discussed. Central to this study are the experiences and opinions of active foreign investors in two sectors. The main focus will be on identifying the strong sides as well as the improvement points of the investment climate in general, in order to improve it. After the theories of FDI are examined the following concepts are identified that will help determine the overall effects: liberalisation, investment motives and technological spillovers. Liberalisation in this case is seen as a pre-condition for attracting FDI. Before the findings of the study in Kenya are presented, the country‟s general characteristics are described. This will show that despite Kenya‟s international status and despite the many positive aspects present in the country, Kenya as a whole is an underachiever in attracting the right type of FDI. The chapter will also focus on the effects the latest post-election violence had on the country and express the concerns for the upcoming elections. The strengths of the investment climate are analysed in accordance with the investment motives. This is necessary since the investment motives determine the economic stage of a country. This then is reflected in the type of FDI. The investors in this study can roughly be divided over the horticulture sector on the one hand and the service sector on the other. All investors made longterm investments. The most important investment motives are the presence and access to a good infrastructural network and the presence of a highly educated and relatively cheap labour force. A distinction should be made in the locational preferences of the two sectors. One important finding in this study is that the role of location should not be underestimated. The most important improvement point for the investment climate is related to the political status of the country. Most investors argue that corruption and the licensing procedures are the daily issues an investor has to deal with. These procedures and the corruption increase the costs of doing business significantly, thus making the overall climate less attractive. These findings correspond with report from the World Bank and United Nations, and are partially the reason for Kenya‟s underachievement in attracting the right sort of investment.
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