Foreign Investment In Kenya Case Study

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Kenya is a relatively big country with a total land area of 580.4km square. Its location is strategic within East Africa and has a population of approximately 40 million people. The country is well endowed with a broad range of natural resources, flora and fauna and arable land. Kenya highlands comprise of the most successful agricultural production regions in East Africa. Foreign investment has been of considerable significance in financing development in Kenya not only in the manufacturing but also in the primary and tertiary sectors. Rweyemamu (1987) before independence in 1963, bulk of it went to primary production and plantations. The few manufacturing industries established up to World War II were mainly for basic processing of agricultural …show more content…
According to Rweyemamu (1987) and Gachino (2006); after land resettlement between 1962 and 1964, the Kenyan government prevented foreign firms from purchasing more land and as a result foreign ownership in agriculture was greatly reduced. In commerce and industry by contrast, virtually all the expansion, which took place, that is a 50 percent increase in output between 1964 and 1970 and 100 percent increase in the annual level of investment, was foreign owned. At first much of it involved capital transfer out of agriculture, especially following the introduction of exchange controls in 1965. But two years later after the initial period of uncertainty as to the government development strategy, a substantial inflow of foreign direct investment and its diversification to other sectors occurred. In addition the government set up institutions, which would assist in the development of the manufacturing sector. During this period Kenya had pursued import substitution from as early as 1950s. This industrial policy advocated for a large role of the public sector participation and protection of the infant manufacturing …show more content…
From 1974, firms with high repatriation rate had their local borrowing rights restricted by the Central Bank. The government also attempted to cut down on the level of management remittances and technical fees by imposing a 14 percent withholding tax. These efforts discouraged foreign investors. UNCTAD 2008 FDI in Kenya has not only been volatile but also low since the 1970s. This led to the stagnation of the manufacturing sector, which was largely been dominated by the foreign firms. This decline was blamed on the inward oriented strategy as well as the collapse of the East Africa Community in 1977. Ensuing economic distortions resulted in severe structural constraints and macro economic imbalances and firms failed to develop competitive capabilities to penetrate the international markets. The inward looking policies pursued at the time under import substitution made it difficult to effectively participate and compete keenly in the export markets. As a result the manufacturing industry failed to play a more dynamic role enough to function as an engine of country's growth and did not contribute significantly to foreign exchange (Kenya Government

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