rewrite under 30%

MGM355-1404A-01

Quesadra D. Goodrum

Individual Project Phase 3

Colorado Technical University

Instructor: Juan Roman

10/13/2014

Kenya is one of the African countries and it is located on the eastern part. It has a population of approximately forty five million people. This country borders countries like Tanzania, Uganda, Ethiopia, Somalia and Sudan. It has a vast coastal region which hosts the popular port of Mombasa which acts as a connection medium of east Africa to world. This is so because of the fact that a lot of imports pass through the Mombasa port to other parts of the east Africa region. Its capital city is Nairobi which hosts international organizations including the UN and African Union. Kenya uses English and Kiswahili as its formal language despite the fact that it has forty two tribes

Kenya has a varying climate that varies from the tropical climate in coast to the semi-arid in the northern part. In central part of Kenya, there are productive highlands which enjoy ample rainfall and they are also well known for producing the best type of tea in the entire world. It also produces best coffee which is being exported to other parts of the world including UK and USA. In the rift valley region there is high production of maize which is not only consumed within the locality but also in the foreign countries.

The port of the coastal Kenya provides a constant flow of income, revenue and employment to many of the citizens due to the fact that it serves many landlocked countries within this region. In current years Kenya has witnessed a great improvement in foreign direct investment due to its new vision 2030, the Kenyan government hopes to reach the global competitiveness and be able to manage as well as attracting more foreign investors in the country.

Mainly the foreign direct investments in Kenya are from the UK, India, Germany, USA and China who has dominated in the construction sector. Most of these investors have great interest in horticulture, floriculture and the textile industries. The former Telkom Kenya represented the telecommunication sector. It was later taken over by Orange which is a multinational company. Also the tourism sector has attracted so many investors in the country.

One of the main reasons that have made the investors to highly concentrate in horticulture industry is the availability of low cost labor and also high level of education which has come hand to hand in technology application. Availability of low cost labor is also advantageous to the construction industry which has managed to employ many skilled and unskilled laborious.

The peaceful political environment has also contributed in attracting many investors in Kenya. Conducive environment ensures the investors of their safety. The Kenyan government has heavily invested in development of infrastructure and this has managed to attract well known construction companies like China Corporation. Also the newly standard railway line establishment has played a major role in attracting foreign direct investors. There have been employment opportunities in the Export Processing Zones which are mainly for the textile production. Presence of Export processing Zones has also attracted many foreign investors.

The Kenyan government has placed laws and regulations which govern foreign direct investment in order to protect the local companies and industries from being wiped out of the market by the mergers and foreign investment. Such protective laws have also catered for the investors long-term benefits so as to be in a position to generate revenue and increase competition. Through competition there will be better provision of quality goods and services.

The government needs to create policies that will evaluate the impact of foreign direct investments in terms of the benefits and costs incurred by the stakeholders. The evaluation should include the economic implications for the host country in terms of balance of trade and growth. The government should evaluate its political and legal impact of the foreign direct investors.

The Kenyan government has deployed several policy instruments to promote foreign direct investments increase due to the features associated with it. FDI increasingly fit objective development (economic growth, minimizing poverty level etc.). This is based on positive potential impacts of FDI (mobile technology, growth, improved skills, and capital inflows). Kenya has come up with the following in promoting foreign direct investments in terms of incentives to the investors, exempting foreigners from stamp duty and VAT, operation on one permit only, no restriction on management or technical arrangements, exemptions from import duties, raw materials and intermediate inputs and exemption from all withholding taxes on dividends and other payment to non-residents during the first 10 years of stay.

There are also special incentives available for investors. Among them include; investment promotion incentives, that determine physical and financial capital. The incentives can be further classified into incentives of a financial nature and those that stimulate physical investments. The physical investments include investment tax credit and allowances. While using incentives, companies in a particular industry are permitted to make deductions against their liabilities of tax, a percentage of expenditures on additional to physical capital stock. This involves; tax and incentives whereby there is provision of investment allowance catered as incentives for investment in the manufacturing and hotel sectors at a very high rate. In addition manufacturers under bond are normally applied. Expansion of capital expenditures is done to cover a section of infrastructure and environmental protection equipment.

Another thing is the export promotional programs. Duty remission facilitates the raw materials meant for production goods which are to be exported or to be sold domestically are subject to export promotional programs. This program is facilitated by the investment promotion Centre and administered by the Kenya investment authority. Export processing zones programs (EPZA) are established by the parliament act to regulate, facilitate and promote export oriented activities.  This can be achieved by creating jobs, increasing skills, diversification and others. Presently Kenya is part of the regional integration in east Africa. It is working closely with the other neighboring countries which include Tanzania, Uganda and DRC to achieve peace, harmony, stability and wealth in a written agreement.

There are several benefits of FDI. First trade gains-goods have strong substitutes this implies that the regional trade agreements cause the demand for third party to go down. Secondly increased returns and competition allows free market interaction since the tradeoffs are revoked. It gives extensive sales for a minimal cost. Thirdly investment- regional trade agreement attracts FDI from within and outside thus resulting to big market. Fourthly coordination and bargaining power-negotiations are based to give and an approach which makes tradeoffs easier to be used. Finally, security-due to positive interdependency results in building trust and reducing conflict among trading countries.

The disadvantages of FDI include poor infrastructure which makes goods to spoil before reaching the market. This affects those goods which are perishable. Lack of common currency acts as a challenge to the integrated region thus discouraging trade in the common market. Another major disadvantage is that of language barrier. The regions involved have different communities with a larger population. The population is divided into groups of people with different languages. Non-smooth trade due to high illiteracy rate since there is continuous flow of information. Lastly the region is under the group of developing nations and thus does not have enough amount of capital to invest in the common market and is affected by high levels of poverty.

Reference

Farole, Thomas& Deborah Winkler (2014) Making Foreign Direct Investment Work for Sub-Saharan Africa: World Bank Publications.

Weigel, Dale R (1997) Foreign Direct Investment, World Bank publication