Effects of Infrastructure on Foreign Direct Investment in Kenya
Loading...
Date
2015
Authors
Wekesa, Carol Teresa
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Kenya's FDI inflows as a percentage of GDP have been increasing negligibly over
the last five years, increasing from 0.4 percent in 2010 to 0.9 percent in 2013. This
is despite the fact that, since the year 2000, there has been increased budgetary
allocation to the infrastructure sector. Empirical evidence has shown that quality
infrastructure lowers the cost of doing business and improves the investment
climate, thus attracting FDI. However, Kenya still has visible signs of
infrastructure in-adequacy and inefficiencies. These include congested roads,
erratic power supply, long-waiting lists for installation of telephone/power lines,
shortages of clean and safe drinking water, and overloaded waste disposal system
and pollution. This study, therefore, sought to determine the effects of transport,
energy, communication, and water and waste infrastructure development on FDI
inflows in Kenya. The study used annual secondary data, spanning 1970 to 2013,
sourced from Central Bank of Kenya, World Bank and UNCTAD. Multiple
regression analysis was done. It was established that, improved transport
infrastructure, communication infrastructure, water and waste infrastructure,
exchange rate, economic growth and trade openness are important determinants of
FDI inflows into Kenya. Hence, for Kenya to attract more FDI, the government
should modernize ports and airstrips, tarmac more kilometres of roads, construct
more kilometres of rail line, improve port infrastructure to increase container port
traffic, increase broadband internet connectivity, expand technical training
institutes, harness innovative ideas for increased export of ICT goods and services,
construct and rehabilitate water and waste management systems. It should further
strengthen the Public Private Partnerships (PPPs) framework for more private
sector participation in infrastructure development; strengthen tax collection
mechanisms, sealing loopholes for tax evasion, and ensure more resources are
directed towards development vote as opposed to the recurrent vote. Innovative
infrastructure financing models should be sought. The use of infrastructure bonds
and pension funds are examples. The government should afford investors a
conducive investment climate, and at the same time prioritize the implementation
of national cohesion and anti-terrorism programs.
Description
A research project submitted to the school of economics in partial fulfillment of the requirements for the award of the degree of master of economics (international trade and finance) of Kenyatta University