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Foreign Direct Investment in Kenya

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Foreign Direct Investment in Kenya

Page 1 of 20
FOREIGN DIRECT INVESTMENT IN KENYA

By

Mathew Nyamwange X50/70602/2007

A case study of Kenya's FDI between 1980 and 2006, in partial fulfillment for my Masters in economics, course XET502: ADVANCED MICROECONOMIC THEORY II, School of economics, University of Nairobi.

1. Introduction
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An agreed framework definition of foreign direct investment (FDI) exists in the literature. That is, FDI is an investment made to acquire a lasting management interest (normally 10% of voting stock) in a business enterprise operating in a country other than that of the investor defined according to residency (World Bank, 1996). Such investments may take the form of either “greenfield” investment (also called “mortar and brick” investment) or merger and acquisition (M&A), which entails the acquisition of existing interest rather than new investment. In corporate governance, ownership of at least 10% of the ordinary shares or voting stock is the criterion for the existence of a direct investment relationship. Ownership of less than 10% is recorded as portfolio investment. FDI comprises not only merger and acquisition and new investment, but also reinvested earnings and loans and similar capital transfer between parent companies and their affiliates. Countries could be both host to FDI projects in their own country and a participant in investment projects in other counties. A country’s inward FDI position is made up of the hosted FDI projects, while outward FDI comprises those investment projects owned abroad. Sub-Saharan Africa as a region now has to depend very much on FDI for so many reasons. The preference for FDI stems from its acknowledged many advantages. Therefore African countries have struggled to implement FDI, and these efforts by several African countries to improve their business climate stems from the desire to attract FDI. In fact, one of the pillars...