Examining the bias in kenya's investment law and policy in relation to foreign direct investment and local investors

Abstract

Prior to the passing of the Investment Promotion Act', the existing legal framework for investments was inadequate as a reference point for investment policy. Inadequacy of investment laws was evidenced by the lack of clear provisions specifying investment regulation, controls and facilitation. Over the years, the Kenyan investment policy has been documented in national development plans and several sessional papers. Between 1964 and 1986 the development policy was based on the economic objectives set out in the Sessional Paper No. 10 of 1965 on ''African Socialism and its application to Planning in Kenya,,2 The independence government was focused on eradication of poverty, disease and ignorance and employed public financing and ownership as the best means of . achieving its socialist ideals". This development policy was continued under the MOl government, as the development process was largely driven by public sector with state intervention in monetary, fiscal, financial, trade and investment policies. The government Introduced controls on interest rates, foreign exchange, prices and tariff barriers on imports as appropriate measures for attaining development. Although the development plans of 1979 to 1983 and 1984 to 1988 sought to encourage foreign investment, the incentives provided therein were watered down as a result of the fiscal, financial and monetary controls In the mid-stream of the implementation of the 1984 to 1988 development plan, Act No.6 of 2004 :' See Kibua, '1'., (2007) The Effectiveness of Industrialization Incentive Regime in Kenya IPAA Discussion Paper No. 09312007, Nairobi: Institute of Policy Analysis and Research at p I J [hid at p 2

the government published Sessional Paper No.1 of 19864 introducing a substantive shift in economic policy from state-controlled economy to a market based economy based on liberalist ideals". The1986 policy paper led to the abandonment of the controlled fiscal and monetary regime thereby setting a foundation for trade and investment policies based on liberalization and export orientation. The Investment Promotion Centre was established the same year the 1986 Policy Paper was published. Subsequently, the government's policy shift was reflected in the National development plan of 1989 to 1993 which emphasized export promotion and macro-economic liberalization. During this period, a number of institutional and legal reforms were introduced aimed at achieving the objectives of 1989 to 1993 development plan. In 1989, the Customs and Excise Duty Acr" was amended to introduce the Manufacturing under Bond Scheme which provided tax incentives for export-oriented enterprises. The Export Processing Zones and the Export Promotion Council were established in 1990 and 1992 respectively as principal institutions that would lead economic growth through export promotion.