Effect of Ease of Doing Business on Foreign Direct Investment in Kenya

Abstract

Investment in a foreign country is a welcomed move due to it’s associated benefits such as it’s ability to create employment, bring into the country new technology that is not readily available, increase local productivity, technological advancement and ultimately realise the much-sought long-term growth in economy of the host country. The research was to determine the influence of ease of doing business on foreign direct investment in Kenya. Three theories served as the foundation for this research: the international trade theory, the eclectic paradigm and the resource dependence theory. In this study descriptive research was used on a sample size of 96 top and middle level managers at the Kenya Investment Authority. Mainly the data used for this study was gathered using an open-ended and closed-ended structured questionnaire. Based on descriptive statistics, the Kenya Investment Authority has established strategies to enhance ease of doing business. The study found that on average (mean=3.232), the organization has harmonized procedures for starting business in the country hence reducing the bureaucratic procedures followed by investors to establish their enterprises in the country. Similarly, the findings showed that on average (mean=3.248), the organization has ensured that there is availability of credit facilities for investors thus doing business in the country. Grounded on inferential statistics, the research recognized that the strategies put in place to enhance start of businesses has a positive (β=0.192) and significant (α=0.035) impact on FDI in Kenya. The study also found that the time taken to register a property in Kenya is shorter as compared to the neighboring countries. Based on inferential statistics, registering a property has a positive (β=0.323) and significant (α=0.001) impact on FDI in Kenya. The quality of property administration, according to the findings, is well stipulated in Kenya and that property rights for foreign investors is clearly stipulated. In addition, the research recognized that contract enforcement has a negative (β=-0.124) and insignificant (α=0.296) impact on FDI in the country. In this regard, the negative relationship is attributed to increased corruption cases that exaggerates the cost of contracts hence reducing the output value of the investment. In regard to tax payment, the research applauds that the taxing authority in the nation to establish the best tax policies to optimize returns. Similarly, the Kenya Investment Authority should establish an appropriate policy that guides contract enforcement so as to strike a positive balance between contract enforcement and FDI.