The effects of business environment on foreign direct investment; case study of Kenya's petroleum industry

Abstract

This study investigated the effects of business environment on FDI's focusing on Kenya's petroleum industry. Chapter one begins with a general overview of the business environment and its effects on FDI's globally. It found that countries with conducive business environment attract more FDI's. Some of the parameters for a conducive business environment is a reliable infrastructure, stable Marco economic climate and political stability.

Chapter two gives an in-depth overview of Kenya's petroleum industry from 1973 today. It found out that the industry has experienced different forms of liberalization at different periods of time. It also found that due to the two-oil crisis of 1973-1974 and 1979- 1980 the Ministry of energy was established in 1979.

Chapter three discusses the policies in the oil sub-sector. Of all the policies, taxation has been the one given prominence due to the fact that it is a source of government revenue. The environment policy however has not been implemented despite its hazardous effect on the environment and health.

Chapter four discusses the empirical findings from the field studv. It found that the law requires that all oil-marketing companies' process 30% of their crude oil at the refinery in Mombasa. In addition to this only those who meet this requirement are allowed to import refined oil products. The number of new operating entrants have all impact on the market in Uganda than Kenya because Uganda's economy IS more vibrant unlike Kenya's which is currently in recession.

The responsibility of spearheading development worldwide is viewed as the governments' prerogative. The study assesses the effects of business environment on foreign direct investments with Kenya's petroleum industry as a case study. To this end, the study observes that attracting foreign investors to the country was difficult mainly due to the economic recession, high taxation of petroleum products and the oligopolistic nature of the petroleum market.

One of the objectives of the study was to investigate whether a more conducive business environment would attract more investment in the petroleum industry.The study indicates that, political stability. liberalization and a stable macro-economic environment are the hallmarks of a competitive business surrounding.

The study concludes that for foreign direct investment to thrive, the government has to play a greater role in formulation and implementation of energy policies.