Bureaucracy cuts down Kenya’s trade ratings

The Kenyan case seems to have attracted researchers even in the past.

“The level of FDI has been l stagnant over the past couple of years and well below Kenya’s potential. There has also been a worrying trend of foreign investors moving out of Kenya and gravitating to other countries,” said Elijah Kinaro in a study for the African Institute of Economic Development and Planning in Dakar, Senegal.

He showed that 75 per cent of the variations in FDI is explained by variables which include economic openness, human capital, real exchange rate and inflation.

He said this means that Kenya needs to adopt policies geared towards more economic openness, increase secondary school enrolment rate and allow a flexible real exchange rate since over-valuation of the currency discourages FDI.

The same lack of economic openness in some sector is identified by the World Bank report as contributing to discouraging FDI.

Mr Kinaro also noted that inflation was found to have been negatively influencing FDI inflows to Kenya.

Noting the high inflation numbers were discouraging investors, the government has since early this year changed the method of calculating inflation causing it to slump considerably as the role played by food prices was reduced.

But low inflows to Kenya seem to be an indication of low attraction of FDI inflows to eastern Africa, according to the 2009 UNCTAD’s annual review of investment trends.

Whereas FDI reached a record high of $88 billion in 2008, the inflow into East Africa represented a mere five per cent ($4 billion) of the total, the same amount as in the previous year.

In the neighbouring Tanzania, the World Bank report noted that the media is the most controlled sector in terms of restriction on foreign ownership with an index of 24 compared with a SSA regional average of 100 (full foreign ownership allowed) and global average score of 96.

Equity ownership

It noted that the country imposed foreign equity ownership restrictions on a number of service sectors with such participation in the telecommunications sector limited to a maximum of 65 per cent.

In the region, Uganda is more open to foreign investment with only banking and the electricity sectors restricted to foreigners.

Of the 33 sectors covered, 30 are fully open to foreign equity ownership in Uganda, including manufacturing and primary industries.

“The country imposes foreign equity ownership restrictions on a small number of service sectors. The electricity transmission and distribution sectors are closed to foreign capital participation and characterized by monopolies. In the banking sector, Ugandan law specifies that a single shareholder, foreign or domestic, cannot hold more than 49 per cent of the shares of a local bank,” the report said.