BizCLIR

Investors seek opportunities where they can succeed, and to determine those opportunities, investors must be able to accurately predict chances for success and weigh risks. In predictable environments where risks are manageable and minimized, investors will flock. 

Despite political risks, instability, and insecurity, Africa continues to attract investors, but the focus of such investors remains largely limited to extractive industries and other high-value activities that provide a quick return on investment, to account for the risks undertaken. Such investments are not designed for sustainability and provide limited benefits to a country’s overall economy and the well-being of its population. 

Kenya has benefited in recent years from the interest in investing in Africa because of its strategic location and its position as the most advanced country in the eastern region. The country is not yet competitive on a global level, however, because it remains politically unpredictable and its business environment is difficult to navigate. Based on recent events both within Kenya and beyond, the country can no longer afford to rely on its geographical advantage to sustain it. Investment, both local and foreign, is exiting. Violence following the 2007 election has rekindled fear and uncertainty in what was recently considered a secure environment, and the global financial crisis and food crisis have caused investors to further hedge their bets worldwide.

The country has also already suffered from the global trend of consolidation in multinational companies. Several major companies have shut down processing or reduced production lines in Kenya in the past few years as they move toward relying on fewer production locations. If Kenya continues to have business costs that are globally uncompetitive, this trend will continue to have a detrimental impact on the country. Additionally, corruption – a major cause of unanticipated costs and risks for both local and foreign investors – is endemic.

Because of the gravity of global challenges to investment today, it is imperative that Kenya reduce the disincentives that can be controlled and put systems in place to safeguard investments. Kenya can take advantage of its regional appeal and strategic position and maximize its opportunities by taking real steps to improve the environment for business, or it can squander its opportunities and watch as increased security risks and corruption cause investors to start considering neighboring countries. Such countries have taken efforts lately to improve their investment appeal.

This chapter addresses issues that impact decisions to invest and the protection of existing investments. It reviews risks posed from the outside – corruption and insecurity – as well as those from the inside – poor corporate governance practices. It concludes with recommendations for reform activities to improve investment protections and appeal. The BizCLIR scores generated during this diagnostic illustrate the key points made in this chapter: while Kenya’s legal framework is improving, the institutions that support investment and the social dynamics of this issue are in need of continued reform.