Stemming from last week’s article, on the impact that public trust in taxation authorities has on revenue collections, this articles focuses on the importance of a stable and predictable regulatory environment. We specifically focus on taxation, in relation to attracting foreign direct investment (FDI).
As is evident from the current administration’s efforts to market Kenya as a favourable investment destination, FDI plays a significant role in Kenya’s development strategy. the The government is eager to attract international development partners that will provide support to Kenya’s accelerated growth strategy through an influx of FDI into the Kenyan market.
As noted by the Organisation for Economic Co-operation and Development (OECD), inbound FDI has numerous benefits, including but not limited to, the creation of employment opportunities, the introduction of new technologies and processes into the market, and generally the promotion of economic growth.
However, in order to attract FDI, it is imperative that Kenya strategically leverages itself as the investment destination of choice, with respect to prospective investors in the African market. Key to this, is a stable and predictable regulatory environment.
A major driver of FDI is the regulatory environment of the host country in question. Specifically, foreign investors looking for investment destinations and opportunities largely focus on the existence of sound and stable public policy and regulatory frameworks, together with strong and efficient governmental institutions that are willing to predictably enforce the prevailing legislative and regulatory conditions. This will feed into the ability of the investor to weigh the competitive advantages of investing in one market over another, and ultimately predict, with some degree of certainty, the viability of an investment opportunity.
This presents an opportunity for Kenya to market herself as the investment destination of choice in Africa, and ultimately gain a competitive edge, viz a viz FDI, in the Africa region. To achieve this, it is incumbent on law and policy makers to ensure that Kenyan legislation is modernised to global standards with a degree of certainty and predictability, that regulations are fair to business interests, and not overly aggressive, and that both legislation and regulations are enforced by a free, fair and impartial judicial system.
On the regulatory front, of key importance to potential investors is the prevailing taxation regime. it is imperative that the taxation regime in place adequately supports the growth of businesses in the long run, rather than stifle growth and innovation as a result of punitive taxation measures. Similarly, it is necessary to maintain a stable and predictable taxation environment that enables potential investors make long term decisions with respect to their investment.
Karen Kandie – MD IDB Capital
