ECONOMY

To spur economic growth, attract foreign direct investments

Ethiopia ranks as one of the highest FDI destinations in Africa. Interestingly, this explains why Ethiopia’s GDP has overtaken Kenya’s in recent times

In Summary

• According to World Bank statistics, Kenya’s trading pattern is not so promising.

•  Kenya have a negative trade balance and a total of -3.75 per cent trade growth compared to the world’s 1.50  per cent growth.

Officials from the government and the private sector during the second State House Summit on Transport and Infrastructure held in Nairobi on August 8, 2016
Officials from the government and the private sector during the second State House Summit on Transport and Infrastructure held in Nairobi on August 8, 2016
Image: PSCU

There isn’t a country in the world that has ever developed through importing goods. All countries that have joined the league of developed nations, did so through shifting from importing to exporting countries.

This shift is actualized through developing industries that add value to locally available raw materials and eventually moving to high technology industries such as manufacturing of electronics.

Kenya which is the largest economy in East Africa has an ambitious vision of being a middle-income country by 2030.

 

To realise this dream, Kenya ought to have a strategy on how to start exporting more and not the opposite. According to World Bank statistics, Kenya’s trading pattern is not so promising.

Kenya has a negative trade balance and a total of -3.75 per cent trade growth compared to the world’s 1.50  per cent growth. The numbers are an indicator that Kenya is yet to exploit its trade potential despite its strategic position and the advantage of being the largest economy in East Africa.

Policymakers can ensure a balance of trade by attracting foreign direct investments in Kenya.

This is strategic since, through direct foreign investments which will mainly be manufacturing companies, Kenya will raise its economic profile and spur growth in the country. Other developing countries have done it and Kenya can do it too.

For instance, Ethiopia ranks as one of the highest FDI destinations in Africa. Interestingly, this explains why Ethiopia’s GDP has overtaken Kenya’s in recent times.

 
 

The most basic ingredient in attracting foreign corporations is by having skilled and competitive labour. This can only be done by investing in people through education, research and development.

In the last budget that was issued by suspended Treasury CS Henry Rotich, it was enticing to hear how the government is committed to investing in the manufacturing sector in order to implement the big four agenda.

 

Unfortunately, when one goes through the numbers, they tell a different story. For instance, treasury allocated more money to Parliament than the development expenditure in the ministry of education.

This begs the question, how does the government tell us that they want to start pharmaceutical industries, make Kenya an ICT hub and revive the automotive industry and they are not willing to spend on education?

Singapore, a country we like mentioning whenever we want to talk about economic growth miracle, had to invest in its education in order to make its people competitive. This, in turn, attracted foreign direct investment. In short spending, priorities must reflect your vision for economic growth.

The second strategy to attract investments is through the development of infrastructure, on this, the government has done quite well. Looking at the spending priorities, a huge chunk of the budget went to infrastructure and mostly in the construction of the Standard Gauge Railway.

What the government ought to do now is to find investors who will make sure that we get value for this investment. This can be done by ensuring that there is the development of industrial infrastructures such as export processing zones, special economic zones and industrial parks in major towns near the railway line.

Additionally, to woe foreign companies, the government can also entice them by giving out free land.

The third factor is ensuring that it is easy for foreign companies to operate in Kenya. Reducing bureaucracy and avenues for corruption in registering a business will go a long way in making Kenya an attractive place.

Kenya has done well in terms of ease of doing business but the elephant in the house is corruption. For instance, companies may be asked for kickbacks for them to operate in Kenya.

On the other hand, due to corruption in the judiciary, it takes a long time to solve disputes whenever they arise between foreign investors and locals and prospects for justice dwindle.

Finally, the magic bullet for our economic growth may be in foreign direct investments. The youth in Kenya and East Africa are a ready pool of labour and also market.

The fastest-growing economies like our neighbours Ethiopia are getting a fortune through FDIs, there is definitely a thing or two we can learn from them.

Masters of public policy student at The Willy Brandt School of Public Policy, Germany.


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