Devolution And Its Effects On Foreign Direct Investment In Kenya

ABSTRACT

Over time globalization has created investment opportunities for enterprise worldwide

and as a result today foreign direct investment is regarded as the major source of foreign

capital for developing countries. There are numerous benefits of foreign direct investment

for emerging economies which include technology spillovers, enables human capital

formation, improvement of international trade integration, helps create a more

competitive business environment and improves enterprise development. All of these

result in higher economic growth, which is a crucial tool for alleviating poverty in

developing countries. Following the passing of the new constitution in 2010 Kenya

adopted a new system of governance that devolves major responsibilities to the counties

aiming at better management and control of the countries resources. The main objective

of the study was to investigate the effects of devolution on Foreign Direct Investment in

Kenya. The specific objective of this study were to: find out the effect of decentralization

of resources on FDI; to establish the effect of decentralization of authority and

responsibility; to determine the effect of decentralizing legislative powers on FDI, to

assess the effect of decentralized institutional reforms on FDI; to determine the effect of

having many autonomous financial units in the country and to evaluate the effects of FDI

on the economy. Descriptive survey study design was used to conduct this study. The

study targeted Kenya Investment Authority Officials, Investors, Foreign Embassy

Officials, and County Public Service Board Officials in Nairobi county Kenya. Purposive

sampling technique was used in respondent selected. The total sample size was 42

respondents. The data was collected using questionnaires with both open and closed

ended questions. The collected data was analyzed to give percentages and frequencies as

well as inferential statistics. The Statistical Package for Social Sciences (SPSS) software

version 21 was used in the analysis. The analyzed data was presented using tables

generated through SPSS and figures generated through Microsoft excel 2010. Analyzed

data was thematically arranged based on the research objectives. All ethical and logical

considerations pertaining to research were observed throughout the study. The study

found out that decentralization of resources contributed highly to foreign direct

investments. Majority of the respondents indicated that decentralization of legislative

powers affected foreign direct investment in the Country; the power to raise revenue in

the Counties also enhanced developments; hence increasing FDI. The study concludes

that there is a positive and significant relationship between decentralization of resources

and FDI in Counties in Kenya. The study also concludes that decentralization of

legislative powers significantly enhances FDI in Counties. Through devolution, the

County Assembly members have legislative powers, through which they make

regulations aimed at improving investments in their region. Decentralization of

autonomous financial units have enhanced independent revenue collection; and enhanced

the ability by county governments to allocate funds for infrastructural development; and

also enhanced their own marketing activities, which have attracted more foreign

investments. The study recommends that the national government should channel more

resources to the Counties so as to enhance developments; for instance, of improving the

quality of infrastructure, especially in marginalized regions of the country, so as to attract

FDI. The County governments should develop foreign investment policies, which will act

as a supplemental part of the domestic development policy. The policies should guide the

Counties on how to engage with foreign investors.