| dc.description.abstract | Official Development Assistance represents an important source of finance in most
African countries, where it supplements savings and foreign exchange gaps and low tax
base. Foreign Direct Investment is another source as it can bring needed additional
capital, access to technology, know how and international markets. Apparently the donor
governments are getting strict about fiscal discipline and good policies. Those nations,
which do not comply with donor conditionalities, for example, Kenya government has
experienced low donor funding. Kenya is also experiencing low FDI flow into the country.
This research uses general multiple regression model to explore the decline levels of
ODA and FDI and their impact on economic growth. The empirical results indicate that
both foreign aid and foreign direct investment do influence economic growth positively,
however, with the declining levels of the two (ODA & FDI), their contribution has been
low and this perhaps explains the overall decline in the economy.
It is therefore evident that the effects of the declining levels of ODA and FDI are strong in
a short run as the government now strengthens its fiscal policies to counteract the
declining levels of external resources.
Based on this background, it is essential for the government to give more attention to
domestic savings mobilization. In the past domestic savings mobilization has not been
given much attention as the other possible sources of finance. To enhance domestic
local resource mobilization requires the government to create a health democracy in
which there is separation of powers, ensuring that the three branches of government
operate independently.
For checks and balance to occur, the civil society has to be strengthened, to guarantee
that decisions that affect the public either directly or indirectly will have to be made
through institutions. It is also necessary for the government to look for other
development partners, countries like Japan, China and Korea are possible areas where
Kenya should approach in its development agenda.
In order to attract ODA Kenya needs to enhance good governance as a set of values,
policies and institutions, ensuring that political, social and economic priorities are based
on broad consensus in society and that the voices of the poorest and the most
vulnerable are heard in decision making over the allocation of resources.
FDI is of particular importance in bringing additional capita, access to technologies,
management techniques and access to international markets. Hence, government
should maintain a stable political and economic climate, likely to generate business
confidence.
Considering that agriculture is the backbone to Kenya's economy, focus needs to be
given to foreign investment in this sector. The government needs to improve its
infrastructural facilities. Manufacturing is one of the areas where private and foreign
investor partnerships can be established. Government should support these measures
and pursue policies that enhance macroeconomic stability. Government spending should
be allocated to priorities with greatest potential effect on economic growth.
Government should continue pursuing fighting corruption, improve efficiency and
integrity in the civil service, reduction of crime rate, improving efficiency and pace in
dispute resolution and delivery of justice are among factors need to be addressed,
otherwise investors are likely to shy away in favor of other markets within the East African region. | en |
