Factors Influencing Foreign Direct Investment In construction: A Case Of Real Estate Projects In Nairobi County, Kenya

Abstract

Most countries strive to attract FDI because of its acknowledged advantages as a tool of economic development. The study aims at determining the factors that influence FDI in Construction, A case of Real Estate Projects in Nairobi County, Kenya. The objectives of the study were establish the influence of trade regulations on FDI in Construction of Real Estate Projects in Nairobi, determine the influence of economic growth rates on FDI in Construction of Real Estate Projects in Nairobi, establish the influence of market size on FDI in Construction of Real Estate Projects in Nairobi and ascertain the influence of exchange rate valuation on FDI in Construction of Real Estate Projects in Nairobi. The study was grounded on two theories; Dependency Theory and Internalization Theory of Foreign Direct Investment. The study employed a descriptive research design. This study focused on a population of 6 Real Estate Projects (by capital) in Nairobi as at 2015, according to Kenya’s Real Estate Market. This study used census sampling method. The sample size therefore comprised of all 6 investment managers, 6 project managers and 20 other senior staffs from different departments of the six Real Estate Projects (by capital) in Kenya. This study used questionnaires as the primary tool for data collection. The questionnaires contained both structured and unstructured questions. A pilot study was conducted where one project was picked. Test re-test method was used to test for reliability of the instrument. To establish the validity of the instruments in this research, the instrument was presented to the research supervisor and defended in the faculty forums where the research proposal was presented. Thereafter the questionnaire was administered with approval of the supervisor. The data collected was analyzed using descriptive statistics (measures of central tendency and measures of variations) to achieve the objectives of the study. The quantitative data generated was analyzed using descriptive statistics with the help of Statistical Package for Social Sciences (SPSS) version 20. The findings were presented using tables, frequencies and percentages. Throughout this study the researcher strived to adhere to ethical research considerations and professional guidelines. The study found that all factors investigated (trade regulations, economic growth rate, market size and exchange rate valuation) had influence on FDI in Construction of Real Estate Projects in Nairobi. The study therefore concluded that largely vertical FDI flows benefit from increasing openness, as might be expected in a sector for which international trade flows in intermediate and capital goods are important. In addition, the study concluded that Policies which promote economic growth and development should be given sufficient attention in order to attract FDI. The study further concludes that FDI moves to countries with larger and expanding markets and greater purchasing power. The study also concludes that in order to profit in real estate investments, investors must determine the value of the properties they buy and make educated guesses about how much profit these investments will generate, whether through property appreciation, rental income or a combination of both. The study also recommends that the Central Bank of Kenya (CBK) and other regulators should plan in advance and influence the macro-economic variables in the right direction. The government should also aim to grow the country’s real GDP as this would enhance the growth of FDI in Construction of real estate in the economy as established by the study. The study recommended further research on the influence of FDI in construction of real estate projects in other counties so as to generalize the findings.