Determinants of Foreign Direct Investment Inflow in Hospitality Industry in Kenya (1990 – 2014)
Abstract
The aim of the study was to establish the determinants of Foreign Direct Investment
inflow in hospitality industry in Kenya, 1990 - 2014. FDIs have attracted renewed
interest both in the developing and developed worlds. The increase in importance of FDI
in the global economy is due to the additional resources they pool for development in the
host country. Many factors determining the inflow of FDI in a host country have been
discussed by many authors. However, the literature also indicates that there is no
conclusive argument on factors determining FDI. Different factors work differently in
different countries based on investment type and investor motive. FDI inflow in the
industry has continued to decline despite the country’s comparative advantage. Why is
the industry not attracting FDI inflow? The study was guided by the objectives and
hypotheses. The study sought to establish the influence of political factors, bureaucratic
business procedures and insecurity. A survey was carried out in North Coast, South
Coast, Kilifi and Malindi Zones (Coastal Region) which provided primary data.
Secondary data was obtained from economic surveys, UNCTAD and KenInvest among
other sources. The study findings indicated that Kenya’s hospitality industry is largely
dominated by the local private investors who lack adequate and management skills to
ensure international standards required by the increasing tourist and visitors’ demands.
This has subsequently undermined the industry’s competitiveness. The findings also
indicated that there are few FDI in the industry and the number continues to decrease.
Factors identified to be contributing to this trend are restrictive investment climate that
deters potential investors at entry point; increased level of corruption due to bureaucratic
business procedures and misuse of discretionary powers accorded to some public office
holders has led to uncertainty on what to expect discouraging many investors; insecurity
as a result of continued terrorist attacks and potential threats leading to decrease in
international visitor arrivals from key market source, consequently leading to divestment.
Worth noting was that the restrictive investment measures laid down were however not
being implemented. Partly because of lack of harmony among the various government
agencies, coupled with lack of clarity on which agency should enforce or carry out the
implementation; secondly, there are no monitoring mechanisms to ensure that the already
existing FDI operate within the set rules. Corrupt public officers also contribute to lack of
proper monitoring of the existing enterprises, most of them receive monetary gains in
form of bribes not to inspect the operation of enterprises not complying with the laid
down rules. Existing investors find it easy to operate and expand since they are already
familiar with the bureaucratic procedures and they know how to go about the restrictive
investment climate, unlike the incoming investors who are discouraged by the business
climate. In conclusion, a country’s endowed resources such as attractions; political and
regulatory factors; and level of security play an important role in determining investment
decisions by foreign investors in hospitality industry.
Publisher
University of Nairobi