Influence of Government Regulatory and Fiscal Policy Requirements on Foreign Direct Investment in the Oil and Gas Sector in Kenya

Abstract

Reliable energy supply in a country is recognised as a significant contributor to an improved economy and society. Oil and gas is seen as a major source of energy. Since 2014, foreign capital in the oil and gas sector has relatively become scarce as international oil and gas companies focus on exploitation of known commercial reserves rather than focus on exploration of potential reserves; consequently, Kenya is one of the countries that has been adversely impacted. This is presumably due to weak global prices of crude oil and increased competition among suppliers. The purpose of the study was to establish the influence that the government’s regulatory and fiscal policy requirements have on foreign direct investment in the oil and gas sector in Kenya. The study adopted a survey design. The population of the study was the 11 foreign oil and gas firms currently participating in oil and gas exploration business in Kenya. The study relied on primary data collected using semi-structured questionnaires. The collected data was analysed using descriptive and inferential statistics as well as content analysis. From the analysis, it was found that there is a positive relationship between key government regulatory and fiscal policy requirements in the oil and gas sector and foreign direct investment, inferring that these requirements significantly affected foreign direct investment in the said sector. The study recommends to the relevant policy makers in Government, to review the current policy framework in consultation with industry players, so as to ensure formulation of sound fiscal policies that spur foreign direct investment in the sector whilst ensuring adequate control and fair revenue collection for the Government. The study concludes with a recommendation for further research on the extent to which regulatory and fiscal policy requirements affect foreign direct investment in the sector in relation to other factors that are generally attributed to attracting investment in a country.