Impact Of Kenyan and EAC Legal Regimes On Kenya’S Participation And Investment In Global Value Chains

Abstract

The overall objective of this study is to address four legal questions: first, should Kenya should liberalise its laws to encourage investment in Global Value Chains (GVCs) or should it restrict its laws to protect its economy? Second, what laws affect Kenya’s participation and investment in GVCs? Third, how do the identified laws affect Kenya’s participation and investment in GVCs? Fourth, how should the identified laws be designed to ensure effective participation and investment in GVCs? To address these questions, this study pinpoints problematic Kenyan laws. Bearing in mind that GVCs involves value addition in several countries, this study examines two regional legal regimes that Kenya is party to mainly COMESA and EAC to find out how they affect Kenya’s investment in GVCs. The study then uses the provisions of the AfCFTA and select WTO agreements as yard sticks to find out how Kenyan and regional laws should be designed to ensure effective investment in GVCs. This study argues that the law plays three main roles in GVCs: first, investment laws determines entry, retention or exit of investors. Secondly, the design of tax laws attracts or repel investors. Thirdly, a law that imposes non-tax barriers or one that eliminates non-tax barriers impacts investment environment. The study argues that whereas Kenya has various factor endowments, it is unable to attract GVCs investors because it does not have proper laws on GVCs. The available laws are archaic, repels and expels investors. The study also demonstrates that a country does not need to be resource endowed to achieve industrialisation. For example, developed countries import raw materials such as tea from Kenya, add value on the same, then export it back to Kenya at high prices leading to trade imbalances. Lack of raw materials to engage in manufacturing should not be an excuse for Kenya’s underdevelopment. As opposed to importing finished products, the country should be importing relevant raw materials for value addition. This is doable by fine-tuning the laws to attract investors who may utilise comparative advantage that Kenya offers. Therefore, Kenya and EAC should enact special laws to govern investment in GVCs. Since GVCs involve at least two countries, Kenya and EAC should apply the tenets of International Cooperation Theory, which reveals that having resources and good laws is irrelevant in absence of international cooperation. Cooperation is necessary in removing tariffs and NTBs that affect custom transactions. Ultimately, investments in GVCs leads to economic growth and development, creation of employment as well as development in infrastructure in the involved country.