Making Kenya a Foreign Direct Investments Hub: A Critical Examination of the State of the Legal and Institutional Framework governing FDI in Kenya

Making Kenya a Foreign Direct Investments Hub:A Critical Examination of the State of the Legal and Institutional Framework governing FDI in Kenya
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"What would this island (Earth) be without foreign trade, but a place of confinement to the inhabitants, who (without it) could be but a kind of hermites, as being separated from the rest of the world; it is foreign trade that renders us rich, honourable and great, that gives us a name and esteem in the world”.
                                                                                              
                  Charles Molloy, De Jure MaritimoetNavali, 1676
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Abstract

This paper casts a critical examination of the legal and institutional framework governing foreign direct investments in Kenya. It also explores the extent to which the said framework has provided the requisite environment needed for the success of FDI in Kenya. The paper further demonstrates how the FDI component is key in enhancing Kenya’s economic development.  It examines the challenges facing the legal and institutional framework governing FDI in Kenya and advances the opportunities for the growth of FDI. The discourse ends with an analysis of what Kenya needs to do in order to position herself as a foreign Direct investments hub.



1.0 Introduction

Foreign Direct Investment(FDI) is defined as an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity of one economy, in an enterprise, resident in an economy other than that of the foreign direct investor.[3] FDI is broadly recognized to be of potential benefits that accrue to host states and this study acknowledges that indeed FDI  is  important  for  economic  growth  as  it  provides  much  needed capital, increases  competition  in  host  states  and  helps  local  firms  to  become  more productive  by  adopting  more  efficient  technology and thereby improving the country’s competitive advantage.[4] FDI in developing countries generally relies on   market-seeking dogma that requiresgrowing GDPs,  political  stability  and  good  infrastructure, low prevalence of corruption and insecurity, market  size, fair competition, investor protection and vibrant intellectual property rights protection among others.[5] Kenya being a developing country therefore must legislate alongside these areas in order to create a viable environment for the growth of FDI. Since Kenya’s FDI’s tend  to  be  mainly  market  seeking,  the government has to formulate and enact laws that focuses on improving political stability especially the electoral and political parties legislations, emphasize the development of good infrastructure and  growing  the  country’s  GDP, aim at reducing crime and insecurity, provide a sound investor friendly legislations, create vibrant intellectual property rights regime and a strong legal and institutional framework for international commercial arbitration.[6] This will evidently spur the growth of FDI and immensely contribute to the economic development of the Kenyan state.

 

2.0 Legal and Institutional Framework on FDI in Kenya

2.1 Legal Framework

Kenya has enacted a number of legislations that seek to promote and facilitate foreign investments, provide protection and create a viable environment for increased FDI inflow. This legislative framework on FDI is therefore to be found in a number of legislations that are appraised in this study. The list of such legislations is not exhaustive but captures the core legislative framework regulating FDI in Kenya and although the legislations govern specific foreign investment domain, there is a common thread that can be discerned in all.[7] This is the fact that they all seek to provide a conducive foreign investment climate in Kenya.

2.1.1 Constitution of Kenya, 2010

The Constitution provides that the general rules of international law and treaties ratified by Kenya, forms part of the laws of Kenya.[8] This brings international investment treaties ratified by Kenya into focus and as such exemplifies Kenya’s position in international commerce. The Treaty Making and Ratification Act, 2012, which gives effect to Articles 2(5) and 2(6) lays down the procedure on how Kenya should make and ratify treaties.[9] These provisions of the Constitution are relevant in foreign investments regime because Kenya is part of the globalized market and such is party to various international investment treaties and conventions such as the: General Agreement on Tariffs and Trade(GATT), Agreement Establishing the World Trade Organization(WTO), Convention on the Settlement of Investment Disputes between States and Nationals of Other States(ICSID Convention), UNCITRAL Model Law on International Commercial Arbitration and the New York Convention, 1958.[10] These conventions seeks to establish a level playing ground in international commerce and investments by establishing legal, institutional and enforcement framework to advance global business. The Constitution as a grundnorm, by making such provisions, lays down a strong legal foundation upon which policy, legislative and institutional framework on Foreign Direct Investments is anchored.

The ICSID and New York Conventions for instance lays down international commercial arbitration mechanisms where foreign investors can resolve their commercial disputes faster to avoid commercial losses.

2.1.2 Investment Promotion Act, 2004

This is the key substantive legislation on promotion and facilitation of FDI. This Act repealed the Investment Promotion Centre Act, Cap. 485 by streamlining the administrative and legal procedures with a view of creating a more attractive investment climate in Kenya.[11] This law’s main objective is to boost and facilitate investment by assisting investors in obtaining the essential documentation for purposes of investment as well as providing other assistance and incentives.[12]This Act replaces the Investment Promotion Centre with the Kenya Investment Authority and also establishes the National Investments Council as key agencies in facilitating and coordinating local and foreign investments in the country.[13]

 

2.1.3 Foreign Investments Protection Act, 1964

This is an independence legislation that closely casts the colonial master’s-Britain investment regime. Foreign Investments Protection Act (FIPA) has however undergone various amendments in order to align it with the ever changing local and global business environment. FIPA seeks to protect certain approved foreign investments and creates investment incentives as well to attract foreign direct investments. It guarantees a foreign investor with regard to the capital repatriation and remittance of interests and dividends and as such foreign investors are free to convert and repatriate profits including un-capitalized retained profits[14]

 

2.1.4 Companies Act, 2015

The Companies Act and the Investment Promotion Act provides the foundation for company and investments law in Kenya. These are the substantive laws that provide the mechanisms for registration and carrying out foreign investments in Kenya.[15]Companies Act, 2015 repeals the 1948 Companies Act and seeks to consolidate and reform the law relating to the incorporation, registration, operation, management and regulation of companies in Kenya.[16] This Act introduces provisions that cast the current commercial realities and technological developments locally and globally.[17] Some of the revolutionary characteristics of the statute include the “walking company” provisions which allow single-shareholder companies.[18] The Act also simplifies the Memorandum of Association to allow companies to carry out any activities not necessarily included in their memorandum.[19]Companies can also make written electronic resolutions, eliminating the requirement for members to physically meet all the time.[20]Section 3 of the Act provides, “the objects of this Act are to facilitate commerce, industry and other socio-economic activities by enabling one or more natural persons to incorporate as entities with perpetual succession, with or without limited liability, and to provide for the regulation of those entities in the public interest, and in particular in the interests of their members and creditors.” This is a departure from the repealed company statute which then provided for a minimum number of two directors to set up a private company.[21]

Section 975 of the Companies provides for registration of foreign companies. This provision though has not commenced, is seen as a retrogressive and caused a lot of storm as had ruffled the feathers of foreign investors looking to set up shop in East Africa’s biggest economy, casting doubt on the competitiveness of the Kenya as an FDI hub.[22]

Section 975 (2) provides: “The Registrar shall approve the application for registration and register the company by entering its nameand other particulars in the Foreign Companies Register if the application- (a)contains the information prescribed by the regulations for the purposes of this section;(b)is accompanied by the prescribed fee, if any, and the required documents; and (c) complies with the requirements of this Part with respect to the company's name and the appointment of a local representative.”

Section 975 (2)(b) has since been amended by the Finance Act, 2016 which provides for its deletion.[23]The section had provided for a compulsory 30 percent local shareholding in a foreign company. It has been viewed as a negative provision hence inhibiting the inflow of FDI in Kenya.[24]

2.1.5 Business Registration Act, 2015

Closely related to the Companies Act is the Business Registration Act which establishes the Business Registration Service and the office of the Registrar-General to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies.[25] This is intended to make registration of business in Kenya easier. Provides for quicker registration mechanisms, reduction of bureaucracy and therefore enhances faster setting up of foreign companies in Kenya as provided under the Companies Act. As earlier mentioned in this study, since Kenya’s FDI is based on market-seeking principles, such enactment is likely to woo investors into the Country, boost Kenya’s FDI portfolio and spur economic development.

 

2.1.6 Public Private Partnerships Act, 2013

Good infrastructural facilities such as roads, rails and ports are key in attracting foreign investors. Capital is one thing that almost everyone is short of, especially developing countries, and setting up better infrastructural facilities is an investment that is large and extended on timeline. So, governments have to often team up with private enterprises to get the capital, while they provide policy and administrative support, in return for a say on the pricing of the outcome/infra services, that, is the essence of Public private partnerships.[26] Kenya being a developing country therefore, in order to raise enough capital to put up better roads, rails, ports and other transport networks and other infrastructure, that usually requires heavy capital, enacted the  Public private Partnerships Act, 2013 to provide for the participation of the private sector in the financing, construction, development, operation, or maintenance of infrastructure or development projects of the Government through concession or other contractual arrangements and the establishment of the institutions to regulate, monitor and supervise the implementation of project agreements on infrastructure or development projects .[27] This has seen number of projects commence under PPPs such as the Standard Gauge Railway (SGR) and road networks expanded.[28]

 

2.1.7 Capital Markets Act

The stock market is a reliable barometer to measure the economic condition of a country.[29]It is an integral factor in any economy and it is one of the gauges of the performance of the economy.[30] Movements in the stock markets can have a profound effect on the economy and its collapse can have adverse effects on the economy.[31] Investment in stock exchange in any country is reliant on a number of measures such as political stability and reform-oriented governance, security and transparency in governance. In situations where such measures are not reinforced, a foreign investor who has huge investment in the form of stocks may pull out leading to unstable stock market hence weakening the economy. This is the reason why in countries with rampant insecurity, wars and such like activities, there exist low capital markets investments. The strength of stock market is therefore evidence of a sound economy and serves as an attraction to foreign investors in any given economy. The Kenya’s capital Markets Act establishes Capital Markets Authority for the purpose of promoting, regulating and facilitating the development of an orderly, fair and efficient capital market in Kenya.[32] The Act empowers the cabinet secretary for finance to issue rules and regulations prescribing the procedure for the participation of foreign investors in the securities market.[33] The authority has the mandate to protect local and foreign investors in the stock market and the development of technologies and adoption of measures that promote the securities market in Kenya capable of attracting FDI.[34]

 

2.1.8 Investments Disputes Conventions Act

This is the Kenya’s substantive law that gives legal sanction to the provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention). The basis of the investment dispute settlement system under international commercial arbitration is found in the ICSID Convention (Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965)-“Washington Convention.”[35]It establishes the International Centre for Settlement of Investment Disputes (ICSID) which provides mechanisms for arbitration and conciliation of investment disputes between contracting states and nationals of other contracting states.[36] Kenya domesticated this convention in 1966 through the Investment Disputes Convention Act, Cap. 522 which is an Act of Parliament to that gives legal sanction to the provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of other States.[37]

International investment dispute settlement mechanisms encompass the doctrine of Investor-state dispute settlement (ISDS), which is a regular feature of international investment Agreements (IIAs).[38] Countries sought to create a system for the settlement of disputes between investors and host governments, as a neutral forum that offers the possibility of a fair hearing before a tribunal unencumbered by domestic political considerations.[39]

In addition to serving as a de-politicized forum for resolving investment disputes, international arbitration is expected to offer other advantages such as potentially swifter, cheaper and more flexible than other dispute settlement mechanisms. Without ISDS, a foreign investor has two avenues to pursue if a host state expropriated its property or otherwise interfered with its investment.[40] First, is to seek relief in the domestic courts and this has a number of problems such as domestic sovereign immunity or non-independent judiciary that could be influenced by the host state’s political officials.[41] Secondly, if domestic courts are ineffective, a foreign investor’s remaining hope is to convince its home government to espouse its claim by exercising diplomatic protection.[42] This seemed to be effective for investors from powerful states whereas small investors lacking political clout would suffer a lot.

The Convention is complimented by rules and regulations adopted by the Administrative Council of the ICSID pursuant to Article 6(1)a-c of the Convention.[43]The rules and regulations set out the rules of procedure for the institution of Conciliation and Arbitration Proceedings.[44]The primary purpose of ICSID under the convention therefore is to provide facilities for conciliation and arbitration of international investment disputes between contracting states and nationals of other contracting states in accordance with the provisions of the convention.[45] The enactment of this legislation by Kenya is a strong indication and attraction for foreign investors and  an affirmation of Kenya’s commitment to international obligations in resolution of international investment disputes between Kenya and foreign investors.

In  World Duty Free v Republic of Kenya[46], a case of a claim of enforcement of a contract by World Duty Free(a foreign firm operating in Kenya), who claimed to have bribed the former president of the Republic of Kenya Daniel Moi. The claimant investor argued that the alleged US$2M bribe to the former Kenyan President was made under the “Harambee” system of mobilizing resources through private donations for “public purposes” and was therefore legally justified. ICSID was of the opinion that in light of domestic laws and international conventions relating to corruption, the tribunal was convinced that corruption is contrary to public policy in most jurisdictions hence claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by the arbitral tribunal under the ICSID framework. The claim advanced by World Duty Free Limited was therefore dismissed.
 

2.1.9 Arbitration Act

Arbitration is an Alternative Dispute Resolution(ADR) Mechanismthat entails a neutral party in the settlement of disputes.[47] It is a private consensual process because parties in dispute have to agree to present their grievances to a third party for settlement.[48] The Arbitration Act, 1995 is the main law that governs arbitration matters in Kenya.[49] The Act provides for both domestic and international Arbitration.[50] For a dispute to be settled through arbitration there must be a prior arbitration agreement. ‘Arbitration Agreement’ refers to an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.[51]

Domestic and international arbitration is defined as: “Arbitration is domestic if the arbitration agreement provides expressly or by implication for arbitration in Kenya and at the time when proceedings are commenced or the arbitration is entered into: the arbitration is between individuals and the  parties are nationals of Kenya or are habitually resident in Kenya; the arbitration is between bodies corporate, and parties are incorporated in Kenya or their central management and control are exercised in Kenya; the place where a substantial part of the obligations of the commercial relationship is to be performed, or the place with which the subject-matter of the dispute is most closely connected, is Kenya. On the other hand, arbitration is international if: the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different states; one of the following places is situated outside the state in which the parties have their places of business—the juridical seat of arbitration is determined by or pursuant to the arbitration agreement; or any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one state.”

Courts in Kenya however may intervene in arbitral matters in the circumstances set out in section 39 of the Act.[52] Where an arbitral award is against the Kenya’s public policy for instance, such an award may not be enforced by the Kenyan courts.[53] Kenyan courts have though had interference in arbitral matters contrary to the provisions of the Act hence such interference is likely to discourage and intimidate foreign direct investors who carry on business in Kenya from settling their commercial disputes in Kenya but instead opt for other foreign jurisdictions.[54] Effective and reliable application of international commercial arbitration has the capacity to encourage investors to carry on business with confidence knowing that in the event of disputes, they will be settled expeditiously.[55]This statute therefore offers a legislative framework for resolution of commercial disputes between Kenya and foreign investors and was enacted based on key international investment disputes resolution conventions which Kenya has ratified.[56] This facilitates international disputes resolution mechanisms involving foreign direct investors and the Kenyan state.

 

2.1.10 Nairobi Centre for International Arbitration Act, 2013

This Act provides for the establishment of a regional center for international commercial arbitration, the Arbitral Court and the mechanisms for alternative dispute resolution in Kenya.[57]This legislation is seen as a key development since Nairobi has been lagging behind in attracting foreign investors seeking the services of international foreign arbitrators.[58] Lack of an elaborate legal and institutional framework on arbitration and excessive court interference in arbitration matters may be cited as some of the contributory factors for the establishment of this centre.[59] This Act comes in to resolve issues of court interference and boost international commercial in Kenya by establishing an Arbitral court with exclusive original and and appellate jurisdiction to hear and determine matters on arbitration and whose decision in such matters is final.[60] The Centre has however not been set up till now owing to disagreements among lawyers and allegations of corruption hence render Kenya unfavorable for settlement of international commercial disputes.[61]

 

2.1.11 Competition Act

As already noted elsewhere in this paper, Kenya’s FDI being reliant on market-seeking ideologies, it is important for the creation of a fair competition regime to attract foreign direct investors.

Globalization poses numerous challenges for policy makers both in developing countries  and  emerging  economies, with challenges stemming from a widespread concern that, as governments in developing and emerging economies move to adopt more open and market-friendly policy regimes, and seek more actively to attract the foreign direct investment which they see as vital to  strengthening  the  ability  of  their  economies  to  compete  in  global  markets,  they may  stimulate or reinforce a global  process  of  competition  among  governments  to attract FDI that has undesirable effects .[62] It is out of this concern that Kenya enacted the Competition Act, 2012 to safeguard competition in the national economy and: create an environment conducive for investment, both foreign and local; capture national obligations in competition matters with respect to regional integration initiatives; bring national competition law, policy and practice in line with best international practices; and promote the competitiveness of national undertakings in world markets.[63] This Act establishes the Competition Authority and the Competition Tribunal as institutions to provide implementation and enforcement mechanisms in competition matters in the country.[64] This law has facilitated the stabilization of the Kenyan market creating a conducive foreign direct investment climate in Kenya.

 

2.1.12 Anti-counterfeit Act, 2008

This Act establishes the Anti-Counterfeit Agency to prohibit trade in counterfeit goodsimported in Kenya.[65] The Agency is tasked with the responsibility of: enlightening and informing the public on matters relating to counterfeiting; combat counterfeiting, trade and other dealings in counterfeit goods in Kenya in accordance with the Act;devise and promote training programmeson combating counterfeiting;co-ordinate with national, regional or international organizations involved in combating counterfeiting;carry out any other functions prescribed for it under any of the provisions of the Act or under any other written law.[66] The Agency however faces a number of challenges among them lack of clarity regarding its role compared to related agencies in intellectual property rights protections such as Kenya Industrial Property Institute and Kenya Bureau of Standards.[67] The legislative and regulatory framework on anti-counterfeit is essential in promoting Foreign Direct Investments in Kenya. Foreign investors want a market that is not flooded with anti-counterfeit products for the sake of ensuring fair competition and protection of their intellectual property rights. This law together with its regulatory regime posits an attractive investment climate for FDI.

 

2.1.13Economic Processing Zones Act

This Act provides for the establishment of export processing zones and the Export Processing Zones Authority for the promotion and facilitation of export oriented investments and the development of enabling environment for such investments.[68] The Authority has the duty to: The development of all aspects of the export processing zones with particular emphasis on provision of advice on the removal of impediments to, and creation of incentives for, export-oriented production in areas designated as export processing zones; the regulation and administration of approved activities within the export processing zones, through implementation of an administrative system in which the export processing zone enterprises are self-regulatory to the maximum extent; and the protection of Government revenues and foreign currency earnings.[69]Foreign direct investors who want to set up industries or firms with a market presence not only in Kenya but with capacity to export then finds this essential.

 

There are other legislations such as the Special Economic Zones (SEZs) Act which aims to promote the establishment of SEZs by providing tax and other incentives to licensed developers and operators.[70] The SEZs are currently planned to be located in Lamu, where there will be a free port, Mombasa and Kisumu.[71] The activities to be carried out in these zones include Free Trade Zones (FTZ), Industrial parks, Free port, ICT parks, Science and Technology parks and Business Service parks.[72] This is expected to spur economic growth in the country.The Proceeds of Crime and Anti-Money Laundering Act provide for the offence of money laundering and introduce measures for combating the offence, and provide for the identification, tracing, freezing, seizure and confiscation of the proceeds of crime.[73]TheFinancial Reporting Centre is a creation of this statute and has the responsibility of fulfilling the objectives of the Act.[74] Money laundering[75] has far-reaching effects such as: undermining the legitimate private sector; undermining the integrity of financial market; causing loss of control in economic policy; causing economic distortion and instability; causing loss of revenue; increasing risk to privatization efforts and causing reputation risks to financial institutions.[76]These effects scare away foreign direct investors and therefore results into a negative impact on the economy. By Kenya having such legislative framework, there is a viable environment for the growth of FDI; investor confidence in the country.

 

The Industrial Property Act provides for the promotion of inventive and innovative activities, facilitates the acquisition of technology through the grant and regulation of patents, utility models, technovations and industrial designs and establishes the Kenya Industrial Property Institute which undertakes: The consideration of applications for and grant industrial property rights; screening technology transfer agreements and licences; provide to the public, industrial property information for technological and economic development; and promote inventiveness and innovativeness in Kenya.[77]

 

3.0 Challenges in the administration of the FDI legislative and institutional framework in   Kenya

Kenya lacks a sound policy framework governing FDI. It is best practice for policy to precede law as most legislations including subsidiary legislation trace their foundation to agreed policy frameworks.[78]Quality legislations would therefore be informed by quality policy frameworks. The United States, Singapore and South Africa for instance have elaborate Trade and Investment policy frameworks that inform the laws governing international trade and foreign investments. These Trade and Investment policies have helped these states:[79] Set and enforce rules of fair competition in the global economy, not only by lowering tariff barriers, but also improving the treatment of foreign investors and protection of intellectual property rights; enact quality legislations, develop regulations and establish institutional frameworks to effectively govern international trade and foreign investments within their jurisdictions;[80] realize that trade and investment policy must be part of the broader national effort to improve the capacity of their nationals to compete in the global economy; acknowledge the fact that Trade policy is intended to establish and enforce rules for the international exchange of goods and services that bring the greatest possible benefits to their nationals while promoting the larger foreign policy interests; develop open FDI policies as bases for multinational companies to engage in high end manufacturing and product development;[81] promote free, open and stable multilateral trading system and settlement of investment disputes;[82] recognize the complimentary relationship between trade and investment decision-making since trade is an outcome of investment and investment may be motivated by trade opportunities;[83] harness FDI to achieve the development objectives of host states as FDI can have critical impacts on economic development of the state;[84] implement policy measures that seeks to enhance adequate security and offer protection to all foreign investors;[85]and preserve the sovereign right to regulate international trade and foreign investments, in the public interest.[86] Chile for example has made FDI an essential part of its national development strategy.[87] It's sound, market-oriented policies have created significant opportunities for foreign investors to participate in the country's steady economic growth.[88]Kenya lacks a sound policy framework to govern foreign direct investments and therefore, it needs to borrow from a mix of these best practices in the formulation and review of its legislative framework governing international trade and foreign investments. This will help Kenya realize a sufficient, efficient and effective legislative framework governing FDI.

Corruption in Kenya Corruption is a threat to FDI.Kenya has been ranked as the third most corrupt in the world.[89]Corruption can be defined as an “arrangement” that involves “a private exchange between two parties (the ‘demander’ and the ‘supplier’)[90], which: Has an influence on the allocation of resources either immediately or in the future; and involves the use or  abuse  of  public  or  collective responsibility for private ends.”[91] The demanders may be the public officials and the suppliers are foreign investors.[92]The debate on the adverse effects of the level of corruption on FDI inflows has been analyzed in context of the costs of doing business.[93] Since foreign investors have to pay extra costs in the form of bribes in order to get licenses or government permits to conduct investment, corruption raises the costs of investment.[94] Such additional costs decrease the expected profitability of investment, increases uncertainty because corruptionagreements are not enforceable in the courts of law.[95]Corruption has a negative impact on the level of investment and economic growth on the quality ofinfrastructure and on the productivity of public investment on health care and education services and on income inequality.[96]These factors on corruption influence an investor’s choice of locating his or her firm and as such foreign investors would tend to avoid investing in countries with high levels of corruption.

Inefficient prosecution of corruption cases hampers effective management and reduction of corruption. The Ethics and Anti-corruption Commission doesn’t have prosecutorial powers which are instead vested with the Director of public prosecution hence this brings about improper coordination on investigation and prosecution of corruption offences.

Political violence especially when nearing elections in Kenya scares away foreign investors. There is therefore need to review electoral and political parties’ legislations to regulate elections and reduce the possibility of violence during general elections in Kenya. Kenya as earlier stated elsewhere in this paper, has the requisite legislative and institutional framework on international commercial arbitration but has not effected some provisions and there is a poor implementation and enforcement mechanism to effectively realize the profits of international commercial arbitration regime.


4.0 Conclusion

 

Kenya has the capacity and the requisite legislations, regulations and institutional framework to govern FDI, however, there is need to more importantly strengthen the institutional framework governing FDI in Kenya.It is necessary to set up, and operationalize the Nairobi Centre for International Arbitration set out in the Act[97]to, enhance regional and international investment disputes settlement mechanisms, making Kenya the preferred destination for the settlement of international commercial disputes. This will promote Kenya as a lucrative FDI destination. The harnessing of legal and institutions governing elections in Kenya is essential to avert risk of possible emergence of violence when nearing or during general elections so as to avoid scaring away foreign direct investors during this period.

Although the laws portend Kenya as a vibrant FDI environment for business, there is need for political goodwill and effective implementation and enforcement to ensure they achieve their full potential in easing business in Kenya and positioning the country as an FDI hub.[98]

 
Footnotes:

[1]<https://www.miripravo.ru/company/project_e.htm, >accessed 5 January 2016.

[2]Charles Molloy was the compiler of an extensive treatise on maritime law and commerce, entitled De Jure MaritimoetNavali. Charles Molloy an Irish lawyer was popularly known as a writer on maritime law.

[3]United Nations Conference on Trade and Development(UNCTAD<)https://unctad.org/en/Docs/wir2007p4_en.pdf>Accessed 21 May 2016.

[4]Abala. O, DBA African Management Review 2014(Vol. 4 No. 1) p 62.

[5]Ibid.

[6]Ibid.

[7]Simiyu, M.(2014) Foreign and Domestic Investments in Kenya: Case Study for a Protectionist Trade Legal Regime. LL.M Thesis, University of Nairobi, School of Law.

[8]Republic of Kenya, Constitution of Kenya, Art. 2(5) and(6).

[9] Republic of Kenya, Treaty Making and Ratification Act, 2012, see preamble.

[10]The Kenya Law’s website: www.kenyalaw.org provides a database of treaties and conventions and shows that these treaties are ratified by Kenya<https://kenyalaw.org/treaties/search>accessed 22 May 2016.

[11]Ibid.

[12]Republic of Kenya, Investment Promotion Act, 2004,long title.

[13]Ibid, Ss. 14 and 26.

[14]Republic of Kenya, Foreign Investments Protection Act, S. 7. This section among others states:  “Notwithstanding the provisions of any other law for the time being in force, the holder of a certificate may, in respect of the approved enterprise to which such certificate relates, transfer out of Kenya in the approved foreign currency and at the prevailing rate of exchange—

the profits, including retained profits which have not been capitalized, after taxation, arising from or out of his investment in foreign assets: Provided that any increase in the capital value of the investment arising out of the sale of the whole or any part of the capital assets of the enterprise or revaluation of capital assets shall not be deemed to be profit arising from or out of the investment for the purposes of this Act..”; See also Ibid n 7. An un-capitalized retained profit refers to proceeds of an investment after payment of the relevant taxes and the principal and interest associated with any loan.

[15]Supra note 12.

[16]Republic of Kenya, Companies Act, 2015, long title.

[17]George Gitau, ‘Progressive Business Legislation in Kenya: New Laws Look to spur economic growth in the country,’ KPMG<https://www.kpmg.com/eastafrica/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG%20East%20Africa%20-%20Progressive%20business%20legislation%20in%20Kenya.pdf>Accessed 22 May 2016.

[18] Ibid; See also section 11 of the Act.

[19] Ibid; See also section 19.

[20] Ibid; Division 2, section 262.

[21] See Companies Act Cap. 486, s. 4.

[22]Kenya Shelves Ownership Clause for Foreign Firms<https://www.businessdailyafrica.com/Kenya-shelves-ownership-clause-for-foreign-firms/-/539546/2946364/-/f6a0g3z/-/index.html>accessed 22 May 2016.

[23] Finance Act, 2016.

[24]Ibid.

[25]Republic of Kenya, Business Registration Act,2015, long title.

[26]<https://www.quora.com/What-is-the-relation-between-FDI-foreign-direct-investment-PPP-public-private-partnership-and-BOT-build%E2%80%93operate%E2%80%93transfer-or-BOOT-build%E2%80%93own%E2%80%93operate%E2%80%93transfer>accessed 22 May 2016.

 

[27]Republic of  Kenya, Public Private Partnerships Act, 2013.

[28]East African Chamber of Commerce, Industry and Agriculture, ‘attracting funding of PPPs through an action plan and accompanying guidelines and hand book for advocacy and awareness creation for the management of PPP deals based on business climate assessment and gap analysis’,<https://www.enablebusiness4pppseastafrica.com/wp-content/uploads/2014/10/Draft-Policy-Framework-Report.pdfaccessed>accessed 22 May 2016.

[29]https://www.yourarticlelibrary.com/economics/market/9-most-important-functions-of-stock-exchangesecondary-market/8766/)

[30]Tobiko A. Siimoi (2015)The Causal Relationship Between the Stock Market and Foreign Direct Investments: Evince From Kenya. Bachelor of Business Science Actuarial, Strathmore University.

[31]Ibid.

[32]Republic of Kenya, Capital Markets Act, Cap. 485A, long title.

[33] Ibid section 12.

[34]Ibid section 11.

[35]Pohl, J.,K.Mashigo and A. Nohen(2012), “Dispute Settlement Provisions in International Investment Agreements: A Large Sample Survey.” OECD Working Paper on International Investment, 2012/02, OECD Publishing<https://www.oecd.org/investment/investment-policy/WP-2012_2.pdf>accessed 24 February 2016.

[36]ICSID Convention , Article 1.

[37] Republic of Kenya, Investment Disputes Convention Act, Cap. 522.

[38]United Nations, “Investor-State Dispute Settlement: UNCTAD Series on Issues in international Investment Agreements II”,<https://unctad.org/en/PublicationsLibrary/diaeia2013d2_en.pdf>accessed 24 February 2016.

[39]Ibid.

[40]Ibid.

[41]Ibid.

[42]Ibid.

[43]ICSID Convention, P. 5.

[44] Ibid.

[45]International Centre for Settlement of Investment Disputes (ICSID), https://www.yourarticlelibrary.com/organization/international-centre-for-settlement-of-investment-disputes-icsid/23535/; ICSID Convention Article 1 (2).

[46]World Duty Free v Republic of Kenya ICSID Case No. ARB/00/7(4 October 2006).

[47]KariukiMuigua, ‘Making East Africa a Hub for International Commercial Arbitration’ A paper presented at the KIAC Arbitration Workshop for EAC, Hosted by the Rwanda Private Sector Federation, May 2013.

[48]Ibid.

[49]Ibid; See also the Arbitration Act, long title.

[50]Cap. 49, section 3.

[51]Ibid n46, section 3.

[52] Cap. 49 section 39.

[53] Ibid n 46

[54] Ibid.

[55] Ibid.

[56]Kenya ratified the New York Convention 1958, ICSID Convention, 1965 and the UNCITRAL Model Law on International Commercial Arbitration 1985. The New York Convention provides for enforcement of foreign arbitral awards which the Kenya’s arbitration Act acknowledges under section 36 (2). The ICSID Convention is domesticated through the International Investments Disputes Conventions Act, whereas the UNCITRAL Model Law on international commercial arbitration forms part of the key elements of arbitration  laws in Kenya.

[57]No. 26 of 2013, long title.

[58] Ibid n46

[59] Ibid.

[60]Ibid n 56 section 21.

[61]https://www.nation.co.ke/news/Law-Society-of-Kenya-Annual-General-Meeting/-/1056/2661832/-/wsbsbsz/-/index.html<accessed 23 May 2016.

[62]Charles Oman, ‘Policy Competition for Foreign Direct Investment: A study of Competition among governments to attract FDI,’ OECD (2000).

[63]Republic of Kenya, Competition Act, long title and section 3.

[64]Ibid ss. 7 and 71. Section 7 establishes the Competition Tribunal whereas section 71 establishes the Competition Tribunal as implementation and enforcement bodies whose functions shall be discussed under the next chapter on institutional framework.

[65]Republic of Kenya, Anti-counterfeit Act, 2008, long title.

[66]Ibid section 5.

[67]Ibid n46.

[68]Republic of Kenya, Export processing Zones Act, long title and section 3.

[69]Ibid section 9.

[70]Ibid n17.

[71]Ibid

[72]Ibdi.

[73]Republic of Kenya, Proceeds of Crime and Anti-Money Laundering Act, long title.

[74]Ibid s. 21.

[75]Money Laundering is defined in the Act as  an offence under any of the provisions of sections 3, 4 and .

  “proceeds of crime” means any property or economic advantage derived or realized, directly or indirectly, as a  result of or in connection with an offence irrespective of the identity of the offender and includes, on a proportional basis, property into which any property derived or realized directly from the offence was later successively converted, transformed or intermingled, as well as income, capital or other economic gains or benefits derived or realized from such property from the time the offence was committed.

[76]I wayanYasaNugraha, ‘The Impact of Corruption and Money Laundering on Foreign Direct Investments in ASEAN,’<https://download.portalgaruda.org/article.php?article=127251&val=953>Accessed 25 May 2016.

[77]Industrial Property Act, long title.

[78]Kenya Law Reform Commission, ‘A guide to the legislative process in Kenya,’ (Kenya Law  Reform Commission 2015) p. 11 and 26.

[79] The US Council on Foreign Relations, ‘US Trade and Investment Policy’ (Council on Foreign Relations Press, 2011)<https://www.cfr.org/trade/us-trade-investment-policy/p25737>accessed 8 May 2016; See also WTO, Secretariat Report: Overview of Singapore’s Trade Policy (WTO, 2007) P.7, 8 and 14; Republic of South Africa, ‘South African Trade and InvestmentPolicy’(Department of Trade and Industry 2015); Republic ofSouth Africa,‘A South African Trade Policy and Strategy Framework,’(Department of Trade and Industry 2010).

[80]Singapore for instance in 2005 enacted the Competition Act establishing the Competition Commission of Singapore.This greatly enhanced institutional transparency and provide a more even playing field for all businesses. The South Africa’s Trade and Investment Policy formed the basis for the enactment of the International Trade and Administration Act, 2002 which established the International Trade Commission that deals with import and export business in South Africa. The South Africa’s Promotion and Protection of Investment Act was also enacted, an Act which draws on a review of international experience as well as recent national experiences with a view to balance the interest of the host state and foreign investors in South Africa.

[81]Ibid n101, (WTO Secretariat Report, 2007) P. 7-14.

[82]Ibid.

[83]Ibid n 101(South Africa’s Trade and Investment Policy)P 21-32.

[84]Ibid.

[85]Ibid.

[86]Ibid.

[87]US Department of State, ‘2014 Investment Climate Statement<https://www.state.gov/documents/organization/229002.pdf>accessed 1 March 2016.

[88]Ibid.

[89]<https://www.standardmedia.co.ke/article/2000193065/survey-kenya-ranked-third-most-corrupt-country-in-the-world>accessed 25 May 2016.

[90]Ibid

[91]Ibid

[92]Ibid

[93]Ibid

[94]Ibid

[95]Ibid

[96]Ibid

 

[97]Act No. 26 of  2013.

[98]Ibid n 17.