Hon. James Magara, Assistant Minister of Trade

Competition for foreign direct investment flows will be tough due to the effect of the global economic crisis. Kenya's assistant trade minister Hon. James Magara talks to TradeInvestKenya about the country's strategy to attract FDI in hard times.

What is the status of FDI flows in Kenya?

The post-election violence in the first quarter of 2008 created quite a hiccup, causing foreign investors to lose confidence in Kenya as an investment destination. But now the country is stable and we have been receiving a good number of investment enquiries, as well as investments. Obviously we would be in a better position if the turmoil never happened.

Doing business in Africa is often thought to be a testing experience with regard to red tape and corruption yet Kenya continues to attract major FDI. What draws investors to the country?

The country’s strategic position, attractive opportunities and incentives are major factors. We are also in the process of converting the current export processing zones (EPZs) into special economic zones (SEZ), which will enable investors here to have more trade benefits. The SEZ will have facilities and infrastructure to facilitate investment and trade, and also cut red tape to enable faster operations. These are going to be established along major towns along the railway and highways linking Kenya and other countries.

Competition for FDI is going to be stiff as a consequence of the global financial downturn. What is Kenya's strategy?

The government aims to exploit investment opportunities by attracting companies in countries worst hit by the crisis, which are looking for safer destinations. The Business process outsourcing sector is be one of the opportunities African countries can take advantage of. One of the government's strategies for attracting investors is providing tax breaks. There is a proposal to amend the Export Processing Zones Act to include the BPO companies. This way investors will enjoy incentives such as exemption from VAT, income tax during the first 10 years of existence, and payment of withholding tax on dividends and other payments made to non-residents.

Data from the Kenya Investment Authority shows local investors pumped Ksh.19 billion into the economy between July and December 2008, while foreign investors put in 2.7 billion. Are there specific measures the government has put in place to woo domestic investment?

We are creating district investment committees with private sector participation to identify investment opportunities and help address challenges being faced by investors on the ground. These investment committees are replicated at the provincial and national levels through the Prime Minister’s investor round tables. The initiative aims to create a climate in which foreign investment can grow, domestic investment can be stimulated and jobs created. We are also encouraging domestic investors to add value to their export products in order to earn more money, an area we are lagging behind in.

Application of science and technology is an asset to tackle the food security challenge facing the the world. Is Kenya moving in this direction?

Recently I was in a field trip with officials from the ministry of agriculture and we encouraged farmers to grow food beyond subsistence by using modern inputs to increase yields. Misconceptions held by some rural small-scale farmers, such as fertilizer ruins the soils, must be eradicated. The government is subsidising fertilizers and introducing genetically modified technology in order to produce surplus. President Kibaki recently assented to the Biosafety Act which paves the way to the commercialization of modern biotechnology products or genetically modified organisms(GMOs) in Kenya. Though the subject is controversial, we are choosing to adopt modern technologies to address the food security challenges the world is currently facing.

What lessons can Africa learn from the global financial woes?

The crisis is teaching us to manage our financial services sector better in order to be self sufficient, especially in times of trouble. If we had a solid financial base in Africa where we had total cumulative foreign reserves totalling US$ 460 billion…if we were harnessing that here… foreign companies would probably be competing to re-locate to the continent. We need to develop a strong financial base complete with financial institutions that are able to share information, offer credit ratings and approvals so that we stop over-reliance on foreign banks. Another lesson for us is not to put our eggs in one basket when it comes to export markets. Europe, which is Africa’s biggest market, was hard hit by the financial downturn, thereby affecting Africa's exports. We should increase our efforts to expand the export markets to include other regions.