NAIROBI: The local business climate is flourishing as the country becomes the preferred investment hub for the East Africa region and beyond. With this has come an increased investment activity from local and foreign investors.
According to the 2015 Kenyan Budget Policy Statement released by the Treasury earlier this year, Kenya is considered a “frontier” economy with bright prospects. The 2014 UN’s World Investment Report also acknowledges Kenya as a favoured business hub in Africa.
The report says foreign direct inflows (FDI) into Africa rose by four per cent to $57 billion (Sh5.586 trillion), driven by international and regional market-seeking and infrastructure investments. In East Africa, the FDI increased by 15 per cent to $6.2 billion (Sh607.6 billion) as a result of rising flows to Ethiopia and Kenya. Kenya is a favoured business hub, not only for oil and gas exploration but also for manufacturing and transport.
Another trend noted in the report is that intra-African investments are also increasing, led by South African, Kenyan, and Nigerian transnational corporations. Fortune Magazine recently ranked Kenya among the top seven investment hubs in the world to look out for.
According to the magazine, improved political climate, oil exploration opportunities, abundant human capital and economic stability are among the reasons why Kenya is an attractive investment location in Africa. The recently released PwC report titled “Into Africa: The Continent’s Cities of Opportunity” also ranked Nairobi as a top city in financial services in Africa.
In view of the rosy picture painted, one could be inclined to get into comfortable zone and enjoy the associated glory that may come with such success. Such an attitude could unfortunately prove to be our Achellis’ heel. More effort is needed to enhance Kenya’s attractiveness as a hub for investors, especially in terms of the fiscal and tax policy that is currently in place.
For investors, this is one area of focus that determines how they structure their investments into the region. Whereas Kenya may be their preferred destination for investments, it may not augur well on whether it is the preferred location to hold those investments.
This is sadly a missed opportunity as our tax policy still focuses on maximising on tax revenue base and not so much on making it an attractive tax regime for multinationals, transnational, regional and local investors looking to Kenya and beyond. Another area that is underconsidered by the tax policy is incentivising the Kenyan outbound investor.
Until recently, such an investor was practically unheard of, if not unimagined. With improved economic climate, we are seeing a number of Kenyan owned and grown enterprises expanding to tap into the investment potential of other African countries.
Some local investors are now seeking investments in more developed markets such as UK, Europe and America. For the tax policy not to recognise the special needs of such investors is unfortunately near sighted.
They ought to move towards establishing specialised taxation regimes for holding and parent companies in favour of maximising tax revenues. For the tax policy to remain inflexible, even as Kenyan outbound investors look to establish holding companies for their regional or international expansions in more tax friendly locations, is bad business sense.
To a discerning tax policy maker, maximising tax revenues and becoming a tax friendly regime for inbound and outbound investors need not be mutually exclusive. However, to achieve both requires a mind shift from the current view held by most of the tax policy makers.
