COUNTRY REGULATORY ENVIRONMENT, MODERATING COUNTRY BRAND CHOICE FOR FOREIGN DIRECT INVESTMENT IN KENYA

Abstract

Choice to locate business internationally is determined by comparison of various countries. The decision to invest may be based on market size, natural and human resources, financial, physical and technological infrastructure, country openness to foreign investment, institutional frameworks and policies such as fair trade, transparency. Countries are now competing to be a favourable destination for foreign direct investment. This has led to country making changes in policicies in order to attract investors. The Kenya investment legislation framework is anchored in Investment Promotion Act (IPA) of 2004. Kenya Investment Authority facilitates both local and foreign investors to obtain licences, permits and certificates. Despite Kenya making chnges on regulatory environment in 2014 based on on UNCTAD (2013) policy recommendations by establishing a one stop shop at Kenya Investment Authority to market and facilitate both local and foreign investors, investors chose Ethiopia over Kenya and Ethiopia remained the largest recipient of FDI in East Africa. Foreign Direct Investment (FDI) inflows in Kenya declined by 18% in the year 2019, This implied that Kenya was losing its competitiveness in attracting foreign direct investment. This study focused on the Kenya investment policy review recommendations by UNCTAD (2013). It measured the extent to which six policies (tax policy, competition policy, governance policy, environment policy, infrastructure and human capital policy) are moderating the relationship between country marketing mix and country brand choice for FDI. Findings indicated that both country marketing mix and country regulatory environment are statistically significant. The interaction term between country marketing mix and country regulatory environment is significant, with a negative B coefficient. This indicated that unfavourable regulatory environment moderates the effect of marketing negatively. An increase in unfavourable environment will result in the decrease of the likelihood that a country will be chosen of foreign direct investment. The study concluded that an increase in favourable country regulatory environment results in an increase in likelihood that an investor will choose a country for Foreign Direct Investment (FDI). Therefore, the study concluded that there is a statistically significant relationship between country regulatory environment and country brand choice, and that country regulatory environment has a significant moderating effect on the relationship between country marketing mix and country brand choice for foreign direct investment in Kenya. Unfavourable regulatory environment moderates the effect of marketing efforts negatively. An increase in unfavourable environment will result in the decrease of the likelihood that a country will be chosen of foreign direct investment.