Abstract
Unlike commercial political risk assessments, which serve as cautionary indicators of threats, this study which is a political risk analysis, discusses the causes of the consistently problematic political risks which have been affecting Foreign Direct Investment (FDI) in Kenya since 2010. These political risks include terrorism, ethnic tensions, corruption, institutional weaknesses, democratic accountability and socio-economic conditions. Nonetheless, the presence of these risks in Kenya does not imply that there will be no investments in the country. While most of these political factors are perceived as detrimental to the growth of FDI, some foreign investors may see them as an opportunity to invest. For example, institutional weaknesses can promote investment as they create opportunities of avoiding strict regulations especially labour laws.
The consistency of these factors in Kenya’s political risk profile is a result of the issues in Kenya’s state formation and democratic stability challenges although not limited to these. The democratic stability theory best explains the causes of these risks. However, these democratic stability challenges arise as a consequence of poor state formation such that these challenges spill over and have significant effects on economic systems. And it is essential to note that most of these issues such as the lack of democratic accountability, ethnic issues and corruption, are problems that have existed even in previous regimes.
Looking ahead, there are three possible scenarios that could emerge namely the ‘Path of Ethnic Diversity’ which resembles the current situation of Kenya and is characterised by ethnic tensions. Secondly, is the ‘Path of Terror’ which assumes that terrorist attacks may endure as a result of the gap created by party politics, military, religious and ethnic politics. Lastly is the ‘Path of the Economic Hub’ which portrays Kenya as a state that is realising its full potential and is pursuing a precise economic and developmental vision. Based on empirical knowledge, the Path of Ethnic Diversity is the most probable scenario considering the causes of most of the political risks and their intensity. Nonetheless, investors will continue to invest as risk takers although the investment inflows may be slowed down in this scenario.
M.A. (Politics)