Paper Example on Macro-Environment of Kenya

Introduction

Kenya is one of the developing countries in Africa. It is among the original members of the East African Community. It is located along the equator. It is centrally located in East African bordering Somalia to the east, Sudan and Ethiopia to the north, Uganda to the west, and Tanzania to the south. It also has a beautiful coast along the Indian Ocean. Kenyan borders cover approximately 581, 309 square meters of land area with an estimated population of about 46 million people (Mumo, 2017). Due to its strategic location, its largest and also its capital city, Nairobi, is a regional commercial center. There are several crucial factors when assessing Kenya's macro environment regarding external investment. The factors include political, economic, social, technological, legal, and environmental factors.

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Political Factors

Kenya ranked among the most stable country in Africa for a long time before late 2007. A dispute in the 2007 election results stirred up controversies and resulted in a post-election violence that left over 600 people dead. The country almost split along tribal lines but after a peace and reconciliation, the country has since returned to a stable state (Mumo, 2017). The country also has corruption issues, especially in the public sector. Despite the government struggles to address the problem there is a slow progress in alleviating the country of corruption. Kenya ranks at position 139 out of 168 countries basing on the Corruption Perception Index as at 2015.

Economic Factors

Kenya's economy is the largest regarding the GDP in both Central and East Africa. The per capita GDP in Kenya is estimated to be approximately $ 3200. The country enjoys the privilege of being a regional attraction for trade in entire East Africa. The economy of Kenya is market-based on very few enterprises owned by the state. It also displays liberalization in the system of trade. The country's economy is over-dependent on tourism and agriculture since the industrial sector is not satisfactorily exploited. Therefore, the country is vulnerable to changes in the economy. The country's constantly improving economic progress is an indicator of its potential to become even better. It has also indicated an improvement in goods pricing and stability in the exchange rates. The few challenges that the Kenyan economy face includes, rampant corruption, inflation, and high growth in the population. Kenya has maintained an inflation rate greater than 9 % since 2004 with the highest rate of 26.3% experienced in 2009 (Mumo, 2017). The main cause being deficits in budget and political unrest and instability during the election periods.

Social Factors

Kenya with a population of 46 million people ranks at population 30 in the world. An estimated 43% of Kenyan citizens live below the poverty line with most people living in the upcountry (Mumo, 2017). Kenya has over 45 tribes and each group has significantly contributed to the culture evident in Kenya. Despite the mixture of several cultures, the western culture and values have infiltrated the country and have become highly ingrained while the indigenous culture is constantly deteriorating. The country has an increase in the middle-class population who have a quest for high-end products and are focused on satisfying lifestyle needs. The notion of premium brands is a show of status.

Technological Factors

The country has significantly advanced in the IT sector getting assistance from the Indian and Chines government. Kenya has fully established e-government services. Over 20.95 million people in Kenya which are approximately 45 % of the population are internet users.in 2016 the purchase of smartphone among the cell phone users is was approximately 44 % the figure rising due to the availability of affordable mobile devices (Mumo, 2017). The common uses of smartphones in Kenya include accessing social media, email, searches, and YouTube videos. That is a good indicator for branding and marketing products.

Environmental Factors

Environmental sustainability is an important matter of concern in Kenya. Some of the problems include deforestation and soil erosion since the economy is significantly dependent on agriculture. Kenya's location in the equatorial climate region gives it a flourishing flora and fauna that attracts most tourist making one of the favorite destinations for tourists in Africa.

Legal Factors

Kenya has maintained the British legal system adopted during the colonial period. They also have tribal and Islamic laws incorporated in the constitution to assist in the settling of disputes. Kenyan tax system includes value added tax which is usually 16 %, income tax, and corporate income tax which is usually at the rate of 30%.

How Will You Be Socially and Economically Responsible?

There are several ways in which the company can contribute to the Kenyan community both economically and socially as part of its responsibility. First, in the industrial field, the company can come up with programmes such as earn-as-you-learn and self-help (Spence, 2016). Initially, the unskilled labor may be consumed in most of the area that does not require professional skills and is generally labor intensive such as delivering of material, piling and arranging of material in the store. The individuals will they improve their skill by working close to experienced people and gain new skills. In doing so it will be expanding the employment opportunities in the country. The company can also contribute to the agricultural sector since Kenya is an agricultural economy. The company can take up activities such as hiring experts to conduct surveys in the climate and soil conditions, suitable irrigation methods, and livestock rearing. By financing such activities it will be improving the agricultural filed, providing employment, and also marketing itself in the country.

The company can also by providing housing facilities. Since Kenya is a developing country most of the people do not enjoy the comfort of proper housing. The company can take up projects such as providing houses for its employees at subsidized prices by building residential quarters. It can also extend financial aid in slum clearance schemes in the urban areas. It will also improve the transportation sector since by expanding access roads into the various markets and to the various locations of raw materials. The Kenyan community will benefit from improved roads and the economy will improve due to the associated benefits of improved infrastructure. The company is also responsible for the health of the resident of Kenya. The company will provide proper drainage systems in its premises and proper treatment and disposal of its wastes to help prevent any contaminations. Since it is a rubber tires company it can take up the responsibility of recycling used products to minimize the quantity of wastes.

The Political Risk of Doing Business in Kenya

There is tension between the county government and the national government of Kenya. Despite the slowly returning political stability in Kenya, there is still unconsolidated and ineffective working relationship between the county and national government that the government should focus on solving to encounter political risk (Mwase, 2015). The government also need to re-evaluate the interest rate cap to stimulate the private sector in investing in projects. There are also a lot of bureaucratic hurdles.

Environmental and Economic Risk of Doing Business in Kenya

From 2016, corruption has ranked as the major problem of operating business in Kenya. It is then closely followed by the high tax rates that have depressed business-related activity in the country. There is also the problem of difficulty in accessing finance which is a consequence of global financial crisis (Mwase, 2015). Despite low-interest rates in the banks, there are uncertain economic prospects and stricter regulations in the banking industry making the process of obtaining finance very difficult.

The most common type of business that several foreign investors use in Kenya is the private limited liability company because it is relatively less expensive to establish. It also bears no restrictions on the maximum or minimum share capital requirement. However, this form of enterprise is legally required only one director but 2 directors can be compromised for practicality purposes. It is also required to have a minimum of one shareholder in the case of a one-man enterprise (Kremel & Yazdanfar, 2015). If the company decides to come in as a branch of a foreign company it will have to shoulder a corporate tax rate of 37.5 % which is relatively higher in comparison to the 30% corporate tax rate that the Kenyan companies pay.

What Are Some of the Opportunities and Strengths of Doing Business There?

Kenya geographic location is very strategic. It is among the most reliable and important logistical conduits in both Central and East Africa. It is bordering the Indian Ocean giving it access to the primary shipping lanes originating from both Asia and Europe (Scholvin, 2016). The country also has an exceptional market ion the East African community. It is the center of a region with over 150 million people covering Uganda, Tanzania, Burundi, and Rwanda. There is a forthcoming monetary union that is projected to unfold over a period of ten years attracting a steady expansion in Kenya's economy. Since Kenya was a British colony, it inherited proficiency in the English language that is broadly used in government, schools and businesses, therefore, there is ease of communication with foreign companies.

Foreign trade issues related to the way business activities are carried out between different countries. Some of the trade issues include trade agreements, policies, and barriers (Jovanovic, 2015). In the case of Kenya, the issues will include a difference in currency. Since the currency used in the United States is different from the one used in Kenya, it means that there is an essence to conduct currency transaction that needs money. The different exchange rates are also a factor. The exchange rates in Kenya might affect the value of the currency. The rates of inflation will also affect the cash flow into the economy, cost of importation of goods, and the demand and supply of goods.

References

Jovanovic, M. N. (2015). The economics of international integration. Edward Elgar Publishing.

Kremel, A., & Yazdanfar, D. (2015). Business advisory services and risk among start-ups and young companies: a gender perspective. International Journal of Gender and Entrepreneurship, 7(2), 168-190.

Mumo, M. P. (2017). Effects of Macroeconomic Volatility on Stock Prices in Kenya: A Cointegration Evidence from the Nairobi Securities Exchange (NSE). International Journal of Economics and Finance, 9(2), 1.

Mwase, D. E. (2015). Performance of Floriculture Industry in East Africa: What Lessons can Tanzania Learn from Kenya?. Asian Business Review, 5(1), 20-27.

Scholvin, S. (2016). The Geopolitics of Regional Power: Geography, Economics, and Politics in Southern Africa. Routledge.

Spence, L. J. (2016). Small business social responsibility: Expanding core CSR theory. Business & Society, 55(1), 23-55.