Kenya's foreign inflows dip to Sh56b on new ownership rules

Ethiopian Airlines planes parked at Bole International Airport, Addis Ababa, Ethiopia. [AP]

Kenya last year tied with Ethiopia as the largest recipient of foreign direct investment (FDI) in the Eastern Africa region, despite a 75 per cent drop in the capital investments’ value.

The latest report by audit and consultancy firm Ernst & Young (EY) shows Kenya attracted foreign investments worth Sh56.2 billion ($0.5 billion) last year, compared to Sh225 billion ($2 billion) in 2018.

EY did not release the 2019 report last year.

Kenya however managed to beat Ethiopia in the investment inflows impact ranking, after posting higher projects and jobs created from the funding. Ethiopia’s value of capital investments dropped from Sh787 billion ($7 billion) to Sh56.2 billion in the review period.

“Both Kenya and Ethiopia saw a sharp decline in FDI in 2020, as their agriculture and energy sector FDI flows slowed,” said the EY report.

“Anchor economy Kenya saw a decline in FDI inflows as the government introduced new ownership rules to protect local industries during the Covid-19 pandemic.”

EY notes that the relatively new local participation rules in the insurance, telecoms and technology sectors to protect domestic companies in Kenya may prove restrictive to investments.

Kenya’s FDI was spread into 36 projects and supported 2,000 jobs compared to Ethiopia which posted 11 projects and 1,000 jobs.

EY said Tanzania attracted Sh22.40 billion ($0.2 billion) while Uganda booked nothing in the year under review.

The report showed Africa suffered a 50 per cent FDI drop in the year in which Nigeria led the continent with $6.6 billion (Sh739.20 billion) investments followed by South Africa $3.8 billion (Sh425.60 billion), Angola $3.1 billion (Sh347.20 billion) and Morocco (2.4 billion (Sh268.80 billion).

The fall in investments came on the back of disruptive Covid-19 containment measures such as curfews and lockdowns that saw the health crisis morph into an economic disaster.

Last year, East Africa lost out to both West and francophone sub-Saharan Africa as large inflows went to Nigeria, Ghana, and Ivory Coast.

For instance, Kenyan-based Ariel Foods set up a manufacturing facility in Nigeria, with the cross-border greenfield investment attracting Sh7.42 billion ($66 million) in capital.

“Despite it being the fastest-growing hub on the continent, East Africa’s policy bottlenecks and rising political tensions (in Ethiopia and Tanzania) have contributed to the relative decline in its share of FDI,” said EY.

East Africa’s major economies grew by 2.3 per cent on average last year, with Kenya seeing a Gross Domestic Product (GDP) contraction of 0.3 per cent - the first time in over two decades.

EY says China has been the largest investor in Africa by jobs and capital in the past five years, but third in terms of the number of projects.

Kenya, Egypt, South Africa and Nigeria are among the economies that have benefited from China’s mega investments.

Kenya’s FDI attraction is helped by its status as the region’s financial centre, and a hub for many multinationals doing business in the region.