Kenyan firms double investments in the region on market optimism

President William Ruto and Ethiopia Prime Minister Abiy Ahmed during the launch of Safaricom Ethiopia. [PCS]

The number of investments that local firms made abroad nearly doubled in 2022, most of which were in neighbouring countries, reflecting local industry’s optimism in the expanded East African Community (EAC). 

According to the latest official data, Foreign Direct Investments (FDI) made by Kenyan companies in other countries grew 75 per cent to Sh329.2 billion in 2022, compared to Sh187.7 billion in 2021. 

The Foreign Investment Survey Report showed Safaricom’s investment in Ethiopia made the country the top investment destination for Kenyan firms in 2022.

Ethiopia received Sh74 billion as FDI from Kenya as the telco set its operation there.

Before Safaricom started setting up in Ethiopia in 2021 and pumped in Sh60 billion, the country used to get dismal investments from Kenya, at Sh647 million in 2020. 

FDI to the Democratic Republic of Congo (DRC) grew 200 per cent, with Kenyan firms pumping Sh52.7 billion in 2022 up from Sh17.8 billion in 2021. 

This followed the hype that came with the country becoming a full-fledged member of EAC. 

Foreign assets 

In 2022, DR Congo was the fourth largest recipient of investments from Kenya after Ethiopia, Tanzania and Uganda. It had previously ranked lower with countries such as the US, Rwanda, Mauritius and South Africa being ahead. 

The stock of foreign assets increased by 30.4 per cent to Sh452.9 billion at the end of 2021, and further by 13.7 per cent to Sh514.9 billion at the end of 2022.

These were mainly in the form of foreign direct investment and other investments.

“FDI nearly doubled from Sh187.7 billion at the end of 2020 to Sh329.2 billion at the end of 2022 and accounted for 63.9 per cent of the total foreign assets at the end of 2022. The increase was mainly on account of equity and investment fund shares,” said the Foreign Investment Survey Report by the Kenya National Bureau of Statistics.

“Other Investment abroad increased from Sh158 billion at the end of 2020 to Sh182.7 billion at the end of 2021, and further to Sh183.9 billion at the end of 2022. The increase was driven by currency and deposits, which accounted for 69 per cent of the total other investment abroad.”

Following the admission of DR Congo to EAC, Kenyan firms trooped to the country expecting to tap into the ease of doing business in the country for firms of other EAC members.

They were counting on the country’s huge population and operations around its rich mineral resources.

Some of them, including banks, have reported seeing a growth in earnings and say their DR Congo operations could rival their earnings from the Kenyan parent companies.

The KNBS report also showed that investments from other countries to Kenya grew 17.9 per cent over the period, largely driven by FDI which increased 11.6 per cent to Sh 2.06 trillion from Sh1.07 trillion in 2020.

“The stock of foreign liabilities increased by 17.9 per cent from Sh1.748  trillion at the end of 2020 to Sh2.06 trillion at the end of 2022,” said the report. 

“The increase was attributed to FDI which increased by 11.6 per cent from Sh1.069 trillion billion at the end of 2020 to Sh1.193.6 billion at the end of 2022.

The stock of Other Investment liabilities increased from Sh645.9 billion in 2020 to Sh808 billion in 2022.”

High taxes

The major sources of FDI for Kenya include the United Kingdom, which accounted for 17.5 per cent of the investments to Kenya in 2022, South Africa (11.3 per cent), Mauritius (8.3 per cent) and the Netherlands (7.5 per cent).

Investors who responded to the KNBS survey noted that the cost of power, high taxes and access to credit are among the factors that are a drag for business in the country.

They however noted there was improvement in internet reliability, transport and infrastructure and ease of business registration 

“On the contrary, 22.2 per cent of the respondents indicated that the cost of electricity had deteriorated. This was closely followed by the cost of credit and tax policy measures at  17.8 per cent and 16.5 per cent, respectively,” said the survey.