CAPITAL FLIGHT

IFC projects significant drop in foreign direct investments

FDIs expected to be down at least 40% in 2020

In Summary

•The government has been working to market Kenya as a favourable investment destination.

•At least $100 billion (Sh10 trillion) has left the emerging markets since the year began.

Cytonn Investment’s Amara Ridge in Karen /ENOS TECHE
Cytonn Investment’s Amara Ridge in Karen /ENOS TECHE

The International Finance Corporation(IFC) says developing countries, including Kenya, should expect a significant decline in Foreign Direct Investments over the next two years.

"We are estimating foreign direct investment will be down at least 40 per cent in 2020 and 2021 from its base in 2019," IFC's chief operating officer Stephanie von Friedeburg said.

Foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.

 

The World Bank's private arm said a drop in FDIs will result in job losses as private firms are unable to sustain their businesses during this global pandemic.

"We are seeing that $100 billion (Sh10 trillion) has left the emerging markets since the year began," Friedeburg said.

Prior to coronavirus, the government had been working to market Kenya as a favourable investment destination as FDI plays a significant role in the country's development strategy.

As of December 2019, the Kenya National Chamber of Commerce an Industry reported that local businesses had attracted investments from foreign countries worth Sh300 billion.

This was a 87.5 per cent growth from Sh160 billion reported the previous year.

This means going by IFC’s projections, foreign direct investments to the country are expected to fall to Sh180 billion this year, before dropping further to Sh108 billion next year.

This will be lower capital inflows than KNCCI reported in 2017 when the private sector attracted $1.2 billion (Sh120 billion) worth of FDIs.

Friedeburg added that reduced private sector activity due to lower demand, as the country imposes travel restrictions and curfews, will likely result in 500,000 jobs lost in the country over the next six months.

This will in turn further suppress local demand for goods and services resulting in a significant economic downturn.

"60 million people will move in to extreme poverty globally because of the crisis (the size of Tanzania), while another 160 million people will end up in poverty" she said.

Africa is expected to experience the biggest recession in 25 years which will be an uphill task to recover from, according to Friedeburg.

She added that the only way countries could avoid economic catastrophes was by propping up the private sector to ensure business continuity and avoid job losses.