DROP

Kenya's FDI sinks to lowest level on Covid-19

World Investment Report 2021 projects growth this year on eased Covid-19 restrictions.

In Summary
  • Kenya lagged its neighbours in attracting FDIs
  • The country attracted $717 million compared to $1.3 billion
President Uhuru Kenyatta with UN secretary general Ban Ki Moon at the launch of United Nations Conference on Trade and Development in Nairobi on July 17. Kenya hosted the 14th session of the Unctad /ENOS TECHE
President Uhuru Kenyatta with UN secretary general Ban Ki Moon at the launch of United Nations Conference on Trade and Development in Nairobi on July 17. Kenya hosted the 14th session of the Unctad /ENOS TECHE

 Foreign Direct Investments to Kenya dropped to a series low as Covid-19 muzzled trade arrangements across the world.

The latest United Nations World Investment Report report by the United Nations Conference on Trade and Development (UNCTAD) shows the country attracted $717 million worth of foreign investment last year compared to $1.3 billion (Sh140.4 billion) in the previous year. 

This was the second straight drop considering the country attracted $1.6 billion of foreign investments in 2018. 

The East Africa economic powerhouse lagged its neighbours in attracting FDIs, with Uganda receiving $823 million while Tanzania attracted $1.013 billion.  

Even so, the World Investment Report 2021 projects growth this year on eased Covid-19 restrictions. 

According to the report, apart from Covid-19 related restrictions,  Kenya introduced local participation requirements in various industries, including insurance, telecommunication and ICT services.

For instance, the National Information Communications and Technology Policy Guidelines 2020 dictates that foreign companies eyeing to do business in the country’s  ICT sector will have to surrender 30 per cent shareholding to Kenyans. 

According to the policy, those firms will be given three years to meet the local equity ownership threshold and may apply to the Cabinet Secretary for a one-year extension with appropriately acceptable justifications.

For listed companies, the equity participation rules will conform to the extant rules of the Capital Markets Authority (CMA).

The drop was, however, not unique to Kenya.FDI inflows to Sub-Saharan Africa decreased by 12 per cent to $30 billion, with investment growing in only a few countries.

In West Africa, inflows to Nigeria increased slightly, from $2.3 billion in 2019 to $2.4 billion.

Globally, foreign direct investment fell by a third to $1 trillion in 2020, compared to $1.5 trillion in 2019.

It is projected to recover this year, after a 35 per cent drop last year due to the covid19 crisis.

According to the UN report, the global foreign direct investment flows are projected to increase by between 10 per cent and 15 per cent in 2021.

Even with the increase, foreign investments will still be below pre-pandemic levels.

''The lockdowns witnessed around the globe led investors to pause investment projects and made companies to shy away from new projects,'' the report read in part. 

Developed economies suffered the biggest decline where FDI fell by 58per cent while FDI to developing nations dipped by eight per cent.

According to the report,  two-thirds of the global foreign direct investment flows in 2020 went to developing countries in Africa, Asia, and South America and only a third went to first world countries.

The covid-19 pandemic affected financial flows to key sectors in low-income countries such as infrastructure, healthcare, education, renewable energy, food and agriculture, and the water and sanitisation sector.

''Global flows of foreign direct investment have been severely hit by the COVID-19 pandemic. In 2020, they fell by one-third to $1 trillion, well below the low point reached after the global financial crisis a decade ago,'' UN Secretary-General António Guterres said.

Acting UNCTAD Secretary-General Isabelle Durant said the drop in foreign investment in SDG-related sectors may reverse the progress achieved in SDG investment in recent years.

“This would still leave FDI some 25 per cent below the 2019 level. Current forecasts show a further increase in 2022 which, at the upper bound of projections, bring FDI back to the 2019 level,” said James Zhan, UNCTAD’s director of investment and enterprise.

Investment flows to Africa, South America, and the Caribbean are unlikely to fully recover in the near term, notes the UN report.

However, FDIs to Asia are expected to remain strong in 2021 as the region is an attractive investment destination for international investors.