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ATTRACTIVENES

Foreign investors shy away from Kenya on new ownership rules

FDIs to the country shrank to Sh56.2 billion last year, compared to Sh225 billion in 2018

In Summary
  • According to the Africa attractiveness report by tax consultancy firm ,Ernest&Young, the East African region lost out to both West and FSSA regions.
  • This follows large foreign direct investment(FDI) flows into Nigeria, Ghana, and Côte d'Ivoire.
Kenya's new bank notes.
Kenya's new bank notes.
Image: ENOS TECHE

Foreigners shied away from investing in Kenya in 2020 as the government introduced new ownership rules to protect local industries , a new report shows.

According to the Africa attractiveness report by tax consultancy firm ,Ernest&Young(EY), the East African region lost out to both West and FSSA regions.

This follows large foreign direct investment(FDI) flows into Nigeria, Ghana, and Côte d'Ivoire.

“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,” the report noted.

In Kenya for instance, the firm notes that the new local participation rules in the insurance, telecoms and technology sectors to protect domestic companies were restrictive to investments.

In the ranking of top recipients of FDIs, Kenya ranked fifth at 10.9 per cent, South Africa was first at 31.1 per cent.

At third position is Nigeria at 17.5 per cent, followed by Egypt at 13.6 per cent.

The report showed Africa suffered a 50 per cent FDI drop in the year.

“This makes it the hardest-hit region globally but the shift from extractives brings new opportunities,” noted EY.

Kenya attracted foreign investments worth Sh56.2 billion ($0.5 billion) last year, compared to Sh225 billion ($2 billion) in 2018.

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).

In the East African region, Tanzania attracted Sh22.40 billion ($0.2 billion) while Uganda booked no foreign inflows in the year under review.

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

The country's attractiveness is helped by its status as the region’s financial centre, and a hub for many multinationals doing business in the region.

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.

During the period, China announced large investments into the major economies, namely Egypt, South Africa, Nigeria and Kenya.

Russia, though a much smaller investor in terms of projects, brought capital-intensive projects, especially in Egypt’s energy sector.

Between 2016 and 2020, Russia’s capital investments were the second-highest into Africa, behind China.

The report further notes that Kenya's inflows are expected to rebound more strongly in 2021.

EY however notes that mounting debt, high unemployment, slow vaccination rollouts, political unrest, lack of basic infrastructure and rising poverty levels pose risks to this outlook.

Meanwhile, the report notes that African Continental Free Trade Area(AfCFTA) opens a new window of opportunity for Africa to harness regional trade links, and enable economies to innovate and grow together by removing artificial trade barriers.

According to the report, it presents a potential income gain of $450billion(Sh15.7trillion) for Africa by 2035.