Renewable energy deals attract foreign investor to Kenya - report

Nairobi still attracts significant investor attention, with Knight Frank anticipating fresh development announcements by new colocation operator entrants to the market.

Last year, the country  ended a five-year slide in foreign direct investment after it attracted deals worth Sh107 billion in 2022, but was still beaten by Uganda, Tanzania and Ethiopia in the race to attract investors.

Dubbed African Horizon, the findings of the annual report attributes the growth to  increased deals in renewable energy but still trailed regional peers.

Kenya's access to renewable transmission power, which represents at least 80 per cent of total power production, is another significant pull factor.

With environmental,social and governance considerations (ESG) at the forefront of stakeholders' minds, Kenya's focus on sustainability should safeguard its position as Africa's next hyper scale market.

However, the government or other significant public sector bodies are yet to declare any intention to migrate IT infrastructure onto the public which is ultimately the catalyst for data centre growth.

Kenya's data centre capability is expanding at a rapid pace, with projected growth from $190 million in 2021 to $434 million by 2027, representing nearly a 15 per cent increase.

Inland connectivity is also improving, and the country has made strides in deploying a 5G network.

Nairobi is the primary location for data centres due to its strategic position as the country's capital city.

Mobile banking and electronic financial services have been significant drivers for the country's data centre market, with Safaricom's M-Pesa emerging as one of the primary catalysts for the increase in requirements.

Furthermore, the growth of fintech companies and partnerships between banks and mobile network operators has also underpinned demand for data storage facilities.

The Kenyan government is quickly moving to nurture the data centre sector and has plans to increase infrastructure growth and improve nationwide internet connectivity by laying 100,000km of fibre optic cable by 2027.

Additionally, 1,450 digital hubs and 25,000 free hotspots will be established to boost e-commerce.

"This will undoubtedly create more opportunities for data centre operators and other digital service providers to expand their services,'' the report says. 

In many parts of the world, extensive urbanisation has already taken place, and Africa is at the cusp of starting this journey. Cities like Cairo, Lagos, Luanda, Dar es Salaam, Nairobi, and Addis Ababa are together home to over 65 million people.

By 2030, the combined population of these African activity hives will expand to 100 million, according to the United Nations estimates.

Overall, sub-Saharan Africa's population is growing at a rate of 2.7 per cent per annum, more than twice as fast as South Asia (1.2 per cent) and Latin America (0.9 per cent), according to the World Economic Forum. 

The continent's population is forecast to rise to 2.4 billion and will continue to grow to 4.2 billion in the next 100 years, four times its current size.

The projected population boom is set to unleash a wealth of real estate investment opportunities as Africa's mega-cities enter their next phase of growth.

A significant hurdle to overcome will be securing funding to drive the expansion of Africa's cities.

The continent faces significant challenges in attracting private-sector investments.

Long-standing investment barriers include political instability,corruption, and inadequate road and energy infrastructure.

However, there are also numerous opportunities for investment,particularly in agriculture, data centres, and manufacturing.

The continent has a huge potential to industrialise and make its manufacturing industry one of the most vibrant in the world.

However, despite this potential, the manufacturing sector inAfrica has not fully realised its potential and instead still relies heavily on imports to meet its industrial needs.

According to the United Nations Industrial Development Organisation (UNIDO), Africa's manufacturing output grew at an average annual rate of 4.6 per cent between 2005 and 2018.

However,the sector still accounts for a relatively small share of Africa's GDP, with manufacturing value added representing only 11 per cent of total GDP, compared to 22 per cent in Asia and 15 per cent in Latin America in 2019.

There are significant variations in manufacturing performance across different African regions and countries.

According to the African Development Bank, North Africa is the mostindustrialised sub-region, with manufacturing accounting for over 20 per cent of GDP in some countries.

East Africa has also made significant progress in industrialisation, with manufacturing accounting for around 10per cent of GDP in some countries.

West and Central Africa, however, lag, with manufacturing contributing less than five per cent of GDP in most countries.

Mark Dunford, the CEO of Knight Frank Kenya says there is tremendous potential for industrialisation in Africa, presenting an opportunity for its manufacturing industry to become one of the most dynamic globally.

Even so, one of the major obstacles to the emergence of a flourishing manufacturing industry is the lack of access to affordable and reliable energy.

The high cost of energy makes it difficult for manufacturers to operate competitively.

Inadequate infrastructure is another challenge that the manufacturing sector faces in Africa.

Poor transportation systems and inadequate storage facilities increase production costs,limit market access, and often discourage international businesses from entering the market.

Despite these challenges, several positive developments are driving the growth of the manufacturing industry in Africa.Many African countries have adopted policies to attract foreign investment into the sector.

Governments are also implementing policies that encourage local entrepreneurs to invest, and African countries are working together to create a conducive environment for investment.

One of the initiatives is the African ContinentalFree Trade Area (AfCFTA) agreement, which aims to create a single market for goods and services, making it easier forAfrican countries to trade with each other.

The manufacturing sector in Africa is also benefitting from the advancement of technology.

Adopting new technologies means African manufacturers can compete more effectively with their global counterparts.

The use of digital technologies such as the Internet of Things (IoT) and Artificial Intelligence(AI) is increasing efficiency and productivity.

The rise of e-commerce in Africa has also made it easier for local manufacturers to promote and sell their products to a wider customer base.

Another positive development in Africa is the emergence of industrial parks and Special Economic Zones (SEZs)for manufacturing activities with incentives and benefits for investors.

They provide investors access to basics infrastructure and utilities, making setting up and running manufacturing operations easier.