China, India replace Britain as Kenya’s top sources of FDI

Kenya’s sharp turn to the East for business and development financing under the Kibaki government has toppled European countries from their long-held position as the country’s leading sources of foreign investment. (Read: Ten firms bid for Sh5bn road project )

The latest economic data shows that China, South Africa, India and South Korea have risen to stand among the top five sources of foreign direct investment (FDI) for Kenya, knocking off the UK, Germany and the Netherlands who have occupied the space since independence.

The Kenya Investment Authority said the change in FDI pecking order deepened in the past couple of years as the majority of developed countries – under the shockwaves of debt crises – cut back on foreign investment while emerging economies scaled up their search for new business opportunities in frontier markets.
In the first six months of this year, China, South Africa, India and South Korea invested a total of Sh4.4 billion to make four out of five top sources of FDI for Kenya. Kenya Investment Authority data shows that most of the investment went into manufacturing, energy, tourism and construction sectors.

China has become Kenya’s leading source of FDI after it pumped Sh2.5 billion into the economy, seeking to consolidate its new-found economic clout in the country.

The Chinese broke into Kenya’s list of leading FDI sources last year with a total investment of Sh40.2 billion.

Developed economies, including Israel, Canada, Germany and Italy lost clout after each invested less than Sh500 million in Kenya last year.

Kenya’s former coloniser, the UK, recorded the largest decline in FDI flows to Kenya in recent years.

The country’s FDI in Kenya stood at Sh202 million in the first six months of the year, placing it sixth in the FDI table. That ranking represented a major drop from 2009 when it topped Kenya’s FDI table with investments worth Sh19.6 billion.

Kenya has recently made clear its intention to speed up this shift with an East-bound diplomatic charm offensive led by President Kibaki.

Since coming to power in 2003, Mr Kibaki has visited all the emerging market states that are now ranked top in the list of FDI sources but has not travelled to any of the industrialised economies that topped the list in the past save for the US.

In Kenya, the growing influence of the emerging economies is being viewed as a positive move that not only offers the government an easier foreign policy management window but also helps to expand the jobs market through establishment of new ventures.

“Developed economies usually attach strings to their FDI besides being overly risk-averse making less reliance on them for investment critical,” said Joseph Kieyah, an analyst at the Kenya Institute of Public Policy Research and Analysis (Kippra).

Prof Kieyah said the development challenges that Kenya faces, including poor infrastructure and lack of jobs, should raise the country’s interest in FDI flows to the labour-intensive sectors such as manufacturing.

Investment from emerging economies should also translate into affordable pricing of big-ticket public infrastructure projects and consumer goods for Kenya.

Emerging markets companies have traditionally tended to charge lower prices compared to their developed countries’ counterparts in cases where both are competing for contracts in frontier markets.