Big returns spark foreign funds rush for Kenyan firms

Europe based Development finance institutions (DFIs) increased their investments in Kenya last year seeking high returns to cushion their earnings from the bearish markets in the developed world.

Dutch development bank FMO, Germany’s DEG, French PROPARCO, Norway’s Norfund, and Belgian Investment Company for Developing Countries increased their investments in the country to more than Sh30 billion up from about 13.5 billion in 2010
The investments mainly targeted financial services, infrastructure, and mining sectors, which are still mostly untapped but need large capital outlay through providing loans and buying stakes.

CFC Bank, Co-operative Bank, NIC Bank, Kenya Women Finance Trust, Rift Valley Railways, Base Titanium, Equity Bank and Lake Turkana Wind Power are some of the companies that have received expansion cash from the financiers.

“Kenya is gaining from increased allocation of funds to Africa by institutional investors avoiding slow growth in the developed markets,” said Ms Eline Blaauboer, a partner at TBL MirrorFund, arguing that the global lenders are attracted by better returns in emerging countries.

She added that those buying stakes are being egged on by high dividend payouts and opportunities for outsized capital gains while exiting.

Those lending are also attracted by the higher rates in Kenya of about 10 per cent compared to an average of five per cent in Europe.

Besides seeking returns on their investments, DFIs are keen to promote social welfare, especially the reduction of poverty and women empowerment with lending to non-profit ventures such as education attracting interest rates of about five per cent
A sovereign debt crisis has gripped Europe while the US economy is still shackled by the effects of the 2008 financial crisis—pushing investors to look at emerging countries for higher returns.

A new survey by Invest AD and the Economist Intelligence Unit found that global institutional investors plan to boost their asset allocation in African markets over the next five years, with Kenya and Nigeria emerging as favourites. Two-thirds of investors with an interest in frontier markets see Nigeria or Kenya holding the greatest opportunity, putting the continent ahead of frontier markets in Asia and Latin America, the survey showed.

Investors eye Africa’s emerging middle class as the most attractive aspect for the continent, which until now has been a largely popular for its natural resources.

In terms of popularity with investors, Nigeria and Kenya top the list, followed by Zimbabwe, Egypt, Ghana and Libya. Kenya is expected to grow five per cent and 5.5 per cent in 2012 and 2013 respectively from last year’s estimate of 4.5 per cent.

In October, French fund AFD lent CFC Stanbic and Co-operative Bank Sh3.9 billion to finance renewable energy at an interest rate of 2.02 per cent, with the local banks expected to lend at about 5.52 per cent to borrowers. The French agency is also seeking to lend billions of shillings to the  Higher Education Loans Board.

In November, DEG, FMO, and PROPARCO advanced $70 million (Sh6 billion) to Mombasa-based Base Titanium Ltd to expand its capacity to mine and process ilmenite, rutile and zircon whose global demand is rising.

Eye on SMEs

A statement from the three DFIs said that the project would earn a net of $2 billion (Sh170 billion) from exports and contribute tax and royalties to the government amounting to $270 million (Sh23 billion) through its lifetime.

RVR attracted the single biggest international financing in recent years after it signed a credit line of $164 million (Sh13.9 billion) last year. In the deal, FMO contributed $20 million (Sh1.7 billion), Germany’s KFW (Sh2.7billion), and BIO $10 million (Sh850 million) with IFC, AfDB, and Equity Bank bringing the rest of the cash.