Foreign companies reduce interest in Kenyan economy
Workers at an export processing zone in Athi River: Foreign firms have reduced their investments in Kenya. File
Foreign firms have reduced their investments in Kenya mainly due to political uncertainties ahead of next year’s elections, making the country rely more on local companies for new jobs.
Data from the Kenya Investment Authority (KIA) shows that foreign direct investments (FDI) stood at Sh14 billion in the three months to June, a 38 per cent drop compared to Sh22.5 billion pumped into the economy in a similar period last year.
Analysts attribute the drop to the turbulent political environment, arguing that the trend is likely to hold in coming months as the 2012 presidential elections approaches.
This means that local investors, who pumped Sh37.7 billion or 73 per cent of the total value of the projects in the review period, will be critical in creation of new jobs as they plug the gap left by foreign counterparts.
“FDI is very sensitive to political risk and Kenya right now is facing critical tests in these areas,” Prof Joseph Kieyah, an analyst at the Kenya Institute of Public Policy Research and Analysis (Kippra) said.
The 2011 Failed States Index by Foreign Magazine ranks Kenya among countries in “in danger” though says the country has improved marginally since the 2008 post-election violence that caused major business disruptions and uprooted millions from their work stations.
Kenya is ranked at number 16 among the most unstable states, having risen from number 13 the previous year.
This is however still way below the 2008 ranking at position 26. Kenya scored poorly in key instability indicators such as group grievance, demographic pressures, making the country likely to experience a fresh outbreak of violence.
The International Criminal Court (ICC) prosecution of six Kenyans is another factor that has raised political tensions and the peaceful conclusion of the process could help calm investor nerves. The 2008 instability caused major disruptions to businesses, pushing back the economic expansion that began in 2003 with the onset of President Kibaki’s administration.
Analysts say a peaceful transition to a new government bolstered the country’s perceptions of stability after the adoption of a new Constitution last year, a move that could set up the country as a favourite destination for foreign capital. But FDI inflows, which stagnated at the global level last year at $1.12 trillion is expected to remain subdued in the near term, especially with regard to new projects as high commodity prices and uncertainties surrounding the global currency markets and European sovereign debt takes a toll.
This makes the growth of domestic investments critical to creating new jobs and supporting the economic recovery. “Local investors have a better assessment of the country’s political risk and are bullish about the economy,” Prof Kieyah said. The total investments in the three months to June are set to employ 2,850 Kenyans and 108 foreigners, raising total new jobs to 2,958. This is, however, low compared to the 6,445 new jobs created in a similar period the previous year when total investments stood at Sh120.1 billion.
KIA says the expansion of credit by banks and government agencies has been a major push for domestic investments. The agency said several foreign investors are targeting services and hospitality sectors, a move that could boost creation of new jobs.
“Availability of start-up capital from government funds and commercial banks has made it easier for Kenyans to embrace entrepreneurship,” said Sheila Yieke, the general manager corporate Affairs at KIA.
Self-employment
The government has in the past four years rolled multi-billion shilling revolving funds for the SME sector , women and the youth in a bid to encourage self employment.
Banks have also upped their lending to the private sector.
The bulk of the local investments are going into the booming property market where returns are higher compared to traditional investment options like bonds and equities.
In the 12 months to June last year, local investors pumped Sh82.8 billion in commercial and residential properties, more than five times the Sh16 billion they invested a year earlier.
Data from the Central Bank of Kenya (CBK) shows that lending to real estate sector was the single largest, accounting for a third of the Sh1.2 trillion lent in the 12 months to February.
