Kenya loses the battle for FDI to Uganda, Tanzania

The tourism sector, one of the country’s most prosperous industries, is however fully open to foreign companies as well as are other manufacturing and primary sectors.

Analysts say Uganda and Tanzania are likely to continue netting more FDI at the expense of Kenya given their mineral deposits, piling pressure on the country’s regional competitiveness as East Africa’s economic integration shapes up.

Mr Eric Musau, a financial analyst, said Uganda’s newfound oil and Tanzania’s gold deposits are set to draw in more investors as mineral exploration is typically capital-intensive in nature.

“Kenya has few sectors capable of attracting major foreign investments,” he said, adding that the high FDI levels seen in 2007 can partly be attributed to the liberalisation of the telecoms sector that saw France Telecom pay $26 billion to buy a controlling stake in Telkom Kenya.

If Kenya hits commercial deposits of oil or gas, the situation could change dramatically, raising employment levels and propelling Kenya to a rapid growth phase.

FDI inflows to mineral-rich Angola, for instance, grew from $9.8 billion in 2007 to $13.1 billion last year, shoring up the economy of the country that is emerging from years of a debilitating civil war.

While Kenya’s FDI levels have dropped, several home-grown companies are expanding their regional presence.

Part of an average of $42 billion of Kenya’s FDI outflow in the past three years is said to be invested in neighbouring countries.

In the coming months, companies like Kenya Commercial Bank and TPS East Africa are expected to invest part of the billions they are raising through rights issues on acquisitions in the East African Region.