Kenya punching below its weight in battle for FDI

What you need to know:

Kenya attracted equivalent to 1.1 per cent of its gross domestic product (GDP) as investment last year and is forecast to increase to 1.7 per cent this year.
On the other hand, Uganda had FDI of 4.5 per cent, Tanzania 4.3 per cent, Rwanda 2 per cent and even volatile Burundi had 2.3 per cent.
Kenya was also beaten by Ethiopia, its neighbour to the north, which achieved a FDI-GDP ratio of 2.8 per cent.

Kenya is attracting foreign direct investments (FDI) well below that of its East African Community neighbours, if its economy’s size is taken into account, the International Monetary Fund says.

Data from the fund shows Kenya attracted equivalent to 1.1 per cent of its gross domestic product (GDP) as investment last year and is forecast to increase to 1.7 per cent this year.

On the other hand, Uganda had FDI of 4.5 per cent, Tanzania 4.3 per cent, Rwanda 2 per cent and even volatile Burundi had 2.3 per cent.

Samuel Nyandemo, a senior lecturer in economics at the University of Nairobi, said terrorism, unfavourable investment policies, costly energy and unnecessary bureaucracy have reduced confidence in Kenya relative to its neighbours, contributing to the paltry FDI inflows.

“Terrorism has shaken confidence in the economy at a time when we have a lot of bureaucracy and high energy costs,” said Dr Nyandemo.

Kenya was also beaten by Ethiopia, its neighbour to the north, but not a member of the EAC, which achieved a FDI-GDP ratio of 2.8 per cent.

South Sudan— embroiled in conflict—was the only country Kenya beat as its FDI shrunk by 1.8 per cent after foreign investors pulled out.
Kenya’s GDP size, however, means a large investment would still appear smaller compared to its regional neighbours.

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The IMF report focusing on sub-Saharan Africa says a country like Tanzania has been attractive due to its resource-intensive economy, which includes gold mining as well as its high levels of GDP growth.

The country has recently discovered huge quantities of natural gas, attracting numerous investors in the sector, though exports are yet to kick off.

A major attraction for FDI has been the GDP growth which has been relatively low in Kenya, compared to most of the other EAC countries.
In 2014, Kenya’s GDP stood at 5.3 per cent, Tanzania 7.2 per cent while Rwanda’s was seven per cent.

Kenya only managed to beat Uganda, which has been facing a donor backlash over allegations of corruption, whose GDP growth stood at 4.9 per cent, and strife-prone Burundi with 4.7 per cent.

A key factor mentioned as responsible for the improving status of the other EAC as well as non-EAC countries is regional integration. The IMF notes the agricultural sector as well as agribusiness and manufacturing in Ethiopia, Tanzania and Seychelles have benefited from integration.

“The sectors that have benefited the most from the deepening of integration include agriculture and agro-business especially in Ethiopia and Seychelles, and manufacturing particularly in Tanzania,” said the report.

Kenya has also been a major beneficiary of integration, being the largest exporter, but the huge amount of imports has pushed down the net exports value which has traditionally been in the negative, thereby depressing the regional giant’s GDP growth.