Technology firms have leapfrogged banks, factories, and retail stores to become the biggest recipients of foreign capital into Kenya, findings of a fresh State-commissioned survey show, reflecting the growth of the digital economy.
The survey, whose findings were released Wednesday, found that firms in Kenya’s fast-growing digital marketplace now account for more than a quarter of foreign direct investment (FDI) flows into Kenya from less than 10 percent in 2020.
The survey was jointly conducted by the Kenya National Bureau of Statistics, the Central Bank of Kenya, and the Kenya Investments Authority.
It suggests that investments into Kenya’s information and communication sector by foreign firms, largely through equity and investment fund shares, grew to Sh64.67 billion in 2023 from Sh14.39 billion.
Investments into Kenya’s ICT space leaped ahead of key sectors such as finance and insurance, manufacturing, wholesale and retail trade, as well as the mining and quarrying sector.
“The Information and Communication sector was the largest recipient of FDI inflows, which increased by Sh26.8 billion to Sh64.7 billion in 2023, pointing to a sustained investor interest in Kenya’s digital economy and innovation landscape,” researchers for the 2024 Foreign Investment Survey (FIS) 2024 wrote in the report on Wednesday.
The FDI flows into the sector represented a 70.92 percent growth over Sh37.84 billion in the prior year, making it the fastest-growing recipient.
It was followed by manufacturing, whose flows grew 39.35 percent to Sh32.46 billion, and finance and insurance services at 34.96 percent to Sh45.32 billion.
The wholesale and retail trade sector, which was the biggest magnet for FDIs in 2022 with investments into retailers such as QuickMart and Naivas, posted a marginal 2.14 percent drop from Sh49.36 billion to Sh48.31 billion in 2023.
The increased foreign investment into Kenya’s tech space came in the year President William Ruto dropped a more than decade-long rule under the National ICT Policy for foreign firms to cede a 30 percent stake to local shareholders.
Dr Ruto said at the time, the Kibaki-era policy had made it impossible for big-ticket foreign ICT investors to set up in Kenya.
“This position is untenable and has made it impossible for large corporations to invest in Kenya. We will review this position and remove this requirement to facilitate greater investment in our ICT sector,” Dr Ruto said on March 30, 2023: “I was persuaded by a good gentleman from Amazon Web Services that it was impossible for Amazon to cede 30 percent equity to any entity they didn’t have any business relationship with. And as a result, they were holding their investment in our country.”
AWS, the cloud-computing division of Amazon, opened a development centre in Nairobi later that year, joining tech giants such as Microsoft, Google, Oracle Corporation, IBM, and Germany’s SAP SE, which have a significant presence in Kenya – the "Silicon Savannah".
Besides the multinationals, Nairobi also hosts a raft of thriving start-ups within the fintech space.
For instance, the inaugural Africa’s Fastest Growing Companies in Africa by Financial Times of the UK in 2022 found that firms leveraging technology in offering products were the fastest growing by gross revenue.
Some of the then little-known tech firms listed by FT at the time as popular amongst private equity firms and venture capitalists and minting hundreds of millions in annual gross sales included Wasoko, Lori Systems, Flocash, and Africa’s Talking.
“Many of the fastest-growing companies, especially in the fintech sector, are those seeking to tap Africa’s unbanked population, or markets that have previously been underserved or ignored,” FT wrote in the Africa’s Fastest Growing Companies 2022 report.
The thriving activities in Kenya’s digital marketplace have seen the government introduce taxes for foreign firms that operate online.
For instance, the Ruto administration in December 2024 replaced the digital service tax of 1.5 percent of gross sales with a significant economic presence (SEP) tax at the rate of three percent for foreign firms operating in the digital marketplace.
The ICT sector accounted for 26.66 percent of total FDI inflows of Sh242.61 billion recorded in 2023 by 603 companies with foreign assets and liabilities, which participated in the 2024 FIS survey. That represented a growth of 28.92 percent over Sh188.19 billion in 2022, the report’s findings suggest.
The wholesale and retail sector received 19.91 percent of the FDI inflows, followed by finance and insurance (18.68 percent) and manufacturing (13.38 percent).
The FDI inflows estimates by the FIS report, which is conducted every two years, differ from estimates by the United Nations Conference on Trade and Development (UNCTAD), which put the value at $1.504 billion (about Sh194 billion) in 2023.
The UNCTAD’s World Investment Report arrives at FDI estimates by largely focusing on greenfield investment in selected industries, project finance in infrastructure, and the largest multinationals' production activities.
