Economy

Kenya’s FDIs fall Sh41bn on Covid, ownership rules

JOE

ICT Cabinet Secretary Joe Mucheru. FILE PHOTO | NMG

Kenya’s foreign direct investment (FDI) inflows dropped $381 million (Sh41.14 billion) in 2020, hurt by Covid-19 restrictions and fresh rules demanding foreign firms in some industries gradually cede more stake to locals.

The United Nations Conference on Trade and Development (UNCTAD) estimates FDIs amounted to $717 million (Sh77.44 billion) in 2020, a 34.7 percent drop compared with revised $1.1 billion (Sh118.58 billion) a year earlier.

“Kenya introduced local participation requirements in various industries, including insurance, telecommunication and ICT services,” UNCTAD analysts wrote in the World Investment Report 2020.

Kenya, through National Information and Communications Technology (ICT) policy guidelines, published in August 2020, increased the requirement for local ownership in technology sector to 30 percent from 20 percent.

UNCTAD said the local ownership rule was a non-pandemic restriction which impacted FDI flows into Kenya, besides the coronavirus shutdowns and restrictions which resulted in “a persistent and multifaceted negative impact on cross-border investment globally and regionally”.

The enforcement of the local content rules for the ICT services to 30 percent from 20 percent — which been in place since 2008 — applies to industries such as telecommunications, postal, courier and broadcasting.

Joe Mucheru, ICT Cabinet secretary, in April directed all foreign firms, including those which had obtained indefinite exemption such as Airtel (March 2013), to cede 30 percent stake to locals by March 2024.

Kenya accounted for 16.9 percent of the $6.5 billion (Sh702 billion) estimated foreign investments into East Africa region— made up of 11 countries— last year, according to the UNCTAD.

Ethiopia continued to control FDIs into the region, accounting for 36.9 percent or $2.4 billion (Sh258.66 billion) of the inflows — despite a 6.04 percent drop compared with 2019.

Inflows into Ethiopia were largely driven by foreign investments in manufacturing, agriculture and hospitality industries.

“The Government initiated a programme to facilitate foreign investment in the manufacturing of personal protective equipment (PPE), and several Chinese firms have already started production,” UNCTAD analysts wrote in the report.

FDI flows into Tanzania rose an estimated 2.2 percent to $1.03 billion (Sh109.4 billion) on the back of the deal to construct East African Crude Oil Pipeline project from Uganda to Tanga port at an estimated cost of $3.5 billion (Sh378 billion).

The fallout between Uganda and oil companies on the development strategy for its crude oil resources helped cut inflows into Kampala 34.63 percent to $823 million (Sh88.88 billion), falling behind Tanzania.