Kenya, long considered East Africa’s economic powerhouse, finds itself at a crossroads. Recent data from the United Nations Conference on Trade and Development World Investment Report 2024 paints a concerning picture: foreign direct investment (FDI) inflows to Kenya dipped by $93 million (about Sh12 billion) in 2023 to $1.504 billion from $1.597 billion the previous year or 5.85 percent decline.
This is a stark reminder that Kenya’s attractiveness to foreign investors is waning compared to its regional peers.
The primary culprit behind this decline is clear—bureaucratic red tape. Despite significant strides in digital government services, including the lauded eCitizen platform, investors continue to grapple with a labyrinth of regulatory requirements.
The multiplicity of licences and permits required at national and county levels has created a difficult environment for doing business. This bureaucratic morass not only deters new investments but also hampers the expansion plans of existing enterprises.
Kenya’s predicament becomes even more apparent when viewed in the context of its East African neighbours. Ethiopia, once considered a less favourable investment destination, has surged ahead, accounting for a staggering 29.07 percent ($3.26 billion) of the region’s FDI inflows.
Similarly, Uganda, despite its smaller economy, attracted $2.89 billion in FDI, representing a 2.37 percent growth. Even Tanzania, traditionally seen as a less dynamic economy, saw its FDI grow by 5.85 percent to $1.34 billion. These figures underscore a shifting landscape where Kenya’s traditional advantages—strategic location, skilled workforce, and relatively advanced infrastructure—are no longer sufficient to maintain its competitive edge.
The implications of this trend extend far beyond mere statistics. FDI is a crucial driver of growth, bringing not just capital but also technology transfer, expertise, and access to global markets. As Kenya aspires to achieve middle-income status and create jobs, attracting and retaining foreign investors becomes paramount.
President William Ruto’s administration has recognised the potential, identifying renewable energy, housing, manufacturing, agriculture, and ICT as sectors with the greatest potential to attract investors. However, identifying potential is only the first step. The real challenge lies in creating an enabling environment that allows these sectors to flourish and attract the desired investment.
The writer is a Development Practitioner, Public Policy Specialist and Management Consultant. [email protected]
