Most chief executives of big African companies see Kenya as their favourite investment destination ahead of the continent’s economic giants, Nigeria and South Africa, a new PwC report shows.
The CEOs cite Kenya’s improving infrastructure, big pool of skilled workers and young population as their biggest attraction to the country.
South Africa is ranked second while the continent's biggest economy, Nigeria, comes third in the PwC survey.
Simon Mutinda, a partner at PwC Kenya who was involved in the survey, says CEOs who were interviewed view Kenyans as being highly adaptable to new goods and services due to their high exposure, making them potential customers for their products.
“The CEOs also said they picked Kenya because of the stability and predictability of its macro-economic variables. Other than short-term shocks, businesses can plan their operations,” Mr Mutinda said in an interview.
The PwC survey was conducted between September and November last year and is part of its global research which analyses responses from 1,379 CEOs.
The report, which was released last week, comes at a time when Kenya, and its capital Nairobi in particular, is morphing into a continental hub, with multinational firms opening shop in the capital.
Multinationals that have recently set up operations in Nairobi include General Electric, Google, IBM, Visa International, Pepsi, and Foton.
“Kenya still has a long way to go in terms of variables such as cost of energy and infrastructure, but the CEOs are viewing the efforts currently being made as positive hence their outlook,” said Mr Mutinda.
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Eleven of the 80 CEOs interviewed by PwC for The Africa Business Agenda 2017 report picked Kenya as their most important country for their organisation’s overall growth prospects over the next year.
Another 10 executives picked South Africa while Nigeria recorded eight. Ghana and Zambia completed the top five list.
Global hotel and fast-food chains have also joined the beeline to Nairobi, attracted by a growing middle class with increasing disposable income and a high appetite taste for new things.
Guy Hayward, the CEO of Massmart Holdings, told PwC researchers that Kenya is among the five markets outside South Africa the retail giant considers “important from a retailer and wholesaler perspective.”
The retailer has been angling for a buyout to enter the Kenyan market. Negotiations with family-owned supermarket chain Naivas flopped in 2013.
Miguel Azevedo, Citibank’s head of investment banking for Africa, said in a March interview that while the mass market provides the most short-term opportunities, there are investors looking for long-term capital-intensive infrastructure investments.
PwC’s findings echo two separate reports published by consultancy Ernst & Young (EY). EY named Kenya as the second most attractive investment destination in Africa after Morocco in 2017.
Kenya scored highly in the long-term outlook in governance and human development, economic diversification, infrastructure and logistics and improved business environment.
Research firm Quantum Global Research Lab named Kenya a distant 15th in terms of investment attractiveness on the continent.
The firm’s Global Africa Investment Index highlights strong domestic demand and public infrastructure investment in the context of low oil prices and domestic macroeconomic stability.
Multinationals keen on reaching the 180-million-people-strong East African common market are keen to establish regional hubs in Kenya to take advantage of the trade area that allows free movement of goods, people and capital.
The CEOs interviewed by PwC, half of whom were from East Africa, however ranked Kenya as being among the most challenging when it comes to tax administration.
Nigeria was ranked highest in terms of the country that presents the most tax challenge, with 58 per cent of the respondents picking the West African state, followed by South Africa and Angola with 33 per cent.
The Democratic Republic of Congo came in fourth and Kenya fifth, with 21 per cent and 18 per cent of the executives respectively saying the tax environment in these countries poses a threat to business.
The Kenya Revenue Authority (KRA) is increasingly targeting multinationals, accusing them of tax evasion and, in some instances, netting millions of shillings through sting operations.
“The authority has become more aggressive with more audits being conducted. Their approach is understandable due to their high collection targets,” Anne Eriksson, PwC’s regional senior partner in East Africa, told the Business Daily.
“Businesses are also discouraged by the fact that it takes quite a long time to get tax refunds. There is also a lack of consistency in tax administration; taxes are introduced, repealed and then reintroduced regularly.”