Addis, Kampala outshine Nairobi with Sh450bn regional FDI deals

Ethiopia and Uganda controlled more than half of Foreign Direct Investment (FDI) flows into Eastern Africa in 2019, a UN report suggests, shining the spotlight on Nairobi’s strategy to attract big-ticket investors.

The two countries attracted Sh454.91 billion ($4.5 billion), an equivalent of 51.13 percent of the Sh889.59 billion ($8.8 billion) flows into the region, the United Nations Conference on Trade and Development (UNCTAD) says in latest report.

Ethiopia attracted deals valued at Sh252.73 billion ($2.5 billion) in 2019, largely driven by deals between Addis Ababa and Beijing, retaining its spot as the biggest recipient of FDIs in the region, which is made up of 11 countries.

This is despite the foreign flows into Ethiopia falling for the third straight year from Sh334.61 billion ($3.3 billion) in 2018 and Sh406.38 billion ($4.02 billion) the year before.

Kampala, on the other hand, inked deals worth Sh202.18 billion ($2.0 billion) from Sh135.46 billion ($1.34 billion) a year earlier and Sh81.17 billion ($803 million) in 2017, UNCTAD says in its Global Investment Trend Monitor report released on Monday.

The FDI flows into Uganda were largely driven by a consortium made up of Total (France), CNOOC (China) and Tullow Oil (UK) into development of oil fields in the northern part and pipeline.

The report has not disclosed flows to Kenya in 2019 as it only mentions top destinations for FDIs globally and regionally, with full disclosures on countries coming through the annual World Investment Report usually published in June.

Nairobi signed deals valued at Sh164.77 billion ($1.63 billion) in 2018 driven by increased flows into manufacturing, chemicals, hospitality, and oil and gas, according to UNCTAD report last June, a jump of 27.53 percent over Sh128.89 billion ($1.28 billion) a year earlier.

Investments in Eastern Africa — which includes five East African Community nations (excluding South Sudan) as well as Ethiopia, Mauritius, Madagascar, Seychelles, Djibouti, Eritrea and Somalia — amounted to an estimated Sh889.59 billion ($8.8 billion), a slowdown from Sh909.81 billion ($9 billion) in 2018.

“FDI flows to East Africa remained steady totaling $8.8 billion. Flows to Ethiopia, Africa’s fastest growing economy, slowed down by a quarter to $2.5 billion. China was the largest investor in Ethiopia in 2019, accounting for 60 percent of newly approved FDI projects,” said the report.

“Inflows to Uganda increased by almost 50 percent to $2 billion due to the continuation of the development of major oil fields and an international oil pipeline.”

Kenya said in November it was working on a raft of reforms, including legal changes and fresh incentives, aimed at re-establishing Nairobi as the magnet of foreign deals into Eastern Africa.

Moses Ikiara, managing director of Kenya Investment Authority (KenInvest), said the agency was working with the Kenya Law Reform Commission (KLRC) on laws which need review and harmonisation to boost investment flows.

“Working with KLRC as one of our partners, we saw a list of very many laws that are touching on investment. Some are sectoral,” Dr Ikiara said in an interview in November.

Besides Kenya Investment Promotion Act, the agency is also looking to amend sections of the Land Act, Mining Act, Immigration Act and Aviation Act, among others, with a key focus on attracting foreign investments.

Dr Ikiara had earlier said Nairobi was considering giving citizenship to wealthy investors as part of its fresh incentive package under Kenya Investment Policy, unveiled on November 6.

Under the plan, big-ticket foreign investors whose enterprises prove to have high impact on new jobs and exports earnings will not be required to have continuously lived in Kenya for at least seven years to qualify to become citizens as is now the case.

“If somebody has created impact and you can see the jobs created, why don’t we extend an incentive to them and say we invite you to be our citizen in three, two years?” Dr Ikiara said. “Giving incentives to those people with a lot of money could be among the non-monetary incentives.”

The investment policy aims at growing the ratio of total investments, dominated by public funds, to 32 percent of the gross domestic product (GDP) in the medium term from estimated 24 percent by extending monetary and non-monetary incentives to high net-worth investors.

LAND BANKS

Under the new framework, investors will be offered conditional incentives tailored to unique needs of their respective sectors, including land banks in partnership with the county governments, hence the quest to amend the Land Act.

The country, long viewed as the economic powerhouse in East and Central Africa, has in recent years been toppled by neighbouring Ethiopia in FDI flows.

Nairobi was the darling of foreign investors seeking to set up operations in Eastern and Southern Africa in the 1960s and 1970s.

A past analysis of the country’s investment landscape by the UNCTAD suggested a considerable number of big-ticket investors have been discouraged by “poor economic policies and inconsistent efforts at structural reforms, growing problems of corruption and governance, and the deterioration of public services have discouraged FDI since the 1980s”.

The UNCTAD report estimates FDI flows to Africa amounted to Sh4.95 trillion ($49 billion), a three percent rise over the year before.

“Persistent global economic uncertainty and the slow pace of reforms seeking to address structural productivity bottlenecks in many economies continue to hamper investment in the continent,” UNCTAD says.

Egypt retained its perch as the top recipient of foreign cash with inflows estimated at Sh859.26 billion ($8.5 billion), a five percent uptick over 2018, largely driven by economic reforms that have boosted investor confidence especially in oil and gas, telecoms, tourism and real estate.

FDIs into South Africa, the continent’s most developed economy, were estimated at just above Sh505.45 billion ($5 billion), while Nigeria’s shot up 71 percent to Sh343.71 billion ($3.4 billion), riding on inflows into oil and gas sector.

“The development of a $600 million (Sh60.65 billion) steel plant in Nigeria’s Kaduna state offers some evidence of investment diversification, a long-standing policy objective,” UNCTAD analysts wrote in the report.