The financial services sector remains the biggest recipient of foreign investment inflows into Kenya, the latest statistics show, painting a picture of segments preferred by foreigners.
Fresh official data show that financial and insurance activities accounted for 40.04 percent of the nearly Sh683.84 billion stock of foreign direct investments (FDIs) in 2017, a growth of 8.47 percent over Sh630.46 billion a year earlier.
The FDI liabilities in financial and insurance sectors stood at Sh273.83 billion in 2017, the Kenya National Bureau of Statistics (KNBS) says in the Foreign Investment Survey (FIS) 2018, a Sh60.12 billion, or 28.13 percent rise over 2016.
Nairobi is a hub for multinational banks and insurers competing for investment opportunities in the six-nation East African Community bloc due to its advanced infrastructure compared with its peers.
Some of the international lenders using Nairobi as the epicentre for regional operations are Standard Bank Group of South Africa, which operates as Stanbic Bank, UK’s Standard Chartered Bank, South Africa’s Absa Group (which rebranded from Barclays Africa), SBM Bank of Mauritius and Dubai Islamic Bank.
Others are Bank of Africa, Guaranty Trust Bank, Ecobank Transnational Inc. and US’s Citibank.
The manufacturing sector, one of the four pillars of President Uhuru Kenyatta’s socio-economic transformation plan for 2018-2022, had the second highest stock of the FDIs with a 19.0 percent share in 2017, slightly reduced from 19.6 percent a year earlier.
The KNBS data show FDI flows to the sector, which is expected to generate about 800,000 new decent jobs under the ambitious Big Four agenda, expanded by Sh6.92 billion, or 5.62 percent, to Sh130.19 billion in 2017.
The sector experienced a torrid year in 2017, growing a measly 0.5 percent, separate KNBS data shows. Manufacturing, however, recovered to grow 4.2 percent in 2018, helped by agro-processing activities such as sugar, milk, bread, black tea as well as the production of beverages such as beer and soft drinks.
The government is lining up a package of incentives to attract foreign and domestic investors to set up about 1,000 small- and medium-sized factories in targeted sub-sectors such as agro-processing, leather, textiles and fish-processing.
The plan for the manufacturing sector, however, started on a wrong footing after its share of Kenya’s gross domestic product (GDP) shrank to a decade-low of 7.7 percent in 2018 from a revised 8.0 percent a year earlier, just over half of the targeted 15 percent under the Big Four agenda.
The Kenya Association of Manufacturing (KAM), the sector lobby, has warned relatively higher taxes, levies and electricity costs were strangling growth in the sector.
“We are actually moving in a different direction. Different arms of government are doing different things,” said KAM chairperson Sanchen Gudka in a past interview.
“What we are calling for is an overarching body, an investment council, for example, chaired by the President, to take executive decisions on what should be right for the country and what will help the competitiveness of our exports.”
A quarterly survey by the KAM suggested earlier this month that 52 percent of the factories do not plan to deploy new capital into their businesses in the next six months.
About 61 percent of managers of the factories surveyed listed cost of raw materials as the main threat to business growth followed by wage increment pressures (57 percent), falling profitability (54 percent), taxation (48 percent), energy costs (43 percent) and unhealthy competition from cheap imports (43 percent).
“With the current regulatory environment and uncertainty in the trade environment, shareholders are not willing to invest; investors have been deferring their planned investments over the past two years,” the KAM said in manufacturing barometer released on May 3.
The wholesale and retail sector, which has in recent years faced cash flow challenges largely due to poor corporate governance, which have left former giants Nakumatt Holdings (under administration) and listed Uchumi Supermarkets on the brink of collapse, is still the third largest sector by FDIs value.
The sector — which has since attracted global brands such as France-based Carrefour, the world’s second-largest retailer by revenue after Walmart of the US, and South Africa’s Massmart, which operates under the Game brand — had an FDI stock of Sh106.17 billion in 2017.
That was, however, a Sh5.16 billion drop compared with 2016, resulting in a decline in the sector’s share to 15.5 percent from 17.7 percent.
“The survey also sought to ascertain factors that attract investment and the challenges of doing business in the country. Ease of doing business, economic and political stability and market access were the key factors driving business decisions in 2018,” the KNBS says in the report.
“More than 50 percent of respondents indicated an intention to expand investments in the country in the next three years, while 39.9 percent intend to maintain current investment level.
“However, the major hindrances to doing business were the high cost of doing business and tax burden.”
The survey findings were based on feedback from 74.6 percent of the 740 enterprises were targeted during FIS 2018, which is a joint initiative by the KNBS, Central Bank of Kenya and Kenya Investment Authority.