Kenya’s attractiveness to foreign direct investment continued its slump in the past year to hit a six-year low even as its East African neighbours increased their appeal to foreign capital.
This makes the nation’s competitiveness part of the agenda that Uhuru Kenyatta must deal with as he begins his final term Tuesday.
Data from the United Nations Conference on Trade and Development (UNCTAD) shows that Kenya was in the small list of three countries that attracted less Foreign Direct Investment (FDI) inflows in 2016 compared to the previous year.
The report shows that FDI inflows to Kenya dropped 36 per cent to Sh40.7 billion ($394 million) even as inflows to East Africa rose 13 per cent.
This was the most dramatic decline in investment inflows in a year that was more than double the 15 per cent drop in Tanzania and the 20 per cent erosion into the Seychelles.
The fall in investment inflows into Kenya has been persistent over the past five years, according to UNCTAD, signalling the overall competitiveness of the region.
“East Africa received $7.1 billion (Sh734 billion) in FDI in 2016, 13 per cent more than 2015. But the aggregate increase masks divergent FDI performance in the sub region,” writes UNCTAD in its 2017 edition of the World Investment Report.
UNCTAD notes that the decline in Kenya’s FDI came despite reforms that have created a “supportive domestic policy environment”.
The UNCTAD report comes barely two weeks after the World Bank’s released its Ease of Doing Business report, which showed that the overall investment climate in Kenya had improved.
The reality on the ground is however that investment flows to other East African economies have continued to grow even as Kenya suffers a decline.
Ethiopia’s FDI inflows grew 46 per cent to $3.2 billion (Sh330.9 billion), while Uganda’s inflows rose marginally by 0.6 per cent to $541 million (Sh55 billion).
In absolute values, the FDI inflows to Kenya were nearly at par with Mauritius’ ($349 billion) and Somalia’s ($339 billion).
UNCTAD does not provide an immediate reason for the slump of inflows into Kenya but the depressive performance is partly seen to mirror global trends in FDI flows.
Globally foreign investment fell two per cent to $1.75 trillion, a development that was attributed to weak economic growth.
Investor interest in developing countries and in Sub-Saharan Africa in particular shrunk on the back of poor commodity prices.
“Flows to developing economies were especially hard hit, with a decline of 14 per cent to $646 billion,” says UNACTD.
This is especially concerning because for these developing nations FDI flows are “the largest and one of the least volatile of all external financial flows”.
UNCTAD projects a modest recovery of FDI to Africa due to better, projected oil prices and regional integration. If negotiations for the Tripartite Free Trade Area bear fruit, the region is expected to reap the benefits through enhanced FDI flows.
The data from UNCTAD mirrors information reported in the Kenya Economic Survey 2017 which reported a decline of 34.4 per cent in FDI to Sh39.9 billion in 2016.
Consultancy firm EY painted an even dimmer picture earlier this year when it estimated that FDI had fallen 57.9 per cent in 2016. However, the firm, in its Africa Attractiveness Index 2017, still ranked Kenya as the second most attractive investment destination in Africa, after Morocco.