Kenya records FDI growth

September 25, 2008
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, NAIROBI, September 25 – Kenya received Sh53 billion worth of Foreign Direct Investment (FDI) in 2007, according to the World Investment Report for 2008.

While analysing the report by United Nations Conference on Trade and Development (UNCTAD), Central Bank of Kenya Governor Prof Njuguna Ndungu said this represented an 11.9 percent increase as a share of the gross investment recorded in the country in 2006.The average inflows in the 1990s were $29 million while in 2006 they stood at $31 million.

“FDI is still very low. It was about 1.2 percent of the gross investment in 2006 but in 2007, it rose to 13.1 percent.  At $36 million, the outflows were also very low,” he said.

Ndung’u explained that this increase was as a result of the investments by telecommunication firms such as France Telkom, the railway concessions and the CfC-Stanbic merger. He however said the country could attract higher volumes of inflows if it implemented measures such as the reduction of transaction costs to enhance its competitiveness.

“FDI flows are expected to respond somewhat to increased demand for Kenyan products in the expanding regional market. Improvement in investment climate should also enable Kenya to attract higher volumes of FDI as would reforms to the governance and regulation of the Nairobi Stock Exchange,” the Governor added.

Despite the increase in 2007, the investments were still very low compared to neighbouring Uganda and Tanzania. This phenomenon was blamed on a number of issues including costly and unreliable infrastructure services and high energy costs which are a major obstacle to growth and competitiveness.

There is thus a need to improve the enabling environment for the private participation in infrastructure to leverage public resources, a move which Ndung’u explained would help bring newer technology and products and help improve productivity in many economic sectors as well as become a source of access to other markets. He also pointed out the country needs to support capital accumulation through the use of FDI and even remittances.

His advice was that new investments targeted on specific sectors should be left to the private sector with the government only participating through the Public Private Partnerships (PPPs).

The institutional weakness identified in the country, he added, could be addressed by increased ‘Aid-for Trade’ initiatives, which focus on the supply-side and infrastructure development. 

The report showed that FDI inflows in developing countries grew by 21 percent to $500 billion in 2007 with the Least Developed Countries (LDCs) attracting $13 billion during the same period.

In Africa, FDI inflows grew to $53 billion due to booming commodity markets, rising profitability of investments and improved policy environment. But despite the growth, the increase represented a meagre three percent of the global FDI. Globally, investments rose by 30 percent to reach $1.8 trillion.

Despite the financial and credit crises, which began in the second half of 2007, all the three major economic groupings, developed, developing and transition economies saw continued growth in their FDI.

This growth was attributed to the relatively high economic growth and strong corporate performance in many parts of the world. The sub-prime mortgage crisis in the ES has affected financial markets and created liquidity problems in many countries leading to higher costs of credit. The report indicated that countries all over the world are enthusiastic towards greater openness to FDI adding that policy markers have continued to make their countries’ investment climate more attractive for the direct investments.

“However both micro and macroeconomic impacts affecting the capacity of firms to invest abroad appear to have been relatively limited so far,” the report revealed.

The US maintained its position as the largest recipient country followed by the United Kingdom, France, Canada and the Netherlands.

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