Kenya losing FDI to neighbours

May 14, 2012

, NAIROBI, Kenya, May 14 – Kenya ranks third in the East African Community in attracting Foreign Direct Investment (FDIs) after Tanzania and Uganda.

According to Standbic Investment East Africa, Kenya has been overtaken by the two countries due to lack of natural resources and also the high cost of doing business.

Stanbic’s Chief Investment Officer Antony Mwithiga said between 1997 and 2011, Kenya’s FDI was about 0.6 percent of Gross Domestic Product, which is below the African average of 1.7 percent and relatively low compared to neighboring countries like Rwanda, Uganda and Tanzania.

Kenya’s FDI declined to 22 percent last year, compared to 40 percent and 36 percent in Uganda and Tanzania, respectively.

“Tanzania and Uganda have already been running heavy projects on mining and energy before us. But I think in the next three years, Kenya should overtake those two countries in terms of its ability to attract foreign direct investments because we have a home’ for that money,” said Mwithiga.

He however says there is hope for Kenya to increase its income on FDIs to $1 million in the next five years due to recent improvements in infrastructure, governance, especially after the promulgation of the new Constitution and more over the discovery of oil in Turkana.

Some of the factors limiting Kenya to attract FDI include poor infrastructure, weak corporate governance, cost of doing business, the absence of large-scale privatisation programmes, relatively smaller quantities of known natural mineral resources and inadequate FDI policy framework.

“The fact that we didn’t have any known reserves of natural resources that has been a challenge. Now we have known, and the challenge has been solved by government investing in too much exploration activities. But the main one, and still stays there, is the cost of doing business in the country,” added Mwithiga.

The main source for Kenya’s FDIs as of 2008 is Europe, which is the leading at 66 percent, followed by the United States at 19 percent then Asia and Africa at eight and seven percent respectively.

Nairobi still attracts the greatest number of investments at 55.5 percent, followed by Kisumu at 17.9 percent, Mombasa at 16 percent and Malindi at 2.3 percent.

Kenya needs to increase its savings or investment levels from 15 percent of GDP in 2011 to in excess of 30 percent to achieve the 10 percent targeted annual growth rate necessary for attracting FDIs.

Africa received 3.5percent of global FDI inflows in 2011, the lowest share of Global FDIs.

Africa’s share of global FDIs has declined over time from nine percent in the1980s to 3.5 percent last year 2011.

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