US remains the biggest source of foreign capital into Kenya: Report

US President Barack Obama speaks during the Global Entrepreneurship Summit at the United Nations Compound in Nairobi on Saturday. [.PHOTO: ANDREW KILONZI/STANDARD]

The United States had the largest investors into projects in Kenya last year, accounting for 15.4 per cent of the capital inflows into the country.

A report that is likely to deal a fresh blow on the narrative that Kenya is facing East shows that the UK came in second at 11.3 per cent.

India comes in third, becoming the top nation from the East, having accounting for 10.2 per cent followed by South Africa, Japan and Germany.

The number of Foreign Direct Investments (FDI) projects into Kenya contracted by 12 per cent to 62 last year but the country remained the second best investment destination in sub-Saharan Africa.

According to the Ernst and Young's FDI attractiveness survey launched at the just concluded Global Entrepreneurship Summit (GES) in Nairobi, the drop in investments saw the number of jobs created contract by half from 10,805 in 2013 to 4,518 last year.

Ernest and Young Africa Chief Executive officer Africa Ajen Sita said at the Summit that Kenya needs to continue with its efforts to address the bottlenecks that make investing in the country less attractive.

According to the report, Kenya received Sh230 billion in capital inflows into the country last year, a 36 per cent drop from the Sh360 billion it recorded in a similar period in 2013.

The sectors that attracted the biggest FDI include technology, media and telecommunications, financial services, retail and consumer products. The report says Kenya has attracted the second highest numbers of FDI projects in Sub-Saharan Africa in the last two years, making it one of the star performers in the period.

"What is equally positive is the diversified nature of the investment. Although there has been some excitement in recent years after the discovery of oil, the large majority of FDI capital is being invested in services and infrastructure related sectors," the report says.

Strong growth

The 2015 Ernst and Young's attractiveness survey says that there has been particularly strong growth in investment into technology and telecommunications. These two sectors have been attracting over 40 per cent of FDI capital since 2007. The report singled out corruption, threats to physical security and poor infrastructure as the main constraints to investments and doing business in Kenya.

"At the same time, like many emerging market currencies, Kenyan shilling has been under pressure from the dollar," the report says. Mr Sita, however, said at a press briefing that Kenya just like the rest of Africa has to position itself to compete for investments at a time when the project numbers are contracting.

Last year, twin factors of geopolitical tensions and weak economic growth led to a 3.1 per cent decline in FDI projects worldwide. But the drop was much bigger in Africa given that the number of projects coming into the country dropped by 8.4 per cent in 2014. This is likely to put pressure on the Africa rising narrative that is being advanced to boost the continents prospects as a favourite investment destination.

Capital investment

However, the total capital investment into Africa despite the drop in project numbers grew by 136 per cent to hit $128 billion. "The growth was largely due to single capital intensive projects in the oil and gas sector and if these are discounted, there would be a significant drop," Sita explained.

Africa attracted more FDI funding than North America, Latin America and the Caribbean and the Western Europe. It was beaten only by Asia pacific region. These FDI projects created 188,400 new Jobs into Africa, a 68 per cent jump. Unlike Nigeria and Angola, Kenya is a net importer of fuel and low prices of the commodity has had a positive impact on the economy.

However, the report remains bullish about Kenya's economic prospects even though global ratings agency, Fitch downgraded the country's credit ratings recently.