Mega corruption is among reasons foreign investors have bypassed Kenya and pitched camp in Uganda and Tanzania, a new report says.
According to the World Bank report, rampant corruption has seen Kenya fall behind its two East African peers in attracting foreign direct investment (FDI).
“Kenya performs poorly in attracting FDI given the size of its economy. Despite a larger economy, it attracts even less FDI than Uganda and Tanzania,” says the report.
Other factors listed by the global lender to have contributed to the dip in FDI inflows include poor infrastructure and poor investment climate.
The report comes at a time the country is grappling with increased cases of corruption, including the looting of the National Youth Service (NYS) and the Youth Fund.
FDI inflows into the country have fallen below the pre-1980s levels. The report also found that Kenya’s investment levels dropped to less than 10 per cent of GDP near 2000, but has since returned to levels experienced in the mid-1990s.
Net FDI inflows peaked in 2007, with Kenya receiving $178 million (Sh18.15 billion) only to be cut-down by 27 per cent to $140 million (Sh14.28 billion) by the post-poll violence of 2008. The report notes that the country has since recovered but is struggling to reach the 2007 peak.
The report, which looks at China’s trade relations with Kenya, found that a large share of FDI already comes from China. This, it says, has allowed Kenya to diversify its sources of FDI and increase investment in manufacturing.
But Kenya also lags behind countries like Ghana, Nigeria and South Africa in attracting manufacturing FDI. Kenya’s domestic savings is also worryingly poor as they are much lower than the Sub-Saharan average of 20.4 per cent. As a percentage of its gross domestic product (GDP) Kenya’s gross domestic savings dropped from a peak of 22 per cent in 1994 to only 4 per cent in 2014.
“The average FDI to GDP ratio between 1980 and 2011 was 0.54. When compared with Kenya’s domestic savings rates, it’s FDI signals a vulnerable current account because of weak domestic savings and investment,” noted the report.
Domestic savings rate refers to the percentage of gross domestic product (GDP) savings by households in a country.
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