Foreign Direct Investment (FDI) and buying into Kenyan companies fell by more than half last year following turmoil in the United Kingdom after the Brexit vote.
Audit and consulting firm Ernst and Young says in the 2017 Africa Attractiveness Report that FDI fell 57.9 per cent while capital investment was down 55.5 per cent in 2016 compared to 2015.
“The slowdown was tied to economic strains in the UK, which was the key driver of 2015’s FDI flows,” said the firm.
Despite the decline, various analysts forecast higher capital inflows into the country following recent legal and financial improvements.
In a note to investors, Standard Investment Bank says Kenya has quickly reinvented itself, offering incentives that could recover FDI flows this year.
“While in the recent past FDI inflows into Kenya have mostly been into the extractive and infrastructure sectors, we expect to see more FDI diversification attributed to the recent Government incentives such as corporate tax cuts and tax allowances, more specifically into vehicle assembling and foreign investment in special economic zones,” say SIB researchers.
Kenya has also moved to create the Nairobi International Finance Centre (NIFC) which will create a special economic zone for financial firms.
“NIFC will be able to create a much improved human resource base for complex and global financing, which would serve the needs of a country like Kenya as we remain a trade-driven nation,” said Deepak Dave of Riverside Capital Advisory.
Kenya is among five countries (the key hub economies) that collectively attracted 58 per cent of Africa’s total FDI projects last year. The others were Egypt, Morocco, Nigeria and South Africa.
Kenya, however, experienced a significant drop in outbound FDI projects from 36 in 2015 to 14 last year.
South Africa remains the continent’s leading FDI destination, when measured by project numbers, with a 6.9 per cent increase.
Morocco regained its place as the second-largest recipient with projects up by 9.5 per cent, followed by Egypt, which attracted 19.7 per cent more FDI projects than the previous year.
The number of jobs created and capital investment also declined, with the United Kingdom - who were the biggest source of FDI projects - directing only a few of them in 2016.
Investments in the African financial services sector also went down 43.2 per cent compared to the previous year, although investment from the Asia-Pacific region into Africa hit an all-time high.
The 2016 data shows Africa attracted 676 FDI projects, a 12.3 per cent decline from the previous year. However, capital investment rose 31.9 per cent, primarily driven by capital-intensive projects in real estate, hospitality and construction, and transport and logistics.
EY Africa chief executive, Ajen Sita said investor sentiment toward the continent is likely to remain soft over the next few years.
“This has far less to do with Africa’s fundamentals than it does with a world characterised by heightened geopolitical uncertainty and greater risk aversion. Investors with an existing presence in Africa remain positive about the continent’s longer-term investment,” he said.
Although foreign investors still favour the key hub economies, a new set of FDI destinations is emerging, with Francophone and East African markets of particular interest.