Kenya’s FDI projected to plunge by 40pc this year

Foreign direct investments (FDIs) into Kenya is projected to drop by up to 40 per cent this year after more than two thirds of top 5000 multinational enterprises (MNEs) issued profit alerts.

This means that the country will capture as low as Sh228 billion in new projects down from the Sh380 billion booked last year, as shown in a new report released by the Financial Times last week.

On average, the top 5,000 MNEs, which account for a significant share of global FDI, have seen downward revisions of 2020 earnings estimates due to coronavirus pandemic.

Profits of multinationals based in developing countries like Kenya are more at risk than those of developed nations.

“We are unlikely to see growth of more than three per cent next year,” University of Nairobi Economics lecturer Gerishon Ikiara said, adding that this would affect the Big Four agenda and some projects in the private sector.

“It means that 2020-21 will be a difficult period if coronavirus is not controlled,” he added. 

Ikiara said since Kenya depends a lot on foreign private investments this means that economic growth rates will be low and employment will be obviously affected.

Kenya, however, was the fourth most attractive investment destination in Africa attracting 87 new projects worth Sh380 billion last year.

“FDI into Kenya by number of projects increased 78 per cent to 87, accounting for five per cent of FDI in the region and more than double the number of FDI projects recorded in 2017,” the report says.

Kenya, however, appeared to come under immense competition from Ghana and Nigeria even as South Africa and Egypt led the park.

Foreign investors 

However, more than 75 per cent of the projects from foreign investors went to the capital city Nairobi, heightening wealth inequality even as the government hoped that its heavy infrastructure projects would disperse investors into sub-urban zones.

The report shows that foreign investors have turned their spotlight on Africa but the risk and ease of doing business profile has made winners and losers out of individual African nations. 

“In the financial sector, Kenya attracted 22 financial services investments announced in 2019, experiencing 340 per cent growth from a year earlier and again recording its highest ever total,” the report says, highlighting the role of investments in Fintech. 

Kenya is a transport and financial hub in the region and a key source of intellectual horsepower that provides traction for economic growth.

Egypt replaced South Africa to become the most favored investment destination by projects in the region, experiencing a 60 percent increase from 85 to 136 projects.

Ghana entered the top 10 destinations by number of FDI projects in the Middle East and Africa.

It saw a 56 percent increase on 2018 figures, equivalent to 15 additional projects.

Ghana also saw capital investment growth of 479 per cent, an increase to Sh480 billion.

This was driven by projects such as a Sh280 billion production facility being developed by Sweden-based Greenland Resources as part of a public-private partnership with the government of Ghana.

Coal, oil and gas maintained the top spot for capital investment in 2019 with Sh12.3 trillion of FDI recorded.

The top three sectors in 2019 in terms of capital investment were coal, oil and gas, renewable energy and real estate, accounting for 36 per cent of FDI globally.

The top three sectors by number of projects in 2019 were software and IT services, business services and real estate, accounting for 36 per cent of FDI globally.

Software and IT services maintained its place as the top sector by project numbers, with 2738 projects recorded in 2019, up nine per cent from 2018.

FDI in renewable energy by number of projects increased by 38 percent in 2019.

The number of projects has also more than doubled since 2017. Capital investment of Sh9.2 trillion accounted for 12 per cent of FDI globally in 2019.

Of the top five sectors by number of projects, real estate was the only one to see a decline in project numbers.

However, it continues to maintain a dominant status, thanks in part to the growing concept of co-working office space. 

Healthcare witnessed the largest increase by number of projects with a 146 per cent rise, recording 69 projects in 2018 and 170 in 2019. This follows a 19 per cent decrease between 2017 and 2018.