Kenya, which has been a preferred investment destination in the sub-Saharan Africa (SSA), is projected to lose its attractiveness to investors over the next two years, according to a survey by advisory firm KPMG.

The study, which gathered insights from 150 C-suite level and senior executives in the SSA region, found that 20 per cent of respondents favored Kenya as an investment destination over the past four years, ranking it third behind South Africa and Nigeria.

However, this trend is expected to change, with only 14 per cent of respondents planning to consider Kenya for investments in the coming two years, placing it at position three behind South Africa and Nigeria.

Nations gaining preference

During the same period, Tanzania, not previously among the top nine destinations, is anticipated to overtake Kenya by 2026, with 15 per cent of respondents expressing interest in the country.
Uganda, too, is gaining momentum, with 10 per cent preference.

While the survey didn’t delve into the specific reasons behind these preference shifts, it highlighted the challenges faced by investors in the region, with 86 percent of East Africa respondents pointing to managing economic and political volatility and currency risk as their primary concerns when considering investments.

“However, macro conditions and politics loomed larger for those that targeted East Africa (EA) in their most recent SSA deal, with 28 per cent and 25 per cent highlighting economic and currency volatility followed by political uncertainty, respectively, as top challenges,” KPMG says in the report.

The report, titled “Doing Deals in Sub-Saharan Africa 2023,” reveals that the majority of financial investors (62 per cent) are inclined toward companies in their growth stage, with more than half preferring to invest in established, mature companies. Investors are also considering injecting additional capital into existing acquisitions, particularly in sectors like oil and gas, consumer goods, mining, fintech, and industry.

South Africa and Nigeria, with their large economies, are poised to benefit the most from this positive trend, while Kenya is expected to see notable strides in renewable energy investments.

However, a separate report by the East African Business Council (EABC) indicates that Kenya faces considerable challenges for businesses, making it the most difficult country for business operations after South Sudan. Key issues include trade finance, foreign currency availability, the affordability of interest rates, and access to loans and credit.

Forex availability

Businesses identified trade finance as a major barrier to the operation of business in the region, mainly the availability of forex (Fx) required for international trade. “These challenges include trade finance, specifically the availability of foreign currency, affordability of interest rates, and access to loans/credit,” EABC stated.

Like most countries, Kenya has been facing an acute foreign exchange shortage that has seen investors shy off injecting capital over possible exchange losses when repatriating dividends.
According to the KPMG report, the SSA region reported mergers and acquisitions worth $19.2 billion (Sh2.86 trillion) last year from a reported 297 deals.

EA’s top deal in 2022 was the US$878 million (Sh130.8 billion) acquisition of Tanzania-based nickel producer Lifezone Metals by GoGreen Investments, a US special purpose acquisition company.
UN Conference on Trade and Development (UNCTAD) data estimates that foreign direct investment flows into Kenya spiked in 2022 after five consecutive drops on renewable energy deals, however, the country still trailed her peers in the region.

Kenya is ranked 56 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Kenya improved to 56 in 2019 from 61 in 2018.