Kenya’s foreign direct investment (FDI) inflow recorded a spectacular rebound to hit an impressive Sh68.9 billion ($0.67bn) in 2017.

However, the growth did not give it compelling volumes, and it emerged that it was trailing other key eastern Africa economies, a new global report shows.

The World Investment 2018 report by the United Nations Conference on Trade and Development (UNCTAD) ranks Kenya the fourth highest FDI recipient in East Africa after Ethiopia, Tanzania and Uganda.

Ethiopia, one of Africa’s fastest growing economies, absorbed nearly half of the $7.6 billion (Sh760 billion) FDI in East Africa, attracting a total of $3.6 billion (Sh360 billion) such investments. Tanzania and Uganda received $1.2 billion (Sh120 billion) and $0.7 billion (Sh70 billion) respectively.

In spite of trailing other East Africa’s key economies, Kenya saw FDI inflow increase from $0.39 billion (Sh39 billion) in 2016 to $0.67 billion in 2017, defying a trend both globally and in Africa where inflows dipped due to a decrease in commodity earnings and value of cross-border mergers and acquisitions (M&As).

Kenya’s FDI in-flow performance is attributed to buoyant domestic demand and inflows into the country’s ICT industries, the report said.

Last year, in bid to attract and retain investors, the Kenya provided a host of incentives for industries to operate. This included exemption on dividends payable to non-residents by enterprises operating in special economic zones (SEZs), a reduction of withholding tax on interest payable to non-residents by SEZ enterprises from 15 per cent to five per cent; allowing a capital deduction of 100 per cent of the cost of buildings and machinery owned by SEZ businesses.

The tax incentives spur foreign stockholders such as South African ICT investors Naspers, MTN and Intact Software who continued to expand in the country.

US companies were also prominent tech-oriented investors, with Boeing, Microsoft and Oracle all investing in the country. Significant consumer-facing investments by Diageo (United Kingdom) in beer and Johnson & Johnson (United States) in pharmaceuticals also replenished Kenya’s FDI pipe.

Foreign-financed infrastructure projects like the Mombasa–Nairobi section of the standard-gauge railway have help boost economic growth and generate FDI inflows into the country.

Ethiopia, with FDI worth $3.6 billion, was the second largest FDI recipient in Africa, after Egypt with $7.4 billion. The country attracted a number of investors in 2017 including Chinese and Turkish firms that announced investments in light manufacturing and automotives in the second half of 2017.

Several global firms set up in Ethiopia including the US fashion supplier PVH that deals in brands like Calvin Klein and Tommy Hilfiger; Dubai-based Velocity Apparelz Companies which handles brands including Levi’s, Zara and Under Armour; and China’s Jiangsu Sunshine Group (which deals in brands such as Giorgio Armani and Hugo Boss. Several of these firms are located in Ethiopia’s flagship, Chinese-built, Hawassa Industrial Park.

Tanzania’s strong gold price and a diversified productive structure contributed to its FDI inflows worth $1.2 billion. Facebook and Uber expanded into that country while India’s Bharti Airtel continued to invest. The country’s inflows nonetheless recorded a 14 per cent decline against 2016.

Uganda ranked third in East Africa. The landlocked country will immensely gain from the Ethiopia-Djibouti joint venture that will take over operations in 2024. Construction began in 2017 on a regional oil pipeline to transport oil produced in Uganda — by Total E&P, Tullow Oil and China National Offshore Oil Corporation — to the United Republic of Tanzania for export.

FDI flows to Africa slumped to $42 billion (about Sh4.2 trillion) in 2017, a 21 per cent decline from 2016. Weak oil prices and harmful ongoing macroeconomic effects from the commodity bust saw flows contract in Egypt, Mozambique, the Congo, Nigeria, and Angola flows contract in Egypt, Mozambique, the Congo, Nigeria, and Angola.

South Africa continued to underperform.

“Challenges are particularly pronounced in Africa. Despite a period of strong economic growth, the level of economic transformation has been low. The share of manufacturing in the GDP of African countries is small, and it has further declined or stagnated over the past decade” Mukhisa Kituyi, the UNCTAD secretary-general said. “However, manufacturing has the potential of creating a large number of jobs in the formal sector and, therefore, raising living conditions”.

Globally, FDI flows fell by 23 per cent in 2017, to $1.43 trillion (Sh143 trillion) from a revised $1.87 trillion (Sh187 trillion) in 2016. However, according to the report, global FDI flows are projected to increase marginally, by about five per cent in 2018, to $1.5 trillion.

This expectation is based on current forecasts for a number of macroeconomic indicators and firm-level factors, survey of investment promotion agencies, UNCTAD’s forecasting.

Source: Business Daily