Kenya’s foreign direct investment falls by Sh31bn


Kenya’s foreign direct investment falls by Sh31bn

information technology
Kenya’s FDI was largely driven by new projects in information technology (IT) and healthcare sectors. FILE PHOTO | NMG 

Kenya’s foreign direct investment (FDI) inflows fell $294 million (Sh31.3 billion) last year, annual estimates by a UN agency show, partly reflecting depressed growth in new jobs that has been worsened by the global coronavirus pandemic.

The inflows were estimated at $1.33 billion (Sh141.84 billion), a drop of 18.08 percent over nearly $1.63 billion (Sh173.15 billion) that foreign investors pumped into the Kenyan economy in 2018, the United Nations Conference on Trade and Development (UNCTAD) wrote in a report published on Tuesday.

The World Investment Report 2020 published by UNCTAD, which is headed by Dr Mukhisa Kituyi, suggests that Kenya’s FDI was largely driven by new projects in information technology (IT) and healthcare sectors.

This is unlike in 2018 when new FDI deals – comprising mergers and acquisitions (M&As) by foreign firms as well as loans and investment in start-up companies in Kenya -were diversified across sectors such as manufacturing, chemicals, hospitality as well as oil and gas. The report shows that the amount of investment shipped out from Kenya increased 24.39 percent, or $40 million (Sh4.26 billion), last year to stand at $164 million (Sh17.46 billion), eroding the 2018 gains when the outflows contracted 36.19 percent or $93 million (Sh9.90 billion).

About 54 percent of Kenya’s FDI was reinvested earnings, the UNCTAD says, the highest share among leading investment destinations in Africa.


FDI into Kenya, just like elsewhere in the world, is expected to suffer sharp declines this year as multinationals postpone fresh investments due to uncertainty brought about by the Covid-19 crisis.

UNCTAD has forecast FDI into Africa will likely decline as much as 40 percent in the face of measures to contain the spread of the pandemic “based on GDP growth projections as well as a range of investment-specific factors”.

“Due to the widespread economic uncertainty and restrictions in movement, many announced and planned investment projects are likely to be either shelved or put on hold,” UNCTAD researchers wrote.

“As of April 2020, the number of cross-border M&As targeting Africa had declined 72 per cent from the monthly average of 2019.” Neighbouring Ethiopia continued to rule foreign investment flows in the region despite suffering a 23.99 percent drop in foreign investments on the back of ethnic clashes that destabilised parts of the country, including regions with industrial parks. Addis Ababa attracted $2.51 billion (Sh267.93) in FDI cash, Sh126.08 billion, or 88.9 percent, more than Nairobi’s value, on the back of gradual liberalisation of some of key sectors.

“China was the largest investor in 2019, accounting for 60 percent of newly approved FDI projects, with significant realised investments in manufacturing and services,” UNCTAD said.

FDI into Uganda continued to rise, edging up 20 percent to $1.27 billion (Sh134.82 billion), just shy of Kenya’s, due to “continued development of major oil fields and an international oil pipeline, as well as projects in construction, manufacturing and agriculture”. Tanzania’s rose 5.3 percent to $1.11 billion (Sh118.42 billion).

“Kenya revised its taxation system to provide exemptions for investment in various industries,” UNCTAD analysts wrote in the report made public early Tuesday.

Major tax incentives that affected investment landscape last year included exemption from capital gains tax on transactions arising from corporate restructuring processes such as recapitalisation, amalgamation, incorporation, acquisition, separation and dissolution due to internal restructuring as well as legal or regulatory requirement.

Kenya also offered profitable manufacturers a tax rebate at the rate of 30 percent of electricity costs and halved corporation tax to 15 percent for new ventures in plastic recycling for the first five years. These incentives have, however, been scrapped in the recent Tax Amendment Act 2020 which effectively cut corporation tax for resident firms to 25 from 30 percent amid reduced earnings due to Covid-19 shocks.

To make up for the drop in corporate income tax, Treasury Secretary Ukur Yatani has also cut investment deductions for investors putting up buildings for hotels and manufacturing plants to 50 percent from a 100 percent or a maximum of 150 percent they were enjoying in the first year of use, among other reductions in investment allowances.

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