Kenya Sees Increase in Foreign Direct Investment, but Lags Behind Regional Peers

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Kenya experienced a turnaround in foreign direct investment (FDI) in 2022, with FDI inflows rising by 63.93% to $759 million. The increase in investment was driven by renewable energy projects, although Kenya still trailed behind neighboring countries in attracting investors. The UN Conference on Trade and Development (UNCTAD) highlighted Kenya’s policy interventions in the renewable energy sector as a key factor in attracting foreign investments.

While the positive growth in FDI is encouraging, Ethiopia remained the leading recipient of FDI in Eastern Africa, despite a 13.83% decrease in inflows. Ethiopia’s income tax exemption for investors and the opening up of its telecoms sector contributed to its continued dominance in the region. Uganda also outpaced Kenya in FDI inflows, driven by the development of the Lake Albert oil field and the construction of the crude oil pipeline.

Tanzania experienced modest growth in FDI inflows, primarily due to a 60% increase in greenfield project investments. The UNCTAD report highlighted Kenya, South Africa, Egypt, Nigeria, and Zambia as the countries accounting for a significant portion of greenfield projects in Africa. Kenya’s total accumulated FDI stock increased by 7.25% to $11.23 billion in 2022.

Kenya’s renewable energy potential remains an attractive factor for international investors. However, challenges in the electricity sector, including distribution and transmission issues, continue to pose obstacles. The government, under President William Ruto’s administration, aims to attract foreign investments in the ICT sector by revising policies that require domestic ownership and aligning data protection laws to support data storage growth.

Opinion: While Kenya’s increase in FDI inflows is a positive development, there is a need to address the challenges in the electricity sector and create a more conducive environment for investment. Streamlining policies, improving governance, and ensuring regulatory stability will be crucial in attracting more foreign investors and capitalizing on Kenya’s renewable energy potential. Additionally, prioritizing infrastructure development and enhancing the business climate will help Kenya compete more effectively with its regional peers in attracting FDI.

BDA.

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