Foreign investors flock to Kenya as supreme law guarantees stability
Posted Saturday, November 17 2012 at 18:11
- Traditionally, a general election in Kenya is characterised by foreign investors drawing their money to avoid political risks but this seems to be changing, with the last two years recording an increase in money coming into the country
- The country’s enactment of a new Constitution in August 2010 has signalled a mark of confidence among foreign and local investors due to guarantees of political stability
- Foreign investors have purchased stocks valued at Sh26.4 billion in the period between January and October this year. Net inflows in October alone stood at Sh2.9 billion
Foreign investors are increasing their stakes in Kenya, defying the capital flight trend that is normally associated with an election period in the country.
Traditionally, a general election in Kenya is characterised by foreign investors drawing their money to avoid political risks but this seems to be changing, with the last two years recording an increase in money coming into the country.
“For the first time in the history of this country, during an election year, the Foreign Direct Investment is going up. If you look at other election years, it has been dwindling to zero, then starting all over again,” Finance Minister Njeru Githae said last week.
Investments have continued to increase both in the infrastructure sector, financial services, the stock market, oil exploration and prospecting sector as well as in the transport and communication front.
An International Monetary Fund (IMF) report released this month notes that in sub-Sahara Africa, Kenya, excluding South Africa, was the second destination that greenfield Foreign Direct Investment (FDI) projects were announced or initiated in 2011.
The report says that the number of greenfield or new projects was estimated at Sh425 billion ($5 billion), a 77 per cent increase in the year.
The investments are set to further increase due to the rise in Chinese interest in the country as well as the discovery of oil and gas in Kenya.
The report further notes that Kenya’s investment stock from China is estimated at $500 million (Sh42.5 billion) in 2010, but it has picked up recently in line with increasing trade between the two countries (five-fold increase to $2.4 billion) in the last six years, despite Kenya not being a commodity exporter.
China’s FDI in Kenya is also spreading away from construction and manufacturing, to communications and investment by medium-size enterprises in interior décor, construction, hotels and restaurants.
New plans by the Chinese also include setting up a new assembly plant by Chery automobile and coal extraction at the $40 billion (Sh3.4 trillion) Mui Coal Basin in Kitui.
“The discovery of oil and gas in Turkana County has attracted interest from foreign investors. All 46 exploration blocks in four sedimentary basins (Lamu, Mandera, Anza and Tertiary Rift) occupying 485 thousand square kilometres, have been leased to about 20 companies under a production sharing contract, with government participation of up to 20 per cent in the exploration phase and upon commencement of development and production,” the IMF report says.
The country’s enactment of a new Constitution in August 2010 has also signalled a mark of confidence among foreign and local investors due to guarantees of political stability.
The government’s effort in improving infrastructure coupled the country’s strategic position within the Eastern Africa region with a sound financial services sector, highly skilled workforce, mineral discoveries have been biggest attractions for foreign investors at this time.
These sentiments are shared by Stanlib East Africa regional director James Muratha who says that the availability of highly skilled young workforce in the country has been vital in attracting foreign investors.
This is also given the fact that opportunities in the developed countries continue to shrink as economies of nations like Greece, Spain, Italy, the US, Japan have sunk deeper into debt, are experiencing negative or no growth or are sinking into recession.
The economies of Kenya and other emerging markets are amongst the fastest growing in the world, attracting investors from Europe, America and other more developed countries.
“There is also the new Constitution which is better placed to protect the interests of foreign investors. A lot of infrastructure spending, rapid urbanisation and the growing middle class are stimulating the economy. Any astute investor would miss out if they don’t take advantage of this time,” Mr Muratha said in an interview.