Saturday, November 17, 2012

Foreign investors flock to Kenya as supreme law guarantees stability

PHOTO | DIANA NGILA | FILE The Trading Floor of the Nairobi Securities Exchange at the Nation Centre, Nairobi.

PHOTO | DIANA NGILA | FILE The Trading Floor of the Nairobi Securities Exchange at the Nation Centre, Nairobi.  NATION MEDIA GROUP

By JOSHUA MASINDE [email protected]

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.

IMF report

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.

Foreign investments in the stock market have also been on an upward trajectory compared to previous years due to the investor confidence in the country’s capital markets whose returns are among the highest in the world.

The foreign investor interest has however been witnessed on select blue chip companies like East African Breweries, Equity Bank, Kenya Commercial Bank, BAT, Bamburi Cement, NIC Bank, Diamond Trust Bank, CfC Stanbic Holdings, Uchumi Supermarkets and Athi River Mining.

Stocks value

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.

“This is a seal of approval by investors, both local and international, of Kenya’s economy as well as our capital market given that this is achieved just a few months before the 2013 General Election,” Mr Githae said.

Nairobi Securities Exchange chief executive officer noted that the strong interest in the bourse is an indication of the bullish sentiment of the market even as the year end approaches.

Analysts say this trend is likely to go up at foreign investors divest their funds from the crisis-hit eurozone to high yielding markets like Kenya.

In previous years, investors used to view Kenya from a risk perspective in the lead up to the elections but now, they view it as a high return area according to the Kenya Investment Authority general manager for Investment Promotion Ken Manyala.