Kenya’s FDIs drop to Sh41 billion due to covid and property rules

BY CONSTANT MUNDA
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Summary

• Kenya‘s foreign direct investment (FDI) inflows declined by $ 381 million ($ 41.14 billion) in 2020, hampered by Covid-19 restrictions and new rules requiring foreign companies to gradually increase in some industries Assign shares to locals.
• The United Nations Conference on Trade and Development (UNCTAD) estimates foreign direct investment stood at $ 717 million ($ 77.44 billion) in 2020, a decrease of 34.7 percent from a revised 1.1 Billion US dollars (118.58 billion US dollars) a year earlier.

Kenya’s foreign direct investment (FDI) inflows declined by $ 381 million ($ 41.14 billion) in 2020, hampered by Covid-19 restrictions and new rules requiring foreign companies to incrementally increase in some industries Assign shares to locals.

The United Nations Conference on Trade and Development (UNCTAD) estimates foreign direct investment stood at $ 717 million ($ 77.44 billion) in 2020, a decrease of 34.7 percent from a revised 1.1 Billion US dollars (118.58 billion US dollars) a year earlier.

“Kenya has introduced local participation requirements in various industries, including insurance, telecommunications and ICT services,” wrote UNCTAD analysts in the 2020 World Investment Report.

Kenya has increased the requirements for local ownership in the technology sector from 20 percent to 30 percent through the guidelines of the National Information and Communications Technology (ICT) published in August 2020.

UNCTAD said the local ownership rule was a non-pandemic restriction that impacted FDI flows into Kenya, alongside coronavirus closures and restrictions, which have had “ongoing and varied negative effects on cross-border investment globally and regionally”.

The enforcement of the local content rules for ICT services to 30 percent from 20 percent – which has been in place since 2008 – applies to sectors such as telecommunications, post, courier services and broadcasting.

Joe Mucheru, ICT cabinet secretary, ordered all foreign companies, including those that had received an indefinite exemption, such as Airtel (March 2013), to cede 30 percent of the shares to local residents by March 2024.

According to UNCTAD, 16.9 percent of the estimated $ 6.5 billion ($ 702 billion) foreign investment in the East Africa region – made up of 11 countries – last year.

Ethiopia continued to control FDI into the region, which accounted for 36.9 percent, or $ 2.4 billion ($ 258.66 billion) of inflows – despite a 6.04 percent decrease from 2019.

The inflows into Ethiopia were mainly driven by foreign investment in manufacturing, agriculture and the hospitality industry.

“The government has initiated a program to facilitate foreign investment in the manufacture of personal protective equipment (PPE), and several Chinese companies have already started production,” UNCTAD analysts write in the report.

FDI flows to Tanzania increased an estimated 2.2 percent to $ 1.03 billion ($ 109.4 billion) based on the agreement to build the East African crude oil pipeline from Uganda to the port of Tanga at an estimated cost of $ 3.5 billion ($ 378 billion).

The impact between Uganda and the oil companies on the development strategy for its crude oil resources helped reduce inflows into Kampala by 34.63 percent to $ 823 million ($ 88.88 billion), lagging behind Tanzania.