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23 March, 2021updated 29 Oct 2021 17:47

The state of play: FDI in Kenya

Kenya has an open economy and the east African country has improved its FDI offering over the past few years. However, it is still dogged by problems of corruption.

By Marina Leiva

kenya-mpesa-fdi

Companies such as M-Pesa do a great deal to enhance Kenya’s reputation in the eyes of foreign investors, but corruption still dogs the country. (Photo by Tony Karumba/AFP via Getty Images)

Despite a decrease of 18% in flows of foreign direct investment (FDI) in Kenya prior to the Covid-19 pandemic in 2019, according to the UN Conference on Trade and Development, the country has improved its investment climate over the past few years, becoming an attractive location for foreign investors interested in locating in east Africa.

The only sectors with restrictions for foreign investors in Kenya are aviation, insurance, telecommunications, land, financial institutions, mining, engineering and architecture, and the levels of restriction vary from sector to sector.

For example, in the aviation sector, 51% of a company’s voting rights must be held by the state, a Kenyan citizen or both. To be licensed in Kenya’s telecommunications sector, a company must issue at least 20% of its shares to locals within three years of its licence being issued.

In the mining sector, the cabinet secretary imposes limits on local equity participation, with preference given to local products. Despite this, the Kenyan government has not tightened its FDI regulations in light of the Covid-19 pandemic, unlike in other countries where the pandemic has brought about an increase in protectionist regulations.

Corruption issues dent Kenya’s impressive FDI progress

Although Kenya has been climbing up the World Bank’s Doing Business rankings – rising 54 places over the past three years – corruption remains a problem in the country.

An investment climate statement by the US State Department states that “corruption remains endemic”, pointing at Kenya’s ranking in Transparency International’s 2019 Global Corruption Perception Index. The country ranks 137th out of 198 countries, a drop of seven places compared with 2018.

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However, the US State Department report also states that “year on year, Kenya continues to improve its regulatory framework and its attractiveness as a destination for FDI”.

All in all, FDI in Kenya shows signs of a promising future, with an investment environment that has improved a great deal over the past few years. Corruption is a hard obstacle to overcome, but an improving picture here should see even more foreign investors setting up operations in the east African country.

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