Magical Kenya's FDI Paradox

Foreign direct investment (FDI) into Africa contracted by 21 per cent in 2017, almost in line with the global decline of 23 per cent, according to the latest World Investment Report by UNCTAD. The East African region, by comparison, was able to record a fairly stable performance mainly due to its strong economic performance and huge inflows into Ethiopia.

Recent newspaper headlines have been heralding the fact that Kenya bucked the generally negative FDI trend with inflows increasing by 71 per cent, making it the fourth largest FDI destination in East Africa. Kenya indeed saw investments of $672 million (see Figure 1) which were driven by buoyant domestic demand and inflows into ICT industries.

Figure 1.png

Nevertheless, FDI inflows into Kenya rank it 19th on the continent, before Guinea and after Cameroon, both of which have significantly smaller economies. The disappointing performance for East Africa’s largest economy comes in spite of scoring highly on various FDI attractiveness rankings, as explored in our previous analysis.

The World Investment Report 2018 lauds the Kenyan government for providing additional tax incentives for foreign investors and the country is often trumpeted for its ICT sector. However, recent stories in the local media about alleged corruption in the public sector reinforce Kenya’s reputation of lacking good governance. Moreover, Kenya’s much touted ICT sector also does not hold up to closer scrutiny since many of the announced FDI projects are in fact partnership agreements or involve only modest investments.

While we applaud Kenya’s FDI success in 2017, we believe its place branding could be much stronger by streamlining the efforts of various organizations and creating a stronger country narrative. Kenya is much more than safaris and sand though it is still far from living up to its Silicon Savannah moniker.