Kenya’s trade becomes less attractive to investors

Kenya, which has been the top investment destination in Sub-Saharan Africa (SSA), is expected to lose its attractiveness to investors in the next two years, according to a survey by consulting firm KPMG.

The survey, which gathered the views of 150 executives and senior managers in Sub-Saharan Africa, found that over the past four years, 20% of the respondents ranked Kenya as an investment destination, the third highest after South Africa and Nigeria. However, this trend is expected to change, with only 14% of respondents planning to consider investing in Kenya in the next two years, putting it in third place behind South Africa and Nigeria.

Tanzania and Uganda get priority

Over the same period, Tanzania, previously not among the top nine destinations, is expected to overtake Kenya in 2026, with 15% of respondents expressing interest in the country. Uganda is also gaining momentum with 10%.

Reasons for the shift

While the survey did not delve into the specific reasons behind these shifts in preferences, it did highlight the challenges faced by investors in the region, with 86% of East African respondents saying that managing economic and political turmoil and currency risk were their top concerns when considering an Investment.

KPMG report

The report, entitled Deals in Sub-Saharan Africa 2023, reveals that the majority of financial investors (62%) favor investing in companies in their formative years, with more than half preferring to invest in mature companies. Investors are also considering injecting more capital into existing acquisitions, particularly in sectors such as oil and gas, consumer goods, mining, fintech and industrials.

South Africa and Nigeria to benefit

South Africa and Nigeria, with their large economies, are expected to benefit the most from this positive trend, while Kenya is expected to make significant progress in renewable energy investments.

Bank of East Africa report

Yet another report by the East African Business Council (EABC) reveals that Kenyan businesses face considerable challenges and are the most difficult country after South Sudan. Key issues include trade finance, foreign currency availability, interest rate affordability and access to loans and credit.

Foreign currency availability

Businesses identified trade finance as a major obstacle to business operations in the region, mainly the availability of foreign currency in international trade.” These challenges include trade finance, especially foreign currency availability, interest rate affordability, and access to loans/credit,” EABC said.

Like most countries, Kenya has been facing severe foreign currency shortages and investors have been deterred from injecting capital due to the potential exchange losses they may suffer when repatriating dividends.

According to the World Bank’s latest annual ratings, Kenya is ranked 56th out of 190 economies in terms of ease of doing business. Kenya’s ranking rose from 61st in 201 to 56th in 2018.

The Kenyan government needs to address the challenges faced by investors in the country such as economic and political turmoil, currency risk, trade finance and foreign exchange availability to maintain its attractiveness as an investment destination.