The difficulties inherent in assessing economic performance have been brought home by recent reports on foreign direct investment (FDI) levels into Kenya.
Contrasting pictures have been painted by the Kenya Investment Authority (KenInvest) and international accountants EY. KenInvest calculates that FDI into Kenya jumped from $1.4bn in 2015 to $2.4bn last year, as the country becomes an increasingly attractive investment environment.
Yet the EY Africa Attractiveness Report 2017, which was published on 1 May, states that Kenya attracted just KSh116bn ($1.1bn) last year, a 55% fall on the figure given the previous year’s report. The KSh116bn figure is just 1.2% of the FDI targeted at the African continent last year.
However, Kenya attracted 5.9% of all FDI projects on the continent, out of a total of 676, at an average of $139m per project. Ernst and Young stated: “The slowdown was tied to economic strains in the UK, which was the key driver of 2015’s FDI flows”, blaming the fall on the Brexit vote, although the impact on UK growth levels of that vote has thus far been imperceptible.
It was particularly interesting that 58% of all FDI projects recorded in the report were aimed at just five countries: South Africa, Morocco, Egypt, Nigeria and Kenya, the main hub economies on the continent. In a statement, Standard Investment Bank (SIB) said: “We believe Kenya still remains an attractive destination for investors due to a relatively stable macroeconomic environment, improved investment in infrastructure, growth international grade office and retail space and rising disposable incomes.”
Whatever the current state of play, the Kenyan government and KenInvest are keen to improve it. According to KenInvest, the country attracts an average of $13.8 a year per capita in foreign investment, much lower than the Eastern African average of $35.3 a year, far behind Tanzania and Mozambique. More investment could be attracted by special economic zones (SEZs), including the new Dongo Kundu SEZ in Mombasa, which will begin operating in early 2018. The government hopes that agricultural processing companies in particular will be attracted to the zone.
SIB stated: “While in the recent past FDI inflows into Kenya have mostly been into the extractive and infrastructure sectors, we expect to see more FDI diversification attributed to the recent government incentives such as corporate tax cuts and tax allowances, more specifically into vehicle assembling and foreign investment in special economic zones.”
The organisation has announced that it is to carry out a full review of investment incentives at least every two years to make sure that they are sufficiently attractive and also working in the best interests of the country. The regulatory review under the Kenya Investment Policy is designed to make sure that incentives are both effective on their own terms and work well in concert with each other.
They will be judged on their success in attracting investment; the promotion of local content; and the impact on host communities, the environment and government revenues. Tax holidays and other financial incentives may lead to lower government revenues in terms of corporate taxes but the overall benefit can be positive because of the total contribution to the local economy.
KenInvest is keen to ensure that there is more transparency around local content and local partner incentives. In many African countries, foreign firms partner with domestic companies purely in order to satisfy regulatory requirements. The domestic partners in question benefit financially but contribute little to the arrangement and such companies are often owned by those with influence within the political elite.
The managing director of KenInvest, Moses Ikiara, commented: “Following this review against the above specified criteria, the government may choose to discontinue incentives which it feels are not meeting stated development objectives but may not phase them out existing investors except as outlined in the incentive agreement granted to the investor upon the approval of the incentive.” The organisation has set targets of ensuring that Kenya is ranked among the top 50 countries in the world in terms of the ease of doing business; and for private sector investment to account for at least 24% of GDP by 2030.