Foreign direct investment (FDI) in Kenya

FDI in Figures

Foreign investments in Kenya remain relatively weak considering the size of its economy and its level of development. Nevertheless, Kenya is one of the largest recipients of FDI in Africa. According to the figures from UNCTAD's 2022 World Investment Report, FDI flows to Kenya declined to USD 448 million in 2021 (compared to USD 717 million one year earlier), their lowest level in the last five years. In the same period, the total stock of FDI stood at USD 10.4 billion, accounting for a mere 9.5% of the country’s GDP. According to the latest Foreign Investment Survey published by the National Bank of Kenya, the main investors in the country are the United Kingdom (13.5%), Mauritius (11%), the U.S. (10.3%), South Africa (9.8%), and France (5.2%). The majority of FDI stock is concentrated in finance and insurance (one-third of the total), followed by information and communication (16.1%), wholesale and retail (15.4%), and manufacturing activities (14.8%). In recent years, the ICT sector has attracted the most FDI, thanks to the arrival of fibre optics. Kenya is also a regional leader in clean energy development with more than 90% of its on-grid electricity coming from renewable sources.

The Kenyan government has been actively taking measures and implementing reforms to attract FDI. The development of public-private partnerships as part of the 'Vision 2030' strategy should also have a positive influence on FDI inflows. Kenya plays a pivotal role in the East African Community, acting as a regional economic hub. It benefits from a strategic geographic location with sea access, a growing entrepreneurial middle class, a diversified agriculture and expanding services sector, and recently discovered hydrocarbon resources. Furthermore, the country has a developed financial sector and strong telecommunications infrastructure, and provides both fiscal and non-fiscal incentives to foreign investors. Nevertheless, numerous obstacles to investment persist, notably the country's poor-quality infrastructures, skills shortages, instability related to terrorist risk and political, social and ethnic divisions, ineffective rule of law and corruption. Local participation requirements are mandatory in various sectors, including insurance (at least one-third), telecommunications and ICT services (minimum 30%). According to Transparency International, Kenya currently ranks 123rd out of 180 economies on the 2022 Corruption Perception Index and 135th out of 176 in the 2023 Index of Economic Freedom. In 2022, some concerns were raised after a newly opened Chinese-owned supermarket was forced to suspend operation indefinitely amid an uproar from competitors over low-priced goods.

What to consider if you invest in Kenya

Strong Points

Kenya's economy has many strong points in terms of attracting FDI:

- It is a market economy and functions as the commercial, economic, technological and logistic hub of East Africa;
- It is a regional financial centre, has a strong industrial base and well-developed road infrastructure
- In urban areas, Kenya also has a young, well-educated and English-speaking population
- Kenya has vibrant horticultural and tourism sectors, although the latter is volatile, subject to domestic political stability and regional security concerns.
- Regional energy sector has a significant potential (including offshore gas fields), with direct (exploitable reserves within Kenya’s territory) and indirect (inputs through and exports from Kenyan ports) benefits;
- Finally, foreign investors benefit from the same treatment as national investors from administrative and judicial authorities.

Weak Points

Among the factors which may discourage FDI in the country are:

- High level of corruption;
- A slow judicial system;
- High unemployment and poverty;
- Recent security issues related to terrorism and crime;
- Inter-ethnic tensions;
- Costly skilled labour;
- high costs of energy, instability of the electricity distribution system and poor infrastructure;
- Recent uncertainty concerning the capital constitution of foreign companies and administrative difficulties in obtaining work permits;
- Foreigners are not permitted to own land in Kenya (they can rent land for 99 years);
- Finally, in order to benefit from certain government incentives, foreign investors must invest a minimum of USD 100,000.

Government Measures to Motivate or Restrict FDI

In April 2013, the Government passed a law on public-private partnerships (PPP) in order to attract foreign investment in the infrastructure sector. The Government has put in place an extensive programme of privatisation in various sectors, such as food processing, construction, equipment, education and energy. The special economic zones and export processing zones benefit from targeted incentives. The Mining Law has recently been amended to limit foreign participation in the oil, gas and minerals mining sectors. However, in 2015, that law was amended in order to increase the attractiveness of the investment climate in the extractive industries.

A new Company Act, promulgated in 2015, was supposed to compel a foreign company to reserve at least 30% of its capital to Kenyan citizens. However, that clause was suspended. Despite these questions which remain unresolved, the law modernises registration procedures and operations for companies. In 2015, the Business Registration Services (BRS) Act set up the Business Registration Service. This new law supervises company registration and assigns to counties the registration of the name and concepts of a company, which cuts costs of registering a company. The Kenyan Government also introduced the Insolvency Act in 2015 in order to improve the legal framework in case of bankruptcy of a company.

In 2017, the government announced the development of the project Kenya Investment Policy to strengthen the creation of an environment conducive to investment growth. The policy provides for the revision of legislation affecting the entire investment network.

Bilateral investment conventions signed by Kenya

Kenya has signed 20 bilateral investment conventions.