Foreign direct investment (FDI) is when investors venture into markets outside their own countries. They do so by starting new businesses or through joint ventures in the country of interest. Non-natives ‘ investment in a country’s stock market can be deemed a form of FDI into the country.
The East African region has continued to attract foreign investors due to its diverse availability of resources and inadequate expertise to utilize them fully. However, in the recent past, Kenya’s attractiveness to foreign direct investments has been dwindling significantly. With a new government in place, continued political unrest and tension across the country emanating from the high cost of living have affected the country’s attractiveness to foreign investors. The levels of foreign direct investment declined by 34% between 2019 and 2020, followed by another decline of 37.5% from 2020 to 2021, as reported in the ‘World Investment Report (2022).’
The state of the country’s capital stock remains immensely low, with the Nairobi Securities Exchange (NSE) reporting a 30.1% decline in foreign stake acquisitions. With the high-interest rates reported in developed countries, foreign investors have now shifted gears to invest in those countries, a trend that is predicted to continue for the better part of this year.
To the surprise of many Kenyans, the government is confident that in the next fiscal year (2023-2024), the state of the country’s investment potential will take a turn for the better. A parliamentary budget report shows that Kenya has implemented a plan to enhance the business environment by investing heavily in the agribusiness value chain, from production to processing. The sector accounts for 20% of total foreign direct investments. This move will lead to new entrants into the Kenyan market, thereby promoting economic growth and changing the perception of many investors eyeing the Kenyan market.
