Kenya has fallen behind Uganda in the race for foreign direct investments in East Africa. This is according to a recent report by consulting firm Ernest and Young (E&Y). According to the report, Uganda attracted record-high inflows of over US$10 billion in 2022. This was the highest investment value in East Africa and saw the creation of more than 6,300 jobs.
For its part, Kenya saw a Foreign Direct Investment (FDI) increase of 117% y-o-y in 2022. The country received 63 projects valued at US$2b in capital investment and generated 7,819 jobs. Despite this, the volume of foreign projects in Kenya was higher than those in Uganda. In early December 2023, Hivisasa Africa said collapsing FDI in Kenya could not be as bad as perceived.
Foreign Direct investments in East Africa vary depending on multiple microeconomic and macroeconomic reasons. FDI can be lower or higher depending on internal and external factors. Internal factors affect the country’s internal affairs while external factors put pressure on the country to adjust and adapt; for example regional cross-border conflicts.
Most of the investment flows into Kenya focused on business services, technology, transportation, and warehousing sectors, which collectively make up half of the country’s total FDI. The US was the lead investor in the country with 14 projects, valued at US$748m and generating 3,764 jobs. A single pharmaceutical project from the U.S. accounted for the largest capital inflow and created more FDI-related jobs in the country than any other.
In July 2022, the US and Kenya launched the U.S-Kenya Strategic Trade and Investment Partnership (STIP), which commits to increase investment and support African regional economic integration. Apart from the US, there was a significant inflow of FDI from the rest of Africa, from Nigeria, Mauritius, and South Africa. Egypt has a long-standing interest in Kenya’s manufacturing sector.
For Uganda, France was the top investor. The EU country put pen to paper on two massive investments in the oil and gas sector. France’s TotalEnergies and China National Offshore Oil Corporation (CNOOC) have reached a deal with Uganda and Tanzania to invest US$10b in developing crude oil production. The project will develop oil fields, processing facilities, and a pipeline network in Uganda, as well as an export pipeline through Tanzania to carry crude to the port.
For many years, Kenya has been a go-to investment hub in the region. President William Ruto has been on a global mission to lure investors into pumping capital into the country. He has impressed in closing out some of the most significant trade and investment deals of recent times.
At the COP27 Climate Summit, UK Prime Minister Rishi Sunak and Mr Ruto agreed to fast-track six green energy projects in Kenya worth KES500b (approx. US$4.1b). One of these six projects is the Menengai Geothermal Project which was developed by the Geothermal Development Company (GDC) and Globeleq, with a planned 35MW capacity.
Uganda has been under constant pressure from its global development partners for its strict anti-gay laws. Indeed, Bretton Woods institutions and The White House have vowed to cut all ties with the East African Nation if it does not repeal its laws on homosexuality.
In August 2023, The World Bank released a statement saying further funding to Uganda is being frozen until authorities in Uganda provide adequate policy to protect minorities, including lesbian, gay, bisexual, transgender, and other groups (LGBTQ+). Such measures will be consequential in determining overall Foreign Direct Investments in East Africa.
EY market leaders note an upturn in Africa’s fortunes as a top investment destination hub for global investors. The continent had struggled to attract investment since the onset of COVID-19 and took longer than other regions to recover, given its delayed vaccine rollout and therefore its ability to reopen its 54 national economies. As a result, its growth lagged prepandemic levels for longer than it did in mature markets, setting back the ambitious targets it had set itself to reduce poverty and build a sizable middle class by 2030.
