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Kenya railways

Officials at a recent forum in London explained how Kenya is one of Africa's economic stars, and is attracting investment through its open and stable economy. However, security issues and a creaking infrastructure are still a cause for concern, as Sebastian Shehadi reports.

While many of Africa’s key economies face falling growth and economic volatility, east Africa’s economic heartland and primary investment destination, Kenya, appears to be bucking the trend. The country’s growth in recent years is reflected by dramatic increases in inbound FDI. According to the World Bank, inward FDI to the country climbed from $163m in 2012 to $1.5bn in 2015, a 920% increase despite terrorist attacks carried out by militant group Al Shabaab in that time.

According to greenfield investment monitor fDi Markets, Kenya received its highest inflow of greenfield FDI in 2015, through 96 projects. This was a 55% increase from 2014, which saw the highest rate of investment since fDi Markets began monitoring investment in 2003. Thus, Kenya contributed to 12% of Africa’s inward FDI projects in 2015, making it the second most attractive location for FDI in Africa, second only to long-time powerhouse South Africa.       

According to the IMF, Kenya’s GDP grew by 5.9% in 2015, which was followed with a further 6% growth in the first quarter of 2016. A 6.1% growth is forecast for 2017. The World Bank and the Kenyan central bank are projecting similar figures. Thus, Kenya’s performance and prospects continue to outpace most African counties – the IMF’s average GDP growth forecast for sub-Saharan Africa is a lowly 3%.

Additionally, EY’s Africa Attractiveness Index named Kenya and east Africa as a foremost growth region within the continent, and ranked it the fourth most attractive country for investment and business in Africa. 

Forum enthusiasm

The Kenya-UK Trade and Investment Forum, hosted in London by consultancy Developing Markets Associates in September, was coloured both by understandable optimism and occasional notes of caution from various private sector audience members. Driving the enthusiasm were Kenyan and UK government panellists, who were there to showcase Kenya to British businesses.

As the officials emphasised, Kenya and the UK enjoy a historic, healthy and lucrative relationship, reflected by their balance of trade and the fact that the UK is Kenya’s top exporter and source of FDI, making up 23% of inbound investment. Tobias Ellwood, a UK member of parliament and the country's minister for the Middle East and Africa, announced at the forum the government’s impending investment of £500m ($651m) into Kenyan renewable energy, which was “an example of post-Brexit business as usual”.  

Kenyan allure

In her keynote address and interview with fDi, Amina Mohamed, Kenya’s cabinet secretary for foreign affairs, elaborated on the country’s attractions for FDI. With its business-friendly environment, she says, Kenya has “the right regulatory framework is in place” and commercial laws and courts have been improved.

Kenya is reputedly one of sub-Saharan Africa’s foremost open economies. The World Bank’s Doing Business report ranks it as one of Africa’s top five countries by this measure (although it fares poorly by global standards). Since 2013, president Uhuru Kenyatta has introduced a number of business-incentivising policies, such as lowering energy costs and offering a 10-year tax holiday for foreign investors setting up shop in the country.

However, Mr Kenyatta’s recent cap on bank loan interest rates, criticised by some as a populist move, could yet dent Kenya’s reputation and FDI attractiveness. On this matter, the country's central bank governor, Patrick Njoroge, says: “[Sometimes] one takes two steps backwards to leap forward. Kenya is wedded to market-based solutions… something we’ll go back to. Our positive direction is clear.” 

Mr Njoroge also emphasises the resilience, diversity, stability and ongoing growth of the Kenyan economy. “Kenya has navigated shocks for 50 years. The story is of east Africa rising, not Africa,” he says. Indeed, in 2015 Mr Njoroge was widely praised for the manner in which he stabilised the Kenyan currency market.

Infrastructure and talent

When it comes to Kenya's immediate prospects, Ms Mohamed says: “Seven percent GDP growth is possible for 2017. [No wonder] foreign companies in Kenya number 210, compared with 100 in 2010.”

Ms Mohamed is also keen to emphasise Kenya’s position as east Africa’s main logistics and trade hub, which makes the country the gateway to surrounding markets. Like many emerging markets, bridging the infrastructural deficit is essential for Kenya, and with FDI and trade increasing, the country has shown signs of struggle. For example, Nairobi’s traffic is notoriously slow moving, and delays at Mombasa’s port often force freighters to go elsewhere.

However, Ms Mohamed adds that Kenya’s “ongoing infrastructural improvements”, such as the Lamu Port South Sudan Ethiopia Transport corridor, which is bankrolled by Chinese investors and is expected to improve east African and pan-African connectivity through a series of new railways, highways and ports.

Separately, the current construction of a standard gauge railway, to replace the existing network in Kenya, which dates back to the colonial era, will reduce travel times from Mombasa to Nairobi by one-third. In 2015, EY ranked Kenya’s infrastructure as ‘moderate’ and the World Economic Forum gave it a score of 4.16 out of seven. 

Another area that gives Ms Mohamed hope for the future is Kenya's workforce, which is, she says, young, well-educated, ambitious, fluent in English and tech-savvy – as shown by Kenya’s burgeoning ICT sector. She says numerous foreign companies, impressed by local talent, have abandoned plans to bring to the country a 50% more expensive foreign workforce. The United Nations Development Programme ranks Kenya’s education levels among the top 10 in Africa. 

Security and corruption 

Reassuring those concerned about security issues is a key challenge in for Kenya. Ms Mohamed says that large-scale terrorist attacks carried out in the country are “isolated incidents”, with the last one being in May 2015, while adding that terrorism is an “international problem… no one is safe”.

She says Kenya has acquired the “latest equipment and technology” when it comes to countering terrorism and that it is leading east African efforts on this score, referring to the country's co-operation with the African Union Mission in Somalia and the UK.

In light of the security forces’ much-criticised response times to the terrorist attacks on the Westgate Mall in 2013 and Garissa University in 2015, Ms Mohamed stresses that Kenya has improved inter-agency coordination and acquired 3000 new security vehicles to improve mobility, mainly to rural areas. “We’ve done everything we can,” she says.

However, technical improvements aside, Kenya’s forceful counter-terrorism strategy has drawn criticism from within the country and outside. 

When it comes to corruption, Ms Mohamed says that “stamping it out” is a top priority, with both the World Bank’s and World Justice Project’s corruption indices ranking Kenya among the bottom third countries in African countries when it comes to dealing with the matter. However, Ms Mohamed is keen to stress that “there are no serious challenges to inward FDI. Everything is in place – Kenya’s open for business.”

Private sector perspectives 

Most private sector investors at the Kenya-UK Trade and Investment Forum were non-Kenyans with ongoing operations in Kenya or Africa who were generally keen to sing Kenya’s praises.

Listed among the 100 most powerful telecoms giants by Global Telecoms Business, Nic Rudnik, the billionaire CEO of Liquid Telecoms and a specialist when it comes to operating in Africa, says: “Kenya is one of the most open economies on the continent. It’s already easy to invest there. Traffic’s the biggest impediment but [it is] investing in infrastructure.

“The legal system is good. You have got an independent judiciary, and there is lots of trust and respect for the system, from lawyers and businessmen to ordinary people.”

Peter Zwager, CEO of Oserian, one of Kenya’s largest flower exporters, adds that kenya is “great for business and free trade”. However, he and Edwin White, chairman of Nairobi-based Daima Energy, add that government agencies and bureaucracy in the country are too slow, and claim that the legal system is inefficient, not least due to Kenya’s devolution of power in 2010. They also voice concerns about its infrastructure.

All three businessmen agree that terrorism is an issue for prospective investors, but mainly because of distorted perceptions or fear of Kenya’s inability to competently respond to threats. Mr Rudnik says: “Security is a global issue but it remains the biggest concern [in Kenya].”

However, Mr Zwager believes security is only an issue for people living near the Kenya-Somali border. Indeed, all three investors reflect upon what EY calls "the wide perception gap” between settled investors and prospective investors that are unfamiliar with Africa.   

This article is sourced from fDi Magazine
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