Kenya’s foreign direct investment (FDI) inflows fell $93 million (about Sh12 billion) last year, findings of an annual survey by a United Nations agency showed Thursday, citing bureaucracy in licensing regime despite increased digitisation.
The UN Conference on Trade and Development’s (UNCTAD’s) World Investment Report 2024 estimates FDIs amounted to an estimated $1.504 billion (Sh194.02 billion) in 2023 from a revised $1.597 billion (Sh206.01 billion) the year before.
The 5.85 percent dip in foreign investment deals came at a time when investors complained of a multiplicity of licences and permit at the national and county levels amidst overlapping regulations.
“Despite significant advances in digital government services in Kenya, notably through the eCitizen platform, new businesses and investors still encounter multiple, disjointed registration processes and authorisations, including for licences and permits needed to operate in regulated sectors and counties,” UNCTAD analysts said in the report.
The President William Ruto administration has cited renewable energy, housing, manufacturing, agriculture, and ICT as the sectors with the biggest potential to attract investors.
Kenya has over the years banked on its strategic location on the continent, its skilled workforce, and a relatively advanced infrastructure network to woo foreign firms.
“We are renowned for our well-educated, highly skilled, hospitable, and enterprising population, including motivated young men and women who reflect our entrepreneurial spirit,” President William Ruto told American investors during his visit to the US in May.
However, investors have over the years complained of overlapping regulatory requirements at national and county levels for driving up operating costs. Some agencies perform overlapping and duplicative roles, studies by business lobbies such as the Kenya Association of Manufacturers have suggested.
As a result of related business costs, some entrepreneurs end up pulling out of investment projects due to delays in obtaining permits and licences.
To partly ease bureaucracies and red tape, Kenya has been moving some business registration processes online. Foreigners are allowed to use their passports to register their businesses in Kenya through the eCitizen platform. They are then required to register the company and directors for taxation with the Kenya Revenue Authority.
They are also required to register with the Social Health Insurance Fund (formerly National Hospital Insurance Fund) and National Social Security Fund, besides obtaining a business permit from the county government they want to set up.
“Although some applications can be completed online, the lack of integration among systems adds significant barriers for investors and entrepreneurs,” UNCTAD wrote in its report. “There is a pressing need for enhanced facilitation to elevate investment levels sufficiently to address interconnected economic, health, security and climate challenges.”
The data, however, shows Ethiopia continued to lead in FDI inflow in East Africa, accounting for nearly a third (29.07 percent) or $3.26 billion (Sh420.93 billion) of the inflows into the region which were estimated at $11.23 billion (nearly Sh1.45 trillion) last year. This is despite the FDI into Ethiopia falling 11.09 percent from $3.67 billion in 2022.
Inflows into Uganda were also ahead of Kenya’s despite falling a modest 2.27 percent to $2.89 billion (Sh372.29 billion), while Tanzania’s grew 5.85 percent to $1.34 billion (about Sh172.73 billion).
The UNCTAD FDIs data—which largely focuses on greenfield investment in selected industries, project finance in infrastructure, and the largest multinationals' production activities – usually differs from findings of state-funded biennial Foreign Investment Survey.
