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Kenya ranked ninth among 28 African states in FDI

Kenya has been ranked ninth in attracting investment deals among 28 African countries polled in a survey covering the first eight months of the year.

According to research firm StratLink Africa, Kenya clinched deals worth Sh8.6 billion ($85 million) between January and August, putting it behind South Africa with Sh100 billion, Egypt which had Sh46 billion, Ethiopia with Sh55.5 billion, Democratic Republic of Congo with Sh27 billion, Nigeria with Sh94 billion, Tunisia with Sh15 billion and Zambia with Sh22 billion and Sudan with Sh9.6 billion.

However, the amount for Kenya for the whole year may come short of last year’s that stood at Sh200 billion in foreign direct investment (FDI) as reported by financial consulting firm Ernst & Young early this year.

StratLink Africa said political risks that could affect investment had been lowered following the deal over the constitution of the electoral commission but advised investors to keep on the lookout for succession of the position of the chief justice — for which interviews have been going on in the past two weeks.

“The deal is a major step in remedying deteriorating confidence and we are optimistic the momentum can be built on over the coming months.
“A key development to watch over the coming months will be the succession of the Chief Justice and the extent to which it props confidence in the judicature,” said StratLink Africa.

Although the research firm disclosed an amount of Sh8.6 billion in FDI, it noted that there were some deals such as that of Twiga Foods where the amounts involved were yet to be disclosed.

The report said the foods company made a deal with the Netherlands-based DOB Equity, which gives a minimum of Sh100 million to take up equity of up to 49 per cent wherever it invests.

Despite noting political temperatures had come down with the deal of electoral reforms, StratLink said another risk had recently come in the form of controls on interest rates.

“Whereas StratLink observes that lending rates in the country are unfavourably high, it believes Kenya’s market mechanism has not failed as to necessitate credit pricing through legal mechanisms.

“A more sustainable approach to addressing high interest rates in the market would be for the government to tone down its appetite for domestic debt,” said the researchers.

They added that they believed the lenders would react by trying to lock out the risky borrowers in a bid to cut down on nonperforming loans.

“In an environment of a banking sector whose stability has been shaken recently by the placement of three entities under receivership, banks are bound to lock persons/institutions deemed to be high risk from access to loans in a bid to mitigate the risk of bad loans,” said StratLink.

The research firm said investors had reacted as expected by pushing the prices of bank shares down significantly. It forecast prices of banking stocks to remain subdued for the rest of the year as interest income of the institutions is likely to be hit hard.

source:daily nation

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