Foreign direct investment (FDI) in Kenya

FDI in Figures

Foreign investments in Kenya remain relatively weak considering the size of its economy and its level of development. Nevertheless, Kenya is one of the largest recipients of FDI in Africa. According to the figures from UNCTAD's World Investment Report 2024, FDI flows to the country decreased by 5.8% y-o-y in 2023, totalling USD 1.5 billion. At the end of the same period, the total stock of FDI stood at USD 11.19 billion, accounting for a mere 10.3% of the country’s GDP. According to the 2023 Foreign Investment Survey published by the National Bank of Kenya (latest data available), Europe held the largest share of the total stock of FDI liabilities at 47.8%, with its stock rising by 9.2% from KES 522.1 billion at the end of 2021 to KES 570.3 billion by the end of 2022. This increase was largely driven by the United Kingdom and the Netherlands, which accounted for 45.8% and 24.1% of the total stock of FDI liabilities from the region, respectively, at the end of 2022. Africa accounted for 24.9% of the total stock of FDI liabilities, rising by 2.8% from KES 289.4 billion at the end of 2021 to KES 297.6 billion at the end of 2022, with Mauritius and South Africa holding the largest shares. The finance and insurance sectors represented the largest portion of FDI liabilities, at 31.5% in 2022. The stock of FDI in this sector grew by 11.8%, from KES 336.1 billion at the end of 2020 to KES 375.7 billion at the end of 2022. The manufacturing sector held the second-largest share of FDI liabilities at 16.3% by the end of 2022. Additionally, the information and communication, wholesale and retail trade, and agriculture, forestry, and fishing sectors also saw significant shares of FDI liabilities during the review period.

The Kenyan government has been actively taking measures and implementing reforms to attract FDI. The development of public-private partnerships as part of the 'Vision 2030' strategy should also have a positive influence on FDI inflows. Kenya plays a pivotal role in the East African Community, acting as a regional economic hub. It benefits from a strategic geographic location with sea access, a growing entrepreneurial middle class, diversified agriculture, and expanding services sector, and recently discovered hydrocarbon resources. Furthermore, the country has a developed financial sector and strong telecommunications infrastructure and provides both fiscal and non-fiscal incentives to foreign investors. Nevertheless, numerous obstacles to investment persist, notably the country's poor-quality infrastructure, skills shortages, instability related to terrorist risk and political, social, and ethnic divisions, ineffective rule of law, and corruption. Local participation requirements are mandatory in various sectors, including insurance (at least one-third), telecommunications, and ICT services (minimum 30%). Continued restrictions on FDI persist in critical sectors like business services and financial services. The complexity of entry and licensing procedures, alongside variations in processes across counties, further inhibit FDI. Streamlining administrative procedures, including digitalization and enhancing the one-stop shop for foreign investors, can facilitate increased FDI. According to Transparency International, Kenya currently ranks 121st out of 180 economies on the 2024 Corruption Perception Index. Kenya ranks 96th among the 133 economies on the Global Innovation Index 2024 and 121st out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Kenya

Strong Points

Kenya's economy has many strong points in terms of attracting FDI:

- It is a market economy and functions as the commercial, economic, technological and logistic hub of East Africa;
- It is a regional financial centre, has a strong industrial base and well-developed road infrastructure
- In urban areas, Kenya also has a young, well-educated and English-speaking population
- Kenya has vibrant horticultural and tourism sectors, although the latter is volatile, subject to domestic political stability and regional security concerns.
- Regional energy sector has a significant potential (including offshore gas fields), with direct (exploitable reserves within Kenya’s territory) and indirect (inputs through and exports from Kenyan ports) benefits;
- Finally, foreign investors benefit from the same treatment as national investors from administrative and judicial authorities.

Weak Points

Among the factors which may discourage FDI in the country are:

- High level of corruption;
- A slow judicial system;
- High unemployment and poverty;
- Recent security issues related to terrorism and crime;
- Inter-ethnic tensions;
- Costly skilled labour;
- high costs of energy, instability of the electricity distribution system and poor infrastructure;
- Recent uncertainty concerning the capital constitution of foreign companies and administrative difficulties in obtaining work permits;
- Foreigners are not permitted to own land in Kenya (they can rent land for 99 years);
- Finally, in order to benefit from certain government incentives, foreign investors must invest a minimum of USD 100,000.

Government Measures to Motivate or Restrict FDI

In April 2013, the Government passed a law on public-private partnerships (PPP) in order to attract foreign investment in the infrastructure sector. The Government has put in place an extensive programme of privatisation in various sectors, such as food processing, construction, equipment, education and energy. The special economic zones and export processing zones benefit from targeted incentives. The Mining Law has recently been amended to limit foreign participation in the oil, gas and minerals mining sectors. However, in 2015, that law was amended in order to increase the attractiveness of the investment climate in the extractive industries.

A new Company Act, promulgated in 2015, was supposed to compel a foreign company to reserve at least 30% of its capital to Kenyan citizens. However, that clause was suspended. Despite these questions which remain unresolved, the law modernises registration procedures and operations for companies. In 2015, the Business Registration Services (BRS) Act set up the Business Registration Service. This new law supervises company registration and assigns to counties the registration of the name and concepts of a company, which cuts costs of registering a company. The Kenyan Government also introduced the Insolvency Act in 2015 in order to improve the legal framework in case of bankruptcy of a company.

In 2017, the government announced the development of the project Kenya Investment Policy to strengthen the creation of an environment conducive to investment growth. The policy provides for the revision of legislation affecting the entire investment network.

Bilateral investment conventions signed by Kenya

Kenya has signed 20 bilateral investment conventions.