Kenya Still Leads on Foreign Investment in East Africa

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According to EY’s 2016 Africa attractiveness program 2017, staying the course, despite a relative slow down, Sub-Saharan Africa remains one of the fastest growing regions in the world.

Most East African economies continued to grow strongly in 2016, with Kenya, Tanzania, Uganda, Rwanda and Ethiopia all among the fastest growing on the continent.

Kenya, which is East Africa’s anchor economy (and SSA’s fourth largest), saw investment flag in 2016 after a bumper year in 2015. FDI projects were down 57.9%, while capital investment declined by 55.5%. However, if we take a longer-term perspective, FDI into Kenya has tended to ebb and flow year-on-year, similar to the experience of Nigeria.

Additionally, Kenya had a strong 2015, mainly driven by a surge in projects from the UK. These understandably slowed in 2016, as the UK copes with uncertainty following the vote to leave the EU. Our confidence in Kenya’s investment prospects remains firm, underscored by the country’s strong ranking as the second most attractive FDI destination on the AAI 2017.

Although there were year-on-year declines in FDI flows into East African markets generally, both Tanzania and Uganda are highly placed on the AAI 2017, ranking fifth and sixth in terms of FDI attractiveness respectively.

Recent oil and gas discoveries in these countries have put them even more firmly on the investor map, although Tanzania has also benefited from a strong growth over the last decade, driven by increased investment in infrastructure and services.

Rwanda, despite a loss of three places on the AAI 2017, has Africa’s second-best business environment, according to the World Bank’s Ease of Doing Business Index 2017.

Ethiopia, where FDI levels echoed impressive GDP growth in previous years, saw its FDI projects almost halve in 2016, owing to political instability and drought. However, the country aims to build its manufacturing hub to drive employment growth.

This, combined with its agricultural base and a very large consumer market, has the potential to be a major driver for future FDI flows

The US remains Africa’s leading investor

The US continued to be the leading investor in Africa, accounting for 13.5% of inward investment projects. In 2016, companies from the US invested in 91 projects down 5.2% creating 11,430 jobs. South Africa (28 projects) continued to be the key target of US-based companies, with Morocco (14 projects) and Egypt (13 projects) outpacing Kenya (11 projects) to become the second and third-largest recipients of US investment, respectively.

By sector, nearly a quarter of US FDI was in TMT, down 11.5% from 2015 levels. FDI projects, however, increased in the CPR and transport and logistics sectors.

In previous editions of the Africa Attractiveness Survey, this report highlighted how the US is competing to maintain and build its influence on the continent. The renewed African Growth and Opportunity Act (AGOA) has been one of the more visible measures.

However, speculation that President Donald Trump’s foreign policy may be more insular than his immediate predecessor, is creating some uncertainty regarding the future of the US’ engagement with Africa.

Any potential impact on levels of US FDI in Africa will be evaluated later in the year. In line with previous years, Western Europe continued to be the largest regional investor in Africa in 2016, making up 37.7% of FDI projects and 13.3% of capital investment.

The UK, which has led Western European investment in Africa since 2010, saw its share of FDI projects ease from 10% in 2015 to 6.1% in 2016. The more notable decline was in FDI jobs, down by a significant 81.4%. The Brexit vote at the end of June 2016 and the resulting uncertainty seem to have had an immediate impact on UK investment into Africa.

Governments across the continent will need to redefine their trade and investment relations with a post-Brexit UK. Most of the existing trade arrangements that African countries have with the UK have been negotiated through the EU.13.

In contrast to the UK, France moved up the rankings, becoming the second largest investor. France invested in 81 FDI projects in 2016, up 39.7% on 2015, with total investment of US$2.1b, and creating 8,087 jobs.

French companies were particularly active in the TMT, business services and CPR sectors. Morocco remains the favorite destination, getting 27.2% share of FDI projects, with higher project numbers also in South Africa (12.4% share), Cote d’Ivoire (12.4%) and Tunisia (8.6%).

With a 50% increase in FDI projects, Switzerland became the seventh largest investor in Africa, up from tenth position in 2015. Swiss investors were particularly strong in CPR (18.5% of FDI projects), followed by RHC, and transport and logistics with a 14.8% share each. Nigeria and South Africa were the largest destinations for Swiss FDI projects, securing 14.8% each, followed by Morocco (11.1%).

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