Kenya has been ranked as the top investment destination in the East African Community, maintaining its dominance as the region’s economic powerhouse despite concerns over political risks.
The “Where to Invest in Africa 2024” report by Rand Merchant Bank Holdings cites Kenya’s strong fintech sector, including mobile payments and agritech, along with a stable economy, as key factors contributing to the country’s attractiveness.
Rand Merchant, a South African-based entity, describes itself as one of the biggest market makers in African financial markets. Kenya plays a leading role in East Africa, accounting for nearly half of the East African Community’s GDP.
However, the country ranks 11th on the continent according to the report, which places Seychelles at the top, followed by Mauritius, Egypt, South Africa, Morocco, Ghana, Tunisia, Senegal, and Algeria.
Tanzania follows Kenya closely at 12th position, Rwanda is at 15th, while Uganda ranks 19th on the continent.
The Democratic Republic of Congo is at the lower end, positioned at 26th. Kenya’s leading position in the region comes amid an ambitious government plan to double Foreign Direct Investments (FDIs) in the medium term, from $800 million (Sh103.2 billion) last year to at least $1.6 billion (Sh206.4 billion).
Current foreign investments are considered weak relative to the size of the economy and the country’s level of development. The main investors in Kenya are the United Kingdom (13.5%), Mauritius (11%), the U.S. (10.3%), South Africa (9.8%), and France (5.2%). Most FDI stock is concentrated in finance and insurance (one-third of the total), followed by information and communication (16.1%), wholesale and retail (15.4%), and manufacturing activities (14.8%).
In recent years, the ICT sector has attracted the most FDI, thanks to the arrival of fibre optic infrastructure. Kenya is also a regional leader in clean energy development, with more than 90 percent of its on-grid electricity coming from renewable sources, mainly geothermal.
The country’s significant investments in solar and wind energy underscore its commitment to achieving Sustainable Development Goal 7 (Affordable and Clean Energy).
Geothermal energy accounts for nearly half (46%) of Kenya’s electricity generation, the highest percentage in the world. Overall, 79.7 percent of electricity generation in Kenya comes from renewable sources, with geothermal being the primary contributor. Currently, Kenya is the eighth-largest user of geothermal power globally and has more geothermal power capacity under construction than any other country.
The nation plans to nearly double its geothermal power output by 2030 as part of its ambitious green energy goals, which signals potentially lower energy costs in the future.
However, high electricity costs, an unpredictable tax environment, and concerns over political stability—especially in light of Gen-Z led protests—remain major concerns for investors.
“Investors will be watching Kenya’s approach to its lowest metric score: political stability. Kenya’s ranking of 25 out of 31 countries reflects political and social tensions that flow from inequality and corruption, as well as the security risks that come with ongoing conflict in the region – including the country’s neighbours Sudan, Ethiopia and Somalia,” the report reads in part.
Signs of improvement in political risk will make the highly diversified economy with growing ICT and finance sectors more attractive to investors, the firm noted.
The report is based on the input of experienced professionals and, in part, on work published in peer-reviewed journals, with a focus on economic performance and potential, market accessibility and innovation, economic stability and investment climate, social and human development.
The Central Bank of Kenya has maintained a positive outlook on the country’s economic growth after the first quarter of 2024 showed continued resilient performance, with real GDP growing by five per cent.
“This reflected continued strong performance in agriculture attributed to favourable weather conditions, and robust performance of the services sector, particularly wholesale and retail trade, accommodation and food services, financial and insurance, information and communication, and real estate,” Governor Kamau Thugge said during Tuesday’s Monetary Policy Committee meeting.
Nevertheless, growth of the industrial sector, particularly manufacturing and construction, slowed down.
The growth of the economy is expected to slow down to 5.4 per cent in 2024 from 5.6 per cent in 2023.
