Foreign investors are giving up on Kenya

By Steve UMIDHA

Foreign investors are dumping anything Kenyan and snapping up opportunities across neighboring markets in response to inflation cracks and volatile political milieu.

So brutal is the situation that overseas financiers are also citing the increasing trade costs and interest rate hikes as well as access to concessional financing to fund continued growth, as other motives in pulling out of the market that was once considered an authority figure in Sub-Saharan Africa.

Instead, neighboring countries like Rwanda, DR Congo and Libya are gradually overtaking the country and now rank among the top six countries moneyed billionaires are betting big on, according to analysis by the International Monetary Fund’s projections in its report on world’s top 10 fastest-growing economies in 2023.

Others are Senegal which the IMF is projecting will grow by 8.1 percent, Niger by 7.3 percent and the Cote d’Ivoire to grow by 6.5 percent this year. DR Congo and Rwanda are both projected to grow by 6.7 percent with Libya at 17.1 percent.

Bureaucratic hurdles and the rising cost of power also add to the list of issues experts say are making it difficult for investors to do business in the country.

“There are probably many specifics for the recent decline, but it usually comes down to supply versus demand. As the currency weakens, any person or business wants to get rid of the Shilling as fast as possible in favor of the best performing ones like the US dollar,” offers Peter Macharia – a financial expert who also runs a digital lending firm Jijenge Credit ltd.

The sharp currency slide has upset the authorities who are now putting measures in place to punish the perceived perpetrators – folks believed to be hoarding dollars speculating on making a killing on ‘rainy’ days.

Indeed two weeks ago, speaking when he officiated the listing of Laptrust REIT at the Nairobi Securities Exchange (NSE), President William Ruto stated that the government had taken measures to ensure dollar availability in the near future.

“For the people who work numbers, I am giving you free advice that those of you who are hoarding dollars, you shortly might go into losses,” warned Ruto in his address.

But those warning shots have not yielded the desired results, at least not yet with Kenya still experiencing a strong dollar shortage as investors continue to liquidate their investments in the Nairobi Securities Exchange (NSE) to external factors and local factors such as the depreciating shilling, “which is hurting their portfolios in dollar terms,” according to Rufas Kamau, markets analyst with the Fx-Pesa run by EGM Securities.

“Rising interest rates and high inflation isn’t the optimum environment for investing in technology stocks and investors are worried that the bear market will continue. The Kenyan consumer is still experiencing low access to credit and unemployment is still high,” offered Kamau in his projections for the next three months to June.

With the US looking to continue hiking interest rates to address the high inflation which stood at 6.0 percent in February 2023. The hike – which is likely to be implemented will strengthen the US dollar further against the Kenya shilling and as a result increase import prices, according to Kamau.

A range of analytical approaches suggest that business investment has been subdued partly due to the effects of Russia’s invasion of Ukraine among other factors like political fights in the form of protests, whose outcomes have reduced the size of the economy and future growth.

This has seen investors turn to markets like Rwanda for instance – a fast-growing economy with a young population totaling over 12 million that continues to make great strides towards economic development.

The Paul Kagame – led government has prioritized promoting private sector development by growing Rwanda’s small and medium enterprises (SMEs), and has introduced several measures to improve the environment for SMEs to flourish.

On the other hand, Kenya continues to choke its SMEs with ever-increasing tax increases as measures approved in the 2022 Finance Act a host of which kicked in January, adding to the pain of inflation that has pushed up the cost of living to a five-year high.

The latest being the digital services taxes from a new global taxing mechanism that is being championed by the Organization for Economic Co-operation and Development (OECD).

The DST is a tax on gross transaction values of tech companies within a particular country. In Kenya, East Africa’s biggest economy, companies or individuals (non-residents) are obliged to pay it if they “provide or facilitate provision of a service to a user who is located in Kenya.”