The value of Kenya’s foreign direct investments shot up 87.5 per cent in the three months to June, new data shows, reversing a sharp drop in the previous quarter occasioned by election jitters.

New FDI inflows into the country rose to Ksh32.4 billion ($382.3 million) during the quarter, up from the Ksh3.9 billion ($47 million) that came in between January and March, the latest data by the Kenya Investment Authority (KenInvest) shows.

The country is banking on renewed optimism in the economy and a number of recent deals it has signed with its trade partners mainly China and Nigeria, to attract more investors in the remaining part of the year.

KenInvest said local investments also rose significantly from Ksh1.1 billion ($12.9 million) in the first quarter of 2013, to Ksh25.7 billion ($303.5 million) in the second.

A rise in FDIs and local investments should help the government sort out one of the most pressing economic headaches: Unemployment especially among the youth.

The investments made between March and June generated a total of 2,667 jobs, mostly in the manufacturing sector, the data from KenInvest shows.

Investors and analysts said the FDI is expected to grow further, as local investments increase, riding on a relatively stable political environment, natural resource discoveries, rising consumerism and the ongoing integration of the East African Community.

The Central Bank of Kenya (CBK) in its latest market survey projects stable or improved economic conditions in the country in the remaining part of the year. Analysts said such an outlook is likely to attract more investors.

On September 6, Kenya and Nigeria signed bilateral agreements that among other things eliminated double taxation between the two countries. President Uhuru Kenyatta and his Nigerian counterpart Goodluck Jonathan said this would boost trade and investments. 

READ: Kenya, Nigeria in MoU to stop double-taxation

Meanwhile, in mid August, President Kenyatta had secured Ksh425 billion ($5 billion) in investments from China covering railways, energy, wildlife protection and joint ventures.

Among the projects set to benefit from the deal is the standard gauge railway linking Mombasa port and Malaba in western Kenya that is expected to improve access to Uganda, Rwanda, Burundi and the eastern Democratic Republic of the Congo.

Kenyatta’s policies

Analysts and business executives said President Kenyatta’s pro-market policies, hands-on leadership in infrastructure improvement and development, as well as the regional trade diplomacy he has engaged in since his election in March, is fuelling investor confidence.

“Kenya is on track towards creating an enabling environment that will pull in more foreign investments and encourage local ones,” said Isaac Kalua, the chairman of Honda Motorcycle Kenya.

The company, whose $5.3 million motorcycle assembly plant was commissioned in April, is among the most recent foreign direct invetsors into Kenya. The plant will produce 25,000 units per year to be sold in the Eastern African region.

According to data compiled by the Standard Investment Bank, foreign investors dominated trade at the Nairobi Securities Exchange (NSE) in the first two months of the first quarter of the financial year 2013/14. Foreign buys accounted for 66.9 per cent of the total market value in July, increasing to 75.7 per cent in August.

Another driver of optimism is the prominent role Kenya is playing in initiating business reforms and transnational infrastructure projects in the region, according to the World Bank. President Kenyatta is helping to drive the integration process by extending the focus beyond the EAC into Ethiopia, Nigeria, South Africa and the Democratic Republic of Congo.

Infrastructure

The president’s direct action has resulted in improved efficiency at the Port of Mombasa, the region’s import/export hub, while Kenya has offered leadership in the planning of regional infrastructure projects like the standard gauge railway line and the oil refinery to be set up in Uganda.

“Consumer confidence is rising. The EAC is showing a lot of potential on integration. Somalia’s stability is showing signs of improvement. The discovery of oil, gas and other minerals will keep the optimism up,” said Prof Joseph Keiyah, a senior researcher at the state-run think-tank, Kenya Institute of Policy Research and Analysis.

READ: Inside Uhuru’s emerging, assertive policy in EA

He added: “Kenya is keeping up the pace on providing an environment where investments can thrive. The Jubilee Manifesto and its implementation among other initiatives are pointing towards that direction.”

Food-related inflation is also expected to be tamed with a near average maize harvest, which started in August, obtained in the high- and medium-potential areas, according to the Famine Early Warning Network. The harvests are expected to replenish domestic stocks and support a stable price trend for maize through to December.

It is not, however, clear how the market will react to the appearance of President Kenyatta at the International Criminal Court (ICC) in November to face charges of crimes against humanity. But so far, the appearance of the Deputy President William Ruto has not affected the markets.

International Monetary Fund Africa director Antoinette Sayeh said in Nairobi recently that foreign investors seem undeterred by the trial of Kenya’s president and his deputy.

Her sentiments should boost support for Kenya’s planned debut $1.5 billion Eurobond issue expected in November, when President Kenyatta will be at The Hague.

“Despite these cases, investors are enthusiastic about Kenya these days. Foreign investment flows have risen and boosted the stockmarket. Kenya is now less vulnerable to the vagaries of the global economy and to domestic generated shocks than it was three years ago, when it embarked on its economic reform agenda with financial support from the IMF,” said Ms Sayeh at a recent two-day high level conference on Kenya’s successes, prospects and challenges in Nairobi, organised by the CBK and IMF.

Kenya is also benefiting from its high rating by the World Bank and the World Economic Forum as the top country in formulating and implementing best economic policies in sub-Saharan Africa.

The ranking was made under the two institutions’ Country Policy and Institutional Assessment (CPIA) which gave Kenya a rating of 3.9, the highest among all sub-Saharan Africa countries.

“This ranking means that Kenya is now among the 100 most competitive economies in the world,” said Kenya’s Cabinet Secretary for National Treasury Henry Rotich.