Kenya’s political risk dampens investment climate
Posted Saturday, January 26 2013 at 18:15
- Total annual foreign and local investments reduced from $1.84 billion in 2011 to $712 million in 2012, a 61 per cent drop.
- Slump blamed on security lapses in the country’s coastal region and the Kenya’s incursion into Somalia.
- A rise in Kenya’s risk profile — a combination of economic and political risks — could discourage foreign firms from investing in the country and raise the level of premiums that insurers will charge for political risk covers.
Political risk in Kenya could result in a sharp fall in new investments in 2013 — which halved last year.
New data by the Kenya Investment Authority (KenInvest), the agency that tracks investments in the country, shows the total annual foreign and local investments reduced from $1.84 billion in 2011 to $712 million in 2012, a 61 per cent drop.
KenInvest officials blamed the slump on security lapses in the country’s coastal region and the Kenya’s incursion into Somalia.
The number of new projects approved by KenInvest — which facilitates over 60 per cent of Kenya’s new investments — also dropped from 130 in 2011 to 103 in 2012.
However, the agency does not capture the portfolio investments that come through the Nairobi Securities Exchange (NSE).
Late last year, Kenya witnessed a surge in ethnic violence, especially in the Coast province, creating fear among other countries in the East African region that the violence experienced in Kenya following the 2007 elections could recur.
Analysts said violence, and divisive campaigns in the run-up to the March 4, election, could shake the country’s political foundations and culminate in a possible downgrading of Kenya’s sovereign credit ratings.
A rise in Kenya’s risk profile — a combination of economic and political risks — could discourage foreign firms from investing in the country and raise the level of premiums that insurers will charge for political risk covers.
“Security concerns, especially the entry of Kenya into Somalia and the abductions of foreigners in Mombasa and Dadaab, made investors withhold investments,” said Kenneth Mutuku, the general manager in charge of research at KenInvest.
Data from the World Bank shows that over the past three decades, Kenya has had its slowest growth in or just following election years, with GDP growth slumping one percentage point on average below the long-term trend.
“What happened in Kenya in 2008 was awful... As a business, you plan for the worst and hope for the best. Neither Kenya, East Africa nor the rest of the world can afford a repeat of that,” said Jay Ireland, the president and CEO of General Electric, the largest US conglomerate, in a recent interview.
The concerns over a possible slowdown in investments come at a time when Kenya has stepped up its search for international investors through eight investment summits to be held in the world’s major financial capitals over the next seven months.
Kenya is hoping to engage potential investors in round table discussions on business opportunities in sectors such as energy, infrastructure, ICT, housing and urban development.