Kenya lost over $345 million worth of foreign direct investment (FDI) and other investment inflows in three months as economic growth plummeted over increased political noise and unfriendly policies.
The latest Central Bank of Kenya (CBK) data shows that the country’s net financial account inflows dropped by 34 percent ($345 million) to $660 million in the first quarter of this year, compared with net inflows of $1 billion in the same period in 2022.
A country’s financial account largely includes components such as direct investment, portfolio investment and reserve assets.
Economic growth fell from 6.2 percent to 5.3 percent, according to the Kenya National Bureau of Statistics.
Kenyans have turned to civil disobedience to protest against the high cost of living caused by skyrocketing prices of food and fuel and interest rates.
Foreign investors, on the other hand, have voiced concerns over a dollar shortage in the country, difficulties in accessing short-term loans to shore up their working capitals, restrictions on capital repatriation and the high cost of doing business.
In May, American investment advisory firm Morgan Stanley Capital International (MSCI) Inc dropped Kenya’s listed firms from its index review over the worsening business environment.
“In light of currently observed market accessibility issues, MSCI will not implement changes as part of this Index Review for any securities classified in Bangladesh, Egypt, Kenya, Nigeria, or Sri Lanka,” MSCI said in a statement dated May 11.
According to CBK, foreign investors also shifted Ksh13.93 billion ($98.79 million) worth of equity investments from the Nairobi Securities Exchange in the three months to March 31, with local institutional investors opting to move funds from the equities market to the relatively stable bond market.
Government bonds have become more attractive because of the state’s s huge appetite for borrowing to fund its operations and to plug a Ksh718 billion ($5.09 billion) budget deficit for the 2023/2024 fiscal year.
The banking sector is beginning to report a rising backlog of bad debts as a result of the high cost of living and punitive fiscal and monetary policies (taxation, government spending and interest rate changes) that have eroded household and business incomes.
“Credit risk is expected to remain elevated in short to medium term as the domestic and regional economies recover from recent shocks,” says CBK.
The supply of credit to potential property buyers and developers continues to be a challenge in the property market as banks tighten their lending terms, given the increasing non-performing loans in the real estate sector.
There was a 12.2 percent increase in gross non-performing loans in the sector to Ksh88.1 billion ($620.37 million) in the three months to March 31 from Ksh78.5 billion ($556.73 million) in the same period in 2022, a growth of Ksh9.6 billion ($68.08 million).
As a result, banks reduced lending to the real estate sector by 0.8 percent (Ksh3.2 billion, $22.69 million) during the period.
Bad loans in the sector increased by 10.9 percent to Ksh540.8 billion ($3.83 billion) at the first quarter of 2023, from Ksh487.7 billion ($3.45 billion) at the end of the fourth quarter of 2022.
“Banking sector’s credit risk remained elevated with Gross Non-performing Loans to Gross Loans Ratio at 14.0 percent at the end of the first quarter of 2023, an increase from 13.3 percent recorded at the end of fourth quarter of 2022,” according to CBK Quarterly Economic Review.