Foreign Direct Investment (FDI) inflows fell by Ksh42.6 billion in 2019 while the numbers are set to be higher this year.

Kenya’s Foreign Direct Investment (FDI) inflows fell $294 million (Ksh31.3 billion) last year, annual estimates by a UN agency show.

According to the Business Daily, the inflows were estimated at $1.33 billion (Ksh141.84 billion), a far cry from the 18.08 percent over nearly $1.63 billion (Sh173.15 billion) that foreign investors injected into the Kenyan economy in 2018, the United Nations Conference on Trade and Development (UNCTAD) observed in a report published on Tuesday.

The World Investment Report 2020 published by UNCTAD shows that Kenya’s FDI was largely driven by new projects in Information Technology (IT) and healthcare sectors.

UNCTAD’s report shows that the amount of investment pulled out from Kenya increased 24.39 percent, or $40 million (Ksh4.26 billion), last year to stand at $164 million (Ksh17.46 billion) compared to 2018 when the outflows shrunk by 36.19 percent or $93 million (Sh9.90 billion).

Approximately 54 percent of Kenya’s FDI was reinvested earnings, the Mukhisa Kituyi led agency observes, the highest in Africa.

FDI in Kenya is expected to fall in Kenya this year, same like other parts of the world as investors adopt a cautious approach due to the COVID-19 Pandemic.

UNCTAD projects that FDI into Africa will fall by as much as 40% based on GDP growth projections stated by African countries.

“Due to the widespread economic uncertainty and restrictions in movement, many announced and planned investment projects are likely to be either shelved or put on hold,” UNCTAD researchers wrote.

“As of April 2020, the number of cross-border M&As targeting Africa had declined 72 per cent from the monthly average of 2019.” Neighbouring Ethiopia continued to rule foreign investment flows in the region despite suffering a 23.99 percent drop in foreign investments on the back of ethnic clashes that destabilised parts of the country, including regions with industrial parks. Addis Ababa attracted $2.51 billion (Sh267.93) in FDI cash, Sh126.08 billion, or 88.9 percent, more than Nairobi’s value, on the back of gradual liberalisation of some of key sectors.

“China was the largest investor in 2019, accounting for 60 percent of newly approved FDI projects, with significant realised investments in manufacturing and services,” UNCTAD said.

FDI into Uganda continued to rise, edging up 20 percent to $1.27 billion (Sh134.82 billion), inching closer to Kenya’s, due to “continued development of major oil fields and an international oil pipeline, as well as projects in construction, manufacturing and agriculture”. Tanzania’s rose 5.3 percent to $1.11 billion (Sh118.42 billion).

“Kenya revised its taxation system to provide exemptions for investment in various industries,” UNCTAD analysts wrote in the report made public early Tuesday.

Major tax incentives that affected investment landscape last year included exemption from capital gains tax on transactions arising from corporate restructuring processes such as recapitalisation, amalgamation, incorporation, acquisition, separation and dissolution due to internal restructuring as well as legal or regulatory requirement.

Kenya also offered profitable manufacturers a tax rebate at the rate of 30 percent of electricity costs and halved corporation tax to 15 percent for new ventures in plastic recycling for the first five years.

These incentives have, however, been scrapped in the recent Tax Amendment Act 2020 which effectively cut corporation tax for resident firms to 25 from 30 percent amid reduced earnings due to COVID-19 shocks.

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