Foreign investors withdraw $345m from the Kenyan economy
Kenyan economy lost over $345 million from foreign investors over unfriendly policies and political instability
Kenyan economy lost over $345 million from foreign investors over unfriendly policies and political instability.
In three months, Kenya lost almost $345 million in FDI and other investment inflows, and its economy contracted due to heightened political commotion and unfavorable policies.
According to the most recent data from the Central Bank of Kenya (CBK), the nation’s net financial account inflows decreased by 345% ($345 million) to $660 million in the first quarter of this year from net inflows of $1 billion in the corresponding period of 2022.
Financial account components like direct investment, portfolio investment, and reserve assets make up the majority of a nation’s total assets.
According to data from the Kenya National Bureau of Statistics, economic growth decreased from 6.2 percent to 5.3 percent.
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 capital, 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.
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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.
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.
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