Why Kenya is losing on foreign direct investment to her East African neighbours; CBK report
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CBK blames Kenya’s weakening competitiveness on foreign direct investment to her East African neighbours on the weak currency
CBK blames Kenya’s weakening competitiveness on foreign direct investment to her East African neighbours on the weak currency.
The Central Bank of Kenya (CBK) attributes the shilling’s free slide to a lack of foreign direct investment, which has rendered Kenya less competitive in the last ten years when compared to its neighbors in East Africa.
Comparative data encompassing a range of metrics and ratios, including the current account, exports-to-GDP, travel receipts, FDI, and debt service, was released by CBK on Wednesday for Kenya, Uganda, and Tanzania.
The data indicates a persistent decline in Kenya’s standing relative to her EAC neighbors.
Only in the area of diaspora remittance growth has Kenya surpassed Tanzania and Uganda; over the last ten years, these remittances have surpassed profits from tourism and agriculture to become the nation’s main source of income.
This year’s stronger currencies relative to the dollar have benefited Tanzania and Uganda, which is a point that foreign investors take into account when injecting capital into an economy because currency losses erode returns.
The shilling has lost 13.8 percent and 18% of its value this year compared to Tanzanian and Ugandan currencies, respectively.
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Since January, the value of the shilling has decreased by 19.5% to 153.29 units against the US dollar.
The Tanzanian shilling has lost 7.6 percent of its value against the US dollar during the same time period, while the Ugandan shilling has decreased by 1.7 percent against the US dollar.
“The point we want to make is that we have been losing competitiveness. Our level of exports to GDP has been declining consistently, we are not getting as much tourism receipts as our neighbouring countries, and our FDI has also declined,” said CBK governor Kamau Thugge on Wednesday.
“At the same time, our debt service has also been increasing and is much higher than our neighbours. The combination of all these factors has led to the weakening of the shilling.”
The CBK governor spoke in a briefing on the Monetary Policy Committee December meeting, in which the regulator raised the Central Bank Rate by 200 basis points to an 11-year high of 12.5 percent after being spooked by the runaway weakening of the shilling.
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