According to the EAC Trade and Investment Report (2023), Kenya’s main source of investments in terms of project value included the United Kingdom, which had the highest amount at 110.85 million dollars on 13 projects, followed by China ($90.56 million) and the Netherlands ($35.77 million).

Indian investors completed the highest number of projects in the country – 18 – while Chinese investments created the most jobs, 2,966.

There were significant joint venture investments (16) contributing seven percent of the total foreign direct investment (FDI) value of $26.28 million.

The modes of entry of foreign investors into Kenya have mainly been joint ventures, greenfield investments, mergers and acquisitions, equity and non-equity, and wholly owned subsidiaries.

The manufacturing sector continued to lead in employment, providing 3,442 of the 7,059 jobs created. The sector also leads in terms of investment value with $126.82 million, followed by financial services, insurance, real estate and business with $62.90 million, and community, social and personal with $62.30 million in investments.

“Economic growth has also been supported by strategic investments in infrastructure (roads, waterways, major ports and airports). FinTech startups in Kenya have also played a pivotal role in promoting financial inclusion in the country and improving access to credit, with a strong focus on mobile banking, loans digital and cutting-edge payment solutions,” the report states.

Kenya’s economy grew by 5.6 percent in 2023, compared to 4.9 percent in 2022.

“Despite the internal and external environmental challenges Kenya faces, its strategic investment initiatives, diversified economy and emerging sectors offer substantial opportunities for foreign investors seeking to tap into one of Africa’s most dynamic markets” , notes the report.

“Kenya has been proactive in improving its investment climate, supported by legal and regulatory reforms. The government has undertaken several initiatives to improve infrastructure, including the expansion of the standard gauge railway and the modernization of major ports and airports.

However, the investment community is concerned about the unpredictability of tax policy.

The National Treasury, through the Finance Act (2023), has implemented a series of harsh tax measures targeting salaried workers, small traders, online businesses and businesses seeking to raise Ksh200 billion in additional revenue .

The law doubled the value added tax (VAT) on petroleum products (excluding LPG) to 16 percent, thereby significantly increasing transportation costs, which had a knock-on effect on the production of goods, exacerbating inflationary pressures in the economy.

It reduced the turnover tax (TOT) threshold from Ksh50 million to Ksh25 million and increased the tax rate from 1% to 3%, thereby increasing the number of businesses that have to pay the TOT and negatively impacting the operations of small traders such as kiosk operators.

The government also introduced a controversial housing tax of 1.5 percent of the employee’s gross salary, payable by both employers and employees, and introduced two new pay-as-you-go (PAYE) tax brackets. .

The maximum rate increased from 30 percent to 32.5 percent for incomes between Ksh 500,000 and Ksh 800,000, and to 35 percent for incomes above Ksh 800,000.

This year (2024), the government was forced to withdraw the 2024 Finance Bill which included additional punitive tax measures following the nationwide protests by the youth, commonly known as Generation Z (Gen Z).

According to the EAC report, information and communications technology (ICT) remains a promising area for FDI development in Kenya, with the reversal of equity participation in the national ICT policy which initially allowed for least 30 percent equity participation by a Kenyan providing opportunities for increased investment in the ICT sector.

“Furthermore, the increased presence of large global technology companies in Kenya, such as Oracle, Microsoft, Cisco and IBM, among others, is creating an increased appetite for investment in the sector. The other sector with the greatest potential is services, which has been the driving force behind the country’s economic transformation,” the report said.

Kenya is seeking to position itself as one of the leading private investment destinations in the energy sector and is a regional leader in clean energy development, having harnessed its natural potential for geothermal energy, where more than 80% of its grid-connected electricity comes from renewable sources.

The report notes that the oil and energy sectors have significant growth potential, especially as several offshore gas fields are found in Kenya’s maritime territories.