Kenya has emerged as an increasingly attractive destination for foreign direct investment (FDI) in recent years, capturing the attention of investors worldwide. This East African nation’s strategic location, robust economic growth, business-friendly policies, and vast investment opportunities have all contributed to its growing appeal.

Favorable Economic Climate and Reforms

Kenya’s economy has demonstrated remarkable resilience, achieving broad-based growth that has averaged 4.8% per year between 2015 and 2019, similar to the Lower Middle-Income Country average.2Despite the challenges posed by the COVID-19 pandemic, which resulted in a temporary contraction of 0.3% in 2020, the Kenyan economy staged a strong recovery in 2021, growing at a rate of 7.5%.2Projections indicate that Kenya’s real GDP is expected to continue expanding at an estimated 5.4% in 2023 and 5.2% on average during 2024-2026.

The Kenyan government has undertaken substantial economic liberalization and reform measures to promote trade and investment. These include the abolition of price, interest rate, and exchange controls, as well as the removal of some import licenses. The government has also instituted measures to sustain macroeconomic stability through prudent fiscal and monetary policies, improvements in economic governance, and the privatization of select public enterprises.

Strategic Location and Regional Integration

Kenya’s strategic geographic position as a gateway to the East and Central African region has been a significant factor in its attractiveness to foreign investors. Situated on the Indian Ocean coast, Kenya provides investors with access to a wider consumer market of up to 400 million people in the East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA) regions. The country’s robust transportation infrastructure, including an extensive road and railway network, a modern deep-sea port in Mombasa, and four international airports, further enhances its appeal as a regional hub for trade and investment.17Additionally, Kenya’s membership in various trade arrangements, such as the Africa Growth and Opportunity Act (AGOA), the EAC-EU Trade Agreement, and the upcoming Tripartite Free Trade Area (FTA), offers foreign investors preferential market access to these large regional markets.

Enabling Investment Climate and Policies

The Kenyan government has demonstrated a strong commitment to creating a conducive environment for foreign investment. The country has streamlined its business licensing regimes, adopted online investment facilitation portals, and established the Kenya Investment Authority (KenInvest) to promote and facilitate both local and foreign investments.

Kenya offers a range of investment incentives, including tax holidays, exemptions on import duties, and access to a one-stop center for investment approvals. The government has also enacted laws and regulations, such as the Foreign Investments Protection Act (FIPA) and bilateral investment treaties, to protect foreign investors from discrimination, expropriation, and other risks. Moreover, the Kenyan Constitution safeguards private property rights and provides for prompt and full compensation in the event of compulsory acquisition by the government. The country’s legal framework also offers arbitration mechanisms, including the option for foreign investors to seek recourse from the International Centre for Settlement of Investment Disputes (ICSID).

Diversified and Skilled Workforce

Kenya boasts a large, skilled, and predominantly English-speaking workforce, with a labor force of over 15 million.7The country’s educational system has produced a well-educated population, which the World Economic Forum has ranked as the best in Africa in terms of human capital quality and the availability of research and innovation. This highly adaptable workforce, combined with reasonable pay scales, provides foreign investors with access to a diverse pool of professional staff across various occupations and levels of expertise. The presence of multinational companies and a well-established private sector in Kenya further enhances the availability of specialized services and resources for investors.

Thriving Financial Sector and Infrastructure

Kenya’s financial sector has witnessed substantial development, contributing to the country’s economic growth and offering a range of financing options for foreign investors. The sector includes a central bank, commercial banks, non-bank financial institutions, and other financial intermediaries.1In the 2015/16 World Economic Forum Global Report, Kenya was ranked 42nd in the world out of 140 countries for financial market development.1The country has also been recognized as a leader in leveraging technology to drive financial inclusion, ranking 1st in the world for this metric in 2015.

Kenya’s infrastructure, both physical and digital, has also been a key factor in its attractiveness to foreign investors. The country boasts an extensive and well-developed road network, a modern deep-sea port, four international airports, and a growing renewable energy sector. Additionally, the recent landing of three fiber optic submarine cables has significantly improved the country’s telecommunications connectivity, further enhancing its appeal as a regional hub for business process outsourcing (BPO) and other technology-driven services.

Renewable Energy and Natural Resources

Kenya has positioned itself as a regional leader in renewable energy development, with over 80% of its on-grid electricity generation derived from renewable sources, primarily geothermal and hydropower.18The country has vast untapped potential in geothermal, wind, and solar energy, which have attracted significant foreign investment in recent years.

Beyond its renewable energy resources, Kenya is also endowed with a wealth of natural resources, including minerals, oil, and gas. While the commercial viability of the recently discovered oil reserves is still being assessed, the potential for further exploration and development has generated interest from foreign investors.

Challenges and Mitigation Strategies

Despite its many strengths, Kenya is not without its challenges, which have the potential to impact foreign investment. These include political instability, security risks, corruption, and infrastructure deficiencies. To mitigate these challenges, the Kenyan government has taken various measures, such as strengthening its counter-terrorism efforts, implementing anti-corruption initiatives, and prioritizing the development of critical infrastructure. The government has also introduced the Kenya Investment Policy (KIP) to address challenges related to the entry, treatment, performance, and impact of private investments. Furthermore, Kenya’s strategic location, diversified economy, and skilled workforce continue to be significant draws for foreign investors, offsetting some of the perceived risks. The country’s membership in regional economic blocs and its participation in international trade agreements have also provided foreign investors with access to larger consumer markets and greater regulatory certainty.

Conclusion

Kenya’s emergence as an increasingly attractive destination for foreign direct investment can be attributed to a combination of factors, including its strategic geographic location, robust economic growth, business-friendly policies, diversified workforce, and thriving financial and infrastructure sectors. While challenges remain, the Kenyan government’s commitment to creating an enabling investment climate, coupled with the country’s inherent strengths, have positioned it as a prime investment destination in East Africa. As Kenya continues to implement reforms and capitalize on its natural advantages, it is poised to attract even more foreign investment, further driving its economic development and transformation.