Ethiopia has toppled Tanzania and Uganda as the leading destination of Kenya’s investment abroad, buoyed by the expansion of local firms in the giant neighbouring market.
Fresh data shows that Kenya’s direct investment in Ethiopia hit Ksh60.2 billion ($440.7 million) in 2021—surpassing Tanzania and Uganda’s Ksh51.5 billion ($377 million) and Ksh56.3 billion ($412 million), respectively.
Direct investment abroad — also referred to as outward direct investment — is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy.
As well as the equity that gives rise to control or influence, direct investment also includes investment associated with that relationship, including investment in indirectly influenced or controlled enterprises, investment in fellow enterprises, debt (except selected debt), and reverse investment.
The newly released Economic Survey 2023 shows that although Tanzania was the leading destination for Kenya’s investment abroad at the start of 2015, the table has since tilted in favour of Addis Ababa.
“Tanzania was the leading destination for the country’s investment abroad at the start of 2015 the review period, with investments declining in 2018, but later recovering to reach Ksh51.5 billion in 2021” the survey said.
“Kenya’s direct investment in Uganda reached its peak at Ksh56.3 billion in 2019, while investments in Ethiopia reached Ksh60.2 billion in 2021” it added.
Several Kenyan firms including giant telecommunications company Safaricom have ventured in the Ethiopian market where it operates under the subsidiary Safaricom Telecommunications Ethiopia private limited company (STE).
Safaricom Ethiopia’s phased launch commenced in August 2022 in the city of Dire Dawa and will spread to 24 other cities, including Addis Ababa in the months that follow.
The new operation has ambitions of achieving gross margins of 40 percent in 10 years. The target is backed by heavy investments that the subsidiary will make in hiring staff and building infrastructure to acquire customers in the country with a population of more than 100 million.
The Nairobi Securities Exchange-listed Safaricom is the major shareholder of the subsidiary whose other owners are Vodacom Group, Sumitomo Corporation, and CDC Group.
Kenyan lenders, including KCB Bank, have expressed interest in entering the Ethiopian market. A delegation of senior executives from KCB Bank visited the Ethiopian Investment Commission (EIC) in Addis Ababa in October last year where they held talks with Ethiopian government officials.
The visit by the KCB team came a month after Ethiopia’s Council of Ministers passed a landmark decision to open up the country’s banking sector to foreign investors.
The Economic Survey further shows that Kenya’s overall direct investments abroad generally exhibited an upward trend over the review period with a value of Ksh239.6 billion ($1.75 billion) as at the end of 2021 compared to Ksh93.5 billion ($684 million) as at the end of 2015 with the exception of 2020 where the stock of outward direct investment declined by 8.4 percent to Ksh161.1 billion ($1.18 billion), due to the Covid-19 pandemic.
Published by The EastAfrican
