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Karani Nyamu on Kenya’s FDI inflows in 2016

By Karani Nyamu,

Karani Nyamu is the Group CEO of Nairobi-based IT company Verve KO and also runs  Kore Forests Ltd, a real estate firm.


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There is no doubt that Foreign Direct Investment both as capital inflows and as foreign remittances makes up a huge part of the Kenyan financial system. This peaked in the 2000s particularly with the prospects of oil being found in the country.

With the declining interest in Kenya’s hydrocarbon deposits the capital inflows are beginning to fall. The decline is expected to hit up to 23% by the end of this year. This does not bode well for the Kenyan economy which to some degree depends on these foreign remittances.

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The actual figures are 99.6 billon down from 130.4 billion Kenya shillings last year. This decline will definitely reflect in the economic growth besides impacting the hydrocarbons industry heavily. In turn the Central Bank will need to take up a loan facility to cushion the country from monetary volatility.

Balance of Payments 

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The FDIs is also likely to take a hit from an uncertain global economy. This means that the balance of payment will worsen which will also impact the country’s international reserves. Kenya has in many ways failed to take advantage of opportunities to correct the balance of payment deficit.

This is mainly pegged on the oil import bill which has always hovered around the 230 billion mark. China has in the recent years proven to be Kenya’s lender of last resort. The country holds about $2.3 billion of Kenya debt which is well ahead of Britain, France and the US.

The lower capital inflows may have a positive ring to it. This is especially in the real estate sector since the funds have led to an overinflated pricing of real estate facilities in the country. The impact of the drop is also likely to be less severe in the tech-related industries since most of the inflows are in the short-term portfolio kind of capital inflows.

Regulating Our Financial System

Mr. Luke Ouko who is among the pioneers of financial management systems in the country thinks we need to have a sound national policy that regulates portfolio operations in the country. Such a policy will govern the entry and exit of portfolios to ensure they do not create financial instability by causing bank runs and sentiment-based financial flows.

International monetary institutions chief among them the IMF have also accented to the fact that there is need for direct controls on short-term portfolios as regards capital flows.

In order to encourage long-term capital inflows, investment in government securities by foreign-based portfolios should be dated at about 3 years of residual maturity periods. We should also consider enacting methodologies that make our financial markets to be less reliant on hot money by challenging domestic investments, as well as foreign investment from Kenyans in the diaspora.


Karani Nyamu
Karani Nyamu
Group CEO Verve, one of the leading Software and Systems integrators in East Africa.

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