Ethiopia has risen to host the largest stock of capital investment from Kenya on the expansion of Safaricom to that market, relegating Tanzania to second place.
Safaricom is aggressively investing billions of shillings in its start-up operation in Ethiopia.
Tanzania and Uganda have traditionally been Kenya’s top foreign investment destination.
The latest Foreign Investor Survey published by the Kenya National Bureau of Statistics (KNBS) reveals that assets owned by Kenyan entities in Ethiopia surged from a low of Sh647.2 million in 2020 to Sh60.1 billion in 2021 before climbing further to Sh74.1 billion in 2022.
Ethiopia rose to hold 14.4 percent of Kenya’s foreign assets in 2022 from 13.3 percent in 2021 and 0.2 percent in 2020. This is after Kenya’s largest network operator Safaricom invested billions of shillings in acquiring an operator licence in Ethiopia, followed by a series of start-up investments to roll out its operations in the country that had traditionally shut its borders to foreign firms.
“The increase in foreign assets in Ethiopia was mainly on account of equity investment in the telecommunications sector,” says the survey done alongside the Central Bank of Kenya (CBK) and the Kenya Investment Corporation (KenInvest).
Safaricom paid $473 million (Sh60.6 billion at current exchange rate) of the total $850 million (Sh108.9 billion) needed in 2021 to secure an operator licence to roll out telecommunications services in Ethiopia. The rest was paid by other members of the consortium that owns the Ethiopian subsidiary.
This instantly raised Kenya’s foreign assets in the country, putting it ahead of Uganda, Tanzania, the United States and Mauritius, among others, that previously outpaced it by a large margin.
Besides the telecommunications licence, Safaricom invested an additional Sh10.5 billion in the year ended March 2022 to start operations, including hiring staff.
The Ethiopian subsidiary is yet to break even and Safaricom, its largest shareholder, is still investing more capital to support its operations with the aim of achieving profitability from 2026.
Ethiopia is traditionally a protectionist economy, with very limited participation of foreign investors in the economy. Until 2021, most sectors were not open to foreign participants, keeping their foreign direct investment inflows very low.
Safaricom’s investment helped to lift Kenya’s total stock of foreign assets to Sh514.9 billion in 2022 from Sh452.8 billion a year earlier.
Kenya’s stock of foreign liabilities meanwhile grew to Sh2.06 trillion from Sh1.98 trillion, cementing the country’s debtor position.
A debtor nation owns fewer assets abroad compared to the value of its domestic assets that are owned by foreigners, including loans to businesses and stock market investments.
Countries in a debtor position face multiple challenges, including the burden of repaying loans denominated in foreign currencies.
Besides Ethiopia, the Democratic Republic of Congo (DRC) has also emerged as a major destination for Kenya’s investments after its entry into the East African Community (EAC) in 2022, which removed many of the trade hurdles between Kinshasa and Nairobi.
In 2022, Kenya’s assets held in the DRC jumped 196 percent to Sh52.8 billion from Sh17.8 billion in 2021, making it the fourth largest destination for Kenyan investments.
This saw it overtake the United States, Rwanda and Mauritius.
According to the survey, the rise in Kenya’s investments in the DRC was largely “due to investments in the banking sector,” occasioned by Kenyan banks’ race to enter the Congolese market after EAC admission.
Since 2022, KCB Group and Equity Group have invested heavily in the DRC, each acquiring a bank in the country to cement their presence.
KCB completed the acquisition of an 85 percent stake in Trust Merchant Bank (TMB) in December 2022 at a cost of Sh25.1 billion.
Equity has also spent more than Sh30 billion to acquire controlling stakes in two banks in the DRC, which it merged into the entity now operating as Equity BCDC.
Kenya’s assets in Tanzania –previously the top investment destination— also rose to Sh61 billion in 2022 from Sh52.9 billion the previous year.
Tanzania is now second, hosting 11.8 percent of Kenya’s foreign assets.
Assets in Uganda rose to Sh53.1 billion from Sh50.4 billion, ranking it third. Outside Africa, the United States is the most popular, hosting Sh29.2 billion or 5.7 percent of Kenya’s foreign assets in 2022.
This marked a massive decline in assets compared to 2021 when the US held 41.4 billion or 9.2 percent of Kenya’s assets.
